Episode 63: When To Scale A Building Company With Russ, Sky And Andy

In episode 63 of the Professional Builders Secrets podcast, we’re joined by Co-founders of the Association of Professional Builders Russ Stephens and Sky Stephens, along with APB’s Head Coach, Andy Skarda. Throughout this episode, the trio go over the key metrics to do when scaling a building company that will determine its longevity and profitability for the future.

 

Inside episode 63 you will discover

• Why builders should want to scale their building company
• What is involved in scaling a building company
• How net profit determines scalability
• A step-by-step guide to scaling
• The 3 pillars that will determine your success in scaling
• And much, much more.

 

Listen to the full episode to uncover a step-by-step process on scaling your building company, the pitfalls to avoid and what resources are essential to your building company's success when scaling.

 

Russ Stephens - Co-founder

Russ Stephens is a Co-founder of the Association of Professional Builders, a business coaching company dedicated to improving the residential construction industry for both builders and consumers. Russ is a data analysis expert who has introduced data-driven decision making to the residential construction industry. Russ is also a proud member of the Forbes Business Development Council.

Connect with Russ

 

Sky Stephens - Co-founder

Sky Stephens is a Co-founder of the Association of Professional Builders, a business coaching company dedicated to improving the residential construction industry for both builders and consumers. Sky is a proud member of The National Association of Women in Construction and she was also recognised as one of 2021’s Top 100 Women. 

Connect with Sky

 

Andy Skarda - Head Coach 

Andy Skarda has owned and led businesses in South Africa, the United States, South-East Asia, and for the last decade, Australia. With 30+ years of business experience, Andy heads up the coaching team at the Association of Professional Builders (APB), helping business owners in the building industry identify and implement the skills and systems they need to be successful, without needing to go back to school or more importantly, without going bust.

Connect with Andy

 

Timeline

1:57 The right time to scale your building company

8:19 How professional builders are scaling 

19:59 Pitfalls to avoid when scaling

31:08 Ensuring profitability in this economic climate

37:35 The 3 pillars of scalability

 

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.

Sky Stephens:

In some way, we all know what we should be doing.

Russ Stephens:

It is dangerous to scale an unprofitable building company.

Andy Skarda:

Really what's got to change before anything else can change is the leader's mindset and attitude.

Sky Stephens:

There's a massive fear, I think everyone has, of failure.

Russ Stephens:

Important to remember that what does not grow dies.

Sky Stephens:

It's going to come down to growing your team, scaling all of your systems, but of course, scaling your financials.

Andy Skarda:

You've got to know what the end goal is, and that goal must obviously be achievable.

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. It's time for another exciting episode from the Professional Builders Secrets podcast. Joining us today are Sky Stephens, Co-founder of APB. Lovely to have you, Sky.

Sky Stephens:

Thank you, Bosco. How are you?

Bosco Anthony:

I'm doing well. We also have Russ Stephens, Co-founder again of APB. Great to have you, Russ.

Russ Stephens:

Hey, Bosco, great to see you again.

Bosco Anthony:

And Andy Skarda, Head Coach for APB. Andy, thank you for joining us today as well.

Andy Skarda:

Good day, Bosco. It’s nice to be here as usual.

Bosco Anthony:

Well, it's a new beginning, a new year, and I just wanted to start off with when is the right time to scale a building company?

Russ Stephens:

That's a great question because a lot of people in business tend to look at the beginning of the year and start thinking, "Okay. We're going to scale this year," but there's a few things that have got to be done before you reach that point of thinking about scaling. This is so important for every business, but especially for residential home builders who are dealing with new construction and that's simply because they're cash flow positive. So really, in terms of the right time, they've really got to have a few prerequisites in place before they can think about scaling.

Russ Stephens:

Number one is understanding their financials because it is dangerous to scale an unprofitable building company or a building company that is maybe profitable but will become unprofitable once it's scaled because scaling is not linear. There are a few things to take into account. Understanding financials is a prerequisite, as is setting the company up for correct margins, bearing in mind that as the company scales, the fixed expense ratio could change as well. The fixed expense ratio is the fixed expenses divided by revenue. So that's another thing to keep in mind. Do you have the margins in place to allow your company to scale and remain profitable? So really, it's a case of getting those things in place first before you think about scaling.

Bosco Anthony:

Now, why should builders want to plan for their business to scale in the first place? What are some of those critical impacts of the business?

