Like a Weed... Spreadsheets Can Spread Out of Control!

Using spreadsheets in construction is a lot like maintaining a flower garden. You start out with a beautiful young plant, caringly and lovingly adding water and fertilizer as needed. Over time, though, the weeds begin to crowd out the flowers, and soon the garden becomes an impossible-to-manage jungle.

I know a lot of construction owners (especially contractors who have grown their small business into a medium-size company) who were once out-of-control gardeners. Their reliance on spreadsheets for financial data and reporting morphed into a complex, inefficient mess.

Despite the wonder and awe that spreadsheet users feel about their worksheet creations, these applications (gasp) might not be (horror) the best tool for up-to-date, accurate information, or flexible reporting capabilities.

Sure. We all love how quickly spreadsheets perform calculations. And how great they are for ad hoc queries, and what-if scenarios. But should you rely on spreadsheets for accounting and jobs analysis?

“Weed Wack” that data with software alternatives
Today, new software applications – in job cost accounting, project management, estimating, etc. – give you the horsepower needed to handle large amounts of data. They do it faster and with greater security than spreadsheets. And costs for construction-specific systems are relatively inexpensive (especially when you factor in improved productivity and efficiency).

Most importantly, construction-specific technologies provide what spreadsheets can't. They offer unlimited reporting capabilities, better analysis and quick consolidation/integration of data.
In general, the larger the size of you data (i.e. your increasing payroll, jobs, inventory, equipment, etc.), the more likely you have outgrown what spreadsheets can provide. More likely your needs will be better met by mid-level construction-specific software.
How do you spot spreadsheet trouble?

Here are a few signs of overdependence on spreadsheets:

• Staffers spend more time on the manual process of building and maintaining spreadsheets than they do analyzing the actual figures.


• It's impossible to get specific real-time information on the fly.


• There is no centralized source of data.


• Accuracy of the data is always in question.

Once you've identified your spreading spreadsheets, it's time to do what all smart gardeners do. Rev up that weed wacker! In construction, your construction-specific accounting software is often the most efficient tool you can use.

Keys for Growing a Construction Business: Keep Pace with Technology and Understand Operations, says Treasurer and CFO of Donley's Inc.

In 1981, upon graduating from Cleveland State University, Patrick J. Powers began his career as a public accountant doing auditing, tax, and consulting work for small businesses (and some contracting companies). Ten years later, Powers was recruited to become the CFO of Donley's Inc., a self-performing general contracting company. Since then, Powers has become an integral member of Donley's management team, helping the company grow in scope and revenue - from $40 million in 1991 to over $200 million today. Powers shared his thoughts and experiences recently with Fred Ode.


FRED: You've been on the business side of construction accounting for more than 17 years. What do you think you contribute most to Donley's?

PAT: The thing I spend the least amount of time on now is what I was brought in to do, and that's accounting and finance. My role here now involves all the financial reporting, all the banking relationships, that sort of thing. I handle all of the risk management - that is, our general council reports and safety reports. I handle all the insurance, bonding, HR, IT, and strategic planning.

In my early time here, I did not have a strong accounting staff, and so my biggest contributions were in that area. I was able to turn the company to where they had accurate and timely financial statements. Before I got here, Operations simply reported profitability to Finance once a month, and Accounting didn't really have a role in reviewing projects, progress and profitability. I introduced regular monthly sit-downs with all the project managers. They sit down once a month and go through their jobs with me, and with my controller, and report where they stand.

FRED: How was the response initially? Did you get immediate buy-in?

PAT: No, not at all. It took a while for them to realize that I knew enough about the process and enough about the projects. Really, what it took was for me to get out on the projects and have a presence out there so that the supervisors and project managers knew that I understood what was going on.

FRED: So your advice, then, to someone who is reading this interview is to educate yourself on the operations side of the business?

PAT: To be effective in the role of controller or CFO in construction, you've got to be present on the job. You've got to have a visibility out there. You've got to be willing to go out and walk the job, talk to the guys in the field and understand what they do.

FRED: Do you think that's unusual?

PAT: I've been told it's unusual, which I think is amazing. Probably about ten years ago, one of our board members was the former president of a large international construction firm and, frankly, he said none of the finance people he had ever got out and walked jobs.

FRED: That's my impression. I think they get caught up in their own work, and that probably creates that classic office vs. field mentality. To change direction a little, can you tell me a little about Donley's in general? What kind of work do you do?

PAT: We are a Design Builder and Construction Manager that self performs structural concrete. We cover Northeast Ohio, all of Virginia, and down into the Carolinas. We're a fourth-generation business, and it's still primarily family-owned. Our current president, Mac Donley, is fourth-generation. His father, Terry Donley, is chairman of the board. Myself and two other gentlemen, our executive vice president of operations and our regional vice president in Virginia, make up the ownership and management team.

FRED: How different is Donley's today, compared to when you joined the company in 1991?

PAT: At the time, we were a general contractor, but probably 60 to 70 percent of our business was self-performing concrete. This year, we'll do in excess of $200 million dollars, and we'll self-perform about 25 to 28 percent of that. These days we're running about 200 trades people.

FRED: What's your bread and butter type of work or job?

PAT: Bread and butter, historically for the firm, has been parking. That's probably the single largest line of business that we've had. For example, we recently completed the Cleveland Hopkins Airport garages.

FRED: What about the changes within the Accounting department. I'm sure there has been some.

PAT: There has. We are running COINS (accounting software) now, but they were on CMAS prior to that. They were on an IBM 36 back then. Terry Donley has always been very much a forward thinker. His background is finance so he had a real appreciation for that side of the business. He brought me on for that purpose: to bring some in-house accounting, finance and tax expertise to the company. Fortunately for me, Don Dreier and Mac Donley were being promoted into executive position levels, and they also recognized my skills and they gave me the opportunity to give back to the company.

FRED: That's great. How do you think Donley's sets itself apart from the competition in your arena?

PAT: Traditionally, what we've been able to do in Northeast Ohio is handle the very complex projects both from a technical standpoint and a schedule standpoint. When I say that, a lot of folks will say, "we can do that." But an example of what we've done is all the structural concrete for Jacobs Field (now Progressive Field). That was the most critical, crucial part of that job. We drove that whole schedule on the project.

FRED: Can you share how large a contract that was?

PAT: Altogether we had five contracts down there that totaled in excess of $60 million dollars.

FRED: That's a lot of concrete.

PAT: That wasn't all concrete. The concrete portion was probably $25 million, but we did the build-out of all the suites and the restaurants. We also did the Indians' administration building and one of the parking decks - the north parking deck. Other complex jobs, the Cleveland Botanical Garden, the Cleveland Institute of Music, those are good examples of unique structures, and those are things we have been able to do well.

FRED: From what I understand, there are two aspects of doing well on this type of work. One is bidding it correctly, and two is performing it. Do you agree with that?

PAT: You know, construction starts with the estimating process. That's where it starts for all of us, and I don't care if that's hard bid work or negotiated Construction Management work. You either have to have very good take-off and pricing if you're going hard bid work or you have to have really strong pre-construction abilities if you're going to do the CM-type work. So it really does start there. But there's a real tie, and I think the firms that do it the best have a close relationship between their estimating group and their operations group. And the firms I think that struggle - and if I look back over history at the jobs where we've had any type of difficulty - are the ones that do not have good operations input with the estimators.

FRED: That's the classic office vs. field problem.

PAT: Not just the field. I'm talking about it might be your project management group in the office just not working well with the estimators. The classic concrete contractor has a couple estimators in the back room. They get the job, they price it, they win the award, and then they hand it over to the operations folks and say, "Here, build it." That is not the best recipe.

FRED: Does your company work on this? Do you have an educational process, or do you have a culture that promotes a close relationship?

PAT: We have a culture that makes that a necessary part of reviewing every project. Operations needs to be involved at the early stages of any project that we're looking at so that the estimating group can handle the take-off, and they can handle the pricing. Hopefully they know enough about constructability, but you need to involve Operations early on to make sure that the constructability issues and the schedule issues are addressed prior to starting the work.

FRED: You've been involved in construction for quite some time. How has the industry changed since your first involvement, whether as auditor for Arthur Andersen or when you started with Donley's?

PAT: The issue that we all are having is labor. It's probably the biggest concern. I don't care if you're a union or a non-union contractor. People are having these situations. Skilled labor is a major issue. Seventeen years ago, when I started here, that was not the case.

FRED: Isn't this an opportunity for some young people if they wanted to get into the trades?

PAT: It should be, absolutely. But it's interesting. We have a generational thing here where a lot of people have been told for a whole generation that you have to go to college to raise yourself up and make a living.

FRED: What other things have you seen change?

PAT: Fortunately, what has to change is productivity in the construction industry. If you really look at it, productivity in construction over the last 20 years has improved just a fraction compared to productivity in manufacturing and other areas. If you look at the rest of the economy, it's easy to get two or three percent productivity gains over a given year, but in construction you're looking at two-tenths of a percent. So there's still a lot of old traditional thinking in construction, and it's still the way it was ten or 15 years ago. One of the biggest challenges we have is getting people to think differently about how to address or attack a task.

FRED: How do you try to do that?

PAT: Probably the biggest issue is better planning. That is one of the most significant things. For us, concrete is our self-perform business. So we've made significant investments in forming systems over the last ten years. They're not developed in the States. They're European systems that are more efficient and less labor-intensive to utilize. And that's technology. You know way better than me that our industry is way behind in technology. You've got to be ahead of that.

FRED: Are you utilizing document imaging now? I'm just curious.

PAT: We're doing scanning for approval purposes, but we have not put in a true document management, document-imaging system. That will be a major part of the new ERP (software we are considering) this year.

FRED: Your website says you use project-specific websites. How does that work and does it help with communications?

PAT: Eight or ten years ago, web collaboration got a lot of attention, and some of our techs and engineers starting telling us we could do it. We invested a bunch of money trying to put that together, and we do make it available on almost all of our jobs. It gives owners and really everyone the ability to go to our website and view the status of RFIs and submittals, pictures, and webcam video. But frankly we get very little use out of it. In reality, the hits are mostly our own folks using webcams, looking at pictures, and that sort of thing.

