For some crazy reason, I seem to have a steady flow of would-be entrepreneurs coming to my office seeking help to learn what it takes to start a business. Over the past year, I had two contractors who have been in business for years. In both cases, they needed a little needed guidance to figure out how to be businessmen. There can be a big difference between being an excellent tradesman and being a good businessman. More often than not, the failure of a construction company isn't related to a tradesman's skill-set. It's their approach to running a business. One listened, and one didn't. Today, one is prosperous and loaded with work, and one isn't. Care to guess which is which?
A few months ago, a local real estate agent dropped by the office to find out how to start a brokerage. He's a good guy and I believe he will do well. He called just a few days prior to launching his brokerage to get a few more pointers. He was humble, hungry and open to ideas. I wish him well.
Today, a 35 year old electrician dropped by to ask about starting a new electrical contracting company. He was really prepared for the visit. He had all of legal docs were complete, his tax information was in place and he had a fairly large book of potential project estimates. He handed that to me when he sat down, so I glanced through it while we talked.
I've been an electrical contractor since 1984. I have a pretty good feel for what our market will accept as a fee for service. My company is a mid-priced company with an excellent reputation and a strong work ethic. There are others who are lower priced, and there are some who are much higher in their prices. I've done quite well for myself over the past 35 years. I really don't need to advertise because I have hundreds of clients, both residential and commercial who use us continually. Currently, I turn down approximately 30 commercial projects a month, and it has been like that for over two years.
This young man's book of prices was like reading a Harry Potter fantasy. He's starting his business because he wants to do better for his family, and I applaud that. I did the same. When I started reading his price list, I could feel myself fighting a smile. His prices were as much as 1000+% over the common and customary prices contractors charge in our community. His price on one of our most profitable reoccurring projects was 130% over our price. Our profit on the same project is 80% of our invoice.
I did tell him that some of his prices were radically higher than we charge for the same service. He looked at me like he thought I was kidding. He said he couldn't make it if he charged what we charge. I said, "You won't make it if no one hires you either." He has been getting his business insights from the Internet gurus. That's fine with somethings, but pricing your work in an area is going to be area specific. That seemed to be a foreign concept to him. He was sure that his technical and customer service skills would bring him that 1000+% profit over customary local fees.
Arrogance is expense. Add ignorance to that, and you're out of business in a year or two, if you last that long. What this young fellow really wanted was an opportunity for me to be so impressed with him that I would hand my customers to him for a small kickback. I shared with him that my customers are part of my family and I wouldn't do anything that would harm them or affect my reputation. Overcharging them would do both. I'll keep taking care of my own customers, and I'll pick up the damage he does in a year or so.