Final Countdown to Principal: Advice for Up and Comers

Agreeing to become a Principal (equity owner) in an A/E/C firm has lasting consequences. Don’t leap for the power and prestige without considering the deeper responsibilities and challenges.

Do Your Due Diligence. Study your firm as the prospective purchaser you are. Assess the financials of the firm like an investment. Would you invest in this company as a stockholder? Consider what customers, stakeholders, and competitors say about the firm. Choose your fellow Principals wisely. You will be “married” to them for the next 20 years or more. Get to know their visions, biases, and foibles. Do as much research as possible by yourself, but be sure to include the counsel of knowledgeable experts that you hire, in addition to those provided by the firm.

Learn How the Business Really Works. Enlist the support of a willing, able, and trustworthy Partner to be your transition guide or coach. They have information and perspective only an insider can provide. Start by examining the firm’s succession plan for you. Does it identify a cadre of future leaders including several likely to be your successor? If not, leadership development is a serious issue that needs immediate attention; and the viability of you own transition plan may need reconsideration. Speak openly with fellow Principals on matters of succession, money, raises, bonuses, promotions, hiring/firing, and policy while assessing how decisions are made and the role you play.

Understand the Deal. Read closely all documents related to becoming a Principal such as the Shareholder Agreement, Deferred Compensation Agreement, Buy-Sell agreement, Company By-Laws, Articles of Incorporation, Board Minutes, Budgets, business plans, strategic plans, and Annual Reports from the past several years. Keep a file of corporate documents current. Develop a thorough understanding of the authority, legal responsibilities, and financial liabilities you may have, including as a member of the Board of Directors or Executive Committee. Know – don’t assume – what power you will have. Documentation of how and how well the firm has performed in the past is the best available indicator (but no guarantee) of future performance. Study performance trends, and especially those that impact your compensation, such as salary, bonus, stock valuation, and dividends.

Test Your Understanding. Listen closely to people outside of your echo chamber, especially past, present, and prospective principals. Push a few buttons (advisedly) on important issues you would like to change. As a Principal it is important to know you can speak your mind comfortably. If frank conversation is not well received before you sign on, it is unlikely to change afterwards. Spend time inside the “sausage factory” of an executive level committee. Get a realistic understanding of the role into which you will be stepping. Is it more like an influential partner or simply a stockholding employee? Clearly understand any non-compete restrictions imposed once you leave the firm; these may act as “Golden Handcuffs.” If there are deferred compensation provisions, have them carefully checked by a knowledgeable tax adviser. Be respectfully skeptical of all firm valuations. Valuation methods (e. g. multiples of earnings or sales) tend to get frozen to filter out short-term noise and protect longer-term stockholders. Over time industry and firm specific trends can diverge creating large anomalies.

Search Your Soul, with Support from Your Family. Make sure you will enjoy the entire experience, accepting longer hours and sleepless nights, not just financial rewards. Only you can know for sure how you would handle a serious business downturn that resulted in no bonus being paid, or worse, a “cash call.” Although this may seem unlikely, you must be willing to take the risk. Lastly, if you cannot fully explain what it means to be a Principal to your spouse or best friend, then you do not understand the deal well enough.

Being a Principal is not for everyone. Make sure it is right for you. Yes, you can say no. Senior Project Manager or non-equity Associate is not a bad career.

PSMJ has been addressing the issue of design firm ownership transition for 34 years and is holding a Ownership and Leadership Transition Roundtable for the leaders of today's A/E/C practices just like yours – October 23-24 in Atlanta, GA. 

"Great information, puts me in a position to start the process right, should have done this 5 years ago!"

-Kim Lobdell, President, KL Engineering, Inc.

Designed for both current and prospective Principals, we'll walk through a structured, logical approach to developing practical planning tools for your firm's Ownership Transition. Click here to register now!

Using Video For Marketing A/E Services

Why is it that an industry of professionals who understand better than most the need to visualize and demonstrate are not embracing the newest generation of visually rich, digital communications tools? When it comes to social media marketing, the A/E/C industry lags behind other professions. Perhaps it’s a case of not knowing enough about it, or an assumption that the cost of video is prohibitive.

These obstacles can be easily resolved by speaking with professional content development and production companies. Prices are down and most quality production organizations are more than happy to educate you as part of their engagement. The industry is based on very specific, detailed cost management and comparative pricing that is shared with the client up front. This allows you to really understand where and how your marketing dollars are being spent.

Video marketing allows every firm to create an online presence that animates your unique projects, personnel and thought leadership. You may automatically imagine a “talking heads” interview with your reluctant CEO or award-winning partner. Ho hum, but OK. Interviews make fine videos and a professional interviewer can make any subject feel comfortable in front of the camera. It works well and is done often, but video can add an element of richness and depth beyond the normal “blah, blah, blah” of why your firm is so great.