FRED: So are you using a third-party product or your own?

PAT: It's something our IT guys put together. We're looking at a couple products now, though, that have portal ability. It's an interface, and hopefully down the road people will start doing it. It's just an example of how far behind people are technology-wise.

FRED: Yeah, in my mind it's a no-brainer. Web collaboration is a must for companies like yours, but it's a paradigm shift to get buy-in from everyone. You need vendors, owners, workers, everyone to get on board. Speaking of technology, you mentioned you're looking at new ERP technology. Why? I know you started with a new accounting package in the early '90s, and now you're looking to change. Why is that?

PAT: You know, ten or 15 years ago we kind of took a best of breed approach to what we were doing. And it was hard because you didn't have a lot of integrated packages then. So we selected one of the better accounting packages at the time for self-performing contractors. We were primarily a self-performing contractor back then. We also started to utilize Primavera Expedition for our general construction and our CM work. We are a very heavy user of that, but there is no collaboration between the two.

FRED: That's the Holy Grail: that full enterprise solution. I'll be curious if you find it.

PAT: Right, I don't know if it's out there completely. But there are packages now that provide project management and document management as part of their overall job cost accounting, and that's kind of where we're headed.

Innovative Technology Solution Creates Atmosphere of Trust: An Interview with Lee Clark, President of Garber Brothers Precision Concrete

Garber Brothers Precision Concrete Inc. is a top-quality concrete contractor with offices based in Greenville, Ohio and (coincidentally) Greenville, South Carolina. Lee Clark, president of Garber Brothers talked with Fred Ode about an innovative time-card entry web interface, PC Time, that the company developed in 1999 and is currently marketing to contractors of all trades. When linked with compatible job cost accounting software, PC Time has the power to streamline payroll and production data entry for real-time job cost reporting. But the real advantage, according to Clark, is the product's ability to increase employee motivation and efficiency on the job.


FRED: Can you describe to me what PC Time is and how it works exactly?

LEE: It's a web interface that our guys use, either from home or from a kiosk at the office, to enter their time. Each of our locations -- in South Carolina and Ohio -- has its own kiosk. At the end of the day, employees can enter their time using the office kiosk, or if they don't want to do it there, they can go home, log in to our system and put their time in. Each kiosk is set up and locked down so they can only do certain things. It's a portal, or a place to get on the Internet. The office kiosk is actually just a computer with a screen that's mounted under glass, to keep dust out, and it has a vinyl roll up keypad.

FRED: Is it easy to use? How exactly do employees enter their time?

LEE: Employees select specific cost codes to put their time to. They only select the cost codes that are available to them. In other words, if one job only has four cost codes, those are the only ones available to choose from. Once their time has been entered, they get to see what their production rate is running at on that phase.

FRED: The program actually calculates labor productivity?

LEE: Yes, and this is where the motivation factor comes in. When production rates are good -- and PC Time will show if there is a savings in labor cost -- we give them half of the savings. They are going to get a bonus based on that.

FRED: How is that production rate determined?

LEE: It's determined by what we have in total costs spent to date against our estimated costs. If they have 60% of quantity in and only 50% of costs in, then they have 10% savings in labor. So all we have to do is take 10% of that total labor cost and represent it to them based on a percentage of hours each guy worked. If one guy worked 28% of the hours, he's going to get 28% of the bonus. Each guy may take a look at that and decide if he needs to take another guy on. An employee might say, "We can get this done with three laborers, not four, so I could get 32% instead of 28%." We can then take that fourth guy and use him somewhere else. So the employees get that money; the savings will be in their pocket.

FRED: Sounds like it encourages laborers to work efficiently and work as a team. What about individual skills and performance?

LEE: Another component is skill-based pay. Every guy is paid based on the number of skills he has. We have established a value per hour on learning each of the different skills in our industry, which is concrete. For example, if a guy knows how to set forms, use a laser, etc., he might earn 25 cents more an hour for this or 50 cents more an hour for that. But employees need to have 200 hours or more on each particular skill. Our system tracks all that and lets them see it on a daily basis.

FRED: How does it integrate with your accounting system (FOUNDATION)? How do you pull information in from other systems without creating a lot of work?

LEE: The whole system is written in .NET and in SQL. We are basically running the system between the two, through Internet information services and SQL, which is why we chose an accounting system that was SQL-based for seamless integration. In essence, the system goes out and extracts all of the data fields that we need from FOUNDATION, such as employee name, user code, etc. In fact, each employee's login is that person's employee ID and the last four digits of his or her Social Security number, all pulled from FOUNDATION.

The minute we set up a new employee in FOUNDATION, that employee is able to get on PC Time, because it's direct. All the information the employee sees -- the jobs, the cost codes, the cost classes -- is pulled from FOUNDATION. And time sheet information entered by the employee flows to the Payroll module. We hit one button on Tuesday morning, and that creates an import file. Our payroll clerk goes to FOUNDATION and imports the file in, processes it, and automatically takes it to a direct deposit file. It is sent directly to banks, and it automatically gets spread out to accounts and through ACH. It's all done within probably one and one-half hours.

FRED: That's pretty impressive. How large is your weekly payroll?

LEE: We have anywhere from 500-700 entries each week. All with different cost codes, including everything the employees worked on. So between our system and FOUNDATION, an employee's wages are calculated automatically, including incentive pay, overtime, vacation, etc.

FRED: How do you verify that what the employee has entered is accurate?

LEE: The superintendents verify the employees' time on a daily basis. When they go in to verify, if they see an error or a discrepancy, they correct it. Let's say an employee put in that he worked nine hours and he only worked eight. The superintendent changes the hours from nine to eight, and it creates a memo note that comes up on that employee's home page when he logs in the next day to put his time in. It tells him why it was changed. So if he wants to go dispute it, the matter can be resolved right away. It eliminates the problem where an employee gets his paycheck and says, "Hey, wait a minute! My paycheck is not right." We don't have any of that anymore.

The superintendent also evaluates or verifies the employees' skill level. Let's say a guy said he laid out the footings; he used a transit and laid them out. The superintendent will grade him by giving him a red, yellow or green check box. If he picks red, it means that employee really has no clue. Yellow means the employee can execute it but it still takes a little supervision, and green means the employee can perform work without any supervision. That's an ongoing evaluation. The employee will see that if he averages his 200 hours within the green, then he is going to receive the raise. But, if he still requires supervision, he knows it won't happen. If he can't do the task, he won't get the raise. It's his limiting factor. Instead of coming in and asking for a raise, every day he gets information and feedback regarding how close he is to getting a raise.

FRED: What happens if someone forgets to log in and enter his or her time?

LEE: Then that person can't put his or her time in the next day. And if the superintendent forgets, no one can enter his or her time in the next day until that's been done. That way, the sheets are being done and approved on a daily basis. So instead of waiting until the end of the week for everyone to enter their time and get it approved, it's all done daily.

FRED: Did you have a hard time getting employees to do this?

LEE: No, they have embraced it.

FRED: Even people who are not used to using computers?

LEE: It took a little while longer with some older employees, but the web interface is so easy to maneuver. It really involves very little keystroking. It's mostly just using the mouse and clicking buttons. An employee can log in and enter his time in probably less than five minutes. And the superintendent will come in and approve every one's time in about fifteen minutes.

FRED: After a while, I'm sure it just becomes a habit that employees do at the end of the day.

LEE: That's right. And because of the production factor, employees are anxious to see how they did that day. If they are hitting their production rates, the text actually comes up in green, and if they are not, it comes up in red. So most employees when they bring the time ticket up, they want to see green. If it comes up in red, they look to see what they have to do to get to green.

FRED: So all of this information is available to employees through the web portal?

LEE: It's actually a whole website. When they log on, they get a home page with news items that we share -- pictures, news of company picnics, all kinds of stuff. On the first page, we list employee anniversaries and birthdays, and all that information is pulled through FOUNDATION, our accounting system. It comes from their hire date and their birth date. The other thing we have on there, which is interactive, is a place for employees to go and make vacation requests. They can select dates and ask for paid or unpaid leaves. It will automatically create the payroll entry so we don't have to worry about time card imports or someone forgetting about inputting for that vacation day. And it shows them how much vacation time they have left so you don't have employees coming in and asking where they stand. It also shows them links to health care, dental insurance, 401K. They can actually go to any of those sites and look for doctors or dentists.

It's also a great way to communicate as a company. Some guys are leaving at 4:00 in the morning, others at 8:00 in the morning, and they are going to jobs that are in opposite directions. So they don't get to see each other. Maybe only in passing. This is a way we can communicate. Here's what these guys are doing over here. Here's what this crew is doing over there. Here are pictures of a job. Here's how it has grown.

FRED: And it's really an interactive website because you are collecting and disseminating information.

LEE: Yes, it's a total, full-circle interface. Another great benefit for us is that it allows us to keep a daily job sheet for every job, and it's all done electronically. So if we have to provide a data sheet to take to the general contractor to prove that work was done, for legal aspects, we have it. It shows every single employee who was on a job, how many hours they worked, what cost codes, and which phases were worked on. They often have a lot of notes on them, which can be typed in easily. For example, the job sheet might say, "We hit a gas line; something went wrong." And they can be printed off by job and used for dispute resolution.

FRED: How much time does this process save the company, do you think?

LEE: It's not really about the time. It's about the culture that it creates. It creates a very open, trusting culture. And that's not to say that it's perfect. We are constantly looking for ways to create more trust. But the whole purpose is to create trust, to get everybody working in unison together. So we're all working for the same thing: making more money and increasing profits.

FRED: Can you quantify it in dollars saved or revenue boosted?

LEE: I would say it stops erosion of production rates based on employees who get disgruntled. You should see far less erosion. Can you measure it? I don't know. I do know that a lot of headaches that many construction companies have to deal with when it comes to employees, we don't have. And it's all based on trust. You give trust, you get trust. If you keep employees down, they are going to do the same thing to you. They are going to steel saws from you. Because they feel like "You owe me."

