From Instinct to Strategy: Transform Your Company with the Business Model Canvas

Struggling to make your construction business consistently profitable? In this episode, Wade and Stephen introduce the Business Model Canvas, a strategic tool that can redefine how you manage and grow your construction company. 

Discover how to identify your ideal customers, clarify your unique value proposition, streamline value delivery, and uncover growth opportunities. Learn the nine key segments of this powerful model and how to apply them to your contracting business for sustained success.

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Topics we cover in this episode include:

• 01:31 The Power of the Business Model Canvas
• 05:15 Customer Segments: Identifying Your Ideal Client
• 08:08 Value Proposition: What Makes You Unique?
• 11:17 Channels: Reaching Your Clients
• 12:24 Customer Relationships: Building and Maintaining Connections
• 13:51 Revenue Streams: How Your Business Makes Money
• 15:37 Key Resources: Critical Assets for Success
• 17:24 Key Activities: Essential Business Processes
• 18:41 Key Partnerships: Working With Others
• 20:43 Cost Structure: Where Does the Money Go?

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Wade Carpenter, CPA, CGMA | CarpenterCPAs.com
Stephen Brown, Bonding Expert | SuretyAnswers.com

Transcript

Wade Carpenter: Do you ever feel like you're running a construction business on gut instinct, just chasing bids and hoping it all works out? Or maybe you got all kind of jobs but you are really not sure why some projects work and others don't? Today we're diving into a simple but powerful tool that can help you change that.

It's called the Business Model Canvas, and it can completely shift the way you look at your construction company.

Today we're gonna break it down: what it is, how it works, and more importantly, how to apply it specifically for your construction contracting business. We'll talk about things like identifying your ideal customers, clarifying what really makes you stand out, streamlining how you deliver value to your customers, as well as possibly spotting growth opportunities. 

This is the Contractor Success Forum. I'm Wade Carpenter with Carpenter & Company CPAs, and joining me as always, my co-host Stephen Brown, with McDaniel Whitley bonding and insurance.

Stephen, you ever work with contractors great at construction, but struggled to put together a [00:01:00] profitable business model into words? is this a common problem, I guess I would ask.

Stephen Brown: Oh yeah, absolutely. It's a common problem. Because here's the thing, Wade, you can't be everything. Just like there are doctors that are specialists, you can't be everything to all people. A general contractor, you have to know what all your subcontractors are capable of doing in order to contract with an owner to build a project, right? 

And that's why I'm so excited about this topic and getting into it with you. Because the Business Model Canvas can take a lot of this headache away from you. A lot of this stress of all the different hats you're wearing, running a construction company. No matter what your trade is,there are so many hats to wear.

Wade Carpenter: Absolutely. And I know we talked about this before, it's called the Business Model Canvas, and it's actually based on a book called Business Model You that actually came out in 2012, and it's gone around the world quite a few times. [00:02:00] Popularity's slowing down, but when I did the episode with Karyn Greenstreet, I remember it was almost 10 years ago, I went to Philadelphia and presented this and taught her mastermind groups. 

We had a four by eight sheet and we had this one piece of big canvas. And we're building a business model for one person's in class, and we're doing sticky notes. And what you get at the end, I think, is we can clearly define what our business does and where we're making money.

And for, adapting this to contractors, too many contractors, just they take whatever business shows up, whether they, what they can go bid on what they, know how to do. But they're not always profitable, and sometimes they're doing a mix of things so this is where on one page you can clarify what that business model is for you.

Stephen Brown: This is great, Wade. I can't tell you how many times, just trying to understand all the moving parts and putting 'em in a, model, like a blank canvas, with sticky notes. designing a business [00:03:00] model canvas is, almost like you're building the blueprint for the success of your construction company.

And it's always changing too, isn't it? You're always tweaking it. But I guess you have to learn the fundamentals of it, right? To understand how it works?

Wade Carpenter: Well, yeah, that's what I wanna go through is some of the fundamentals of how it's built. There's nine different sections. But you know, what it comes down to is, a lot of it is like.trying to find profitability. We talk about segmenting your jobs. Are you doing a mix of like retail and commercial stuff, and strip mall shopping centers or churches or, where are you making money?

