Friday, November 14, 2014

Repeat Business Rate Is Overrated

My first client, a 35-person engineering firm, boasted a repeat business rate of 85%. Unfortunately, almost all that repeat business came from one client, a large energy company. When that company was acquired by a still larger one, the work began disappearing. Within a few years, the firm was out of business.

Most A/E firms tout their repeat business rate as a sign of distinction, an indicator that clients love them so much they keep coming back. But it is hardly a reliable measure of health. PSMJ reports that the median repeat business rate (percent of revenue from repeat clients) is 75%. Interestingly, that number has changed little in the last 10 years, even through the worst of the recession.

Given how A/E firms struggled during the recession (and many still are), any financial indicator that remained unchanged would have to be judged suspect. In fact, many firms undoubtedly saw their repeat business rate improve as revenues fell, because it was so difficult to acquire new clients. Has client retention held steady as the repeat business metric might suggest? The evidence indicates that holding onto clients is harder than ever.

So why does it matter? Well, firms often resist measuring client satisfaction or improving service because they can point to a favorable repeat business rate. Others (like my first client) find themselves vulnerable to a major client defection because they become too comfortable simply keeping busy without winning new clients.

A misleading metric like repeat business rate can have an adverse affect on your business. It can lull firm leaders into complacency, or obscure significant threats or weaknesses. The fact is that the best firms I've worked with had repeat business rates of 75-80%, as did the worst firms. In some cases it indicated satisfied clients and strategic relationships. In other cases it pointed to an inability to grow the business with new clients.

It's not uncommon for A/E firms to derive 80% of their revenue from a relatively small proportion of their clients (15-30%). So the reality behind the repeat business rate is that most firms suffer from a fairly high rate of client turnover. Of course, it's debatable what percentage of those clients have a realistic potential for becoming repeat clients. Some aren't prone to showing loyalty to any firm; others only sporadically have need for A/E services.

There's no easy way to measure client retention in professional services. If you're looking for marketing value, writing "68% of our clients hire us again" probably sounds better than "80% of our revenue comes from repeat clients." But what's a good number? You don't have any industry benchmarks. And the business value of that metric is questionable without bringing revenue or profit into the discussion.

This white paper by consultant Harry Mills describes some interesting ways to analyze the correlation between your revenue, profit, and clients. If you want meaningful metrics to gauge how you're doing with clients (in addition to measuring client satisfaction), I'd suggest starting there. If you happen to have any other good ideas for this kind of metric, please share them!

Thursday, November 6, 2014

Getting Your Phone Calls Returned

There's a good reason you don't like making cold calls: You've been on the other end of those calls. Americans are united in their dislike of unsolicited sales calls, hence the Do Not Call Registry. So how are you supposed to initiate a conversation with a prospective new client?

Slowly emerging from the Great Recession, I can imagine that clients are more tired than ever of hearing from A/E firms who "just want to introduce" themselves. That's all the more reason not to answer the phone or return calls from strangers. No doubt this adds to the reluctance of many technical professionals to get involved in selling. But you need to be developing new business! So how can you get prospects to return your calls? A few suggestions:

Give the client a good reason to call you back. It's pretty simple, when you think about it. If the client sees a obvious benefit in returning your call, he's most likely going to do it. The reason most of your sales calls aren't returned is you haven't defined the benefit to the client. Do clients really want an introduction to still another A/E firm? You have to do better, and explain why there's value for the client in calling back. Which leads to my next point...

Identify a specific client need before calling. A cold call is driven by the seller's needs. The seller doesn't know what the potential customer needs, but she knows she has to make a sale. So she calls prospects that might have need for her company's product or services. It's a self-serving motive, disconnected from our needs, and that turns us off when we receive such a call. Same for prospective clients.

That means you need to make a preliminary determination of the prospect's needs before calling. "Warming the call" by learning about client needs beforehand enables you to speak directly to a matter pertinent to the prospect, instead of fishing for a possible connection. That gets you closer to getting your voicemail returned, but don't expect it until you get to the next step.

Offer something of value. It's hardly compelling to leave a message simply stating, "I understand you might be needing help in designing a new automated control system for your plant." That only describes a benefit if the client doesn't know any firms that do that kind of work. What are the chances of that? A better message would be: "We recently worked for a client that added an automated control system for a plant very similar to yours. We were able to reduce their costs by 45% by using an innovative design concept. If you'd like to hear more about that, please give me a call."