One alternative is to let your satisfied clients do the talking for you. Let your hundreds of professional project photographs talk as well. Video embraces multiple techniques like motion graphics, kinetic text, white board animation, and voice-overs to tell your story, so viewers are both educated and entertained. Here are 7 practical tips to leveraging video marketing and online digital content:

• Keep them hooked! Viewers give a video 20 seconds on average before turning away. So make sure that first 20 seconds pops, and try to keep the same momentum going throughout.
 

• Use strong visuals. If your team has great hand or computer generated renderings to sell your firm’s ideas, show them! If you have fly-through videos of projects, use them, too! Photographs of projects (no more than three seconds per shot) look great in videos.
 

• Talking heads are (relatively) boring. You won’t be able to eliminate them totally from your video. (We all want to meet the people behind the company we are doing business with.) But don’t over-rely on them if you have other, more visually compelling content to include. Putting your CEO on camera may create familiarity. It may build comfort. It may also bore your viewers.
 

• Ditch the scripts - Scripts and prepared remarks are the death of many a promising video. A simple two-sentence paragraph takes 15 seconds or more to read. That three page diatribe from your brochure would be longer than Avatar! So go for authenticity and be unscripted. Anyone on the video should be natural and authentic. Hire a good director to make sure that you get the best out of everyone. Some of those back room colleagues are the most interesting assets you have - leverage them, script free.
 

• Don’t be afraid to experiment - You have control over the message and what goes out. So unplug and relax as you describe how you work, what makes you tick and what your firm brings to the table that is unique. You have a firm full of creative people, so take advantage of them to experiment in a safe way. Anything you don’t like can be edited, rearranged or eliminated altogether. Remember, it’s a visual medium and that’s your specialty.
 

• YouTube is for you - Many organizations still don’t understand how powerful a YouTube channel can be for both promoting services, creating in-bound interest, and delivering free HD videos on a website.
 

• If it’s your first time, look for a guide - The world of online communications change is the norm. Don’t go it alone or hire cousin Joe’s nephew. This is your firm and your online reputation we are talking about here. So use a professio nal production company. 

Bottom line – your firm can stand out from the crowd, show off your team and projects, and be a leader in your space, using online videos. Social media can be a powerful new business development tool. Online videos are just one platform your company can use to connect your business to an almost unending stream of new and interested prospects.

For more vital information on how to effectivly approach business development, register for PSMJ’s Win Work Now: Three 1-Day Business Development Programs.This fall, PSMJ is providing 5 locations all across North America and Canada to give your whole firm the tools and confidence you need to succeed in bringing in more work for the firm. Register today!

Is Rainmaking Too Hard, No Fun, and Unproductive?

Up-and-coming project managers are often frustrated by how hard it is to “win work.” That’s because, trying to “win work” starts well before the job is won...and it is often a lot easier said than done. If you don’t know where to begin, try these things:

• Identify a class of problems that you are passionate about. Focus your attention on the types of clients and industries that have this problem, want to solve it, can afford the solution, and you enjoy working with. Don’t overlook internal clients and sub-contractors.

• Precisely target your desired clients. Putting your rationale in writing is a great way to test and refine your thinking. It also facilitates sharing for discussion. Then design your tactical plans. If you choose a trade association as a place to meet clients, consider how you would like to be perceived at your first meeting: as a vendor, supporter, or expert. Bring a clear message and image that contacts will pass on to others. Technical credentials and reputation can help initiate or accelerate contacts. Consider technical presentations or service on subcommittees as reputation enhancers. Be careful about aligning yourself with organizations that may be perceived negatively or as activist by your clientele. 

• Learn everything you can about your targets. Google alerts, journals, and associations can help you meet the movers and shakers. Get to know them as real people. Learn their businesses inside and out, not just their strengths, weaknesses, threats, and opportunities but the details of how they do what they do on a daily basis. Seek to discover client values and beliefs that you share so you can anticipate their needs before they know they need it. 

• Conduct every client encounter as an experiment. Consciously consider how you might carry out several of the possibilities on your list. Test ideas and tactics, but never risk more than you are willing to lose. Use experimentation as a source of originality to spark client interest while being genuine. Never confuse yourself or potential clients about who you are. Engage clients in serious dialog not only for market research, but also to develop a genuine personal relationship. 

• Analyze what you are you doing. Set up points in the process to debrief, reflect, and ideally obtain feedback from others. “How is this working?” “What are the results?” “Do your interests align with your firm’s culture?” Tease out elements that work differently from others and try to figure out why. Build on knowledge gained in earlier iterations. Embrace failure as an acceptable outcome. Failure should not only be acceptable, it may, to some extent, be the preferred outcome - at least for many of your initial possibilities. 