FRED: Many contractors complain that they cannot hold on to good, reliable employees. It's one of the biggest concerns facing the construction industry according to some national surveys.

LEE: Yeah, and the solution is to either beat them with a stick or tease them with a carrot. The stick approach just doesn't work; it's a bad way to approach management, and the company can't grow that way. Labor attitudes have changed. The new labor pool of 18 to 35-year-olds, the Gen Xers and NEXTers, they come from a society where their parents have lost jobs, they've seen turnovers and they've seen what happens when companies are not loyal to employees. With that in mind, what they want is trust. They say, "I'll trust you, but give me some information. Let me see that the effort I give is recognized and rewarded." And it's not all about pay. A lot of it is about self-esteem. What this system does is it builds self-esteem. Guys, especially, like to beat on their chests and say, "Today I busted my ass, and the system shows me that I did. Look at all that green!"

FRED: PC Time sounds like a win-win solution for the company and the employee.

LEE: What's missing in a lot of companies is the loyalty factor, where workers think in terms of "we" and not just "me." This helps to get everyone together to work as a team. But it still takes care of the "me" because workers are getting a reward for their effort.

The Up-and-Coming 800-Pound Gorilla of Construction Operations Technology: HCSS Founder Shares His Growth Secrets.

Mike Rydin, president and founder of HCSS, a leading developer of estimating, field management, and dispatching software for heavy highway contractors, sat down with Fred Ode for a one-on-one discussion about the world of construction-specific software development. Rydin and Ode both launched their own software companies back in the mid-1980s, when most construction companies were utilizing little, if any, technology solutions.


Fred: Tell us a little about your history, Mike, such as your background and how it relates to HCSS and your founding of it.

Mike: I started HCSS in 1986 in the bedroom of our home, which was also the nursery. So it was the bedroom, the nursery, and also HCSS. I thought I could make that work, but after two weeks it was clear that it would not. So I had to drop the baby off at daycare during the day.

Fred: You were a one-person shop...and a programmer?

Mike: Yes. I left a construction company that had gone out of business, for which I developed estimating software. I had worked there for five years.

Fred: So that was really a customized system that you designed for them?

Mike: Yes, I developed the system for them, on mini computers, and then I rewrote it in the evenings for the PC.

Fred: How long did it take you to get it off the ground?

Mike: Well, I thought it would be easy, that all I had to do was advertise I had a product and people would buy it. But the first customer I signed was someone I knew, and I got $7,000 in revenue. And I didn't get my second customer for a year and a half.

Fred: Sounds like me. Took me a year to sell our first system.

Mike: That's how I would've been except I was a joint venture partner of my previous employer, so I already had a connection.

Fred: When did you hire your first employee?

Mike: After about a year and a half. Total revenue for the first year and a half was $7,000 plus about $20,000 in credit card charges. I didn't pay that off for about seven years.

Fred: So it took you a while. How long before you think you were legitimately profitable?

Mike: Oh it was 8 years before I was profitable.

Fred: How do you see that the construction industry has changed, particularly in software development? Overall, how has it changed since you've been involved, since the early 80's right?

Mike: When I started, the IBM PC with a hard disk was just coming out. And it wasn't even clear that the PC was going to make it.

Fred: Yeah, I didn't think it would ever catch on.

Mike: I agonized over whether to rewrite the software for a mini computer or PC. That was a very difficult decision in those days.

Fred: And ultimately you decided the PC.

Mike: I did and I ultimately chose right.

Fred: So, in your opinion, how have things changed over the past 15, 20 years?

Mike: Well from our standpoint, it's so much easier to sell software now. In those days, it was hard to convince people to use a computer.

Fred: That's right. In the early 90's, 50 percent of the companies that bought our system owned a computer, and 50 percent didn't. It was almost down the middle. Of the 50 percent that owned one, the vast majority did nothing on it, or they might have had a spreadsheet or two and that was it.

Mike: Spreadsheets had just come out so a lot of people in the engineering world were now given computer power for the first time. They were giddy with computer capability and what they could do with a spreadsheet so they weren't looking for packaged software.

Fred: Obviously people are much more receptive to technology, it's an expectation now.

Mike: In the next year and a half, I sold about five systems per month so I was on my way. But the next major point was a year later when I could bill them for annual maintenance, and the question was: Would they pay? Fortunately, they all did, indicating the software had value to them. Today everyone knows they need software. The only question is who to buy it from.

Fred: HCSS has experienced accelerated growth in recent years. What do you attribute that to?

Mike: Probably our users group meeting is the biggest factor. When we held our first users group meeting, we had six people attend.

Fred: What year was that?

Mike: It was 1989 and six people came. We sat around a table all day long and figured out how to improve the software for those six people. This year we had 977 attendees.

Fred: That's a huge difference. But I guess I don't see the direct correlation to where it has taken you, to where you are now in sales.

Mike: At these meetings, the customers help us improve the product so they're all really happy with it. They meet all the employees, they strike up friendships, they learn who's doing the support with them, and they talk to each other. When we come out with our new products, the users' group meeting attendees are the vast majority of people who initially buy them.

Fred: Okay, so your first program was HeavyBid and then your next one was HeavyJob and you indicated it took a full five years for that to bear any fruit, so to speak. And then you introduced Dispatcher. Those are your three product lines, correct?

Mike: Well we have two more now: Equipment Maintenance and a fuel tracking application called FuelerPlus.

Fred: How are those doing?

Mike: Our Equipment Maintenance application is new and still in beta. FuelerPlus was released earlier this year, which was very timely given current fuel prices. We are getting good feedback from our early customers.

Fred: Part of the reason you turned a profit, I'm guessing it's a combination of getting the name out, the marketing, but also the product development. I'm assuming it's really easy to underestimate what's involved to make a product really work.

Mike: Oh, it sounds very easy, but it never works the way you expect. You think you have this product that will meet the customer's needs, and you finish it and send it out there. And you put in things he doesn't care about, and you're missing key things that he has to have.

Fred: Which is what I always experience when we add a new module or something it's like "Oh my god, did we miss the boat?" And then you spend two, three or four more years getting it to where it needs to be.

Mike: Exactly! But that's just part of it. The other thing is simply market recognition, and that's why the users' group meeting is a way to get the entire market excited. For example, we introduced our Equipment Maintenance product at this year's users' group meeting, and there was so much interest in it that we had to hold an impromptu users' group meeting for two hours during happy hour.

Fred: You can't take away happy hour!

Mike: Well, that's what I would think, but they wanted to talk. It had been introduced in a class for ten or 15 minutes on "what's new and what are we working on." And they wanted to get into it in-depth. So a bunch of people skipped the happy hour reception we had and spent two hours in a meeting on it.

Fred: To summarize in a sense, one of the reasons for your accelerated growth is you've been obsessive about listening to your customers. You've been absolutely obsessive and proactive, not just waiting, but proactively going after them.

Mike: Yes. We're trying to fix our customers up and there are still so many things that are manual or under-computerized in our industry.

Fred: Exactly. So how do you see the construction industry in general, as far as technology goes?

Mike: Well it's clearly behind. Part of the problem is there are so many companies that aren't big enough. They just don't have IT people. They outsource their IT.

Fred: And you said they're behind, how do you mean?

Mike: They just haven't automated anything except basic accounting. The vast majority of the stuff the Operations people do day-to-day is not automated. Most people are filling out something that they can give to the Accounting department to enter, or they enter it themselves into their own personal spreadsheets.

Fred: What do you think are the greatest benefits your products offer to your clients? I realize you have multiple products.

Mike: Well, HeavyJob is an innovative product in that we're trying to turn the foreman into a knowledge worker. We started that concept back in 1998 partly because we’re an ESOP company, and we're trying to make our own employees understand how money is made so that they can help figure out how to do that.

Fred: Do you want to define knowledge worker for us?

Mike: Workers on the front line using information to make better business decisions today. People who really understand. They're not just told what to do; they understand what the objectives are.

Fred: Regarding the project manager, for example, how does HeavyJob help them become a knowledge worker?

Mike: Well, HeavyJob shows you the original estimate and how you're doing on a daily basis compared to the estimate. Because it is estimated payroll rather than actual payroll, it's not accurate to the penny. But it's close enough to tell you when you're operationally doing something wrong, and if you keep doing it wrong for another week you’re going to lose a lot of money. Project managers are usually already knowledge workers; what is unusual is giving that kind of information to foremen.

Fred: That makes sense.

Mike: Because most of our HeavyJob customers also have HeavyBid, we have the estimate to show them. In the estimate they can see not only the dollar amounts and the man hours but also what the crew makeup of the estimator was, any notes he had, and what he had in mind. All of that is available to the foreman, the superintendent and the project manager.

Fred: How do you get that information into HeavyJob?

Mike: When our customers win bids, they export summary information into their accounting system and at the same time very detailed estimate information into HeavyJob for retrieval by anyone working on the project. Then we send payroll and equipment time card information from HeavyJob into their accounting/payroll system.

Fred: Okay that makes sense. What I'm getting at is you just don't want people to be entering information twice. If your field people are entering labor it makes sense just to push it into accounting, if they're entering equipment, quantities completed I assume also?

Mike: Right. If I'm the foreman, I enter my stuff, and I check my stuff today and I see how I did today. And then I send the information in to the office, and everybody else in the office can see tomorrow how I did. And then it goes into the payroll system. And some people do their payroll daily, most people wait weekly, and it doesn't matter because we already know what the situation is. And then we just have to make sure when we get the final accounting numbers that they're reasonably close or find out why not.

Fred: So basically what you're doing is you're making your project managers and superintendents businesspeople.

Mike: Down to the foreman. Back in 1998, the idea that your foreman is going to be a businessman was unbelievable to most people. We call it knowledge worker, but businessman is also correct.

Fred: You're giving the field people an appreciation toward dollars, the numbers they have to meet, production they have to meet, timetables, etc.

Mike: And it's getting even better. The foremen were copying time cards and playing what-if games with them. But then they would forget to delete them. So we created a "what-if" capability so the foremen could experiment and see what would happen if they changed their crew or production. They could see what would happen with dollars in black and red. In the past you wouldn't know. You would say, "Well if I brought another piece of equipment in here, I might get this done faster." Which is true, but if that piece of equipment costs $200/hour more, you might get it done faster, but did you make more money on it? You wouldn't know that.

