A common theme on contractor discussion boards is the unwillingness of customers to pay for quality contracting services—these are the “price is king” contractors. This complaint cuts across the trades, and so do the reasons underlying it.
There is no denying that some customers are price shoppers. The complaint however, is almost always delivered as a blanket statement that applies to all customers. As is usually the case, such a broad generalization is not true. There is ample evidence that customers will pay more when they perceive a higher value for the money.
Why then, do contractors insist on clinging to this false idea? Why do they repeat, over and over, that their market is different (or some variation thereof)? Why do they argue with an almost religious fervor that others just don’t understand?
I have previously written that such contractors lack a healthy dose of self-esteem. Despite their proclamations to the contrary, they do not think that they are worth a higher price. While this remains true, there is a deeper, more fundamental issue involved.
Invariably, contractors who make this price argument are also resistant to other ideas regarding business. They insist that marketing is unnecessary, they rely on word of mouth. They argue that the quality of their work is sufficient to sustain their business. They criticize salesmen as charlatans who emphasize style over substance. (These are generalizations and not necessarily true of every “price is king” contractor.)
All of these claims amount to the same thing—they know better. They are privy to some special knowledge that escapes others. It never occurs to them that the “others” are not complaining about pricing issues. It never occurs to them to question their basic premises.
On the surface, the “price is king” contractor might seem like he is being independent, that he is rejecting the “conventional wisdom”. But the truth is, he is doing neither. He is being conventional and dependent.
Consider the fact that 90% of the contractors who started a business this year won’t make it five years. One of the primary reasons for this high failure rate is that the contractor simply does not charge enough. His pricing structure—and many other business practices—does not allow him to pay his bills and have a sufficient profit to sustain his business. The “price is king” contractor is following the same path as the vast majority of contractors, and that path ultimately leads to despair and disillusion. This is the conventional path.
Which brings us back to the question—why do so many contractors tenaciously cling to ideas that lead them to failure?
Success in any small business—including paint contracting— is rare, and the numbers demonstrate this fact quite convincingly. Success is the unusual; failure is the common. Regardless of a contractor’s ultimate success or failure, his business practices are guided by certain principles. These principles may be explicit and known, or they may be implicit and subconscious. But they are in operation regardless of his awareness of them.
The small percentage of contractors who succeed are guided by common principles. The large percentage of contractors who fail are also guided by common principles. At some point in his career, each contractor is faced with the choice of which set of principles to accept. (He may actually face this choice many times, but his first choice will set him down a path that becomes more difficult to change.)
The choice a contractor makes is determined by a deeper premise—one that he likely accepted early in life and has never explicitly identified or questioned. That premise reflects his fundamental view of the world, and other people.
Because the details vary so widely between individuals, I can only indicate the general pattern by which this premise is formed. Each of us, at many points in our life (and usually very early) are confronted with a situation in which someone makes an assertion that does not make sense to us. It may be as simple as a parent telling us to do something “because I say so”. The assertion is often made by an authority figure—a parent, older sibling, teacher, etc. Because of our age, and the authority of the person making the remark, we are often reluctant to dispute the claim. Yet this choice—and the countless others like it—ultimately shapes our most basic views of the world.
Some passively accept the assertion, concluding that since Mom said it, it must be true. Some will aggressively reject the assertion, concluding that since Mom said it, it can’t be true. Both conclusions are wrong, and both stem from the same error. To accept or reject a claim only on the basis of who utters it is to ignore the actual facts. It is to place the judgment of others before the facts.
If this continues, the child begins to conclude that the world is unknowable to him, but somehow knowable to others. He never reaches this conclusion explicitly, but it is the “logical” conclusion if he repeatedly places the judgment of others above the facts. He does not look at the world and judge it independently, but rather, he looks to others to determine what he should believe. If, later in life, he goes into business, he will embrace the conventional thinking because others “somehow” know the path to success.
Another child, when confronted with a claim that makes no sense to him, will question it. He will refuse to accept it if he does not understand it. He neither accepts it passively nor rejects it out of hand merely because of the person making the claim. He looks at the facts to determine what he will accept or reject. He judges independently what anyone else claims. If, later in life, he goes into business, he will embrace ideas that he judges to be true regardless of their source.
