18 lessons from 18 years in business (Part 1)

Much to everyone’s surprise, last week, we here at Morrissey Goodale celebrated our 18th year in business. Since starting the firm in April 2006 with just a couple of Blackberrys (still miss that keyboard and playing Brick Breaker while being delayed at either Hartsfield or O’Hare), we’ve had the privilege of helping hundreds of AE and environmental consulting firm CEOs and their leadership teams with strategy and advisory services. We’ve also been lucky enough to make more than a few good friends along the way.

We also like to think that we’ve learned a thing or two over the past 18 years (put this firmly in the category of “debatable”). Mark and I thought it might be fun to revisit, refresh, and update our article from our sixteenth birthday two years ago—“Sixteen Candles, Sixteen Lessons”—with what lessons we’ve learned over the past 18 years. Once again, I’ll do my best to share my thoughts here. But as you know if you’ve worked with us or read our stuff, the more valuable and meaningful lessons will be found in Mark’s article below.

1. The hard truths of layoffs: Nothing prepares you for layoffs. They don’t teach you how to handle them in school. There are no industry leadership programs that have a “How to lay people off” half-day session with a motivational speaker followed by lunch. And by their nature, layoffs come at you fast—either due to a general economic downturn or a crisis with a major account or in your biggest market sector. By virtue of a strong economy, the industry as a whole has not experienced widespread layoffs for over a decade. That means that many (most?) of today’s managers have thankfully never had to lay off people.

In a prior life, I had to lay off 30% of my team—staff, managers, and principals. It was the worst. In the aftermath of the Enron collapse, and then again through the Great Recession years, I worked with numerous clients to “rationalize” their businesses. With seventy-plus percent of a design or environmental firm’s costs consisting of labor, “rationalize” means one thing—layoffs. For those of you who have never had to lay people off, here are some lessons that I learned from the experience that might help you should this ever fall to you on your watch. First, assess the financial situation. This is as simple as matching forecasted cash in (as the economy is tanking in general or upon the disappearance of a significant part of your business) and matching it to cash out.

That’s where the simplicity ends. You will find that your managers are unable to accurately forecast in the suddenly new and nasty business-impaired environment. They will give you “hopes” instead of forecasts. Your job is to establish the most conservative topline forecast as is realistic. Why? Because if you get it wrong, then you will likely be forced to make a second round of layoffs, which will kill firm morale. (The first round is bad enough.) So, get the topline forecast right. Then you need to figure out how much labor cost to cut. My rule of thumb is to cut enough to achieve at least a 10% profit on the post-trauma cash flow. Why? Because you have to ensure that your firm makes money after the layoffs so you can make the investments required to pivot and rebound. You can’t do that if you’re a non-profit organization.

2. Trust, but verify: Since 2005, I’ve been tracking incidences of fraud and embezzlement in the industry. (If it’s ever a category in “Jeopardy!” I’m all set.) It happens about once a quarter at firms of all shapes and sizes for three reasons. First, design and environmental professionals in general have low financial acumen. They understand utilization because it’s been the KPI of choice since the design of the pyramids. (See Mark’s lesson 11 below, and please note the Indiana Jones-themed tie-in between “pyramids” and “Holy Grail,” but let’s get back to embezzlement.) Things get a little hazy for design professionals when the discussion turns to multipliers, and they might as well be in a foreign country once balance-sheet topics are on the agenda. (Can you point me to the nearest contra equity account?)

Second, designers and scientists are a trusting bunch. They themselves are ethical and honest and assume their teammates are the same. And third, many managers suffer from “imposter syndrome” and have an aversion to displaying a lack of knowledge on business matters. They don’t want to look like they don’t belong in management or board meetings (even though they actually would prefer to be somewhere else). This creates the ideal environment for an unscrupulous financial manager to exploit and, in the process, line their pockets with hard-earned company earnings. A little playing around with line items, a little moving between accounts, some delays in reporting, and voila—$10,000 per month is moving out of the firm and into a condo on the beach. Make sure you have checks, balances, and verification on your CFO or financial manager through a third party. Don’t be a victim. (CFOs, before you send me an angry email, this is NOT about you or your integrity. It’s about an industry dynamic that allows malfeasance to take place.)

3. The dotted line is a cop out: I’ve crafted Lord knows how many organization charts for all types of organizational models since 2006. (On that note, thanks for nothin’ Bill Gates. How has Microsoft managed to flood the market with software that makes drawing organization charts (a) impossible beyond the C-suite level and (b) look like they were drawn by a third-grader?) From the matrix structure to the market sector model and from the regional office profit center model to the hybrid, I’ve mapped them all out. I even had a brief flirtation with a (very successful, I might add) circular model that placed all the revenue-generating, high-dollar principals at the extremities of the business (engaging directly with clients) surrounding an inner core of operations—the “circling the wagons” model. Everybody wants a clear organization chart with lines and boxes (or 3-D bubbles in the case of architecture firms) that explicitly shows who is responsible for what so that “we can have accountability.” Everyone wants it, that is, until they have to show who reports to whom. Then the “closed door” meetings start, which go something like this—“I can’t report to her! She’s only been here a year. I’ve been here over 30 years! Sure, I know that she’s building the business far better than I ever did, but it’s just not right that my line goes up to her! As the senior executive vice president for special projects with a staff of zero, I HAVE to report directly to the president!” And so, a bunch of dotted lines start appearing on organization charts. I refuse to allow them anymore. Why? Because they are a cop out. They represent a lack of functionality and accountability. Everybody should have one boss and one boss only. And for the CEO, that boss should be the board.

