Construction is rumored to be the second riskiest industry in the U.S., second only to the restaurant business. The risks are magnified during a market recovery, particularly after a long downturn. Prospering in cyclical markets and surviving a recession in the construction industry starts with recognizing what will happen in the marketplace when a market softens and then rebounds.
When there are fewer projects in any market, competition intensifies and prices and potential profits diminish. The ideal situation in a shrinking market would be for each contractor to accept proportionately less work so the market share of each business is maintained. However, there is a tendency in the construction industry to resist, sometimes strenuously, any reduction in sales and to fight vigorously for the fewer available projects, driving down prices for everyone.
Conversely, cooperating with the market and downsizing to align your organization with market realities is appropriate management of the risks imposed through an environment outside your control and in preparation for an eventual recovery. You cannot control the market, but you can control your response to it.