Why Construction Companies Fail

The construction industry is ever changing and ever evolving and requires great strategy, knowledge, discipline and leadership.

This article aims to point out some of the main reasons why large construction companies have failed, and how you can avoid the same pitfalls.Identify candidates who are there for the long haul

It is safe to assume that no construction company is “too big to fail”. Since the 2008 recession, many contractors, some bringing in hundreds of millions, even billions of dollars, have had close calls or have even become insolvent. The industry is ever changing and ever evolving and requires great strategy, knowledge, discipline and leadership. This article aims to point out some of the main reasons why large construction companies have failed, and how you can avoid the same pitfalls.

The Wrong Leadership

This is one of the most common reason for the failure of big contractors. Having a good leadership is key in any business environment. Many companies undergo financial hardships after a change in leadership. It is critical that the successor be willing to make the necessary sacrifices, be qualified and most importantly, be ready to take on such a challenge. It is important also, before passing on the company to the next generation, that it is able to function without the current leader, it will soften the transition.

It is also key for the leadership to have a strategic mind and a vision for the business. With millennials now occupying a large portion of the workforce, studies show that they tend to perform better and stay longer in businesses where they agree with the vision.

Gluttony

This is also one of the most common mistakes made by contractors. Due to poor strategy and too big of an ego, a lot of contractors want to grow too much too fast. Scaling a business successfully is a very difficult endeavour. Having the necessary resources, manpower, etc. necessitates planning and experience. Planning the expansion properly, in terms of geographic areas and project size is crucial for its success. Do not try to bite off more than you can chew, be patient, and careful.

Too Much Change

This is often linked to the two previous points; it most often occurs in a change of leadership or an ambitious expansion plan. Too much change can overwhelm the workforce and the employers, leading to a disorganization and a failure to communicate properly. Changes should be made progressively and incrementally with a continuous assessment of their impact. When a new leadership decides to change too many things in the company, it can lead to employee dissatisfaction, and create more problems than it tries to solve.

Lack of Discipline

This point is linked to the leadership, but also to the workforce. Having too big of an ego to admit one’s mistakes or to listen to advice is a major cause of failure for any type of business. Contractors must work under constant pressure; it is therefore imperative that they be attentive to advices and to their own weaknesses.

Some of the most successful large contractors are extremely disciplined; they do the same things, the same way. Having strict and realistic objectives, methodologies and assessment mechanisms can be a huge asset to your company. It prevents an excessive and expensive bureaucracy, and provides a stability for the workers, and a knowledge as to what to expect and where to correct when there is a failure.

Capital and Cash Flow Management

This is also paramount, especially in the construction industry. In an industry where a single project can make a large contractor fail, the management of cash is crucial. Often, for contractors, the difference between a great year and a catastrophic year is situated between one and three projects. It is important that you seek out advices from experts and maintain an adequate capital base to withstand problems that are bound to happen.

Failure to Innovate

The failure to innovate has brought many companies to its knees in past decade; for example, General Motors, Blockbuster, etc. It is also true of the construction industry, which is now more than ever, going under transformation and digitalization. Being willing to adapt and innovate can boost productivity, efficiency, which will give you a competitive edge and situate you as a leader in the industry. Flexibility and adaptiveness are now, more than ever, crucial to ensure the survival of your business.

Conclusion

No company is safe from failure. By looking at frequently made mistakes, even by huge contractors, it is possible to learn from them. This article broadly goes over some of the most important issues, but multiple research papers have been done in this field. Being able to continuously learn and evolve is crucial in this business.