Architectural & Engineering Industry – 3 Ways to Stabilize Your Business
The Architectural and Engineering (A& E) Industry’s business cycle is one of peaks and valleys. Its history is filled with boom and bust times. Its customers (i.e. manufacturing, steel, auto, construction, oil, infrastructure) have all had their day, and some may be coming around for another one. Successful and proactive A & E small business owners are constantly looking for ways to weather the cyclical nature of their industry.
Here are 3 things they do to stabilize their businesses.
Get control of bidding and estimating
Ideas concerning a business’s responsibilities are changing, and one difference is that firms are being asked to assume greater financial risk. There is more demand for lump sum, turnkey (LSTK) contracts and it is expected to continue. Also, strong governmental pushes toward creating public-private partnerships (PPPs) are looming on the horizon.
Another new change is that customers are breaking large projects down into smaller parts. They cherry pick the parts with the best cost positions and do the project management themselves on those parts. This limits the A & E company’s ability to off-set lower margin areas with higher margin ones, which decreases their profit.
The days of just tracking costs and passing them on to the client are coming to an end. Unfortunately, most A & E owners do not know how to do it differently. Successful ones have learned how to correctly estimate and bid, using a solid understanding of cash flow, margins, cost controls and profit.
Someone must manage
A & E firms are unique – unlike typical small businesses they usually have multiple partners, who are notorious for being poor managers. Most of the partners have little or no desire to supervise people or run a company. In fact, when asked about it the common response is, “I just want to be left alone to do my work”.
Unfortunately, this is not a choice if they want the business to thrive. Companies must be actively managed to achieve long term stability. This is especially true in an industry where volatility and change is a given. If no one is steering the boat, then surviving the rapids is luck, not skill. Successful people do not rely on luck. A firm will be more secure when operations, strategic planning, communication, work flow, sales and financials are monitored by someone.
Define and focus on market position
The common A & E small business has one simple sales philosophy – people, you are on your own. There is no sales strategy, and usually no sales person. If there is a sales person he does not sell, he functions as an overpaid customer service rep. Consequently, the company: does not have growth capital, has an unreliable revenue stream, is unable to provide partner by-outs and often needs an infusion of owners’ cash during lean times.
Management teams who overcome these problems commit to a comprehensive sales strategy. They solidify their current market position and look for ways to develop new ones. They do this by expanding their criteria and committing to diversification (i.e. expanding geographical and market segments, creating new and improving current service offerings, co-branding). The ability to rapidly identify and contact potential customers is vital.
The A & E industry will continue to be one of feast and famine. But, not all A & E firms have to be trapped by the cycle. Commit to doing these 3 things well and yours will be one of the companies who make it out of the trap.