Gain Strength From Adversity
Dec 01, 1992
Many of our readers are already reflecting back on a year that was not so great, financially speaking. But in 1993, some firms will find this cloud really does have a silver lining.
Many firms in our industry thought the 1980s were one long party. It was like they bought the winning lottery ticket, cut a hit record, or won the Super Bowl. Business was great. Profits were abundant. New owners were added to fund massive internal ownership transfers. Other companies were acquired. Employee benefits swelled. New offices were opened. Office space was expanded and upgraded. More people were hired. Leadership was easy then— you could hardly go wrong.
Unfortunately, success set up these firms for a bad hangover. Even as the demand for design and environmental consulting services seemed to be ever-increasing in the 1980s, it still wasn’t expanding as fast as the ambitions of many of those making spending decisions. We spent much of our future profits before we earned them.
Then the recession hit when many firms could least afford it. Personal and business overheads were too high. There were too many owners, too many offices, and too many support people. Billing procedures were sloppy. Collection practices were lax. In short, there was too little management attention and too much infrastructure.
For many— if not most—environmental consulting firms, 1990 and 1991 were their first tastes of adversity. They’d never known anything but success! Some firms just couldn’t make it, and their owners lost everything. More common was the need for massive restructuring, resulting in a reduction of the firm’s capabilities and future opportunities. Now, the real winners and losers are starting to appear.
On the one hand, there are the firms that waited for the economy to turn around. Right now, they’re worse off than ever. Meanwhile, the best firms didn’t wait. They’ve used adversity as an opportunity to confront problems. Over the next couple of years, they’re going to emerge leaner and stronger than before. What did they do that you can?
Completely overhaul billing and collection efforts: speed up billing, straighten out invoice formats, and increase high-level staff involvement in collections. The result— more operating capital and a significantly increased awareness of the importance of cash flow.
Restructure overly-generous vacation and sick leave accrual policies and reduce the number of holidays. Although the reaction is never good, we’ve seen a number of firms do it— 11 paid holidays is too many, and some firms had more than that! Professionals (unlike blue collar workers) rarely change jobs over benefits.
Review every staff member’s long-term job chargeability. Cut staff where there are historical utilization problems. If someone hasn’t been job chargeable for three years, what’s going to change? Work flows to the competent man. Many of these cuts are long overdue, and will get a positive reaction from the remaining staff.
Retire or lay off non-producing partners. Money formerly used for the non-performing principals’ salaries, benefits, and perks helps fund the buy-out.
Throw out cumbersome organization structures. All owners do not need to participate in all decisions. Everyone needs to be accountable to someone else. Too many project managers results in weak project management. Clarify role definitions for everyone (including principals). The result will be higher utilization rates and more principal involvement with clients. Quality and follow-up work will increase.
Carve off unnecessary office space in every location. Lower overhead and better communications between staff members will be your reward.
Cut all “luxury” support staff. Targets should be: Less secretarial support in satellite offices, more sharing of staff at the executive level, and generally higher expectations for performance for all support staff.
Set new and higher performance expectations for satellite offices. The old rules-of-thumb that it takes three or more years for an office to become profitable are history. Satellite office overhead should match the office’s own ability to generate work.
Get more aggressive and creative in marketing. More packaging of services for specialized markets. More concentration on big jobs. In general, more of a willingness to shed the old ways of getting work and try something new.
Re-focus on how to make money rather than how to spend it.
Nothing good comes without adversity. Those firms who saw opportunity in adversity, and took action, will be stronger competitors in 1993 and beyond.
Originally published 12/01/1992
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.