How To Recession Proof Your Business With Todd Dawalt | Ep. 213

COGE 213 | Recession Proof

A recession happens on a micro or macro basis. Everyone should prepare because a recession will strike when it strikes. In this episode, we will help you to be ready for it. Todd Dawalt, Founder of Construction Leading Edge, talks with Eric Anderton to discuss how you can recession-proof your business. Companies will be able to get through this recession by taking some practical steps. Make sure that you’re ready for the recession! Tune in to this insightful episode and gain tremendous value from Todd.

Link to Eric’s Book, Construction Genius: Effective, Hands-On, Practical, Simple, No-BS Leadership, Strategy, Sales, and Marketing Advice for Construction Companies: https://www.amazon.com/Construction-Genius-Effective-Hands-Leadership/dp/B0BHTRDY1T/

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How To Recession Proof Your Business With Todd Dawalt

My guest in this episode is Todd Dawalt. He is the Founder of Construction Leading Edge. He has many years of experience in the construction industry. He understands the challenges leaders face, from managing $300 million worth of projects to owning his own business. He knows what it is like to deal with operational chaos. Through his failures and successes, Todd has learned what it takes to run an effective organization and maintain personal freedom.

We are going to talk about how to recession-proof your business. We are going to talk about how recessions happen, not from a macroeconomic perspective, but from a microeconomic perspective and how construction companies can prepare for recessions by doing practical things like building up cash reserves and stopping profit bleeds.

You are going to get a tremendous amount of value from every single aspect of this conversation because recessions happen, whether from a macro basis or a micro basis, and you need to be ready for it. This episode is going to help you to be ready for those challenges. Make sure you are taking notes and enjoy my conversation with Todd. Thanks for reading.

Todd, welcome to the show.

Thanks, Eric, for having me.

It is my pleasure to have you on the show. I got to let my audience know that you are one of my inspirations for starting my show, and when I started it, I looked at yours. I’m like, “I want to be like Todd when I grow up.” It is a privilege to have you here.

I appreciate that.

We are doing this at the end of 2022. It sounds like people have been trying to talk us into a recession for a while. It has been teetering. We know recessions come. The last serious one was in ‘08. What I would like to do is talk about strategies that contractors can put in place to ride through recessions successfully. What have you seen successful contractors do during recessions to thrive?

Before we jump into what to do when a recession hits and how to thrive, let’s talk about what a recession is because there is an economist definition, which is two-quarters of declining GDP. There were lots of talk about whether we are in a recession or we are headed to a recession. Is it going to be a soft landing? Is it going to be a hard landing? To me, a recession is a significant hit to a company. That significant hit could be because of a global recession, a widespread recession, or you loss a key employee.

A business could be thrown into a recession when it gets hit with a lawsuit, or when the owner gets sick or passes away, or maybe on a smaller scale when you have a large contract cancel that you planned on putting a lot of resources into over the next six months or a year, or you lose a key client. There are a lot of different definitions for a recession.

There may be some people who think, “We are never going to have another ‘08 again. I hope you are right.” Personally, I don’t think we are in another ‘08. I don’t think we are headed for that. Things are different. The reality is it is not a matter of if you will have a recession. We are talking about a recession being a significant hit to a company. It is not a matter of if. It is a matter of when. It is going to happen. You are going to lose a contract or a customer, a key employee is going to leave, or something is going to happen to the owner. It is likely to happen.

We need to understand we need to be ready for that. We need to have recession-proof businesses. It is the business owner’s job to war game for this stuff. That is what the military does. They constantly train to be ready when this stuff happens. Unfortunately, our military doesn’t start getting ready when things go sideways. With that being said, how do we prepare for a recession? Prepare for how you thrive.

You make an important point. You can spend all day reading the newspaper, surfing Twitter and hearing all the macro news. When it comes down to it, we feel recessions on a micro level. A recession can happen to a business because of a significant hit. When you start talking about that, it is interesting because, from a macro level, we don’t feel like we have a lot of control, but from a micro level, you are describing those specific issues that cause a significant hit to a company.

My question to you is about the things that I control, and I don’t control. You said things like, “Key employee, lawsuit, an owner getting sick or dying, a large contract canceling, or losing a key client.” Of those there or any others you are thinking about, which are the ones that contractors have the most control over that they most often neglect and therefore get nailed by that significant event?

The one they have the most control over is when a large contract cancels or gets delayed because we don’t have a lot of control over when someone gets sick. We probably do have some control over key employees leaving. What I have found is that a lot of people are hooked on hopium when it comes to their contracts like this drug hopium. They are hoping that this contract is going to go forward and that everything is moving.

