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

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

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