Some Signs That You Won’t Make Next Year’s Hot Firm List

Sep 19, 2005

Every year, after we announce the winners of The Zweig Letter Hot Firm List, we get contacted by other firms wondering why they are not on the list. It’s always one of two reasons: Either they didn’t fill out the application and send it in, OR they didn’t have the growth numbers that it takes to get on the list. It’s one or the other. I’m not going to say we don’t make mistakes, but we are really careful about this list and don’t just forget to enter a firm. The next question that inevitably comes up from those who didn’t make the list is “how do we get on next year’s list?” There are no guarantees any firm will make it. But what you need is a three-year growth rate that is significantly higher than just about every other firm. Think about it— we only list 100 firms out of the somewhere between 70,000 and 80,000 companies that make up our “industry.” There is no absolute percentage growth number that one has to hit; it changes every year. And half of the growth is based on percentage growth and half is based on dollar growth, to give large and small firms alike a chance to make the list. But enough about what it takes to get on the list. Let’s talk about signs that a particular firm WON’T be on next year’s list. Because the fact is it’s pretty obvious to us in some cases that these companies don’t stand a chance. Here are some of the signs that a firm will not make The Zweig Letter Hot Firm List in 2006. You aren’t growing. You won’t make the Hot Firm List without growth. That may seem obvious, but it needs to be said. “Growth” means growth in revenues. Your profit may be growing. The quality of your clients or staff may be growing. But if your revenue isn’t, you won’t be on the 2006 list. You may need to rev up the marketing machine, get back to looking at acquisition opportunities, and invest in key hires if you want to grow. Your best people are leaving. This usually precedes a decline in revenues. It’s hard to shrink staff and grow revenues. And the best people always take other good people and clients with them. If good people are leaving, there’s a reason. They aren’t happy. What are you doing to make them unhappy? Are you delaying implementing your ownership transition plan? Are you hiring all of your children and demotivating your loyal long-time employees? Are you being stingy with your profit dollars and not kicking enough of them back to your troops? These are all things you can do something about! Your cash flow is strained. High growth takes cash. You need to be able to finance that growth. If you are one of those firms with the 100+ day average collection periods, you are probably going to constrain your growth. The bank will cut you off. Your principals will get nervous about the debt you probably have to have to finance those 100+ day ARs. That means they aren’t going to want to take any risks— hiring risks, acquisition risks, new office risks, marketing risks— all necessary to grow. Stop allowing yourself to be so behind. Clamp down on slow-pay clients. Enforce your collection policies. Follow all established procedures. Cut off the otherwise “good” clients who won’t pay on time. You can control your ARs if you want to. Your top people are thinking about getting out. If your principals have already decided that it’s time for them to sell and move on, you probably aren’t going to be able to grow like you could if they were still motivated and in the game. Get them out. Get a deal done, either internally or by selling with or merging with an existing Hot Firm. The sooner you get out of limbo, the better, when it comes to making a brighter future. You’re overly concerned about profitability OR not concerned enough about it. This one always draws some angry reader response. But the fact is, we all walk a fine line between being too concerned about profitability and not being concerned enough about it. If you are overly concerned with it, you probably won’t make the investments in marketing, IT improvements, and staff that it takes to grow. These things are all overhead; overhead is bad and reduces the bottom line. On the other hand, if you are not concerned enough with profitability, you will probably waste money on stuff that doesn’t make you money. That means you will be starting offices with too much overhead, making bad hiring and acquisition decisions, and buying stuff like condos, speed boats, and airplanes that don’t add to the bottom line. That’s equally bad. The good news is that if your firm exhibits any of these signs, it’s not too late— you can change! Come to The Zweig Letter Hot Firm Conference and Awards Celebration this October to learn about more growth strategies, and we’ll also see you in 2006 when your firm is on the list! Originally published 09/19/2005

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.