The reason they are hopeful is because they need it to happen desperately, “We don’t have anything else going on. We have all these people who are going to be sitting on the sidelines. We hope it is going to happen,” ignore the red flags, and leave. We get the email or the phone call, “This project is not going to happen. It is canceled.” There are a lot of things we could have done.

One of the best strategies is to have a full pipeline of work, but in any circumstance, one of the best strategies is to set a no-go date on a project, whether it is a big project or a small project. We get into trouble when we find out the project has been canceled or is delayed, and we find it out too late to do anything about it. We found out two weeks before we were supposed to mobilize that the project had been delayed or canceled. It throws everything into chaos.

We need to set a go/no-go date for that project that says, “90 days or 6 months prior to the start of work, we need to have these things in place, so you have time to recover and pivot, go in a different direction, or go after something else when you have time to respond.” Setting that go/no-go date is key. I have seen it many times. I have done it personally because we need it badly. We don’t want to face the reality that this thing may not happen and we are going to have to deal with the consequences of it.

This go/no-go date, is that prior to any contracts being signed and things like that where you have it on your radar, you might have it in some form of a backlog, but you haven’t made contractual agreements? Is that what you are referring to?

Yes, typically, what happens is there is talk about a project, “We are moving forward. It is in the pipeline.” Maybe we have a pre-construction agreement. Maybe they are advancing the design, and we are involved in the design process. The contract hasn’t been signed yet. We are hopeful that it is going to happen and that it is going to convert into a contract. We hope that it happens. We go past these checkpoints, ignore these red flags, and delays on the front ends of projects, and we hope it is going to happen.

The key is to say at the beginning to set out, “These are the points at which we need to make decisions. If we don’t have a signed contract by this date, we are going to stop. This is as far as we are going to go on this project until we set up these if-then statements. If we don’t have a contract at this point, we will pull the plug. If we do, we will continue.”

Maybe we have a signed contract, but we don’t have the notice to proceed. They have a signed contract, but they haven’t issued construction documents or something like that. They haven’t issued their furniture design. There are these if-then statements, the things that are outside of our control if we continue to discharge forward, hoping that things will resolve themselves. I have seen it many times. The contractors get left holding the bag and left in the lurch in a mini-recession with this giant hole in their schedule that they have to somehow fill up.

What happens often is, let’s say I have this ideal job with an ideal client that I thought didn’t go, and I am left with that hole in my schedule. I start taking on jobs that I shouldn’t be doing to keep my guys busy, which compounds the effect of not being disciplined in terms of how I address the first job.

We end up in reactive mode, scrambling and trying to take whatever we can get. In that situation, you could probably look upstream and look back at the past. You likely ignored some red flags because you are hopeful. You hoped things would get better.

Let’s pivot a little bit and talk about that key employee because I was chatting a couple of days ago. They were telling me about how their employees keep leaving. They have a core group of guys who can’t grow the business because they bring on three and three leaves. I said, “There is an old saying that people don’t quit their jobs. They quit their managers. Are people quitting you?” He didn’t think so. In terms of key employees, what are the main reasons, other than by leaving town thing, that people are quitting and going to another company, and I’m losing that key employee?

There is a lot of truth to that statement. People don’t leave companies. They leave managers, bosses and owners. That has certainly been the case in my career. In many cases, I have left good teams and meaningful work because of the business owner or the manager. The reasons that I found that people leave, like directors of operations, project managers, superintendents, estimators, and people in that pretty much all capacities, leave because of chaos and stress.

COGE 213 | Recession Proof
Recession Proof: People leave because of chaos and stress.

 

One of the things that I found that causes the most stress for people is feeling like they are out of control. When they feel like their destiny is outside of their control, in other words, when they don’t have autonomy and control over their day-to-day, that causes a lot of stress, and people tend to leave in those situations. I read an interesting study a few years ago. This group studied effective stress on Navy Seals, forward operators, and special operators, who are kicking indoors and killing bad guys and raiding houses compared to the stress level of people who were back at headquarters, which was in a combat area, but back inside the wire mechanics but these people were under the threat of mortar attacks or things like that.

What was interesting was the stress level was higher in the people who were away from the frontline or the people who were inside the wire because there was this threat, but they had no way of doing anything about it. They had no control or influence over what was happening. Whereas the forward operators, the guys who were kicking in doors, believed they could do something about it. This feeling of helplessness and this loss of control causes a lot of stress. That is one thing.

