Starting a new business can be an exciting opportunity for professional and personal growth, as you take on a new challenge that could be your stepping stone to a fruitful future. However, there will be hurdles to overcome along the way that can make or break your startup before it even gets going. This is especially true for the construction industry, which is one of the hardest in the world to break into as a new startup.
Construction is a trillion-dollar industry that has many getaways of opportunity, yet many startups struggle to turn their innovative ideas into sustainable profits. Making a profit in construction can be challenging due to the combination of high initial costs and industry resistance that can get in the way of your processes.
This guide will take a deeper look at the overlooked construction industry and why being profitable can be a challenge for startups looking to become successful. Continue reading to find out more.
Why Construction is a Difficult Startup Industry
High Costs of Development and Maintenance
Construction can be a very expensive industry to get into for startups, especially if it’s in the ConTech industry. The machinery can be very expensive and create a financial burden for startups that don’t have high volumes of disposable cash to use. There also needs to be a lot of testing to ensure durability of the machines against the harsh environments of a construction site, as well as making sure that their practices are more sustainable.
Startups dealing with physical assets must face the significant costs of inventory management before securing the steady revenue needed to be successful. Because it costs so much to get started, these kinds of companies need to raise far more money, much earlier, putting a huge strain on their cash before they can even think about making a profit.
Fragmented Sales Cycle
The path to securing revenue in construction is very slow due to the industry’s fragmented sales cycle, which can reduce startups cash flow. Technology adoption is project-based and requires a startup to win approval from various subcontractors and this can add a lot of time to projects.
The main delays are caused by deep risk aversion. Since profits are small, companies demand proven tests of any new construction machinery, leading to a slow trickle of revenue. You’ll also need to spend a lot for on-site training and demos, which minimises a startup’s limited resources before they can even get started properly.
Small Profit Margins
For startups, the profit margin for construction projects is often just 2-4%. Operating with such tight margins means these companies are cost-sensitive, as they view the upfront price of a startup’s innovative technology as an immediate expense rather than a long-term investment.
Budgets revolve around costs like materials and worker wages, which takes a hefty chunk of money away from other parts of the process. It becomes very difficult to convince these companies to shift funds away from a predictable expense to an unknown new technology that could be seen as a risk. This is why many construction companies fall behind.
Integration Challenges
Construction startups face a lot of integration problems, as they often use outdated software and machinery. Accounting or planning systems that weren’t built to connect with modern apps should be avoided for new construction businesses, as it’s important to stay ahead of competitors from the get go. This forces the startup to spend huge amounts of time and money on custom coding just to bridge the gap.
When it comes to getting the right machinery for the projects, it could be wise for startups to choose to hire everything rather than purchase it for a much more cost-effective solution. That’s why you see so many companies now go for scissor lift hire rather than purchasing the product and keeping it long-term.
How to Make Construction Startup More Profitable
To become more profitable, a construction startup needs to stop chasing the bigger companies and go their own route. Targeting smaller builders or specialised teams who are more open to new ideas will be the most effective. Something that’s new to the industry is a monthly subscription or “pay-per-use” instead of one huge upfront fee, which will attract more customers and allow you to become a niche.
This approach helps you get paid much faster and shows customers they save money right away, which is important when they operate on tiny profit margins.
Final Thoughts
The construction industry now demands more from startups than just clever technology. Startups need massive amounts of cash upfront for machinery and maintenance, as they will get caught in a slow sales process because customers are scared of taking risks. They often struggle due to tiny profit margins and they must deal with the headache of connecting to outdated software that doesn’t help their processes.
Construction startups need patience to survive the years it takes for the industry to finally adopt it. Only the companies with a financial foundation as solid as a finished building will avoid failure and successfully bring construction into the digital age to give themselves the highest chance of success.
