Why Successful Contractors Say No More Often

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ℹ ABOUT THIS EPISODE

Discover why the most profitable contractors don't chase every job opportunity. 

Wade Carpenter and Stephen Brown reveal the difference between reactive and strategic "no's" - and how saying no protects your margins, prevents cash flow problems, and builds long-term profitability. 

Learn to identify red flags, create strategic filters for job selection, and break free from the feast-or-famine cycle that traps many contractors.

⌚️ Key moments in this episode:

• 00:00 Buffet Bidding Trap
• 00:31 Big Job Reality Check
• 01:40 Revenue Isn’t Progress
• 04:26 Opportunity Cost of Yes
• 05:16 Reactive vs Strategic No
• 09:23 Red Rope Policy
• 09:47 Patterns of Bad Projects
• 11:56 Fear Driven Bidding
• 13:28 Numbers Create Confidence
• 15:00 Build Your Bid Filter
• 17:34 Backlog Quality Check
• 18:12 Final Gut Check
• 18:44 Wrap Up and Subscribe

The Contractor Profit Blueprint is a complete guide that breaks down exactly how to identify where your money's going and start keeping more of it. This isn't theory. It's the same framework I use with contractors I work with every single day.

Head to profitfirstconstruction.com/blueprint to download your free copy. 

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

Transcript

Wade Carpenter: [00:00:00] Some contractors bid work like they're at an all you can eat Mexican buffet. Pile it high now, deal with the indigestion later. The most profitable contractors know the trick isn't eating everything. It's knowing what to leave alone.

Today we're talking about why the most profitable contractors don't chase every job on the menu. They know which ones will feed the business and which ones will just give you heartburn.

This is the Contractor Success Forum. I'm Wade Carpenter with Carpenter Company CPAs, alongside Stephen Brown with McDaniel-Whitley Bonding and Insurance.

And Stephen, if you had a contractor with a big job they want to bid, they think it'll cover their overhead for a year, but they've never done that type of work before, what would you tell them?

Stephen Brown: Please don't do it. You know, all the time that comes up, Wade, and we say, "Well, convince us of how you're gonna do it, because we gotta convince the bonding company". Just convince us. And so many times as they start convincing us and we start asking questions, then it becomes apparent, maybe it's not [00:01:00] the best thing to take on, and why.

And other times, we're wrong. We just need convincing. Just give me the ammo to sell this project to your underwriter. because again, we don't know, Wade. We don't know. We can't do what you do. We can't build what you're building.

All we're doing is analyzing the numbers, your track record historically. Don't go into this territory if it's new. Don't take on jobs X amount higher than your largest project that you've ever done.

What's this gonna do to your cash flow? What kind of equipment do you need? What's this gonna mean to your workforce? What about the timeframe? What about liquidated damages? So, yeah, don't get me started there. 

Wade Carpenter: Well, my idea behind this one was a lot of contractors think, "Well, we gotta bid everything out there." Or they're afraid that saying no means to this general contractor, they're too busy for us, or we're never gonna get... but the idea from what I see is some of the best-run contractors out there use "No" to protect that margin. They [00:02:00] don't chase that revenue number.

And the contractor with the best numbers often decline more work than they actually accept. Part of what you were talking about is this revenue trap. Any thoughts on that?

Stephen Brown: The whole mentality of feast or famine is while the sun's shining, you gotta make hay, right?

Wade Carpenter: Absolutely. And I can relate to that. Revenue does feel like progress. Everybody wants bigger, better, but we talk about it all the time. All revenue is not worth having.

If you've got a bad fit job, it can look good on the bid, but bleed you dry in execution. If they're not paying you and you're having to finance– I guess the question is could you actually do the job?

Probably the answer is yes, but the better question would be, should you be doing this job?

Stephen Brown: And as your company gets bigger, who's making those decisions? On a smaller company that's kind of a flat line hierarchy of structure, the owner's gonna make all those decisions. But how are you making those [00:03:00] decisions based on exactly what?

A lot of times it's your gut feeling as you're smaller, because of things that have happened in the past or the cycles you've been through.

When you have good financial advisors, like a good CPA like you, Wade, maybe a bond agent that has been around for a while, they've seen those cycles, and politely tell you what they're concerned about.

Wade Carpenter: I'm sure you can relate to so many of these things too, but one of the lessons I remember after 2008, '9, '10, I had an electrical contractor that knew his numbers, and he was doing some work. There was a lot of work that was done. People were taking stuff way too cheap.