Fred: Okay, let's shift gears here. Ever since I could remember, I remember in the early 80's you would have these little round table discussions: "where is the future of technology in construction going?" The holy grail has always been the complete enterprise package - one end to end system that does everything. And to this day that hasn't happened. But have you ever considered creating an end to end enterprise package, like a one stop shop? What are your views on that concept vs. best of breed, for example?

Mike: We want to be the one-stop-shop for all the operations people and then we want to integrate with the accounting software.

Fred: So you want to be the one-stop-shop for the field side, in a sense?

Mike: If you're an estimator, foreman, superintendent, project manager, dispatcher, equipment manager, anybody who deals on a day-to-day basis with the running of the business where you just want to get the job done, then you're our guy. If you deal with numbers and you want to get those numbers to the penny or anything like that, you're not our guy. It's my belief there's a mental difference between the people who run jobs and the people who administer and account for stuff.

Fred: Right, they both serve a purpose.

Mike: The field guy says, "I've got to get this done today, and don't stand in my way with paperwork and procedures." And then there's that other group of people who have to make sure everything is done properly to deal with the IRS, investors, etc.

Fred: Yeah they have to worry about the surety and things like that - the insurance, liability. What about scheduling, for example, you don't really have that. Is that something you're considering? I mean, there's Primavera out there, and that would cover your end.

Mike: And Microsoft. We would never compete with Primavera or Microsoft on scheduling, so we make our stuff tighter and integrate with them.

Fred: So in a sense there's still certain parts that you're going to integrate with, as opposed to developing your own?

Mike: If there's something that's truly best of breed, and not just marketed as such, then we're going to work with them because we can't do everything better than everyone.

Fred: So actually you're pretty consistent with my philosophy which is that the total enterprise package, one stop shop for everything, end to end, including the field and the office is just not a realistic possibility.

Mike: Probably not realistic, although the customer doesn't care. The customer just cares that the stuff integrates and it all works. And they typically call us because of our reputation for support. We'll get calls for all kinds of things that are not ours. We'll get calls to help with spreadsheets, we'll get calls for their printer setup, for the network when they can't get their network guy on the weekends. It's 24-hour support, so we'll help them with their network.

Fred: I understand your industry needs 24-hour support, as opposed to our clients, the accounting side, who typically work a normal workweek. Now and then they might work an evening or weekends, but estimators might be up all night, right?

Mike: Very likely, if the bid is due the next day. If a state bid is due at 10:00 in the morning and your bid comes in at 10:01 a.m., it is ignored. So if you have a problem, if there's anything at all that's not working, you've got to call. If you got up at 6:00 in the morning or if you're still up at 3:00 a.m. and you're having a problem, you need help now because the state doesn't accept any excuses.

Fred: Can you explain how your calls are handled?

Mike: Twenty-four hours a day someone answers the phone. The phone rings in the Support department, and a support tech answers the phone.

Fred: Right, not a receptionist.

Mike: Nobody screens the calls. There are 40 people in the support department.

Fred: Which is pretty heavy. Some of them have multiple duties because there's not 40 people talking at once obviously.

Mike: No, there are not 40 people there at once. We have an implementation center on the floor above us where some of those people will be working with customers.

Fred: Is training ever an issue for you? Is it difficult to bring people up to speed even if you would consider your software easy to use?

Mike: For HeavyBid, it would typically be three days of training and you're up and running. Now, HeavyJob is a different issue because it affects everybody in the company. You have a lot of people with conflicting interests on HeavyJob implementations. So the product itself is not difficult. You just have to get everyone involved on board.

Fred: Yeah, I would compare, from our perspective HeavyJob parallels our issues more than HeavyBid. HeavyBid is, there's a certain structure to bidding and estimators know about estimating.

Mike: It's one department too. You just deal with a few guys normally, and you figure out how everybody's going to do it in three days. And you show everybody what to do, and you're done.

Fred: But with HeavyJob, you're dealing with different departments in the company, different agendas, different personalities, different attitudes.

Mike: Agendas and attitudes are the important part.

Fred: Once last question. Where do you see HCSS five, ten or fifteen years from now?

Mike: We expect it to be the 800-pound gorilla that helps construction companies improve the operations side of their business.

Oh No - Not Another Vacation!

Over the years my management team has come to dread my extended trips away from the office. And it's not because they necessarily need or want me at work. It has to do with what happens when I come back. You see, I’m one of those people who has learned how to relax on vacation. And when I relax...my business imagination runs wild!

Consequently I return to work filled with new ideas for the business, all of which seem like brilliant concepts at the time. Back at the office, I tend to wander the halls, looking for someone to share my ideas with. (My staff, meanwhile, has become very good at hiding.)

Of course I am exaggerating (sort of) since many of my ideas have contributed directly to the success of Foundation Software. But the truth is: change is always happening in business. And if you are proactive in making change, your chances for success in business will increase dramatically. Unfortunately, most business owners get set in their ways and business stagnates.

Quite often it takes a crisis to force a change. I have seen over the years, for example, many a contractor who is turned down for bonding due to inadequate financial reporting. My company gets a call, the contractor gets new accounting software, and guess what? The change ends up creating unexpected improvements and opportunities.

Not only does this contractor have the necessary reporting for bonding purposes, but they also discover that job costing is timely and accurate. They can now spot trends on jobs early in the process. Billings get out on time. Change orders are processed efficiently. Payroll gets out quickly and feeds directly into job cost. And all of this is done in a fraction of the time that it once took on their old accounting system.

But why must it take a crisis for many of us to change? Maybe change would happen earlier if every business owner would simply take the time (a vacation perhaps?) to relax and think. Let your ideas flow in a free form fashion, and try to imagine a crisis before it happens. What changes could you have prevented the crisis in the first place? What can you do better, faster, smarter or easier? What are your competitors doing? Talk with your peers...read the trade journals...and read books. Finally, let go of old habits. Let your mind go (and your spirit flow) so that you can embrace the potential in your business. Sound a little too Zen-like for you? Well moving from status-quo to proactive in order to bring positive change to your business first requires a mental change. (Taking a vacation from work doesn’t hurt either.)

Meet One of the Luckiest Contractors Alive...Bob Fortney

Fortney & Weygandt, Inc., headquartered in North Olmsted, Ohio, is a national account general contractor for the commercial construction industry.


Celebrating its 30th year of business in 2008, the company generated nearly $200 million in revenues last year on projects ranging from commercial, retail, restaurant, and lodging to healthcare, multi-family, and institutional.


Owner and founder Bob Fortney met recently with Fred Ode to discuss the secrets behind his company's longevity and success. Topping the list is Fortney & Weygandt's commitment to technology and innovative solutions.

Fred: Fortney & Weygandt serves a range of market segments. What do you like most about what you do in construction? What excites you? What is frustrating?

Bob: I'm one of the luckiest guys alive. I was put on this earth to do what I'm doing.

Fred: Obviously, you love your work.

Bob: I haven't worked a day in 30 years. Nothing is hard if you love what you're doing. You know when I first started this business, I knew everything there was to know about everything... and I grew probably about 1,000% a year since then. Now I realize how little I know about anything. So I'm constantly learning, constantly seeing things differently, and refining things. But to do what I am doing… I'm lucky and I'm blessed. I'm doing what I was put on earth to do.

Fred: What kind of work do you do exactly?

Bob: We do a whole slew of general contracting work, from retail to what we call "roll out work," which is old-time family restaurants, assisted living, education, anything other than industrial and single-family residential. And we do it all over the country.


Fred: Do you subcontract almost everything out, or do you have some self-performing?


Bob: I carry about 150 carpenters on my staff, but we subcontract out the vast majority.


Fred: I understand that even nationally you're on the leading edge with web collaboration and online tools. Can you talk about that and other initiatives that have helped to separate you from the competition?


Bob: Well we've been working on it a long time. We actually started http://www.constructionbidding.com/ , which is where we have private specs up on the web, about ten years ago. And we were, in my opinion, probably one of the first people in the country to put private specs up on the web. We did it before any of the blueprint houses or Dodge or Builders Exchange, or other people. We put together a system that allows subcontractors and suppliers to go on free of charge and download plans, specifications, and get notifications and communicate online with our systems. We were the only user of this system.

At one point in time, we were going to put it up for public use, but I made the determination pretty quickly that I'm a contractor, not a retail salesman of this stuff. So we use it only internally. Between the two sites - that is http://www.constructionbidding.com/ and http://www.fwprojects.com/ - which are both extremely similar, we average about 150,000 hits a week.

Fred: Maybe you can elaborate a little more. I understand where you put the blueprints up and the bidding, but don't you run your projects off this?

Bob: Well, we have other systems that we use to run projects. We have a system called SuperView, which is what all our superintendents use to do all of their recording and day-to-day paperwork and coordination of schedules. Basically, 100% of their communication is done through a synchronized computer system. Unlike most of our systems, this is not web-based - it's intranet not Internet - so that superintendents working at remote sites can work on it without being linked to the web. And then at some point in time, usually daily, this information synchronizes with our office. Everything they touch gets uploaded and everything we have for the superintendent gets downloaded into his computer. And that system has been in place about ten years. It's gone through several different upgrades, but it's been in place for about ten years. It is still state-of-the-art for projects and things like this throughout the corporation. Anybody who's live on the site can get whatever information they need quickly. And it can tie into their specs as well.


Fred: Do you have any plans for the future involving technology?


Bob: Right now, as we speak, we're in the process of bringing our website up to date. And we are re-doing http://www.constructionbidding.com/ to bring the technology up to date. We just finished an upgrade on SuperView, and I have a three-person IT team here that is constantly writing and upgrading and working on programs that we have internally and that we've developed over the years. Besides the programs just mentioned, we also have what we call FW Main, which is basically our estimating and internal project management software that we developed ourselves, and several other programs that have been designed over the years and need updating.


Fred: What else do you think separates you from your competitors in your market?


