This article originally appeared on SMPS Boston’s website.
by Ken Lambert
I think that anyone that has been around longer than five years in the AEC community has walked past a half-complete project or heard some tantalizing rumor and thought to themselves, “Wow, I’m glad we lost that project!” While it’s unrealistic to think that every project you are awarded will be a “success,” it certainly is very prudent to try to minimize those kinds of disappointing projects – which can often result in financial and resource losses.
Intuitively, any owner/president/CEO of a company as well as anyone in sales/marketing/business development wants to win the project they are bidding on and chasing. That, of course, is the whole point. Without contracts and projects there is no revenue – and we know what happens from there.
The larger the project and the total contract value, the more we strive for it. Some of it is ego; personal ego or corporate ego. A medium-sized company that does around $50 million in annual revenue will make a big splash if they can win a $20 million deal. It would be a great feeling, a great win. A champagne moment!
Some people, more than others, just love the sound of BIG numbers. I used to work for a person that would do anything to win a big contracting project, even if it meant that we really couldn’t handle it and/or we would likely lose money on it. It does no good to sign a contract to build a structure for $20 million if it will cost the winning service provider $21 million in total line-item costs. We used to joke about it quietly, saying that we will just make it up in volume. But no matter how many jobs you do that lose $1 million, you won’t be able to “make it up” in volume or efficiencies or discounting.
Writing for a publication prior, I’ve interviewed many very successful business owners in the AEC industry. Most admit that one of the keys to their success is staying in their lane and knowing when to say “no” to a potential project or contract. When should a suitor say no?
- Bad personality mix: Sometimes everything might make sense on paper, but it is evident from the various meeting and phone calls, etc. that it just won’t work on a personal level.
- The building or scope or niche is outside of your main focus, expertise, and experience: People take projects that are outside of their wheelhouse for a variety of reasons, but there are significant data and anecdotes available that show that it often does not work out.
- The project is just too big, value-wise, for you/your firm: This is different from the note above. If your firm normally handles 20 projects per year that each bring in about $200,000 in revenue, then maybe it will be a stretch to take one project that offers $1.4 million. Perhaps it is more complex, and/or maybe you don’t have enough resources or the right personnel to take that larger contract.
- Client/prospect is only interested in a low price: All service and product providers need to be competitive – that is a given. In a fairly normal scenario, X might be the market rate, and your proposal is likely somewhere between X-10% up to X+10%. If a client is solely focused on doing the project for X minus 25%, then for a myriad of reasons they likely will not be a good match. For one reason, they don’t seem to value who you are or what you do and can provide.
- Gut feeling: Sometimes you just feel that something is not right, and you can sense that you would be taking a large risk. Maybe you would be left without much protection if the project goes south.
There is an adage across all fields that nobody remembers the projects that went fine or well, but everyone long recalls the nightmare or “loser” projects. While some might be unavoidable, some better decision-making upfront is key for the fiscal (and other) sanity of your business.
Ken Lambert works in new business development for Red Thread’s Architectural Products department.