It’s the chaos of duplicate efforts, people stepping on each other’s toes and lack of clarity about what their role was. They don’t know what winning looks like. There’s a lack of clarity about, “What am I supposed to be doing? Am I winning? Am I doing my job? Am I doing a good job?” That is a big one, and this ties into it, but it is a lack of recognition and appreciation. I believe recognition goes a long way. People will run through walls to get an attaboy or an attagirl to hear a little bit of positive reinforcement. Those are some of the reasons that I believe people leave good companies. It is because of a lack of control, chaos, and lack of recognition.

Let me ask you about this sense of helplessness. What role do you think creating and communicating clear career paths for people has in giving folks a sense of control and even a sense of what winning looks like for them individually and a sense of greater contribution?

It has everything to do with it. It is huge and one of the biggest problems out there. I heard a statement a few months ago that people lose hope when they run out of the future. If people are bailing out of a company, maybe they have lost hope, and it could be because they don’t see the future. Either they don’t see the company having a future, or they don’t see that they have a future with that company. They don’t see it. They go somewhere else.

Nobody wants to waste a few months or a few years of their life. It is a dead-end job. It is not going anywhere. It is incredibly important to have a clearly defined career path, even visualized, “We work with accountability charts in our business and with our clients. Here is the accountability chart. This is where you will start.” It provides clarity for a lot of things. Everybody wants clarity.

Nobody wants to waste a few months or a few years of their life in a dead-end job. Having a clearly defined career path is incredibly important. Share on X

Having a clearly defined accountability chart provides clarity for employees. This is what your career path looks like. This is what winning looks like for you now in this role. This is what you need to do to get to the next level. It provides clarity to everybody. This is what each function and each role is responsible for. You don’t have to mess with it because they are responsible for it. It also means you can push things back on people who are trying to get you to do their job. It provides these clearly defined lanes to eliminate confusion and provides a lot of clarity.

Sometimes owners are reluctant to communicate clear career paths because they fear that by doing so, they overpromise to people, or, “This person hasn’t earned anything yet. I don’t want to put in their heads that they could potentially get a deeper point in my company.” Is that a fear you often run across with owners?

There are a lot of fears like that. It is completely illogical if you think about it, but let’s expose that fear, which is, “I’m afraid if I clearly outline what my expectations are and this is what winning looks like, I’m afraid of what will happen if they win.” That is completely irrational because if you’re a business owner, you lay out these expectations the right way, and if they win, that means you are winning. Everybody is winning.

One of the fears is, “What if they win? What if I lay this out, and what if they do it? They are going to come to me asking for money. I’m going to have to do this and all of this thing.” The other fear is, “What if I go through this and I put these expectations on my team? Sally over here has been with me for several years. Jake started with me many years ago when it was me and a truck. What if I laid these expectations out, and they don’t rise to the occasion? What if I have to let them go? What if I have outgrown these people who’ve helped me get to where I am now?” That is a big one.

The other one I find is, “What if I set these expectations out and I build this? What if I bring in high-level talent, and they realize that I’m a fraud?” They were like, “What the hell are you doing? You have no business running a company.” This imposter pops up. What happens is there are all these what-ifs that could happen. What do we do? We were like, “We are not going to do anything. We will do the same thing. We will deal with the same level of chaos and frustration one more day because we don’t know what this other thing feels like. We are going to do the same thing one more day and put it off.”

Let me ask you about the chaos. What is the main source of chaos in construction businesses in your experience?

It is everywhere. What that chaos looks like is details falling through the cracks. “I thought you were going to order this material.” Let’s take that as an example. This is the first thing that pops into my head. The superintendent says, “Project manager, we need to get these pavers installed in these courtyards. Nobody ordered those pavers yet. We didn’t find a subcontractor for those pavers.” We jump into scramble mode, and somebody has to drop what they are doing. Multiple people have to drop what they’re doing to react. This problem has been sitting there for weeks or months, but we didn’t find out about it until somebody turned the page and realized, “There is this giant gap there.” That is one example.

I found that the number one root cause of chaos in construction businesses is what I the Just Enough To Start thinking trap, JETS. We are going to do just enough to get this estimate out the door, put some plug numbers in there, some allowances, some we will figure that out later, and there is just enough to get a contract signed, get a PO issue, get the trade started, and whatever it is.

COGE 213 | Recession Proof
Recession Proof: The root cause of chaos in construction businesses is the just enough-to-start thinking trap.

 

Sometimes it goes all the way back to the owner’s side. I have seen it just enough to get a lease signed, enough to get a GC on board and fast-tracking projects. Fast-tracking project is a recipe for disaster. The just-enough-to-start trap is the root cause of many problems and sets off this chain reaction of figuring things out. That is the number one root cause of problems on job sites, whether they are tiny handyman jobs or $100 million high rises. It is doing just enough to start.

