The construction industry, over the past decade, has seen its share of start-ups promising a golden cornucopia of wonderful things.
Most start-ups don’t succeed. More than two-thirds of them never deliver a positive return to investors.
Venture Capitalists look for founders with the right stuff: resilience, passion, experience leading start-up teams, and so forth.
PFS Corporation
Viking Carrier
Mariotti Building ProductsBut even when such rare talent captains a new venture, there are other parties whose contributions are crucial to it. A broad set of stakeholders, including employees, strategic partners, and investors, can all play a role in a venture’s downfall.
In construction, there are two main types of start-ups, the companies that actually build things and the companies that develop software to run things. This article is about those that build things.
The biggest reason most start-ups fail is lack of money. The founding entrepreneurs need to learn early on that they can’t launch a startup unless they have raised enough capital for both their product development and the initial sales and marketing activities.
An Idea is Born
Start-up founders generally have little or no experience in actually running a company that builds things. For example, a builder that uses wall panels to build their homes may see an opportunity to save money by building their own walls and trusses in a large warehouse. They do a little research and discover they could use robotics and automation to save even more money.
Over the next few years, they work on drawing a factory and its production line at their kitchen table. Maybe they get help from their foreman who has worked for them for 5 years.
Then the idea becomes the project. This is where actual money is put into looking for a building, talking to their banker, then deciding if they want to do a Start Engine funding drive or go after Angel Investors or Impact Investors. Impact Investors invest in companies that use sustainable products to build things.
They estimate how much money they need to rent the warehouse, acquire the production line equipment, and hire a few people to start building the wall panels and trusses to be used on their own houses first before starting a sales campaign.
This is about where the money starts running out. Then it’s time for another round of funding but this time there is a history of what has been accomplished and that’s not quite good enough for a second round. With little or no marketing having been done, there are no customers waiting for those walls and trusses.
There is no sales staff either and if they sell what the founder believes his factory can produce, there are not enough trucks or drivers to deliver the product to the customer.
The inexperience of this builder in running a start-up factory has now become very apparent and red flags begin to go up everywhere. This is usually the beginning of the end of this new venture.
The Missing Step
A “Minimum Viable Product” (MVP) is the release of a new product (or a major new feature) that is used to validate customer needs and demands prior to developing a more fully featured product. To reduce development time and effort, an MVP includes only the minimum capabilities required to be a viable customer solution.
Three Key Characteristics of a Minimum Viable Product
>It has enough value that people are willing to use it or buy it initially.
>It demonstrates enough future benefits to retain early adopters.
>It provides a feedback loop to guide future development.
Many start-ups don’t pay enough attention when their investors told them they prefer to mete out capital one chunk at a time, waiting to see if the business can stay on the rails. If the start-up stumbles or stalls, follow-on financing may not be forthcoming from existing investors, and potential new investors will be scared off.
No matter how carefully the founder plans to bring their idea and plan to fruition, the key thing missing is education. Many founders have no idea how to SUCCESSFULLY bring their idea through the gauntlet of investors, the reality of starting a production factory, how to market to anyone other than themselves, or how to run a factory after it begins showing a profit.
Who is educating these new start-ups?
Now that’s the question that should have been asked between the idea stage and the planning stage. Unfortunately, ego usually gets in the way. Too bad.
One of the best ways to give a start-up a fighting chance at survival is to hire someone with the knowledge and experience the Investors want…the Start-Up General Manager (GM)
Start-Up GMs
A Start-Up General Manager (GM) is a leader, manager, and/or jack-of-all-trades with technical, functional, or industry expertise to run a major part of your start-up.
The GM’s job is to set a vision/strategy/focus for the business, get the right people, organizational structure, and cross-functional support in place, set goals and resource allocation (eg. sales, R&D, marketing investments), and team alignment to hit targets and move the ball forward, make decisions and get results in a given area of the business
A start-up GM must manage the team, and manage cross-functional stakeholders to drive the business forward from the start-up phase.
A strong Start-up general manager will make setting up the factory easier and have a better chance of survival, including:
>Setting a vision
>Recruiting and retaining talent
>Creating processes for managing stakeholders
>Simplifying complexity
>Monitoring a few key KPIs that drive business decisions
Start-Up GMs are not, by their very nature, long-term people. Most have years of experience doing this phase for a new business but once the job becomes routine, they move on to the next next opportunity.
They are the hired guns that love starting factories or coming in to save existing operations. Every factory should have the name of at least one hired gun on file.
When To Hire Your First Operating GM
The timing of hiring the first operating GM is often a challenge. If the start-up GM has done their job to the best of their ability, they will probably be the ones to tell the owner it’s time to find their replacement.
An operating GM is unique in that they don’t one any one function.
As the start-up continues to scale up, they’ll hire managers, directors, and so on as the factory grows in size and complexity.
If, as a result of hiring an Operating GM, your life gets easier, the business grows faster and everyone on the team levels up, you’ve probably made a good hire.
What Went Wrong
After the dust settles on a new start-up that just closed its doors, the three things many founders realized, once they put their ego away, was that they knew very little about actually running their factory, underestimated how much money they needed, and didn’t hire someone that actually knew how to start a factory from the ground up.
Gary Fleisher is the Editor in Chief of Modular Home Source and Offsite Builder magazine. Email at modcoach@gmail.com
One Response
Gary–As usual a great astute observation on your part. Having been a part of this industry for 45+ years, many as a GM and recently as an advisor/consultant, I have without doubt come to the conclusion that most start ups or takeovers fail for one consistent reason…….lack of industry experienced professionals being a part of the planning process and/or in the everyday management of the entity. I concur with Vic’s statement in that there always seems to be a “better mousetrap” mentality that exists with these new ventures. While innovation can and should be a part of the any endeavor the basic concepts of off site manufacturing are still based on established norms and truths that have stood the tests of time. Only those that have been there and done that so to speak are in a position to recognize and present those basic concepts. Hopefully your article will raise an awareness to those in a position to make a difference. You hit the proverbial nail on the head.