Yeah, coming up with a good reason for the client to return your call (what I call your "entree") isn't easy. But it works. It requires more work up front. So you can make 20 shotgun calls to prospects and maybe get 3-4 to return your call. Or you can offer an entree to 5 prospects and get 3-4 to return your call. Which seems the better strategy?

By the way, your chances of eventually making the sale are substantially increased when you take a more client-centered approach, starting with that initial contact.

Make it easy to return your call. Think of the things that frustrate you when someone leaves a voice message, and make sure you don't repeat any of the same mistakes. These could include not speaking clearly, making it hard for the prospect to catch your name. Or saying your phone number too quickly to write it down. Or perhaps the prospect can't get through should he call. Here are some suggestions for avoiding such frustrations:
  • State your name and phone number at both the start and end of your message. That means the prospect doesn't have to listen to the whole message again to get the number. Give this information slowly and clearly, spelling your name if there's a chance of confusion.
  • Tell the prospect how best to reach you. You don't want to play phone tag with someone you don't know well. If you offer your cell phone number and invite a call after hours if this is more convenient for the prospect, then you're hinting that you consider the call important.
  • Let the prospect know that the call will be brief. For example: "I can explain in 10 minutes and then you can decide if there's value in our meeting to discuss the matter further."
If you were referred, state up front why the referral was made. I would advise that you still offer your entree and not simply drop a name. The real value of the referral is when the prospect trusts the one who referred you as having the prospect's interest at heart. So don't let the referring party down; explain why he or she thought the prospect would benefit from talking to you.

Always try to schedule the next meeting or communication. One of the simplest ways to minimize this problem of unreturned calls is, when you're meeting or talking with the prospect, to (1) establish the basis for the next conversation and (2) if possible, schedule it. Otherwise, you may find yourself in the same predicament—competing for the prospect's time and attention—when the next contact comes around. 

If the client won't commit to a next time, that probably tells you something about the likelihood of the relationship developing much further. It could be a sign that your next call won't be returned either.

Monday, October 27, 2014

Collaboration as Competitive Advantage?

The concept of a collaborative planning and design process is hardly novel. In fact, it sounds so commonsensical that it hardly seems worth promoting. Except for the fact that it is so needed in our industry.

Fragmented is a popular adjective to describe the AEC industry. It's easy to point out the adversarial relationship that often exists between designer and contractor. But designers make their own substantial contribution to the lack of collaboration among project parties. This is true even when the different disciplines reside under one roof.

Consider some of the evidence: Half of construction change orders, according to RediCheck's Bill Nigro, are due to coordination errors in the design phase. His research found an average of five coordination errors per contract drawing! Anecdotal evidence suggests that rework consumes 10-20% of project design budgets, with improper sequencing of work between disciplines being the most common cause.

We've all witnessed that last one. For example, since the electrical department is anxious to get started (their workload being light), the architectural department pushes work to that group before floor plans are finalized. When the preliminary floor plans are revised, the electrical engineers have to redo their design to reflect the changes.

Another example from my time with environmental firms: Geologists plan and execute a remedial investigation of a contaminated site. Their findings are passed on to the risk assessment staff who determine that they don't have all the data they need to do their work. The field crew goes back to the site to collect more information. Later the engineers get involved and find they need still more site data to design the remediation system. More samples, more costs.

These are hardly isolated situations; in my experience, they're quite common. Inefficiency due to the lack of an interdisciplinary collaborative process is prevalent in our industry. More typical is a compartmentalized, sequential approach where work flows from discipline to discipline with coordination limited largely to the points of handoff. What's needed is an interdisciplinary team that together guides the work through planning, design, construction, and startup.

This need has been the driver for the emergence of Integrated Project Delivery, which involves the owner, designer, contractor, and potentially others entering into a single, multiparty contract that forces the parties to collaborate. But the onerous contract terms have scared most parties away from using IPD. Interesting, isn't it, that the goal of better cooperation—the need for which we can all agree upon—is thought to be attainable only through contractual coercion. 

