Stop Talking and Start Doing
Jun 17, 1996
We often run into firms that need help turning things around. The scenario usually includes some combination of the following:
Principals/top managers who aren’t billable.
Excess debt caused by poor collection of accounts receivable.
Owners who want out or need to get out because of what they cost the firm, but whom the company can’t afford to buy out.
No consistent marketing effort.
A jeopardized banking relationship.
Lack of concise summary financial data on firm performance.
Owners who have a poor opinion of the managerial skills of the second-tier managers.
On one hand, I find these situations frustrating. I think, “Why are these people struggling when they should be more successful?” On the other hand, I like these problems because every one is solvable. Here’s my quick rundown of what you need to do. (And by the way, it doesn’t matter what type of firm you are— this advice is universal):
Get owners and top managers working on jobs. The average billability for all owners needs to be at least 40%. And the smaller the firm, the higher this probably should be. In a 20-person firm with two owners, for example, the two should probably average 50% billable between them. Having billable owners/top managers is more important than many people think. They must set the pace, keep employees motivated, and stay involved with clients to create revenue and identify additional work opportunities. Not being billable drains the firm, kills morale, and isolates the owners from clients who offer repeat business.
Fix collection problems. First, bill continually— not just once a month. Second, set up your fixed-fee contracts so they allow for more billing opportunities (e.g., give yourself more deliverables.) Third, get someone who knows what invoices should look like to review your invoices and to design them properly. Fourth, define the collection process in writing, and have a clear set of steps that are always followed. Use accounting or support staff as front-line bill collectors; most PMs will deprioritize it.
Confront owners who want out and make it happen. There’s nothing worse than having someone around who draws a significant salary but gets nothing done. This hurts morale and requires the firm to pay a lot more for the stock buy-back than it should. Firms in this situation are usually better off taking the salary and benefit dollars they’re paying the lame-duck owner and using it to buy out that person’s stock.
Rev up marketing— and don’t just make client contact assignments and hope the problem goes away. Every firm needs a sustainable marketing program— not just a lick and a promise from the key people to get out more frequently and “sell.” This type of marketing program will fail 99% of the time. Yet, that’s what everyone in our business seems to do. The answer is to build a good database of everyone you are trying to sell to, then bombard them with useful information (not glossy brochures and bragging project descriptions). Do this 12, 18, or 24 times a year, and send it out to a 2,000-person or more list. The result: you’ll get phone calls with project leads, and clients are more likely to hire you because they know you. It works!
Do what it takes to look like a good credit risk. Banks— especially large ones— don’t like firms with a poor balance sheet, weak profits, owners who are taking too much out of the company, and slow collections. The 26-year-old lending officers in these banks take your data and load it into a spreadsheet to see how your ratios stack up. If your numbers don’t look good, forget bank credit, unless you have one incredible personal financial statement! The keys are reducing owner withdrawals, selling more stock (who says selling stock is an irreversible decision?), cutting costs where you can, and fixing collection problems (see #2). Then start shopping for a local bank with lending officers who actually have discretion on who they lend or don’t lend to, and who will consider you a fish worth keeping. Or consider a firm such as Merrill Lynch, and entice them with your 401(k) or profit-sharing fund to manage.
Get the financial data you need. Though it’s hard to find decent financial and accounting staff these days (it seems demand is at an all-time high), there’s no excuse for not having the basic data you need to run your firm. I’m referring to all the numbers listed in my article “Numbers to watch” (TZL 164: June 3, 1996). Quit making excuses or tolerating the same from your accounting people, and demand the information you need to keep them and everyone else employed. Set priorities for how they spend their time so they focus on what’s important.
If you don’t think your second-tier managers are good, admit you are the problem. We hear this all the time. “The second tier can’t make decisions.” “They can’t sell.” “They aren’t entrepreneurial like the principals.” But who is to blame? Who hired them? Who trained them how to think and how to make decisions? The senior principal or principals. I often find that the most senior people have hogged the decision-making, even when it comes to small details. They have insulated the second tier from clients (one firm we worked for wouldn’t even let a $75K-per-year senior associate manage projects). And they hire people willing to work for them cheap.
You don’t have to be a managerial genius to know this makes sense. Stop procrastinating and get on with it.
Originally published 6/17/1996
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.