Half a dozen years into my career, an older and wiser builder showed me that if I put my mind to it, I could rapidly make my way to financial independence. Work would then be a choice, not a necessity. I’d rise every day free to do what I liked, unfettered by monetary necessity.
That sounded good to me. I went for it. Likely my thinking and strategizing was not quite so clear in my mind as I see it in retrospect. But I did know that I wanted to stay in construction. I liked the work, from bidding and estimating to orchestrating the trades and driving nails at a jobsite. I liked the camaraderie among workers and builders and felt valued when clients referred my company to their friends.
I could also see, however, that construction is, financially speaking, a marginal business. Failure rates are massive; consistent profits are hard to come by. I concluded that building a company with the intention of eventually selling it was not my best path to financial freedom. There was not likely to be a robust market for not-so-good businesses like construction companies. (Generally speaking, I was right. As I explain in my new book, Building Freedom, A Construction Pro’s Path to Financial Independence, selling a construction company is likely to be difficult but not likely to be lucrative.)
Instead of conceiving of it as an eventually marketable commodity, I viewed my construction company as a money pump. If run properly, it could pump out enough cash to provide me with adequate pay, reward my employees generously, build up capital reserves, and provide funds for the investments that would set me free.
Smart Frugality
My design for that company rested on two principles, both expressions of frugality. First, it was lean. And I mean really lean. I hope to go into the particulars in a future article. For now, it is enough to say that no overhead cost was incurred that was not essential to support high-quality production at jobsites—and that “lean” does not even imply “mean.” Worthwhile frugality is about caring, careful, efficient, and effective use of resources. It is not miserliness.
The second principle emphasized creation of an “employee centered” company. Employees are a construction company’s most precious resources. Investing in them is smart frugality.
A fellow builder, Sam I call him in Building Freedom, underscored the two principles with his tart observations of a construction company that was attempting to recruit him for a management position. When he arrived, the CEO toured him through what Sam describes as the company’s “Taj Mahal” facilities: An expansive warehouse. A large office building featuring post-and-beam construction. A dozen rooms for staff, meetings, and product displays. To Sam, it all looked like a lot of questionable overhead.
After the tour of the facility, Sam was handed over to the company’s project manager and taken out to jobsites. There he got an impression not of lavish spending but of stinginess. The PM himself, Sam learned, was a self-taught carpenter with thin knowledge of construction. None of the guys on his crews had enough time in the trades to qualify as journeymen. The PM complained to Sam about the endless mistakes his inexperienced crews were making. But Sam saw that they were working from plans that were woefully shy on the details needed for construction.
Sam came away from his visit disappointed in the company and its allocation of resources. He shares my view that a construction company is not a creature with an exoskeleton. It does not derive its strength from a trophy office and the like. Its strength is internal, coming from the motivation and capability of its workers. What Sam had been toured through, however, was a company with an elaborate shell and weak muscles.
I know from responses to my past articles that my pro-worker principles, like my advocacy of transparency, may irritate some readers. They view such ideas as inappropriate for our industry and worse. I respect and have considered their perspectives. At the same time, I think it’s worth noting that the founders of iconic corporations like L.L. Bean, Hewlett Packard, and Costco, as well as many highly regarded builders, chose to create employee-centered operations. They saw the benefits to their companies and to themselves. My own preference for employee-centered does arise from a belief that workers deserve a generous share of the rewards that accrue to the company that their work sustains. But it is equally based on self-interest. I understand that an owner benefits by embracing employee-centered practices. I want those benefits.
Employee-Centered Practices
Before reviewing the benefits to owners, let’s take a look at a few of the practices embraced by employee-centered companies. They are of two basic types. Those at the surface involve time and money. An employee-centered company aims to provide its employees with a compensation package at or near the top end for its local market. It provides good wages and as full a complement of benefits, from medical insurance through paid vacation days, as it can manage.
In the employee-centered company, pay for the employees at times takes precedence over pay for the owner. During the brutal recession that set in around 2007, two companies I know well were having such a hard time winning bids they had to offer their employees a tough choice: Take a substantial pay cut. Or have no work at all. But before offering that choice, the owners sharply reduced their own pay—at one of the companies, to zero.
In my own company, good pay was supplemented by profit sharing. The profit shares were substantial. They amounted to 15% of the top-of-market wages my employees earned.
An additional benefit that I emphasize is operation of safe work sites. Employee-centered companies steadily invest money and time in the safety of their people. At their work sites, you see steel scaffolding, not shaky staging assembled from leftover framing lumber. You see sturdy pro-grade ladders, not those flimsy contraptions from the local hardware store that caters to homeowners. The sites are swept up, not littered with tripping hazards. Though required by law, safety is largely ignored on many jobsites. Workers suffer horrible injuries. Maintaining safety takes time. And it costs money. Abiding by and even exceeding the legal requirements for safety is a benefit companies too often deny their employees.