Sky Stephens:

Why wouldn't you want to plan would be my first question, but why wouldn't you want to plan to scale as well? When any company is scaling, let alone a building company, growth sucks cash. So if you don't plan to scale, if you scale and it's not planned for, you are going to run out of cash. You're not going to have the systems that can handle it. You're not going to have the infrastructure in your team to handle all this extra business that you're taking on. 

Sky Stephens:

This also goes for if you're not trying to grow your revenue; maybe you’re just growing your margins. Maybe you’re growing your team and then your revenue. You got to build your infrastructure. You have to plan it because if you don't, you're literally flying by the seat of your pants and it's a much less enjoyable journey because you are just putting out fires. It's a lot more reactive rather than being proactive and knowing exactly where you're going and exactly what you need to work on next.

Bosco Anthony:

Sky, do you find that builders are sometimes hesitant to grow, and do you notice there’s fear or hesitation sometimes when it comes to planning for the future?

Sky Stephens:

Oh, definitely. It's not the same reservation for every building company owner, I'd say, because some guys have done it. They have scaled and they have grown, but there's an apprehension or fear potentially to go to the next level. On the other side of the coin, you've got guys who just have so much tenacity, they're not afraid at all of doing it. They're quite excited by doing it, but there's a massive fear, I think everyone has, of failure. So there's a fear of “What don't I know? What could go wrong? And if it goes wrong, how is that going to look?”

Russ Stephens:

I think it's important to realise as well that there are some people out there who don't want to scale their businesses, but it's important to remember that what does not grow dies. There's a lot of people who think, "Yeah, I just want to stay the same size," but that is a knife edge. You are doing one or the other. You're either growing or retracting. So if you're not growing, you're actually dying slowly.

Sky Stephens:

We have this conversation all the time with new members and even new private clients. Growing doesn't necessarily have to just mean your revenue. You can be growing your margins, you can be growing your whole audience, but a lot of the time it's revenue or margins or both, but look for growth personally and professionally in everything you do.

Bosco Anthony:

What could possibly go wrong? I guess that's my favourite question to ask.

Andy Skarda:

What could possibly go wrong? “Everything,” would be my simple answer to you. I think Russ and Sky have touched on the fundamentals already. I think the words that I'm going to jump in on that Sky used are planning and proactivity. If you do this without doing those, you could get yourself into all kinds of trouble. We have a very simple mantra here at APB that you don't scale an unprofitable business. So Russ has already touched on the fact that that's important. 

Andy Skarda:

I think in all of the things we've discussed so far, scale by definition is the conglomeration of all of those things. In other words, if you're going to scale your business, you are going to end up with more revenue, you are going to end up with more people, you are going to end up with more profits, and therefore you need to make sure that all of those things are ready to go before you push the go button.

Andy Skarda:

The worst thing you can do is to have one of them in place and think it's time to jump and then make that jump and find that you don't have the infrastructure in place to not only support that initial growth, but the real thing in terms of planning it is to make sure that it's sustainable. The last thing you want to do is to commit to people and maybe technology and possibly even equipment, and then find that six months down the road you actually can't sustain that growth to the next level.

Russ Stephens:

I think in terms of what can go wrong as well, one of the things that is always underestimated is what we call owner's influence and that's simply a fact that no one that you employ is going to come into your business and work as hard and as long as you do. So when you look at the tasks and the roles that you're doing within your own company and you are looking to delegate and bring people in to do those roles, that can easily get underestimated and that changes the whole fixed expense ratio as well. So that's definitely something that can go wrong when scaling a building company.

Bosco Anthony:

Now, we talk about profitability as a key requirement for scaling. In marketing, we love using the word personas or avatars. What type of builder personas should consider scaling a company outside of profitability?

Russ Stephens:

As I mentioned earlier, all businesses really do need to grow because if you're not growing, you're dying. But in terms of scaling, it is possible to grow and outpace inflation and stay about the same size. So if we are really talking about scaling properly, taking things to the next level, then the builder needs to be the type that has a hunger and a desire and the right mindset because it isn't easy. There are challenges. 

Russ Stephens:

You will be putting in a lot of extra work just coping with those unforeseen challenges. It can involve working a lot longer hours to take your business to where it needs to be and dealing with those problems as well. There'll be reactive things coming up, bottlenecks appearing in different parts of the business as it scales. So you've really got to have that hunger and desire and be willing to do that because let's be honest, not everyone really wants that. The right mindset as well is really important.

