Small Structural Consulting Firm Business Structure 5

[structineer]

I am a structural engineer for a small consulting firm (13 engineers). I'm displeased with the current company structure. The company is basically a two tier system with principals and project engineers. There is no mid-level management in our company, which is ok because we are small enough that we do not need it. However, there is an associates program, which is really just an empty title. The associates do not have any ownership in the firm and have no more responsibilities than non-associates. Unfortunately, the associates program is the only option for advancement. I am to the point in my career where I need to make a move up the ladder. I am not interested in the associates program as it means nothing other than a little more money. I would prefer advancement opportunities based on performance with business development incentives and ownership incentives. Both of the principals have about 10 years left before they exit. I am not at the point where I would put out my own shingle. I believe there could be a future with this firm, but I need to be transitioning now to a leadership role. I know the business structure is broken now and I think their may be a possibility to reformat the structure. Currently, the company is top heavy with senior engineers, but these engineers are not leaders and do not desire a leadership role.

My question is what are typical business structures for this size firm and what options for re-structuring are there? What suggestions would you make for my situation and what should I propose to the principals?

Thank you for your input!

 

[Ron]

It is hard to say that anything is "typical" for a small firm. Its structure is derived from the whims of an owner or partners. What you have described is a common structure.

Keep in mind that unless the owners have broached the idea of an exit strategy for themselves, there is likely resistance to bringing others into the ownership fold. If they have considered an exit strategy and would like to get one going, I think a clear, straightforward conversation with them along the lines of your post would be in order. What do you have to lose? The only change I would make to your conversation is that you approach it in a positive light...that you are see this as a future of the company to evolve the continuity that they have developed and allow them to exit at some point with the strength of the company intact. I would not approach it that they have a screwed up structure and you are there to make it right.

Good luck. Always a hard conversation, but you might be surprised that they are waiting for someone with balls to step up.

 

[DRWeig]

Hi Structineer,

How long have you been with this firm? That'll make a big difference in how you approach the owners...

I've worked for three small firms and two large ones along the way, and I've been an owner (with partner or partners) of two small firms. I can say that all the small firms (including mine) had no plan or intention to give up or sell any ownership, and there was no plan of succession. If the owners passed away, the company would land in the hands of the heirs and probably be dissolved after unfinished contracts were disposed.

Same with retirement of the owners, although that dissolution would be more gentle and there may have been offers to senior employees for sale, possibly at a bargain price. My experience is a very small sample, though -- your mileage may vary. It all depends on the experience and, well, the level of enlightenment of your company's owners. That's tough to judge.

The two larger firms worked more like law firms -- you could work your way into partnership. Hard work and good performance would do the trick. Continued hard work, performance, and generation of new clients as a partner would increase one's ownership share and profit share. In other words, a really stellar performer could easily wind up as managing partner and CEO with a larger share of the company than its founder. Seen it happen. Again, two companies do not constitute a trend. Just my experience.

Note: the two companies I owned, I left in the hands of my partner(s) to pursue new adventures. I kinda forced my partner(s) to buy me out because I didn't like what they were doing. Subsequently, in both cases, the partner(s) absconded with the money that was left and closed up shop. Ick.

Here's hoping you get what you want, though! Recognition and advancement are important, and it's not easy to step away and hang out your own shingle to make it happen yourself.

Keep us posted!



Good on ya,

Goober Dave

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[MacGyverS2000]

The associates... have no more responsibilities than non-associates.

The associates program... means nothing other than a little more money.

So you can change your title, add no responsibility, and make more money?

Sounds like a good deal to me. If nothing else, I'd sign up until I found something more interesting.

Dan - Owner

http://www.Hi-TecDesigns.com

 

[SAITAETGrad]

You would think that associates would be on a fixed path towards partnership or the street within a fixed number of years. Maybe that was the original intent and they never bothered to get rid of the poor associates or partner with the good ones?

From Wikipedia (for Law Firms):

Partnership

Law firms are typically organized around partners, who are joint owners and business directors of the legal operation; associates, who are employees of the firm with the prospect of becoming partners; and a variety of staff employees, providing paralegal, clerical, and other support services. An associate may have to wait as long as 9 years before the decision is made as to whether the associate "makes partner." Many law firms have an "up or out policy" (pioneered around 1900 by partner Paul Cravath of Cravath, Swaine & Moore) associates who do not make partner are required to resign and join another firm, go it alone as a solo practitioner, go to work in-house in a corporate legal department, or change professions (burnout rates are very high in law).

http://en.wikipedia.org/wiki/Law_firm

Maybe what you need to do is ask if there is a path available for you to become a partner or otherwise take on a greater leadership role.

 

[structineer]

Thank you all for your replies.

Ron - that is good advice. Thank you. I do find myself getting frustrated and I need to be cognizant of my tone and how I am perceived.

