Bob Sutton is the author of the excellent book The No Asshole Rule: Building a Civilized Workplace and Surviving One That Isn’t (which is a book so many contractors I know really need to read) and writes the blog Bob Sutton Work Matters.

Getting back to the article Sutton writes in the intro:

The Idea in Brief

• It’s not easy being the boss during a downturn. Your natural impulse is to focus on your own well-justified concerns, but your people are watching your every move for clues to their fate.

• You need to rethink your responsibilities in terms of what your people may lack most in unsettling times: predictability, understanding, control, and compassion.

• By making tough times less traumatic, you’ll equip your organization to thrive when conditions improve—and earn the loyalty of individuals who will remain in your network for years to come.

Those are important points that I don’t most contractors think about proactively. In tough times our employees often talk scuttlebutt amongst themselves and with their peers about the state of their jobs and the companies they work for. The doubt and dissension that kind of talk can generate can destroy productivity and quality just when the business owners can least afford it. It’s always been my idea that a far better policy is to be up front and speak with authentic candor about just what is going on and what lies ahead.

If you are going to have to layoff or furlough staff be up front and let them know so that they can plan for it. The trust that builds will make employees far less likely to run out on you on short notice when it can really hurt you.

Video: Management expert Robert Sutton shares lessons on handling layoffs and teams in crisis.

The first book I’ll mention comes from that last category in that I haven’t read it yet but it looked so good I just ordered it and plan to start in on it in just a couple of days. ItsHow Fit Is Your Business?: A Complete Checkup and Prescription for Better Business Health by Mark G Richardson who is President of Case Design/Remodeling , Inc. I’ve been a long time fan of Richardson’s articles and commentary in Remodeling Magazine so this one was sort of a no-brainer i my book but in reading from a preview chapter I discovered on line I spotted a passage that tells me some of the information in the book is going to be particulary apropos for me and a lot of the contractors I work with. Quote:

I’ve long been a beliver that contractors that don’t market and advertise are steering an aimless rudderless ship in terms of directing their business towards the projects they feel they are best suited for and Richardson comment illustrates another problem with the all my business comes from refereals perspective. I’m looking forward to see what else is in the book.

Next on my list is a book I ordered a month or so ago and have worked myself a little over halfway through at this point. It’s entitled Building a Successful Construction Company by Patricia W. Atallah.

While I think a lot of small shop, mom and pop contractors will find the book addresses concerns and planning that they think is beyond them I still find it full of rich ideas and concepts and highly recommend it to the more serious contractor businsess owner regardless of the size of their business.

An excerpt (the introdution) from the book is avaible on the authors website at Building A Successful Construction Company – Book Introduction and in that excerpt the author writes:

I often hear the you have to have “experience” argument being thrown around by a lot of men in the industry and I think that the author, Patricia Atallah, illustrates that business smarts are probably the most valuable asset an individula can have.

Next I’ll mention a group of books written about John Boyd. Science, Strategy and War: The Strategic Theory of John Boyd and two more biographies written about him entiled Boyd: The Fighter Pilot Who Changed the Art of War
and The Mind of War: John Boyd and American Security
.

I first turned on to learning about Boyd through a Yahoo Group Theory of Constraints discussion group I am a member of but you can read a little bit about him and his influence on business here in the Wikipedia article on him.

I found Boyd’s OODA loop based planning similar to Deming’s Plan-Do-Check-Act PDCA Cycle and Boyd’s belief that management defines objectives and strategy. Workers (soldiers, originally) decide how to carry the work out right in line with Deming’s thinking on management too. Boyd believed people are entirly capable of making intelligent decisions, provided they have the right education training and work environment to make those decisions within.

Next on my list I’m going to put a book I haven’t read but only just accidently discovered while I was looking for Mark G. Richardson’s book that I mentioned above. This one is by Mark Richardson which to the best of my knowledge is of no relation and is entitled:Zen and Now: On the Trail of Robert Pirsig and the Art of Motorcycle Maintenance.

I’m a long time fan (30 years) of Robert Pirsig’s Zen and the Art of Motorcycle Maintenance: An Inquiry into Values and consider it to be one of the most influential and seminal books in my life. I’ve only just ordered the book and so I haven’t read it yet so I can’t comment but I’m putting it on the list here for those who feel more intellectually and philosophically inclined to examine juust what is “Quality”.