Russ Stephens:

The thing I'd add to that as well is that anything custom is very difficult to scale beyond a certain point. So when you talk about scaling a high-end custom home residential building company, it’s quite difficult to scale beyond a certain level and that's because of the decisions that need to be made because these homes have never been built before. It's similar with renovations as well. It's very difficult to scale beyond a certain point. 

Russ Stephens:

You can say that about other industries, for example websites. It’s very difficult to scale up a custom website company as compared to a company that replicates websites from templates. We see this in a lot of different industries and any custom business is quite hard to scale. So in terms of the type of builder, there are the attributes of the person themselves, but they also need to think about their business model. Can this scale to the level that you really want to grow? Because you might have to reconsider your model.

Bosco Anthony:

Now, what goes into scaling a company? What are some of those key ingredients or essentials that you need to consider?

Sky Stephens:

There's a lot obviously, but if you were to boil it down to three main things you need to seriously think about when you’re planning to scale, it's going to come down to growing your team, scaling all of your systems, and of course, scaling your financials and your finances as well. Because if you look at your team, for example, if you scale your company, that means you're taking on more projects, potentially a different calibre of project as well, maybe higher value, bigger, larger and more complex projects. Who knows? You have to be able to scale your team and still deliver such an exceptional service or make it better, but by adding more people to that. So you need to be able to replicate the types of people who are on your team.

Sky Stephens:

So your team members and calibre have to scale, as do your systems because the more you do, you're going to have to have a very systemised company to churn out such a high-quality output regularly. But then, of course, you've got to be able to scale your finances because as your building company scales, you have a much bigger operation, your reserves are going to have to increase because you've got a lot more people to support and much higher monthly outgoings. So you’ve got to look at those three key areas and proactively plan to increase and scale and work on those three key areas so that it doesn't fall over and it's not a spectacular failure. You've got to be able to think ahead.

Sky Stephens:

It really is problem solving. I think building company owners are some of the most creative people because all you need to be able to do is look forward and look ahead and think what could go wrong? “How is this going to break, and can I fix it before it breaks? Can I break it now, right now?” If you can, fix it, and make it better. Honestly, there's a lot more pressure that comes with scaling. You're supporting a lot more people in your payroll. You've got more clients, more contractors and more staff than ever. You’ve got to be able to have quite a robust company.

Russ Stephens:

Don't forget to scale your salary either because you're running a bigger business, so your salary should reflect that.

Bosco Anthony:

What key metrics should you review when it comes to scaling? We talked a little bit about financial awareness and profitability, but what are some of the metrics that you give close attention to when working with builders?

Andy Skarda:

Russ has said it already, it's financials as a whole, but it's obviously profitability. If you're going to pick one that is critical, that's the one you've got to watch, and there's a couple of reasons for that. Number one, all of your financial reports are a window and a reflection of everything that is happening in your business. 

Andy Skarda:

We deal with a lot of builders who have an aversion to numbers and an aversion to spreadsheets et cetera, but the truth is when you understand what those numbers are telling you, you can literally look at any part of those numbers and see exactly what's happening in the business. If you do not have a big enough revenue figure as an example, what that's really telling you is you're not building enough. If you're not building enough to be able to invoice to that revenue level is that because you're not selling enough?

Andy Skarda:

Literally, you've got this cascade of things that you can work through systematically just by looking at your numbers that are going to tell you where the issues are. So when it comes to the key metrics around scaling, Sky has touched on the system side of things and that's going to include your financial management systems. Accuracy is going to be critical in terms of knowing that those numbers that you're looking at are correct and up to date, and then secondly, really understanding what they're telling you before moving to the next step.

Bosco Anthony:

Now, we talked about profits, people and systems. Just to clarify for people, are we looking at capacity? And for profits, are we looking at growth or net profit?

Andy Skarda:

My answer would be all of the above because it's going to be highly unlikely that you can scale on any of the other two without the first one being in place. So you might be looking to add more people, but if the systems that those people are working to are not where they need to be, adding more people is simply going to push up your overheads, which is now going to reduce your profit. Depending on where in the organisation those people are, it will reduce either your gross or your net profit. 

Andy Skarda:

At the end of the day, and I'm hoping that Russ will nod at least at this comment, we're always going to measure a building company when we talk about the company on its net profit. Obviously, to get to net profit, it's got to be producing the gross margins that will deliver those net margins, but the eventual measurement is going to be around net profit.

Bosco Anthony:

Okay. What is the process? Take me through the step-by-step guide here on scaling. Let's say we look at the numbers, they look healthy and we can make a decision to effectively scale, we're looking at these three areas, where do we start?