4. CEOs need love, too: Doesn’t matter if she’s the firm’s founder or a second- or third-generation CEO. Regardless of whether he has multiple executive education certificates from different Ivy League schools (a seemingly very popular choice) or has come through the (excellent) ACEC Senior Executive Program. Or if they attend every CEO conference in the industry hosted by us or our peers. Regardless, every CEO still has blind spots or an Achilles’ heel (and if they are over 60, they have a dodgy knee, too).

For them—and their firms—to be successful, they need help in overcoming those weaknesses. They require honest, constructive feedback in real time in order to improve. They are supposed to get it from their boards. But internal board members are fearful (see Mark’s lesson 10 below on trust) or ill-equipped to do so, and external board members (who are still mostly male in this industry and largely received no executive coaching or mentoring themselves) are mostly MIA on this.

The number of industry CEOs who have executive coaches is shockingly low. It’s as if the industry collectively believes that once someone becomes a CEO, they have nothing left to learn and have no opportunity for improvement (thus replicating the pattern seen when someone becomes a project manager). If it were me, I’d have it written into every CEO job description and contract that they receive a 360-degree review every year and have monthly executive coaching sessions—the results of which are reported to the board.

5. Just like dragons: Mergers of equals are not real. They don’t exist. Transactions between firms may be marketed as such. But in reality, there is always one firm that is taking over another. It doesn’t matter if the individual firm names such as “GER Associates” and “MER Designers” are craftily and Wordle-like combined into “MERGERArch+” post-transaction by the marketing department. One firm is always the more dominant. There’s just one of each of the power functions—one CEO (although there are still a handful of architecture firms trying to disprove that and who I’m sure I will hear from on this topic), one COO, and one CFO. If you want to know who the acquirer is in a deal that’s represented as a merger—look to see who occupies those seats.

6. Culture doesn’t come from capitalization: Just because you’re “employee owned” doesn’t mean you have a better culture than a private equity-backed firm. It doesn’t mean your people are “happier” or “more engaged.” Employees are not more likely to “give 120%” if you’ve got an ESOP than if you’re publicly traded. Staff turnover rates fall between 9.5% and 12.5%. Would it surprise you to know that there are private equity-backed firms with less than 5% turnover? There are—and more than a handful. Culture, engagement, and collaboration are not directly correlated to your capital model. They are however inextricably linked to how your employees feel—about themselves and their potential. It’s about jobs and careers. When employees feel like they are partners in the journey, that’s when the magic happens. And that’s a direct result of the quality of leadership—not about how many shares are owned.

7. For the last time, please send your written weekly project updates: This is the simplest, most powerful, greatest ROI organizational development tool that you have. Make sure that all your PMs are providing a written status update to every client on every project every week. Oh, and copy everyone who should be copied on the client team and your internal team. The memo should simply state what was accomplished on the project last week, what will be done next week, and flag any issues to be addressed. Doesn’t matter if it gets to the client by app, email, or carrier pigeon. It just needs to get there—weekly, like clockwork. Let the pushback begin. (“We have too many projects! I don’t have time to do that! Our projects are too small for us to do that, we’ll lose money! My client would never like that; they prefer to talk with me! Does this mean I can’t call or visit my client?”) We’ve heard all the excuses—and they’re all wrong. Added bonus—the weekly project update helps your PMs learn how to write succinctly and effectively.

8. Do the right thing: Not only a great Spike Lee joint—but words we’ve tried to live by at Morrissey Goodale since day one. I remember someone saying to me before we started our business that picking the right partner is the most important thing in business. And I’ve been extraordinarily lucky in that my original business partner, Mark, exemplifies doing the right thing. He always goes the extra mile—not just for clients, not just for our team, but also for everyone that he interacts with. It always amazes me how he finds time to help folks when he has no obligation to—especially in business by making connections or providing advice to folks asking or expecting nothing in return—but just trying to help them. Those interactions invariably come back to benefit us as a firm, but that’s not why he does them. That’s just the way he is. And I’m doubly blessed now that our leadership team of Nick, Brendon, and Jon are wired the same way.

9. AI + Digital + ? They are not industry disrupters; they are industry enhancers. They will make you and your team more valuable to your clients. Embrace ’em.

Original content can be found at Morrissey Goodale.

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