When to Build Beyond Your Local Market

When construction markets tighten or exciting opportunities arise in new locations, many contractors consider geographic expansion. But analysis shows that moving into unfamiliar territory is one of the leading causes of contractor bankruptcy - even for otherwise successful companies.

The risks of geographic expansion often catch contractors off guard because they seem deceptively simple to manage. After all, if you can build successfully in one location, why not another? However, working in a new geographic area introduces complex challenges:

• Local subcontractor and supplier relationships need to be built from scratch

• Labor availability and productivity can vary dramatically by region

• Permit requirements and local regulations may be unfamiliar

• Equipment and materials logistics become more complex

• Key personnel may be stretched between home territory and new locations

• Local market conditions and competition are unknown

• Political and community factors can impact project success

The safest path to geographic expansion? Start at the edges of your current territory and grow systematically. This allows you to test new markets and build new relationships while maintaining the efficiency of your existing operations and supply chains.

This is the second in our five-part series examining the major causes of contractor failure, as detailed in Thomas Schleifer’s book Construction Contractors’ Survival Guide. Stay tuned for our next installment where we'll explore another critical risk factor facing today's contractors.