Episode 9: 10 KPIs For A Building Company With Erik Cofield

In episode nine of the Professional Builders Secrets podcast, our host, Bosco Anthony is joined by one of the executive business coaches at APB, Erik Cofield. Throughout this episode, Erik shares the 10 key performance indicators (KPIs) that every building company should be measuring.

Erik is a strong believer in education and believes that knowledge delivered objectively is what has helped him to resonate with hundreds of builders in over two decades in this industry. Erik joined the APB team to help transform the residential construction industry and reach more professional builders in North America and around the world.

In this episode, Erik discusses why it’s so important for builders to set and monitor KPIs in their building company’s. He also reveals the most important numbers you need to ensure you’re across in order to grow your building company. 

Tune in to the full episode now to hear about the importance of setting goals and KPIs and how monitoring the 10 critical KPIs can help builders scale their business safely and securely. 

 

Erik Cofield - Executive Coach at APB 

Erik Cofield is a Certified Graduate Associate with the National Association of Home Builders (NAHB) and a senior level business strategist, manager and revenue generator. He has provided management consulting services for custom home builders and remodelers of all sizes throughout his career.

Connect with Erik

 

Timeline

1:09 Erik’s background.

7:22 What Erik loves about the residential construction industry.

8:46 Should you set goals and KPIs? 

12:22 How Erik helps his client’s transform their businesses.

16:00 Why it’s critical to monitor your KPIs. 

20:20 The 10 KPIs you MUST understand and monitor. 

29:40 How financial awareness helps builders succeed. 

31:48 The impact coaching can have on your financials.

37:25 The three risks limiting builders' success. 

42:08 Preparing builders for the future. 

 

Links, Resources & More

APB Website
APB on Instagram
APB on Facebook
APB on YouTube

Join the Professional Builders Secrets Facebook group for builders & connect with professional builders world-wide.

Bosco Anthony:

Hello, and welcome to the Professional Builders Secrets podcast, a podcast by the Association of Professional Builders (APB) for building company owners, general managers, VPs and emerging leaders. Here we discuss all things running a professional building company from sales processes to financials, operations, and marketing. Today I'm joined by Erik Cofield, located in Houston, Texas, Executive Business Coach for APB. Erik, welcome and thank you for being here today.

Erik Cofield:

Thanks Bosco. Happy to be here.

Bosco Anthony:

Erik, let's start off with what compelled you to join APB. You've got quite an illustrious career as well. I'm curious to know what really got you involved in the first place?

Erik Cofield:

I've been in this space, that is – helping builders with business process software management – for 26 years now. I had my own consulting company; I've helped builders with software issues. It's a little bit strange that I have been on both sides of the desk. I was the Chief Operations Officer (COO) of what was at the time the most award-winning design build company in Houston, and then I was the VP of sales with BuildTopia and CoConstruct. 

Erik Cofield:

When I was with CoConstruct, I met Russ Stephens and the folks who are running APB. Because I had my own consulting company, it was just very natural for me to close down that company after many years. Hurricane Harvey flooded my houses and it was devastating financially and emotionally.

Erik Cofield:

I made the decision to go back to work on a full-time basis. I was doing fine with my little consulting company actually, but I made the decision to go back to work full-time with a bigger company, and APB already had created this vast level of resources that I could really never create myself. So, it was a perfect fit and here I am.

Bosco Anthony:

It sounds like the perfect blend. Tell me a little bit more about your background. You obviously do a lot of executive coaching now, but how did you get into this? How does one fall into coaching?

Erik Cofield:

It's a little bit of a strange door, but it’s interesting. I was providing technical solutions to companies and one of them needed some business analysis work for one of their subsidiaries, which turned out to be a web development company that was doing web development for builders. I ended up doing that work and then staying with that company. I've never stopped solving business problems for builders since then. That was 26 years ago, but what I realised is that although I didn't know construction science, I knew that business and builders then and now still need help running their businesses.

Erik Cofield:

I've bought and sold some smaller companies of my own in the years in between there. When I first came into contact with builders, I realised that while I didn't know construction science or how to prevent moisture from getting into the foundation or any of that stuff, I was ahead of them in terms of business acumen and business processes and standards. I liked builders; my dad always wanted to be a builder, so I just naturally stayed with builders. Here I am 26 years later, having helped builders in all kinds of ways with their businesses.

