June 26, 2006
Balancing act | The owner of a construction firm details his struggle to determine just how diverse his business should be
By Mark Bancroft
The year was 1998, and times were tough. I was discussing our business strategy with one of my project managers. He has since become my vice president of business development, but even in those days he was instrumental in plotting the course for Bancroft Contracting, which at the time was a 21-year-old heavy industrial construction company. Our concern was that we were too diverse. We were trying to be all things to all people, and it clearly was not working. Our primary distinction at the time, other than having an impeccable reputation, was that we were among the few contractors in the region that were not making any money.
By most standards, we were quite diverse in the services we offered our customers. We repaired huge machinery used to make various products, we welded process piping ˆ the carbon and stainless steel pipes that deliver steam, sewage, water and the materials that make up the finished product from one part of a plant to another ˆ and we built, maintained, renovated and demolished buildings used to enclose the machines and processes. We drove piles and built foundations. We performed preventive maintenance. We repaired boilers. We basically did anything our customers wanted, and we got paid reasonably well for it.
The tasks that we did for our customers were clearly diverse. The problem was that the customer base itself ˆ the paper mills ˆ was the opposite of diverse. During the 1980s, 80% of our work had been in what we call civil construction. We built dams and bridges throughout northern New England. The balance of the work was more mechanical in nature, and we did it primarily for paper and saw mills, as well as fossil fuel-burning power plants. We did many large projects, developed a reputation second to none in the hydroelectric power generation community and even made some money.
By the end of that decade, the hydro work had dried up ˆ pun intended, sorry ˆ and we started to recognize the value in the paper market we had been pursuing. We took advantage of our ability to change markets, and made a big effort to do more work for more paper companies. By 1996, the peak of our company's paper mill-era, we had a year-round presence in seven mills across Maine, New Hampshire and Vermont. We employed more than 300 people and made record profits. We had come to rely on the paper industry for 80% of our work. Nearly half of our volume in 1996 came from one mill in central Maine just 40 minutes from our office. Life was good. All of that work, close to home, with only a few customers to cater to for the majority of our revenue. What could go wrong?
Over the next five years, we lost six of those customers for various reasons. Some closed their doors before going bankrupt, while others weren't so thoughtful. One of the less thoughtful ones still owes us a six-figure balance that we'll never be able to collect. Some of the mills simply changed the way they contract work, looking to eliminate outsourcing or going to a sole-source vendor system that left us out in the cold.
Surviving the unimaginable
Most notable during this decline was the nine-month period between the spring of 2001 and winter of 2002, in which we lost two customers. In 2000, they equaled nearly 50% of our volume. One was the mill that still owes us money, and the other had been a steady customer, month in and month out, since we started our business in 1977.
Imagine, if you can, the emotional impact imposed on the entire company by losing its steadiest customer. Many of our ranks, including my father, Al Bancroft, and myself, had dedicated countless nights, weekends and holidays to performing emergency repairs for this facility. In the old days, my father could call them when our checking account was low and get paid a little early to help with payroll. In return, this customer knew that if managers called with an emergency, literally any time day or night, Bancroft Contracting would assemble a team to get them back into production.
During the winter of what was to be our last year there, we had 75 people working on that site ˆ 75 people in the winter! This was well over half of the people in the whole company. Any customer who keeps a large crew busy in the winter is, by our definition, a very good customer.
I found out over the phone that we had lost the account just six weeks after my father had made me president. How am I doing so far, Dad?
When we lost the customer that went bankrupt, we held out hope that things would turn around. But when we lost the second major customer, we knew that cuts were absolutely necessary. Through restructuring and position elimination, we went from 46 salaried management personnel to 25. We had to make brutal decisions in order to save the company. Our culture had been that, once you made it to being salaried, it was like having tenure at an accredited university. No longer. We laid off people who had been with us for decades. One was here when the company started. I don't wish that process on anyone, whether they are giving the bad news or receiving it.
We are now in the process of surviving this unimaginable, unanticipated change in our customer base. My estimate is that we are halfway to recovery. I would like to describe to you the precise 12-point program we are using to return to prosperity, but they did not give me one in college. Instead, we are actively pursuing new customers in need of our existing skill sets, while developing new skill sets required by our precious existing customers.
Today we do major maintenance work for five of the original seven paper mills we worked with, but we only have a year-round presence in one of the mills. (By major maintenance, I mean we show up for a week or two in the spring or fall, depending on their scheduled outage time, with up to 100 craft workers to fix their equipment and facilities.)
