INSIGHT
THE REAL REASON
CONSTRUCTION COMPANIES FAIL
The failure rate amongst start-up companies in the construction industry is extremely high,
writes Larry Kokkelenberg.
T
1.
Starting the business for the wrong
reasons.
Many companies don’t start out with
a strategic business plan. The owner
simply wants to be his or her own boss.
Sometimes a friend says, “Let’s start our
own company and make a lot of money.”
The problem is that nobody gets rich quick
in the construction industry. There are only
two entities that are in the business of
making money: The Department of Treasury
and counterfeiters. Construction companies
are in the business of serving customers.
Starting a construction company should
be based on a legitimate opportunity,
www.equipmentandhire.co.za
he Small Business Administration
(SBA) has identified a huge failure
rate among start-up companies.
According to the latest figures more
than 20% fail in the first year, about 50%
fail within five years, and roughly 66%
fail within 10 years.
Construction companies have an even
uglier track record. Roughly two-thirds
go out of business within five years. The
owners of those failed companies tend to
point fingers at external factors such as
insurance, taxes, politics, and an inability
to get enough workers, amongst others.
But those factors aren’t really the cause
of company failures, which is why the
competitors down the street seem to be
handling them just fine.
The real causes of construction
company failure, however, are within the
control of the company owner. That doesn’t
mean these causes are always easy to fix.
It takes planning, discipline and hard work.
But nonetheless, they are controllable.
In working with construction companies
for many years, I’ve assembled a long list
of reasons for failure. I’ll be getting into
the fine details of all of them when I speak
at CONEXPO-CON/AGG 2020 which will
be held in Las Vegas in March. Until then,
here are a few of the more consequential:
Construction companies need to plan properly before entering into contracts.
which means little competition in a
growing market area. The owner should
also have a clear vision for what he or
she wants to the company to be, along
with a roadmap toward profitability.
Having a strategic roadmap will also help
new companies avoid another common
cause of failure: trying to grow and
diversify too quickly.
2. Poor company culture
Nobody wants to go to work in a war zone.
When that’s the type of culture that exists,
people just put in the bare minimum. This
culture often leads to higher employee
turnover, sloppy work, higher workman’s
compensation claims, and financial
losses. The unfortunate truth is that many
construction companies do not have a great
MARCH 2020
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