Russ Stephens:

You might disagree with this; you might say, "No, that's back to front," but I would say, especially with residential building companies doing new homes, start with the goal. Always start with a goal, get a clear idea of where it is you want to get to. Then the very next thing, you’ve got to get a clear understanding of your financials because you need to know where you are before you can plan on where you want to go. When I say get a clear understanding of financials, I'm not talking about those financials that your accountant gives you at the end of the year because 95% of those are wrong anyway because they don't include the correct calculation for work in progress. So you've got to get a very clear, accurate understanding of your financials.

Russ Stephens:

The reason I say do that second is because if you do that first, you might want to give up and not even set a goal in the first place because it can be a very grounding and sobering experience when a building company understands their financials correctly for the very first time. In a lot of instances, there can be a lot of equity that disappears that the company thought they had and quite honestly, they're just not as profitable as they thought they were. The thing they don't maybe always realise at this point is that it's a lot easier to get a lot more profitable than they probably realise. But it’s good to get that goal first, get that excitement going and then get the reality check. But when you’ve got those two components in place, then it's time to plan. So it’s got a three-step process.

Russ Stephens:

There can be a lot of complexity to the plan because you've got to plan your resources. If you've got this growth plan over a five-year period, what does that plan look like over a year? What resources are you going to need? Are they incorporated in the fixed expenses? What targets have you got to hit in terms of sales, not just sales revenue, but what you need to be generating sales? That's what the plan will include. 

Russ Stephens:

What margins do you need to make this work and what margins are you ultimately going to get to? Where are you at the moment and what can you realistically get to in the next 12 months? In terms of cash flow for a company doing new construction, cash flow will generally take care of itself because it's cash flow positive. But if you're doing renovations, then you've got to grow within your cash constraints as well. So that's another important factor to think about.

Andy Skarda:

I have no argument at all. It's straight out the playbook. The piece there that I'm going to reinforce is exactly where Russ said you need to start. Where are you trying to get to and why? If that piece isn't in place to start with, then there's no point really in doing any of the other stuff. You've got to know what the end goal is, and that goal must obviously be achievable. It must be relevant to what's going on in the market at the time, et cetera. You can't just suck something out of the sky and decide, "That's my goal." It's going to take a lot of planning.

Andy Skarda:

Where I'll reinforce what Russ said 100%, once you get into this process, there are a lot of moving parts. Essentially, what you've got is this almost spiral method of planning that takes you through, "That's where I want to end up. I'm going to do this. When I do that, it has a ripple effect into three other things. How do I deal with those three things?"

Andy Skarda:

So it's literally making sure that all of those things are in place. The analogy – I know that you love them, Bosco – that I always give my clients is it's a little bit like when you learn to free climb. You've got two hands and two feet, so you've got four points of contact, you always want three points solid before you move one. So you make sure that those other three things are locked down and then you work on the next one to take you to the next step in that planning process.

Bosco Anthony:

Andy, I suppose I should tell you now that I have a fear of heights, but we'll save that for a different analogy.

Andy Skarda:

So do I, but yeah, it's true.

Sky Stephens:

He knows how to get up there though.

Andy Skarda:

That's for sure.

Bosco Anthony:

All right. Let's talk a little bit about either blind spots or best practices that aren't usually spoken about or considered when we're scaling a company.

Sky Stephens:

Well, hopefully enough, I think we have covered them. I'd probably say there are two. So first and foremost, as Russ and Andy have just gone into the detail of, it's creating a plan. You've got to know where you're going, what you're aiming for, and how you're going to get there. It's like Michael Masterson's book, Ready, Fire, Aim; you've just got to get in, you’ve just got to start and have that traction. Everyone listening to this episode right now, you're already doing it; you've already started. You have your building company, so it is time to aim. And this is why sitting down and doing a formal, proper business plan is going to be so important.

Sky Stephens:

It's so important that our most successful members do what we call a business planning workshop when they first join us as members, but our most successful ones redo it every single year. Literally, it's doing a business plan for your building company, but it's with the accountability of an executive business coach. This leads into what I would say is the second most important point that's probably not as often considered. It's having some sort of accountability because in some way, Bosco, everyone knows what they should be doing. It's not necessarily brand-new information. You know you need to plan. You might have a goal. You know where you need to go. So that means you need to sell this many new building contracts. You've got to start marketing and advertising. That means you need to do this and update that. You know some things that you need to do.

