TL;DR: Construction companies that resist the urge to merge into giant, single entities will survive what's coming. Those who don't will be fragile to Black Swans, those unpredictable events that shatter seemingly robust systems, and corporate mediocrity.

Who are these black swans?

A Black Swan event has three key characteristics:

1. It's unpredictable

2. It carries extreme impact

3. After it occurs, humans create explanations making it appear more predictable than it was

The theory, developed by Nassim Taleb, suggests that these rare events drive major changes in history. Examples include 9/11, the 2008 financial crisis, and the rise of the internet.

Don't try to predict Black Swans. Instead, build systems that are "antifragile" - able to benefit from disorder and uncertainty. For businesses, this means:

1. Maintaining flexibility

2. Keeping reserves for unexpected opportunities

3. Avoiding overexposure to catastrophic risks

4. Creating organizational structures that can adapt quickly

The name comes from the historical belief that all swans were white until black swans were discovered in Australia, showing how one observation can invalidate thousands of prior observations.

What does this have to do with construction?

As Warren Buffett noted, "I try to invest in businesses that are so wonderful that an idiot can run them. Because sooner or later, one will." Most construction businesses aren't wonderful enough to survive an idiot at the helm of a massive operation. They need local knowledge, quick decisions, and skin in the game.

This is what the largest paving and materials company in the United States understands deeply. And it’s a pillar of their success: Keep local management and empower divisions/operating companies to own their P&L.

Smart contractors divide their operations naturally: by geography (East Coast/West Coast divisions), by specialty (bridge work/paving/structures), or by project size (major projects/maintenance). Each division develops its own identity while staying true to company values. Think of the Marines and Army – different cultures, same country.

The key is giving people control over what they can influence. When managers know their decisions directly affect their P&L – and their compensation – magic happens. I've seen managers make double their base salary through performance bonuses tied to their division's results. Not because someone was feeling generous, but because they created real value through ownership and quick decision-making.

Charlie Munger's wisdom rings true here: "Show me the incentive and I will show you the outcome." When companies shift to company-wide performance metrics, they learn this lesson the hard way. I’ve seen this type of corporate communism backfire. As Munger warns, "Never, ever, think about something else when you should be thinking about the power of incentives." 

Here’s where you must be nimble. Let’s say we have 2 divisions: a grading division and a paving division. The grading division does $50 million and faces stout competition, aiming to net a 6% net operating profit per year (after G&A). The paving division has weak/limited competition, does $60 million, and is targeting 18% net operating profit. This does not mean the paving division managers get 2X higher bonuses for their geographical luck. Each division’s performance incentives must be tied back to the division’s operating plan of what’s possible. 

Separating divisions also forces transparency where you need it most: profitability. When concrete paving is buried in your heavy civil P&L, you might convince yourself it's "strategic" while it bleeds money for years. But break it out, and the truth hits you in the face: four years of losses mean it's either time to fix it or kill it. I've seen contractors keep failing business lines alive for years because they were hidden inside profitable divisions – like finding a rotten beam hidden behind good drywall.

This transparency cuts both ways. Sometimes you discover that what you thought was a marginal service is actually carrying the weight. One contractor split their operation into three divisions and discovered their "side business" in chip seal/preservation was outperforming their core construction group. Without that separation, they'd never have known where to invest for growth.

The management consulting class, with their branded slides, will preach standardization. They'll show you beautiful process maps that work perfectly – in PowerPoint. But they miss what Taleb understands about city-states: "Size hurts you at the tail." Venice, Switzerland, Hong Kong – these small, autonomous entities proved more resilient than empires throughout history. Think of your divisions as city-states.

Success in division-based organizations demands active oversight and proven leaders who understand both independence and interdependence. Like pro sports leagues, you need clear rules and a strong referee (typically a President or COO) to manage competition and collaboration between divisions. Share overhead strategically - centralize back-office functions like accounting and IT while keeping customer-facing operations within divisions. Let divisions run their own P&Ls but maintain enough control to prevent destructive internal warfare. The old mantra "we operate as one company" misses the point: unity doesn't mean uniformity. The strongest companies embrace internal competition while preventing tribal warfare. Watch for three key risks: rogue division managers who can destroy value quickly, excessive overhead from redundant functions, and divisions that hoard resources instead of sharing for the common good. When managed properly, this controlled chaos breeds strength.

The next Black Swan is coming. It might be a natural disaster, a financial crisis, technological disruption, or fierce competition. When it hits, do you want to be running a sluggish empire or commanding a fleet of nimble city-states?

As Taleb reminds us, "What is fragile should break early, while it's still small." Break your company into divisions now, before the market breaks it for you.

Remember: In construction, as in nature, the dinosaurs didn't survive. The small, adaptive creatures did.

The choice is yours: Build an empire that's too big to fail, or create a network of divisions too nimble to die.

Thanks for reading. As we gather with loved ones this Thanksgiving, I'm grateful for this incredible industry, our talented team, and the people who build America. We value your feedback, so please drop a comment below! See you next week!

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About the Author

Tristan Wilson is the CEO and Founder of Edgevanta. We make software that helps contractors win more work at the right price. He is a 4th Generation Contractor, construction enthusiast, ultra runner, and bidding nerd. He worked his way up the ladder at Allan Myers in the Mid-Atlantic and his family’s former business Barriere Construction before starting Edgevanta in Nashville, where the company is based. Reach out to him at [email protected]