Bosco Anthony:

You're also around leaders. In many ways now, a lot of the people you're coaching are leaders of today as well, and APB is a thought leader in their space today. What does that mean to you? What does thought leadership mean to you today when you look at what's happening in the world?

Erik Cofield:

Leaders take people where they would not go by themselves. Thought leaders, to me, help others expand their perspectives or broaden their ability to see wider implications, to think strategically. Moreover, I believe that we, as thought leaders, should not just help others expand that narrative or expand their perspective, but I really feel that we should be doing it with good intentions. I think all leaders of any kind have a burden of responsibility. That's what thought leadership means to me: helping people widen their perspectives.

Bosco Anthony:

Do you feel you're living your life's purpose? I know it's a hard question to ask, but do you feel like your purpose is aligned with the work you do today?

Erik Cofield:

Yeah, I really enjoy it. It's a little interesting how I know this. In third grade, I was the only third grader who was approved to be a student cadet. During the staggered recess times, I would go down to the first-grade classes and help first graders, and I loved it. I thought, and I think my family all thought, “Oh, Erik's going to grow up to be a teacher.” That just seemed like a given. I was a student cadet through the rest of grade school, actually. However, I learned very quickly that teaching didn't pay very well and I was more addicted to money than to being a teacher.

Erik Cofield:

I was working by the time I was a teenager; I had my own jobs. I grew up dirt poor in a giant family caring for little ones while I was only maybe 10 years old. I think that really changes you. I'm quite sure that changing diapers at 10 changed me as a person for the rest of my life, and I have just grown up helping people. I've done a lot of volunteer work and I enjoy it. I think that might make me a rather horrible salesperson, at least with some companies, but I succeeded in sales at BuildTopia and CoConstruct, because those were companies that allowed and wanted me to tell the truth and to educate.

Erik Cofield:

I still think that education is the best vehicle as a foundation for change, and sometimes that change includes sales. Now I'm not in sales, but I have been in sales in the past. This industry is more complex than people realise, and it's changing, which I find very interesting. For me to help builders change is very much in line with what I've been doing since third grade. I like that. I'm unapologetically one of those people who likes to help people. If I can make a living and live my life doing that, all the better.

Bosco Anthony:

Yeah, it's definitely a powerful shift when you can align the work you do with the purpose that you have in life. I think it's that you look at everything with a different appreciation, a different set of lenses as well. So, I could appreciate that as well. Let's get into the building industry a bit. What excites you about the building industry today? There's so much change happening around the world. I'm always astounded by the correlation between the different building experiences in different parts of the world as well, but what's really exciting you about the industry today?

Erik Cofield:

The industry is full of change. When you see the change that it's doing with society, I think that's exciting. When you see the transformation in people's lives, that's exciting. It’s exciting when you realise that the work every home builder does impacts a lot of people, not just themselves and their family, but their employees, their employees' families and the people they're building homes for. All of that is exciting to see society change and develop and grow. 

Erik Cofield:

Part of the excitement is that I am good at helping them run a better business. Everyone wants to be appreciated, so if I'm helping them and they are showing their appreciation back to me, I feel like I'm doing a good job. I feel that that's very rewarding. When I look at the future of our industry – foldable houses and the whole tiny house movement that I never would've guessed when I started 26 years ago – there's a lot of changes going on, and that's interesting.

Bosco Anthony:

The theme of this podcast episode is all around goals and key performance indicators (KPIs). What is your mindset around the value of creating goals? If you are in the construction residential, business space as well, how important and crucial is that, moving forward?

Erik Cofield:

Well, it's critical. I think we all create goals, even if we don't articulate them to ourselves. If you're floating through life, that is in and of itself a decision really. You cannot manage what you're not tracking or paying attention to. Goals, whether personal or for business, are one of the fundamentals that has to be in place to succeed, I think. For example, if the goal is to go to a pizza place but your GPS does not know where you are, even if the GPS knows that there are 10,000 pizza places and it can sort them by distance, it cannot help you get to any of them because it doesn't know where you are.

