Getting into the virtuous cycle

Dec 04, 2006

My six month-old daughter Olive has already said her first word. It is “clock.” She says it practically every time we show her the black reproduction “Kit-Cat” clock on the wall in her bedroom. For those who don’t know, Kit-Cat clocks are a product of the 30s or 40s— the original ones were always black, and both their tails and their eyes go back and forth, left and right. Olive is fascinated with the pendulum-like tail— she likes to reach out and touch it when it’s swinging back and forth. Unfortunately, the tail is easily disturbed, and it can be quite difficult to get the clock working properly after the slightest touch. Watching this got me thinking about how much design and environmental firms are a lot like Kit-Cat clocks. When all is well, firms operate in a virtuous cycle of continuous growth, profitability, and regeneration, just like a properly hung Kit-Cat clock with fresh batteries in it. But many firms never really experience this cycle. They muddle along in mediocrity for years and years, “off balance.” Just like a Kit-Cat clock, the difference between an A/E/P or environmental firm being in the virtuous cycle or something other than that is not all that great. My observations tell me that those experiencing the virtuous cycle have the following elements in place: Committed leader. To get into the virtuous cycle of growth and profitability and stay there requires a leader who is really into it. This means he or she is not preoccupied with other business interests or personal interests, but is instead totally committed to making the firm successful. I find this type of leader routinely works 60, 70 or more hours per week and is willing to travel anywhere, any time, if necessary. Focus on the whole and not the parts. The firms that I see most often in this virtuous cycle are those that are not splitting their business up into too many units, each with their own P&L. As Ed Friedrichs points out in his new book, Reach Higher: Long-cycle Strategies for a Short-cycle World, his former employer Gensler (San Francisco, CA) certainly one of the most successful architectural firms ever, was preoccupied with how the WHOLE firm performed, not any one unit at any one point in time. A real business plan that’s generally followed. This is not some BS vision that is printed on napkins passed out in the company lunchroom, but instead it’s something that is used to set goals and determine priorities every year. My experience is that good plans don’t contain a lot of buzzwords, platitudes, or other “hokey” language that is certain to set off any BS detectors that might be in the possession of your typical design, engineering, or scientific staff member. Focus on one or a few market sectors where the firm can lead. The virtuous cycle demands a firm be specialized so it can maintain a decent workload at all times, export its services beyond a small geographic area, and make good fees. Higher than normal marketing budget. This is one of the keys to growing faster than the other firms serving the same market. Spend more on marketing. And if the growth can keep occurring faster than expenses go up, the firm will find itself in a virtuous cycle of growth AND profitability. High prices and high labor multipliers. This comes from specialization and focusing on one or a few markets where the firm can be a leader. A commitment to invest in newer technologies. Virtuous-cycle firms are often the first to try new things, whether that means CADD, Blackberries, or BIM. The progressive firm cannot make the mistake of waiting too long to cash in on the IT gap that exists between them and the majority of firms. They continuously spend on IT in an effort to find an advantage. Succession plan and a track record of promoting from inside the company. What else can I add? These things are critical to morale. Better than normal cash flow. If a firm is going to get into and remain in the virtuous cycle, growth will be higher than normal. That sucks up cash. Therefore, every tactic is employed to conserve cash. Retainers are sought out. Bills go out fast, and are followed up on quickly. Bad-pay clients are confronted quickly. Highly productive staff at all levels. This starts with owners who are still doing billable work and runs all the way through the firm. Everyone is more billable than you would expect them to be at their position in a typical firm. I can honestly say that I have never seen a firm that did all these things that wasn’t in the virtuous cycle of growth and profitability. It works every time! Originally published 12/4/2006

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