At root, the “price is king” contractor is looking to others to determine the truth. He may be looking at customers who say his price is too high. He takes their claim at face value and investigates no further. He may be looking at contractors who charge much higher prices. He concludes that they are slick talking salesman, and as a craftsman he wants no part of that. He may look at the majority of other contractors and conclude that he must charge the “going rate” if he is to be successful.
Conversely, the successful contractor does not look to others to determine his business practices. He looks at the facts and judges them without regard for what others believe or don’t believe. If he must charge $50 an hour to meet his financial goals, then he must charge $50 an hour, no matter what his customers might claim or what his competitors do. Whether he can sell enough work at this price is a different issue, and one that he must also judge independently.
Therein lies the fundamental cause for contractors insisting that the path to success lies in imitating the vast majority who fail. They refuse to judge for themselves. They believe—and usually subconsciously—that “others” somehow know. And when confronted with the overwhelming evidence that these “others” do not know, they refuse to question their basic premise, because they have refused to judge for themselves.
You make think that all of this is just some fancy, ivory tower rhetoric. I assert with no hesitation that it is not, that this is the fundamental explanation for the far too common attitude among contractors. But whether you accept this explanation or not is a judgment that only you can make.
Monday, December 29, 2008
Friday, December 19, 2008
Quick Roundup
Clarify Your Goals
The clarity of your goals will ultimately have a large impact on your ability to achieve those goals. Vague goals only lead to confusion, and often send us in the wrong direction. For example, a goal to spend more time with your family in 2009 is much different from a goal to achieve the financial position to be able to spend more time with your family. On the surface, they may seem the same, but the latter specifies the more fundamental goal. In other words, achieving a certain financial position makes more free time possible.
Brian Tracy addresses this in The Law of Clarity:
No matter our goal, we must identify the cause and the effect. And we must focus in on the real effect we want. That will often help us identify and clarify the specific steps we must take to achieve that goal.
What Was That Bump?
In working with other contractors I am often struck by how resistant they are to try a new idea. They seem overwhelmed by the potential for making a mistake or failing, and this fear stops them from attempting something new. For example, many contractors are extremely reluctant to raise their prices.
Certainly, nobody enjoys making a mistake or failing. But it is a part of life and business. As Dan Miller writes in Go Ahead--Make More Mistakes:
An essential part of entrepreneurism is taking calculated risks. Doing what you've always done will continue to get you the same results. Getting different--better--results means doing something different, and that necessarily involves the risk of making a mistake or failing. Taking calculated risks won't eliminate mistakes, but it often reduces them to minor bumps.
Five Essential Skills
Michael Gerber's new book, The Power Point, lists 5 essential skills that every entrepreneur must possess. Mastering these skills, he says, is necessary to create a great business. The skills are:
Not only do these skills help us achieve our goals, they also help us clarify those goals and develop a plan that will minimize the risks involved.
The Two-Minute Rule
One of the biggest obstacles to achieving our goals is procrastination. While there are many causes of procrastination, they all result in delaying work on some task or project. We may write the task down, or swear that we will remember it, or whatever. But we delay doing it, and suddenly we can have a very long list of tasks. David Allen, of Getting Things Done, developed the Two-Minute Rule--if a task will take less than 2 minutes to complete, do it now. Here is a short video--it is only 2 minutes long--on how to apply the Two-Minute Rule.
The clarity of your goals will ultimately have a large impact on your ability to achieve those goals. Vague goals only lead to confusion, and often send us in the wrong direction. For example, a goal to spend more time with your family in 2009 is much different from a goal to achieve the financial position to be able to spend more time with your family. On the surface, they may seem the same, but the latter specifies the more fundamental goal. In other words, achieving a certain financial position makes more free time possible.
Brian Tracy addresses this in The Law of Clarity:
People with clear, written goals, accomplish far more in a shorter period of time than people without them could ever imagine. This is true everywhere and under all circumstances.