Why can't your firm create and market its own collaborative process without having to resort to compelling parties to participate? Everyone is a winner when better collaboration is achieved, so it should be relatively easy to sell in concept. The difficulty comes in overcoming the culture of competition that has characterized the AEC industry for decades. What can you do? A few suggestions:

Start with mastering collaboration among your own staff. I've helped many firms address internal coordination issues over the years. The genesis of the problem is usually structural—how offices and departments are organized and incentivized. Look here for obstacles to collaboration. I've written about breaking down disciplinary silos previously, as well as removing competition among offices by going to a single profit center.

The secret to better collaboration is rethinking the usual sequential approach to planning and design, and getting parties engaged throughout. Designers can help strengthen planning. Planners can bring a valuable perspective to design. Architectural schematic design can be improved by early engineering input. Construction specialists can help designers reduce costs and improve constructability. And so on.

Commit to integrated project planning. All the relevant disciplines and stakeholders should have input into planning the work. Unfortunately, the work is often planned in stages (if at all!), with the different parties contributing only to the stage that directly involves them. No collective vision emerges, nor a shared understanding of precisely what each party needs to make the project successful. The more disciplines and stakeholders involved in the project, the more opportunities for disconnects when proper planning is neglected.

Strengthen collaboration with regular teaming partners. On several occasions, I've had the opportunity to help firms improve their working relationship with other firms—either with familiar teaming partners or members of a design-build team. The process always reveals some valuable, previously unknown insights about what each party needs from the other to be more successful. This happens even when the firms have extensive experience working together. They had simply never taken the time to explore how to make the working relationship even better.

Some areas to focus on: Aligned project goals, project planning, sequencing of work tasks, lines of communication, decision making, roles and responsibilities, interim deliverables, coordinated quality control, addressing problems, and delivering great client service.

Advocate for partnering sessions with design-build teams. Ideally, these should involve the owner and key members of the design and construction teams. The scope of discussion will be much the same as above, but make sure you start with goal alignment. I typically send the owners, designers, and builders to their respective corners and have them define success for the project. The goals emerging from each group are always different, sometimes in significant ways. Aligning these goals is critical to creating the environment for effective collaboration in other aspects of the project.

Sell clients on the benefits of your collaborative process. Most clients still favor the traditional project delivery model that promotes competition between partners. They seem to think it offers checks and balances that hold the parties more accountable. But the truth is that it dramatically reduces productivity—increasing costs, schedules, and headaches. Of course, the contractual relationship between planning, design, and construction partners may prevent you from extending your collaborative process over the full scope of the project.

But you can promote the advantages of that which you can control—if you have the evidence that it works. So it's vital that you compile data that demonstrate the benefits of collaboration. Start collecting this information now as a baseline, then compare it to the results that come from a more integrated project approach. Once you can demonstrate the advantages within your realm, you'll be in a stronger position to promote it from start to finish.

Thursday, October 16, 2014

Why You Should Consider Splitting the PM Role

Could your firm use a few more good project managers? It's a tough job and the really capable ones are in short supply. If only you could stretch your best PMs across more projects. Well you can.

Here's how: Divide the PM responsibilities among two people. Create one role that handles the higher-value aspects of project management—serving as primary liaison with the client, developing project strategy, leading the project team, ensuring adequate resource allocation, providing technical oversight, and responding to problems that may arise.

Create a second role that handles the more mundane tasks that occupy most of the PM's time, such as coordinating activities among team members, monitoring work progress, tracking budget and schedule performance, and carrying out other administrative duties normally reserved for the PM. In my experience, these tasks consume 60-70% of the PM's time on a project.

For this arrangement to work well, let me offer a couple suggestions: First, save this practice for your larger projects where there are significant project management hours to divide. Second, don't call either person the project manager. Whenever you're creating a new role (or service, process, etc.), call it by a different name. Some of my clients attempted this by adding the position of assistant PM. But their PMs tended to approach their job much as usual, relegating the assistant PM to mostly menial administrative tasks. I prefer the titles of project leader and project coordinator to distinguish the two roles from current practice.