More significantly, we're getting back to our roots in the civil market. We've started an industrial electrical construction division, added a large hydraulic truck crane to our existing crane fleet to serve the booming modular housing market while also supporting our own rigging needs and those of others, and purchased a commercial/residential electric construction company and a fencing company. We also recently became an authorized dealer for Varco-Pruden pre-engineered steel buildings.
No coffee shops or massage parlors
Is there such a thing as being too diverse? There absolutely is. Conventional wisdom says you should have a solid core business and a diversified customer base. In our case, our core business is providing skilled labor along with materials and equipment to perform construction services under a contract. While residential electrical work and erecting fencing may seem like a departure from what we have done for the last 27 years, it isn't completely off the wall. We are not starting a coffee shop or a massage parlor.
Besides, the equipment and people are compatible, and the crossover business from "our" customers to the new electrical and fencing divisions' former customers has already paid off. For example, my fencing manager was bidding a job for one of his steady customers and he got us the opportunity to bid on a pre-engineered steel building construction job. We were the winning low bidder on a $200,000 project and we had never bid a job for this customer before ˆ nor did we know they ever needed construction services. Likewise, we have picked up several fencing contracts with our existing customers, who never would have hired the company I bought out.
I worry all the time that we are spread too thin, that we don't focus enough on any one type of work to truly master it. However, my experience warns me that by the time we specialize enough on one thing to be the best at it, the customers don't want it anymore.
It helps that I am blessed with an amazingly flexible and versatile crew, from top management down to the construction workers in the field. For example, the superintendent in charge of the oldest steady customer described above has been considered among the best mechanical superintendents that my company has ever seen. Today, he is building a four-lane bridge that carries Route 111 over the Amtrak line in Biddeford. Building bridges is a long way from tearing apart a pulp mill from stem to stern and then putting it back together again, but he has taken the transition in stride. The primary reason my company will survive is the flexibility and dedication of my crew.
And they really are flexible ˆ they've had to be. We've learned that, in addition to the vulnerability imposed by depending on a single market segment, there are drawbacks to catering carte blanche to a certain type of customer. In our case, the amount of overhead that the paper mills expected us to provide rendered us noncompetitive in other arenas. Specifically, the mills required us to have a superintendent, project manager, field administrator (the modern, politically correct term for time-keeper), and safety officer for every 12 to 15 craft workers. But the mills aren't our core customers anymore. In the new reality that is civil construction, the ratio for all but the superintendents is one to 65 craft workers.
Our crew had gotten used to the high level of support over the years, and it's been a struggle to wean them. Now, crew foremen need to fill in all the information on the timecards because there is no field administrator to fill in the blanks. And if it isn't on the timecard, we don't get paid for it. In addition, the superintendents and foremen were used to having a safety officer around to keep the work site safe. Today, with only three safety officers for the whole company, the entire crew has to be responsible and accountable for safety. It has been a tough transition and we are not there yet. The crew is resigned to the new reality, however, and I see improvement all the time.
The value of relationships
It has been a painful struggle to get to these new and allegedly improved ratios, but a necessary struggle nonetheless. When the paper industry shoved us out into the cold, the infrastructure that those companies had been willing to pay for was more than any other customer could afford. We were incredibly top-heavy, and our choice was to make cuts or go out of business.
Today we enjoy a more diverse customer base than at any time since 1977. In 2003 we did about 75% of our record 1996 volume with 165 people (compared to 300 in 1996). Fifty percent of our volume was spread out over seven customers, and only three of those were paper mills. Four of the top seven comprised less than five percent each of our overall volume. I consider this very good progress because we could lose any two of these customers and still survive ˆ a very different scenario than the one we experienced when we lost two customers that comprised nearly half of our revenue.
Among the things we did right during our first 25 years in business was to develop relationships with our workforce and our customers. My father started our business not as an experienced businessman, but as an honest, hard-working entrepreneur, highly skilled in the heavy construction trades, who possessed a keen sense of fairness. Two of the many lessons he has taught me are to treat your crew with respect, and they will perform their best for you; and treat your customer with respect by delivering on time what he paid for, and he will hire you the next time he needs your services.
These philosophies may sound obvious, altruistic or both, but I can tell you that they work. Of our crew of 150, 56% have been with the company for more than five years; 11% have been with us for more than 20 years. Moreover, for more than two decades, our entire marketing plan was based on repeat business.
I am content trying to be all things to all people, even though that is practically impossible. We consider almost any request for proposals carefully, and we're now providing services for customers who never dreamed of hiring us in the past. It is not easy; while building construction is booming today, there are many good contractors looking for work.
