Expanding to other states requires research and patience
Most any day this summer, teams led by Petrie Construction could be found working on an upscale cabana club at a PGA golf course on the Florida coast or renovating a string of Hy-Vee grocery stores across Illinois, Kansas, Wisconsin and Missouri.
Although Petrie Construction is relatively small (with 15 salaried employees and, on average, 50 hourly wage workers), its geographic footprint is huge. The Aberdeen-based general contractor/construction manager juggles 12 to 18 active projects spread throughout sites east of the Mississippi River (although occasional projects take them all the way to the West Coast). But it is a business model that matches both the company’s strengths and its vision for growth.
“In project management, our value is really in mid-range commercial work: $3 million to $15 million is our wheelhouse. Our strengths are also focused on complicated, high-end or fast work,” said CEO Adam Petrie.
Consequently, large, chain companies which do similar construction projects on multiple sites, can be prime clients for Petrie. By developing its abilities to work across multiple states and consistently meet chain companies’ requirements, Petrie has landed Walgreens, Starbucks, Marriott, Trader Joe’s, Dollar General, The Ritz-Carlton and others as clients.
Expanding out-of-state can generate big growth opportunities for construction companies. Such expansions, however, are major, challenging and risky business undertakings. We talked with several BC&E members about how they have successfully grown their business by expanding to other states.
Know Your Market
Over the course of nearly 140 years in business, Hatzel & Buehler has established offices in eight states, sometimes by building new operations from scratch, sometimes by acquiring local companies. Vice President Michael Goeller said several critical factors guide the company’s expansion decisions. Above everything, Hatzel & Buehler sets out to determine if it can tap sufficient and suitable talent (through hiring or acquisition) to complete work locally. Then it evaluates other key issues, such as the presence of GCs or clients it has worked with previously, the level of opportunity within key market segments, and the cultural compatibility of a company it is considering acquiring.
For example, that robust evaluation prompted Hatzel & Buehler to expand to Baltimore in 2019. The market offered opportunities to complete more work with long-time GC partners, including The Whiting-Turner Contracting Company. It offered ample contract opportunities in two key Hatzel & Buehler specialties (healthcare and higher education) and the opportunity to acquire a large, expert workforce through the purchase of Enterprise Electric.
Establish Your Brand
Whether you are Hatzel & Buehler or a much younger company, successfully moving into a new market requires heightened effort to establish your brand locally and forge new industry partnerships.
Plano-Coudon Construction had operated in Baltimore for decades and completed scattered projects at Northern Virginia and District of Columbia sites before it opened a Northern Virginia office in 2018.
“But in conversations, we got a lot of, ‘Plano what? Who are you guys?’” said Vice President Jared Geary who started and now leads the Northern Virginia branch of the company. “It’s tough to become known and trusted in a new market, even when it’s geographically nearby. It takes a lot of legwork, introductions and persistence. We’re still working on it.”
In addition to heightened efforts around marketing, networking and business development, Plano-Coudon discovered that creating a physical presence in Northern Virginia has been key to its successful growth. It has helped the company gain a deeper understanding of the differences among the Baltimore, D.C. and Northern Virginia markets. Plano-Coudon’s NVA-DC operations — which have focused largely on multi-family, senior living, life science and commercial projects — are expected to account for about 20 percent of the entire company’s revenue this year.
Establishing a Northern Virginia office, Geary added, has also helped the company avoid each market’s aversion to bringing in outside contractors.
“My advice to companies who are looking to expand is go all in,” he said. “Don’t try to serve clients remotely from headquarters. Put a stake in the ground, build a local presence. When it comes to operations, estimating and preconstruction, it has to be local because you are dealing with different subs and different clients. Your clients don’t want to call you at your headquarters and hear that you can’t make a meeting because you are an hour and a half away.”
Be Patient and Flexible
Construction leaders say companies also need to temper their expectations when they expand into new markets.
“The biggest thing is to be patient,” Goeller said. “You may lose money the first year, then in the second or third year you break even, and then it takes off if you are doing things right. You have to make sure you have the capital to carry that operation for several years before you see significant profits. And you have to make sure the people working for you have patience because success doesn’t happen overnight.”
As a company gets established in a new market, it also has to be open to shifting plans to address market challenges or unexpected opportunities.
“In Southern Ohio, we initially thought we would be doing a lot of work in Columbus. Instead, we ended up doing a lot of heavy industrial work along the Ohio River,” Goeller said. “That operation had to shift its focus, but they have done very well and acquired additional customers each year.”
At the same time, company leaders need to know when not to flex. Goeller, Geary and Petrie all stressed that they won’t pursue projects that don’t match their strengths or meet their financial requirements just to book business in a new region.
“We spend a lot of time working hand-in-hand with a client to determine if a project is the right fit for us and them,” Petrie said. “Unless it is a job that we do well and we are going to excel at, we will probably work to help that client establish a relationship with somebody else who will bring better value to that particular project.”