Bob: It's our entire attitude. We look long-term, not short-term. We work really hard in developing clients, learning how to meet their needs. You know every client is different and has different hot spots so we work pretty hard to learn those hot spots and establish ourselves as a part of a team. Just like Foundation Software is a partner with your clients, we try to be more than a contractor that people go out and check jobs, jobs, jobs. We want to be a team of construction professionals, much like they have a banking professional and a legal professional and a software professional. We want to be their construction professional.


Fred: Do you have a lot of established relationships, then, with customers?


Bob: We have a lot of established relationships with customers, including CVS/pharmacy, Applebee's, and Darden restaurants.


Fred: And that's a bread and butter aspect of your revenue generation you would say?


Bob: Quite a bit of it, yes, is repeat business.


Fred: Fortney & Weygandt is very successful, and you've experienced tremendous growth over the years. So the company has adapted well to changes in the industry. I guess my next question is twofold: How have you seen the industry change? And how did you manage to adapt to those changes?


Bob: Well, 30 years ago when we started this business, if all of a sudden you had a job with drug testing, you wouldn't have anyone on the construction site. The entire industry has changed in terms of safety and workforce over that time. Besides technology, I've seen a lot of changes that have occurred in construction technique and things like that. The reason I think we've grown so much is that most contractors develop themselves a niche, and their niche is generally one field within a certain area. - hospitals in Greater Cleveland, or Cuyahoga County retail, or something similar. We have a mass multitude of areas of construction, and we handle it nationally. So when Cleveland is dead, we don't work in Cleveland. We work in California, or Massachusetts, or Florida, or Tennessee or wherever. And when restaurants are slow we build hotels, and when hotels are slow we construct multi-family homes or retail or some other market segment. And in doing this it allows us to escape the ups and downs of a particular niche in a particular area.


Fred: So that begs the question: How are you able to adapt? The reason people create their niche is because they wouldn't be able to switch gears like you have. How did you manage to not only move within different niches within the same region but even leave regions and go into different areas, then adapt to the different structures and the different geographic marks? That's a major challenge.

Bob: I've got a good staff. Fortney and Weygandt is not Bob Fortney. Fortney and Weygandt is Bob Fortney and 200 other people. I've got a good staff, we work hard with them, they work hard with us, and over the years we've been able to develop together. It's not something that you can open the doors tomorrow and do. We've been working at it for 30 years now, and we kind of have it so that we understand how to do it and how to be successful doing it. But we don't, as a general rule do it for the mom and pops. We do it for the national accounts. We do it for the people that want to have a relationship with a professional contractor, and they want to have it nationally.

Fred: That makes sense. So if you were to advise someone… say 23 year-old Joe comes up to you and says, "You know, I want to do this and I've got some good experience." What would you tell him?

Bob: I would give the same advice that I give to my kids. Don't do it because you think you're going to get rich at it. Do it because it's what you love to do. You have to love what you're doing, and if you love what you're doing then you find a way to make money at it. But first and foremost, you have to love what you're doing. Once they determine this is what they want to do, my advice is to have a very, very, very good understanding of your costs and know how you're going to do on a job financially. So I would say to know your costs and to always remember that a good job lasts a short time, but a bad job lasts forever. Always remember to service your clients, be professional, promise what you tell them you're going to do, and then do it.

Fred: Since you're talking about knowing your job costs, when did you first use technology to help with that?


Bob: You'll like this... When we first opened up we bought a computer, and it was back in the day before Foundation Software or any other accounting programs for contractors was available. I went out and I hired a programmer to quasi-write me a job costing system, and I think I paid this guy $40,000 or $50,000. He designed this job costing system and he puts it in this computer, which was a pretty good piece of equipment back then. So basically, we put in two plus two and this thing just chugged and shuddered and smoked and everything else, and finally after three minutes it came up with the answer: three. At which point in time that program got shelved. And it took a few more years to get this thing through, but we tried to be as technologically advanced as technology would allow us to be. We've become more and more able to do so in the last ten to 15 years. Today we use ViewPoint, and we've been on that for eight or ten years.


Fred: Yeah, that's a good application, particularly for a contractor of your size. One last question outside of any comments you have. What do you think are the greatest challenges in the industry today? Not necessarily just for you, but for the industry in general?


Bob: Finding, training and holding on to good employees is number one. Learning how to adapt to the changing habits of the people you're dealing with is probably number two. I mean understanding their strengths and weaknesses and finding what they're looking for. And, number three I would say is dealing with the price fluctuations and escalations of weak subcontractors and vendors. In my opinion, within the state of the construction industry, you've got a small percentage of construction professionals, and you've got a lot of weakness out there. Many subcontractors and suppliers are weak because they just don't have the money, or they're far too busy to focus on being professional or financially strong.


Fred: I do find that a lot of subcontractors just don't realize that there's another way, a better way. They think they just do a job, and they don't realize they're a business. You talked about one of the most important things: knowing your costs.


Bob: That's right. You simply cannot run a construction business if you don't have any idea if the company has made or lost money for the year until the accountant tells you in March.


Fred: Can you take us back to 1978? What did the company look like then?


Bob: We started the business, Bob Weygandt and I, with $250. Bob Weygandt, after five or six years, decided that he wanted to be out of construction and get back into the architectural field. I've been the sole owner for about 24 years.

The Naked Truth About Construction Technology: A Conversation with Renowned Construction IT Consultant Larry True.

Fred Ode, CEO & Chairman of Foundation Software Inc., shares the following interview he held recently with Laurence C. (Larry) True, Managing Director of DR Construction Consultants LLC. With a background that spans more than 40 years in construction, True explains how he came to become one of the industry's leading experts on software selection, implementation and process management. He describes the slow but steady evolution of technology adaptation among contractors, as well as the kind of advice he gives companies that are looking to increase efficiency and streamline their operations.



FRED: Can you tell me Larry, what led you into the field of construction?



LARRY: Well, first of all, I got into construction kind of by accident. I had gone to The University of Nebraska for a year and a half and had no idea what I wanted to do. I moved to Colorado at age 20, got a job with a survey crew for the Bureau of Reclamation. I ended up on project that was constructing a dam and got hired by one of the contractors as a foreman when I was 23 years old. I was pretty green then.



FRED: You mentioned you went back to school part time. What is your education?



LARRY: I have a Bachelor's of Science in Civil Engineering. I did it going to school part-time. I was actually almost 30 by the time I finished. This contractor I was working for had moved me around for a few years so I could learn the basics, out in the field. Then they brought me into the office and started me as cost engineer and I became an estimator and scheduler. So while I was in the office, I took advantage of the opportunity and went back to school. I received an Associates Degree in math and science and then applied to University of Colorado.



FRED: So you had the best of both worlds. You had the practical experience – what every college grad tells you they don’t get in school – while studying the principles of construction. I would think the combination of the two was extremely helpful.



LARRY: I like to say that my career did more to help my education than the other way around. By the time I went back to school I really knew what I wanted to do. The practical knowledge that I had from working in the field, and from estimating and surveying, so much of my experience was directly applicable to civil engineering courses. It really made school have meaning for me.



FRED: What made you leave working within a construction company and move into the technology area?



LARRY: Well, construction technology consulting is kind of my 3rd career move. While I was working for this contractor, the company changed ownership several times and, after a while, I decided it was time to move on. A friend of mine had gone to work for a consulting firm doing construction claims work. It was a new company, and I felt it offered a good opportunity for growth. It turned out to be really interesting and challenging work.



FRED: What did you find most interesting about it?



LARRY: I think finding out that most contractors had horrible computer systems in those days. I became interested in learning about contractors' accounting systems and why they were so terrible. I had come from a construction company that had pretty good cost control systems in place and knew everything about all their jobs, their equipment costs and so on.



FRED: How did they do that? You must be talking about the mid 1960s through the 1970s, correct? Were they computerized?



LARRY: To an extent it was computerized. One of my first jobs was to take the ledgers off the job cost posting machine and transfer them to paper so I could get a concise report to field superintendents about how their jobs were doing. That was part of my work as a cost engineer. And then when they sold to another company that had a big IBM mainframe out in California, they began using something called the Monitor system. Later, our division was sold to another company headquartered in Des Moines, Iowa, and they went about writing their own system, also on a mainframe. It was sort of a copy of the Monitor system with their own little tweaks.



FRED: Sounds like your company had all the processes in place to be able to leverage whatever technology was available.



LARRY: Yes. For example, we had central purchasing, and an equipment management shop that knew what their equipment costs were. We knew what revenue had to be charged to the jobs to cover the equipment owning and operating costs. We had a budget for each piece of equipment. We knew how many hours a year it should run and how many hours it should bring back in revenue. Basically, all the things we preach to contractors today that they should do, but many of them don’t.



FRED: This consulting firm you joined in 1975. What happened there?



LARRY: They were working all over U.S. helping contractors prepare claims against owners for extras on job that they weren't being paid for, etc. And as I got into that, I realized that contractors had very poor accounting systems. Many of them were doing job cost with their general ledger. They would sometimes use a manufacturing software package or a general ledger system and were doing job costing but not much more. They were so poor compared with what I was used to. So I started saying, well if you're not going to build your own, is there anything out on there you can buy. So I started looking and found a few I liked.



FRED: So that's how you started researching accounting systems for construction?



LARRY: Well, around 1979 or 1980, I met a guy named Paul Levin, who had started a computer application newsletter called CCAN. I met him through another guy who was doing software research like me, only for engineering companies. Paul said, "Why don’t you come and write about it. I’ll identify systems out there and you can review them and write reviews about them for my newsletter." So that led me to start cataloging all this information, and first thing I knew people started becoming interested in learning what I knew about computer systems. That led into consulting and got me away from construction claims and into doing more IT related work.



FRED: Have you been pretty involved in the technology area since 1975?



LARRY: Yes, I still do a little bit of construction claims work and I do some other kinds of construction related consulting work. But probably 80% of my time is in technology and the business processes that surround it.



FRED: So in your opinion, how have you seen the software industry change over the past 20 years?