Erik Cofield:

Knowing where you are and where you want to go is critical. You really have to know where point A and point B are to craft a roadmap to get there. That's essential. It's not always verbal or obvious with some people, but I do think that they have goals, even if they're conceptual at some point. But I think to realise success, a business has to have goals, especially if they want to reach that goal without a lot of missteps and costly mistakes.

Bosco Anthony:

Let's look at it from the lens of the builders. What are some of the common pain points that you work with, when you work with a client for the first time? As you navigate through these pain points, what are some of these key areas that you're really focusing on?

Erik Cofield:

The builders who I work with are good people. I genuinely like my customers. They work hard. Many of them are not making the money that they should be making. Many builders just simply don't know what they don't know. The builders I work with were already way ahead of that because they were seeking new processes, new systems, new methodologies. 

Erik Cofield:

I have the pleasure and privilege of just working with builders who've taken the action to change their businesses. Now, many builders are not yet at that point and they're doing things more manually, more slowly, in a more difficult and less effective way. So, they've got poor cashflow and they're struggling to grow. Many are not able to do the parts of the daily work that they actually enjoy or are good at. They're wearing way too many hats.

Erik Cofield:

You see them do their organisational chart and it's their name, their name, their name, their name, their name, their name written next to every job. It's because they don't have the cashflow and the investment money to really grow their business. Those are the pain points. They're stagnating or flat-lining instead of growing. But also, along with that poor cashflow, not doing the work they enjoy, that has an impact on their quality of life, too. 

Erik Cofield:

A lot of them work until 11 o'clock at night managing their QuickBooks and things like that and those are some of the pain points. It gets more detailed if there are two business partners or a husband and wife. Let's say a husband and wife were trying to manage their business. If their business isn't going well, it almost can't help but spill over into their private life. So there's a lot of problems that are peripheral to the builder's business when they're not running an effective business. Even if they're slightly profitable, they're not nearly as profitable as they should be. So they’ve got all kinds of pain issues.

Bosco Anthony:

Erik, how do you spark that transformation? How do you motivate or inspire people to want to transform where they are, the pain points, and how do you keep them motivated to pursue that end goal?

Erik Cofield:

You always start by asking questions. You ask them things like what do they want to get out of their business and what do they want to do with the money that they're hoping to earn. Because at the end of the day, it's not the money, it's what the money does for you in life. On the flip side, I don't really think you can help anyone transform anything unless there's some sort of foundational understanding.

Erik Cofield:

Again, it goes back to that point A and point B: where are they now? What do they want to achieve? That kind of thing. Not every builder wants to achieve the same things. Not every builder wants to sell more projects at higher profit margins, for example. That may sound amazing, but some are focused on slowing down, making the same amount of money, but doing less work, or some of them have a few years to position their business to hand to the kids and retire. They don't have a long runway, so to speak.

Erik Cofield:

Once that's understood, then all I really do is help builders understand and implement the APB protocols and systems, which impact every discipline of their businesses. When they understand what they want to achieve – whether they're in their 20s and they want to grow to millions and millions and millions of dollars, or whether they're in their 60s and trying to craft an exit strategy – when they understand that that is attainable and achievable, and that there are formulas and processes to get there, then I think they start to realise that it's achievable for them personally as well. 

Erik Cofield:

All I'm doing is really making a match between the builder and the APB protocols that we know have worked for over 2,000 builders in over 10 years and five countries. The builder can't really tell me that this isn't going to work for them. They may not be emotionally ready for it and they may have some other things going on, but if I'm asking the right questions and I understand what they want and I can help them realise that what they're trying to do is really genuinely achievable but that there's a formula to do that, the very next question is, “Okay, great. What's the formula? How do we do that?” Then we go into a business strategy discussion and keep moving on from there.

Erik Cofield:

I think a lot of times they come to the table not really believing that they can achieve what they want to achieve. But when you show them data and facts and numbers and metrics and start talking to them about how they can do things, they get excited because, suddenly, they have a paradigm shift in their mind, where they realise, “Hey, this is actually real. I can really do this.” That's exciting for them and it's exciting for me. Obviously, no one can just download all of these things from the internet. It requires rock solid listening skills, communication skills and education skills. From their perspective, there's work to do, but knowing what to do and what's required and when to do it and so forth, that's all part of the journey.

