So, where’s the really good money being made in construction these days? Those outside the industry might be surprised at how comparatively little the Prime contractors make when you balance return against their investment in capital, commercial risk and meeting health and safety obligations.
From our experience, it's been the so-called “Super Subbie” who is consistently managing cashflow and making good returns.
What differentiates them is their clear ownership of a specific technical niche and their understanding of where they sit in the market.
The Super Subbie focuses all their attention on being good at just a selection of key things - which are important to their customer. This could be anything from foam bitumen stabilisation to traffic controller design and installation to deep stormwater excavation to urban streetscapes.
They are the go-to guys for that product or service, and a client will often specify using them. They also consistently execute and deliver on promises.
So what can the stretched Primes – and anyone else in business – learn from the Super Subbie?
- A clear understanding of the core customer – they have a very clear understanding of their core customer, the one that provides the maximum return and repeat revenue for their business down to a department and person level.
- Tight and personal management of customer relationships – because they engage actively to understand their customer’s challenges - and design solutions around these problems - Super Subbies maintain tight customer relationships. They are in regular contact with customers, and mutual trust is high.
- Be world class at a few things - being narrow and deep as an organisation to own their corner of the market.
- The whole business understands the value proposition – from management to crew, everyone knows and can articulate their value proposition and what they do as a business i.e. ‘we are world class at x, or we deliver services for z industry’.
- A clear understanding of customer return on investment (ROI) – Super Subbies can articulate the return on investment for a customer which can often come with some form of guarantee and warranty – eg % reduction in customer complaints.
- They deliver – Super Subbies fundamentally build a reputation for execution and delivering on promises.
- Ability to change market offering – Super Subbies take feedback from customers and are quick to innovate, implement technology, and make changes within their business.
- World Class + Value Proposition + ROI + Execution = Premium Price and Market Sector Ownership – Being all the above creates the opportunity to demand a premium, be specified in tender documents and negotiate work directly with customers.
We all know examples of great subbies that have built their business by being great at all or some of the above. And I know that some Primes would argue that their size means they just can’t be as flexible as the Super Subbies. But this is really about culture, not size. You only have to look at the likes of Apple. Their customer-centric and innovative culture has seen them sustain an 80% profit share of the premium smartphone market.
Warner Cowin, Height CEO