LARRY: I guess it's been more of an evolution than any revolution certainly. There are a lot more standardized software applications out there and a lot less custom work is being done. In other words, vendors have moved more toward software that is flexible and offers some leverage with set up options, and relates more to what the contractors will get out of it. There is definitely a lot less custom work going into setting up the systems.



FRED: So standardization is what you have seen in products, or customizable?



LARRY: Tailorable I would say rather than customized. In fact, you used to see almost every installation had some custom work. Nowadays I would say its probably one out of 50 that involves some custom. Typically, on the high end, maybe you will you see the possibility of some custom work. But very few mid-range products, and certainly none of the lower-end products, do you see any custom work.



FRED: How do you recognize software companies that are here to stay? Obviously over the past several years, some companies have struggled, some have gone out of business, some are just milking their maintenance revenues. Any way to recognize the successful ones?



LARRY: There are a few things that I look for. One, do they have ongoing stream of new business? That tends to indicated companies that are going to be around. They should have a pattern of growth and a pattern of new business. Why? Because you can't live on old business forever. Secondly, do they have a structure that is sustainable, both in company and in a product? If the product is not sustainable, i.e. it's an antiquated data structure and they can't adapt to the tools that everyone wants today, the price of getting there, as you well know, Fred, is horrendous. And the companies that did not start that 10 years ago are so far behind the eight ball now, they are probably never going to catch up. That would be a red flag for me. Finally, as far as the company structure is concerned, they have to have an active sales force and a good support staff and be able to give out good references, or nobody will want to do business with them. Altogether, those are the things I look at when evaluating a company.



FRED: Can I assume strong financials would be part of that too?



LARRY: Yes, I think it kind of goes along with all the others, although many software companies don’t have a lot of net worth other than their software. If they are consistently producing a profit and they've got sufficient cash flow coming from new sales and ongoing revenue to follow the growth and keep up the development work then they are doing fine. But they may never return a huge return to their investors as say a construction company. Software companies, as you know, are a lot like consulting firms in that your chief expense is the people. That's why ongoing new sales and ongoing development are so critical in looking at benchmarks of success.



FRED: And that is exactly why we continue to spend a tremendous amount on future development. Our cash flow is also extremely high.



LARRY: That's commendable. Taking a look at your return on revenues, I would say you are definitely in a minority.



FRED: Unfortunately, most contractors wouldn't think to ask these types of questions from software vendors. I assume this is where you would come into play as a consultant?



LARRY: One of the things people always ask me is: "What system do you recommend?" And I say, well, "I recommend the best system for you." The way I approach it is, I make the client make the decision but I make sure they don't make a bad decision. In other words, I lead him down a path to a decision so that they look at the right things and ask the right questions and focuses on the things that really matter to the bottom line. But in the end, the decision has to be the contractor's, not mine. The reason for that is if they make the decision, they have bought into it. If I make the decision, they can always throw it aside if things aren't working well and say, "Oh well the consultant told us this is the one to buy and it’s no good." I’m very careful about that and the only time I've ever been bitten by a systems selection is when the customers didn't buy into it themselves.



FRED: What kind of contracting companies does your consulting firm serve? What's your typical customer profile?



LARRY: It's all over the map, Fred. I’ve worked with GCs, heavy highway, mechanical, electrical, drywall, general building, big industrial contractors, steel erectors… you name it. Right now we seem to have a pretty big following in heavy highway, but I really don't know why that is. Seems like they are all upgrading their systems.



FRED: What size company?



LARRY: Typically the low end is around $20 million and the high end is up to $100-200 million range.



FRED: Your assignments generally have to do with technology, but not with business consulting, processes or people?



LARRY: A lot of time we do get into the process area when we get into system implementation work. Obviously we are trying to refine their processes to help them leverage the software they bought. And that's actually the more challenging part of it. And its one of the reasons I got into this area. You can take someone into system selection but if they don't implement it correctly, then they might as well have saved their money. I really like doing implementation work because we have a little better chance of getting the outcome we want from the selection process. Many times I see contractors go through the whole system selection process and then their users get involved who want to warp it all back to the way they have always done things. And that doesn't always work. In fact it very rarely works. So most of the implementation work we do is more about process, than it is about which button to push.



FRED: So how do you assess a client's need for technology? Do you do a needs-analysis? How do you go about helping them choose their technology?



LARRY: We take clients through the selection process using sort of a rating system. It's basically a check list that has evolved over the years and deals with all of the common differentiators among software: the things that make one software package different from another system. Having refined the check list over time, we look for specific things. For example, we have a contractor who is doing work in California where they have pre-lien requirements. So those are the kind of things you look for. Do they have a unique need that’s not going to be met in a variety of systems? Or do they have some special need which is going to focus them toward one set of software applications rather than another? We help them articulate that and put together a kind of a narrative about their company to take to the vendor. The checklist serves as kind of a reminder: Here are all the things the contractor says are really important to them. And then we have the vendors respond.



FRED: Who do you have involved in this selection process? Who is answering these questions?





LARRY: It's the users.



FRED: So that sort of ties of goes back to implementation. You're getting them involved pre-implementation.



LARRY: Exactly. You get them involved in the decision to buy the system in the first place. And then you get them involved in the implementation to have them rethink the processes that they are using. It often comes down to, "You said that you wanted this feature, now in order to get this feature, we need to work on this process over here in order to get it to do it that way."



FRED: Do you ever question why a contractor might do you do it this way, or why they might need that report?



LARRY: Absolutely. They may ask for some 'blue sky' things that you know they are never going to find in a system so then you ask, "Why do you need that?" Because usually we can come back with, "What if we did it this way?" You reframe their thinking so that they can actually achieve those results.



FRED: Can you give me an example of a 'blue sky' request a contractor might make?



LARRY: The VP of Operations says he wants to come into the office and push a button and find out how his jobs are doing. Well, I'll ask, "What does that mean to you? What pieces of information do you need that will tell you that?" Try to train their thinking into the way I know systems work in general, and then figure out a way to get this guy back down to earth so he makes a selection and finds something that will actually work for them.



FRED: So once you have an idea of which products might be appropriate you send the information out to vendors asking for quotes?



LARRY: We like to send the company narrative out to vendors so they know what they are getting into, and whether or not they want to quote. I also tell them how many users there are going to be and give them a classification of users, or generally what the experience level is like at this company. That way, the vendor can do some preliminary budgeting for the implementation process. Then the proposals come in so that the contractor has an idea of what he’s going to be paying to get what he thinks he wants.



FRED: As a software developer, I appreciate the fact that you classify experience levels. Many contractors don't consider whether their people are willing or able to learn new software. And that can mean the difference between success and failure.



LARRY: Exactly. We emphasize to our clients that they keep in mind the ability of their people to adapt to new systems. Because regardless of what some of them think they want, or what upper management thinks they want, they often don't have the skills sets in house to get there. In other words, they might be able to buy a well-structured system that operates in a certain way and if it's set up to operate to a point where their people would be able to use it. But their people won't ever be able to get them to the point where they could use it if it is too complex for them to develop a basic understanding.



FRED: So, what do you do when it comes to the tough choices? For example, Joe doesn't have the skills, and he is really hurting the company. Do you ever get involved in that side when there is obvious user resistance or incompetence?



LARRY: Well, you have to handle it very carefully, obviously. There could be some reason why that person is still there despite the fact that the person may appear incompetent. Usually there is a discussion with the powers that be. We might say, "You know, I think we are having some challenges here with this person and we either need to bolster them with more training or reassign their duties." Perhaps with more training, or putting them in a position that is a little more structured, the person can more handle the tasks competently. Or if we can move them to a new role that is little more structured that they can be trained to handle, then they can be successful and we reduce the risk of their failing or causing problems elsewhere.



FRED: I'm assuming that's one of the biggest challenges in your job: the people issues.



LARRY: Technology has gotten so good, that with the right people, anything is possible. A lot of


times, you get down to the last two or three systems in a selection and you know that any one of them could do the job. And that's why implementation is so important. Because if you could take any two or three and make it work, then you have to be influential in the process of making it work.



FRED: So if technology has gotten so good, why aren't more contractors using it, or using it effectively?



LARRY: Even though the software today looks easier to use than it did twenty years ago, it's actually a lot harder to learn because it can do so much more. And the biggest problem I find is that the software, in most companies, is much more integrated than the people. So as they go from a bunch of stand alone, unconnected systems, to a fully integrated system, the people have to work together a lot more than they used to. And that's a big challenge for organizations. It's a whole sea change in the way they do things.



FRED: Yes, I call that, in this order. People, then processes, then technology. In other words, you have to have the right people in the right places, and the processes in place, and then the technology can work for them.



LARRY: Exactly. Take a company that has been hand writing their purchase orders, for example. Well it didn't matter if they didn’t put their cost codes on them because they were going to do that when the invoice comes in. And it didn't matter if the quantities or the dollars were not right, because they were going to do that when the invoice comes in. But now when the invoice comes in it has to tie-out to the purchase order and if it doesn’t and the coding isn't on there then they can't even process the invoice. So the process involves everybody, from front to back, and its a whole different way of approaching their business than the way they used to do it.



FRED: So Mary Jo who handles purchase orders might say, "Oh this is so much more work." And in a sense, for her, it is.



LARRY: That's precisely it. One of the biggest challenges you have is convincing people that they have to change job assignments of certain individuals. For example, this person may be an AP clerk, but they are no longer going to be approving purchase orders. They are going to be handling the payable end of the purchase cycle where somebody that used to be writing POs (and then handed them off to someone else to worry about), now has to worry about all the cost coding. So now when they create a purchase order, they have to know which job it is for, what the cost code is, what the purchase price is and a whole bunch of information. Although it may be 10 minutes more work at the front end, what they don't realize is that they are saving about an hour of work at the other end of this process. Plus it puts safeguards in place, provides more accurate and timely information, and so on.



FRED: In other words, you need to convince people that changing their job tasks will ultimately benefit the company as a whole.



LARRY: Yes. And that’s the kind of thinking that's really hard to change.

