For years, there has been a lot of content in our industry around why contractors fail. With failure stats from the U.S. Department of Commerce like 29.1 percent failing in one year, 56 percent within three years and 72 percent within five years, you can see why it is a hot topic.
“A staggering 98 percent of home service contractors generate less than one million dollars in annual revenue with a woeful net income of less than eighty thousand dollars.”
The most concerning stats though—and the ones that really should catch your attention—are the revenue and profit stats of those that do stay in business. According to Fundera, a finance company for small businesses, a staggering 98 percent of home service contractors generate less than one million dollars in annual revenue with a woeful net income of less than $80,000.
What do these statistics mean? It means that 4,900,000 of the approximate 5,000,000 home service contractors are at best surviving and likely starving, while only 100,000 have learned how to scale their business in a way that allows them to create a business that works for them instead of a business they work for. I am here to tell you, if they can do it, so can you! It is time to escape the entrepreneur’s trap!
The root of the problem
Let’s just get right to the point—the root of the problem is that there’s a low barrier of entry to an industry that has a high barrier to achieving success.
Think about it for a minute. For most home service contractors, if you are smart enough to acquire a business license—which some don’t even go that far—and have tools, a little skill and a truck…Boom! You are in business. No need for a college degree, a high school diploma or even a GED.
Many contractors start one of two ways: a) you’re either good at what you do and get word-of-mouth work or b) you can sell ice to an Eskimo and, thus, obtain work. Both are important, but neither qualifies you to run a business.
No matter how you get started, far too many pros step right into the trap of starting something they don’t completely understand, only to realize there is a lot more to running a business than great work and sales, and they get trapped.
Understanding the Trap
What many pros don’t realize when starting a business is that there’s an immense number of responsibilities that suck up time and put a cap on the amount of work that can be done and revenue that can be generated. These things don’t seem like much at first but, before you know it, half your time—or more—is sucked up in marketing, finance, project management, recruiting, training and customer service. Each of these aspects of business go deep, too.
For example, finance is so much more than what goes in and what comes out of a bank account. Accounts receivable and accounts payable are important, but just as important is the understanding of balance sheets, cash flow and work in progress, not to mention taxes, overhead, audits and risk management.
Finance is usually—and should be—the first area we know we need help with, so we look at hiring a professional to take some of the burden off of us, ideally in the form of a part-time or full-time bookkeeper or CPA. I say “ideally,” but the truth is far too few business owners actually hire a pro. Instead, they recruit a family member or friend, which leads to not just trying to figure it out, but having to work it through with someone who has little more experience than you.
We make similar decisions in all areas of our business without realizing there is an actual sequence to the order in which we should do things to scale our business. Instead, we address those aspects of our business from a reactive best guess approach without a plan to follow, which ends up creating extra work that makes us feel like there aren’t enough hours in the day. This is the entrepreneurial trap you need to escape to not just survive but thrive.
Getting Out of the Trap
After coaching contractors for several years, I realized that despite there being an abundance of information about how to run a business, what was missing was a big picture blueprint of what to do, when to do it and how to do it.
Without this blueprint, you end up staying reactive in your decisions and often fail to appreciate the specific sequence of actions you need to take to scale your business.
Let’s say right now you’re thinking the only thing standing between you and more work and revenue is leads. So, you consider buying an established marketing software or service. That’s a great step, but before you invest, you need to look at the bigger picture (i.e. your blueprint) and make sure you’re really ready to seize this opportunity. Ask yourself, if you get more leads, do you have a sales process that optimizes your investment? Is that process repeatable? If you convert those leads, do you have the processes in place to handle the additional volume?
If you don’t have solid answers to those questions, buying a software or service won’t solve your problems. In fact, it may just create new ones, and once again you are falling into the trap of putting out fires instead of preventing them in the first place.
Here’s another example:
At ContractorCoachPRO, over 90 percent of the contractors who contact us say they want us to help them recruit and hire an elite team, thinking this is the best way to scale their business. We can certainly do that, but we always ask: How will you train them quickly and effectively? How will you generate enough leads to support the new team? What technology will you use to market, manage and track all those new prospects and customers? And so on, following the blueprint back to the beginning. Are you skilled enough and have the capacity to lead these new teammates in a culture that fosters growth and team performance?
Those two examples highlight how important sequence and plan are to the operational side of your business. But to be truly successful, your blueprint also needs to incorporate foundational aspects of your business.
Visualizing your business blueprint
- Components of your business
- Leadership
- Culture
- Process
- Organization & Human Resources
- Finance
- Accountability
- Technology
- Marketing
- Sales
- Production
- Training
- Recruiting, Hiring & Onboarding
It’s helpful to think of your blueprint as the DNA of your business. Just like human DNA, your business DNA has both foundational and operational backbones. Those backbones are linked together by the components of your business that work together in a specific sequence to determine how your business performs.
As you make decisions for a component of your business, you can refer to the blueprint to appreciate the impact that decision will have across all the components. You can drill down and determine if you’re truly ready to take action or if more work needs to be done. Similarly, if problems arise, you can again refer to the blueprint to determine where the disconnect or improper sequencing is occurring.
The foundation of your business includes leadership, culture, process, human resources, finance and accountability. Your blueprint needs to clearly outline the standards you expect of your entire team as well as yourself and how you will hold yourself and the team members accountable for performance. It should include things like what key performance indicators you’ll use to track performance, how you’ll manage finances to support team development and ensure your budget supports growth goals, written standardized repeatable processes, how you’ll create an environment that fosters and reinforces your defined culture, what will you do to develop leadership skills and capacity to support that culture, etc.
For sure, creating a comprehensive blueprint takes work, vision and patience, but that work pays off in several ways. First, it’s the basis of building a great culture that fosters an environment of growth and team performance and is led by an amazing leader(s). Second, it allows you to make solid decisions driven by a defined culture, repeatable processes and your finances and measurables—no more reactionary decisions that trap you. Third, it affords you more time to work on the business because all of the questions you are mentally asking yourself now have been answered in writing and can be referenced by anyone on the team.
It’s time to start working on your business, not in it
What I’ve learned from running my own businesses as well as the experiences I shared with the thousands of contractors I’ve coached is that without an understanding of your blueprint, it’s easy to get trapped. If you don’t recognize how the sequence of your decisions and actions affects the foundational and operational sides of your business, growth is hard—if not impossible—to come by.
It is pretty simple to escape the trap, but you must dedicate time each week to working on your blueprint. If you do this consistently, in a relatively short period of time you will find you’ve transitioned from working on your business instead of in it. You’ll become a strong leader who has developed a great culture with repeatable processes that are easy to market and sell. You’ll be in a position to train better and recruit the best talent to fit that well-oiled machine that is now giving you what you wanted from the start: the personal and financial freedom to do what you want, when you want and with who you want.