And that's one of the things that, aside from putting Profit First in, segmenting your jobs and knowing where you're making money is where this comes in. Sometimes you may have two or three different models for your business. 

But what I want you to focus on is like, where are we making money? And maybe have that as your primary model and so you know exactly how, you make money, where you make it, and what the [00:04:00] moving pieces are. that's the goal of today. And so this, that hopefully is a, some practical steps where our listeners can,implement it in your business.

This, again, is called Business Model You, and there was collaboration in putting this thing together. There's people all over the country that put this thing together. It's written by Tim Clark, but then, the guy that I know, there's Alexander Oster Walter, I probably butchered his name.

That's the name I know. But I think the Alexander is the one that's well known for this. And there's some, variations of this, like the Lean Model Canvas, if you're talking about lean construction.

Stephen Brown: Okay, so you say there are nine segments to this.

Wade Carpenter: Yeah.

Stephen Brown: Okay.

Wade Carpenter: So again, this is a designed to be like a visual, easy to use strategic tool for business of any size. And again, there are some special considerations for construction, and that's what I wanna talk about today. It's used across the world for startups or, big companies alike.

But at the end I can say, I do this. This is [00:05:00] how I make money, who helps me and you know. So let's get into the pieces of that. 

Stephen Brown: Yeah, that's good.

Wade Carpenter: Again, the purpose: to define, analyze, and improve your business model.

So, these nine building blocks of this.

Let's start with the first one. The first building block is the customer segment. Who is your ideal client? That's what we're talking about. So, you may have 10 different ones that you know, homeowners or, if you're in that kind of commercial developers or government contracts, churches, retail, whatever.

Maybe you have a niche client that's just, you build out CVS pharmacies or strip mall shopping centers or whatever it is. Again, we'll get into example of this, but you know, clearly defining what that customer segment is. And I know that's one of the first rules of marketing is knowing who your customer is.

But from a construction contractor, again, we're always like, okay, what jobs can I bid on? What's in front of me? And rather than [00:06:00] chasing the ones that you should be. Who are you making money on? Who are you really good at?

So that's what this first segment is on, clearly defining what is that ideal customer. So can you think about this? How would a Contractor go about defining that?

Stephen Brown: I would define it as most profitable, but you also have to define it by the type of work that you like and enjoy doing with your forces. That you can do the most efficiently and really the secret to keeping and maintaining a good workforce is by keeping them engaged in the work that you do. 

But it seems to me real simple. You're figuring out your base of work, and as you start to diversify the different types of work you want to go after, you have to literally talk to your unofficial board of directors that we talk about all the time, about the pros and cons of whether you're gonna move into that category.

You can talk to your accountant about the cost. You can talk to your bond underwriter about [00:07:00] the, location, the territory. But I see over and over again my best contractors have a niche. They have targeted that ideal customer, and they built their business model around it. So that's a huge first one.

I don't think we can talk about that enough, Wade, as to finding your, best customer.

Wade Carpenter: Yeah, and again, customer segments I think is, definitely, we've talked about the niche being, can be much more profitable when you find that, and we'll get into the costs and things like that, but is it just really, the most profitable jobs? Or is it some ones you can turn faster, that you can do easier, get in and out, has less risk?

Stephen Brown: Yeah. And is it a combination of both? And how does that affect your, business model? Your diversifying that.

Wade Carpenter: Right. And again, you may have two or three different models, butknowing what you're really good at, and that's when you, you get into the specialization and that's where we could do another one on what's they call super profits. But gettinghigher than industry average [00:08:00] profitability.

Which sort of leads me into the second piece of it. 'cause again, I know we, we only have so much time on this and there's nine segments we need to get to. But the value proposition. 

And that section is essentially asking you the questions like, what makes your construction business unique? Andyou may just say, well, we do a good job.We build a good building or, whatever it is. But, a lot of contractors have this mindset, well, we bid jobs so people just hire us becausewe're the lowest bidder. Well, if that's what is happening, you may not be making the profits you were hoping for.

But, the value proposition is asking how are you differentiating yourself? Is it based on, can you get speed? these people like, get in and out and building your kitchen in a week, or your bathroom. Is it sustainability? Do you provide a better warranty? Do you have better craftsmanship? What is it? Why would people want to hire you?

