Having spent much of my career with Owners, Senior Managers, and Business Development people one thing I often hear is “We want to grow our business.” So I decided to share a few points based on 20+ years of experience, insight, mistakes, and successes.
Let’s start with a couple of givens and one really important definition: 1) you need profitable revenue to grow, 2) the economy will do what it pleases whether or not you segment, 3) your competition can’t wait to eat your lunch!
Definition – Market Segmentation (in any industry) is the process of splitting up and evaluating the multitude of project opportunities in order to identify the Target Market(s) that will be most profitable for you.
Market Segmentation is a critical step in the Strategic Planning process and helps you identify growth opportunities and high probability successes, plan resources, define accurate timelines, and so much more. It is also one of the first steps in creating a competitive advantage.
Economic and industry data is available from a number of reliable sources but is only considered market intelligence when you have a process to evaluate it. Hence the need for Market Segmentation and a Strategic Plan.
If your intentions are to increase revenue, gain new customers, expand your geographic footprint, or offer additional services, you need a Strategic Growth Plan. Or, you can hope the economy holds out and that your competitors are asleep at the wheel also!
Should you decide to take the strategic route, I’ve identified six critical elements to consider when building your plan. These elements are applied and weighted somewhat equally, but one can certainly have more significance than the others. There are of course other factors to consider and you need to put each into context based on your situation. As a quick overview, let’s tackle the six core elements:
Target Markets – the defined outcome or sum of your analysis of the other five. My suggestion is to NOT start here. Rather let the other five elements define your Target Market(s) for you. If you define your markets first, you will look subjectively at the other five in order to fit them into the box you have already created.
Geographic Areas – this element defines how far from your main location or branch offices you want to attack. Do you want to cover one county, one city, one state, or a larger region? What geography can you be effective in based upon your resources? Most often it is based on existing customers and/or relationships which does make sense. But it is important to consider population trends, the talent pool, workforce transportation, and available resources among other things. Here again each geography will have specific nuances to consider so include those as well.
Industry Segments – economic data and benchmarks are available from many sources with many following the same method in terms of formatting. However, each industry has it’s own unique demands and opportunities. The construction industry for the most part is broken up into three major buckets: Residential, Non-Residential, and Non-Building. So much to discuss here, so let’s keep it simple by saying, “Don’t put all of your eggs in one basket.” Segmentation helps you decide (exactly) how many baskets you want, how many eggs to put in each basket, and when to move those baskets around. You will be ahead of the economy instead of it being ahead of you.
Services or Scopes – start with your core competencies, which in the construction community is typically your primary NAICS codes. Once you understand your Target Market(s) for those, then evaluate the other services or scopes of work you are considering. Here again a lot will depend on your capabilities, capacity, resume, and finances. (You will often times have multiple phases of your Strategic Growth Plan based on your timeline with Market Segmentation helping you flush those out.)
Contract Types – do you want to be the Prime contract holder only? Or are you comfortable as a subcontractor? Are you interested in Design-Build, Construction Manager at Risk, PPP’s, or Design-Bid-Build? More importantly, how will you be more profitable – and which approaches have you had the most success with? Since contract types are mostly dictated by our customers, Market Segmentation helps you identify the Industry Segments that use the types of contracts you are familiar with and have had the most success with.
Project Sizes – what size projects are best suited for you? Catching the big fish is fun, but your capabilities, resume, bonding capacity, cash flow, backlog, and other factors play into your decisions. I was once told by a client that they would not award my company a specific project because it was too large relative to our last three years revenue numbers. The client had certain risk tolerances that eliminated us from the opportunity even though we were chasing it pretty hard. Great information from a transparent customer and a good lesson learned.
There are many opinions on how to craft a Strategic Growth Plan but Market Segmentation is a universal business principle. Even if your organization does not use a formal strategic planning process, as a savvy marketer, it is recommended that you segment and clearly identify your Target Market(s). This process is used extensively by retailers, automobile manufacturers, equipment manufacturers, and service companies. It applies whether you are building homes, commercial property, industrial projects, and/or government facilities. In my experience every situation is different but the principle applies and the results are eye-opening.
(C) Michael J Galante