The Wikipedia article on Zen and the Art of Motorcycle Maintenance says ZAMM “is the first of Robert M. Pirsig’s texts in which he explores his Metaphysics of quality.” (more..) One of my favorite quotes from the book that helped reawaken my interest when I heard it again a decade or so ago when it was mentioned by the business guru Tom Peters in one of his books is :

Next on the list I’ll put Run Your Business So It Doesn’t Run You
by Linda Leigh Francis

Now I’ve known about this book for a couple of years now but have never really sat down and read everything in it until this past fall and I find it so valuable I’m going to add it to my Contracting 101 Essentials list.

Run Your Business So It Doesn’t Run You teaches you the same lessons as Michael Gerber’s E-Myth books about the concept that most contracting businesses fail because the founders are technicians (trades men and women) that were inspired to start a business but don’t have the business awareness to run a successful construction business but also provides some actual plans (checklists) and management tools for you to work with in making sure you develop your own systems and don’t fall prey to the “Entrepreneurial Trap” .

Last on this particualr list (there will always be more book lists) I’ll put Reaching The Goal: How Managers Improve a Services Business Using Goldratt’s Theory of Constraints.

This book is rather technical about the practical application of the Theory of Constraints in a service business environement. I recommend it for the folks who have abasic understanding of TOC and who have already read The Goal: A Process of Ongoing Improvement
and/or Critical Chain : A Business Novel and/or Critical Chain Project Management, Second Edition.

]]> http://paradigm-360.com/books/a-2008-2009-christmaswinter-reading-list/feed 0 http://paradigm-360.com/books/relative-income http://paradigm-360.com/books/relative-income#comments Tue, 23 Oct 2007 00:38:49 +0000 Jerrald Hayes http://paradigm-360.com/Blog/2007/10/23/relative-income-2/ Relative Income, It’s a great concept so what is so many of us don’t seem t get it.

As I was working today I was re-reading the The 4-Hour Workweek: Escape 9-5, Live Anywhere, and Join the New Rich, by Timothy Ferris by listening to the audio book edition as I was working today I was remnded of a passage I really enjoyed when I read it the first time through.

Two hard-working chaps are headed towards each other. Chap A moving at 80 hours per week and Chap B moving at 10 hours per week. They both make $50,000 per year. Who will be richer when the pass in the middle of the night? If you said B, you would be correct, and this is the difference between absolute and relative income.

Absolute income is measured using one holy and inalterable variable: the raw and almighty dollar. Jane Doe makes $100,000 per year and is thus twice as rich as John Doe, who makes $50,000 per year.

Relative income uses two variables: the dollar and time, usually hours. The whole “per year” concept is arbitrary and makes it easy to trick yourself. Let’s look at the real trade.

Jane Doe makes $100,000 per year, $2,000 for each of 50 weeks per year, and works 80 hours per week. Jane Doe thus makes $25 per hour.

John Doe makes $50,000 per year, $1,000 for each of 50 weeks per year, but works 10 hours per week and hence makes $100 per hour.

In relative income, John is four times richer.

… The top New Rich mavericks make at least $5,000 per hour.

The other day I was in one of the discussion forums and I heard one contractor telling another fellow that was getting set to start out on his own that he could expect to spend

“…65 hours working [in the field], another 20 for office crap”

…and I thought that was just insane. That’s not a life , it’s a self imposed prison sentence and in my estimation evidence of poor business design. To his credit the guy who was putting the pieces together and doing the planning to go out on his own wasn’t buying into any of that insanity. The insane guys who work that kind of schedule (and there are lot of them out there) are often the ones who don’t have a decent or respectable Net Profit margin in place and try to make up for that lack by doing it “in volume“.

Generally speaking contractors need to work smarter learn to substitute that for working harder and longer.

Perhaps the key central premise of the booke The 4-Hour Workweek is that you are only “rich” if you have leisure time to enjoy yourself. It probably should go on the contractors required reading list.

While that may be true as far as ‘pricing’ is concerned in the total realm of "caffeine providers" which includes Coke, Pepsi, Red Bull and amongst others is that really what people"buy" when they go to Starbucks? I drink nothing but de-caf regardless of whether it’s soda or coffee but I still prefer Starbucks and my local cappuccino bar to the coffee from my local delis, bagel shops and other establishments.

So what am I buying and what am I paying for?