[00:09:00] And if you're out there bidding against other people, and if they're not gonna take the lowest bid, I mean, why would they hire you over the lowest bid? 

Stephen Brown: Mm-hmm. '

Wade Carpenter: Cause you're gonna give 'em a better job.

Stephen Brown: That's right.

Wade Carpenter: So,this is a point where you know, if you can communicate and know what that value proposition is and tell your customer what this is, then you're more likely to be able to build up that niche. So again, if you're, just like schools or something like that. If you had a niche in schools. Or if you know some of the ins and outs of building the schools and some of the hurdles you gotta jump through. Federal jobs. Does this part make sense? 

Stephen Brown: Absolutely makes sense because, I can just tell you in my trade area where I live, who the best of the best is in each trade. In a big metropolitan market, there's dozens of those people, but they always do something,better or different.When they show up on a job site, there's just something special involved [00:10:00] with them being there.

Wade Carpenter: Well, yeah, and why are they better? are you taking the Walmart approach? Are you faster or cheaper per product? Or is it something that, they, I don't know, go to Nordstrom's or something, you know,I don't know. What are they willing to pay for?

And so knowing what that is, you can take that low cost

approach. And we, talked about like just the last episode, about the technology. If you could do it faster, cheaper, you need to know how to be able to make money at it. And if you can, I have seen some contractors that, they get in with a client or whatever, and they're cookie cutter and they know how to get in and get out of them and be profitable. And maybe they can,undercut somebody else because they know what it takes to get it done.

Stephen Brown: Yeah, no, that's a really good point. And, all of that makes an image of being more professional than their competitors. Well, it's the way their equipment works. It's the way they set up a job site. It's the way they communicate with the owners, and it's the professionalism of all their employees. No [00:11:00] matter what the job description is, it's the professionalism of them. From the most menial, labor to the most detailed analytical project superintendent. They're projecting the very best of their entire force.

Wade Carpenter: Absolutely. Well, let's move on to the third one. That is what they refer to as the channels. What channels do you work through? How do you reach or interact with your clients?Whether it's traditional bid or, digital marketing or you actually getting out there and on Facebook or social media, is it getting referrals? How are you getting in there? Are you networking? Are you going to, you know, you're a sub and trying to get in with certain general contractors?So how are you getting out there? what channels are you doing to get out there and interact with your clients or potential clients?

So, we may be thinking about things like, you know, If you're communicating your niche and you show that you got a bunch of schools or whatever that you work with.Or you got a roofing Contractor [00:12:00] that is out there on YouTube or TikTok posting project videos, those kind of things. That is basically social proof that, you're good at your job especially you show real pretty pictures and that communicates people, hey, you know what you're doing.

Stephen Brown: Sure. I love it. Okay, so the third segment, you're analyzing your channel of marketing and distribution. What's the next?

Wade Carpenter: The next one is really working on like, how's the customer relationship, I guess I would say. How do you build and maintain a relationship? The last one was more about attracting them. Once you got 'em, how do you keep 'em? Are we trying to stay involved with ongoing engagement?

Do you give them regular updates, follow ups, these CRM tools?I think half the battle is, especially if you're in type of construction where you're trying to get referrals or repeat business, having happy customers can go a long way. And if they'll say something good about you,you keep 'em happy and do follow ups and [00:13:00] surveys and get testimonials on your website.

But this whole section right here is,how are we interacting with our customers? How are we building on this relationship?

Stephen Brown: And I don't think contractors are, also. Because I guess they're not wanting to toot their own horn with their customers, or possibly get some bad feedback. But just literally showing up with that customer again as a follow up after the project's been completed about their happiness with the overall experience. And interviewing 'em and talking to 'em about it. you're showing that customer that, you care about their experience. And you're also able, for the ones that are happy with it, to sell that to others, aren't you?

Wade Carpenter: Yeah, absolutely. Well, again, justmaybe you got a general contractor that automates their project updates or just send them a text or pictures every now and then. 

But, I guess moving on, you know, revenue streams. How does your business make the money?

We talked about the [00:14:00] channel, but do we do four $300,000 jobs a year, or one $1.2 million job a year?where are we making our money? What does it look like? how many are we gonna do so that we make this particular outcome, this profitability, that we're looking for?