So why should you consider doing this? There are several benefits:

Enable your PMs to work on more projects. Most A/E firms suffer from having too few good PMs. It limits their ability to win more work, creates bottlenecks in the work flow, and results in more project problems and lost profits. By splitting the PM role into two, you extend the capacity of your current PMs. They spend fewer hours per project, allowing them not only to work on more projects but give greater focus to the higher-value elements of those projects that really require their skill and experience.

Deliver better value to your clients. Clients love this arrangement because they're paying more appropriate rates for the PM tasks performed. Much of the work a $130-an-hour PM typically does on a project can be capably performed by a junior professional under appropriate supervision at $80-90. The savings can even enable principals and other senior managers to take on a more active role in your most important projects (see below). 

Distinguish your firm from the competition. Because this approach appeals to clients, it becomes a significant competitive advantage in winning new work. Your firm is probably the only one offering it. When we first created the project leader/project coordinator roles at my former firm, we were pursuing work with a new client where the key decision maker had a previous relationship with one of our principals—when he was still managing projects. We gave him the role as project leader and won the job. Our project coordinator then performed most of the PM tasks at half the principal's rate. I believe this arrangement also contributed to several subsequent big wins for our firm across the country.

Provide hands-on training to your future PMs. One of the things I am most proud of from my time as operations manager is my role in helping prepare our younger professionals become the competent PMs they are today. They benefited from serving as project coordinators, where they performed the bulk of PM tasks without the risk of taking on the more difficult aspects of the role. They did so under the guidance of the project leader who also showed them how to handle the high-end elements of project management.

If you're wondering if this approach might benefit your firm, I'd encourage you to try it on a project or two. Pick a PM—hence project leader—who is willing to embrace the new role. Be sure to clarify the division of responsibilities (which may vary by project) and carefully track the results. Even if you split the PM role only occasionally, it's a strategy worthy of your consideration.

Tuesday, October 7, 2014

Beware of Misusing Personality Assessments

Years ago I came the closest I've been to leaving the A/E business when I became a finalist for the national sales manager position with the country's largest commercial wildflower seed distributor. Apparently the company was impressed with my business development background, but they expressed concern about my lack of related technical expertise. The other finalist was a botanist who had a limited sales background.

At a follow-up interview, I was asked to take a personality test. A few days later I was told that I didn't get the job because my personality profile indicated I was less suited for sales than the other finalist. That was my first experience with the misuse of personality assessments.

The use of personality testing to screen employment candidates has exploded in recent years, with an estimated 60-70% of candidates being tested. That's up from 30-40% just five years ago, according to a survey by Deloitte. Workplace personality testing has become a $500 million-a-year business and is growing 10-15% annually.

Such growth would suggest that these tests have a proven track record. But that's not the case. Research indicates that personality typing is a poor predictor of job performance or fit. Even the company behind Myers-Briggs, the most popular personality assessment, warns that their test shouldn't be used to screen potential employees. Besides being unproven as a hiring tool, they believe that it's use in this manner is unethical because it's not voluntary.

Myers-Briggs and similar tests have a fundamental flaw: They attempt to lump people into mutually exclusive categories. For example, you are either an introvert or an extrovert. But most people fall somewhere in between (hence the recent term ambivert). The dividing line between the two is arbitrary, as it would be if all of us were categorized as either short or tall.

There are also serious questions about the replicability of the tests. For example, studies have found that retaking the Myers-Briggs assessment as soon as just five weeks later has a 50% chance of reclassifying you as a different personality type. Reproducibility, of course, is a key measure of scientific validity. But the fact is that the science behind these tests is sketchy at best.

Even if personality tests were accurate, the assumption that certain personality types are a better fit for certain jobs is largely a myth. A salesperson, according to conventional wisdom, should be an extrovert—which conveniently excuses most technical professionals from the role since they are predominantly extroverted. Except that studies have shown little to no correlation between personality type and sales success. Same is generally true of leaders.

Despite the above criticisms, personality assessments do have their place. They can be useful in helping us recognize our personality tendencies and how they compare with those we work with—assuming they agree to share that information. This awareness can help us significantly improve communication and collaboration.

Identifying employees' personal strengths is also very valuable. Gallup research has found that focusing on developing strengths is a much better way to improve performance than the more common approach of trying to remediate weaknesses. I'm a fan of the StrengthsFinder assessment that came out of the Gallup research. It is used by many of the world's leading companies.

