Could the recession be a good thing for construction?

I was talking to a former co-worker (I have lots of them) this weekend and of course the topic of the economy came up and we were trying to determine when things would pick up and when we would be out of this thing. I said that six months from now we would most likely be in a much better place. I was then reminded that six months ago I said the same exact thing while unemployment has done nothing but tick upward. It's easy to lose credibility when you keep making the same prediction that never comes true - your sanity will quickly come into question.

We then started to discuss what this recession will do for the industry and how things will look when we emerge from the dark cavern. While it could look like a sea of cardboard boxes housing homeless construction professionals, the more likely situation is one of a construction industry where the stronger companies survived and the weaker companies did not. I don't know what the statistics are for the failure rate of AEC firms during the recession, but I would imagine that the Darwin effect will show some signs of presence in our industry. But the question is if this is a good thing?

Suppose many AEC firms do go under through this whole thing and when things pick up again, new companies will surely emerge in an effort to eat some of the pie. So we're left with an industry that has some of the old strong players and some new rookie firms. But the question remains, is this a good thing?

And the answer is - perhaps. I think we will get a very good look at what kind of firms are doing well in construction by taking note of who is still alive when this thing turns around. What will these companies look like? Will the ones that survive have the better marketing or bidding strategies, or will they just have the most money? Will the survivors have the higher ethical standard, or the more devious and crooked values?

The fact of the matter is that when construction is booming again like it was in 2000 and 2005, we will be looking at a much different construction industry. It could be better and it could be worse, but it will certainly be different. I personally think it will be better. Every organization will be involved in the sustainability and green building movement and since this is a movement that also involves the incorporation of higher ethics and social responsibility, companies will adopt some of these values (or at least pretend to).

Regardless of what the industry looks like, we will in the least have much more people working and this is certainly a good thing. But will we be in a more sustainable, ethical, productive, and cohesive industry and will the unethical and self interested be weeded out?

I hope so.

Could the recession be a good thing for construction?

Construction Costs Dip 10.77% in 2009 - Start diggin'

Like a pelican swooping down into the ocean to snatch an unassuming squid, construction costs have dipped 10.77% this year according to the Turner Building Cost index. However, the rate of decline in the 3rd quarter of 2009 is less than the 1st quarter of 2009. Basically, construction costs are going down slower now than they were in Q1. The Turner index dipped 5.77% in Q1 of this year and 3.35% and 2.03% in quarter 2 and 3 respectively.

While I don't know if this is a good thing or a bad thing, I do know that developers have got to be chomping at the bit in anticipation of building at such low construction costs.

Perhaps rents have gone down for commercial and retail space due to the economy and unemployment, but there have got to be some facilities that can generate the same revenue as they did back in 2008 with construction costs 10% lower. When these numbers are entered into the ol' proforma spreadsheet, it can make development very attractive.

If you wanted to build a football stadium, it would cost $540 million in stead of $600 million - that's $60 million bucks! That could sign Micheal Vick to a ten year contract (pending good behavior of course).

A large hospital addition would cost roughly $225 per square foot rather than $250 - and hospitals have to be rakin' in the same bucks as they were a year ago. Somebody ought to be cashing in on this.

So why aren't we building with all these attractive financials? Well, I will now point the tremendously feared finger of blame on my favorite and most vulnerable target - the banking system.

C'mon guys and girls wake up! You need to lend money to stay in business, barring any gifts from the government in the future. Was the intention of giving TARP money to have the banks stuff it in their pockets like misers until they were forced to lend it out? Uhhh, I don't think so.

The intention was for them to lend it, like banks have always done and should be doing now. What do we have to do? The pendulum has swung so far back in the opposite direction (and stayed there) that the universal laws of physics are being legitimately challenged while construction workers are challenged to find enough money to pay the landlord.

Perhaps Sir Issaac Newton can help us out with some apple on the head demonstration - we need something.

Construction Costs Dip 10.77% in 2009 - Start diggin'

What is the difference between demographics and psychographics?

In my exploration of starting a new biz, I have talked to some companies that specialize in helping younger companies obtain clients and get off the ground. One of these groups is Collaboration, LLC who specializes in the growth of start-up organizations.

