How to Survive (or even thrive) in a Down Market

June 1, 2003
by Thomas L. Williams The prosperous economy of the 1990s led to explosive growth for many mechanical contractors. Today, we face a challenging economy

by Thomas L. Williams

The prosperous economy of the 1990s led to explosive growth for many mechanical contractors. Today, we face a challenging economy and must make some difficult decisions about how best to survive in a market when there is, and will probably continue to be, restricted construction activity.

Too often in the past, mechanical contractors have participated in increasingly destructive competition, suffering through bid lists of 10 or more contractors. The “winner” of one of these fiascos usually loses money and is weakened by the experience.

Fortunately, there are ways to not just survive, but thrive in our current economy.

One such option is to identify and pioneer a new segment of the market. Think of what the Energy Service Companies did in the 1980s. After the excess energy consumption of the 1960s and 1970s, these companies actively identified energy saving opportunities and marketed them to multiple owners. As a result, many companies thrived through the turbulent 1980s.

Another possibility is to develop a new or promote an existing cost advantage that allows you to compete on price in the marketplace, while making an acceptable rate of return. For example:

  • Fabricate systems in a market where others don’t. MCAA contractor C.J. Erickson Co. in Alsip, IL has carved a successful niche in pre-fabrication.

    Before arriving at the jobsite, bathroom plumbing walls are built in the controlled environment of the shop. In-slab piping goes through design, layout, and assembly before it’s stored in preparation for quick installations. Fixtures are trimmed out and packed for safe shipping. Once the job is ready for assembly, everything is transported, unloaded, and set in place, saving precious jobsite time and adding value to the customer.
  • Be a full-service plumbing, pipefitting, and sheet metal shop, using economies of scale. At McKenney’s, we’ve found that by self-performing all these trades, we can better control the jobsite for enhanced productivity. In addition, our overhead is more effectively deployed, avoiding duplication of project management, project engineering, jobsite deliveries, etc.
  • Enter a new market segment where your company can compete effectively. For example, if you’re in service, expand into simple controls, which would allow you to solve your customers’ controls problems quickly and economically, while increasing your revenue base.

    To learn more about areas with which you are unfamiliar, talk with other contractors to see what has worked for them. Take advantage of the educational programs and resources available from associations such as MCAA and its subsidiaries

Strategic Downsizing

If you can’t structure a game to play successfully at your current size, strategic downsizing may be your best choice.

Look at your effective size in a previous economy. Then, match the size of your business to the size of the market in which you are currently competing. Eliminating weak performers on your staff and training strong performers to be more skilled will be more cost-effective and successful in the long-term than obtaining revenue at progressively lower margins and higher risk.

Regardless of which road you choose, avoid destructive competition and think strategically. Your business can survive and thrive in this market downturn and will emerge positioned for the challenges of the future.

Thomas L. Williams is construction division president at McKenney’s, Inc. in Atlanta, GA. He is also president of the Mechanical Contractors Association of America (MCAA). Williams can be reached at 401/624-8684 or by e-mail at [email protected]. MCAA’s Mid-Year Education Conference takes place June 11-14 in Philadelphia, PA. For more information, call 301/869-5800.