Aug 01, 1993

It has come to our attention that a number of our readers are flying high right now. Business is great, you’re growing, you’re making money— it’s an exciting time. It seems like you’re getting every project you really want— the best of whatever your firm could reasonably expect. Adding to your confidence level is the fact that many of your competitors aren’t doing so well. You’re hiring people while they are still letting them go. You know that you are hitting on all eight cylinders, and it feels good. But don’t let your success lull you into a false sense of security. Right now is precisely the time that you need to be most introspective. Here are six mistakes we most often see successful firms make. They over-invest in office space. Growing firms often find themselves in need of new office space. The problem is that instead of taking 8,000 square feet when they really only need 6,000 square feet at present, they opt for 10,000 square feet to accommodate “future expansion.” Then on top of it all the company president grabs 1,000 square feet for his own office with a living area and private bath. The result is lousy communications, morale problems, and overhead that’s way too high. They open too many new satellite offices at the same time. Although there’s absolutely no reason a satellite office cannot be profitable during its first year of operation, let’s face it-it rarely seems to work that way in the A/E or environmental consulting business. That being the case, it’s easy to see how hot firms that open lots of offices in a short period of time commonly experience subsequent drastic reductions in profitability. They hire “specialists” that they can’t keep busy. When firms are really successful, they often follow the proven strategy of finding new services to sell their existing clients. Problems arise when they dig too deep in the barrel and add super-specialized technical talent that cannot be kept busy, especially when they are senior people with big price tags. Ditto for adding too many full-time staff specialists, such as heads for strategic planning, full-time business developers, and so on. At an average 5% profitability on net service revenues, a firm will have to do $2,000,000 worth of profitable work to cover the cost of one $75,000 overhead person (by the time you factor in the cost of benefits). Think about it. The owners take too much out of the business. When you’re making money hand over fist, the tendency is to want to reward yourselves. That’s O.K. as long as you don’t let it get out of hand. But when I see $150,000 annual salaries and $100,000 annual bonuses coming out of small firms, it’s oftentimes an indication of problems to come. Every business has to retain some capital— especially those that are growing. You simply can’t pay all of it out. They give away too much in the way of paid leave for staff. I’m talking about over-liberal policies for compensatory time, vacation, sick leave, and personal days. It’s easy to be generous with benefits when you’re making money. It’s almost impossible to take these things away when you’re not. In just about every turnaround situation we have been involved in, we have had to cut back on paid leave that was increased during a peak period of the firm’s prosperity. They ignore pressing personnel problems. When you’re making money it’s easy to bury your personnel problems. “Cranky Sally,” the second employee hired by the firm’s founder 40 years ago is allowed to go on being cranky. “Joe,” the yeoman drafter who never learned CADD is allowed to sit on his stool all day. “Bill,” the project manager who is a good designer but can’t manage, keeps getting new projects to lose money on. Too often, personnel problems are not confronted during periods of prosperity. It’s been said before that “nothing good comes without adversity,” but don’t go looking for adversity just so you can overcome it. Don’t be lulled into a false sense of security by the good times and abandon all caution. Be vigilant in your efforts to follow the same management practices in good times as you w

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.