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Kenny Rogers recorded “The Gambler,” a song about poker written by Don Schlitz, in the 70s. The refrain claims, “You’ve got to know when to hold ‘em. Know when to fold ‘em. Know when to walk away. Know when to run.”
Poker is a game with two very important issues to consider — luck and skill. Luck determines which cards you are dealt. But, skill is the difference between being a good poker player or bad poker player.
Recently, I was in a Texas Hold ‘Em poker hand in which my skill told me to fold my cards when the player before me, who was short stacked (not many chips left), went all-in. His two (hidden) hole cards were a pair of fives. The next four players also folded their cards. The seventh and eighth players in this hand saw the all-in bet.
The first three community cards dealt were an ace and two eights. The seventh player’s hole cards were an ace and a card that was unrelated to the community cards. This gave the seventh player two pair — aces and eights. Thinking he had the high hand at this point and to get the eighth player out of the hand, the seventh player went all-in with his rather large stack of chips in an attempt to scare the eighth player with the size of his bet. The eighth player, however, immediately called the large bet.
Since two of those three players were all-in (they had no more chips), the three players exposed their hidden hole cards. The first player showed his pair of fives. The seventh player showed his ace, which gave him aces and eights. The eighth player crushed them both with two hidden eights, giving him four of a kind.
The next two community cards gave the seventh player a full house — aces over eights. But, he still lost and was eliminated from the game along with the first player.
The seventh player, who is a good poker player, knew he did not have an eight. Yet, he shoved in all his chips without considering the possibility that the eighth player in the hand could have had an eight. That would give that player three of a kind, and a better hand than two aces over two eights at the time of his all-in bet. Instead of using his skill combined with the laws of probability and the possibilities associated with luck, the seventh player sealed his own defeat with his action.
What’s my point? Running a successful PHC contracting business is like playing poker. Although gambling on the outcome is inherent to poker, skill determines whether you are in the money or out of it. Regarding your PHC contracting business, if you don’t consider all the possibilities of luck blended with the fundamentals of mathematics and the required technical skills of your trade, you are tempting fate and putting your business’ future in jeopardy. You must be able to discern when you are holding a winning hand and when you are not.
Knowing when to hold ‘em
You could be the greatest technician your trade has ever seen. If you do not hone your business skills to be the best business person you can be, you will suffer much stress and frustration from the trials and tribulations that come from running your own PHC contracting business. You must have a good business plan in place. Do you want to do service work or new construction? Although both are PHC contracting businesses, there is a difference.
New construction for PHC contracting businesses is the installation of PHC systems in buildings or building additions that do not exist until these structures are built inclusive of the new PHC systems.
The service sector of our industry is for PHC contractors who perform their trade on existing systems in existing buildings. Repairing or replacing a faucet, boiler, or AC condenser — even adding to an existing system within the confines of an existing building — is usually performed by service contractors, rather than those whose game plan is new construction contracting.
If you try to perform in both these arenas, you had better have separate crews and calculate the costs associated with each as separate profit centers. If you don’t, you will do neither well. When your crew is on a service call, they cannot be fulfilling your contractual obligations associated with a new construction job. When your crew is doing new construction, you can’t service consumers who need service.
Realizing there is a difference will help you establish a good business plan. New construction will require you to have a good estimator armed with the correct factors needed to estimate your true costs and blend those costs with a realistic profit margin, which will allow your business to be profitable. You also need a reliable and skilled crew of installers led by a knowledgeable supervisor and an administrative staff capable of taking care of the associated paper and computer work.
Service contracting requires you to have a technical and administrative staff that is adept at documentingservice calls from inception to completion, notifying consumers of your business protocols, addressing consumer questions properly, tracking statistics in order to make wise decisions, and delivering excellence to consumers.
Knowing who you are, what you are doing businesswise, what you are capable of accomplishing technically, where you want to go, and not fooling yourself, are the keys to attaining the skill to know when to hold ‘em.
Knowing when to fold ‘em
You also have to know your limitations. I earned my stripes in the PHC industry as a technician for two new construction contractors before opening my own PHC service contracting business in 1978. I am happy to say we are completing our 38th year in business at the end of 2015.
One of those new construction contractors for whom I worked did small to mid-size commercial buildings; strip malls and residential housing. That was their expertise. Tempted to stray from their strengths they bid on a very large hospital addition. They won the bid, but, the next lowest bidder was several hundred thousand dollars higher than them. Oops! That’s a costly error. They could have won the bid by just being $10,000 lower.
With service work mistakes like that are still mistakes, but, less costly. With service work your game plan must include top-quality technicians as well as intelligent and amiable service representative(s) to address consumer requests.
Regardless of whether your business does new construction, service or both, your goal is the same. You must be able to recover your cost of doing any project or task, and, you must earn a profit above that cost for your performance. If you fool yourself into thinking you can do the job cheaper and faster than your competitors you are probably making a fool of yourself.
When I opened my own business, I remember my former boss, who did the large hospital job, telling me, “Don’t fool yourself by thinking you could do a job faster and cheaper than your competitors.”
He would have been several hundred thousand dollars ahead of the game if he only listened to his own sage advice.
Knowing when to walk away
If something sounds too good to be true, it probably isn’t true. In the first year of my business, a general contractor (GC) I knew told me he could get me $100,000 of work annually ( in 1978) for a national merchandising corporation that sold appliances, cabinets etc. This corporation also sold remodeling services to consumers. That’s where the need for subcontractors came in. Being aware of the prices this corporation charged for remodeling, I knew they would never pay the price I would charge them for my services because it was mathematically impossible based on their selling prices.
I thanked the GC for his offer and declined it. He quickly asked why I would turn down $100,000 of work a year. Knowing my true operational costs allowed me to have confidence in my response. I told him it would cost me at least $100,001 to do that work. And paying more for work than the work brings in to my business defeats the purpose for which I went into business.
As a contractor, you must be confident that you will recover your cost and earn a profit for each job you do. Yes, I know what you’re thinking. Everything doesn’t always go just right. But, if you quote your prices based on your true cost and a properly chosen profit margin, you will win most of the time. That’s just like poker. You don’t win every hand, but, if you play with skill, you’ll come out with more money than you started with.
Knowing when to run
If you want me to show you how to hone your business skills so you will know when to hold ‘em, fold ‘em or walk away in your contracting business, run to your phone and give me a call.
Richard P. DiToma has been involved in the PHC contracting industry since 1970. He is a contracting business coach/consultant and an active PHC contractor. For information about the CONTRACTOR PROFIT ADVANTAGE and contact Richard: call 845-639-5050; e-mail email@example.com; or mail to R & G Profit-Ability, Inc. P.O. Box 282, West Nyack, N.Y., 10994.