That is something that happens all the time on small projects or large projects. If someone is reading this, they were like, “Todd, I get that, but sometimes we got to get out there and get going. What do I do about that?”

You have to make a choice. Either continue with this level of chaos, keeping up with the level of chaos or commits that we are tired. This is not sustainable. Understand the cost of inaction. This is why we lose people. This chaos can be tracked back to just enough to start. You need to connect it in your mind. A client says this as we were talking about chaos. He said, “My biggest fear is that the team is going to implode.” He brought up an interesting point. He said, “My employees may be able to put up with it, but I am scared to death that their wife is going to say that is enough. In this 70-hour-a-week stuff, you always being on your phone at night. I have had enough. Something has to change.”

Understand the cost of inaction. Share on X

His biggest fear wasn’t that his people were going to leave but that their spouse was going to say,
“That is enough. Something is going to happen.” What happens? When you lose a key person, the workload is still there, but it now has to be carried by one fewer person. It can start to implode and fall apart.

Recessions can happen not because of macro trends but micro trends. Let’s, for a moment, think about when a macro recession hits. In your geography and with your type of work, there is a genuine downturn. What do successful companies do to exploit the opportunities that come up when a general recession hits?

Number one, they have already prepared for it. They know it is coming. Frankly, when a recession hits, it is not the ideal time to start thinking, “How can we look at this as an opportunity?” That needs to happen years in advance and when things are good. Step one is when things are good, you should be thinking, “How can we capitalize on the next recession?”

There is a book called Rock the Recession, and one of the authors is Jonathan Slain. In that book, there is a quote from the President of Lithko Contract, Rob Strobel. It is one of the biggest concrete contractors in the country. There is a quote in there where Rob said, “I can’t wait until the next recession hits.” That’s crazy. Why would any contractor say, “I can’t wait until the next recession hits?”

What Rob did in the last recession was he saw it as an opportunity. He was ready. His company went out and grew their team when everybody else was letting their people go. They picked up market share and equipment at a discount. They may have acquired other businesses. He couldn’t wait for the next recession because it was a huge opportunity, like buying stocks when the stock market was low. It is the same way. Stem number one is to be ready and plan for it.

Let me ask you a question about being ready. You are picking up key employees, equipment, and other aspects. The first thing that pumped into my head there is that you got to have some cash on hand. What are some of the smart strategies that contractors use when times are good to make sure that their treasure chest is fat and they are not frittering away their cash on stupid stuff?

The goal is to build a war chest of cash.

How much cash on hand should a contractor have, or how many months? What do you think, Todd?

I don’t pretend to be a financial advisor or CFO, but imagine if you had enough cash on hand to pay all of your overhead for six months and pay all of your people. You don’t have any revenue coming in, but you could cover your overhead for six months. That would be a good position to be in. How do you do that? You avoid the rollercoaster effect of, “Things are great. I should reward myself.”

The way I think about it is a stewardship mindset. You need to think about money as a resource and not a reward. If you think about money as a reward, what happens? You can look around. The people who see money as a reward, as soon as it comes in, they spend it. They are buying boats, houses, and all of this stuff with FTX that is going on.

COGE 213 | Recession Proof
Recession Proof: You need to think about money as a resource and not a reward.

 

This guy had billions of dollars. He clearly saw money as a reward. He is buying hundreds of millions of dollars in real estate for his team and his parents. He’s pissing this money away. That is a prime example of what that looks like. It goes back to your mindset about money. This money is a resource, the cash you have as a resource to help you do something else. It all starts with that mindset of knowing that hard times are coming. Money is a resource. We need to store up the resources to be ready.

I hope you are enjoying my conversation with Todd and you are getting some key insights into how to recession-proof your business. A quick heads up, I have a book. It is called Construction Genius: Effective, Hands-On, Practical, Simple, No-BS Leadership, Strategy, Sales, and Marketing Advice for Construction Companies.

I encourage you to go out to Amazon and purchase a copy for you and your leadership team. What you do is go through each one of the chapters. There are twelve chapters. Go through a chapter at a time and discuss it with your leadership team because I have packed in a number of strategies that you can use right away to help your construction company grow and prosper. Grab yourself a copy of the book. Grab one for your leadership team and take advantage of all the great strategies that are in this book.

Give us a definition of what you mean by stewardship because it is not a word we use all the time.

