In his book The Personal MBA, Josh Kaufman writes:
“In every negotiation, the power lies with the party that is able and willing to walk away from a bad deal. In almost every case, the more acceptable alternatives you have, the better your position. The more attractive your alternatives, the more willing you’ll be to walk away from a deal that doesn’t serve you, resulting in better deals.”
Kaufman writes in generic terms for all those in business, but his statement certainly applies to construction.
It’s a bad deal when a client wants you to “bid” on their project. Bidding is a race to the bottom. When was the last time you saw any job, large or small, awarded to the highest bidder? Bidding means the lowest-priced contractor wins, and that’s not a game you want to win. It’s better to walk away from any job where the owner (architect, designer) wants you to get involved in their bidding game.
Bad deals are potential clients who give you a bad feeling. You know it when it happens. It might be because there is tension in the house, when homeowners have a rocky relationship that you might get pulled into. It might be a client who won’t make eye contact, or the one who tells you how they mistreated another contractor.
A bad deal can be a job that you aren’t confident you can do because it’s outside your expertise, or because you just aren’t sure your crew is up to the demands of the job.
With experience and ongoing education, you keep putting yourself in a better negotiating position. It becomes easier to differentiate between a good deal and a bad one.
Education is learning from the experience of others. I often tell those attending my class that they walk in knowing what they know, and I walk in knowing what I know. By the end of the class I’ll have told them what I know, and then they’ll be smarter than me. You can’t live long enough to learn everything you need to know to run a really profitable business. We all need to be constantly learning; there’s no such thing as knowing it all in construction or in business.
As Kaufman said, when you’re facing a potentially bad deal, you can only walk away if you have acceptable alternatives.
An acceptable alternative is another job. If you’re continually marketing your services with an active website, regularly adding testimonials and job photos, you should be getting a steady stream of leads that enable you to walk away from bad deals.
An acceptable alternative can also be enough money in the bank to be able to walk away from a job, knowing your reserves will hold you if you don’t make this sale. I talk about the Operating Capital Reserve Account in Markup and Profit Revisited.
Have you noticed that the self-improvement gurus talk about learning to like yourself? When you like yourself, you’ll have a good attitude which certainly beats being negative. With a good attitude, you know you can walk away from a bad job and still feel good about yourself and the future of your company.
Construction is a tough business. It requires the knowledge and skill to do the work; no two jobs are the same. It also requires the knowledge and skill to operate a business and work with a wide range of clients; no two clients are the same.
Some clients are a delight, others are hellish. Use the mistakes of others to recognize and avoid the client from hell, and continually promote your business so you always have the option of walking away from a bad deal. It will make a tough business much easier over time.