Four Things to Do Before Losing Your Ass on a New Offsite Factory

Over the past couple of years, many modular and offsite construction companies that were once regarded as the pinnacle of success in our industry have failed, the biggest of those being Katerra. But we’ve seen other highly regarded factories fall from poor planning, poor management, or simply from overzealous, inexperienced owners that thought they knew how to construct buildings and components better than anyone else.

The Great Recession and the housing market crash of 2008 and 2009 experience were simply lost on many of today’s Millennials, as most of them were still in high school or college when it occurred. Now they are the ones reaching out to investors for millions of dollars to build that special factory that can build 10 houses a day using robotics and automation that will cost many times the $49 million it cost to build the Hoover Dam.

After getting money for the dam itself, the government still needed to invest another $71 million to make it functional. Isn’t that what Katerra did? And yet, investors were still eagerly dropping millions into the coffers of a company that couldn’t even pay their fixed costs without asking for more money.

Keeping a business profitable involves understanding many aspects, including market trends, financial management, and strategic planning. Here are four important things you should know:

Know Your Market: 

Understanding the market dynamics is essential for any business. This involves understanding customer behavior, needs, and wants, as well as being aware of the competition. Keep an eye on market trends, perform regular SWOT (Strengths, Weaknesses, Opportunities, Threats) analysis, and adjust your business model accordingly.

If you know your market well, you’ll understand the needs, preferences, and pain points of your target customers. This understanding can guide your product development, marketing strategies, and overall business approach, allowing you to tailor your offerings to meet customers’ specific needs.

By analyzing what your competitors are doing, you can find ways to differentiate your product or service, identify gaps in the market, and gain a competitive advantage.

Knowing your market helps you price your product or service appropriately. If you price too high compared to similar offerings in the market, you may lose customers. If you price too low, you might leave money on the table or risk damaging your brand image.

A comprehensive marketing plan can guide your marketing and sales strategies. Knowing where your target customers spend their time, what messages resonate with them, and how they like to be contacted can make your marketing and sales efforts more effective and by keeping an eye on market trends and changes, you can anticipate challenges and opportunities, helping you make proactive decisions and reduce business risk.

In short, knowing your market is like having a roadmap. It won’t predict every bump in the road, but it will provide you with an understanding of the landscape, help you plot your course, and guide your decision-making. Without this knowledge, a business can end up making misguided decisions, wasting resources, and losing potential opportunities.

Have a Business Plan: 

Every decision you make has a financial impact on your business. Manage your finances effectively, create realistic budgets, understand your cash flow, and make sure you’re pricing your products or services appropriately. Regular financial reporting and analysis are also vital in spotting trends, controlling costs, and identifying areas where efficiencies can be made.

A business plan is a comprehensive document that outlines a company’s objectives and the steps it will take to achieve them. Business plans help entrepreneurs stay focused on their objectives and strategies. It sets clear goals for all aspects of your business, including finance, operations, marketing, and management.

It aids in understanding how resources like capital, talent, and infrastructure should be allocated to meet business goals. Without a plan, you might spend too much on things that aren’t vital to your business’s success.

If you’re seeking loans or investments, a business plan is typically a requirement. Banks and investors want to see a comprehensive and well-thought-out plan before they will consider funding your business. Many offsite construction startups use pitchdecks to grab investor’s interest but that only opens the door. Knowledgeable investors want to see business and marketing plans before they consider investing millions of dollars.

Business plans help identify potential risks and develop mitigation strategies. These could be operational risks, market risks, financial risks, etc. It also serves as a baseline or benchmark that helps businesses measure their progress and performance over time.

A well-drafted business plan demonstrates that you’ve taken the time to consider and articulate your business’s trajectory, which can give investors, partners, and other stakeholders confidence in your enterprise. It provides a roadmap for your business’s growth, outlining how and where expansion will take place. This might include new markets, products, or service lines.

In the event of a leadership transition, a solid business plan can help ensure a smoother process, outlining the business’s continued trajectory and how new leaders should continue to navigate it.

Have Experience 

While many successful entrepreneurs have built thriving businesses with little prior experience. They make up for this with a strong learning mentality, adaptability, persistence, and a strong belief in their product or service.

Vaughan Buckley, CEO of Volumetric Building Companies

Unfortunately, those successful entrepreneurs often bring with them a lot of “less than competent” support staff.

Having prior experience in a particular industry gives entrepreneurs a deep understanding of the market dynamics, customer behavior, competition, and potential challenges that may arise. This knowledge can guide strategic decision-making and reduce the risk of costly mistakes.

Running a business involves multiple aspects, including financial management, operations, marketing, sales, human resources, and more. Previous experience in these areas can equip entrepreneurs with the skills and knowledge necessary to manage these functions effectively. Experienced management often comes with a network of industry contacts, which can be invaluable for a new business. This network can provide access to potential partners, customers, suppliers, investors, or mentors who can offer advice and support.

Experienced entrepreneurs are generally better equipped to identify and manage risks. They have likely encountered a variety of challenges in the past and can apply these lessons to their new business. investors often feel more comfortable investing in entrepreneurs who have demonstrated experience and a track record of success. They see the experience as a sign of reliability and a predictor of future success.

Experienced owners and managers are typically more resilient. They’ve likely faced failures and setbacks in the past and have learned how to navigate them, which is crucial when running a business.

Know Your Customers

If you own an established business, no matter if profitable or not, you have customers. Satisfied customers are more likely to be repeat customers and to refer others to your business. Prioritize customer service and make an effort to understand and meet your customers’ needs. Use feedback and reviews to continually improve your product or service and the customer experience.

In today’s fast-paced world, businesses that do not innovate risk falling behind. Keep an eye on industry trends, and emerging technologies, and look for ways to innovate in your business operations, products, and services.

Streamline your operations as much as possible to reduce waste and improve efficiency. This could mean automating certain tasks, optimizing your supply chain, or reevaluating your operating hours to maximize productivity.

Your employees are the backbone of your business and the people your customers interact with on a daily basis. Attract, develop, and retain the right talent. Provide training and development opportunities and foster a positive work environment. High employee morale leads to increased productivity and better customer service.

Remember, there’s no one-size-fits-all answer, as what works best will depend on your specific business, the industry you’re in, and the market conditions. It’s essential to continuously learn, adapt, and evolve based on your unique circumstances and the insights you gain over time.

Gary Fleisher

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Gary Fleisher

Gary Fleisher, “The Mod Coach”, has been entrenched in the offsite construction industry for most of his life. Having started his career in the lumber industry, Gary spent decades working with manufactured and modular home producers and homebuilders. For the past 15 years his blog and LinkedIn postings have introduced thousands to the benefits of factory-built construction and have served as a forum for industry professionals to share insights and perspectives. Gary lives in Hagerstown, MD with his wife, Peg.

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