In an Industry with a High Failure Rate, More Contractors Should Take Notes from McDonald’s Managers

For a struggling business owner, having access to a contractor consultant can make all the difference in the world. Thomas Capizzi, Jr., serves as president of Capizzi Home Improvement, which dominates the local market in Cape Cod, MA. He can attest to that fact.

He believes education, training, and belonging to a network of successful contractors is what makes or breaks a business.

We recently interviewed Capizzi, who has been a member of Certified Contractors Network since Richard Kaller founded the organization in 1996. Kaller was Capizzi’s mentor, and Capizzi credits him with providing the education and networking opportunities that have helped make Capizzi Home Improvement so successful.

Learning from McDonald’s

Immediately, the conversation shifted to McDonald’s.

Capizzi says:

“Before you’re allowed to buy a Burger King or McDonald’s, you have to prove yourself to them. They don’t care if you have all the money in the world. You have to prove to them that you have the business acumen and the savvy, along with five years experience, because they do not want a blemish on their record. They don’t want a store opening and then closing because a manager is mismanaging the store. They don’t allow that to happen.

If only we could have something like that for contractors. If contractors weren’t allowed to get licensed and go into business without having what McDonald’s puts onto their new franchisees, we’d have a whole different environment of contractors. But we have nothing like that– we have no barrier for entry into our business.”

Although fast food management is a skilled position, Capizzi isn’t suggesting contractors put on bright red shirts and cover a drive through shift. He’s talking about what the fast food industry gets right, that the construction industry gets wrong.

He’s a true renaissance man, so Thomas Capizzi would know. He manages the leading home remodeling company in Cape Cod, MA. Capizzi Home Improvement made Qualified Remodeling Magazine’s “Largest 500 Remodeling Companies” list 12 years in a row.

He’s sold $26,000,000 worth of home improvements, and he’s won numerous awards– one for achieving the highest personal sales record in the United States, several years in a row. He’s also a teacher, speaker, real estate investor, and race car driver.

Capizzi teaches sales, financial management, and business strategies to contractors across the country. When Thomas Capizzi tells you to look to McDonald’s for inspiration, you look to McDonald’s for inspiration.

“Anybody can get a builder’s license. It’s an open-book test. And you get a truck and tool pouch. That’s it. Therefore, you have hundreds of thousands of contractors out there working, starting from that baseline, which is bad.”

“If you think about the real, right way to go into business– what I just relayed about McDonald’s, it’s extremely stringent. They do not want to allow a store to be mismanaged. It looks really bad for McDonald’s. So they have every mechanism in place you can imagine to almost guarantee success. And we have the exact opposite in our industry,” Capizzi says.

Two Remedies for a High Failure Rate

What else do we have in our industry? A high failure rate. Contractors commonly refer to a study that claims 96% of contractors fail within two – five years (accounts vary). Thomas Capizzi subscribes to this failure rate, because he’s seen it in action.

Capizzi says:

“We have a 96% failure rate for contractors… We’re either the worst or second worst, we take turns. Business failures. 96% of us. I mean, think about that. 4% of us stay and the rest come and go.”

Even if it’s not always exactly 96%, it’s still bad. The Small Business Administration says “About half of all new establishments survive five years or more and about one-third survive 10 years or more.”

Additionally, US Census data shows that only 36.4% of construction businesses survive their early years.

Before Capizzi found Richard Kaller, his mentor and CCN’s founder, he was on that road, too.

“… prior to that time spent with Richard and others, I was kind of lost and floundering,” Capizzi says.

He’s seen both new and long-standing businesses flounder in the same way.

“I’ve witnessed a lot of contractors that have been in business for 10, 20, 30 years, pretty much struggling, financially and mentally. They’re exhausted, because they don’t have the education and tools they need to be in business,” he says.

So, what are the remedies for those financial and mental struggles? According to Capizzi, it comes down to two things: education and a support network.

From Capizzi:

“You have to realize that in our industry, there’s very little education out there. Very few networks out there. Now there are a couple, but back then there were none. It’s still minimal. If you think about almost any other industry, there’s continuing education. There are associations. But there’s not much in this industry.

The frustration is that I, or any other contractor in your town, live on an island all alone, at least in business. Most people in this industry started from grass roots. They worked with their hands out in the field, then found themselves self-employed, then got one or two employees, and morphed into a business– but most didn’t go the way of obtaining education to be a business owner.

They didn’t go and get an MBA, or go to college, or get any real-world experience to acquire any business acumen, marketing skills, selling skills, production systems– certainly nothing like the companies you see on CNBC that have the most educated people managing those businesses. It’s the opposite, so a lot of people find themselves going from knowing how to install products to running a business doing $2mil or $3mil a year, managing employees.

They never really got the education to be a business owner, so you have a very hard-working, frustrated, not-profitable business and business owner.”

Contractor Education

Capizzi is a long-standing CCN member. For him, CCN solved that education problem.

“I was very fortunate that I found Richard {Kaller] and started the philosophy of my learning curve, as I call it, learning from him and others early on in my career. I started in my early 20s, so I didn’t experience 10, 15, 20 years of pain and suffering. I was fortunate to start [my education] within a few years. So I had that kind of advantage, and still prior to that time spent with Richard and others, I was kind of lost and floundering,” Capizzi says.

To hear Capizzi tell it, that management, production, marketing, and sales education saved him from years of pain. Not everyone has been so lucky. Contractors put in the hard work, but they still feel like they’re being held underwater. If they don’t fold, they want out.

Education can turn all of those feelings around, particularly when the education is of the first-rate variety.