No matter our goal, we must identify the cause and the effect. And we must focus in on the real effect we want. That will often help us identify and clarify the specific steps we must take to achieve that goal.
What Was That Bump?
In working with other contractors I am often struck by how resistant they are to try a new idea. They seem overwhelmed by the potential for making a mistake or failing, and this fear stops them from attempting something new. For example, many contractors are extremely reluctant to raise their prices.
Certainly, nobody enjoys making a mistake or failing. But it is a part of life and business. As Dan Miller writes in Go Ahead--Make More Mistakes:
Here’s what Robert Kiyosaki (Rich Dad Poor Dad) has to say about “bad luck.” He says, “Making mistakes and becoming smarter is the job of an entrepreneur; not making mistakes is the job of an employee.”
An essential part of entrepreneurism is taking calculated risks. Doing what you've always done will continue to get you the same results. Getting different--better--results means doing something different, and that necessarily involves the risk of making a mistake or failing. Taking calculated risks won't eliminate mistakes, but it often reduces them to minor bumps.
Five Essential Skills
Michael Gerber's new book, The Power Point, lists 5 essential skills that every entrepreneur must possess. Mastering these skills, he says, is necessary to create a great business. The skills are:
- Concentration--The inner force and energy that allows you to focus your attention.
- Discrimination--The ability to choose upon what, where and who our attention (or concentration) is directed.
- Organization--This is the ability to turn chaos into order.
- Innovation--Innovation is that spark of genius that all entrepreneurs have and should be seen as an asset.
- Communication--The ability to transmit ideas with clarity, precision, passion and purpose.
Not only do these skills help us achieve our goals, they also help us clarify those goals and develop a plan that will minimize the risks involved.
The Two-Minute Rule
One of the biggest obstacles to achieving our goals is procrastination. While there are many causes of procrastination, they all result in delaying work on some task or project. We may write the task down, or swear that we will remember it, or whatever. But we delay doing it, and suddenly we can have a very long list of tasks. David Allen, of Getting Things Done, developed the Two-Minute Rule--if a task will take less than 2 minutes to complete, do it now. Here is a short video--it is only 2 minutes long--on how to apply the Two-Minute Rule.
Tuesday, December 16, 2008
Take What You Want, and Pay For It
I recently received an email asking how the owner of a paint contracting company should determine his salary. I have previously written that it is often recommended that the owner be paid 8% to 10% of the company’s revenues as his salary. As the emailer pointed out, if the company does $120K in a year, this means the owner’s salary would be $12K at most, which is not very good money.
At the risk of sounding flippant, the owner’s salary should be whatever you want it to be, so long as it is reasonable and fair. Of course, that raise the question—what is reasonable and fair?
To begin, the owner should be paid for each service he renders to his business. If he does sales and estimating, he should be paid for it. If he works in the field, he should be paid for it. As a general rule, the owner should be paid 8% to 10% of the company’s revenues, and he should also pay himself a commensurate amount as a sales commission. When he works in the field he should pay himself an hourly rate.
Doing all of this accomplishes several things. First, the cost of these expenses is built into the price. If the owner hires an estimator, that cost has been built into his price and he avoids a dramatic price increase. Similarly with paying himself for his field work. Second, the owner makes a salary that more accurately reflects his efforts. This allows him to live a reasonably comfortable life, save for his future, etc.
But this still does not tell us what the owner’s salary should be.
The 8% to 10% suggestion is only a guideline. Like the directions provided by Google Maps, one should take a look around to determine the accuracy of those guidelines. One should look at one’s personal and business finances to determine what is fair and reasonable.
The starting point is one’s personal finances. What do you need to make to pay your bills, have money to save and invest, and enjoy life? This is where you must be reasonable. It would be easy to say that you want to make $100K, but if your business is only doing $120K, this is clearly not reasonable. You must also be fair to yourself—you must make enough to pay your bills and invest in your future. If you don’t, then why own a business and endure the stress and headaches?
I should clarify one important point. There are three separate components involved in the owner’s income if he also does sales and works in the field—owner’s salary, sales commission, and painter’s wages. Each is separate and distinct, and the total is the owner’s income. But in one’s budget, and on one’s Income Statements, each item will appear separately.
