AEC firms build real value when they invest in growth, leadership, systems, and transition before it is too late.
Most AEC firm principals say they want to build value in their business. They talk about ownership transition. They talk about legacy. They talk about building an “enduring enterprise.” Then they go right back to doing all the same dumb stuff that makes their firm worth less every year.
I’ve seen this movie too many times. The founder drives around in a new Range Rover, tells everyone how busy the firm is, and then acts shocked when nobody wants to buy the company except the employees who need 97% seller financing and a prayer to make the deal work.
Here are some of the biggest value killers I see over and over again:
- Making the whole business dependent on one person. Nothing destroys value faster than a firm where one principal controls all the clients, all the decisions, all the relationships, and all the rainmaking. Buyers don’t want to acquire your personality. They want to acquire a business that can survive after you leave.
If your clients say things like “We work with Bob,” instead of “We work with XYZ Engineers,” you’ve got a problem. And if Bob gets hit by a beer truck tomorrow, the business may be worth less than the office furniture.
You’ve got to institutionalize relationships. Multiple people need client contact. Multiple people need leadership responsibility. Multiple people need authority to make decisions. Otherwise, your firm isn’t really a business. It’s just self-employment with a payroll.
- Refusing to grow because you’re scared of overhead. This one drives me nuts because I’ve written about it for years. Some principals think the best way to be successful is to be a firm with the lowest overhead. That’s nonsense.
Some of the most valuable firms in the industry have higher overhead because they invest in marketing, recruiting, technology, training, business development, and leadership. They create systems. They build infrastructure. They hire people before they absolutely need them.
Meanwhile, the low overhead hero is sitting at a folding table from Office Depot personally approving every $42 expense report while at the same time wondering why the company can’t scale.
Growth creates value. Buyers pay for growth. Employees get excited about growth. The market rewards growth. A stagnant firm with nice profit margins but no momentum eventually starts to resemble one of those dying indoor malls where half the stores are vacant and there’s a lonely cinnamon roll place hanging on for dear life.
- Underinvesting in marketing. AEC firm principals love to say “marketing is important” right before cutting the marketing budget. Then they wonder why revenue flattens out.
A lot of principals still treat marketing as some kind of necessary evil instead of a strategic growth engine. They hire one exhausted marketing coordinator, make them plan events, update resumes, design proposals, run social media, order hats for the golf tournament, and somehow generate leads out of thin air.
Firms with strong brands, solid market positioning, and consistent visibility are worth more, period. Buyers and investors love firms that dominate a niche or geographic market because it gives them confidence future revenue is more predictable.
- Tolerating dead weight ownership. Nothing hurts value like a shareholder group loaded with people who aren’t producing. Every firm has a few owners who somehow transitioned from “rainmaker” to “professional observer.”
These people show up late, leave early, complain about everyone else’s spending, resist change, and still expect distributions large enough to support their boat payments. Meanwhile, the younger high performers are looking around thinking, “Why would I buy into this mess?”
You can’t build a valuable company while carrying owners who contribute less every year but consume more oxygen in every meeting. At some point somebody has to have the hard conversation. Most firms avoid it because they hate conflict. So instead they slowly drift into mediocrity while everyone pretends everything’s fine.
- Having terrible financial management. I’m always amazed at how many principals don’t understand basic financial management in their own firms. They know how to design a hospital, airport, water plant, or highway interchange but couldn’t explain their own balance sheet if their life depended on it.
Value gets crushed when firms:
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- Let accounts receivable get ancient.
- Ignore utilization problems.
- Carry weak project managers forever.
- Underprice services.
- Fail to monitor backlog quality.
- Operate with no cash reserves.
- Give away scope constantly.
A buyer wants predictability. Sloppy financial management creates uncertainty. Uncertainty lowers value. And no, being “really busy” doesn’t fix any of that.
- Refusing to plan for ownership transition. This may be the biggest mistake of all. Some principals wait way too long to develop future leaders or create a realistic transition strategy. Then suddenly everybody’s in their 60s and shocked there’s no internal market for the stock.
Ownership transition isn’t an event. It’s a process that should’ve started 15 years ago. The firms that create the most value are constantly developing leaders, selling stock incrementally, teaching business skills, and creating opportunities for younger people to grow. They understand the company’s future can’t depend on a handful of aging principals still trying to act like they’re 35 years old after three back surgeries and a prescription cabinet full of anti-inflammatories.
The bottom line is simple. Value isn’t accidental. Firms become valuable because their leaders intentionally build organizations that can grow, scale, transition, and survive beyond the personalities of the founders. A lot of principals say they want that. Far fewer actually behave like they do.
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Mark Zweig is Zweig Group’s chairman and founder. Contact him at mzweig@zweiggroup.com. |