Sky Stephens:

Working with someone else can maybe focus you, which is great, but whenever you get started on a plan, even forget business for a second, think about if you have a goal with the gym, this is why people get personal trainers. Even the most fit bodybuilders have trainers. They know how to train, but they get a trainer for the accountability, someone who checks in with them so that if they miss that check in, the trainer asks, "Hey, what's going on?" They need a little bit of a smack, "Get back in line. Come on, focus. You've got a plan. You've got 11 weeks left to the finish line," or whatever. I think that's the most underrated thing when anyone puts together a business plan. You've got your plan in place, but who's there to really keep you accountable to it? Because as a business owner, as the owner of a building company, you've got a lot of other stresses coming into your life. This isn't the only thing you're doing.

Sky Stephens:

I'm sure you're a husband. You're a wife. You're a parent. You are a son or a daughter. You're a sibling. You have a lot of other pressures and responsibilities. So on this one part of your life, your building company, what if you could have someone hold you accountable and make sure you actually live that plan, you run that plan and you achieve those goals? I think it's seriously underrated, but it's exactly why when we talk about it in what we've got as private mentoring, we just talk about how it helps you achieve your goals more quickly. It's like a fast track because you have someone to check in with, who's there supporting you, who wants you to achieve that goal, but questions you and keeps you accountable. "Well, what did you do to achieve that? Have you done this yet? Why or why not?"

Andy Skarda:

What Sky mentioned there is critically important from two perspectives. Having somebody, number one, who has done it before – as in has worked with other building companies to help them achieve this – is huge. But the piece that we find in our Private Mentoring program that really makes the difference is not just knowing what you should do, but knowing the best sequence in which to do it to make sure that it gets you to that end goal more quickly and safely and securely. That sequencing is critically important, particularly in this process.

Russ Stephens:

You took the words out of my mouth, Andy, and taking direction from people who have been there and done it before, as our team of executive coaches have been handpicked from over a thousand applicants, we only brought on people who have been there and done it before. But I guess the other aspect that's been really powerful for our members is the members’ group, because as they are scaling their own businesses and hitting challenges, they’re getting great advice from us and our coaching team, but getting advice from other builders is just such gold, isn't it? We see it all the time in the group. These builders are coming up with a particular challenge on scaling and any challenge really. There's always another builder who’s been there, done it and solved the problem and is now in the T-shirt. So that's absolute gold.

Andy Skarda:

Yep.

Sky Stephens:

It's literally the power of a mastermind, isn't it? It may not be just having a coach, it's not just knowing one other builder. It's having a collective group of other professionals who can share their stories and their experiences with you and you can do the same and everyone rises up. Everyone can grow. That's the power.

Russ Stephens:

This has to be the biggest group, doesn't it? Five hundred and sixty members online all with the same mindset, all helping each other. That is such a massive, powerful group of builders.

Bosco Anthony:

I think I'm part of this group because when I was doing my research for the podcast, I would see their members’ group.

Russ Stephens:

Yeah, 561; 560 builders and you, Bosco.

Bosco Anthony:

Yeah. I do see a lot of questions and I do see a lot of conversations and I do see a lot of resources being shared in the comments. It's a very welcoming, open and supportive group. It's not one of those groups where people are competitive and don't want to share knowledge, which I have to say from an outsider's perspective is pretty inspiring to see. How can a builder ensure that they're maintaining a healthy, scalable transition once they start to scale? How do they stay accountable and ensure that that maintenance is healthy?

Andy Skarda:

I'll go back to what Sky said earlier because she summed it up for you. It's a four-letter word for a change and that's plan. 

Andy Skarda:

We work with our clients at different horizons, but we never do less than three years as the long distance horizon. We always bring that back to what do you need to be doing in the next year in order to get you there and then we bring that back to what should you be doing now? But when you talk about scaling, you're into the realm of strategic stuff; this is not tactical. 

Andy Skarda:

This is really that big picture thinking. It's so important to us that we take a bunch of people away every year to a remote location in order to make sure that they can distance themselves from the tactical stuff, get out of the weeds and really let their minds go in terms of where they want their business to end up. The thing that springs to mind when I think about the people who have done this well is they have been able to use experience and convert that into expertise.

Andy Skarda:

Now, here's the best analogy I can give you. I worked out the other day that I've been playing drums for 50 years. Have I ever earnt a living out of it? No. Could I earn a living out of it? Probably not. At the height of my career, I would say I'm mediocre, which means experience in this context counts for nothing. Literally, I would be the skinniest, hungriest bad drummer on the face of the earth if I went out there today and tried to live off it.

