Seven Things A/E Firms Could Do Better

May 15, 2000

I’m bullish on this business. As a group of firms, we are doing better than ever. Revenue is up. Profits are up. And the projects are gratifying. It’s an ethical business. There are a lot of good things you can say about the A/E/P and environmental consulting business today. On the other hand, we’ve still got a long way to go when it comes to managing our firms. We could be so much better. Here are some areas where there is plenty of room for improvement: Cash flow. The average collection period for firms in this business runs from 70 to 75 days. That stinks! It’s possible for a firm to get into the 30- to 40-day range. But to do that, firms need to be selective about the clients they serve. Invoices have to be prepared right the first time. Bills have to go out immediately. Follow-up calls from accounting need to start at 7 to 15 days, and every other step in the collection process has to be followed every time. Firms fall down here because of weak marketing, a lack of discipline, and over-reliance on their project professionals as bill collectors. Valuation/internal transition. Most A/E/P and environmental consulting firms are worth somewhere around 45% of net service revenue minus debt. That’s horrible! Accounting firms may be worth twice that. What’s wrong with us? We don’t understand that top line revenue and a history of growth is more important to value than high profit. We don’t buy and sell enough stock to create a real market for it, and we don’t, in general, buy into the notion that a firm can be valuable. It’s possible for an A/E/P or environmental consulting firm to bring one times revenue (or higher) if it grows, makes profits, has decent cash flow, and is recognized as a brand name in one or more market sectors. Branding. Most firms in this business are considered just “another good firm” by the clients in their target market. This is contrasted with being “the firm” for the market. When you are “the firm,” you can charge more, your proposal hit rate is high, and you get the good jobs that you want. Most firms are beat up on price, have a low hit rate (and a high per proposal pursuit cost), and get a lot of jobs that they aren’t fired up about. The cause of this problem can be traced directly back to a lack of sustained investment in other-than-selling marketing efforts. Project management. The average CEO of an A/E/P or environmental firm will tell you project management could be a lot better than it is in his firm. We don’t stay within budget. We do too much work that we don’t get paid for. Quality could be improved. We don’t communicate effectively with our subconsultants— and more. But why? For one thing, too many project managers don’t have anyone who works for them on a permanently assigned basis. We open job numbers without budgets. We have too many PMs— some of those assigned as PM on jobs have absolutely no business being a project manager. And we don’t monitor and report, firm-wide, the numbers that really tell how a PM is doing, creating a culture that says budget, schedule, and quality performance are all important. Organizational structure. I can’t tell you how many times I have sat down with someone at a client company and asked, “Who is your boss?” and heard in response “I don’t know.” That’s crazy! It’s also crazy that firms have managers with 17 people reporting to them, spend all kinds of man-hours trying to figure out who is going to do what in the coming week, or use their boards of directors to decide whether “employee A” gets a raise. We need to start following the common-sense, proven rules of organizational structure in this business. Everyone should have a single boss. Managerial spans of control should be reasonable (probably 8 or less); units should be small enough to know what everyone is doing. And the board of directors should be doing director-type tasks. Business planning. Many firms don’t do any kind of a plan. If they do, it’s often just a budget or a budget combined with a vague mission, vision, and/or strategy. A business plan should be much more than that. It needs to give a clear direction to everyone in the firm and create excitement about shared goals. It should be given to every employee, not gathering dust on the CEO’s bookshelf. It should be something that is used to train second-generation leaders in how to run the company. And it should be philosophical but also tactical— with plenty of “to-do” tasks that will keep the longer-range initiatives moving along. Recruiting. Too often, we see firms that run an ad when a need goes beyond critical, waiting to hire the best of the unemployed (or soon-to-be unemployed) who respond. Or they hire people who will never be able to advance because they have a need that goes beyond dire and there’s no time to find anyone better. Or they relocate someone, paying out $30,000 in expenses plus a $25,000 recruitment fee, only to have that person leave six months later because his wife won’t move. All of these things happen because, as a group of firms, we don’t pay attention to recruitment. I just had the CEO of a 120-person firm tell me yesterday that his firm was spending all kinds of money on recruiting. When I asked how much, he said, “$50,000 to $100,000 per year” That’s nothing! This firm should be spending $300,000, $400,000, or more, based on its historic turnover (about 20%) and projected growth (about 20%). But this is typical when it comes to A/E/P and environmental consulting companies. The bottom line is this: Most A/E/P or environmental consulting firms could do a lot better. For every one that’s really successful, there are hundreds of mediocre-performing companies. Everywhere you look, there’s opportunity. Every problem you face has probably already been solved. There’s never been a better time than now to challenge some of the sacred cows and make major changes in how you do things as a company. Originally published 5/15/2000.

About Zweig Group

Zweig Group, three times on the Inc. 500/5000 list, is the industry leader and premiere authority in AEC firm management and marketing, the go-to source for data and research, and the leading provider of customized learning and training. Zweig Group exists to help AEC firms succeed in a complicated and challenging marketplace through services that include: Mergers & Acquisitions, Strategic Planning, Valuation, Executive Search, Board of Director Services, Ownership Transition, Marketing & Branding, and Business Development Training. The firm has offices in Dallas and Fayetteville, Arkansas.