The way I see it personally, like a Christian guy, my business is not my business. I am the steward of my business, and it is my job to take care of this. It is given to me to steward. I need to be a good steward. My job is to care for this thing, grow it to the best of my abilities and be ready to pass it off. I heard a great interview with a guy who has a podcast about family businesses.

He studied incredibly wealthy families that have maintained their wealth for twelve generations. They thought differently about it. They had a stewardship mindset. It was the key to generational wealth being passed on because what typically happens is the first generation makes the wealth, the second generation comes in, and the third generation looks at the typical cycle. The answer is we have this responsibility to steward this business or this wealth, whatever resources we have to pass it on to the next generation. That is what I mean by stewardship.

Let’s assume that I have come into a recession and my war chest and my employees are solid, but my particular line of business or niche I’m in is a little shaky. If I open my eyes, I know it is going to create some challenges in the next several months. What advice do you give to contractors when they are looking to go sideways, go into another niche or something like that? What steps should they take when they are thinking about new niches, locations, or clients? How do you address that?

There was a study done by the Harvard School of Business and several other universities. They studied companies that came out of the last recession and how they did. If you are in a recession, the tendency is to go in different directions. One of their findings was the companies who did that did not fare well. During a recession is the time to focus on core competencies and do more of what is working. This is maybe a little counterintuitive, but it is not the time to use your powder to try to make other stuff happen. It is time to double down on core competencies. Do more of what has been working for you.

I get the logic there, but what if my core competency is doing TIs in commercial spaces? In the Bay Area, Facebook and all the tech companies are now doing hybrid work, and that TI work has gone away, what do I do then?

My advice would be to put on your business development hat. There are two approaches to business development. There is what I call the guy with a hammer approach. The guy with a hammer approach says, “We do this type of work. I’m going to go try to find that work.” Imagine this guy walking around with a hammer, looking for specific nails, and he can’t see anything else. He is just looking for nails to drive.

The other approach that works better, especially when you run out of nails to drive, let’s say that commercial TI contractor who worked with tech companies and that suddenly goes away, would be to open up the toolbox and say, “We have a team of people who can solve problems. Let’s go find some other problems to solve, customers we like to work with, and some problems that exist that we can solve and can be profitable.” Be a variety of different things.

I have guys and gals on my team who have been working on a particular type of project. That project goes away, but in their history, they have had success in other niches. By focusing on core competencies, I’m thinking about the core competencies that my people have that perhaps they haven’t been focused on. I can open up that toolbox and utilize those tools that have been dormant because there hasn’t been a need for a while. Is that something that makes sense?

What that could be is possible that your market has declined, but there is demand elsewhere. Multifamily housing could be a big opportunity. Maybe you have an estimator and a pre-construction coordinator sitting on the sidelines twiddling their thumbs. I know a company who is planning on staffing up and hiring 10 or 15 people. You may be able to outsource your people on a contract basis to help solve their problems, keep your people busy and not lose them in the process. One of the things we learned during COVID is people can work from anywhere. It is possible that you could find a demand somewhere else in your similar industry, and people are busy that way.

COGE 213 | Recession Proof
Recession Proof: You can outsource your people on a contract basis to help solve their problems. Keep your people busy, and do not lose them in the process.

 

It would seem that to prepare for a session, I not only have to get my cash situation straight and steward my money as opposed to spending it or looking at it as a reward. Also, to be fully aware of the tools that I do have at my disposal, in other words, the types of projects my folks have worked on in the past or the types of capabilities they have, so that when those opportunities pop up, I can see, exploit and take advantage of them.

In one of the other studies that studied companies that came out of recession, their findings were one of the best things you can do to prepare for a recession and recession-proof your business is to focus on your organizational structure and team, like clarifying roles and responsibilities but also cross-training your team, and, to your point, understand your team’s capabilities. What capabilities do you have that would be good to know upfront to be more resilient, flexible and agile?

One of the best things you can do to prepare for a recession is to focus on your organizational structure. Share on X

A lot of the resilience of your business will come from your people, and many people overlook this. One way people look at it is when things go down, they look at their employees as a liability. The reality is their people are their biggest asset at all times, especially during a downturn. They need to tap into that asset of their people to make it through.

One of the challenges I know a lot of contractors have is letting go of people. They tend to keep people much longer than they should, even when times are good. When times are bad, one of the things I’m always encouraging my guys to do is, “You don’t have as much work on the books. That means you have an opportunity to look at your roster and maybe move some of those C players along.” People still struggle with that and allow these folks to sit on their overhead. What advice or how do you help contractors work through that challenge of letting people go in a recession when perhaps you might feel a little bit of guilt because this person may not be able to find another job somewhere else?

