The Problem with Project-Driven Businesses

Dec 13, 2004

The folks at Deltek Systems, Inc. (Herndon, VA) have always claimed their market for software and consulting services was “project-driven businesses.” The truth is, the first time I heard that, I was skeptical. I wasn’t sure that being “project-driven” was sufficiently unique to put all of those companies into one pot (not to suggest that Deltek has— they have offerings for every segment within project-driven firms). But now I understand where they were coming from. Every architecture, engineering, planning, and environmental consulting firm IS a project-driven business. And, while I am a little slow on the uptake sometimes, the longer I have worked with architects, engineers, and environmental consultants, the more I have become aware of exactly what being project-driven means and how project-driven firms DO share a lot of characteristics. Here are some of my thoughts on what the unifying characteristics of project-driven businesses are: “Clients are king.” They should be, unless they are walking all over you. Many professionals in privately held, professional services firms cannot tell when that’s happening. Clients are asking for too many concessions, too many free extra services, and then are slow to pay, and meanwhile the architects and engineers who work with them think they are someone indentured to them! After all, A/E/P and environmental firms do projects for a living. That’s what it’s all about. And those who pay the bills should not be argued with (some think!). Internal initiatives take a back seat. Long-term internal initiatives such as implementing a new project management system or changing the organization structure or re-valuating the ownership transition plan take a back seat— all the way in the trunk! The reason— clients pay the bills. They have a job now, and it needs to be done. The way we make our living is by doing it. Therefore, anything that gets in the way of this process is viewed as ancillary to the primary core business. HR problems WILL fester. The bottom line in every project-oriented firm is that the project has to go out. Anyone who contributes anything to getting the job out could be viewed as critical, no matter how poor that contribution is. This means that project-oriented businesses tend to accumulate weak performers over time. Pretty ironic considering that we are completely dependent on a competent crew to get the projects out the door! The people who do well in the firm are those who seek out the attention and resources they need. Those who wait for others to notice them or anticipate their needs will probably end up unhappy. The project-driven firm is no place for the introverted wallflower who just does his or her job. While these people may enjoy a certain amount of job security that comes from being critical to project delivery in a project-driven firm, that does not mean they are on the fast track. We are slow to fire but also slow to promote people who don’t beat their own chests. No one can say for sure what comes first— the chicken or the egg, the project or the people who can do the project. The age-old question is “should we hire the people without having work for them to do so we can get the work, or should we get the work and then hire the people?” Project-driven firms all want the answer, but, in truth, the answer varies. Having the skills to sell is critical to project selection. So is having the ability to do the work. My preference is to sell the job first and then staff up, but there are times where that’s impossible. Conversely, I would not hesitate to hire someone with marketable skills even if there was no specific need for that person. Selling is easy if a client brings a problem or opportunity to the firm. It’s hard if the people working in the firm have to go out and identify a problem or opportunity and bring it to the client. My experience is that project-driven firms will never be able to initiate enough business development contacts to grow— at some point their reputation has to become strong enough that the phone rings from new clients calling in. Stars can be your greatest blessing and your greatest curse. Project-driven companies are all looking for stars— i.e., people with a following (clients) they can bring to the firm. The problem is that those same stars can wreak havoc on the organization. They are often difficult, if not impossible, to please and don’t always work well as a part of a cooperative team. And, the other problem is, if you can’t keep them happy, they leave, and their clients may follow. You live and die by cash flow. Project-driven firms can be profitable on an accrual basis and still run out of money if they don’t collect it. Cash flow is horrible in this industry. A/E/P and environmental firms typically fare much worse than other business-to-business professional services providers. We get preoccupied with doing the projects, and we are not very demanding when it comes to payment. Your worst clients and projects end up with your best people. This is another phenomenon unique to project-driven businesses. When jobs get into trouble, we assign the best people in the firm to straighten them out. Often the worst job means the worst client— one that can’t be pleased and doesn’t expect to pay for what the firm is providing. Because the worst clients/jobs get the best people, it only follows that the best clients/jobs get the worst people. That presents significant challenges in terms of client satisfaction and profitability of the enterprise. For those of us charged with the responsibility for leading project-driven firms, I think it’s important that we fully understand ourselves and our nature. Any change in the business that is being contemplated has to take this nature into consideration. Originally published 12/13/04

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