I have engaged in some preliminary discussions with Collaboration and while we have not entered into any kind of consulting services agreement, we have had some dialogue about my target market and what kind of client I'm looking for. I've always heard the term demographics when talking about particular groups of people especially when it comes to marketing; however, I was not at all familiar with the term psychographics and after hearing it, I felt a little bit afraid of stepping in the shower.

Basically psychographics are any attributes relating to personality, values, attitudes, interests, or lifestyle of a particular group of people. Unlikes demographics which are characteristics of age, gender, and income level, psychographics pertain to the personality of a particular person or group. But how does this help a start-up?

When an individual or organization is trying to determine from whom they will purchase a product or service several variables come into play. Of course cost, timeliness, and quality are all factors, but could it be true that people want to buy from others that share the same core values and interests as themselves?

I believe so. Why this is, I'm not exactly sure, but I think there is a growing sentiment among consumers that drives them to do business with other like minded organizations, and Collaboration, LLC feels the same way. If your organization prides themselves in their ethical business practice and commitment to social responsibility, it would be somewhat inconsistent to buy products or services from an organization in sharp contrast to your core values.

This is what psychographics is all about and they can include activities, interests, opinions, attitudes, and values. Analyzing the psychographics of organizations or consumers can prove very beneficial when doing market research because your marketing time can return a much higher investment because like minded folks could be more likely to do business together. Have you ever heard the saying, "Those of the same feather flock together?"

Well, even if you're not too familiar with cliches from the 1950's you've probably done business with people mainly because you like them.

I know I have.

What is the difference between demographics and psychographics?

Is the recession really over? And when will it help construction?

Our tried and true friend, Ben Bernanke, has made some interesting comments about the state of our country's economy at a time when the state of our economy closely resembles the state of a dead raccoon that two weeks ago ended up on the wrong end of a dump truck. Bernanke went on record saying that the global economy was emerging from recession.

But when Ben? When? Last time I checked (4 seconds ago), the US unemployment was at 9.7% and all projections that I have seen are showing unemployment to be over 10% through the first quarter of next year. I suppose GDP is a more accurate measure of economic growth, but without jobs, increased GDP will probably only help those of use that are lucky enough to be getting a pay check instead of ranting about the economy over a domain name they buy for $8.50 a month.

US unemployment rate actual and forcasted:

The worst part about this situation is that, for those of us in the construction industry, an improved economy will not help us out too much until further down the line. In order to start a construction project, you must first get financing from the bank. The banks hold the cards like Chris Moneymaker in the World Series of Poker. And lately, they've been folding even with three of a kind before the flop.

So suppose you deal the bank a royal flush and they decide to wager a few chips on your project. The slow design and permitting process must then begin and nearly end before the drawings can go out for bid, contractors are selected, and the work actually gets going. This is what causes the "lag" in the construction industry as the economy improves.

But what about "shovel ready" projects? I think this term is misleading, and certainly over-used. Unless you are filling potholes, there are really few projects that are truly shovel ready. If plans have been shelved for several years, in the very least the existing conditions have to be verified and brought up to date. What construction has taken place since these plans were generated? Has there been erosion, or effects of weather? What maintenance issues from existing structures have arisen and now need to be dealt with? What code requirements have changed since the initial design? Are the LEED certification requirements the same as they were when the plans were generated?

All of this stuff takes time. So even with a project that was shelved for several years, we can't just pick up the plans grab, our shovel and hard-hat, walk out the door, and start whislin' Dixie.

The bottom line is that construction is a lagging beneficiary of economic growth, so if we are just now starting to show signs of activity in the economy, we may have quite a while before contractors start hiring again.

But have your shovel shined up because when it turns around, we'll be diggin' like there's no tomorrow.

Is the recession really over? And when will it help construction?

Maybe a lightning bolt would help?

Maybe a lightning bolt would help?

Score one up for SCORE - A valuable resource for entrepeneurs

In an attempt to learn more about the potential problems encountered when starting a business, I signed up for a counseling session with my local chapter of SCORE which is a free counseling service to small businesses and people thinking of starting a company. And while I probably should have been seeking counseling in an office with a large leather couch, I decided to compromise on a session with two volunteers of the SCORE program who had retired from their previous careers.