Bosco Anthony:

Let's talk now about KPIs. You talked about the importance of goals and obviously KPIs are those milestones to help you achieve those goals. Specifically for the builders today, why are KPIs so important, moving forward? We'll get into what some of these KPIs are, but let's start off with the holistic look. When you're setting the tone, when you start working on the coaching and building the education and giving them the tools to implement moving forward, why are KPIs so important?

Erik Cofield:

KPIs are really critical, essential, mandatory. Those kinds of words come to mind, but how do you manage or impact or correct things that you don't know about, you're not tracking and you're not managing? At APB, I'm working with builders who already want to change their businesses. The KPIs are a measurement tool of where they are now and also help indicate what you have to do to get to where you want to go. 

Erik Cofield:

The builders who I work with are more advanced in terms of business acumen. They might still be learning, but they're not putting their heads in the sand like many builders who just don't want to deal with the issues and the pain points that they're experiencing. That's with APB, because those are the builders I handle at APB.

Erik Cofield:

In my overall history with builders in general, I have worked with builders who don't know the difference between a gross profit margin and markup. That alone can be fatal to their business if it's not corrected. I've worked with builders who operate every day without really knowing how much of the money in the bank is theirs as gross or net profit versus other people's money for impending liabilities, invoices that are coming from trade partners that they're going to have to pay. There's a lot of numbers that builders need to know.

Erik Cofield:

Once you know those numbers, they tell you a story about the builder’s company. Once you understand the story that those numbers are telling you, you really can't unlearn it. You can't disregard it. You can't ignore it. Again, one of the privileges that I have is that I'm working with builders who already understand that change is tied to their future business. If you continue to do things the way you've always done them, you're going to continue to get the results you’ve always got. 

Erik Cofield:

That's some variation of that saying. I actually would challenge that because today, if you continue to do what you've always done, you're probably not going to get the results that you are even used to getting. Not only do you have to change, but if you want to change and you understand you have to change, then the numbers are the tools that we look at to tell us where you are, what's going right, what's going wrong, and how we are going to help you change. So KPI numbers are very critically important.

Bosco Anthony:

Is there science to this? How do you review data provided by your clients and craft that narrative? What do you look at or where do you go when you first start working with the client, typically?

Erik Cofield:

We review the numbers together. A lot of generalist coaches just say things like, “Well, if you got 500 leads to get five contracts, then all you have to do is get 1,000 leads to get 10 contracts.” Even if that were true, which it not necessarily always is, what we find is that there's a much better, more efficient way than just doubling everything. You don't get the economies of scale that way. But for what I do, I don't really craft a story. I do show them how one number impacts another number and I help them understand the interconnected nature of the numbers impacting other numbers. Then they can see how to make decisions or how the decisions that they make in one place impact results in another place.

Erik Cofield:

Again, all of that is like I mentioned before: once they learn it, they can't unlearn it. Now, before any of that happens, I ask questions. Seek first to understand. In terms of how do we review the data, we have to ask the right questions and we review it together and I lead them to a process where they can understand what the numbers mean.

Bosco Anthony:

Well, Erik, let's get into some of these KPIs and some of these metrics. What are some of the key metrics that are so important when you get on a coaching call and you start working with the client for the first time? What should builders be paying attention to? Let's get into the nitty-gritty side of things now.

Erik Cofield:

Some of them are obvious and some of them are not as obvious, or rather the impact of them is not so obvious. Of course, the gross revenue and the gross profit as dollar amounts are important, but also the gross profit margin as a percentage. Here's where it starts to get tricky. I don't assume that the number the builder gives me or knows is the actual number, because many times what they give me is a markup instead of a gross profit margin. I don't know if they transpose the numbers or they think that they're similar.

Erik Cofield:

Just as an aside, markup is on cost, where margin is on the total contract value. For example, a job whose total costs of all kinds were $100,000 marked up with a 33% markup on cost would be priced to the consumer at $133,000; $100,000 plus 33% markup on cost is attained, so the consumer would pay $133,000. But if you look at the total contract value of $133,000, the $33,000 of profit is actually 25% of the total contract value. In other words, a 25% gross profit margin. 