About the Author/Interviewee
Fred Ode is CEO and Chairman of Foundation Software, Inc. of Strongsville, OH. As the founder of the company in 1985, he has spent 23 years developing job cost accounting systems for construction. He has managed the growth and development of the company and was integral in the design of Foundation's flagship product, FOUNDATION for Windows, which is today used by more than 2000 labor and equipment-intensive contractors throughout the U.S.


Larry True is Managing Director of DR Construction Consultants LLC, of Albany, NY. Since 1975, Larry has been involved in providing construction services to contractors throughout the United States and in all disciplines. With an area of expertise in system selection, implementation management and process management, Larry has hands-on software experience with more than a dozen integrated construction accounting, estimating and project management systems. He is an active member in many professional associations, has had numerous articles published in construction industry publications, and has been a frequent speaker for contractor organizations.

Always Be Sincere...Whether You Mean It or Not

As a secondary school teacher in the 1970's, I taught math and businesses courses to more that 160 students each year. Taking into account that I coached cross country, wrestling and track, attended numerous extra curricular activities and parent teacher conferences, and just plain interacted with other teachers, counselors and administrators, I had to deal with a wide range of people with different backgrounds, personalities, and communications skills. Since joining the business world in 1981, some things remain the same. From employees and customers to professionals, vendors and competitors – I have met, talked, worked and socialized with literally thousands of people in the business community. It occurred to me recently, that with the pressures and challenges of growing a company, it is the interaction with people that can be the most difficult. Human beings are a flawed species and at times, I certainly top the list! Hence, when I read the motto Always Be Sincere Whether You Mean It or Not – as ironic as it sounds – it made perfect sense to me.

Over the years I have met people who simply speak what is on their mind and the message is far from accommodating. You hear things like, "It's my way or the highway," "That's just the way I am and if you don't like it…, " " I know I am right and I just don’t give a …, " These are the people who claim to be authentic, but in reality, they come across as insensitive... or just plain rude. To be honest, I have said things that I deeply regret. As the words were coming out of my mouth I wish I could have pulled them back . Last year I upset a client by being a little too honest – or perhaps more accurately the word should be "blunt." In more than 23 years as the owner of Foundation Software I have unnecessarily caused some employees to lose sleep over something I said. Heck, I’ve lost plenty of sleep over things I've said. From upsetting a vendor to an employee to a customer, we probably all say things we regret.

We may have been sincere when doing so, but what did we gain? Human nature dictates that we practice diplomacy, give people the benefit of the doubt, practice common human courtesy and empathize with another person's position.

On the other hand, there are plenty of times when the cold, brutal truth is necessary in business. One of the most brutal is when you terminate an employee. Or fire a vendor who also happens to be a friend. The more subtle occasions are when you need to reprimand a subordinate or deliver some bad news to the CEO.

In the movie "Liar Liar," Jim Carrey couldn't help but blurt out the truth - with disastrous results. There are times when simply keeping your mouth shut is the best form of sincerity.
There was a famous football coach who was criticized for treating some players different than others. His response? "Well, they are different." Obviously in business you cannot show bias or prejudice, but the bottom line is: everyone is different and the delivery of your message may need to change with the person and the circumstance. At my company, for example, I know that there are some employees with whom I can just flat out say what is on my mind, while with others I must choose my words more carefully.

The most successful business people are the most honest, the most sincere. The greatest business people walk the perfect tight rope – they are always sincere, whether they mean it or not!

From Two Men in a Garage to Successful Drywall Business: How Ernie Pearn Built Cutting Edge Drywall One Wall at a Time

In 1992, Ernie Pearn, aged 28, and his business partner launched a commercial drywall business in San Diego, California. With minimal start-up cash, Cutting Edge Drywall operated from Pearn's garage and experienced some common contractor challenges over the years. Today, with an average payroll of 50-60 laborers and annual revenues close to $4 million, the company is a formidable player in the region's commercial drywall market. Here, Pearn talks with Fred Ode about his construction experiences, observations, and strategies for success.

Fred: So, you are the founder of Cutting Edge Drywall? How did you come to start your business?

Ernie: Well, we had visions of grandeur that it was going to be so easy and we would make so much money. Then reality hit us and we learned that that's not the way it really works in the business world. All the people we thought were going to come over with us, didn't. Both customers and employees.

Fred: Wow, that's classic.

Ernie: So, the first few years were definitely lean. They were tight, and we spent a lot of time trying to figure out how to make it work. At that point in time we were doing all of our accounting on a three-column notepad. Job costing, people's hours, and everything else. After approximately two years, we purchased a Peachtree accounting program, and the reason we picked them was they had a real strong job costing report. And we were with them up until 2006 when we signed on with Foundation Software.

Fred: What were some of the biggest problems you had in those first few years?

Ernie: Cash flow. That severely limited our ability to go get larger work. We were definitely pigeon-holed into the small-contractor category with a lot of the general contractors we worked with. They were very limiting on what they wanted to give us because they didn't know how much we could financially afford.

Fred: So, what size jobs were you doing back then?

Ernie: When we first started, a big job for us was 15-20 thousand dollars.

Fred: And how many people were you running in the company?

Ernie: Well, myself and my partner were out there doing most of the work ourselves.

Fred: Okay, so the business was all hands-on then, like "Two men and a truck," so to speak.

Ernie: We worked out of my garage. The typical start-up business, I guess, if that's how you want to look at it.

Fred: Knowing what you know now, what would you have done different?

Ernie: Boy, that's an interesting question. I would definitely say I would've done a lot more pre-planning on what I wanted to accomplish, and how legitimately we were going to do it. Fortunately for me, my business partner had experience. He's older than I am, and he had experience enough to keep my head grounded. I wanted to go lease office space and hire people on right away because I thought it was going to be a straight transition of exactly what we were doing. But had we leased space at that time it probably would've put us out of business within the first few months, because we just were not getting all the work we thought we would. So the old adage "don't count your chickens before they hatch" was definitely applicable.

Fred: I've seen new businesses spend all this money only to fail, exactly for the reasons you're saying. So can you tell me a little bit about your company now. For example, how many employees do you have, what type of work do you do, that sort of thing.

Ernie: We are typically running between 50-60 employees right now, in that range. We are a non-union, middle-step commercial drywall contractor. We do very little residential. On average, we do about $3.5 to $4 million in annual revenue. Fred: Your business is very labor-intensive, obviously.

Ernie: Correct.

Fred: What about your individual background? Can you tell us a little about your educational, training, or work experiences.

Ernie: I graduated high school in 1982 and immediately went into junior college. At that point in time I wanted to get into electronic technology. I wanted to be an electrical engineer. But I decided that I wanted to do it from the ground up, I didn't just want to take book knowledge and figure it out. I wanted to have practical experience, so I wanted to become an electronic technician and then become an engineer. After taking all the courses required to get my AS degree I went to get a job as a technician. However, nobody would hire me because I didn’t have any experience. I had a friend who was working for a construction company and I needed work, so I went to work there as a laborer. I began driving the truck and cleaning up jobs. And from there, within a year, I was the warehouse manager. A couple years later I moved up into estimating, and I soon became director of estimating. That's what I was doing when we started Cutting Edge Drywall.

Fred: So you pretty much just fell into construction and drywall. Do you know how common that story is? Almost everyone I interview, no matter what their profession is, they sort fell into their careers; it was never planned. As far as your company's growth pattern, is there a point when you really started to take off. Because 50 - 60 employees is a pretty decent size contractor.

Ernie: When we were running it out of my garage, I felt limited because we never really made the commitment to take me out of the field and put me in the office where my job was just sales. When we finally decided to do that, when we leased a space, that's when our company took off.

Fred: You decided to become a business instead of "two men and a truck", so to speak

Ernie: It was almost more of a mind-set that people looked at us differently because we weren't a garage business anymore. And it was my own mindset to handle it differently. When it was in the garage, I always felt that I was never really away from the office Getting that separation back between your home life and your office life was huge.

Fred: So, that's obviously the turning point. How would you evaluate your success and profitability? Do you consider yourself a reasonable player out there?

Ernie: Definitely. I do not have any desire to be the largest or the biggest. We're very comfortable where we’re at. Our growth model has always been slow and controlled.

Fred: And are you going to continue the growth?

Ernie: Absolutely. I wouldn't say I have a business plan that states I want to do this much within this timeframe. It's more, looking back at what we've done, we never bit off more than we could chew, financially and work-wise. We have always tried to increase our volume annually by 5 to10%.

Fred: Which is a good, healthy growth. Because you don't suffer much growing pains at 5-10% a year.

Ernie: Yeah, and it's been a long time in coming, looking back 15 years. I would’ve liked for it to be like this in the first year but obviously that wasn't practical.

Fred: So what do you think are the key reasons, the critical decisions behind your success? And what do you have in place to help ensure that you're going to continue to remain viable?

Ernie: We really try - and this is a constant ongoing effort – to place customer service as our number one priority. Because if we don't have the customer, we don't have profits to make. So we have to keep the customers happy. And secondly would be quality control. It's definitely an on-going effort. I don't think it's ever something that's achieved; I think that you're always working and striving to better

Fred: So basically you're saying you're never satisfied, you can always do better. I mean, that's a principle that we operate on You can never be comfortable with where you’re at.

Ernie: I'm a firm believer in change. I think if you become comfortable where you're at, you're stagnant. You always have to be trying to do something differently, better. Not huge changes, but you always have to be looking ahead, that something's going to change, the market's going to change, the competition is going to change, there's always a different element involved in business.

Fred: Can you give me some examples of that? I mean, the accounting system is an example, just saying okay, we needed better cost controls, etc. Do you have any examples of the sort of changes you've gone through?

Ernie: Well, in our office, like you say, putting in an accounting system, putting in an estimating system, were changes that we had to make.

Fred: What estimating program do you use?

Ernie: Quick Bid. It's a big system that you can purchase different modules, per se, for different trades. So you can use it under general contracting, you can use it for drywall, you can use it for ceilings. We implemented that about 5 years ago.

Fred: And what kind of benefits did you see from it?