It’s the "Experience" I get. If Caffeine is a commodity and as long as the consumer views it that way then Starbucks is one of the low cost providers (I think the delis and bagel shops beat them there and are the ultimate bottom line leader in the low price for caffeine category) when compared to buying Coke, Pepsi or some energy drink. But in their book The Experience Economy: Work Is Theater & Every Business a Stage
author Pine and Gilmore describe something different that often goes on and certainly takes place for me when I buy my coffee in that I’m buying the ambiance and "eatertainment" as the authors describe it of the cappuccino bar. In fact I’m not only not buying the caffeine I’m also probably not really buying the coffee either. I buy my coffee in Starbucks and my local shop, Perks, because of the experience it gives me. I’m buying it there for the way it makes me feel.

Unfortunately there aren’t a whole lot of books out there to choose from but still there are some good ones that are well worth the time.

On the top of the list I like Defensive Estimating: Protecting Your Profits by William Asdal, CGR. It’s not about how to estimate a kitchen, a deck or some other project in the literal sense in terms of what items to include and look for but is instead a book about the "big picture" of estimating and is about approaching estimating with a particular type of viewpoint and that is one of "protecting your company’s profit" which is very different than an estimating mind set that many contractors dangerously adopt which is "estimating to get the job".

The lesson of Chapter 2 Establish the Company Profit Number Based on Your Income Needs which again so many contractors fail to do is alone worth the price of the whole book.

Chapter 6 Using Retail Pricing at Every Line brings up a point I’ve often talked about when considering ‘risk’ in building and remodeling projects which is to ‘Put the Risk into the Line Item and Not the Bottom Line‘ , in other words ‘Nullify the Risk at First Entry‘ so that it can be specifically dealt with based on the risk of the task the line item describes.

And he concludes the book with chapters that give some great example of contract and specification language that can be used by builders and remodeler’s to defend their profits.

I highly recommend this book. I thought it was interesting though in reading the editors description of the book they say "Asdal takes the magic and science of estimating and turns it into an art." whereas I would say "Asdal takes the mystic and mystery of estimating and turns it into practical science". I think a problem many contractors have is they view estimating as some kind of mystical purely intuitive art and therefore never really develop the repeatable scientific methodologies (systems) for approaching it and it becomes a mess.

As for the nails, screws, nuts and bolts of producing an estimate and to what to actually look for in estimating particular projects and trades I think Estimating Building Costs by Wayne J. DelPico and Estimating for the General Contractor by Paul J. Cook are pretty good for that. You will get things from them such as how to calculate liner measure, are and volume and then what to look for as you produce cost estimates in the individual trade areas.

Where they are lacking is in connecting the COST of production to the PRICE you need to charge to run a business.

Two other books I think that are very helpful and good resources to have in the ‘nuts and bolts of producing an estimate’ category come from R.S means and are entitled: Kitchen & Bath Project Costs: Planning & Estimating Successful Projects and Home Addition & Renovation Project Costs: Planning & Estimating Successful Projects . And like the two books I just mentioned these two book don’t do a good job of connecting the COST of production to the PRICE you need to charge for your services and are in fact terrible in that regard. Under no conditions should you use these books to actually price a project out. Instead use the line items lists and the project commentary on what to look for as basic templates of what you will need to estimate. Then substitute your own labor, material, and subcontracting costs and markup structure for what they give you.

Given this list people often ask ‘Well, what about Jay Christofferson’s Estimating With Microsoft Excel and while I have read it and keep a copy of it for reference it’s more about using Microsoft Excel to build a software tool than how to actually "estimate" anything so that’s why I don’t include it on this list of ‘Estimating Book Recommendations’.

In the introduction to his book Leadership Is an Art, Max DePree says:

"In some sense, every reader "finishes" every book according to his or her experiences and needs and beliefs and potential. That is the way you can really own a book. Buying books is easy; owning them is not. There is space for you to finish and own this book. The ideas here have been in my mind for quite a few years, changing, growing, maturing. …As a child, I often watched adults study books and learned one of my first lessons about reading. They wrote in their books. Intent and involved readers often write in the margins and between lines…Good readers take possession of what they are learning by underlining and commenting and questioning. In this manner they "finish" what they read."

Well that’s me. My books are more often than not full of underlines, circled text, highlighting, and post-it notes. Their pages are sometimes wavy and wrinkled from being soaked from the sweat dripping off my brow on as I read them on a stair master or stationary bike.