Our niche is not to be simply a low-cost provider of whatever trade we are plying. The concept of providing quality services for a fair price is alive and well here, and repeat business is still our number-one marketing tool. We are just working hard to avoid the nightmare of losing a large piece of our revenue stream due to a change in the economy. It's my hope that we have the plan in place to avoid that possibility.
By most standards, we were quite diverse in the services we offered our customers. We repaired huge machinery used to make various products, we welded process piping ˆ the carbon and stainless steel pipes that deliver steam, sewage, water and the materials that make up the finished product from one part of a plant to another ˆ and we built, maintained, renovated and demolished buildings used to enclose the machines and processes. We drove piles and built foundations. We performed preventive maintenance. We repaired boilers. We basically did anything our customers wanted, and we got paid reasonably well for it.
The tasks that we did for our customers were clearly diverse. The problem was that the customer base itself ˆ the paper mills ˆ was the opposite of diverse. During the 1980s, 80% of our work had been in what we call civil construction. We built dams and bridges throughout northern New England. The balance of the work was more mechanical in nature, and we did it primarily for paper and saw mills, as well as fossil fuel-burning power plants. We did many large projects, developed a reputation second to none in the hydroelectric power generation community and even made some money.
By the end of that decade, the hydro work had dried up ˆ pun intended, sorry ˆ and we started to recognize the value in the paper market we had been pursuing. We took advantage of our ability to change markets, and made a big effort to do more work for more paper companies. By 1996, the peak of our company's paper mill-era, we had a year-round presence in seven mills across Maine, New Hampshire and Vermont. We employed more than 300 people and made record profits. We had come to rely on the paper industry for 80% of our work. Nearly half of our volume in 1996 came from one mill in central Maine just 40 minutes from our office. Life was good. All of that work, close to home, with only a few customers to cater to for the majority of our revenue. What could go wrong?
Over the next five years, we lost six of those customers for various reasons. Some closed their doors before going bankrupt, while others weren't so thoughtful. One of the less thoughtful ones still owes us a six-figure balance that we'll never be able to collect. Some of the mills simply changed the way they contract work, looking to eliminate outsourcing or going to a sole-source vendor system that left us out in the cold.
Surviving the unimaginable
Most notable during this decline was the nine-month period between the spring of 2001 and winter of 2002, in which we lost two customers. In 2000, they equaled nearly 50% of our volume. One was the mill that still owes us money, and the other had been a steady customer, month in and month out, since we started our business in 1977.
Imagine, if you can, the emotional impact imposed on the entire company by losing its steadiest customer. Many of our ranks, including my father, Al Bancroft, and myself, had dedicated countless nights, weekends and holidays to performing emergency repairs for this facility. In the old days, my father could call them when our checking account was low and get paid a little early to help with payroll. In return, this customer knew that if managers called with an emergency, literally any time day or night, Bancroft Contracting would assemble a team to get them back into production.
During the winter of what was to be our last year there, we had 75 people working on that site ˆ 75 people in the winter! This was well over half of the people in the whole company. Any customer who keeps a large crew busy in the winter is, by our definition, a very good customer.
I found out over the phone that we had lost the account just six weeks after my father had made me president. How am I doing so far, Dad?
When we lost the customer that went bankrupt, we held out hope that things would turn around. But when we lost the second major customer, we knew that cuts were absolutely necessary. Through restructuring and position elimination, we went from 46 salaried management personnel to 25. We had to make brutal decisions in order to save the company. Our culture had been that, once you made it to being salaried, it was like having tenure at an accredited university. No longer. We laid off people who had been with us for decades. One was here when the company started. I don't wish that process on anyone, whether they are giving the bad news or receiving it.
We are now in the process of surviving this unimaginable, unanticipated change in our customer base. My estimate is that we are halfway to recovery. I would like to describe to you the precise 12-point program we are using to return to prosperity, but they did not give me one in college. Instead, we are actively pursuing new customers in need of our existing skill sets, while developing new skill sets required by our precious existing customers.
Today we do major maintenance work for five of the original seven paper mills we worked with, but we only have a year-round presence in one of the mills. (By major maintenance, I mean we show up for a week or two in the spring or fall, depending on their scheduled outage time, with up to 100 craft workers to fix their equipment and facilities.)
More significantly, we're getting back to our roots in the civil market. We've started an industrial electrical construction division, added a large hydraulic truck crane to our existing crane fleet to serve the booming modular housing market while also supporting our own rigging needs and those of others, and purchased a commercial/residential electric construction company and a fencing company. We also recently became an authorized dealer for Varco-Pruden pre-engineered steel buildings.
