Why some firms grow and others don’t

Feb 15, 1999

One of the most interesting products we have put together is our new Fast-Growth Firm Survey, just released a couple weeks ago. It’s just fascinating when you look at the comparisons between A/E/P and environmental firms that have grown by at least 20% a year for the past three years compared with everyone else. Here are some of the findings: There is no apparent trade-off between profits and growth. In complete defiance of conventional wisdom the fast-growth firms from our studies were nearly twice as profitable as their “typical firm” counterparts— fast-growth firms averaged 16.4% pre-tax, pre-bonus profits, whereas all firms averaged only 8.5%! I have to confess, this finding surprised me. Return on equity for a fast-growth firm is higher, too. Fast-growth firms averaged a whopping 65.8% annual return on equity, with all firms averaging 42% (not bad, either!). Fast-growth firms have a lower staff turnover rate. It was only 10% compared with 12.5% annually for all firms. No surprise to me here, since firm growth rate directly relates to individual opportunity for advancement. Fast-growth firms give out bigger raises. The average annual pay increase is 5% in a fast-growth firm vs. 4.5% for all firms. They plan on spending more on future raises, too (5% and 4.5%, respectively). But at the same time, fast-growth firms are less likely to pay overtime to salaried staff (only 29% do so vs. 43% of all firms). You would think that fast-growth firms invest more in their people than the rest of the industry. Bonus is more closely related to percentage of ownership in fast-growth firms than it is in all firms (47% vs. 41% tie bonus to stock ownership, respectively). 85% of principals in fast-growth firms feel that their input to decision making reflects their share of ownership whereas 80% of all principals feel that way. This isn’t a surprise to me because I would expect fast-growth firms to have practices that encourage investments in the firm’s stock. Principals in fast-growth firms work more (52 hours a week vs. 50 for those in all firms). And they tend to be more billable (45% chargeable in fast-growth firms vs. only 40% in all firms.) Hard work leads to success— no kidding! More fast-growth firms give their employees remote access to their network (63%) than do all firms (48%). And 85% of employees in fast-growth firms have their own e-mail address whereas only 79% of those in all firms do. I am not surprised that fast-growth firms give their people the technological tools they need to work in today’s environment. Fast-growth firms tend to be less concerned about recruiting from their competitors (only 19% thought it was unethical) than their counterparts in the A/E/P and environmental industry as a whole (28% of all firms think it’s unethical to recruit directly from competitors). My opinion is that anyone who thinks it’s unethical to recruit someone from a competitor must be living in the Victorian era! It’s necessary today. The information technology managers in fast-growth firms spend an average of 80% of their time in that role, whereas those in all firms spend only 50% of their time on it. This just confirms a greater interest and investment in IT for fast-growth firms. Fast-growth firms are doing a better job managing multi-office situations. 67% of fast-growth firms polled say their satellite offices are taking full advantage of the headquarters office services that are available to them, whereas only 29% of all firms can make this claim. Another interesting statistic is that, on average, fast-growth firms get their new offices profitable within eight months of opening, whereas all firms, on average, take a year to accomplish this. Wow— it seems that one of the keys to fast-growth is the ability to use the talents wherever they are in the firm to the overall firm’s advantage. Marketing-wise, fast-growth firms are increasing their spending on marketing. Between 1996 and 1998, fast-growth firms ramped up marketing expenditures by a whopping 94% compared with an only 33% increase for all firms. I have known for years the relationship between marketing expenses and revenue growth; I just wish the rest of the industry would figure this out! What more can we do to convince the non-believers?? There’s a lot more to this survey. One thing is for sure: Fast-growth firms do not do everything like everyone else. There are reasons they get better results. I’m looking forward to our next new survey— the High-Profit Firm Survey, which will be coming back from the printer any day now! Originally published 2/15/1999

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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.