 

Above all, take action. Fail fast, frequently, and affordably to maximize learning. Starting a new process is hard and takes extra time and effort; but in time, winning more work will be far easier, more rewarding, and productive. For more vital information on how to win work now register for PSMJ’s Win Work Now: Three 1-Day Business Development Programs.This fall, PSMJ is providing 5 locations all across North America and Canada to give your whole firm the tools and confidence you need to succeed in bringing in more work for the firm. Register today!

Broader Economy Pulls Monthly ABI Down

After a slight decrease in April, the American Institute Architects’ Architecture Billings Index fell sharply in May. It marked the biggest drop seen in the architecture industry in almost a year. This pattern in ABI readings mimics 2011, when billings increased in the first quarter and then reversed in the second before recovering later in the year. While a decrease in business activity is never a welcome sign, hopefully this trend proves true and billings will increase again by the year’s end.

The Architecture Billings Index (ABI) serves as the leading economic indicator of construction activity, and reflects the approximate 9-12 month lag time between architecture billings, and actual construction spending. The monthly ABI scores are centered around 50, with scores above 50 indicating an aggregate increase in billings, and scores below 50 indicating a decline.

The ABI registered a score of 45.8 in May, a significant drop from the 48.4 recorded in April. The drop pushed firms in all regions of the country into declining billings. The downturn is particularly notable at firms in the Northeast and Midwest, which had been posting generally positive readings for the past several months. Firms with an institutional building specialization remained weak, while residential firms turned slightly negative after several months of positive business conditions. Firms specializing in commercial and industrial facilities were the one major category that continued to show growth in the face of the national downturn.

Economy Entering a Soft Spot

Trends in business conditions at architecture firms are reflecting a slowdown in the broader economy. On the employment front, growth in business payrolls slowed to an average of just over 70,000 in April and May, after averaging monthly gains in excess of 225,000 in the first quarter, and 130,000 in the fourth quarter of 2011. For the first time since late 2010, weak growth in payrolls in May pushed up the national unemployment rate, which now stands at 8.2%.

As seen over the past several quarters, a slowdown in overall employment growth has meant a decline in construction employment. Construction payrolls declined by an average of 15,000 per month over the past two months, after recording small gains for the prior three quarters. The unemployment rate in the construction industry is currently 14.2%, above the national average but well below its high-water mark of more than 27% in early 2010.

Even with weak job growth, there are signs that the housing market has begun to turn around. Annualized housing starts for the first four months of the year have totaled 100,000 more than they did in 2011. Multifamily construction activity has accounted for almost half of this gain, as this market has improved dramatically as an increasing share of households are choosing renting over homeownership until the housing market stabilizes. Sales of existing homes have also improved, but at a somewhat slower rate.

Statistics

By region, the ABI breaks down as follows from April to May: Midwest is down 46.8 from 50.1, South is down 46.1 from 49.0, Northeast is down 48.6 from 51.0, and West is down 47.6 from 48.0.

By market sector: Residential is down 48.9 from 50.5, Institutional is down 45.6 from 46.6 and Commercial/Industrial is down 50.7 from 53.8.

This month, Work-on-the-Boards participants are saying: \

• Activity has slowed over the last 60 days. There was some momentum in March and April, but that has diminished. —55-person firm in the Midwest, institutional specialization 

•   We have had a flurry of contracts signed, but most are for work that had been previously delayed. [It’s] nice to have more cash flow, but still not very promising long term. —Five-person firm in the Northeast, mixed specialization

• Lots of inquiries and requests for proposals, but the hit rate is less than 35 to 40%. Still lots of bottom-feeders in our segments.—Six-person firm in the South, commercial/industrial specialization

• This is the second consecutive year that we’ve undertaken a re-budgeting exercise. We are readjusting income and labor projections for the rest of the year based on performance through the first four months. We see this as becoming an annual process. —140-person firm in the West, institutional specialization

11 Ways to Cut Overhead

Is your firm thinking of ways to cut costs? Here are eleven creative ideas to reduce your overhead expenses.

1. Require all project-related printing to be done outside the firm so vendor invoices can be passed on to clients as reimbursable expenses.

2. Charge all plots to the client; no free in-house plots.

3. Eliminate company cars. 

4. Charge computer purchases requested by an individual to his department or to the specific job for which it was requested. 

5. Discontinue in-house lunches. 

6. Limit company-paid professional registrations to one per person per year. 

7. Limit company-paid membership in national organizations to one per person per year. 

8. Eliminate your in-house bookkeeper; use outside service vendors for your payroll. 

9. Shift job-cost reporting, billing, and other accounting functions to the secretary who does it as a part-time, collateral duty. 

