Understanding Your Performance Gap | For Construction Pros

I do not mean to get personal, but would you mind if I asked you about your performance gap?

Most businesses have one but may not be aware where they stand regarding their type of business.

The performance gap is defined as the difference between the decided performance level and the company’s actual performance. The decided performance data should be based on your most recent budget, which should be measured against industry norms for your type of business.

Going a step further, it is fair to say that the industry results will show improvement from year to year because firms are using technology, more efficient equipment, systems that help navigate the budget process to compare actual results in the field and maintain contact regarding required information between all the contractors working on the job.

In other words, if you are in sync with the industry key performance indicators (KPIs), I have to assume you have taken steps to increase both productivity and efficiency. I also assume these results came at a cost, which is expected to be recovered from the gross profit and operating results.

But can all general contractors and subcontractors implement these changes? Of course not. So, what do they do?

A tough question. But now you can see where the performance gap comes from. Considering this situation further will lead you to the conclusion that the companies that can implement technological advancements will quickly improve their financial results and cash flow.

This is where the performance gap presents itself, because the larger better-performing contractors will — sooner rather than later — be able to compete with you on the price and delivery of the finished product.

So, there you sit: where your company produces results in terms of profits and cash flow; where every year going forward the gap between your business falls further behind the tech advanced competitors to the point where the gap between their company and yours makes your operation almost worthless. In other words, you will not get much for the business five years from now.

Someone worked through this process and concluded that contractors who are planning on selling five years from now will get less for their company than they could today because the gap widens as the years pass. An interesting concept which does make sense once you review how contractors currently have products, services and technology to make almost any contractor who can afford to make the tech investment more profitable and efficient.

When I look at this theory I break it up in three business categories:

Small  

Small businesses have the advantage because their overhead is low, and they can manage costs more easily. That said, the small contractors who find ways to compare their work results to their peer group can make the difference in their gap and value.

There are some newer services geared toward helping small contractors with smaller operations. For example, Topline Pro provides enterprise tech for the trades, which includes the use of AI to set up business marketing programs to increase online presence. The second is ServiceTitan, which also provides services to the trades in the form of cloud-based software that offers marketing, customer service, scheduling, HR management and payment processing. Their goal is to reduce time spent on these types of activities, so I suggest reviewing both. If they can provide comparisons with a peer group you work in, that would be a bonus.

Medium

Medium-sized businesses have it tough because any gap will invite larger competitors to come after their business by providing similar pricing and better service practices. But I would bet that the small-business offerings mentioned above could help with daily tasks now being performed by company staff.

There are numerous system and AI providers whose products and services could increase productivity, if you have the talent and budget for such a move. I would suggest you find a coach to help you decide whether your data is adequate for AI and whether the system will make you more competitive and efficient. These systems cover every aspect of work, but require a professional review to determine your ability to take on this type of venture, and, at the same time, deliver a reasonable return on investment (ROI). If you’re planning to sell your business in the next five years, such a plan requires a high completion rate expectation. 

Large

Large businesses are jumping on the wagon to get the benefits that will make them more competitive. It is a requirement, since 65% of contractors billing over $500 million are actively engaged in developing a new system that uses AI to help manage bidding, operations, communications and customer service. These are large investments that consider tech advances, talent and skills development, process optimization, innovation, customer focus and leadership, are investments that will decide whether a company will adapt or die. Now is the time to look for your coach. Considering using AI to find the peer review data you need to compare your operation to — I use all the time.

When I am helping clients in business acquisitions in any industry, the first thing I do is ask Microsoft Copilot about the industry, the industry cycles, how the companies within the industry are valued, and then balance sheet, income statement data and gross profit data. After receiving this initial data, you can always dive deeper with more questions. Find that Unique Entity Identifier (UEI) number — the 12-character alphanumeric identifier assigned by the Federal government to businesses and organizations that wish to do business with the federal government — that relates to your industry and build off that. If nothing else, it will tell you how you are competing against your peers. Give it a try.

Once you understand your performance gap, one question that remains is whether you should stay or go. Calculating your gap can help you not only make this decision, but feel confident in the choice you’re making. Once calculated, if things are not looking good and you would like to keep working, sell the business and plan to stay on to maintain steady pay until you decide to retire.