With any of these assessment tools, however, you want to avoid the temptation to oversimplify. I think that's one of the primary reasons personality typing is so popular, because it seems to reduce the complexities of human personality down to a few understandable categories. But such a "paint by the numbers" approach to leadership is naive. People are not so easily pigeon-holed, which makes us both fascinating and sometimes a bit frustrating to figure out.

A shortcut to understanding others would be welcome, but none are really proven.

Tuesday, September 30, 2014

If Not Differentiation, What Then?

"How concerned are you about the commoditization of your services?" I posed that question to a room full of consulting engineers at a conference session I conducted last week. Almost everyone present indicated that it was a significant problem. "Enough to make significant changes in how you do business?" I asked. The group was much less sure of their answer to the second question.

Thus we have the conundrum of the commoditization trend in the A/E business. It's a problem we all like to complain about, but few are willing to try to do anything about it. And that's perfectly fine, because the consequences of commoditization are probably less painful for most firms than changing in response to it. As I see it, there are three basic responses you can make:
  1. Stay the course, continuing to do things much as you have been
  2. Become more efficient, enabling lower-cost delivery of your services
  3. Differentiate, adding value to your services that clients are willing to pay for
Most firms, by far, stick with option #1, even as they talk about the need to differentiate. Some firms have embraced option #3, finding ways to distinguish themselves from the competition (I addressed possible differentiation strategies in a previous post). A much smaller number of firms settle for option #2, because most don't want to admit they've become a commodity.

But that reality is inescapable for several firms I've worked with over the years. While they admit that clients treat them like a commodity, they resist the characterization and continue to operate as if they offered differentiated services—putting themselves at a competitive and financial disadvantage.

Of course, my focus is on helping A/E firms differentiate. But if they can't or won't, isn't option #2 worth considering? There's nothing wrong with embracing a commodity market (such as most private land development) and redesigning your firm to succeed at it. It requires some hard choices, but the benefits go straight to your bottom line. Some possible strategies to consider:

Streamline project delivery processes. In most firms, there's much room for improvement here. For example, rework in our industry seems to consume between 15 to 20 percent of project budgets. That's unacceptable. Design-related change orders contribute about 4% of construction costs. Half of those change orders are attributed to coordination errors. See a trend? The first place to start in lowering the cost of your service delivery is improving how you manage projects.

Control overhead growth. The good news is that overhead is declining across our industry, reaching the lowest level in 2013 since the recession began. But many firms are still running lower utilization due to inadequate work load and a reluctance to further pare back overhead positions. The hope is that growth will soon return, but high overhead makes that more difficult in a commodity market. Alas, these firms may face some tough decisions to remain competitive.

Outsource select services to boost profitability. This is not a popular choice, but it may be a strategy worth considering. Start by evaluating the performance of the different departments and disciplines in your firm. Do some routinely lose money or otherwise hamper your firm's competitiveness? Some firms have realized they can be more profitable by outsourcing price-sensitive complementary services such as surveying or laboratory analysis. Certain overhead functions might also lend themselves to outsourcing.

Hire more paraprofessional staff. As budgets contract, it becomes increasingly important to fit the right people (hence the right billing rates) to the assigned tasks. Many of the tasks we perform can be adequately handled under appropriate supervision by less experienced professionals, non-degreed personnel, and even administrative staff. Other professional service firms—such as law and accounting firms—have cultivated the role of paraprofessionals. These are individuals who have related associate or vocational degrees, or simply relevant experience with no degree. Couldn't this approach work for our industry?

Employ some hoteling to reduce office space needs. Besides indirect labor, the biggest overhead expense in most firms is office space. Yet in many firms on any given day, a large proportion of offices and cubicles are unoccupied, particularly for firms that perform field services. The practice of hoteling is a growing trend among all types of businesses, including many professional service firms. This involves setting up shared work stations that employees use periodically when they are in the office. The growth of telecommuting has made this a practical alternative for many companies, saving millions in office costs. No doubt this suggestion will be greeted with skepticism in our industry, but might be worth considering as a commodity provider.