How do we get beyond and bump up and make sure our revenue streams are getting the desired profitability, the dollars we're looking for? 

All these things interact, you know, if you're communicating the value, can you add premium services to that? Do you have add-ons or consulting fees that you can-- 

Stephen Brown: Change orders. 

Wade Carpenter: Well, yeah, that's, that's the standard in the industry.

Stephen Brown: Thought I'd say that so our listeners would pay attention. You mentioned change orders when somebody's listening to our podcast driving down the road, that, gets 'em excited. Go ahead Wade. I'm sorry.

Wade Carpenter: That's okay. But you know.You think about it too, where are we making our money? You know, andthere's several of the contractors I can tell you about, I've seen some of 'em that they will just design the job for the customer [00:15:00] and not charge them. But that's a value service.

So, if you add a pre-construction consulting package, for feasibility studies and advising them, that's worth money. And a lot of people say, well, I can't charge for bids. You know, if it's a standard bid, maybe, maybe not. But if you're giving some value, people should value that, as long as you communicate how that can save them money down the road. I'm sure there's plenty of construction projects that start off with, something that's in the owner's mind, but they haven't thought through the whole process because they're not in the construction industry.

Stephen Brown: So revenue streams was the fifth one. What's the sixth one?

Wade Carpenter: Yeah. The sixth one is the key resources. What are the critical assets that you need for success? Is it the skilled labor? Is it technology? Stuff like that we were talking about? Do you need a specific type of equipment or financial resources to be able to, take on the job? Do you need a larger line of credit? Can you also could be asking like, can you [00:16:00] afford to take on this niche?

Stephen Brown: Yeah. and what about your, availability to get the materials you need? That used to be a question that we never had before Covid.

Wade Carpenter: Yeah. All these things, these resources, whether it's subcontractors, materials, is the equipment available to do it? The last one we talked about all this technology for robotics and stuff like that. could we do it faster? is the technology available to rent or buy? Can you afford to invest in it? that was the whole purpose of the last episode.

Stephen Brown: I get it.

Wade Carpenter: What are the resources? Do we have some project management, BIM software, whatever? A lot of people put a lot of effort into their bids and they don't get the job, and they're just out that time and effort and expense to do that. Well, if we knew what it was costing, or what the average say federal bid was, then we have some information.

What can we actually do to win more commercial projects? Let's just say.

Stephen Brown: Almost all projects, there's a mandatory pre-bid meeting, so you know who your competitors are that have attended the pre-bid, you know who your [00:17:00] competitors are. I just, this morning a customer of mine commented to me that, wished he hadn't have known there were 13 bidders on the job. He wouldn't have wasted his time, going after it.

his bid was, in between, the low bidder and the middle bidder of 13. so, that's a really good point. So the key resources you have and, what you bring to the bid. What would be the seventh one?

Wade Carpenter: The seventh one is, the key activities. Essentially, what are the essential processes in your business? It could be the bidding, the management of the projects, making sure that things are in compliance or safety or whatever. Is it the marketing? Do you need to have a marketing funnel or marketing process that you've never done?

And,I, I talk to contractors about that all the time. It's like we have no. Good way of following up. I was just talking to contractor yesterday that it's okay, well we put all these bids in and we just making sure we follow up and that kind of stuff. And we don't have a system for [00:18:00] that.

So again, the key activities. What's essential? What processes are essential to getting it right? And there are gonna be some processes we talk about all the time. Some we can put on the back burner, but some are more important than others.One we talk about all the time isgetting the cash in the door.The cash flow. What does it take to get the cash in the-- so again,what are the activities we need to do to optimize it?

We just talking about these AI powered planning software or whatever. So, thoughts on that?

Stephen Brown: I would say listen to the Contractor Success Forum podcast. Key activities we talk about all the time, and we'll continue to talk about,what's number 8?

Wade Carpenter: Number 8, which makes a lot of sense too. The key partnerships. Who do you rely on to operate? And if you're a general contractor, you're always relying on your subcontractors, or your sub suppliers, or maybe you got some partnerships and industry associations. Construction is one of those things that you gotta have a team [00:19:00] to do it.