Erik Cofield:

Not only are we looking for the numbers, but we have to validate that the numbers the builder is giving us are correct. A lot of builders get those two numbers wrong, so it's not really unexpected, but we have to know the true numbers so that our planning and our goal setting are accurate and in line with not only global standards, but we have to know what the real numbers are so that we know whether we need to go up by little or a lot, or whatever.

Erik Cofield:

Another important metric is the fixed expenses dollar amount per year and fixed expenses as a percentage of gross revenue. This tells us if their operational expenses are inflated. Builders think of and calculate this differently. Because we know what numbers are standard from the global data working, as I said earlier, with over 2,000 builders for 10 years, we know how to help the builders leverage their resources efficiently. By knowing their fixed expenses as a percentage of gross revenue, we know whether their operation is inflated or they've got room to grow, et cetera.

Erik Cofield:

Now, the net profit dollar amount obviously is important, but the net profit margin as a percentage of gross revenue is also important. We need to know these numbers and what is or is not included or being calculated together, for example, they might be including salaries in their fixed expenses, which they should be, but some of them aren't including salaries in their fixed expenses. So if they're not including that, we just need to know if they are including earnings, dividends, all of these kinds of costs. But when we know their net profit dollar amount and their net profit as a percentage of gross revenue, then we know the target numbers that they should be striving to reach.

Erik Cofield:

If they're way below global averages, they may not be able to get to global averages in six months to a year. We might have to stairstep them and go on a longer journey with a different incline. But some of them are close to the global standards and therefore the changes that we make to get them to the global standards are not that significant. We just need to know those numbers, again, to get them from point A to point B to develop that path.

Erik Cofield:

We also want to look at their equity and reserves. Some builders have equity and reserves and some don't. We ask them to be honest with us so that we can propose meaningful and impactful solutions with predictable outcomes and proven results. Unfortunately, construction companies must have some ability to invest, initially. Then it's really the profit from the jobs that provide the cashflow which is used as the fuel for the growth of the business from there. 

Erik Cofield:

The ideal format for a construction company growth is a pattern called an S-curve, or a sigmoid curve is its more technical term. I liken it to a staircase approach. It's a much healthier growth path if we can get them on that S-curve or staircase approach rather than a roller-coaster or what some builders experience, which is really a flat line because they don't know how to grow their businesses.

Erik Cofield:

We also look at cash on hand. Now, that's similar, but really quite different to equity. The cash on hand is what builders use as their operating account. It is made up of their gross profit, or potentially net profit, but it also includes other people's money, liabilities. That number tells us how well funded the company is or isn't in a general way, which gives us an indication of what they can and can't do to invest in their company. Obviously, it doesn't make anybody happy to suggest solutions that they're not really able to achieve. What solutions we suggest have to be in line with what they can achieve.

Erik Cofield:

That's where knowing the cash on hand and the equity and reserves comes into play, because based on our APB standards, we don't really want them taking loans from banks or families. The problem for most builders is that they don't know how much of that cash on hand is really their money to use to invest, versus money that they're going to need to pay other people like trade partners. Trade partners typically send invoices significantly later than the work is done, so that many times builders are finished with the job, they've handed it over to the customer. A month later, they get another invoice. So they really have to know these numbers, otherwise they can end up lopsided and upside down, which leads me to the next and I think most critical number, which is the work in progress figure.

Erik Cofield:

The work in progress accounting adjustment, which we call the WIPAA, is the number or more accurately the impact of the number that gets builders into trouble and can put them out of business. Due to the nature of how construction companies operate and fund, builders are typically in a situation where they're getting money in their bank account from the customer in the form of a deposit, for example, before they pay trade partners for construction work, aka liabilities. The problem comes when the builder doesn't know what percentage of that money in the bank is needed for those liabilities, or is theirs to keep or invest, et cetera, as I said earlier.

Erik Cofield:

If they get this wrong, they can end up not having enough money in the bank to cover their liabilities. That game only lasts so long. We all know the outcome there. So, one of the very first things that the builders who I coach in our mentoring program and I work on together is understanding their WIPAA figure and understanding the concept and the reason behind why they need to know that WIPAA figure. 

