President and founder of McCarthy Engineering Inc. (Hot Firm #74 for 2016), a 41-person firm based in Wyomissing, Pennsylvania.
“Our philosophy is that no one can be perfect on their own, but together as a team perfection is attainable,” McCarthy says.
A conversation with James McCarthy.
The Zweig Letter: The A/E market is great right now. What are you doing to cushion your firm in the event of a downturn?
James McCarthy: Over the past three years, we’ve diversified into different market segments and service offerings. We’ll continue to do so to cushion against any type of downturn. We constantly look for unnecessary overhead and cash bleeders that negatively impact the company’s bottom line. We have also reduced debt so as not to be in a position of needing to carry a large debt service burden through a downturn. We reinvest in the firm to allow the firm to grow, flourish, and weather downturns.
TZL: How do you deal with underperforming employees? What are your steps for removal after they have proven to be ineffective, or even counterproductive, to your firm?
JM: The first step is a thorough hiring process to avoid hiring non-performers. Even with that you can get an occasional non-performer.
In the case of ineffective employees, we try to coach and train them to become effective team members. Their manager meets with the underperforming employee and they identify the areas of improvement and mutually develop an improvement plan which may include additional in-house or third-party training.
If that does not prove effective, the manager places the employee on a formalized professional improvement plan which has specific milestones and goals. If they are not met, the non-performer is removed from the firm.
TZL: Firms that have principals and firm owners who lower their compensation and invest back into the firm perform better, grow quicker, and have higher valuations. How do you balance owner compensation with investment in the firm?
JM: We have historically invested significantly more into the firm to allow for continued growth, to weather downturns in the economy, and to allow for growth without the need for lender financing. We look at the firm as a long-term investment and minimize short-term compensation to principals to support this methodology.
TZL: How does marketing contribute to your success rate? Are you content with your marketing efforts, or do you think you should increase/decrease marketing?
JM: We have clearly defined our brand and the ways in which we communicate that to our market. Equally important is making sure all the employees understand the brand and how they represent it any time we interact with someone. We have outbound marketing programs that generate leads and opportunities from various sources. The struggle with marketing in our industry is doing effective B to B marketing with specific targeted potential customers. We find a concentrated and focused marketing and sales effort to be the most effective way of growing our business along with referrals from current and past customers and clients.
TZL: If there was one program, course, or degree program that you could take or recommend before becoming a principal or owner, what would it be?
JM: It would be a course in financial management tailored to the engineering field. We have sent our principals to the Zweig Principals Academy and they all came back with a much better understanding of the financial side of the firm and the impacts of all decisions.
TZL: What’s the greatest challenge presented by growth?
JM: Tough question since growth has many factors. But if I only get to pick one, then I have to go with maintaining the company culture as you grow in size. As the firm grows, you need to incorporate procedures and standardization that does not exist when a firm is smaller. This can be tough for the more tenured staff who remember when things were less formal. Keeping the culture can especially be challenging when making acquisitions. Assimilating a whole other company that had its own different culture does not happen overnight. All of this is positive in the long-term, but it can cause issues in the short-term.
TZL: What is the role of entrepreneurship in your firm?
JM: Our goal is for every member of the firm to have an entrepreneurial mindset and understand the business aspect of everything we do. We are very open with company financials and share performance indicators and news with our entire team regularly. Our goal is simple – we want every employee to think like they are an owner in everything that they do. Over our 18 years in business, as a testament to this, we’ve seen several team members move on to start their own engineering firms.
TZL: In the event of failure, how does your firm react?
JM: We identify the root cause of the failure, collectively develop a solution, and implement corrective actions in a collaborative manner. We then share the lesson learned with the entire team to prevent the same failure from occurring in the future. Our philosophy is that no one can be perfect on their own, but together as a team perfection is attainable.
TZL: Monthly happy hours and dog friendly offices. What do today’s CEOs need to know about today’s workforce?
JM: Today’s workforce is more mobile and less likely to stay in a position or with a company for an extended length of time than in the past. As leaders, we need to be open to their needs, give them an environment where they can be part of a team, and demonstrate that their ideas are valued by senior leadership. Training programs must be developed to more quickly onboard today’s workforce. The old days of putting them in a workstation and letting them figure it out over the next few years are a thing of the past. We have a fun team that meets regularly to plan company events that cover the gamut – happy hours, parties, themed dress days, horseshoe competitions, sporting events, outdoor activities, casino trips, amusement park trips, and fun contests like cooking competitions, best Halloween costume, “Biggest Loser,” and more.
TZL: The talent war in the A/E industry is here. What steps do you take to create the leadership pipeline needed to retain your top people and not lose them to other firms?
JM: The firm needs to take care of all employees, especially your top people and provide what they need to flourish and be happy. That does not mean throwing more money at them. The company culture is the single most important aspect of long-term retention of top people. Employees want to belong and be part of something positive and special. Each firm needs to build and promote their culture across the board and position the firm as a place where employees love to work.
We are always recruiting, even when we don’t have a current opening. You need to build a bench of people who are in the industry so that you can reach out to them when a staffing need arises.
TZL: What’s your prediction for the rest of the year and for the next five years?
JM: Healthcare and logistics projects were strong in 2017. The same looks true for 2018 and 2019 based on speaking with our clients about their capital project plans for the next two years. Longer than that is hard to say. Typically, in a presidential election year, capital expenditures tend to drop off so we expect to see a softening of spending in 2020.
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