He had just hit a milestone birthday. Rather than dealing with a bad situation, he chose to retire, and he's still got money today. I still work with his taxes and that kind of stuff.

I know this is not quite the same thing, but he knew exactly what he should take and should not take. When you got a bad hand, should you take that bad hand just to cover the cash flow?

Stephen Brown: Right. How [00:04:00] many times have we talked about this in our episodes in the last five years? Is there such thing as bad revenue? Is there such thing as bad profit? You would say, well, capitalistically speaking, there's no such thing as bad profit.

But what if that profit that you made deteriorates your workforce, your reputation, your peace, the overall morale of the company? There's just a lot of moving parts here.

Wade Carpenter: Yeah. Sometimes you read my mind, but it's this invisible opportunity cost we got. It's like, every yes that we say just because we can do the work is taking your estimator time, your project manager, all the field labor.

Are we using our capacity on that to work on a job that's not as profitable versus, "hey, we found this particular job that has a better margin and we put them over there as opposed to putting them on a bad fit job."

It can look good just because we're spinning up some revenue, but is it gonna be building your bottom line? I'm big on [00:05:00] capacity and constraint theory and that kind of stuff just because my book was about the stuff from Eli Goldratt, the book "The Goal."

These marginal jobs steal the attention from the profitable jobs. So that's where I'm going with this.

Stephen Brown: Okay. So, you're saying yes too much when you need to say no more.

Wade Carpenter: Exactly.

 I think we both kicked this around a little bit before the episode. There's the two kinds that I sort of put in your brain. There's this reactive "no" that say, "Oh, I'm just too full to take it on right now."

Which could be smart. It's based on your capacity. It usually comes after the team is overloaded and that's smart. I think that is definitely always better than over-committing where you're at and still being defensive.

But that versus the strategic no, and I don't know if you wanna take that or you know where I'm going with that.

Stephen Brown: I kinda know where you're going with it, and this point got me really wound up before we started the [00:06:00] podcast. The reactive no and the strategic no.

Reactive no, "Hey, we're full. Sorry, can't do it right now. We're slammed." And then the strategic no of, this is not what we wanna do.

When you're saying no, you're running the risk of upsetting a client or a potential client, of course. Both those nos are okay, but when you're saying no strategically, you're saying, " This doesn't fit in with our goals and plans," which you set with your entire team. Your whole organization is on board together with your goals and plans. That's a peaceful kind of way of saying no.

I think personally, owners respect that. Because we were talking about being stuck in that rut where you got one main owner providing most of your revenues. They're so used to screwing you down that you let them, and you're afraid that you can't get off that treadmill. What do you do about that?

I think it all kind of ties in together, but to me, those two type of nos that you put in this [00:07:00] outline were the most dynamic part of our listeners understanding why saying no is so important, and why saying yes too much can be so detrimental.

I think you made a good point of why saying yes too much can be detrimental. We talk about that over and over again. Not all revenues are good revenues. And then I just added, not all net profit is good net profit, which someone might laugh about.

Wade Carpenter: Absolutely. I think the strategic no, exactly what you said, just saying, "This is not our work. This is not what we do." Whether it's based on the margin itself or based on the trade mix or if it's a fit with the GC, the contract terms, how fast they pay.

This is really where the mature contractors separate themselves from the other ones.

Stephen Brown: Absolutely.

Wade Carpenter: And I guess, I can relate it to my business, which, you know, especially 2008, '9, '10, I was at 80, 90% construction. And after the Great Recession and [00:08:00] stuff like that, I went back wide and started taking work that really wasn't my fit, but I could do the work, obviously.

But as I decided I gotta go back after my niche, what I'm really good at, and it's hard, just like your GC's that maybe they feed you a lot of work. But I had people that were referring me work. And it's hard to say, "Yeah, I'm sorry, I just can't take that because..." And it took a mindset shift in my mind, and in my team's mind, it's like, why did you turn that away? Well, it's not taking us down the path that I wanted to go.

I think we're better off for it. They can see years later that, we do construction and we do it well, but we're not also trying to do retail and service-based business and those kind of things.

It-- That was my strategic no. Does that make sense in a construction setting?