DRWeig - I have been with the company over 8 years, but am in the bottom 3 of my colleagues regarding tenure with the company due to a very low turnover rate. I'm afraid that I'm in a dead end position because it feels like I am stuck behind the guys that have been here before me. I have been told that this isn't the case, but until there is action, those are just words. Immediate ownership is not necessary, but I want that to be an option and I desire there to be compensation that is based more on performance with incentives similar to the company that you mentioned above. Currently, there are no incentives for bringing in new clients. Regarding performance, I have recently discovered that I have been the most profitable employee over several years, so I have a proven track record of performance.

MacG - A little more pay is only a temporary solution. My current position does not prepare me to move in to upper management at a new company, nor does it motivate me to market and bring in clients. I truly would be marketing myself alone and I don't believe that type of approach is beneficial for my future with this company.

 

[GregLocock]

Sure, and be prepared for sticker shock.

Let's see, 11 employees at 2000 hours a year at $50 ph 'profit', call it 1 million a year.

probably looking at a PE of 5, so a third of the business is going to be 1.6 million.

Rinse and repeat with more accurate numbers.

Cheers

Greg Locock


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[rowingengineer]

In our company we run a similar system to that of which you describe, maybe you work in my office. However our associates have small share holdings. Truth is that really you can't hand over more responsibility to an associate that than you would to a senior engineer. because there really isn't must more responsibility left, other than marketing and money matters, which you don't want to have to many staff worrying about, we are engineering companies after all not accountants.

http://www.nceng.com.au/

"A safe structure will be the one whose weakest link is never overloaded by the greatest force to which the structure is subjected” Petroski 1992

 

[structineer]

rowingengineer,

How then do you separate senior engineers from associates? How do you determine who should be accepted to the associates program?

 

[rowingengineer]

generally the associates are selected for future ownership of the company, generally these people have skills in all areas (engineering as well as business). We provided them with training in business management specially aimed at engineering companies.

The senior engineer are generally people that have a good technical background and training but are yet to see the full picture required to run a business.

http://www.nceng.com.au/

"A safe structure will be the one whose weakest link is never overloaded by the greatest force to which the structure is subjected” Petroski 1992

 

[structineer]

rowingengineer,

I can tell you that I do not work for your company. That is a better and more appropriate system than the one that is offered here.

 

[DRWeig]

struct,

I always preface career advice with a caveat: "This is my opinion, which gets very little respect in my office and even less around my house." With only 8 years service, I might be inclined to approach the owners differntly than if I were a 20-year veteran. Maybe something like this:

"Say, Curly and Moe, I think I've been contributing the most of anyone to this company's profitability for quite a while now. I'd really like some day to be a partner. You know, equal in kind to you, if not in amount. I think it might be an appropriate reward for my tenth anniversary here, if not right away. I'd even be willing to buy a share if it's small enough that I can do so without selling my house and family. What do you think?"

Or maybe leave out the part about paying if you think there's a chance they would actually fork over a small chunk. Greg was just about right on the money (pun intended) regarding the valuation of the company. It's worth a lot.

That's my two cents' worth.

Good on ya,

Goober Dave

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[JedClampett]

Another word of advice/wisdom:
Make sure you're ready to hear the answer before you ask the question.
You might be nothing but 2000 billable hours to the owners. Their answer might be, "There are no plans to make you a partner now or ever."
I'm not saying that's the case, but just be prepared.

 

[structineer]

Jed,

If that is the answer, then that is what I need to hear. If there is no opportunity for a future where I am, then I am looking at being an 8 year employee with no true project management experience. The structure here does not give full responsibility of managing projects including management of other engineers, management of billings,and client relations. I realize that these are all important for my professional development, my resume, and marketability of myself to future employers. If there is no option of advancement where I am, then I'm truly only working for a paycheck if that makes sense.

 

[GregLocock]

The PE multiplier is the killer. At least in Australia there seems to be a wide disparity between what the owner of a business thinks it is worth without him (ie he wants to be bought out completely) and what people with money are prepared to pay. I know of agreed valuations as low as 1 year's turnover in that case.

In your case the other partners will carry on working, you are paying for diluting their earnings and control, while retaining their expertise and contacts.

Cheers

Greg Locock


New here? Try reading these, they might help FAQ731-376

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[structineer]

Greg - thank you for the insight. My thought is that they are years away from considering offering ownership. However, it is time that I have the talk about my future with them.

 

[MikeMech]

It's not the most likely thing, but you may be surprised. They might love to hear of a plan that will let them lessen their workload as time goes on, and leave their company with continuity beyond their ownership, if it comes from an employee they think has the potential to do it. Especially if it means they can cash out their ownership for more money than they might otherwise.

Note there are a lot of ifs, mights, and mays in the previous paragraph.

Small business owners are seldom objective about their businesses. Keep in mind they may say they are open to the idea of you as a potential partner without ever allowing it to happen.