Maybe a subcontractor, you have one thing and you can go in and do it all. But, a lot of times if you're doing a ground up construction, it's a concert. You've got so many moving parts of it and you gotta have these key partnerships in place, or you're gonna fail. One bad sub can-- I know you know that on the bonding side.

Stephen Brown: Yeah. just word of mouth, reputation out there in the community. the key partnerships are everything I know at the Memphis Builders Exchange, that's one thing that we're working so hard on. Is helping our members partner up with our other members. That's what we're all about.

When we were founded in 1890, that was what it was all about, Wade, is those key partnerships. Defining those are huge. For example, McDaniel Whitley Insurance and Bonding. We realize who our key partners are. We have our carriers, our underwriters that we deal with, and all the moving parts. But we also have our customers that we depend on, that needs bonding and insurance that refer other business to us. Our key [00:20:00] partnerships are almost nonstop. We always are talking and focusing on who they are and how to make it better.

Wade Carpenter: And I guess you also wanna think about this from a standpoint of like a contractor partners with an architect or something to do full design build. I mean,that's maybe part of your business model. Of course sometimes you're stuck with an architect on a job, but, you know, these subs,if somebody is continually dropping the ball on you, and that's a key part of the project, do you need to look for a different sub? 

If they're continually your weak point, again, that's asking the question, or as a supplier never come through? That's what we're asking here. 

Stephen Brown: Right. Good point. Okay. What's the last one? The ninth one. 

Wade Carpenter: The last one you've already sort of alluded to, but the cost structure. Where does the money go? So you may have a certain model I keep coming back to school. That's my topic of my book. It's like we're building through the, lens of a general Contractor working with subcontractor to build a [00:21:00] school, but.

What does the cost structure for building a school look like versus a wastewater treatment plant versus a strip mall shopping center?Or if you're, maybe you're general contracting, you sub part of it out, versus you do some stuff in house. where does the money go? You've got your overhead,got the labor materials, all the permits, the insurance, marketing, all that stuff. What does it take to fund this model and work with this model? 

And so between working with the revenue side of it and saying, okay, well I'm gonna do eight $300,000 jobs this year, my overhead's this and my cost structure is that, this can say, okay, well I can make $500,000 of Profit or whatever the number is for you. That's where we're going with this. 

You know, looking at it from a high level, I think that's what I did in my business as well as I want contractors to do here, is where is the money coming from? How are we gonna get there? As [00:22:00] well as what's the cost structure so that we know what the bottom line is?

Stephen Brown: Fantastic.

Wade Carpenter: Again, this business model, canvas, blueprint, whatever you want to call it, it's a one page thing that you can stick up on the, on the wall or take sticky notes and put 'em in the different categories.

That's the way it's built. It's usually pretty much public domain. but we can put a link to where you can get it online from the, the author. 

But, it's a simple exercise, that where our listeners can, basically write down these key elements and really think through where are we gonna make profit this coming year?

Stephen Brown: Wade, this is fantastic, fantastic topic. Thank you for bringing this up today. As always, it triggered a hundred different questions and ideas that I had just listening to it. And you say this podcast is running long, we try to keep 'em around 30 minutes. We're not gonna communicate something in five minutes just to get your attention.

We're not social media. if you're interested [00:23:00] in diving in and talking about things that may take you to another area, you gotta stay focused. You gotta keep the fundamentals in place. You gotta get your canvas down and then set it up as if it's a blueprint that's so fundamental. And, Wade, I just love this topic. I feel like it's probably one of the best podcasts we've ever done from a topic standpoint.

Wade Carpenter: Well, again, there's a lot of power in this and there's several different iterations of this. Maybe, we'll, take a little deeper dive on some of the other ones.

Stephen Brown: We always do. Yeah. That's great, Wade. Thank you. 

Wade Carpenter: But for our listeners, if this episode gave you a few aha moments, if you would do us a favor, like share, subscribe, do all that stuff so you never miss an episode. And if you know another Contractor who could use this kind of strategic insight, send 'em our way. We'd appreciate it. It could be exactly what they need.

Thank you for listening in the Contractor Success Forum. We'll look forward to seeing you next week. [00:24:00]