Peer Group Diary: The peer group visits a beautifully built home…that made no money
"Imagine your company was bringing in $10 million per year and you're still working for wages."
October 30, 2019 by Robert Koci
On the first day of the three-day Peer Group meeting I facilitated last October, our peer group of seven contractors from across the country was treated to a tour of some of the host’s projects. The $2.6 million home we saw first was built around a structural concrete monolith that rose up from the center of the home’s 6,000 square foot layout. The contractor’s general manager told us it was the first element of the house to be constructed and towered over the job site like a sentinel for months while the house was built around it. The massive wall was to remain unfinished so the forms had to be perfect. After the walled was poured and the forms stripped, it also had to be well protected during the 16-month build.
It was an ultra-modern, bright, open concept design, so there were sight lines everywhere and opportunities to see imperfections in converging corners, trim details and drywall. There were places where some quick thinking was needed to ensure a horrible looking detail the architect didn’t (or couldn’t) foresee was avoided. The skill of the contractor’s team was extraordinary. The house was beautiful. Our Calgary member was rightly proud of the work and we were proud of him.
When we got to the employee interviews the next day, we asked the CFO, who was also an owner, if she considered the company successful. She cast her eyes downward. “No,” she said. Why not? From our perspective, the house we saw the day before screamed success.
As skilled as the entire team was, as careful and thoughtful as they clearly were, the company had never really shown a profit because it billed all its custom homebuilding on a time and material (or cost plus) basis. In the competitive market of Calgary, that meant basically you were working for wages. That’s what the ownership was doing and that’s what the CFO told us.
Remember when you started your company? You had a hammer and a truck, and you worked your 60 hours per week and paid your subs and your employees (if you had any) and what was left was for you. Profit? What was that? Your company revenue was about $300,000, you took home about $70,000. You worked for wages. There was nothing left at the end.
Well, imagine your company was bringing in $10 million and essentially doing the same thing. Your salary was a bit higher, but not much. That’s what we were looking at.
It was tough to see such talented people, such an ethical company, be nothing more than a wage generator. But it was also why we were there. The president could see the problem and was working hard to move the company from a cost plus to fixed price model with real margins and real profit at the end of the year, and we were helping, and it was working. The natural talent of the team and the company’s commitment to quality was a solid foundation from which to move into better margins and solid profits. We were shown a 10-year plan that was going to take the company to a new standard of success, one that include the financial success as well as the technical success they had always enjoyed.