evaluating business models in evolving construction markets john m. wied cpa chief financial...
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Evaluating Business Models in Evolving Construction
Markets
John M. Wied CPAChief Financial Officer–Walsh Construction Co.May 16, 2014
Evolution
• DefinitionTo Develop gradually, especially from a simple form
to a more complex form.• Synonyms
Transform, adapt, change, alter, progress• By definition Evolution can be “Good” or “Bad”• Changing Business Cycles
Going from “simple” (what we are doing) to “more complex” what we have to do to succeed in the future
The Ride at WCC
The Ride at WCC
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Evaluating Your Business Model
• The Focus of today’s Presentation will be on evaluating the following components of your business model:– Financial Foundation and Profitability targets– Organizational structure– People– Business Partnerships– Risk Management Programs– Business Development Efforts
Financial Foundation & Profitability Targets
Financial Foundation & Profitability Targets
• Should Have a Rolling Five Year Financial Plan– Equity / Working Capital Evaluation
• Projected uses• Growth Needs
– Profitability Projection• Shouldn’t necessarily start with Gross Revenue• Need to dig deeper into components of profitability• How Much do you need to maintain culture
– Uses of Profit or Discretionary Income• Compensation and benefits• Infrastructure needs• Stock Redemptions• Investments (i.e. complimentary lines of business)
Organizational Structure
Organizational Structure
• Annual Exercises (Budget Cycle) to evaluate the business you have built.– Relevance – Overall Structure
• Project /Administrative needs change with projects and business cycles
– Creeping Incrementalisms• Adding layers – what value is the organization getting out of
them?
– Relevance – how your are doing what you do• Any “we have always done it that way” situations• Differentiators
People
People• Maintain an “Inventory” (outside payroll system) of
Every Employee– Position– Age– Tenure– Anticipated departure date (if potentially within 10 years)
• Evaluate every employee on a graded scale– Don’t wait until major shift or evolution in your business
cycle.• Use Data• Develop Appropriate Leadership Development and
Training Programs– Don’t create based on the least common denominator
Business Partnerships• Loyalty & Relationships in Construction– Historical help is just that
• Business Must Come First– Because you are friends is not enough
• Relevant Business Partners Provide More than Their “Project ,Product or Service”– Synergy
• Look at Banking, Insurance, Accounting, Legal…
• Always More Pressing Issues in Construction.– You don’t know the value what you are missing– Craft the relationships that work for you – not necessarily all
or nothing• Project Owners / GC’s• Subcontractors
Risk Management Approach
Risk Management Approach
• Risk Management in this case refers to financial and legal relationships that exist in construction.
• Tendency to Chase Volume as an Industry can have a Negative Impact on Contractors Risk Management Programs.
• Construction Organizations Must Maintain Certain Non-negotiable Positions on Risk Management with Owners and Project PartnersOwners Project PartnersContractual ContractualFinancial FinancialReputation Performance (Reputation)
Business Development Efforts
• Must Have a Culture of Winning– Doing your best is not enough– Second Place doesn’t get a trophy – ever– Attitude is everything
• Cannot be all things to all people– Laser focus on what you are good at
• Focus on Efforts that best utilize your structure, not provide the greatest volume.
• What Opportunities Allow you to best differentiate Yourself.• Cost of Project Pursuits• Innovate
– True proven differentiators relevant to the markets you are marketing