Many lessons from ‘Small Enterprise Management’ can be applied to A/E/P and environmental firms.

As most readers know, one of my “other” jobs is that of a college professor, teaching entrepreneurship at the Sam M. Walton College of Business at the University of Arkansas’ main campus in Fayetteville. Each Spring, I teach two sections of “Small Enterprise Management,” a class where my students work with a privately held company’s owners to improve their growth, profitability, value, and reduce their risk.

While I give them suggestions, I let each student use any means they want to gather information on the business. One requirement is to share their financials with the class. Doing this for 12 years and having 90-plus students a year – each working with a different company – has given me an incredible view into the successes and failures of privately held businesses of all types. It is so interesting to see who is making money, who is losing money, and why. Of course, I always get ideas for new businesses I want to start (or never start!) based on what I learn. Here are some of my observations – and I think there are lessons for A/E/P and environmental firms here:

• Marketing is the No. 1 problem for small businesses. Most of ‘em don’t do anything. They over rely on “word of mouth.” Most small business owners think marketing is too expensive or a waste of time and, as a result, spend almost nothing on it. Then their businesses don’t grow and their response is to either keep doing nothing or to work on building a better mousetrap – but rarely is it to start marketing! Most owners of AEC firms – in spite of countless examples of firms who have been incredibly successful through sustained marketing investments – operate the same way.
• Transition planning is frequently ignored. Most small business owners build organizations that are entirely too dependent on them and then don’t get anyone else in there who could take over one day soon enough to have a transition. As a result, the majority of these businesses will start and end with their first owners. Same situation in the AEC world – no transition and a firmly rooted belief that the company won’t be worth anything anyway.
  Family businesses have many special problems. The majority of small businesses have more than one family member working in them. In some cases, the payroll is loaded with family members who aren’t doing anything and who all act like they own the business and can tell anyone else what to do. In other cases, sons and daughters – and sons and daughters OF sons and daughters – are all working together under one roof, and there’s lot of frustration with an aging founder who won’t adopt technologies needed and who doesn’t want to invest in the business so it will grow. Family business is tough and, in my mind, most relatives should start at the bottom and prove themselves or work somewhere else and come back. No family member should automatically get a job. We have seen plenty of these issues in the AEC world over the years.
• Many businesses are ill-conceived from the get-go. Who really needs another stained glass company, or the 41st undifferentiated Mexican restaurant in a city that already has 40 of them, or a screen printing T-shirt business? AEC firms are much the same. The engineer or architect who starts the business hangs their shingle out with little thought of what will differentiate them from other similar businesses and how they will be set up so the probabilities are in their favor for success.
  ​
• So many small and private businesses have terrible accounting! It’s crazy. I have learned about companies – some of them doing millions of dollars of business annually – with NO accounting. The owners throw everything into a shoebox or run the show from their checking accounts. It’s really crazy. You have to have good numbers to know what is going well and what needs fixing, as well as what could be going wrong soon! We have seen some of this same nonsense in AEC firms, believe it or not. I knew a guy once who ran a second-generation A/E firm as the sole owner. He had 14 different checking accounts and boxes full of paper but never knew how he was really doing.

In any industry or market, some people are a lot more successful than others. The difference that these companies achieve may be two, five, 10, 20, or even 50 times better than the “norm.” You won’t get better results by doing everything the same way everyone else does it in your business, either! Don’t fall into these common small-business/private-business traps.

Mark Zweig is president and CEO of Zweig Group. Contact him at mzweig@zweiggroup.com.

© Copyright 2015. Zweig Group. All rights reserved.