Bosco Anthony:

I think they call them starving musicians.

Andy Skarda:

Well, there you go. Okay. But if you are able to work through the strategic planning and most importantly the strategic thinking process carefully and take the nuggets, take the things that have worked well and convert all that into standard operating procedures for the future, take the things that have really been bad, that have broken, as Sky spoke about earlier. Why did they break? What could you have done to avoid them breaking? What can you do in the future to make sure they don't happen again? The principle, if you like, is called insight and it's essentially taking experience through insight to get you to expertise.

Andy Skarda:

So in terms of how can you ensure that the transition is healthy, make sure the strategic planning is in place based on really solid strategic thinking. If you really want to do this without me doing my normal plug for APB, the truth is to do this on your own is going to be very difficult. You're going to need to be incredibly disciplined to work through a five, six, seven, maybe eight-year transition without any kind of external objectivity and accountability. I think to do this properly, you need a coach.

Sky Stephens:

I think that's a good point. It's long.

Andy Skarda:

Absolutely. This is not quick.

Sky Stephens:

Yeah. To scale a building company, it's not necessarily quick. Well, actually, you can do it quickly. You can do it very quickly, but that does not mean it's safe – and that's the kicker, isn't it?

Andy Skarda:

Sky, you and Russ have shared the story about the marketing guru's live event you went to, where he was crowing from the stage about how he grew a building company so quickly that it failed. That picture is the ultimate example, I think, of how doing this the wrong way can have really ugly consequences if things aren't properly in place.

Sky Stephens:

The perfect example is all those building companies who signed double, triple, if not four times the number of contracts they normally did in the last few years.

Andy Skarda:

Yeah. They can't build them. Yeah, you're right. Yeah, absolutely.

Russ Stephens:

That was really interesting, wasn't it? Because when we looked at the numbers from the State of the Residential Construction Industry report, we could clearly see that the smaller building companies didn't do that; 50% of them didn't sign any extra contracts because they were aware of the risk. Only about 50% did sign extra, but they only signed about 20% extra. But it was those big building companies with their big sales teams that signed three and four times the number and we can see the consequence of that, what's going on and what's going on below the surface as well is pretty ugly.

Sky Stephens:

I think this is why some people can fear scaling because they can see people scale so quickly.

Andy Skarda:

“If somebody that big can fall over with their number of resources and their sized team, what chance do I have?” Well, again, we are back to expertise versus experience. That's in fact the perfect example of it.

Bosco Anthony:

I'm going to ask a question for the apprehensive builders or the sceptical builders. With the current times, would you get a lot of resistance from building companies to scale at this time?

Russ Stephens:

There are some, and you can't blame them, really, can you? You can't blame builders for being a little cautious and maybe even sceptical about scaling. I think when you use the word sceptical this probably applies more to the guys who do not fully understand their numbers. There's no scepticism from the guys who do understand their numbers and they've got a clear plan, a clear idea where they're going. That doesn't come into it because they know they're just executing a plan. 

Russ Stephens:

Scepticism does come from people who have maybe not got to this stage, this level, where they understand their true numbers and have a plan on where they want to go. I always remember back in the '90s, I think it was, when I had a distribution company and expanded that and with a distribution company that's quite a risk growing that because you are confined to a warehouse size. So to go and move into something five times bigger each time you grow means you're putting everything on the line.

Russ Stephens:

I remember someone saying to me, this was back in the early '90s, he looked at me just after we'd moved into the new warehouse and he said, "Only a madman would expand in a recession. I was talking to my wife last night; only a madman would do it.” I thought, “He must be talking about me.” But I would say it's generally better to expand in a downturn, especially for builders, because builders make more money in the downturn than a boom. Booms are great for cash, as we know, but they're not very good for profitability. So the thing to remember is that the best building companies always survive. It doesn't matter what's going on in the global economy. The best building companies always survive. It's the ones that don't deliver a great service that are the ones that fall off the bottom.

Andy Skarda:

Yeah. I think we must go back, Bosco, just on this to amplify what we've said for the last whatever it is, 35 minutes, there's a bunch of things involved in scaling. There's systems. There's profitability. It doesn't matter whether we are in a recession. If you are going to improve the quality of what your building company is delivering, you are already working on being ready to scale when things turn. So there's no reason to not put in the work that would be required to scale even if you choose not to at the moment. 

