The payoff is a more valuable company that is healthier and provides more opportunities for its employees.
If one thing stands out about the architecture and engineering firms I've observed over the past 42 years that have grown and prospered, created thousands of jobs, and made their owners very wealthy, it’s that their principals understood they had to invest in their businesses. This lies in stark contrast to the companies that did not grow, and in some cases, declined and closed shop forever, whose owners stripped out every bit of profit each year and were encouraged to do so by their short-sighted accountants and tax advisors.
Is the difference in dramatic success versus slow and quiet failure in the AEC business really that simple? It very well could be.
For firm owners who want to be in the former versus the latter groups described above, you may be wondering, “What exactly do they invest in?” The answer to that question is not quite as simple. There are many different ways principals can invest in their businesses. Here are some that I would be thinking about – especially in the environment we are operating in today:
- Recruiting. The fact is it is an employee- versus employer-driven job market today and likely will be for some time to come. That means employees have lots of options, probably more than they ever have. In order to find these people and get them hired, you will have to spend real money. In-house recruiters, outside recruiters, recruitment advertising of all types, PR, social media, internships, as well as training for those involved with hiring so they understand they are selling the company to people who have choices of where they will work. If the last 10 years have told us anything, it’s that recruiting is every bit as important as marketing. Yet, if you look at what most firms in this business spend on it versus marketing, you will likely find a 1-to-5, or even 1-to-10 ratio of expenditures on the two functional areas.
- Salaries and wages. Annual salary increase budgets for firms in our industry were historically stuck on 3-3.5 percent of total labor, but today have crept up to 5 percent or more. But when you consider that reported inflation rates are 8 percent or higher, these kinds of numbers just won’t do, especially considering the recruitment landscape. Raise increase budgets for investment-minded firms may need to be in the range of 8-10 percent annually. That’s a lot of money and it will reduce profitability in the short run. Many firm owners won’t see why they need to do this, but it will only sink in when they find out what they need to pay to get someone else hired for the job their longer-term employee just quit.
- Training. Training for project management, training for leadership. Training for business. Training for software. Training for hiring. Training for selling. All of these types of training are necessary and will cost you significant amounts of money, not just for the training itself, but in terms of lost revenue for the people going through it. But it’s necessary.
- Brand-building marketing. This means constant and continuous social media, good signage, shirts, giveaway promotional products, e-marketing, research on specific client types, continuous PR efforts in the form of press releases, blogging, trade show participation, sponsorships, and more. Brand-building is one of those off-balance sheet investments that takes time to see the fruits of, but done long enough and consistently enough can bring in huge dividends later. Most firms in this business won’t do it.
- CRM. I just sent a smaller design firm owner to my daughter to talk to her about their choices in CRMs, as she (the owner) was considering investing $13K in a new system and wanted to be sure it was worth it. This seemed like a lot to her when her firm is barely breaking seven figures in revenue, but if you think about it, that is a drop in the bucket compared to what kind of marketing efforts it will support. Everyone in the firm will be using the CRM and the result will be a company that can really get anything they want out to their client base quickly and efficiently, as well as help them with their proposal and qualification document efforts.
- Internal ownership transition. Investing by making ownership affordable to key people is a big one. Again, most owners of AEC firms can bring themselves to do several of the things mentioned above but get stuck here. But the way I look at it is this: Tie your best and hardest-to-replace people down to the company, let them benefit from the growth, and then you will be rewarded later when you have a business that can survive – or even better, thrive – without you. This increases the value of the business dramatically.
- Buying other businesses. Once you get “grandma’s recipe” down for growth and profitability, and demonstrate that you can run your firm so it produces consistent results year-after-year, you will find that other firm owners in this business need you. They have no viable transition plans. They didn’t invest enough in marketing. They didn’t create a brand. They can’t hire the people they need. They don’t have the working capital they need TO invest. These companies are great potential acquisitions. They need help and you could be the one that provides it.
I could most certainly add to this list of ways to invest in your business, but these seven may be the most critical today. I hope readers realize that the long-term payoff is a more valuable company that is healthier and provides more opportunities for its employees. And that’s always a good thing!
Mark Zweig is Zweig Group’s chairman and founder. Contact him at mzweig@zweiggroup.com.