Spend Money to Make Money
Jun 01, 1993
Everyone knows the old adage: “You have to spend money to make money.” But who follows it? Take the example of two of my wife’s friends. Both are smart, educated, and come from good families that own local-area businesses. And both are in the midst of selling their houses.
The first is trying to sell a big, old single-family house that was converted to a two family several years ago, and despite a robust local real estate market, she’s not having much luck. Although her house is priced fairly and has some distinctive interior features, it’s obvious to me why no one is looking at it.
The chalky white aluminum siding installed in the 1960s has erased most of its character, and the wood trim that wasn’t covered looks like it hadn’t been painted since then, either. All the shutters are missing. And to add some “industrial” flavor, the house, which sits on a corner lot on a hill, is surrounded by a four foot retaining wall, capped off with a four foot chain link fence! The house looks like an industrial compound— the only missing ingredient is barbed wire.
One evening recently, the friend was complaining about not getting anywhere on the house. My suggestions were to paint the trim, add forest green shutters to the windows facing the two exposed sides of the house, plant a few cheap bushes around the foundation, and get rid of the chain link fence. Her answer: she and her husband have already sunk too much money into a house they can’t sell, and she doesn’t want to spend another nickel.
Now here’s the story of my wife’s other friend. She also put her house, a little three-bedroom ranch, on the market. And even though there was another, similar house for sale on her street priced $24,000 less, she got five offers on the first day and sold it!
How did she do it? By making sure it was perfect. Every room, every closet, even the garage were freshly painted by a professional. She spent $4,000 on a kitchen facelift. The windows sparkled and the yard was impeccably groomed. And new, inexpensive carpet covered the floors throughout the living area.
What do houses have to do with A/E/P and environmental consulting firms? Too many firm principals are just like the first friend and not enough like the second. They want to do more business but won’t spend the money necessary to make it happen. These principals, like the first friend, cut off their opportunities by avoiding all risk. Here are some typical decisions made by these principals:
Instead of getting a proven PM performer for $60,000 per year, they hire someone with no PM experience for $50,000. Then they’re surprised when he or she fails to keep clients happy and make money on projects.
Instead of spending $2,000 to get a second computer, they spend $500 on mobile carts to wheel a computer from one office to the next, and then wonder why it’s not being used constantly.
Instead of planning an economical, attractive office, they buy all of their furniture piecemeal at the used office furniture store, never getting the same thing twice. As a result, their office looks crappy and third-rate to clients and employees.
Instead of spending the money to get a professionally designed company logo, they save $2,000 by hiring the founder’s daughter who just graduated with a communications degree. No one likes the final design, plus the unnecessary embossing that she thought looked “fancy” costs the firm extra every time print something.
Instead of hiring the business consultant who has a proven ability to implement her own successful plan, they save $300 a day and the cost of a plane ticket by hiring the local one-man band who is lucky if he earns what a good project engineer makes. The business plan flops.
Instead of paying what it takes to acquire a good firm that has a proven ability to make a profit, they do a stock swap for a lousy company which has lost money for five of its last seven years of operation, then wonder why it loses money under their ownership, too.
Being cheap and maximizing profitability can be healthy for an A/E or environmental consulting firm. But taken to an extreme, it’s dumb. Don’t be like the homeowner with the $225,000 house who won’t spend $1,500 to paint the eaves and buy a few pairs of plastic shutters to make it sell. Invest in the business while the market is growing, and watch the dividends roll in.
Originally published 6/01/1993
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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.