Offer more standardized design products. Why do cash-strapped clients like small towns and rural counties need to pay for custom designs for buildings like fire stations or community centers? Could they not shop for the design of their choice from a catalog of standard models, similar to how home buyers use house plan books? Obviously, this is not a popular concept with architects and engineers, but I've heard owners express interest in such low-cost options. Customizing every design or solution is difficult to do profitably when clients are seeking the lowest cost.

On second thought, maybe differentiation deserves more attention! Any of the efficiency measures above have merit, but are likely very difficult or distasteful to the vast majority of A/E firm leaders. That leaves two choices—stay the course or differentiate. If you're tired of more of the same, this blog is full of ideas on how to stand out in the crowd. 

Friday, September 19, 2014

Do Clients See You as an Industry Insider?

What expertise do clients value most? A deep understanding of their business. This answer will surprise many in the A/E industry who think that expertise in their various technical disciplines is what is most valued. Obviously, clients expect you to know your business. But what usually matters more to them is how much you know theirs.

Client knowledge is a critical competitive advantage that many firms in our business undervalue. They're too busy filling the pipeline with proposal opportunities to invest in learning much about the clients they pursue. If you're looking for causes of the commoditization of your services, start here. The value of your work is much enhanced when you can meet clients' strategic needs. That requires an understanding of their business.

When I work on proposals, I always ask what the strategic drivers are behind the project. What are the business results that we need to deliver through the project? I'm typically disappointed with the answers I get. It's apparent that most technical professionals (especially engineers) are more interested in the what and how than the why. Yet the why—the desired business outcomes—is what clients really care about.

So how do clients perceive your firm? Are you viewed as insiders or outsiders when it comes to their business. Of course, I don't expect you to have a deep understanding of all your clients and their respective industries. But the important question is: Would you be seen as as an industry insider for any of your clients' businesses?

An industry insider is not only knowledgeable of that business but actively participates in it. So let's say that higher education is one of your core markets. Do you simply design facilities for it, or do you know trends driving that market from an insider's perspective? Do you understand how demographics will change future enrollment? Or how slower tuition growth is fueling greater competition among schools? Or how the student loan debt crisis might impact them?

If you think these (and other similar trends) don't really matter to your business, think again. Moreover, if you want to stand out among the many firms serving this market, leverage your facilities expertise in helping schools respond to these emerging challenges and uncertainties. Become a recognized industry insider. How? A few suggestions:

Research your clients' businesses. Given the easy access to market information on the internet, I'm perplexed by how little research many firms do. Don't have time? Make it a priority, and delegate some of the responsibility to others (e.g., administrative and junior staff). Firms that give priority to market research are more profitable and grow faster.

Talk to clients about their strategic needs and concerns. Don't limit these conversations to technical issues and personal chitchat. Find out what defines success for your clients, what issues cause them particular concern, and how their business is changing. Then determine how your firm can better help them achieve their pressing business objectives.

Get involved in their trade and professional associations. By involvement, I don't mean simply attending events. Become an active participant in committee work, especially those that are most strategic to their industry. For example, my previous employer was a key player in working through client trade organizations to help influence changes in environmental regulations that would save our clients millions of dollars in compliance costs.

Share your expertise through targeted writing and speaking. These same trade organizations typically sponsor conferences, seminars, webinars, and publications where you can share your insights on issues of importance to their business. To become a recognized industry insider, you should have something interesting to say and do so on a regular basis.

Develop other resources helpful to those industries. You might prepare relevant articles, white papers, and ebooks and share them through your email list. Or publish regulatory updates or planning checklists. Or establish a resource website specifically targeting people in those industries who might be interested in hiring you.

Build peer relationships within your clients' businesses. Partner with other service providers to offer distinct integrated solutions, as well as to share knowledge and insights about those industries. Especially consider affiliations with experts outside the AEC industry, since these are less common and may offer unique value to clients.

Hire people out of those industries. There's real value in having people on your staff who can really see things from the perspective of clients. They've been there. They often have instant credibility that can take you years to establish on your own. But do your due diligence; confirm that they are known and respected in their industry. 

Don't confuse business development focus with becoming an industry insider. Market focus to many firms simply means seeking more sales opportunities within that market. But what I'm describing goes much deeper. Becoming an industry insider means being recognized as a contributor to your clients' business, not just another firm seeking to mine it for revenue. The core philosophy is this: Help clients succeed and they'll help you succeed.