On Record: Why contractors fail

For a truly fascinating read, get a copy of construction consultant FMI’s just-released “Why Contractors Fail: A Causal Analysis of Large Contractor Bankruptcies.”

Although FMI concentrated on construction companies with annual revenues of more than $250 million, don’t let that make you discount this report. There’s a lot here for smaller guys, too.

This is especially true when you look at a distinctive aspect to their research: they did a cross-industry analysis of Myers-Briggs Type Indicator personality tests. This helped FMI understand the role of what they called “The Mind of the Contractor.” In other words, were there certain mentalities that increased a company’s probability for running into trouble?

As FMI puts it, “if you’re a contractor or know those who lead and own construction firms, most characteristics on this list will ring familiar.” They certainly do to us at Equipment World:

  • Driven to grow. They want to build the biggest job or perform the most volume.
  • Quick to make a decision. Sometimes they are too quick to make a decision, when a more deliberate approach is needed.
  • Have trouble making the transition from the field to the office. In our latest reader profile survey, the majority of respondents – 78 percent – said the skill they used most was the “ability to meet goals and make sure the project gets done.” But an owner’s job, reminds FMI, is “to run the business, not the projects. A project focus can lead to a feast-or-famine mentality. Getting the next project and building the backlog seems to overshadow all other considerations – frequently leading to taking the wrong job for the wrong reasons.”
  • Numb to inherent risks. When you take on high-risk jobs and debt and succeed, it’s easy to think you can always roll the dice and win. That thinking may bite you in the next go around.
  • Afraid of layoffs. You naturally don’t want to lay off your good people because they are too hard to come by. Keeping people busy just to keep them busy, though, can lead to inflated overhead, fattened job costs and poor project selection, says FMI.

FMI’s point is that any one of these personality traits – mixed with a variety of additional factors outlined in the report – can contribute to a company going belly up.

In another part of this research, FMI interviewed construction executives who’d gone through a failure. A comment from one of those interview subjects rings especially true to me: “Ego-driven people scare me the most. In this business, pride and ignorance go together, and experience and humility go together. If you have been around construction long enough, you have failed and been humbled. If you are prideful and arrogant in construction, you simply haven’t been hit yet.”

For a free copy of this 24-page report, contact Mary Prendergast, FMI, 303-398-7235, mprndergast@fminet.com.