What’s Going on in the Outside World

Oct 19, 1998

Now’s the time of the year a lot of folks in the A/E/P business start to take a look at their business plan. Traditionally, there’s some discussion of what’s going on outside the firm that could have some impact on it. I wanted to share a few of my observations and opinions with you on some of these happenings: The stock market. I don’t know about you, but I’m getting sick of all of the pundits and what they have to say about the stock market. There’s so much bull out there! For starters is the notion that what happens in the stock market is in any way related to the performance of the companies that comprise it. The Dow or the NASDAQ aren’t going up and down based on earnings forecasts. They go up or down based on the collective mood of investors. If they (investors) feel good, stock prices go up. If they (investors) feel bad, stock prices go down. It’s simple mass hysteria. Emotion has far more to do with stock prices than does any logic. And as far as what this means to firm values, I would say that while perhaps a down market drags down the values of a lot of mediocre, privately held A/E/P and environmental firms, that doesn’t apply to all firms. Personally, as an owner of a successful privately held firm, a down market has the opposite impact. It would take more money to sell the firm now than before because there’s nowhere to invest the sale proceeds that comes anywhere close to the rate of return the firm produces! Difficulty finding people. Sure, it’s hard to hire today. But what kills me is how some companies get all upset and self-righteous if one of their competitors tries to lure away their people. The same firms (that are mad about attempts to steal their employees) are the ones that hire outside recruiters who make the calls to their competitors to try to hire their people! What to pay to get someone new to get them on board is another problem area, especially when you are trying to keep salaries in line with the rest of your people. The bottom line is it’s not going to get any easier. Maybe the coming recession will result in some firms cutting loose their worst performers— particularly those working on canceled private-sector projects. But is that who you are really going to want to hire anyway? You better be thinking creatively about your benefits, your career paths, the information you share, your work environment, and a whole host of other factors that are important to lure (and keep) good people in your firm. Mergers and acquisitions. They keep on happening. And I’m seeing more willingness of the A/E and environmental firms that we deal with to seek out turnarounds. While there aren’t as many troubled firms out there as there were a few years ago there are still plenty to choose from if a buyer is flexible on location, services, and client types served. These firms will sell for less (as a percentage of revenues), and many times have more allegiance to their buyers than does a successful firm who views the new owners as a pain in the rear, at best. Turnarounds can be bought for 10-25% of NSR (net service revenues); whereas some successful firms are going for as much as 100% (or more) of NSR (but these are in the minority!). Regional economies. They’re good. What else can I say? No place in this country seems to have been spared from the long-standing boom economy. The real question is when the recession hits, what areas will be hit hardest, and which ones will be least impacted? To answer that, look no further than Texas in the 1980s. When Houston’s economy took a series of gut punches in 1982 that pushed it into a virtual depression area overnight, a lot of folks moved out. You couldn’t even rent a moving truck! Austin, on the other hand, was hurt by many of the same economic issues that Houston was, but didn’t lose anywhere near the same percentage of their population. The reason was that everyone wants to live in Austin, but they move out of Houston unless they have a high-paying job. The bottom line is this: A/E/P firms investing in new locations should be looking at the places people want to live regardless of the economy and employment opportunities. Those are going to be the cities that do well in bad times! The Internet. By now, most of our readers have probably browsed the Net or at least had someone demonstrate it to them. It (the World Wide Web) will revolutionize how business is conducted in so many ways that it’s almost staggering. It will impact everything. It’s going to reduce transportation needs. It will create demand for warehousing and distribution. It will change the way firms market because clients will be seeking them out with very little marketing expense. It will make recruiting more efficient (that can be both good and bad for you!). You can’t ignore it. It’s coming. These are just a few of the significant issues you’ll probably be talking about in your upcoming 1999 management retreat. But while these things may impact you some, make sure everyone knows that you are in control of your firm’s destiny. It isn’t the outside world that determines whether or not you are successful. It’s your obligation (and opportunity) to be a successful company, both good times and bad. You can do it if you keep your head on straight, your costs in line, and don’t get too mired down or distracted by negative events that don’t have to impact you. Originally published 10/19/1998

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.