Ernie: Oh, it's huge. I'm a very detail-oriented person, so I don't believe in looking at a drawing and saying "Well, it's two pages so it's a $20,000 dollar job." We go through and we break it down into how many screws we think we're going to use, how many pins, how many pieces of stud based upon what the framing requirements spacings are. We also break down our labor into all the different categories like framing, hanging, taping, supervision. If we're doing doors or anything like that, we add those add in. And the materials are always at correct pricing so we're constantly updating our material prices a much as possible. So it's in the details that we remain competitive.

Fred: Okay. Now have you aligned your job costing with that yet?

Ernie: Our job costing, yes. What I would like to do - and this is one of the things that we just haven't taken the time to get into it yet - is transfer data from our Quick Bid system directly into Foundation. Right now we are manually entering the data.

Fred: Okay, so your doing it, but you’re just spending some time you shouldn't need to spend.

Ernie: Correct.

Fred: I would suggest that you give our client services department a call so that you can get that set up. Now, regarding the competition in your area, is it a tough market?

Ernie: It's always changing. It's never been a "we feel we hold the market" in any way, shape, or form. I would say in the field of work, based on the size of jobs that we go for, there's easily 15 - 20 competitors. And as one or two go out of business, there’s always one or two new ones coming in the door.

Fred: How do you separate yourselves from the competition?

Ernie: I would say that the majority of our business, being 80-90% of it, is repeat business with the same customers that we've been working with.

Fred: So it all goes back to customer relations then, and service.

Ernie: It goes back to both those items again, exactly. We don't necessarily go after the hard-bid market where we're just a name that they see on the proposal. We want them to know who we are. Fred: So you might negotiate, you might put a bid in and then negotiate, if you're a little high.

Ernie: If we have that relationship with the contractor, yes.

Fred: I understand you are involved with ABC out there. Do you want to talk a little bit about that and any other associations or organizations you're involved in?

Ernie: We got involved with ABC about four years ago and I'm on the board here in San Diego. I think this is my 3rd year. Everything's been positive and it's been mutually beneficial. I support them financially whenever practical, and I definitely look forward to a long-lasting relationship with them.

Fred: What do you like about your end of the industry, and what do you like the least or what do you struggle with most?

Ernie: I would say what I like the most is the challenge to dig deep in this, business; that's kind of what gets your blood pumping and keeps you excited. Just being a business owner.

Fred: That excitement. That's how I look at myself, also. I happen to be in software, accounting, technology, but it could be anything. What do you like the least?

Ernie: I would say government regulation. One of our big issues here is illegal immigrants, and every time we turn around there are new laws being passed. It seems to be transferring the issue back to the employers. It first it started with the I-9 verification, and I-9 has just changed again. Now they're talking about the card-check type thing where they're going to be issuing certain cards for people. There's no formal training on any of this stuff; suddenly a law is passed and that's what you’re required to do and you’re fined if you do it improperly.

Fred: What kind of trouble can you get in if you make the mistake?

Ernie: Typically if it's the I-9 I think it's like $2500 per person. The fees can just get astronomical. OSHA can come out on a jobsite and fine you for things that you're required to know, but again, there's no official training on it. You supposed to go search all these things out. Which is great, but how do you know if you haven't missed something.

Fred: Right. Does ABC help out with this at all?

Ernie: ABC did offer a class that I sent our superintendent to which was an OSHA 30 hour course. It was extremely eye-opening for us, letting us know how many things we were doing wrong. And these are old OSHA regulations, not anything that's just come out. I mean I have been in this industry since ’84, ’85, and these are things I would never, ever have been made aware of working for anyone else, including much larger contractors than me. What I am saying is, these are things you're supposed to know. The law says "Ignorance is no excuse" but there's really nothing that helps contractors to understand the regulations unless you just happen to stumble across it. And I think that's one area where our government is seriously lacking.

Fred: Yeah, and I don't think that's changing. So it's something as a business person you have to accept it and learn to educate yourself I guess.

Ernie: Yeah, whenever we get mailers that come in from some of these companies that provide manuals, we generally get them because there's always something that we learn from them that we didn't know we were supposed to be doing.

Fred: Right. I think that sort of answers my earlier question: How has the industry changed since you started? Based on your observations, it seems like government regulations are getting worse and worse.

Ernie: I'd point to some other things too. Our labor force has changed dramatically. The production rates have probably gone down by almost 50% from what they were when I first started.

Fred: Are you serious? What's your theory on this?

Ernie: Back when I first started there was always a pride in the competition amongst the employees to better themselves, you know, it was "Well I got up 25 sheets today" and the other guy would say "Well I got up 40 sheets today." There was an inner competition, there was a pride in being the best guy out there. Nowadays you just don’t find that anywhere. If you tell a guy, hey on the other job they guys are getting up half again as much production as you, and they shrug their shoulders and "Oh well."

Fred: Do you ever consider paying a piece-work rate?

Ernie: We do that on a limited basis due to the fact that our quality control goes down when you do that. You might get more production out of it, but then you spend more time going back and fixing it, and the excuses you're going to get is, "hey, to get that kind of production this is what I had to do."

Fred: Now, is this since you started in business, or in the 80's when you started in the industry, seeing this happen?

Ernie: I would say since I started in the industry.

Fred: Okay. Now, obviously as a software developer, I'm always curious about contractors' use and attitude about technology. Can you talk a little more about that, how your company approaches new technology and how it utilizes it?

Ernie: We don't necessarily have any formal programs. I'd say if there’s something that I feel would benefit the company, I'll bring the idea into a manager's meeting and if everybody likes the idea then we'll look into it further, do some more research on it, to the point where we decide to purchase it. For example, we've run Nextel radios for many years, and Nextel offered a GPS product that went along with it. We wanted to have the ability to track where people were at what time, because we were having a lot of problems with improper information on timecards. And it seemed like a good idea. But after implementing it, I think it caused a lot of bad blood, and we felt that there are better ways to have done that, so we stopped using them.

Fred: Well, that's a side issue to change; When you take risks on change sometimes you have to say "okay it didn’t work" and it’s good to just back away from it if it doesn't work. So I commend you on that.

Ernie: It was more than "it didn’t work." It did work for the purpose that we thought it was going to work, but then there were other things that came up because of it that ended up outweighing the positives. It was almost too "big brotherish." There has to be a camaraderie and trust between employer-employee, and we thought that it was better to try and develop that approach rather than say, "we're watching you."

Fred: Yeah, rather than chase after the symptom, look for the cause and try to improve the relationship.

Ernie: Right.

Fred: What kind of advice, would you give a young, 28 to 30-year-old who wants to start his or her own new construction business?

Ernie: First of all, you're going to need a lot more money than you think you do. And that's due to the pay cycle of the contractors in the commercial industry. We do the work and we turn in our bill for it at the end of the month. Meanwhile you've been paying for your labor all along, and our philosophy in our company has always been we pay all of our material bills early to get our discounts on them, whether we've been paid for the job or not. And I look at that as a philosophical theme that, I bought the material from the material house, it wasn't the job that bought the things. So my reputation is based upon this and I always pay all my bills. So they've been paid regardless of whether or not I've been paid, and if I have to fight out in court to get paid, that had nothing to do with the material house, that was my doing. Some people do it differently and I know big business and that whole philosophy is you owe the money, but that's where I draw the line and I say this is my business.

Fred: So your advice is you need to start out with a cushion of cash.

Ernie: A much larger cushion of cash than what you would think. Because when we started the business we said "okay we need x amount of money, but we'll never use that much up." And boy we went through that amount of money in a heartbeat. It doesn't take much work, paying for the labor and material, and all that money is gone. But then you sign the next job and you're doing that one, and then you sign the next job and you're doing that one, and it’s 45, 60, maybe even 90 days from invoice date before you get paid for the first one. So that rollover of money is huge.

Fred: Any other advice?

Ernie: Definitely, it's an organizational business. You have to have all your paperwork right and read your contracts. Fortunately, I came from a company that had an in-house attorney who went through and read all the contracts and marked them up. And then we would send the contracts back to the generals with "we want to make these corrections" and they would be mutually agreed upon and moved on from there. Most people, at least in my industry, don't even read the contracts.

Fred: Really?

Ernie: They look at the dollar amount and they sign them. And I can't tell you how many times I'd get a phone call from a contractor and say "you know, you're the first person who's ever asked me that question. Why does it matter?" And I'll say "because it's a contract between me and you and this clause or term or whatever in unacceptable, that's why it matters. Before I endeavor to do this job this needs to be fair."

Fred: That's funny because I recently interviewed a construction attorney and he basically said the same thing. He said contractors do not pay enough attention to the contract, the scope of the work - what's included and excluded - and limits of liability. From his perspective, that's the number one mistake contractors make.

Ernie: As I said, I can't tell you how many times I've been told "you're the first person who's ever asked me that" when I've questioned a contract.

Fred: Now, you do this on your own, do you have a lawyer that you consult with?

Ernie: Most of it I do on my own. If there's something that I'm very unfamiliar with or I have questions about then I'll get on the phone and either call the insurance broker or the attorney. In most cases it goes back to insurance items, because that seems to be one of the things that's changing on a rapid basis is what are the insurance requirements on the job, they keep changing. Now it's waivers of subrogation.

Fred: What is subrogation?

Ernie: That is the liability on a project used to be shared and when you sign a waiver of subrogation, the general is subrogating his liability to you.

Fred: Which you don't want, obviously.

Ernie: Which we prefer not to have, exactly. But if they require it, our insurance company then charges us more because they're taking on more risk.

Fred: Right. But you make sure you're covered.

Ernie: Exactly.

Fred: Looking ahead, what are the greatest challenges that a contractor should be aware of?

Ernie: The greatest challenge that I see coming up in the future here is going to be our manpower situation. I think, if the government truly tightens the grip on illegal immigrants in our industry, it will have a severe and negative impact on construction. Right now, I would say 50% of the manpower that's here is probably illegal.

Fred: Really?

Ernie: And we have all our paperwork in line. But how do we prove that our paperwork is legitimate or not? If they truly crack down on that, that's going to be an issue, and we're just not going to have the manpower to do the work.

Fred: That's interesting. It does present a real potential problem. Do you have anything else you want to add?

Ernie: Just this: never be satisfied, and never stop learning.