Andy Skarda:

Because simply by improving your teams, improving your systems, making yourself more profitable, you may end up in a place where you decide, "Well, I don't need to scale. I'm very happy with where things are now, but I can scale if I choose to." So my comment on this would be there's always something you can be doing in now in order to improve the situation.

Sky Stephens:

Oh, sure. Think about it as well, I think we've glazed over this quite quickly, but when you talk about scaling your systems, it's not just your company manual and how you handle a phone call and systems like that. We're talking about your marketing systems, even your construction slots, what you're planning on filling the next year and what your lead times are. All of those systems need to be thought about as well, because especially when we're talking about trying to scale in a bad economy, if you only advertise when you need leads, it's too late. This is why it's all about planning when do you want to scale and when are you planning on cleaning up, because you'd be doing it well in advance and you'd be preparing your systems for that day.

Andy Skarda:

Yeah. I had a coaching session with a New Zealand client today, and we were talking about the recession and the economic times, et cetera. He told me about a new client that he'd got in the last 10 days and I said, "Well, how are they going to fund this?" He said, "Well, they've been farmers for the last 30 years. They just sold their farm for $15 million. They're funding it themselves." 

Andy Skarda:

So even though there are economic pressures on other people out there, there are still people around who have their own way of doing things, and we are back to what we always talk about. If you're marketing correctly to the correct avatar, you're taking them through a professional sales process, you are then watching your construction costs and schedule as you build, even in a recession, you can run a very profitable building company.

Sky Stephens:

But it's mindset, isn't it? Because if you believe you can't, "Oh, no one is building. No one's going to build a custom home, oh, especially not the big ones right now," well, no one is. But there are always people there. There are; always. You just need to make sure you are the one designing and building that home for them.

Andy Skarda:

I think Henry Ford said, "If you think you can or you think you can't, you're right."

Bosco Anthony:

It's interesting because if you think about the last recession too, you had some of the most amazing companies that came out of it: Airbnb and Uber. It's usually during those times when innovation hits its peak.

Andy Skarda:

Have you heard about Swimply?

Bosco Anthony:

No, I haven't yet.

Andy Skarda:

Swimply is the newest one. You can now go and swim in your neighbour's pool.

Sky Stephens:

Cool.

Andy Skarda:

So there you go. There's another one out of the recession.

Sky Stephens:

What I was going to say, if I can just jump, it's not to say that every building company that doesn't make it is a bad building company. That's really important and worth saying. What it does mean though is there were some gaps somewhere. So it doesn't mean they had a terrible service, they had a terrible product, or they're terrible people. 

Sky Stephens:

A lot of the time, especially in this industry, when you separate the cowboys, when you separate the people who aren't doing it right, a lot of the time, what it comes down to are the systems in the building company; that's what separates people. So if you can get in control of your own building company and maybe forget about scaling the systems to begin with, but make sure you have the right systems in place, the right financial systems in place and your right team in place, start with your core foundation because often, it's not bad people, bad builders who end up failing. A lot of the time it’s a lack of knowledge that leads to that result.

Bosco Anthony:

Is it safe to assume that scalability has more than one outlook, one approach, one outcome?

Sky Stephens:

It definitely has more than one outcome. Yeah.

Andy Skarda:

Yeah. Bosco, I wanted just to say to you, because it’s part of our core values, don’t ever assume, Bosco. Ask more questions. Sorry, Sky.

Sky Stephens:

It was an assumptive question, wasn’t it?

Andy Skarda:

Yeah.

Bosco Anthony:

Okay. You have multiple outlooks. At APB, what are some of the most common ones that you can encounter? Is it first growth as far as people are concerned? Looking at the three pillars – systems, people and revenue – where do you typically see the common DNA for scalability?

Sky Stephens:

Bosco, remember what Andy said at the top of the episode, never ever scale a non-profitable building company.

Bosco Anthony:

Fair enough.

Sky Stephens:

So don’t even look to scale until you’ve got your house in order.

Bosco Anthony:

So numbers first. Numbers first.

Sky Stephens:

Let’s get the right people on the bus. How many analogies can I bring into this? You’ve got to have the right people on the bus. You’ve got to know your numbers and that’s when you can look to scale. Then it all starts with exactly what Russ said, what’s your goal? Because that influences so much. It could be a massive, big, hairy, audacious goal, but your big hairy, audacious goal could be completely different to a competitor’s big, hairy, audacious goal. Everyone’s got different goals. The plan that you create to achieve that is going to look different for everybody. So there’s no real blanket way to scale a building company or exactly the steps that you should do in exactly the same order.

