Differences in an Entrepreneurial A/E/P Firm From One That is Merely a Small Business

Nov 26, 2007

For my kickoff presentation at our eighth annual The Zweig Letter Hot Firm Conference and Awards Celebration in Boston last month, I decided to talk about the differences in entrepreneurial A/E/P firms from those that are just small businesses. I thought I’d cover some of the highlights from that presentation for our readers who couldn’t be there because knowing the differences in these two types of companies is critical to any firm owner who wants a firm that: Continuously adapts to a changing world. Is worth something when you are ready to exit. Is able to carry on without you and be more successful than ever. Allows you to be proud of the opportunity you are providing your people. So what does it take to be an entrepreneurial A/E/P or environmental consulting firm? A strong leader. These people thrive on this business. They are obsessed with it. They think about it 24 hours a day. It is them and they are it. Entrepreneurial firm leaders define “success” by the health of their organization. Their personal needs are met by having a healthy company. Small firm leaders define “success” by their personal wealth and lifestyle. The business is good only if it supports that. A clear mission and sense of purpose about what business the company is in. This mission and sense of purpose is known to all inside and outside of the firm. Entrepreneurial firms want everyone to buy into and support the company goals— including employees, clients, and partners— so they develop and promote a worthwhile sense of purpose. Small firms exist to benefit the owner. But they cannot come out and state that or others won’t support the firm, so they use some generic language about mission. Knowing what market you are trying to serve and what market(s) you don’t want to serve. Entrepreneurial firms think that concentration on primary markets is the way to become super-competent and develop a competitive advantage over other organizations. Small-firm owners believe that a concentration in any one market is risky. Committed to growth. Entrepreneurial firms believe that growth is possible even in markets that aren’t growing. They know that growth is good and essential if you want to be able to keep anyone who is any good, and that a smaller piece of a growing pie can be more valuable (and liquid) than an entire small pie! Employee opportunity increases with growth rate. Small firms think they can stay small successfully. It is easier to control, and more people mean more headaches, more questions about the role of the owner, and more problems. Size is no indication of profitability. Willingness to invest to achieve that growth. That means investing in people, IT, and marketing, and NOT being preoccupied with profit. Anyone who knows about entrepreneurs can tell you that they are interested in building value in their companies that they can cash in on at the end of the game, not maximizing extractions along the way. Small businesses maximize extractions. Small businesses believe that investing in the business is risky. Their owners want to get as much of the money out of the company as they can, and put it into things outside of the business. Knowing your exit strategy and not being afraid to tell people what that is. Entrepreneurial firm owners believe that a long-term buildup and sale or merger of the company, done responsibly, can and should be the BEST thing that can happen to the owners and employees. Why hide that? Small-firm owners think that what eventually happens with the company is no business of the employees. There may never be an exit. Or, it could be given away to family members, shut down, or sold, whatever is best for the owner(s). Not co-mingling the business and personal affairs of its owners. Entrepreneurial firms don’t have building deals that enrich the owners at the expense of the company and demotivate other owners and employees. Ditto for special perks such as corporate condos, planes, boats, etc. that are not available for all to use. Relatives should not be on the payroll unless they have real jobs. Small-firm owners think a good way to get money out of the company and enrich themselves is a building. They also try to buy as much as they can through the company to save on taxes and put relatives on the payroll who don’t do anything. Committing to building a brand name for the firm. Entrepreneurial companies realize that it is possible and necessary to build a brand since they aren’t going to be happy floating up and down on the tide of the market. Entrepreneurial firms think their greatest asset is their name and reputation. The brand is key. It transcends all individuals in the firm (see CH2M HILL). Since an entrepreneurial company is always planning for the exit of the entrepreneur(s), a strategy based on the selling ability of individuals vs. the value of the brand would hurt the value of the organization at exit. Small companies don’t really know how to market. They are all about the selling efforts of specific individuals. It’s not to say that strategy (hiring sellers with a following) won’t work— it can and does sometimes. But the client relationships remain with the individuals instead of the institution. Not being driven by doing what’s best for tax purposes. Entrepreneurial firms don’t let tax avoidance rule their strategy. They know that, sometimes, paying taxes is necessary so they can retain earnings. They also want an ownership plan that rewards investors JUST for being owners. That implies taxes will be owed. Entrepreneurial firms have a longer-range picture in mind of what they are trying to do to create wealth. Small firms think all taxes are bad and, to avoid taxes, the company should pay everything out and then some to the owners. A bias for action. Entrepreneurial firms don’t fall victim to “analysis paralysis” and study everything to death. They can make a decision and act. My dad calls this “decide/act.” And if this decision doesn’t work out well, they’ll make a new decision. Small firms tend to have fewer owners. If these people are decisive, it can lead to quick decision making. If they are not decisive, or not honest about their intentions, requests for more information can block any new decisions. Business planning that is real. Entrepreneurial firms know the business plan can really be used as a tool to guide daily decision making and chart the future of the company. They also tend to involve a lot of people in the process and that contributes to psychological ownership. Small firms view business plans with skepticism. They think things rarely turn out as planned, and the best reason to do a plan is to keep their employees from thinking they don’t have one! Open-book management. Entrepreneurial firms think sharing financial information helps educate their people on the business of this business, and that makes the company stronger. They have nothing to hide or be embarrassed over, so why not? Small-firm owners think sharing financials is bad and completely unnecessary. Their employees, for the most part, are not businesspeople and “wouldn’t understand it anyway.” Shared rewards. Entrepreneurial firms know that they must enlist all of their people in the cause. They believe that reward programs need to be formula-driven and fair to promote the kinds of behaviors that are best for the organization in the long haul. Everyone needs to participate— some portion of the rewards is based on company-wide performance. Small-firm owners think that doling out the rewards is the domain of the owners. The process can remain a mystery as long as the owners have some cash that they can get into the hands of the people they deem are most valuable to the company. No one needs to know how the rewards are determined. Protecting your entrepreneur. Entrepreneurial companies recognize the sensitive nature of their entrepreneurial drivers. These people don’t care for a lot of bureaucracy, may occasionally ignore the org chart and cross over organizational lines, and want to exercise their vision. Too many restrictions on that and they may lose interest. When they lose interest, they get out. Yet they also know it’s hard to do. The organization overall is more important than any one individual’s needs and interests. Small firms find it easy to protect their owners. The company exists solely for the owners. The only pressure is what the owners have to give up in the way of how they spend their day in order to keep other people working there. Originally published 11/26/2007

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