That is a fear that prevents a lot of people from hiring in the first place, especially people who went through 2008. If you have ever had to sit across the table from somebody and say, “I know you quit a job to come to work for me, maybe you moved, you came here and bought a house, uprooted your family to come work here and now I’m having to tell you that I got to let you go,” that is tough. That is something people want to avoid.

How do you handle that? One of the best things to do is take the fear and the emotion out of it. There are a couple of things you can do that come to mind. One would be to go ahead and create your playbook. The military has these. They don’t call them playbooks, but if something happens, they have an SOP for it. They pull it off the shelf, “This is the situation. Let’s grab the playbook off the shelf. This is what we are going to do.”

Now is the time to start preparing that playbook, the if-then statements, “If the bank account, revenue or something achieves this milestone, we have to take action, and this is what we are going to do.” You make those plans in advance. That moment is not the time to make those plans because your judgment will be clouded by emotion, fear, and all of these things. If you’ve never gone through a financial crisis, good for you, but there is a lot of emotion and stuff that goes on when people’s livelihood comes back. It depends on you. Make a plan in advance that says, “This is our playbook. When this happens, here is what we are going to do.”

The other thing would be to preempt that situation and to come up with a plan that answers the question, “What would it take to make this work? What would it take to keep the team intact?” There’s a financial number and start asking the question. This is what I call right-to-left thinking. You start with the outcome you want and work from right to left.

Work backward and reverse engineer a solution that gets you there. “What would it take to keep everybody busy? What would that take?” Be transparent with the team and let them know, “We want everybody to win, but this is what winning looks like.” One of the questions is, “I probably need to get rid of my C players, but how do I know who my C players are?” If you don’t have any measurables to measure their performance, it is this subjective emotional gut feeling. You might cut the wrong person for the wrong reason.

It’s having measurables and identifying what winning looks like for a superintendent, project manager or director of sales. In having clearly defined measurables, they will know what winning looks like, and you will have a measuring stick to compare their performance against to know, “Do we have an A player, B player, or C player? Who is not pulling their weight here?”

I like the idea of the if-then statement. When an event triggers in my business, I know what to do, not based on my emotion but based on prior thoughts. It is also interesting that the first instinct of a lot of contractors is to cut people and overhead during the recession, but our most valuable resource is our people. Sometimes, we need to get creative so that my A and B players stick around while I may be moving my C players down the road.

The key is to have a plan and data to make decisions based on data. Don’t make short-term decisions because if you cut somebody, let go of a project manager, and that project manager can manage $5 million or $10 million of work for you, it is going to be tough to get them back. The best answer is to prepare. It is going to happen again. As soon as you get through this, commit to yourself that you’re going to make a plan and get yourself in a position where you can look at the next recession as a good thing, and you know it is coming.

COGE 213 | Recession Proof
Recession Proof: The key is to have a plan and then have some data to make decisions.

 

Let’s summarize, Todd. Perhaps I have not been quite as diligent in building up my cash reserves. Perhaps I do have that. I have been smoking the hopium. I’m seeing my backlog start to dwindle, and there are all these red-flag warnings. Give us 2 or 3 action items that we can take right away to become a little more confident to begin to recession-proof my business.

There are two things. Number one would be to attack profit bleeds in your business. You have worked under contract and backlog. Your job at the most basic level is to convert that backlog into profit at the profit bleed. Some of the most common profit bleeds are rework. If you have hourly employees who lost productivity as a killer, look at your productivity and specifically ask, “What can we do to eliminate fifteen minutes of wasted time a day?”

Tell me, why fifteen minutes?

It is a more useful question than a question like, “Why aren’t you guys more productive? What is it going to take for you to be more productive?” 1) That points the finger at them, and 2) It is vague. If you ask a question that starts with the words, “What would it take?” it gets them thinking of solutions, and you might even ask, “What can we do to help save you fifteen minutes a day?”

If you want to have an interesting exercise, get your team together and ask this question, “What would it take to do this in 1/10th of the time?” If it normally takes two weeks to roughen a floor or to complete the metal stud framing for a floor, what would it take to get it done in one day? If people are going to say, “It is impossible. You can’t do that,” once you get through all of that stuff, you will probably come up with one idea that will allow you to trim 10% of the time off.

You make an extreme statement to get their attention and say, “Let’s work through it, guys.” They generate a list of ideas. Maybe 1 or 2 ideas pop up that can give you an incremental improvement.