Identifying your personal income goal is the first step. This number should then be used to determine what your selling price must be. If your income goal requires that you sell at a reasonable price—that is, a price that you can actually sell paint jobs at, such as $45 an hour—then your income goal is reasonable. If the calculated selling price is not reasonable—you don’t think you can sell at that price—you are faced with two options. You must reduce your income goal, or learn to sell at the requisite price. Unless your desired income is outrageous, I strongly suggest the latter.
This last point is particularly important. It is a fact that 90% of the contractors who started a business this year will fail within 5 years. The primary reason for that failure is the simple fact that they do not make any money. And the cause for that is not charging enough. There is no reason to endure the trials and tribulations, the headaches and stress, and all of the challenges involved in owning a business if you are not going to make a decent salary.
An old Spanish proverb states: “Take what you want, and pay for it”. That applies to the owner of a paint contracting company. Take the salary you want. You pay for it by learning the skills that are necessary.
At the risk of sounding flippant, the owner’s salary should be whatever you want it to be, so long as it is reasonable and fair. Of course, that raise the question—what is reasonable and fair?
To begin, the owner should be paid for each service he renders to his business. If he does sales and estimating, he should be paid for it. If he works in the field, he should be paid for it. As a general rule, the owner should be paid 8% to 10% of the company’s revenues, and he should also pay himself a commensurate amount as a sales commission. When he works in the field he should pay himself an hourly rate.
Doing all of this accomplishes several things. First, the cost of these expenses is built into the price. If the owner hires an estimator, that cost has been built into his price and he avoids a dramatic price increase. Similarly with paying himself for his field work. Second, the owner makes a salary that more accurately reflects his efforts. This allows him to live a reasonably comfortable life, save for his future, etc.
But this still does not tell us what the owner’s salary should be.
The 8% to 10% suggestion is only a guideline. Like the directions provided by Google Maps, one should take a look around to determine the accuracy of those guidelines. One should look at one’s personal and business finances to determine what is fair and reasonable.
The starting point is one’s personal finances. What do you need to make to pay your bills, have money to save and invest, and enjoy life? This is where you must be reasonable. It would be easy to say that you want to make $100K, but if your business is only doing $120K, this is clearly not reasonable. You must also be fair to yourself—you must make enough to pay your bills and invest in your future. If you don’t, then why own a business and endure the stress and headaches?
I should clarify one important point. There are three separate components involved in the owner’s income if he also does sales and works in the field—owner’s salary, sales commission, and painter’s wages. Each is separate and distinct, and the total is the owner’s income. But in one’s budget, and on one’s Income Statements, each item will appear separately.
Identifying your personal income goal is the first step. This number should then be used to determine what your selling price must be. If your income goal requires that you sell at a reasonable price—that is, a price that you can actually sell paint jobs at, such as $45 an hour—then your income goal is reasonable. If the calculated selling price is not reasonable—you don’t think you can sell at that price—you are faced with two options. You must reduce your income goal, or learn to sell at the requisite price. Unless your desired income is outrageous, I strongly suggest the latter.
This last point is particularly important. It is a fact that 90% of the contractors who started a business this year will fail within 5 years. The primary reason for that failure is the simple fact that they do not make any money. And the cause for that is not charging enough. There is no reason to endure the trials and tribulations, the headaches and stress, and all of the challenges involved in owning a business if you are not going to make a decent salary.
An old Spanish proverb states: “Take what you want, and pay for it”. That applies to the owner of a paint contracting company. Take the salary you want. You pay for it by learning the skills that are necessary.
Wednesday, December 10, 2008
Self-Esteem and Values
Over the years I have witnessed many, many contractors express disdain, if not outright hostility, towards those who challenge conventional “wisdom” regarding contracting. Richard Kaller for example, was routinely subjected to the vilest personal attacks one could imagine. Having witnessed this reticence towards new ideas this from a wide variety of contractors, I have long been curious as to the reasons behind it.
To clarify what I mean, let me provide two examples.
