Hah! A True Story
The decade from 1985 to 1994 was difficult for California public works construction contractors. Most of the large and mid-sized contractors survived that period of Republican domination of state and federal government, but even among those that did many were financially stressed or on the brink of bankruptcy. One in the latter category was a company that I’ll call J. Doe Constructors. It was a family operation started decades earlier by J. D. Doe. In the late 1980s, he passed the business down to his sons, Will and Tim, both of whom had been active in the company for over twenty years. As soon as the transfer was complete, public works almost totally dried up. With their solid reputation and skilled workers, they chased and secured private contracts. Not enough to generate the revenue volume they were capable of handling; so, they were forced to downsize. A couple jobs were a bit outside their normal operating territory which put them at a further disadvantage. Then they began to experience the “joys” of working for private owners.
By 1995, J. Doe Constructors had numerous suits against owners that hadn’t paid. Those uncollected receipts constituted all of Doe’s working capital and equity. There was no market for the real estate they’d purchased when times were good and had planned to develop. Shortly before increased public works project began to appear, their surety bonding company canceled their account. Severing a four decades long relationship. After being declined by several other sureties, their broker managed to get Doe placed with a substandard surety, a facility that limited the size and volume of public works that Doe bid on. Enough work for them to post a smaller loss than they had the year before. Without a prompt and positive resolution of one or more of their claims/lawsuits, another loss year would lead the bank to reduce their line of credit and that in turn would lead the surety to reduce its support. A grim downward spiral profile.
Had Will and Tim made mistakes? Maybe not. There’s only so much belt-tightening that a construction contractor can do in the absence of new work and remain viable. The drought of new public works projects had been unusually severe and prolonged in their territory, and there were slim pickings in the private commercial market. As a nation, we’ve learned little to nothing from the WPA demonstration project. And the lesson was freaking simple – ramp up public works projects when the private sector busts and vice-versa.
Had Will and Tim experienced more than a fair share of bad breaks? Possibly. A poorer organized and capitalized contractor, which describes a majority of contractors and small businesses in general, wouldn’t have survived J. Doe’s string of bad breaks.
Did Will and Tim work really hard? You betcha. As did all those that had worked for them for many years. Several of whom had stayed out of loyalty when other and higher-paid offers came their way.
However, what should never be overlooked is that Will and Tim didn’t build the business but inherited it. That’s a bigger break than most people ever get.
Today J Doe Constructors is a financially strong and healthy family operated company with a thirty million dollar backlog. Has been since 2000. How? One person facilitated their ability to get 25% more work than they were financially qualified for. Endorsed the payment of small bonuses to loyal employees before it was financially prudent to do so. Advised accepting a claim settlement offer and taking a loss on it rather than holding out and hoping for a better outcome. That person also disappointed Will and Tim a couple of times – the job’s too large for right now.
Will and Tim have the hearts and minds of social democrats. Unfortunately, the construction contractor culture is one that supports all but the most loathsome Republicans over the best Democrats. They are among the donors to the AGC-PAC that distributes those over 80% of those funds to Republicans. While Democrats have historically been better at funding the public works projects that produce the bread and butter revenues for so many contractors they don’t like that those revenues come attached to regulations regarding workplace safety and prevailing wages, to support for union works, and the imposition of business and personal income taxes. They are like the Log Cabin Republicans – dependent on traditional Democratic policies and values – yet convinced that they made it all on there own and therefore, shouldn’t have to pay for the privileges they’ve enjoyed.
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A note on Ms. Rebecca Smith, President and Founder of A. D. Morgan Companyand supporter of Mitt Romney who claims to have “built it all on her own,” I can state categorically that her claim is false. She was educated at the PUBLIC University of Florida and couldn’t possibly have been competitive five years later with highly experienced and well capitalized contractors unless she received substantial help in various forms from many others. WBE (woman owned business enterprise) set-asides and SBA loans and guarantees would be the most likely. As the Tampa Bay Times blog points out, her business is currently dependent on public works contracts and she may still enjoy a WBE advantage to secure them. Finally, Ms. Smith isn’t out there pounding nails, pouring concrete, etc. She’s dependent on her employees and subcontractors to actually build anything
Can you say a little more about this person? An employee? A patron? A financial angel?
Not without betraying a confidence and writing a long and boring piece about a critical partner for public works construction contractors. Having checked further, that 25% figure was incorrect, and while difficult to quantify, it was more like 250% in the early going. That person claimed that the risk was always less than how others viewed the account and with proper oversight and management, the downside was low (potentially a minor loss) and the upside high (as in an annual $150,000 a year account).
Wouldn’t want you to betray a confidence. The main point is not alone.
I once worked for a small software firm. The founders were a programmer and a salesman who mortgaged their homes and struck out on their own. That took guts and no one begrudges them the millions they eventually made. Yet, they had an annual employee appreciation dinner where they acknowledged that the success was due to the skill and hard work of their dedicated employees. It was a two-way street. It was a wonderful company to work for. They gave us that along with our daily bread. We gave them the hard work and skill that built their reputation and brought them their success.
Eventually they sold the company to a venture capitalist who brought us more financial rewards momentarily but eventually sold us down the river, replacing us with H1-B’s. They became a commodity shop, temporarily made more money, then died in the dot-com bust.
Sounds as if your employer sold to an equity capitalist. The generic VC model is to buy a share of the business and keep the original owners around to continue managing and growing the business until it’s attractive enough to a larger company or for an IPO.
I added the note on A. D. Morgan company to contrast the help a start-up in 1989 could have gotten just as an established contractor on the other side of the country was hitting the skids. The failure rate for new construction contractors is exceedingly high as in >90%. And even when they have succeeded for a number of years, a bad job or two can take a smaller contractor down.
I may be able to answer questions you have in a non-public forum at davismarie930 at yahoo.