Stephen Brown: Yeah. That makes so much sense. And strategic nos are okay, reactive nos are okay. The thing about saying yes, to me, [00:09:00] is if you have a structure in place that says no based on certain criteria, then your project managers, your estimators, they're just not gonna be allowed to do that.

There's just a lot of hidden cost in the yeses. We talked about that. A whole lot of hidden costs may be in the yeses. Taking little shortcuts, doing everything to make the customer happy was just one of those.

Wade Carpenter: Yeah. I'm reminded of that, and I can't remember the book. I don't remember where it came from, and to the author, I'm sorry.

There was somewhere the concept of the red rope policy, just like you getting into that exclusive club, and they got these red ropes, and unless you're somebody, you can't get in that line.

They came up with this concept of the red rope policy. This is not what we do, and that's a tough thing to say.

But, for a contractor, what makes a job the wrong type of job?

Stephen Brown: I went off at the beginning of this podcast about the patterns of bad projects. They all have [00:10:00] patterns. You see them, you know them. Bad contract terms, bad GCs, bad subcontractors, slow pay ment terms bad location, bad timeframe, the job's way too risky, or the risk can't really be managed properly.

Because part of construction industry is managing risk, that's what we do for a living. We study that as much as we can to say, okay, well, insurance is an option or just avoiding that risk is an option, or educating the bond underwriters. This particular job is more of an insurance risk than a financial risk.

Wade Carpenter: Yeah. You threw a lot of things out there. Wrong GC, the wrong customer that beats you up on price or pays slow, or never happy and they back charge you for everything. There's a lot of different ways you can--

Stephen Brown: Oh, yeah. You've got a bad architect-engineer relationship. The job is more technical than you're used to doing. And you throw the technical and then the location, and then you throw the [00:11:00] weather, and then you throw the timeframe and liquidated damages, and everything just kind of stinks.

But then as a contractor, you say, "That's how I make the big bucks. I do stuff other people can't do better, faster." That's good. That's true. There are a lot of good contractors out there like that.

Wade Carpenter: Well, if they can truly say that, absolutely. But as you said, what scope mix pulls them outside their sweet spot?

You know, Is the job size too small or too big or, they don't know what that sweet spot is. Is it the wrong geography? Are we going across the state lines just because we can get it?

Do we have the supervision, or thinking about how much it takes to mobilize. Just the whole logistics question of these quietly eating our margin. Dealing with out-of-town living and the timing. Is it landing when your crews are already committed?

There's so many things that we can say in generality, but I think our contractors have to figure out what those are for themselves.

Stephen Brown: Right.

Wade Carpenter: Also get in this fear of we're not gonna get [00:12:00] the right jobs, or we're gonna run out of money, run out of revenue. So sometimes fear can drive some bad bidding.

We go outside... I keep using that Red Rope Policy. Just we're doing it for cash flow purposes.

And just like my electrical contractor, I thought that was so smart of him, because he did feel like he was in a successful long-running electrical business, but the things were stacked against him, and he didn't start bidding stuff out of fear.

Stephen Brown: Yeah. Exactly. We talk so much about the situation where you want to bid a job just to meet payroll, you want to bid a job just to meet your overhead. What you're not seeing is that every time you do that, your overhead goes up. So you're trying to take care of overhead, and then there's more problems that come up. So you're just digging yourself deeper in it.

And that Profit First for Construction book that you've written is exactly how you get out of that trap. So yeah, you're afraid, you say [00:13:00] yes to things you shouldn't because of your cash restraint, your debt. Every time you have debt, you are a servant to that debt. We don't want our listeners to be servants of their debt or their overhead.

And also, what about those employees? if those employees are so important to your organization that you're gonna go out of business without them, what does that mean to your business model?

I'm not saying good or bad, but isn't that kind of where we're going with this?

Wade Carpenter: Really what you're saying, and I believe just whether it's Profit First or just having your job costing system and you're knowing where you really are, the confidence comes from knowing what your numbers are, what jobs actually make money.

And the lesson I think is, whether you have Profit First or great job costing, if you can't say no without numbers. That's where I guess I'm going with this, and I know this sounds self-serving. Track which jobs look good on bid day, but then you become [00:14:00] disappointed later.

Stephen Brown: Right. In the last few podcasts, you've been introducing some of your dashboard calculators that are so fascinating. Having real knowledge to make decisions, and then being able to take that knowledge and explain it to your whole team, and then putting certain safeguards in check that allow you to measure when to say no.