Recently an online friend said to me he’d like to not just get a copy of Defensive Estimating: Protecting Your Profit
but that he like to get my personal notated copy of the book. I thought it was funny reading that in that he pretty much figured out on his own what I did to the books I read so I took a photo of it at the time to document it.

It turns out I’ve got whole bunch of books that look like that or even worse. Tom Peters’ Liberation Management: Necessary Disorganization for the Nanosecond Nineties which was perhaps one of the books that really inspired me to go on the business book reading binge that I’ve been on for over a decade now. It was in fact the book I was referring to above whose pages were all "wavy and wrinkled".

The E-Myth Contractor: Why Most Contractors’ Businesses Don’t Work and What to Do About It

However on further thinking it might be a good idea to read The E-Myth Revisited: Why Most Small Businesses Don’t Work and What to Do About It
first so that you get a better more thorough grasp about the importance of what the book is getting at.

What is The EMyth all about and what are the two books getting at? They’re teaching you that you have to approach designing and setting up your business operation as a "turnkey" business operation and can operate by itself without you in it. Seems nuts to even think about it that way when your setting out on your own for the first time but there is very good reasoning and logic behind that thinking.

New on this list (added October, 2008) I’m inserting Run Your Business So It Doesn’t Run You by Linda Leigh Francis

While the E-Myth books are about the concept that most contracting businesses fail because the founders are technicians (trades men and women) that were inspired to start a business but didn’t have the business knowledge about how to run a successful businesses Run Your Business So It Doesn’t Run You teaches you the same lessons but also provides some actual plans (checklists) and management tools for you to work with in making sure you develop your own systems and don’t fall prey to the "Entrepreneurial Trap" .

The next two book on my list are all about the numbers. The basic understanding of finance and the nuts and bolts behind figuring out what you need to charge for your services. Where Did The Money Go?- Easy Accounting Basics for the Business Owner Who Hates Numbers
$19.99 and How Much Should I Charge?: Pricing Basics for Making Money Doing What You Lovealso $19.99 were written by Ellen Rohr who is a well known writer and lecturer to readers of the roofing, electrical and HVAC trade magazines but the principles apply to any contracting business.

You can also order them through her Bare Bones Business web site and one of the great things about getting them than way is in addition to getting a paperback version of her books sent to you you wont have to wait for them to arrive in that right after purchasing the books she’ll send you an email with a URL where you can download a PDF version of the books and start in on reading them right away.

"Where Did the Money Go? will teach you the accounting basics you need to keep track of your business…and find out where the money goes!". In it you’ll follow a character Bob Bird as he sets out on his own as a first time business-owner-contractor and it will give you a basic overview of the accounting principles you absolutely need to know and understand. In the section of the book entitled If My Accounting System Is Computerized, Do I Need To Know This Stuff? she writes " You don’t need to know everything about accounting. You do need to know everything in this book…as a bare minimum!" and with that I wholeheartedly agree.

When you’re ready to get down to the actual work of setting you hourly rate there is an Excel spreadsheet I created that you can download from the Shareware section on my 360 Difference Software site. It’s called the "The Capacity Based Markup Worksheet (aka the PILAO Worksheet)" which is an acronym for PROOF/Indexed/Labor Allocated Overhead. It works right along with the principles that Ellen Rohr talks about in her books and Irv Chasen of PROOF Management Consultants talks about in his seminars. Thinking of that you’ll probably want to read an article Mr. Chasen wrote about this type of markup method in last January’s JLC called Allocating Overhead to Labor Makes Financial Sense.

I think the stuff I’ve mentioned up to this point while perhaps the most important stuff for someone just starting out is not necessarily what really interests them but BELIEVE me when I say IT IS THE MOST IMPORTANT STUFF TO GET DOWN AND UNDER YOUR BELT, it is!

Then you can move on to David Gerstel’s Running a Successful Construction Company. One of the really good things you’ll find in this book is in the first or second chapter he he presents a suggested step-by-step month-by-month plan for setting up a company with things to do and take care of before you really takeoff. I have a few changes and additions I would make to the order of things he presents but it pretty close to perfect for where you’re at as far as a getting a startup plan of action.

Look over and read The Contractor’s Legal Kit: The Complete User-Friendly Legal Guide for Home Builders and Remodelers
by Gary Ransone. There are some excellent sample agreements in this book with instructions on how he suggests you should use them and after looking at them and thinking about them you can go to you attorney and talk to him or her intelligently about any modifications he or she thinks you should make with them. Do not just go out and literally use them without having an attorney look them over first though because different regions of the county have different laws that you will need to comply with.

