How subcontractors became accounting firms who do construction. (and how to fix the problem)

The problem:

Most subcontractors have accounting software as the foundation of their technology stack which forces operations to use a costly web of spreadsheets, systems, apps and custom reports and modifications.

How it happened?

Until recently, the only technology available to subcontractors was accounting software made for GCs (which is often deceptively re-labelled as subcontractor software). Subcontractors spent years, and sometimes decades, finding ways to make the generalist technology handle excessive granularity and transactions. 

Most subcontractors feel handcuffed to their existing ERP and keep building around it....making the problem worse.

Why it hurts subcontractors?

Subcontractors work in VUCA environments (Volatile, Uncertain, Complex & Ambiguous) which the generalist accounting perspective is incapable of managing.

Similar to military, law enforcement and mining, craftsmen are the players on the field while financial management is the scorekeeper tracking cost of mission and recommending adjustments to maintain fiscal health.

“Craftsmen in VUCA environments work with units of measure, units of time, phases, stages, unknown unknowns, 3rd party impacts, safety, psychological & behavioral cues, documentation, weather & acts of god, terms and sometimes, the dollar perspective. Accounting is mission critical but far from the foundation”.

Subcontractors who operate with accounting centricity might be experiencing the following;

1.   Their accounting teams may be stable but they likely see high turnover in operations and an increasing divide between operations and admin.

 2.   They may find it harder and harder to maintain profit despite growing revenue and a healthy backlog.

 3.   They are likely enduring perpetual financial assault from technology providers and consultants who claim to be able to integrate their workflows but continue to fail. 

 4.   In VUCA environments, unknown scenarios and unknown unknowns arise, often daily, and dollar centric subcontractors often build custom reports aimed at diagnosing and protecting them from these sudden scenarios that hurt them.  

This perpetual band-aid response builds a house of cards on the current software version creating an endless financial assault as the house of cards has to be maintained with each software update.

How to fix the problem?

Consider replacing existing accounting technology with a subcontractor specific engine automatically translates all operational and accounting perspectives simultaneously.

Three predictions for subcontractors over the next 8 years:

 1.   Rising expectations will require quicker delivery with higher quality.

 2.   Larger subcontractors will get hurt the most:

 Since 2000, over 50% of the fortune 500 no longer exist because of their failure to adapt. Larger companies move slow so subcontractors maintaining accounting centric tech stacks will likely suffer due to failure to adapt as quick as the market demands.

3.   We predict the early adopters and some of the early majority (19% - 35% of subcontractors) will secure approximately 80% of the total accessible market (TAM). 

 The remaining 65% - 81% who fail to adapt will likely dissolve or compete for the remaining 20% TAM.

Final prediction:

Subcontractors will find that strong financial management will be a result of effective VUCA management.

 Manage the field well simplifies financial management. Managing the field with finance keeps you fighting unnecessary fires all day, every day.

Lets keep on keeping it real in the trades!!!

#buildTRUTH