No coffee shops or massage parlors
Is there such a thing as being too diverse? There absolutely is. Conventional wisdom says you should have a solid core business and a diversified customer base. In our case, our core business is providing skilled labor along with materials and equipment to perform construction services under a contract. While residential electrical work and erecting fencing may seem like a departure from what we have done for the last 27 years, it isn't completely off the wall. We are not starting a coffee shop or a massage parlor.
Besides, the equipment and people are compatible, and the crossover business from "our" customers to the new electrical and fencing divisions' former customers has already paid off. For example, my fencing manager was bidding a job for one of his steady customers and he got us the opportunity to bid on a pre-engineered steel building construction job. We were the winning low bidder on a $200,000 project and we had never bid a job for this customer before ˆ nor did we know they ever needed construction services. Likewise, we have picked up several fencing contracts with our existing customers, who never would have hired the company I bought out.
I worry all the time that we are spread too thin, that we don't focus enough on any one type of work to truly master it. However, my experience warns me that by the time we specialize enough on one thing to be the best at it, the customers don't want it anymore.
It helps that I am blessed with an amazingly flexible and versatile crew, from top management down to the construction workers in the field. For example, the superintendent in charge of the oldest steady customer described above has been considered among the best mechanical superintendents that my company has ever seen. Today, he is building a four-lane bridge that carries Route 111 over the Amtrak line in Biddeford. Building bridges is a long way from tearing apart a pulp mill from stem to stern and then putting it back together again, but he has taken the transition in stride. The primary reason my company will survive is the flexibility and dedication of my crew.
And they really are flexible ˆ they've had to be. We've learned that, in addition to the vulnerability imposed by depending on a single market segment, there are drawbacks to catering carte blanche to a certain type of customer. In our case, the amount of overhead that the paper mills expected us to provide rendered us noncompetitive in other arenas. Specifically, the mills required us to have a superintendent, project manager, field administrator (the modern, politically correct term for time-keeper), and safety officer for every 12 to 15 craft workers. But the mills aren't our core customers anymore. In the new reality that is civil construction, the ratio for all but the superintendents is one to 65 craft workers.
Our crew had gotten used to the high level of support over the years, and it's been a struggle to wean them. Now, crew foremen need to fill in all the information on the timecards because there is no field administrator to fill in the blanks. And if it isn't on the timecard, we don't get paid for it. In addition, the superintendents and foremen were used to having a safety officer around to keep the work site safe. Today, with only three safety officers for the whole company, the entire crew has to be responsible and accountable for safety. It has been a tough transition and we are not there yet. The crew is resigned to the new reality, however, and I see improvement all the time.
The value of relationships
It has been a painful struggle to get to these new and allegedly improved ratios, but a necessary struggle nonetheless. When the paper industry shoved us out into the cold, the infrastructure that those companies had been willing to pay for was more than any other customer could afford. We were incredibly top-heavy, and our choice was to make cuts or go out of business.
Today we enjoy a more diverse customer base than at any time since 1977. In 2003 we did about 75% of our record 1996 volume with 165 people (compared to 300 in 1996). Fifty percent of our volume was spread out over seven customers, and only three of those were paper mills. Four of the top seven comprised less than five percent each of our overall volume. I consider this very good progress because we could lose any two of these customers and still survive ˆ a very different scenario than the one we experienced when we lost two customers that comprised nearly half of our revenue.
Among the things we did right during our first 25 years in business was to develop relationships with our workforce and our customers. My father started our business not as an experienced businessman, but as an honest, hard-working entrepreneur, highly skilled in the heavy construction trades, who possessed a keen sense of fairness. Two of the many lessons he has taught me are to treat your crew with respect, and they will perform their best for you; and treat your customer with respect by delivering on time what he paid for, and he will hire you the next time he needs your services.
These philosophies may sound obvious, altruistic or both, but I can tell you that they work. Of our crew of 150, 56% have been with the company for more than five years; 11% have been with us for more than 20 years. Moreover, for more than two decades, our entire marketing plan was based on repeat business.
I am content trying to be all things to all people, even though that is practically impossible. We consider almost any request for proposals carefully, and we're now providing services for customers who never dreamed of hiring us in the past. It is not easy; while building construction is booming today, there are many good contractors looking for work.
Our niche is not to be simply a low-cost provider of whatever trade we are plying. The concept of providing quality services for a fair price is alive and well here, and repeat business is still our number-one marketing tool. We are just working hard to avoid the nightmare of losing a large piece of our revenue stream due to a change in the economy. It's my hope that we have the plan in place to avoid that possibility.
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