One does not need to spend much time on any contractor forum to come across someone who claims that doing quality work is the secret to business success. These contractors invariably scoff at anyone who argues that marketing, sales, and financial acumen are as, if not more, important. They simply reject the idea that a paint contracting company has 2 components—painting and business—and the skill sets are entirely different.
A second example is the common belief that customers buy on price. Contractors who hold this idea argue that customers are cheap, don’t know anything about a quality job, and are basically uniformed jerks. These contractors reject any argument that they are wrong, and respond with claims like “my area is different” or “I have to compete with illegals” or some similar excuse.
Both of these positions—and the countless similar others—stem from the same fundamental causes. And those causes are philosophical in nature.
One’s philosophy consists of one’s ideas regarding the fundamental issues of life. That philosophy may be explicit, conscious, and consistent. Or, it may be implicit, vague, and contradictory. But regardless, one’s philosophy will ultimately determine the choices he makes and the actions he takes. A person’s philosophy is fairly easy to identify by his statements and actions. That is, ideas have consequences, and by looking at the consequences—a person’s statements and actions—we can identify their intellectual cause.
The positions mentioned above have their root in two areas—self-esteem and personal values.
Self-esteem is a person’s self-evaluation, and more specifically, his evaluation of his appropriateness to live and be happy. By this I mean that a person with a healthy self-esteem will deem himself worthy to set goals, pursue them, and enjoy the results. Such a person finds productiveness rewarding, and seeks to expand his knowledge (and therefore improve his ability to live and be happy). He sees life as filled with opportunities and he relishes new challenges. The world is his oyster, so to speak. If he is a contractor, he will market to the high-end and he will command a higher price—he’s worth it and he knows it.
The person with poor self-esteem seeks the easy way out. He wants quick answers and wants to minimize his effort, particularly mental effort. He doesn’t look for the new or the challenging. He does it the way it’s always been done, because if it was good enough yesterday it is good enough today. He complains about life not being fair and is jealous of those who are more successful. If he is a contractor, he believes customers buy on price and good trade skills are all that matters.
You can see that these two contractors have totally different outlooks, and it is reflected in everything about their business—from their marketing to their pricing, from their logo to their pricing, from their clients to their pricing. Most of all, it is reflected in their pricing. Those who charge low prices believe that they aren’t worth more. Otherwise they would build a business that would allow them to charge more.
Personal values are the things that we want out of life. There isn’t necessarily a good or bad, right or wrong here (though some things are inherently bad, like desiring a life of absolute lethargy). Our personal values are ultimately a reflection of our self-esteem. I’m not speaking of wishes or passing urges—I’m speaking of the things we actively work to achieve. The higher our self-esteem, the higher our values, the greater the goals we set and work to achieve.
Ultimately, a contractor will appeal to clients who share his values (at least in a general sense). A low end contractor is going to appeal to low end clients—neither aspires for much in life. A high end contractor aspires for more, and he realizes that high end clients are the path to achieving his personal goals.
Now, many low end and mid-range contractors also realize that high end clients pay better, and they desire to tap into that market. But because their values are different—reflected in the way they dress, how they speak, the way they present their company, the values offered by their company, etc.—they have a difficult time competing. And it really comes down to the values offered by their company, which are ultimately a reflection of their own personal values.
In other words, these contractors don’t value things like payment options, so they do not accept credit cards. They don’t value consumer education, so they have a minimal web site (if they have one) and view sales as a scam. What they don’t value they don’t offer. Which means, they have different values from their targeted customers.
Many paint contractors have low self-esteem. They don’t regard themselves as worthy of becoming wealthy—they just want to make a living. Retirement? Don’t be silly, I’ll paint until I die (I actually had one painter tell me that.) They offer minimal values because they have minimal values. They don’t aspire for much in life, and so they don’t offer much in their business.
Obviously all of the above is a generalization. There are many contractors who have built successful businesses. There are many contractors who hold a mixture of premises—some good and some bad. In the end, the ideas we hold—and particularly our self-image—will determine how high we aim and how hard we will work to achieve those goals. In the end, our ideas will determine our actions.
To clarify what I mean, let me provide two examples.