We will probably never get it down to 10%, but if you get it down to 90%, that is huge. If you cut the scheduled time by 10%, that is good. Engage your team, look at profit bleeds, and identify the biggest profit bleeds. You may have some data to figure that out. You may not. If you are not sure where to start, look at lost productivity. Do the things we talked about. Look at rework or extra trips. I should probably say this one first, but if your revenue-producing people are picking up materials, driving to the supply house, picking up materials, Home Depot, Lowe’s, or plumbing supply, stop that immediately. It is not a profit bleed. It is a profit gusher, especially for smaller businesses.

If your revenue-producing people are picking up materials, stop that immediately. That is the number one profit bleed. Share on X

You would be surprised how many larger businesses do that.

Look at giveaways. You are doing work, but you are not getting paid. It is either because the change order didn’t get processed in a timely manner. You are doing work on a ticket. You are not following proper change control processes. You are going to end up eating that cost. That is a huge profit bleed. Schedule overruns are enormous.

Step number one, look at your profit bleeds. Where do you have profit bleeding out that you can stick your fingers in and keep that money? One of the processes I go through when we talk to a contractor is a profit bleed triage. It is not unusual by the time we get through this for a company to say, “That is terrifying.” How much money is bleeding out every day, every minute? They have the work, and the profit is there, but it is bleeding out. If you start plugging those holes, it is going to help with your cashflow. You are going to start building up that war chest, and lots of good things will happen.

Number one, plug and attack profit bleeds. Focus on the bottom line. Number two is to lead your team. They are watching the same news and reading the same stories. They are concerned about their job. Tell them and be clear, “This is what the most important things are. These are the big priorities. This is what you need to be focused on.” Keep them engaged, be transparent with them, tell them what is going on, and lead the team well.

Keep them focused on what is most important. Keep them looking forward and do positive reinforcement, and recognize good behavior and good things they are doing. Resist the urge to hide in your office and stick your head in the sand. Believe me. I tried that. That doesn’t work for anybody. That is what they need from you. They are scared, and they need to be led.

Let me ask you about that specifically. In my many years working with contractors, there are a lot of guys and gals who are the owners of the company. One of the reasons they have been successful is because they are naturally skeptical. They have an eagle eye on risk. At times, they can be pessimistic. They wear that as a badge of honor because they are not going to get hosed by anyone. When times are tough, it can be challenging for a leader to project the necessary optimism that you are describing. What can a leader do if they are naturally pessimistic about managing that so that they are projecting that necessary optimism in the midst of challenging times?

Ultimately, it is a choice. We have to understand that we get to choose how we respond to things. It is not what happens to you. It is the story you tell yourself about what it means. The first step would be to get in control of what is going on in your head. The most successful CEOs and people who navigate the choppy waters of recession and lead companies through that are positive.

I heard about a study. They looked at CEOs who led their companies during a recession. They found that the companies that lost market share and didn’t do well analyzed their press releases and transcripts from the investor calls. They had an incredibly high number of negative words and words that indicated blaming somebody else. They didn’t take responsibility or blame. They were negative. They are looking at the problems out there.

The successful CEOs used words like opportunity. They were positive and forward-looking. Did they feel that? I don’t know. As the leader, their job was to project that and to be intentional about the messages they wanted to put out there to keep the team positive and moving forward, not blowing smoke up their skirt or anything like that, but being positive. It comes back to the head games that we play. You have to get control of your mindset and thoughts. You have to be intentional about what you think about and what you say.

COGE 213 | Recession Proof
Recession Proof: You have to get control of your mindset. You have to get control of your thoughts, and you have to be intentional about what you think about.

 

That goes back to the earlier conversation about the war chest because I know I’m naturally a pessimist. I’m always waiting for the other foot to drop. When my war chest is solid, even though things aren’t going well in the macro sense, and I may need to pivot in the micro senses, the anxiety levels that I might have are diminished radically because, at the end of the day, I got some cash on hand and I can get through the choppy waters.

Nothing provides peace of mind like a war chest and financial security. That gives you the confidence to make moves and the confidence to know, “We are going to be okay.” There are a lot of different things that need to happen. Unfortunately, it is tough and impossible to do some of these things now. It is tough to grow your war chest, but now is the time to commit that you are going to get through this.

You get to decide the story you are going to tell yourself about this. There was a Navy fighter pilot who was shot down over Vietnam. He was a prisoner of war for seven years. He was tortured and beaten. He was interviewed afterward, and they asked him, “How did you do it?” He said, “During that time, I told myself this is going to be the defining moment of my life being in this brutally beaten and tortured prisoner of war paraded in front of TV cameras as propaganda.”

