Make more money from your business

Sep 14, 2009

Making money is rarely the reason one either buys into or starts their own A/E/P or environmental firm. It certainly can work out that way— i.e., that one makes a lot of money in this business. But, that doesn’t happen often enough, unfortunately— especially over the last couple years. Much of the problem is psychological. People don’t think that they can really do well in this business during these times, so they don’t (do well). Just like losing weight shouldn’t be hard (burn more calories than you take in), it really shouldn’t be that hard to make a profit (make more than you spend). Yet, it has been the last few years! It is especially hard when our firms have gone through a couple-year “rough spot.” Survival vs. prosperity is the mentality. But, maybe now is the time to shake off that mentality and start thinking differently. You can make money again! Here are some ideas you might want to consider if you think it’s time to make more from your business: Make surgical cuts. When companies in this business need to cut costs the temptation is to make across-the-board pay cuts for everyone in the firm or just those at certain levels. This practice makes management’s job easy! But, the real need may instead be to cut one or more people at the highest level in the firm who are not doing their jobs very well. The savings can be significant and their removal may improve morale and profitability when across the board cuts just make everyone feel bad. Restructure the entire staff. When firms go through a long down period, they often find out they have become top-heavy. Inexperienced people got cut over time and new raw talent wasn’t hired; meanwhile, everyone else stayed because the job market was bad. The problem is that this can result in a situation where everyone is just a little too experienced (and expensive) for the roles they are filling. It kills profitability. Most companies in our business make the most money on people with less than eight years experience who are highly billable. If you use people who are too “heavy” for jobs these younger, less experienced, and less expensive people should be doing, your project profitability will go south. Perhaps this would be a worthwhile exercise to go through every time you lose a 20-year veteran to see if you can replace that person with someone who has three to five years of experience. I have seen firms in our business transformed through this very practice! Put more focus on marketing and selling. When times have been hard for a period of years, marketing has typically been cut to the bone. Perhaps now is the time to start spending again? Just when everyone else is “quiet” you should consider being “loud.” A big part of success in the A/E/P business or any business, for that matter, is being out of step with the rest of one’s competitors. Do the opposite of what they do and you’ll be different. The opportunity lies in being different— not following the herd. This is particularly true with marketing! Raise prices and increase quality. I always have to beat this drum. I get sick of hearing myself, but do it because it is so necessary. Too many firms think the way to get work and to be desirable is to be cheap. This in turn kills your margins and makes it such that you cannot spend money on the things that make you better. The fact is, most small- and mid-sized firms will do better by raising prices and increasing the quality of what they do. Larger firms and tiny firms will always be able to undercut you on price. What distinguishes you is quality of service and responsiveness. And, before you dash off an angry e-mail to me telling me that in one paragraph of this article I am saying cut experienced people and hire neophytes, and in another I am saying raise prices and quality, let me point out that “quality” is not always better with people who have done something for a long time. There are many other attributes that the word can take on. Quality could mean being more creative. It could mean using newer technology. It could mean being a whole lot more responsive to calls and e-mails. It could mean being a whole lot nicer. None of these attributes are exclusive to older workers who have done something a long time— in fact, it could be the exact opposite. In any case, raise prices now and make sure you are doing a better job in every way from your competitors. Get into some new service lines or markets that support better margins. If you are convinced you cannot make a decent profit doing what you do for the clients you do it for, then now is the time to start getting ready to do something different. What services have you been toying with the idea of getting into? Do it. What markets should you be trying to enter? Do it. Stop hand-wringing and start taking action now, so two or three years down the road you have a new cylinder firing and contributing to your financial well-being. The possibilities are endless. You can do practically anything you set your mind to. And you should, as an established firm with a functioning overhead infrastructure, be at a real advantage over any new start-up trying to provide the same services to the same clients. Now is the time to start making money in this business again. Don’t resolve yourself to the negative attitudes we used to see in the 80s about whether or not the A/E/P business can be profitable. Of course it can! Make it happen through change! Originally published 9/14/2009

About Zweig Group

Zweig Group, a four-time Inc. 500/5000 honoree, is the premiere authority in AEC management consulting, the go-to source for industry research, and the leading provider of customized learning and training. Zweig Group specializes in four core consulting areas: Talent, Performance, Growth, and Transition, including innovative solutions in mergers and acquisitions, strategic planning, financial management, ownership transition, executive search, business development, valuation, and more. Zweig Group exists to help AEC firms succeed in a competitive marketplace. The firm has offices in Dallas and Fayetteville, Arkansas.