There's just a definite no. And the problem I see, Wade, is a lot of times the owner and founder of a construction company will be successful because they're really good at this, and then the next generations that come on have not learned all those lessons.

And there's only so much you can say as the old man in the company that the younger folks will listen to about the way you're gonna do it.

So you've got to be able to not only tell them: what is your gut instinct about saying yes or no on a project, versus being able to measure why your gut says no, and communicating that to everybody.

Wade Carpenter: Absolutely. [00:15:00] That's where I was thinking. Some kind of strategic filter. This is our red rope policy. I hate that term, but it sticks in my brain.

Does it fit our best work? Do we have the right people available to really do it? Do we expect a margin to justify whatever risk we're taking if we're jumping into something we're not used to doing? Will the cash flow support the job?

That's where I was going, is coming up with some kind of strategic filter for our strategic no. Are the terms accessible? Should we be working with this, you know, if we have to work with some sub that we're not used to.

Stephen Brown: You're exactly right. And I would also say, when you say no, if it's a big project and you and your team are really inclined to do it, what does the rest of your board of directors have to say about it? And your board of directors always need to be your attorney, your banker, your CPA, your insurance  agent, and your bond agent.

What do they say? You want to just take the time and run it by them? Do you respect what they say? I can tell you [00:16:00] that in a lot of situations the surety underwriters, I always say our job is not to ever say no to a job, but talk you out of something that doesn't make sense. And if we're doing that, we're always supporting you, right?

We're not negative or overly positive. We're not being loosey-goosey or being too conservative. We're just doing what makes sense over and over again.

Wade Carpenter: Yeah. Agree. And that's where I keep thinking about times, as I'm reflecting on this, when I started saying no, and then there was times I would cave on that. 

Stephen Brown: And maybe you paid for it.

Wade Carpenter: Well, that's exactly where I was going. I beat myself up later. It's like, why did I do that? And so whether you wanna call it a red rope, or create a red flag list from your past problems with, you know, you had a problem job. We say never do this again. Build a list. Set minimum margins. Setting an ideal customer for yourself. The ideal project [00:17:00] profile, is it X number of dollars? is it a certain type of construction? Always go back through the bid results, things like that.

Stephen Brown: And is that crazy customer treating you like a crazy girlfriend or boyfriend that you need to get rid of?

Wade Carpenter: Yeah. Well.

Stephen Brown: You gotta get off the cycle here, it's like, okay,

Wade Carpenter: Exactly.

Stephen Brown: Ugly is as ugly does.

Wade Carpenter: Well, again, I got past the initial pushback and all that kind of stuff, and it built over time, but then you start seeing the success from it.

Too many contractors I see, they're out there celebrating, "We got a ton of backlog." But what's in your backlog? What kind of backlog? Is it something that you really wanna be doing? And especially if you've got backlog, that's when you can start being choosy about what you wanna do.

Stephen Brown: Right

Wade Carpenter: So I don't know, any other red flag lists that you would throw out there?

Stephen Brown: No. I would just say that if you're making these decisions [00:18:00] as a construction company owner, what is your personality and what's good about it and what's bad about it? And are you surrounding these decisions with people with other personalities and perceptions? Because that's always healthy.

Wade Carpenter: Well, I guess for our listeners, I think just for a gut check, I would ask you, when was the last time you turned down some work that looked profitable on paper? And if that answer is never, you might have a problem. It might be a selection problem. You might be listening to estimators and the people that are just looking at the dollars.

But profitability is really not just what you win , it's what you're disciplined enough to walk away from. You got any final words on this?

Stephen Brown: No, you just final worded it great, Wade.

Wade Carpenter: Okay. Well, with that, if our listeners are still with us, we appreciate you hanging out this far. I know you may have some pushback. If you disagree, we'd love to hear it in the comments. But, I think this is practical advice that I think too many people fail to take, and [00:19:00] unfortunately they're in this chaos that they need to get out of that chaos.

And maybe they've got more backlog than they can do, but they can't slow down because the cash will slow down. This may be something for you to think about getting out of that.

Stephen Brown: Just say no.

Wade Carpenter: Absolutely. A strategic no.

Stephen Brown: Okay.

Wade Carpenter: So with that, thank you for being with us. We appreciate it if you like, share, subscribe. If this has helped you, then share it with somebody else. That may help somebody else find their path. We do appreciate you being with us. We do this every single week, and we'll see you on the next show.