With my mentors being of the retired over-sixty variety, I didn't bring up the latest in search engine optimization technology or to what extent I should use meta-tags in the HTML code of my website. (It's a good thing I didn't because, I wouldn't know jack about that stuff either) However, there was about 90 years of work experience sitting at the table and, free of charge by the way, they were attempting to put me in the right direction if and when I decide to execute the explosive launch of my company.

They were good. They gave me a business start-up checklist that got me to consider the organization structure, target market, financing, and insurance requirements. They got me thinking about a business plan and helped me out in the organization structure department by suggesting that I start off as a sole-proprietorship rather than an LLC or S-corporation. Their reasons for this actually made a lot of sense.

I know there are ways to set up a corporation over the internet that are relatively inexpensive, but the SCORE counselors were recommending doing it the "right" way and hiring an attorney. This could bring the total cost of incorporation to between $500 and $1000. A sole proprietorship is less than $100 (registering a fictitious name) and a corporation really doesn't give me any significant protection at this time. Basically, if someone wanted to sue me or my company they would sue me individually regardless of my corporate status. And given the fact that I don't exactly have a couple mill in my bank account, the protection it would provide me really isn't worth it at this time.

We also talked a bit about sales and the difference between features and benefits of a company. I showed them a narrative I did about the services of my company and they pointed out that I very clearly described the "features" of the company, but I was a little light on the "benefits" side. So what is the difference?

For example, a feature of a construction company is that you use the latest in project management software technology. The benefit of this is that the software provides detailed cost controls and reports leading to better schedule management and minimizes cost overruns. I'm not too experienced on the sales side, so this was some beneficial information (no pun intended).

But more than anything else the counselors at SCORE, much like counselors of the psychological variety, are an unbiased and knowledgeable party that is willing to listen to you and work in your best interests. They are nice people who have started companies in the past and know what obstacles may come about.

Ironically, the first question I was asked to today was, "Are you married John?".

Score one up for SCORE - A valuable resource for entrepeneurs

Are Woodstock attendees still preaching their peace and love message?

It seems like every five or ten years we are reminded of a rock concert in Bethel, NY (no, it wasn't in Woodstock, NY) that brought about half a million "flower children" together and nearly destroyed some poor man's farm who was talked into allowing the event by his son. But my question on this 40th anniversary of the concert (give or take a day or two) is what are these folks doing now, and are they still preaching their glorious message of peace, love, kindness, and disassociation from all the worry, and stress of the real world?

Let's say you were 2o years old in 1969 and you had a fantastic time listening to Jimi Hendrix, Janis Joplin, and smoking the occasional ganja. By now you're 60 and hanging on for dear life to a career that needs to be milked for 2-5 more years before you can deplete the social security fund and have enough money to live the same life to which you have become so happily accustomed.

But the economy has thrown us a curve ball at the sunset of the baby boomer's career much like Jimi ripped the raw version of the "Star Spangled Banner" as the sun set over Bethel, NY and an epic rock concert that defined a generation.

Young people have been tossed from companies like Hendrix would throw guitar picks into a frenzied crowd. When 20 somethings are waiting in the unemployment line and worrying about how their credit cards and student loans are going to be paid, older folk sit in their offices and worry about how they're going to afford their country club membership if their company bonus isn't large enough this year.

Former Woodstock attendees decided at some point that they would join the ranks of corporate America and start the slow laborious climb up the greasy pole. And they've done it. The boomers are running our organizations now and I'm afraid that their ethical line ain't quite what it used to be. But they've done well - you can't argue that. When their job was to make money, money is what they made, in whatever way they could. They even charged $9 for a bottle of water at one of the Woodstock commemorative concerts which eventually led to riots. And now they are certainly taking job security priority over the younger generation. And really, that's ok.

I have no problem with giving boomers the respect in bad economies and rewarding them for a long hard career, but please, we have to eliminate money grubbing, sneaky, squirly, and at times unethical behavior that has gone on in organizations and could very well have caused this mess that we're in. You can't get preferential career treatment and be crooked at the same time - one or the other.

Woodstock was more than just a rock concert and a bunch of kids getting stoned. Right? There was a message.

Boomers have short but ample time to bring back their message from Woodstock and add to the growing interest among organizations for a balance between profit and social responsibility. It's a meeting ground between the boomer from 1969 and 2009 (or 2008) - perhaps even meeting in Bethel, New York.

Are Woodstock attendees still preaching their peace and love message?