There are a few basic traits that differentiate firms that make money from those that scrape by.

Chad Clinehens and I were talking in the office yesterday about why some firms we work with make money and others seem to struggle with it. There are some basic differences worth noting. The following observations are based on 35 years in this business and working with thousands of A/E/P and environmental companies:

1. Profitable companies understand why it’s important to be profitable. They know everyone feels better when the enterprise is successful. They know that they need profits to be able to pay people well and keep building their teams. They know they need profits to buy other companies and accelerate their growth, to improve their IT systems, to pay for training, to spend money on marketing – and for many more investments. These people don’t need to be sold on why profits are necessary!
2. Profitable companies have management that expects to run a profitable business. Believe it or not, not everyone out there goes into business with the assumption that they will, in fact, make a profit. Some believe it’s immoral to do so. Some just think you can’t do it in this industry. And some set such low goals and budgets that they aren’t going to be profitable. In the last year, we have twice seen companies set annual budgets to make $0 profit – and these were not small companies. How can you expect to be profitable when your goals don’t even describe a profitable outcome? You can’t!
3. Profitable companies have management that takes action. They don’t just wring their hands or delegate the problem to a committee that cannot even meet because they have too much project work. They act. And they act quickly. They know that you cannot rationalize for why you aren’t making money and instead have to match costs to workload. They know that you cannot afford a losing month because you have to make up for it next month and that losing months kill morale and motivation. They just plain DO what they need to do every month to make a profit, even if that means doing hard stuff that they don’t like to do.
4. Profitable companies have owners and managers who have a healthy self-esteem. They don’t go into a new client relationship expecting to get beaten down on fee or to have AR collection problems. They don’t think they should just work for anyone who will give them a job. They know they are good – heck, they know they areBETTER than good – and WILL be paid accordingly. Because they have high self-esteem they don’t want to waste their time. So, all of these good things happen and the virtuous cycle repeats itself.

I know this probably sounds terrible to some of you, but I can meet a CEO of a company in this industry and form an opinion within just a few minutes about whether or not that person is likely to be running a profitable business. I’m not always right, but I am right a lot more than I’m wrong about it. The defining characteristics above are only part of the story; the rest of it is not so clear. I’m not so sure charisma is such a bad thing, in spite of Jim Collins’ work in Good to Great. But, that’s the subject of another article!

MARK ZWEIG is founder and CEO of Zweig Group. Contact him at mzweig@zweiggroup.com.

---