Erik Cofield:

The WIPAA calculation has a lot of benefits. It shows the adjustments that they need to make to balance their books every month, but also it really is designed to help them understand their true financial position. Typically, it makes them pay less taxes because builders have a tendency to – if they're not managing and calculating their numbers correctly – end up paying too much tax. This is a critical number. This WIPAA figure is critical, and APB gives an easy-to-use calculator which does the maths for them. So, that makes it super easy.

Erik Cofield:

When you look at a builder who's upside down and hasn't been calculating this or has relied on an accountant who didn't really manage the reporting as a construction company requires, it's really sad. If they were talking to us and using that WIPAA calculator, it's super easy to use. Russ and the team at APB long ago put together this calculator that does all the maths for the builder. All you have to do is plug in the numbers. “How much is the contract? Great. How much is the budget to build? Great. How much have you received from the customer? Great. How much have you received from the trade partners? Great. Here's the numbers.” 

Erik Cofield:

It's such a painful thing to see builders upside down, but helping them know the truth, the real, accurate data allows the builder to make real, accurate decisions or what we call data-driven decisions. It’s pretty rewarding when they get this right and it's like a light bulb comes on and they, again, they don't go back to the old way of doing it, just like we don't go back to a manual typewriter.

Bosco Anthony:

It sounds like we could spend probably a whole podcast episode just going over some of these numbers as well, Erik. But overall, from what I can tell, you're helping design financial awareness for a lot of the builders out there as well through these metrics and these calculators and resources. How does financial awareness transform a builder to make the right decisions, data-driven decisions, moving forward?

Erik Cofield:

Understanding and knowing the data of course helps them make those data-driven decisions, but it helps them make a qualified decision and it helps them make that decision at the right time. We hear about companies going out of business because they grew too quickly. When I was in high school, which I guess like every man was the year that I knew everything in life and I was at my most intelligent, around 16 or 17, I thought, “What a stupid situation. How do you go out of business when you have too many customers? That just seems so goofy to me.” 

Erik Cofield:

But of course, the reality is that companies are going out of business because they're spending too much money at the wrong time on the wrong things and with the wrong strategy. For example, you opened up five restaurants, but you didn't do enough pre-opening marketing to generate enough interest and you find yourself spending more money than you're bringing in. So you can say, "Yeah, we expanded by five locations," but you're losing money.

Erik Cofield:

It's the same with builders. For example, questions like, “Should you take down the lots in that new luxury community?” and “Can you take them down?” are very different questions. Where the strategy and the financial awareness come together is with that data that allows them to see things in a different light. 

Erik Cofield:

I was talking to a builder today in a coaching session about some financial decisions. I was asking some questions and he said, "Hmm, yeah, I have to do some more due diligence and I've got to go get more data." I said, "Yeah, you’ve got to go get more data." Instead of answering his question, I helped him understand that he needs to go find more data and then we can continue the conversation.

Bosco Anthony:

Let's talk about some of the common problems that you're resolving. I know that there are different levels of coaching as well with APB. I'm a builder, I come to you, we start working together at that first level. What are some of the most common problems you're helping me resolve in my first year of coaching, or at the first level of coaching?

Erik Cofield:

It's somewhat different for every builder because one might need to figure out how to close more deals while another one might need to figure out how to staff up. Yet another situation is an older couple or person crafting an exit strategy. So we ask questions. We have to understand where they are. So, for every builder, it might be different. 

Erik Cofield:

If we look through a larger, longer range picture, with most builders and in general terms, most of them want to increase the number of projects they're doing. They want to increase the profit margin on those projects, they want to build more expensive projects, whether they're a remodeller doing $50,000 kitchens and now they want to do $150,000 kitchens, or whether they're a custom builder doing $500,000 homes and now they want to do $800,000 homes.

Erik Cofield:

The differences are really quite huge, especially if you compound the impact of more expensive projects, higher profit margins and more projects. That's a triple whammy. We have, of course, formulas and processes to get all that resolved. Now the smart ones want to systemise their businesses because they have understood that they, as the owner, are really the hold up. A lot of them want to take some time off. They want to have some quality of life back. They know they're wearing too many hats, working too long, working too hard, not making enough money. It's a hard lesson for builders to understand, but if they can get their business to a point where it runs without them, it's a more valuable business. Just imagine if I were to tell you, “If you're not around, the business is more valuable,” it doesn’t sound right.

