Entrepreneurs and small business owners have fundamentally different views on the opportunity each has in front of them.
When I look out over the pool of roughly 100,000 A/E or environmental consulting firms, I see lots of small company owners – but few entrepreneurs.
I guess this shouldn’t be a surprise. Few people choose to become architects, engineers, planners, land surveyors, or scientists because they are interested in business. If they were that interested in business, they’d have started out with a business degree, right? But you would think some – more than those who actually do – would get seduced by the business opportunity they have with their A/E or environmental firms.
Let me step back a moment. You might wonder what I am talking about here. If these people own a business they are by definition, “entrepreneurs,” aren’t they? No – they aren’t necessarily, and that is one of the things that drives me mad about the popular media. They act as if anyone who has a lemonade stand is an entrepreneur.
The primary distinction between someone who is an entrepreneur and someone who is just a small business owner is the entrepreneur believes in and works toward creating value in their business which they can harvest upon exit. The small business owner only seeks to maximize the living they can earn from their business as they operate it. These are two fundamentally different ways to view the opportunity each has in front of them.
So, besides the fact these people didn’t set out to be businesspeople, why aren’t more owners of A/E firms entrepreneurs? Here are my thoughts:
- They don’t understand that to be an entrepreneur your business HAS to grow. This is the single most important thing for many reasons. First and foremost, growth is the best indication the market served by the firm like what they do. But another good reason is growth rate directly impacts the value of the firm. Why do you think start-ups in other industries that are growing quickly are worth so much money?
- They don’t understand what the real economic opportunity of being an owner of an entrepreneurial A/E firm is. If I told you that I know a guy who paid about $60,000 for the stock he bought in the firm he worked for and when it was acquired by a publicly-traded firm 20 years later it was worth $16 million, would you believe me? It happened. Or would you believe it if I told you a second-generation partner (one of many) in a planning and landscape architecture firm 30 years after buying in was making millions of dollars a year? That, too, happened. My point is ownership of a rapidly-growing, entrepreneurial A/E firm in whole or in part is a valuable asset – far beyond whatever the balance sheet says about assets minus liabilities being “owner’s equity.”
- They have been conditioned by their experience. They may have started out in the firm they are in or another where the ownership is passed down from generation to generation with the assumption it has little value beyond the income you can extract from it annually. This “income club” approach to the ownership of the firm doesn’t often lend itself to making the kinds of investments that are required to keep the firm growing. And yet it is far more common than an “investment approach” applied to the ownership of an A/E firm. We are all limited by our unique set of experiences.
- They are naturally risk-averse. It’s OK and completely understandable. These people have been schooled in how to reduce risk. To expect them to take chances with their business (i.e., attempt to transform it into something it currently isn’t) is pretty unrealistic. On top of that, if you honestly consider the fact that what most firms do in the majority of their projects is based on applied technology versus new technology, this is a very conservative lot indeed.
- They have gotten a lot of bad advice. The small accountants and attorneys, along with the single-person management and marketing consultants, that most firms in this business rely on for advice every day are limited by their own perspectives and orientations. They are geared to minimize tax obligations, reduce risk, and provide typical solutions to problems that they feel are proven. None of these preconceived notions about how to do things may be good for the entrepreneurial A/E firm owner who needs to do whatever it takes to make their business grow at a faster rate than the rest of the industry.
In spite of these things, some entrepreneurial firm owners can and do emerge, and build valuable companies. Zweig Group’s annual Hot Firm List of the 100 fastest-growing companies in this business is proof of that. The success of some of these businesses really is phenomenal!
Mark Zweig is Zweig Group’s chairman and founder. Contact him at firstname.lastname@example.org.Click here for this week's issue of The Zweig Letter!