10. Use students as part-time employees for deliveries, routine filing, posting of invoices, and other clerical tasks. 

11. Assign collateral duties to everybody in the office, virtually eliminating overhead positions. 

None of these items alone is going to make or break your profit, but by focusing attention on areas of cost that are not normally examined, and by adopting a cost conscious attitude throughout the firm, you may improve your bottom line dramatically.

PSMJ has been addressing effective financial management in design firms for more than 34 years. Learn tips like these and many others at our A/E/C Successful Financial Management Seminar. Together, we'll walk through a structured, logical approach to sound and sustainable financial management for your A/E firm. Click here to register now!

Run Effective Team Meetings

“Why work when you can attend a meeting?” That’s a common cynical comment heard in the hallways of many organizations, and reflects the fact that most of us either volunteer or are compelled to participate in a seemingly endless barrage of meetings throughout our work week. For your next team meeting, objectively evaluate it for the following characteristics of effective, productive meetings:

1. Have an agenda. This may seem obvious, but many meetings meander along in a rudderless, undirected fashion – apparently without set objectives or goals in mind – so that at the end of the session, there was much discussion but little actionable progress.


2. Assign a facilitator. This person is responsible for setting up and implementing the meeting logistics (meeting invitations; adjustments to meeting schedule; rounding up stray participants) and may be asked to lead the meeting discussion as well.


3. Ensure that meeting participants are engaged. Said differently, be sure that the participants are required and have a purpose for attending! Ideally, anyone in the meeting has a speaking role or subject matter that they are prepared to talk about.

4. Monitor the discussion and participation to ensure that the agenda isn’t dominated by one or two individuals. Make a point of asking for input from the quiet members of the group who may have trouble breaking into the discussion on their own.

5. Stick to the agenda so that the specific objectives of the meeting are addressed and accomplished. Meetings can be great environments for brainstorming and creative thought for some individuals. It’s important to not unintentionally smother that creativity, so ask that items tangential to the main discussion topics be captured for subsequent exploration in a different venue.

6. Account for the participants joining via conference call. Meetings including geographically dispersed team members, who will be joining the discussion by telephone, require special attention to meeting etiquette: minimizing side-bar conversations, modulating speaking volume or asking speakers to move closer to microphones, asking callers to mute phones when not speaking, asking callers to identify themselves when speaking, etc.

7. End the meeting on time. Recognizing that everyone is busy and constrained by other commitments is an important way to gain the good will of participants in your meetings, and ensures that they’ll be willing to accept your next meeting invitation.

8. Record and promptly distribute action items and meeting notes. Ensure that the participants get a written record of the outcome of the meeting and associated assignments. Without this memory jogger for everyone’s reference, it becomes very difficult to hold participants accountable for completion of follow-up actions.


To learn more tips and techniques you can use to become a better and more successful project manager, check out PSMJ’s Ultimate Project Management Manual.

When Times are Tough, Don’t Cut Your Business Development Budget

The market is up; the market is down. Business is expanding; business is steady; business is shrinking. We all need a dose of seasickness medicine to hold steady these days. But the essential fact is, unlike the stock market, professional service firms react in very predictable ways. When times get tough, this is what most firms do:

• Cut the business development budget.
• Cut discretionary travel to conferences.
• Cut upgrades to IT and infrastructure items.
• Cut…well, you get the idea… cut hiring, cut salary increases, cut promotions, cut office expansions, etc.  

Cutting the business development budget seems like a no-brainer. After all, the BD folks spend a lot of money courting clients. They play golf, sponsor expensive lunches and dinners, stay in hotels and run up the company overhead. So, it makes the most sense to cut this expense first.

WRONG! If you cut the BD program, you are stifling the future growth, health, and vitality of your firm. Here’s why:

• Your BD budget should focus significant resources and attention on the furthering of existing client relationships. Those clients typically give you 75 to 85% of your revenue and profit! Your BD budget must reflect the emphasis and value you put on keeping your existing clients happy and coming back for more.

• You must focus on developing new clients. It’s a fact of life at you need to develop new clients because you will occasionally lose an existing client due to no fault of your own… someone retires, corporate agreements expire, your client gets bought by a larger firm with pre-qualified in-house consultants, etc.

• If you’re not growing, you are shrinking. And if you do not develop new business and new challenges, your best employees will go elsewhere, in search of new challenges.

• You should be fostering all relationships, regardless of immediate payback. Visit your existing and former clients who don’t currently have money to spend. You will solidify your position with them in the future when their fortunes improve. You can be seen as a real friend who does not come and go as funding ebbs and flows.

• Finally, realize that your competition does just what we have been excoriating here. They cut BD funding when the going gets tough. So, do the opposite!  

We’re on a mission to help firms like yours navigate their way back to prosperity. Attend PSMJ’s Successful Financial Management for A/E/C Firms to ensure your firm is among them! Click here for upcoming dates and to register for one of our upcoming seminars!