Question Mark: Money Making Models
I’m currently in a debate with the other owners of my firm about the kinds of firms that are able to be profitable, yet also grow and survive in the long-term. What types of firms and models seem to work in the Industry? How are these successful firms balancing profitability and investment?
You know, when it comes down to it, there are really only a few different money-making models for A/E/P and environmental firms that seem to work over time. By “work,” I mean provide enough growth for the firm to keep everyone interested and enough profitability for the owners to feel like they are doing well.
Following is a brief description of the major money-making models (MMMs):
- The “lots of government work, mid-price, low-overhead, high-volume firm.” These firms are characterized by multiple offices, strong political connections— often established through hiring of key former government employees— and well-established financial, IT, and marketing systems, all of which do a pretty good job. There will also probably be a functional, multi-owner management structure.
- The “single market-based or market/service niche national/international firm.” This would be, for example, a very strong health care architecture or resort planning firm. They know their markets, and they know their disciplines (typically narrowly defined) better than all of their competitors, except perhaps a handful of other firms in specific geographic areas.
- The “10- to 20-person, sole owner, established, local firm.” Some of these firms perhaps “shouldn’t be” successful, yet they are somehow. These firms provide a substantial annual income for their owner(s) and meaningful employment for a small group of others.
- The “mid- to large-size single- or multi-discipline firm.” This would be, for example, a 300-person MEP (mechanical-electrical-plumbing) design firm. These companies get better than average multipliers because they are experts, although they are often subcontractors to other design firms, so tend to suffer the woes of longer collection periods and resulting poor cash flow.
There are obviously successful firms that don’t fit neatly into one of these four categories but I would bet 90% or more of successful firms do. Taking a look at these money-making models may be helpful as you chart your firm’s future direction.