Improve Your Ownership Transition Odds
Co-Authored by: Kate Allen, PE, MBA
AEC firms are in a never-ending state of transition. Emerging leaders are being identified and given new responsibilities, while senior leaders are looking to leave a legacy for their firm. Whether you’re planning for an internal ownership transition, merger, or acquisition in the future, you’re likely already behind in the necessary planning.
Too often, firms start a transition only to discover that it wasn’t what they thought it would be. The firm’s performance either won’t support an internal transition or what the owners are selling isn’t attractive to the next generation of internal buyers. Many times, owners get excited when approached by a buyer, but that excitement is short-lived when they realize that the valuation of their firm is less than they expected, and the deal structure includes untenable terms to compensate for the shortfalls.
Here is where a culture of ongoing business improvement can make all the difference. Of course, “business improvement” is a broad, even generic, term. What exactly does it mean for firms serving the built environment – architecture, engineering, construction, environmental, and related companies? Typically, a firm looking to improve the business will focus on the core functions that impact project performance with the intent to drive quality, minimize waste, and enhance profitability. However, there’s so much more to running a successful business.
The Wrong Way
Take the typical employee model embraced by most AEC firms:
Reward quality doers with manager roles such as department manager (DM) or project manager (PM) and then promote good DMs and PMs into business management roles, including associates, principals, project executives, partners, vice presidents, and owners.
The problem is that professionals rarely have a training path beyond the core services. Instead, structural engineers learn how to be structural engineers, not managers. If a structural engineer gets promoted to project manager, they may – and that’s a big may – receive training on project and team management.
More often, they do things the way other firm project managers do it. Perhaps they are given a manual – only to learn how many processes in the manual aren’t actually followed! Or maybe they are sent to a 1–2-day seminar or Bootcamp to learn new or different approaches that may or may not be adopted by their firm. A better, more intentional training approach can be a huge game-changer in improving your business.
Unfortunately, this lack of training approach impacts all levels of leaders in an organization.
Stagnation Kills Opportunity
Founders are entrepreneurs. They build businesses from scratch. By necessity, they become “Business People” and learn how to make it rain (bring in work), how to manage the money coming in and going out, and how to build a thriving team as they grow – the future of their company depends upon it. They most likely receive help along the way from professional societies, leadership organizations, books, webinars, videos, conferences, mentors, and more. Sometimes, these lessons come from making bad decisions.
But what about the second generation of firm leadership? And the third?
The second and third generation of a firm can pay a high price if they continue to do things the way it has always been done. Business processes don’t improve. New approaches and technologies are often avoided, and firm leaders frequently don’t know what they don’t know. It’s a vicious cycle that results in a stagnant firm.
Nothing about what we just described is attractive to potential future owners, whether it’s the Nextgen of leaders buying from within, merger prospects, or companies that could come calling for acquisition.
If your firm doesn’t currently provide leadership training, don’t feel alone. It’s certainly not common for operation directors to receive training on being a director of operations or for firm leaders to be trained on how to run a business. Instead, they look to their predecessors, emulate the things they like, and avoid the things they don’t. Yet, these roles are critical to the success of the firm.
Improving the Business
While the lack of job-appropriate training is a significant issue, so is the lack of attention to the business side of business improvement. Business improvement can and should be incorporated into a firm’s strategic planning, first assessed in the preparation of the plan and then addressed as part of the plan itself.
Strategic plans typically have a 3–5 year planning horizon and set the company’s direction. They provide a roadmap for your firm and should lay out not just where you are going but also how you will get there. While every company needs a roadmap, be smart about your plan, growth itself is not a strategy, but it does have the potential to be a destination. Defining growth (revenues, profitability, number of employees) and developing a strategic plan with concrete tactics, champions, and dates are requirements to set your destination and reach it.
A strategic plan is a critical component of overall business improvement, as are the annual business plans that outline specific steps to achieve the strategic plan. The plan should include important areas such as:
- Professional development for key staff
- Differentiation strategy
- Financial benchmarking and literacy
- Marketing and business development plans
- Technology strategy
- Knowledge sharing
- Leadership transition
- Talent pipeline and alignment
- Culture and retention
- Key Performance Indicators and dashboards
- Specialized tools and processes
At Stambaugh Ness, we typically recommend involving NextGen Leaders in the planning and business improvement process because their buy-in is necessary for future success. The inclusion of the next generation encourages them to take ownership of goals, strategies, and decisions and learn by doing. A strategic plan and associated business improvement goals, developed in a vacuum by a select few, is not a recipe for success. On the contrary, broadening the participants when developing components of the plan(s) and associated strategies, both in creation and implementation, creates growth opportunities and helps develop future leaders and high-performing team members. We need exceptional people at all levels and roles within our firms.
Adopting a culture of continuous business improvement can position you for whatever exit strategy you choose – the key being that you choose.
Wayne Gretzky famously stated that he succeeded at hockey because he skated to where the puck was headed, not where it was at the time. And although his quote has become an overused business cliché, the importance of his message is timeless. The business processes and techniques that you used a few years ago may not be as effective or relevant today. The puck is always moving.
Are you skating to where it is headed, where it was, or perhaps just standing there watching it from the sidelines? Or are you even aware the puck is moving at all?
Please join us for our upcoming webinar, Business Improvement Strategies for Successful Transitions, where we’ll go into greater detail on how to identify improvement opportunities and strategy gaps within your firm.