“… the training and education is top, Ivy League quality. That’s what you’re going to get as a contractor joining the network. That’s the meat and potatoes of the content. You go to the conferences and the bootcamps that they offer, it’s like going to the best universities in the country for contractors. If a university was in existence for contractors, that’s what it would be like,” says Capizzi.

Contractor Networking

Education is only half of the total picture, though. As Capizzi stated previously, most contractors feel like they’re alone on an island. They don’t have a support network, so who do they go to when they have a business problem? They can’t ask the competition.

“The other half of the value of [CCN] is all of the contractors who are in the network that you get access to. You get to know them, you get to network with them, mastermind with them. You get to share best practices and war stories. Everyone’s problems have already been invented, and they’ve all been solved by somebody else or multiple somebody elses.

There’s no reason to go day-to-day, year-to-year, suffering with certain business challenges when the answers are already available. To me, it’s critical just to survive. You might not be making the kind of money you should and your hours are exhausting you to the point where all you can think about most days is, “How do I get out of this business?” because of you’re sick of it. If that’s the case, and you’re thinking about that failure rate, then you need to be immersing yourself in some kind of environment like CCN.”

According to Capizzi, networking is more than getting help with common contractor problems. Networking is having a contractor consultant, a mentor, and an influencer. An influencer is someone who urges you to think critically, reflect upon your own thoughts and processes, and change for the better.

“You do what you think until you’re influenced by someone else to think differently. The most powerful force on Earth is the power of influence, and the mastermind effect. If you get several people in a room all masterminding about the same thing that they’re working together on, that’s the most powerful force there is,” Capizzi says.

Numbers, the Other Big Problem

Education and networking solve many financial and mental problems for contractors, but there’s still one big area where contractors fall short, and it’s a numbers problem.

According to Capizzi, there are two very important metrics many contractors totally ignore:

Cost per customer

Cost per job

Capizzi says:

“It’s mind-boggling how many people don’t [keep track of their numbers], and it’s another recipe for disaster. Richard Kaller and CCN have always touted: you’ve got to know your numbers. And the first sets of numbers you’ve got to know are your marketing numbers and your job cost numbers. You don’t know if you made 10%, 30%, or anything on a job without measuring it.

What’s more important than the specific metrics– we use many, and it gets deeper and deeper. What’s more important is just realizing that to be in business, you have to have them. You have to monitor them, and manage your business off of these numbers. That’s more important for someone to know.

That’s the lifeblood of the business. Understanding the numbers. If you watch TV, like MSNBC or CNBC, it’s all about the numbers. It has to be. Lots of contractors don’t know them, they’re not interested in them, they don’t want to know them– and so, we have this 96% failure problem.”

Cost Per Customer and Leads as Lifeblood

Oftentimes, contractors throw money into a marketing project or ad campaign, but they don’t track or measure the results. They might not even track how much money they spent. Whether it’s because they don’t know, they don’t want to know, or they’re not interested, it’s a problem.

Contractors need a steady flow of leads, but they also need to track and measure those leads. As Capizzi says, leads are the fuel for business.

“I’ve always been a numbers guy,” says Capizzi. “I’ve always measured everything, even in the early years of our business. Marketing and lead generation are both very important– how much it’s costing you to acquire a new client. That’s marketing.”

Capizzi notes that a lot of contractors just “wing it.” They don’t measure results– successes or failures.

It all comes down to leads, and measuring that cost per customer:

“Most companies’ main problems are financial problems. There’s more going out than there is coming in. The way to fix that problem is by having enough lead flow. Enough opportunities to go out and meet new people. Those leads are the first real metric any company has to have. You’ve got to have a good, sturdy, healthy flow of leads and you have to know what it costs you as a percent of your business, and what it costs you per lead to acquire a new client.

Without that basic, which most people do not have, you’re doomed. The cost of acquiring a client is a huge cost of running a business.”

Cost Per Job

After customer acquisition costs, Capizzi says the next most important metric is what a job actually costs. Some contractors don’t keep track of jobs individually, and pay for job costs with an “open checkbook.”

“Selling and building a job for a client is the next most basic thing. You marketed, you got the client, you sold the job. Now, the job costs. It blows my mind how so many contractors don’t have very accurate job costing. That’s another major metric. You sell a job for $10,000, you send men out, you send materials out, and you get it done… then pay all the bills for those jobs with just an open checkbook. They don’t have each job “costed out” as to how much you collected and all the costs associated, to see the gross profit in dollars and the gross profit percent,” says Capizzi.

When those two metrics aren’t tracked and accounted for, more money goes out than comes in. And that’s where businesses fail.

Even if you’re not a numbers guy like Thomas Capizzi, or a natural born bookkeeper, there’s still hope.

Capizzi says:

“Everyone can’t be good at every single thing. So if someone’s really going to make the decision to remain in business, or start the business, they have to accomplish these certain things about being in business. And you don’t always do that all by yourself. You outsource and you get people who play at what’s hard for you. What’s a stressor for you, someone else plays at.

So, if the bookkeeping is totally outside your realm, then you’ve got to have a bookkeeper so you can at least read and understand. But you don’t have to be the one to keep the books together. That’s just part of being in business.”

Thomas Capizzi is a record-breaking home improvement salesman, a savvy business owner, a good manager, and a firm believer in the power of education and networking.

His success is irrefutable, but he didn’t get there alone. He had a contractor consultant.

“… even before I joined, Richard Kaller, who founded CCN, was my mentor. So I had the founder of CCN mentoring me. I heard all of his best practices, and I had access to all his years of experience, 10 years before he even founded CCN. I’m the only person I’m aware of that had that experience,” says Capizzi.

Sometimes hard work isn’t enough. Contractors need education, a solid support network, and good bookkeeping.

Building the best,