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It can happen in any number of ways. Your volume grows to the point where it begins to overload your systems. Assumptions on which you based your current business plan fail to pan out. Your market changes, forcing you to rethink where you fit in. For one reason or another--or a combination of reasons--you suddenly need to change the way your company does business. You've hit the wall.

If it is any consolation, you are not alone; any custom builder who stays in business long stands to have a similar experience. Any set of management systems is appropriate to a range of business activity. When the pace of business approaches the upper boundary of that range, strains appear. The remedy is a more refined or elaborate set of systems geared to the next phase of growth. Partners Brace Giffin and Geoff Crane, custom builders in Santa Barbara, Calif., have navigated that cycle a couple of times. When they first hit the wall they had been in business for four years and had reached an annual volume of between $2 million and $3 million. Up until that point, both men were working in the field--Giffin doing foundations and framing, Crane the finish work--but when volume reached that first threshold, they realized it was time to hand off their field duties. "At $2 million to $3 million we couldn't wear the bags anymore" says Giffin. Hiring superintendents freed the partners' time for sales, estimating, and project management.

"We saw that one coming," Giffin says. "What really tilt us was when we jumped from $7 million to $10 million in one year." At that point, the issues were less clear. The company's internal staff had ideas of how to resolve the bottlenecks that had developed. But the partners were uncertain, so they brought in a series of consultants, whose conclusions largely confirmed the staff's original recommendations. In short, Giffin says, "We had to replicate ourselves." The company added two internal project managers to assemble proposals and estimates and a full-time accounting manager. "We gave people more authority but also more accountability," Giffin says. A better system of internal reports now allows the partners to keep an eye on their paperwork without reading every line. "Before that, Geoff and I would review every invoice before every billing."

The process was costly, in consulting fees, increased overhead, and the effort required to retool. "It was a difficult two or three years," Giffin says. "Our volume remained the same and our margins went down, largely due to liability insurance but also from getting our systems in place." But the exercise was necessary. "We couldn't stay at $10 million unless we increased overhead," says Giffin, who believes that his current systems will take the company to $15 million without strain. And they have already been tested. The company recently finished a show home for a national magazine: 13,000 square feet, a $5 million contract, 364 days from ground breaking to occupancy permit. "Because of the systems we have in place we could do that and 10 other projects at the same time."

When asked if he's ever hit the wall, Andy Beck, a custom builder in Vail, Colo., answers without blinking. "Three times we've reinvented ourselves in the 30 years we've been in business" he says. The last time was about seven years ago. "We had started pushing $15, $16, $17 million a year, then we bumped to $27 million. Once we got that big it got hard to handle everything the way we were doing it before. We weren't making much money. Subs were whining that we were slow in paying. We had to revamp." Beck hired construction industry business consultants FMI to analyze his systems and prescribe solutions. "When we grew, we became a company of people doing things their own way. We were doing good things, but we were all doing them differently." The solution--largely paperwork-based was to fully standardize company procedures. After hiring people to revamp his systems, Beck realized that his company's revolution coincided with the broader revolution of the Information Age; everything he was implementing on paper would work on the Internet. "Instead of a giant paper chase, we could have a big electronic document chase," he says. The shift to electronic document management allowed Beck to trim his office staff and helped him set up for the next reinvention, which he says will be his last. "I'm trying to retire here in a couple years."

Companies that grow will sooner or later bang into a wall, but one can also back into one when the market shrinks. Three years ago, Tim Chupp, a custom builder in Valparaiso, Ind., was running two new-home crews and grossing $1.2 million a year. "The following year," he says, "it all kind of fell apart for us." The market tightened up; more builders were chasing fewer jobs; clients were focusing on price over service. "It all happened after Sept. 11," says Chupp, who had until then enjoyed a string of progressively bigger and better new-home projects. Clients had chosen him for craft and service rather than a low bid. It took time to realize that the market had changed. "We kept waiting for these big jobs," he says. "That cost me big time." By the time Chupp finished out 2002 with $200,000 in work, he knew that he had hit the wall. But rather than try to bust through to the other side, Chupp decided to get comfortable where he was, dropping back to one crew, returning to the field full-time, and focusing on "less volume and more profit margin." Working for high-end remodeling clients, who, he finds, are still more oriented toward quality than price, Chupp finished 2003 at the same $200,000 volume, but with a healthier profit margin. He expects to do $750,000 in 2004, but he's still keeping a lid on growth, turning down nearly as much work as he has taken on. "I'm getting back to where I feel comfortable," he says. "I don't want to get too much bigger."

# posted by Medical Information : 2:36 AM