Employees see the rewards of ownership, but rarely the personal risk that makes those rewards possible.
One of the biggest differences between being an employee and being an owner in the AEC business is risk. Employees certainly face risk. They can lose their jobs. They can make mistakes that damage their careers. They can find themselves working for a company that falls on hard times.
But none of that compares to all of the risk assumed by the owners of privately-held architecture, engineering, planning, environmental, and construction firms. Every owner in our business puts three things on the line every day: their time, their money, and, maybe most importantly, their reputation. The funny thing is that most employees don’t fully understand any of those risks, and they almost never appreciate them to the degree the owners who bear them do.
Why ownership demands more time than most employees realize
Let’s start with time. Most AEC firm owners don’t simply work at their companies; they live them. The business follows them everywhere they go. It shows up at dinner. It rides along on vacations. It sits next to them at their kid’s soccer game. It wakes them up in the middle of the night wondering whether a project manager is going to quit, whether a client is going to pay a six-figure invoice, whether a key proposal will come through, or whether that rockstar lead designer everyone says is irreplaceable is actually interviewing with a competitor.
The longer you own a firm, the more intertwined your life becomes with the business. Most owners spend decades thinking about recruiting, retention, marketing, project performance, collections, utilization, overhead, ownership transition, and growth. Even when they aren’t actively working, a portion of their brain remains occupied by the company. Employees may work long hours, too, and many certainly do. But at the end of the day, most of them can eventually leave work behind. Owners rarely have that luxury because the company gets a piece of their lives they’ll never get back.
I’ve often joked that the definition of an AEC firm owner is someone who checks email in bed, reviews financial statements on vacation, and considers a quiet Saturday morning the perfect time to worry about backlog. Like most jokes, there’s more truth in it than we’d like to admit.
The financial risk AEC firm owners carry
Money is where the disconnect between owners and employees often becomes especially large. Employees frequently assume that because someone owns the firm, they’re automatically making more money than everyone else. They see a nice office, hear about a distribution, or notice the owner driving a $100K-plus GM SUV and conclude ownership must be one long parade of financial rewards.
What they don’t see is what’s actually at risk. Many privately-held AEC firms rely on bank lines of credit to manage cash flow. That’s especially true when clients stretch payments, public agencies move at the speed of continental drift, or large projects create temporary working-capital demands. What employees often don’t realize is that those lines of credit usually aren’t backed solely by the company. They’re backed by the owners personally.
The same is true for many real estate loans, acquisition loans, equipment loans, and other borrowing arrangements. The bank frequently wants a personal guarantee. In other words, when the banker smiles, shakes your hand, and tells you how much they value the relationship, they’re also quietly making sure they can come after your assets if things go sideways.
That reality changes the equation considerably.
When employees go home at night, their houses generally aren’t pledged against the firm’s obligations. Their retirement accounts aren’t tied to whether a major client decides to pay in 30 days or 180. Their personal financial statements aren’t sitting in a banker’s file attached to company debt. The owners’ often are.
I’ve known AEC firm owners who mortgaged property, signed personal guarantees, reinvested distributions, borrowed from their IRAs, and put enormous portions of their net worth at risk to keep their firms growing. I’ve also known owners who skipped their own compensation or even wrote checks to the company so employees could get paid on time during difficult periods. Ironically, those same employees were sometimes complaining that management wasn’t doing enough for them while the owners were figuring out how to make payroll.
Most employees never see any of that. Even when they do see it, they rarely appreciate its significance because they simply aren’t carrying the same burden. That’s not a knock on employees. It’s just human nature. It’s difficult to appreciate risks you don’t personally bear. Most people don’t spend much time worrying about someone else’s line of credit.
Why reputation is one of ownership’s greatest risks
Reputation may be the most personal risk of all. When you’re an owner in the AEC business, your name becomes attached to everything. Every project delay. Every client complaint. Every lawsuit. Every quality issue. Every bad hire. Every failed acquisition. Every accounting problem. Every social media controversy. Every public mistake.
Whether that’s fair or not is beside the point because the owner gets associated with it anyway. An employee can leave a firm and often leave many of those issues behind. Owners don’t have that option. Their names are tied to the business, their communities, their professional associations, and often their industry’s perception of them. A reputation that took 30 years to build can be damaged in 30 days, or sometimes by one ill-advised email that should’ve never been sent after 10 p.m.
What’s interesting is that success actually increases the risk. The larger your firm becomes, the more visible you become. The more visible you become, the more scrutiny you attract. More clients know you. More competitors know you. More employees know you. More people have opinions about your decisions, and many of those opinions will be delivered with complete confidence despite the fact that the person expressing them has never run anything larger than a fantasy football team.
Why ownership still appeals despite the risk
So why would anyone sign up for all of this? The answer is that ownership provides something many people want despite the risks. Owners get the chance to build something lasting. They create opportunities for others. They shape culture. They develop future leaders. They create wealth. They influence the direction of their firms and, in some cases, their professions.
Most successful AEC firm owners aren’t driven solely by money. If they were, many would’ve found easier ways to earn it. They do it because they enjoy building organizations, solving problems, serving clients, and creating opportunities for their people. They like competing. They like winning. They like creating something from nothing. And, if we’re being completely honest, many of them possess at least a mild personality disorder that makes them believe taking on more responsibility is somehow a good idea.
But let’s not kid ourselves about what ownership really means. Ownership means risking your time. It means risking your money. It means risking your reputation. While your employees may respect what you do, most will never fully appreciate those risks because they’ve never had to sign the personal guarantees, pledge their assets, or shoulder the responsibility that comes with ownership.
The rewards can be tremendous, but nobody should confuse ownership with a free lunch. In most AEC firms, the owners are the ones paying for lunch, guaranteeing the credit card used to pay the bill, and worrying about whether the client is ever going to reimburse the expense.
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Mark Zweig is Zweig Group’s chairman and founder. Contact him at mzweig@zweiggroup.com. |