Bosco Anthony:

Right.

Erik Cofield:

When we start talking through it, the truth is if you have systemised your business to a point where you can go take a vacation or be gone without impacting or risking anything at the company, then it runs really well without you, then you've got options. You can franchise, you can sell, you can do whatever you like. The problems that we're identifying really are present in every discipline of the business. It's unusual that a builder comes to us and says, “I just have a marketing problem,” or “I just have a sales problem,” or “I just have a finance problem.” That's not really typically what's going on, because when there are one or two problems, they're all interconnected. It's really a set of puzzle pieces fitting together.

Erik Cofield:

It's usually in every discipline of the company: HR, finance, leadership at the top in terms of the mindset of running the business. Often, there's not harmony when there are multiple owners, whether it's a husband, wife, two brothers, two friends, whatever. When I was the COO of the design build company, that was the problem that I had; that was in place when I came on board. The people at the top were not paddling the boat in the same direction, and that causes all kinds of chaos with hiring. People don't want to stick around. There's anger, there's animosity and there's lack of cashflow. There are just all kinds of problems.

Erik Cofield:

Some of them are wasting money on marketing that doesn't work. Some of them have hired salespeople who really didn't help them grow the business. Some of them are operating on low margins and they think that they have to operate on low margins to get the deals, but that's just because they don't know what they don't know. A lot of them make mistakes ordering, budgeting and estimating in accounting. I was talking to a builder a couple of years ago and he missed about five windows. That's not a small thing. He was estimating a job and somehow he missed five windows. Well, whatever those five windows cost, that's just an erosion of his profit, because it's hard to go back to the customer and say, "Oh yeah, I made a mistake. I didn't charge you enough, so I have to charge you more."

Erik Cofield:

You really look at the whole day in the life of a builder and usually there's a lack of processes. When that happens, everything takes longer, it's harder to do, there's more risk, et cetera. But the good news is all these issues can be solved. It's kind of sad actually, to see builders come to us after years of struggling; they've been in business for 20 years, they've never really made a lot of money like some of our other builders who have been in our program. 

Erik Cofield:

We just have to understand where they are, what the struggles are, and then we can propose those meaningful solutions. But there are a lot of common problems. If we look at builders in Auckland, Aberdeen, Albuquerque, it doesn't matter, they have a lot of the same problems. But it's especially sad because they can all be solved and resolved if we can just get to them and start talking to them about the process of doing things in a different way.

Bosco Anthony:

Yeah, it's really about that awareness too, from what you're describing. Let's get into some of the risks. What are some of the risks builders need to be aware of in this market, right now? COVID has changed so much in the last few months as well. What should builders be paying attention to or what are some of their blind spots that they should be paying attention to?

Erik Cofield:

I think that the three biggest risks have nothing to do with the pandemic, to be honest with you.

Bosco Anthony:

Interesting.

Erik Cofield:

The pandemic hasn't slowed down the pace; people still need homes. I really feel that the risks were the same pre-pandemic and they will be there post-pandemic. The first one is not understanding who your main competitor is. If they don't understand who their main competitors are, they end up not competing correctly or effectively. Their number one competitor is not another builder. Their biggest competitor is no decision, or in other words, a complacent consumer who's just not making any change whatsoever.

Erik Cofield:

Their second biggest competitor is really pre-owned inventory. The risk here is that if they're not proactive and they're not using a scientific approach like we provide at APB, they don't achieve near the results that they should or that they could realise. So, there's a giant dollar amount of unrealised income that is essentially lost income in the form of unrealised income. That's the first risk. The second risk is being myopic in their approach, which stagnates their growth. I often see builders not taking advantage of problems in the larger society. Problems like the pandemic, but other things such as interest rates, tariffs or whatever. 