An unusual benefit that I favor has to do with time. It ranks with maximal profit-sharing as the employee-centered practice that provides the greatest mutual value to employees and owners. That practice is use of the four-day workweek—namely four days of work followed by three days off. My employees worked for nine and one-half hours each day during four days of the week, typically Monday through Thursday. Then they were off Friday through Sunday. Our 4/3 week was flexible. If they liked, a crew could work Monday through Thursday one week and Tuesday through Friday the next. Thereby, they could open up a four-day window of free time for themselves.
Underlying all these concrete benefits, from good pay through the 4/3 week, is a less tangible but crucial benefit: respect. Good pay says to an employee, “You are valued.” Poor pay is demeaning. It says, “You are not worth much to me.”
Likewise, investment in safety expresses respect—especially if presented as such: “You guys are essential. We can’t have you unable to work. We need to do all that we can to prevent injuries.”
The 4/3 week emphatically expresses respect. It recognizes that employees have responsibilities and pleasures beyond their jobs and that you have cleared as much space for that as you can. (Do the math, and you will see that with the 4/3, work occurs during less than one-half of the hours in a week).
It should go almost without saying that at the company that emphasizes respect for employees, disrespect is not allowed. No sneering put-downs of apprentices when they make mistakes but instead helpful instruction on doing the task properly. No demeaning remarks about personality traits. Absolutely no stupid racist, misogynistic, or similar slurs. (None of which precludes playful bantering between workers who have long known one another and enjoy camaraderie at the jobsite.)
Business Costs and Benefits
At the employee-centered company, an old business adage has been set aside. It’s no longer “customers come first” and “the customer is always right.” Customers are served with great consideration, of course. But it is the employees who come first. In fact, if there is a conflict between a customer making an unfair demand of an employee (or trade partner) who is doing the right thing, you back your people.
That can inflict short-term cost. During my career on a few occasions, I pushed back hard against clients demanding way too much of my trade partners and project leads. Though we did great work for those clients, they never recommended us to anyone (which makes them nearly unique among our clients). But the investment in the employees and trade partners paid off. They stayed with our company for many years, producing great work and helping to win many referrals to good projects. Had I stuffed the clients’ demands down their throats, I would have soured our relationship. They may have moved on. Top-notch tradespeople can pick and choose who they will work with.
For an owner who structures and maintains an employee-centered company, the rewards can be tremendous. Your employees become proprietors. They think of the company as their company, too, because it is. I felt I’d made progress toward creating an employee-centered company when my crew began referring to it as “our company.”
When it is their company, employees take good care of it—especially of its second most valuable asset, its clients. The clients become, in response, the company’s sales force. In our case, they gave us so many strong recommendations that we had to do no other marketing. None. And that was a substantial frugality that enhanced the availability of cash for profit-sharing and freedom-granting investments.
In the employee-centered company, turnover can virtually disappear. Along with it, huge costs disappear: Time spent finding and interviewing possible new employees. Training of new employees. Integrating them with established crew. Correcting the damage when you hire the wrong new person.
In my own company, turnover was virtually nonexistent. No key person ever left voluntarily. That is not attributable to my personality. No one has ever accused me of being a particularly nice guy. I’m not. Though I steadily encouraged my employees and expressed appreciation for their work, I am assertive and demanding. I tried to give a lot but also expected a lot. I ran a tight ship. To my way of thinking, that’s part and parcel of running an employee-centered company. If you don’t, the company fails. And then the employees lose their jobs.
My way of doing things is not everyone’s cup of tea, but for me, running an employee-centered company worked. My employees stayed because of our company culture. For the respect our practices manifested. For the good pay and safe work sites. Because of the profit-sharing. And for the 4/3 week that made room in their lives for their priorities beyond exercise of their craft.
The 4/3 week produced benefits for my company as well as for the employees. It saved money since jobs had to be set up and closed down 20% less of the time than with a standard 5/2 week. Having projects under construction four rather than five days a week reduced pressure on me. It reduced pressure on clients when we were working at their homes and, thereby, enhanced their desire to recommend us.
It is probably too much to say, as I have heard said of another employee-centered construction company, that my employees and I were a “band of brothers.” But it has been gratifying to me that I still regularly hear from former employees. Just the other day I got a note from one who wanted to thank not just me but all our co-workers for teaching him how to build and run a construction operation. He is now doing well with his own business on the northwest coast.
Such appreciation means as much to me as my financial freedom. Both rewards were generated by our employee-centered principles. That’s the secret sauce, along with frugality. If I run a line from my beginnings in construction as a carpenter to my financial freedom, it runs straight through the employee-centered practices I have described here. Not that I got things right all the time. Far from it. Running an employee-centered company is kind of like parenting. Though in other kinds of tests you can score 100 out of 100 possible points, the highest score anyone has ever gotten at construction company management, as at parenting, is probably around 70. But that performance, it turns out, is okay. It delivers a lot to your co-workers and your clients. And it can deliver a great deal to you, including eventually the great privilege of enjoying financial freedom.