And while we’re on it another good book on the legal aspect of contracting is Smart Business for Contractors: A Guide to Money and the Law (For Pros by Pros)
by Jim Kramon. This has some really great information on insurance that doesn’t appear in any of the other books that I can think of in addition to it’s general content.

Managing the Small Construction Business
is compilation of JLC articles with builders and remodelers describing the techniques that have worked for them. Just a general great resource. It could also very well be titled the best of The Journal of Light Construction Management Articles.

As an alternative to this book you might might want to consider a JLC Online Membership which give you access to all the article ever published by the Journal of Light Construction either though their website, or via a CD or DVD data disk, or both. With a JLC Membership you’ll have not only the selected business articles that are in Managing the Small Construction Business but all of them along with all the article on trade and construction techniques too.

Mastering the Business of Remodeling, An Action Plan for Profit, Progress and Peace of Mind by Linda Case A good overview of the business of remodeling that will introduce you to marketing your services in addition to what it has to say about the general managing and operation of the business.

Linda Case also has another book entitled The Remodeler’s Guide To Making & Managing Money: A Common Sense Approach To Optimizing Compensation & Profit
which I will group together on the end of this list with Michael C. Stone’s book Markup & Profit: A Contractor’s Guide.

While overall they are both good books I think the markup and pricing methodology that they describe and advocate which I often refer too as a Uniform Percentage Markup is tragically flawed and could be a silent but deadly killer to a contractor just starting out. See my the QROL post The Potential Problem Using a Traditional Volume Based Markup to learn more about just what that problem is. (Instead consult Ellen Rohr’s How Much Should I Charge? and David Gerstel’s The Builders Guide to Running a Successful Construction Company for a markup and pricing methodology.)

Still the two books have a lot of good general information on all the other aspects of running a small building and or remodeling business so they’re worth the putting in your library.

I don’t recall now how I stumbled across it but last week I found out that John Abrams had written a book on his company called The Company We Keep: Reinventing Small Business for People, Community, and Place and I ordered it right away. During my coffee break earlier this morning I started the book and read the Forward and the first chapter entitled Cornerstones. While I’m going to make every effrot to read this book as fast as I can I think it’s going to take me a while. For me at least I think there is going to be a lot in the book to highlight, notate, and think about.

Right there at the start of the book was a passage that spoke to me:

"Along the way, as we have become a part of this place, we have come to sense that we are not only at the beginning, that our endeavors— and our company—may have, or can aspire to have, some of the enduring qualities of qualities of the buildings we fashion."I’ve been very fortunate in my career to have built some very artistic and beautiful projects that I know will be there a hundred years from now but what has eluded me till know is being able to build "a company" that with that same kind of enduring quality.

A few passages later Jon Abrams goes on to write:

" ….We not only build houses, we build connections and bonds between people, between people and land, and between commerce and place. We are organized around the idea of maintaining and perpetuating an ongoing business community. We think we are crafting a company to keep.

I think that may be the key. It’s about building connections and bonds between people, land, their homes, and commerce.

Jon Abrams describing how he learned about and discovered the cornerstones of his business ideology:

"
The stone mason sorts through a pile of material to find just the right stones for the base, the corners, the fillers, the stretcher that lock the wall together, and the capstones to finish it off. he discovers the wall as he builds it, as I found the cornerstones of our business"

About Growth:

"
At South Mountain we favor certain kinds of growth, but not expansion for it’s own sake, which author Edward Abbey described as ‘the ideology or the cancer cell’…
….When we grow it is intention rather than in response to demand. We think about "enough" rather than "more" — enough profits to retain and share, enough compensation for all, enough health and well-being, enough time to give our work the attention it deserves, enough communication, enough to manage, enough to headaches"

All this from just the first chapter.

Ya know how every once in a while you crack open a book and in reading the first chapter you get real excited and start to think wow this is going to be great. Well I think this is one of them. I know there some people here who will really hate this book (maybe that’s why I like it so much) but I also can think of many more people here who I know who will really indentify and appreciate it.

There will be more on what I’m thinking and learning as I read on. Anyone else want to join in the discussion? If so drop in to Fine Homebuilding’s Breaktime Forum or The Journal of Light Construction’s Business Strategies Forum and speak your mind.