Erik Cofield:

Problems can be the catalyst for business growth. It's not meant to sound callous, it's just a matter of perspective. It may be in line with your thought leader question earlier, but is a global pandemic a problem, or can it be capitalised upon? Are rising prices or rising interest rates or lumber shortages or trade tariffs with XYZ country a problem, or is that something that could be leveraged to one's benefit? Obviously, I think that those things can all be leveraged to one's benefit.

Erik Cofield:

A lot of times, builders are not really on the forefront of change. The problem there is that they're losing the opportunity. The definition of insanity is that you keep doing things the same way all the time and expect different results. That's not really a silly perspective, because it does happen all the time. Sometimes I ask questions like, “What are you going to change in order to change your situation?” And they don't have a plan. So that short-sightedness; that's really a risk.

Erik Cofield:

The third risk is a lack of planning. It’s the next step to what I was just saying. When they're not planning, they are leaving themselves to scramble and catch up. Every builder's future business is going to change, whether in small ways or large, but there is a risk to think that their future business won't change. I'd like them to think further out, to at least consider plans for their future business: what that future business might look like, how it might operate, or how they could be more than just a construction company. Frankly, anyone can open up a construction company. That's not that hard. Being a professional builder on the other hand is much more difficult, and if done right, it's much more profitable. I mean, hugely profitable.

Erik Cofield:

Some of the builders who we work with, it's not just their businesses that have transformed, it's their lives and the lives of all of their employees. Think of the impact. If I'm a small company of five people and I build 10 homes, there's 10 families plus the five families that are in my company, that's 15 families. Then each of those families have multiple people. When a builder gets this right, they're really impacting many, many people. That's part of the joy and the privilege that I have when I help them do better. They don't have to give me a high five or a "Great job!” but when they're satisfied and when they say thank you and I know I've helped them a lot, I know I've really helped multiple people behind them. Those are the three risks and the rewards.

Bosco Anthony:

You talked about future businesses in the risk evaluation as well and it tops up my final question for the day. How are you preparing builders for the future and how do you help them craft that future business for sustainability, moving forward?

Erik Cofield:

I know this is going to sound callous, but I don't mean it to sound callous. The huge profits that we help professional builders generate are what they use for their future. There is truth to the saying that it's not the money, but it's what you can do with the money and what that money does and allows you to do in life that is the real motivator. But more to your point, it depends on what their intent is. 

Erik Cofield:

Some of our customers are in their 20s, like I said, and they have very different goals to those who are crafting their exit strategies. But in both cases, as in really all cases, the commonalities are that we have to help them get systems in place. Systems are critical. Taking advantage of technology is critical. Getting all of their numbers in line so they're making money and they're understanding the story that those numbers are telling them about their business; that's critical.

Erik Cofield:

Which comes first and the processes and the work to be done, all of that is variable. But we're really leveraging data that we've collected over so many years with so many builders and through education, we're helping them understand that where they are now versus where they want to go and what they want to get out of their business, that's achievable. It's really a step-by-step approach. Not everything is urgent. Out of everything that they want to do in their business, there's something that is the most urgent thing to do and there are many, many things that can wait. As a business coach, I really guide them on that journey and path that's customised for each one of them.

Erik Cofield:

Part of me helps keep them accountable and part of me helps answer hard questions that they don't have anyone else to ask. Part of me motivates them and keeps them uplifted, because a lot of them are doing really, really well, but there's a lot of steps that they need to do. Like anyone, they can get discouraged. If they've been making mistakes or struggling for years, they come to us and they want to do better and they know they want to do better, but there's a process for that. It can be hard to be reached, but there's a process and there's work to do for them.

Bosco Anthony:

Erik, this interview has been really jam-packed with a lot of insights. I really appreciate your time today. Any final words of wisdom before we sign off for the day?

Erik Cofield:

It's my pleasure, Bosco. It's a pleasure working with you. I just wish that consumers would understand that later is not usually a better time than now to solve problems. It’s the same thing for the builders. If they've got issues, they're going to have to change something if they want to change those issues or solve those issues. I love the industry. I think it's a great industry. It impacts all of us. It's bipartisan. It doesn't matter what politics or religion anyone's in. Everyone deserves a place to live and to love and to laugh. I'm just thrilled to be part of it. I hope that builders keep building and their consumers keep buying.