You get to choose the story you tell yourself. You can choose a negative story that will likely become a self-fulfilling prophecy, or you can tell yourself a positive story that, “We are going to get through this. This is good. We are learning things.” Find the good in it and focus on the outcome you want. That is what your team needs, you, and your customers need. Unfortunately, it is too rare. The natural thing is to be negative, but that is what people need. They need somebody to lead them through this.

It is neat to be able to see these times of adversity as times of tremendous opportunity, but also tremendous responsibility both to look at the blocking and tackling aspects of my business that those profit bleeds that you described well and to manage myself so that I’m showing up every day either at the job site or in the office with that optimistic outlook that we are going to get through this and we are going to do it together. As the leader, I have that responsibility. Todd, I enjoyed our conversation. Can you tell the audience a little bit about yourself and the work that you do?

The name of my company is Construction Leading Edge. We help companies, typically construction companies, general contractors, home builders, and remodelers. Under $50 million a year, we help them systematize their business. They can take it to the next level, scale, eliminate profit bleeds, take a vacation, and get the systems in place so they can sell it one day or transfer it over to their kids or key employees. We help them put some crucial systems in place. Their business becomes a source of freedom, impact, and wealth.

Who would you say is your ideal client? Who is the person reading right who should go out to your website and contact you?

The people we work with are business owners who are general contractors, custom home builders, spec home builders, and remodelers. They have been in business for a few years. They have a team, but they have hit this wall or ceiling of complexity. They are saying things like, “I’m working way too many hours, 70 hours a week. The business consumes more of my life than it should. We are not making the money we should. I have to step in and deal with all these day-to-day details. I spend all of my time firefighting and being in reactive mode. Our team is stressed. Something has to change.”

If that is you, the best thing I can do for you is to watch our free training. We have a webinar called How to Get Out of Your Business: How to Make It Run Without You. You will learn some key strategies and crucial systems you can put in place to have a business that runs without you. You can go to ConstructionLeadingEdge.com/GetOut. Watch our free training there. We have quite a few other resources on our website at ConstructionLeadingEdge.com.

You also have a kickass podcast.

That is the Construction Leading Edge Podcast. That is out there on every podcast player imaginable.

Todd, I appreciate the generosity that you have shown us here. You are taking your time to speak with us. I know there are a tremendous number of takeaways that are practical that people can immediately put to use. I do appreciate you coming on. Thank you very much.

It is my pleasure. Thanks for having me on here, and thanks for all the work that you are doing, Eric. It is good stuff.

Thank you very much.

Thank you for reading the blog. I hope you got tremendous value from that. I found it enjoyable. Feel free to check out Todd’s website, ConstructionLeadingEdge.com or listen to his podcast and make sure that you are ready for the recession. You can take practical steps based on what we have discussed in our interview to make sure that your business is recession-proof.

I have a quick request. Feel free to share this blog with other people that you think would benefit from it. Also, if you could go out to Apple Podcasts or wherever and give the show a rating or a review, that would be tremendous. We have 125 ratings, a 4.9 out of 5-star rating. It is awesome. I would appreciate it if you could go out if you haven’t already and give the show a rating and a review. It helps us to get seen across the internet.

One final thing. I mentioned earlier in the episode about my book, Construction Genius: Effective, Hands-On, Practical, Simple, No-BS Leadership, Strategy, Sales, and Marketing Advice for Construction Companies. This is a tremendous value. The paperback is $20. Get one for you and everyone on your leadership team.

You can go to Amazon and get copies of the book. I know construction companies at the moment. What they are doing is they are distributing this to their leadership team. They are going chapter by chapter through the book. They are reading a chapter, and they are discussing it in their leadership meetings. That is a great way to leverage the information packed in here to help your construction company grow and prosper. Thanks again for reading, and I will catch you on the next episode.

 

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About Todd Dawalt

COGE 213 | Recession ProofWith 25 years of experience in the construction industry, Todd understands the challenges leaders face. From managing $300 million worth of projects to owning his own business, he knows what it’s like to deal with operational chaos. Through his failures and successes, Todd has learned what it takes to run an effective organization and maintain personal freedom.

Todd is passionate about sharing his systems and strategies with other leaders so they can experience the same freedom. He teaches online courses, leads group coaching programs, and hosts the #1 rated podcast for construction business owners. Todd is also a certified partner with CoConstruct, a Buildertrend Company.

Todd is a husband to Lori and dad to four amazing kids. They love to travel to the “Forgotten Coast” of Florida every summer, play a lot of sports, and enjoy living in a small town in Kentucky. Links: https://constructionleadingedge.com/get-out-of-your-business-video-page/ https://constructionleadingedge.com/podcast/