One does not need to spend much time on any contractor forum to come across someone who claims that doing quality work is the secret to business success. These contractors invariably scoff at anyone who argues that marketing, sales, and financial acumen are as, if not more, important. They simply reject the idea that a paint contracting company has 2 components—painting and business—and the skill sets are entirely different.
A second example is the common belief that customers buy on price. Contractors who hold this idea argue that customers are cheap, don’t know anything about a quality job, and are basically uniformed jerks. These contractors reject any argument that they are wrong, and respond with claims like “my area is different” or “I have to compete with illegals” or some similar excuse.
Both of these positions—and the countless similar others—stem from the same fundamental causes. And those causes are philosophical in nature.
One’s philosophy consists of one’s ideas regarding the fundamental issues of life. That philosophy may be explicit, conscious, and consistent. Or, it may be implicit, vague, and contradictory. But regardless, one’s philosophy will ultimately determine the choices he makes and the actions he takes. A person’s philosophy is fairly easy to identify by his statements and actions. That is, ideas have consequences, and by looking at the consequences—a person’s statements and actions—we can identify their intellectual cause.
The positions mentioned above have their root in two areas—self-esteem and personal values.
Self-esteem is a person’s self-evaluation, and more specifically, his evaluation of his appropriateness to live and be happy. By this I mean that a person with a healthy self-esteem will deem himself worthy to set goals, pursue them, and enjoy the results. Such a person finds productiveness rewarding, and seeks to expand his knowledge (and therefore improve his ability to live and be happy). He sees life as filled with opportunities and he relishes new challenges. The world is his oyster, so to speak. If he is a contractor, he will market to the high-end and he will command a higher price—he’s worth it and he knows it.
The person with poor self-esteem seeks the easy way out. He wants quick answers and wants to minimize his effort, particularly mental effort. He doesn’t look for the new or the challenging. He does it the way it’s always been done, because if it was good enough yesterday it is good enough today. He complains about life not being fair and is jealous of those who are more successful. If he is a contractor, he believes customers buy on price and good trade skills are all that matters.
You can see that these two contractors have totally different outlooks, and it is reflected in everything about their business—from their marketing to their pricing, from their logo to their pricing, from their clients to their pricing. Most of all, it is reflected in their pricing. Those who charge low prices believe that they aren’t worth more. Otherwise they would build a business that would allow them to charge more.
Personal values are the things that we want out of life. There isn’t necessarily a good or bad, right or wrong here (though some things are inherently bad, like desiring a life of absolute lethargy). Our personal values are ultimately a reflection of our self-esteem. I’m not speaking of wishes or passing urges—I’m speaking of the things we actively work to achieve. The higher our self-esteem, the higher our values, the greater the goals we set and work to achieve.
Ultimately, a contractor will appeal to clients who share his values (at least in a general sense). A low end contractor is going to appeal to low end clients—neither aspires for much in life. A high end contractor aspires for more, and he realizes that high end clients are the path to achieving his personal goals.
Now, many low end and mid-range contractors also realize that high end clients pay better, and they desire to tap into that market. But because their values are different—reflected in the way they dress, how they speak, the way they present their company, the values offered by their company, etc.—they have a difficult time competing. And it really comes down to the values offered by their company, which are ultimately a reflection of their own personal values.
In other words, these contractors don’t value things like payment options, so they do not accept credit cards. They don’t value consumer education, so they have a minimal web site (if they have one) and view sales as a scam. What they don’t value they don’t offer. Which means, they have different values from their targeted customers.
Many paint contractors have low self-esteem. They don’t regard themselves as worthy of becoming wealthy—they just want to make a living. Retirement? Don’t be silly, I’ll paint until I die (I actually had one painter tell me that.) They offer minimal values because they have minimal values. They don’t aspire for much in life, and so they don’t offer much in their business.
Obviously all of the above is a generalization. There are many contractors who have built successful businesses. There are many contractors who hold a mixture of premises—some good and some bad. In the end, the ideas we hold—and particularly our self-image—will determine how high we aim and how hard we will work to achieve those goals. In the end, our ideas will determine our actions.
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