Sky Stephens:

But the original question, Bosco, is the outlook different? Totally. Because you’ve got personal growth. You’ve got professional growth. You’ve got numeric goals. You can have other goals that are not like a net profit goal. They’re not like a financially realised goal. So they can have so many different characteristics, but then you just put it into your business plan. What does this mean? What do you need to do and how are you going to get there? But absolutely, you should always be targeting not just business growth, but professional growth as well, because at the end of the day, as the leader of the building company, you will have to change to be the leader of a company of that size or whatever you’re targeting. You have to grow. You have to change, and so does your team as well.

Bosco Anthony:

So we’ve talked about the Facebook group. We’ve talked about events. We’ve talked about planning. What are some of the resources and tools at APB specifically that we could potentially share with our listeners out there to help them scale?

Andy Skarda:

I think, Bosco, this one is going to depend on how serious people are about doing this because we obviously have a plethora of free resources that are all designed to help builders run their building businesses more efficiently. If you cut through everything we’ve spoken about today, essentially, we can say you can't scale a business until it is profitable. It's not going to be profitable unless it's efficient. How does it get efficient? It gets efficient by having the right systems in place and to stay with Sky's wonderful analogy, the right people in the right seats on the bus.

Sky Stephens:

That was better.

Andy Skarda:

Okay. There we go. But the reality of this thing is virtually everything that we offer in the membership portal and in the Private Mentoring and the Elite Mentoring groups is focused on exactly this. It's in transforming your building business into being the most efficient business possible. So, what kind of resources? Everything you can think of. In terms of this discussion today, really what's got to change before anything else can change is the leader's mindset and attitude. So we have got a full catalogue of leadership training. We've got a full catalogue of strategic planning things. We literally take a building business apart into its six primary disciplines. In every one of those disciplines, we've got templates, checklists and training. If somebody is serious about scaling, here it comes Sky, join APB.

Sky Stephens:

There it is.

Andy Skarda:

It's not even an option.

Russ Stephens:

There's the annual retreat as well.

Andy Skarda:

Huge.

Russ Stephens:

If you are serious about scaling, the annual retreat is probably the best thing that you can possibly do for your building company because this is two days of intensive working with some of the top coaches in the industry and really, like Andy says, pulling the business apart and understanding exactly how to put the blocks in that will scale it on solid foundations and really kick those goals, so that when you do decide to exit, you are maximising your asset there. Probably the other thing actually that's come to mind is the APB Rewards program, which is a very important component for scaling because it's putting you in touch with the best possible partners in the industry for all these different components that you need.

Russ Stephens:

Sky was talking about scaling your systems. Well, how do you do that? You've got to bring in some of the best systems and the best people to work with you as you scale. So when you take your building company to the next level and you need an even better website, you want to start delving into search engine optimisation to make the most of these organic leads on top of all the referrals and paid leads you're getting. Who do you go to? We've got the partners lined up for you. Obviously as you get bigger, you're going to need a construction lawyer in your court, not reactively for a dispute, but proactively to make sure your contracts are as watertight as they can possibly be. So the rewards program is a very important component of the resources we offer for guys who are serious about scaling up.

Sky Stephens:

I'll add another one: accountability. That’s working with an executive coach one on one privately. Just get someone, like you say Russ, in your corner who is able to look at the numbers with you, who you can bounce ideas off, ask questions and put you in touch with other people; major.

Bosco Anthony:

I'll end with drive the bus, don't crash the bus.

Andy Skarda:

As Russ pointed out, you need to know where the bus is going. That's your goal. Make sure you know the end destination.

Bosco Anthony:

Well, I want to thank you all for the energy, the time, the wisdom. There's a lot here to really help the builders achieve their goals in the new year. Once again, thank you so much for your time. I look forward to having you back on again.

Andy Skarda:

Thanks, Bosco.

Sky Stephens:

Incredible.

Russ Stephens:

Thanks.

Sky Stephens:

Thanks, Bosco.

Russ Stephens:

Thanks so much, Bosco. To all the builders out there, it's a lot easier than you think to scale a building company.

Bosco Anthony:

Cheers.

Bosco Anthony:

Thank you for listening. Remember to subscribe to Professional Builder Secrets on your favourite podcast platform and leave a review. To learn more about how the systems at APB can help you grow your building company, visit associationofprofessionalbuilders.com. See you next time.