Building Captive Companies and Branch Offices
Nov 06, 1995
We finally received notice a few weeks ago that Zweig White & Associates was selected for the Inc. 500, a list of the fastest-growing privately held firms in the U.S. It’s something we are certainly proud of, particularly in light of the fact that we started the company with an initial investment of $1000, and neither Fred White nor I ever invested any more capital in the firm (beyond forgone personal income and retained earnings, of course!) While we still have a long way to go to fully realize our potential as an organization, I thought I’d share with our readers some elements of our formula. These are elements that can be incorporated into the operational philosophy and plan for captive firms or for any new satellite office that an A/E/P or environmental firm may be operating or considering. And no, it doesn’t “have to take three or five years before an office (or new business line) can be profitable.” If start-ups operated with that expectation, they would never get off the ground. Here are my thoughts: Keep fixed overhead down. This is the downfall of more start-ups and branch offices than anything else. People seem to think they need to start out with 3,000 square feet of office space on a 7-year lease, so the firm can “plan for growth.” Corporate supports these excess expenditures because they don’t want to appear as if they aren’t supportive of the manager. But personally, I’d rather “plan for disaster,” with a 500 square-foot office and no lease. That makes it easier to get to breakeven fast (and go beyond it), and to get out if things work like you hope they will. Outspend the competition on marketing. Lack of marketing has killed many new ventures, for sure. If you want to get the revenue stream flowing, you have to spend money on marketing. You need to take work away from firms that are already in business. Decide who you are trying to sell to. Build a database. And hit everyone on the list about 18 times a year through every means you can think of. It works. Automate everything. You cannot afford a full-time secretary, file clerk, data entry person, and marketing coordinator. That means you need to computerize everything you can. Get macros for letters, memos, and reports,. Have on-line time sheets and on-line marketing information. Use e-mail. Have standard specs and SOPs available to everyone who needs them. Automate so you can avoid hiring non-billable support staff. It saves money and makes it easier to get to breakeven. Outsource whatever you can. Use computer consultants on contract for your network. Get a part-timer to come in and do your bills one day a week. Use corporate staff for everything that you can. You may even be able to use the switchboard operator in another office to answer your phone if you look into it. You have to keep fixed costs down so you can get to breakeven. Keep salaries down. It is especially critical for any kind of start-up venture to keep salaries low enough that it makes it very probable that you can make money. Put the difference into a very structured incentive compensation plan that makes it possible for the office manager and staff to do a lot better if they are profitable. Pick a focus and stay with it. Don’t let the office pursue every job or client that moves. The idea is to start building some expertise or specialty focus as soon as possible so you can have a competitive advantage other than being the low cost provider of services. This is the only way a new venture can differentiate itself over other established local firms, which will have local political connections and could be perceived as a less risky choice for a client. Don’t sell your time cheap. Why is it that most start-ups, whether they’re firms or offices, act as if their entire focus is to get busy, even if it means taking on lousy work that they can’t possible make money on? Lack of confidence in their plan, I’d wager. Personally, I’d rather charge a good price for what I do and make money when I work. Then, when I’m not billable, I have time to plan and market my business. This is a much better formula than just “gettin’ busy.” Pursue long-term client agreements. Thank goodness we had some loyal clients who very early on signed us up for long-term agreements. But you know what? It would not have happened unless we asked. Don’t wait for your clients to bring the idea to you— especially for a start-up venture. Go to the clients and sell them on the benefits of a longer-term contractual relationship. There are many benefits for both sides. Manage the cash flow carefully. This is so critical, whether it’s an all-new firm or a new office. Cash flow is more important than profits when it comes to surviving in the short term. This means that you have to get bills out immediately, collect your money fast, ask for retainers, and stall off expenses. Very simple and necessary. Yet too often, captive firms or satellite offices don’t seem to worry about cash. That’s somebody else’s problem (corporate treasury or finance). The result is that the office depends on the mother ship too much, loses credibility with top corporate management fast, and virtually ensures that it won’t get the resources it needs later on to build. Keep billable time up, and non-billable time down. So simple, but so important. Maybe it’s not essential that the office manager fly home to the main office every month. Perhaps you don’t need a full-time marketing coordinator in the office, at least not now. Maybe there isn’t enough work for a full-time technician, and resources will need to come from outside or from elsewhere in the company, even though it’s not as efficient as you would like. The goal is to keep billable time up and non-billable time down so the office has a fighting chance at survival. Start treating your captive firms and new offices like undercapitalized start-ups, and you know what? They’ll be successful a lot faster! Originally published 11/06/1995.
About Zweig Group
Zweig Group, three times on the Inc. 500/5000 list, is the industry leader and premiere authority in AEC firm management and marketing, the go-to source for data and research, and the leading provider of customized learning and training. Zweig Group exists to help AEC firms succeed in a complicated and challenging marketplace through services that include: Mergers & Acquisitions, Strategic Planning, Valuation, Executive Search, Board of Director Services, Ownership Transition, Marketing & Branding, and Business Development Training. The firm has offices in Dallas and Fayetteville, Arkansas.