One of the top concerns for the C suite, regardless of the company in the AECO industry is Churn (Architecture, Engineering, Construction, and Operations industry). Churn rate is defined as the systematic loss of existing customers because they decided to stop subscribing to the services you are selling. The opposite would be the expansion of contract scope (services or products) within existing accounts.
Winning new customers is always a big challenge. In saturated markets, it is easier to maintain and expand existing customers than to win new ones. Every business leader is aware of this. With this in mind, it is essential to understand what is driving churn in the real estate industry. More importantly, how can we avoid it? Two facts deeply embedded in the industry have made churn historically part of the culture: 1) Economic cycles and 2) Project continuation.
The first reason is that our industry is directly tied to economic cycles that last about 20 years. When the economy is in a growth phase, cash flow and many investments go directly and indirectly, privately or publicly, into construction projects. Otherwise, most investors have stopped, since they already know that the final customer will not have the capacity to pay. Thus, this may encourage public investment to spend more. However, this can only happen if healthy public savings exist, which may not be the case.
In any case, the people who run the companies have already experienced the bitter taste of the crisis. Companies are usually based on business units or even specific projects (such as a joint venture) to diversify risk. From this perspective, this leads to projects ending. And unless a new project is put in place, all the revenue seems to be in the pipeline.
This culture of projects and cycles generates a “not necessary continuation” of business. Natural evolutionary selection has developed a type of company that focuses on building internal mechanisms to shrink when there is not enough business and to grow again when cash flows again.
Continuation includes both relationships with the clients and with the stakeholders.
Regarding continuation with the client, it means the client never stops collaborating with the contractor, project after project and never stops projects (this is unlikely to happen and also not in our hands).
Continuation with the stakeholders is more interesting, as it is part of what really happens. Project participants call each other together (or at least their favorite stakeholders) to team up for the next project. However, they do that only with the stakeholders they can work with well.
Construction is an intrinsic collaborative act. So, working well with others two decades ago meant collaborating and communicating in a seamless, effortless way. This was the reason why the same companies would team up over and over again. The processes, the communication, and even the teams themselves were aligned enough not to have to start all over again, setting the basics for that collaboration.
What does “making it easy and seamless” mean now in the digital era? The same! An organization will (whenever it can) choose to invite to a project those partners who have proven to interface the best with them. Knowing that the reality will always be that every organization will have its own way of understanding the work, communication, and information flow, we can predict that the digital interface also needs to be seamless. More specifically, closed systems will have a more challenging time in the future when it comes to collaboration, due to limitations and inflexibility. Decision-makers will prefer to work with open companies that can adapt to their workflows.
See article: Generate new business models.
How can we avoid churn in the future?
Let’s take an example from one of my personal experiences. I wanted to extend the BIM Quality Checking business in Germany in 2012 by introducing Solibri, but companies were very reluctant. Why? “We are not there yet.” Adopting BIM was already a big challenge within companies, so there was no room for dealing with the quality of the (Building Information Modeling BIM) models and the BIM Collaboration Format (BCF) exchange. So I chose to adopt a new strategy, i.e., organizing BIM workshops including BIM implementation and BIM quality checking. Interestingly, there was a lot of room for this type of workshop, since 50% of the companies I invited actually joined. They wanted to know more about starting their BIM journey (See article: Jump start your BIM journey?). Much to my surprise, a large part of the interaction during these trainings was identifying new partners to team up and do BIM (Building Information Modeling) projects together! This networking generated some serious damage to previous relationships and partners.
This story illustrates the following statement: “to avoid CHURN in the AECO industry. It is crucial to adopt new technologies as soon as you can. Do not miss the opportunity.”
More and more companies are looking around to find new partners for the coming era. Business partners that are behind in digitalization or that choose to work in a closed system that makes it unattractive to be invited to collaborate, are basing (and gambling) their whole future on the ability to acquire clients progressively more and more all alone, like the frog in the water pot. The change is so slow that they will only realize it when they are boiled.
As Einstein stated: “tradition is the illusion of permanence.” The AECO industry has never been static. The very low speed of its evolution has induced people to think that there is no advance. But nothing is fixed. Organizations will expand and contract. The pieces of the ecosystem will separate and regroup over and over in a naturally more effortless way. The ability and vision to connect one’s information with the information of others is the key to avoid churn and generate expansion in the business.
Andrés Garcia Damjanov, Chief Revenue Officer (CRO) at Catenda.