Structural Engineering Business Owners - Please Chime in!

[SWEG]

I have recently launched a structural engineering design and consulting business that is marketed to architects, contractors and developers/owners. I offer standard full-service structural engineering design and documentation services for vertical structures and consulting engineering for miscellaneous design (i.e. delegated designs, assessments, etc...). However, I am somewhere in the startup that is past the excitement stage and now it’s time to get some cash flow moving. I have a current stable amount of income thru a previously full-time consulting gig that is not under my current business, but nonetheless income that pays the bills. That gig will run up soon and I will need to have other clients and projects moving around.

A little further background: I’ve worked within the A/E industry for a few different firms in the past 15 years and have most recently been a mid-level manager for a structural department in one of the largest A/E firms in the world. My known work ethic and consistent level of quality afforded me the ability to maintain a great previous employer relationship when moving to consulting. I am also a closet introvert, meaning I prefer being introverted but I exhibit extroverted traits in order to excel in career and life. I believe in face to face business relationship building and networking and am not afraid of cold calling - I kind of enjoy it (that’s probably weird for an engineer). I’m okay at selling myself, but I could use some help in that arena, especially when it comes to selling my services to people who don’t realize they need them. On a personal level, I have a young family and am a primary source of income for my family. Business ownership is seen as a bit of lifestyle flexibility combined with greater earnings potential (yes, risk comes along with that) for me and my family. I weigh the risk vs. reward heavily before jumping ship completely. Entrepreneurship and business ownership is in my blood, so it’s hard for me to be complacent with grinding 60-80 hrs/week for a company that isn’t mine.

What I wanted to gauge the SE Business Owner community here is as follows:
1) In your experience, what was the most profitable and cash flow stable type of work/client that you relied on in the beginning, or even now?
2) What type of clients did you avoid? Why?
3) Which types of clients were fee conscientious vs. quality driven?
4) What was your most effective type of marketing medium (achieved the most responses/feedback - i.e. website, brochures, social events, etc...)
5) What did you start your company with (i.e. computer, home office/office space, software) and how much capital did you put into the startup?
6) When did you decide it was time to carry a professional liability policy? What was your limit when you started?
7) How often and when did you decide to pull in legal assistance? What types of contracts did you rely on (CASE, AIA, EJCDC, etc...).
8) Did business ownership end up being as fruitful as you expected (fulfillment, earnings, retirement goals, etc.)?

As you can tell, I’ve benefited from a slow start without the need to churn up much BD work immediately. However, the time is coming (within the next 6 months to a year) where I need to be prepared for that and start being around 20 hrs/week billable.

Thanks to all in advance for your responses!

Business Owner | Senior Structural Engineer
Licensed PE/SE

 

[Ron247]

Are you the only employee or do you have more than one engineer? That would make a big difference in the advice you may get from this forum.

 

[SWEG]

Ron247 - I am the only employee and intend to keep it that way for the first couple of years. The hope is to add a draftsman after billable hours pick up more than 20-30 hrs/week for myself and maybe an EIT down the road (5 year plan).

Business Owner | Senior Structural Engineer
Licensed PE/SE

 

[SteelPE]

For a background I am a sole proprietor, have been for 7 years, with no intention of adding anyone to the mix. I began my career with a steel fabricator doing DB projects. They collapsed in 2012 and I have been on my own since.

1) I don’t think that any single client has produced a reliable cash flow into the business. For example, my largest client of the past 2 years is currently down 40% in terms of fees for the year. I find success in having multiple clients on multiple levels (end user, contractor, fabricator client).
2) You could write a book about this and is really dependent on what type of work you are looking to do.
a. Homeowners (don’t understand the work necessary)
b. Clients you haven’t heard from in years who suddenly want to give you work.
c. Clients who you have never heard of who suddenly want you to put proposals together on 5 projects.
d. Clients who cold call you can be time vampires. Example…. I talked to one potential client for about 4 hours over 4-5 phone calls (include an hour while I was on vacation in another country with my
wife). The project would require me to design metal building foundations. He wanted me to rough out the foundations for his building, so he could put together an estimate to see if the project was
feasible. I sent him a fee schedule and he didn’t like it….. bye bye 4 hours of my life.
e. Any client where a committee oversees a project.
f. Projects where there is a middle representative between the owner and the design team. This “owners representative” will make you want to drive your car off a bridge….. and I have no idea what they are actually getting paid to do.
g. I could keep going and going and going on this.
3) I have only 1 client who is not sensitive to fees…. And I am not sharing what type of work he does
4) No marketing, only word of mouth
5) I used an old computer and some out of date software from my old company that went out of business (they knew what was happening). I work out of a spare bedroom in my house.
6) I have always had a PL policy. I continued paying for the PL policy out of my own pocket once my old employer went out of business. I added Workmans comp and a GL policy recently at a client’s
request.
7) I have only pulled in legal assistance a few times on contracts a client wanted me to sign.
8) See below. I have added a few others for you.
a. Fulfillment ….. meh it has it’s days.
b. Earnings: much better than when I was working for #5…. But I am always preparing for doom and have about 5 years of living expenses saved for when that happens.
c. Retirement: My business is no where near set up correctly……. And my accountant is an idiot……. But I somehow can put away 20% of my pretax earnings up to $52,000 per year into a retirement account
(took my accountant 4 years to tell me this).
d. Paying estimated taxes sucks.
e. Family. I have a 5yo and since I’m hear all the time it’s easier to deal with than if you were working for someone else

My wife has a full time job with excellent health benefits…. So I don’t have to worry about those costs.

You should do the complete opposite of what I do.

 

[Ron247]

Here are some issues I dealt with as a single person firm. These may not relate to your list of questions, but do have an impact on your business.

1. Decide what you are going to call a large, medium and small job in terms of engineering hours. Then decide what mix of those you want to focus on. For me, I stay away from any job with more than 100 hours because I cannot serve that client and other smaller clients at the same time. You hate to build up some clients and then lose them by saying "sorry I am tied up right now". A one-person firm cannot satisfy everyone's time frame.
2. If you are not good at AutoCad, get proficient at least. A good structural draftsperson is worth a lot, but when I have to almost draw the entire drawing by hand to just have them draw it neater, I would rather do the entire thing myself. I worked at one place where a good pencil sketch and some guidance notes was all that was needed to get a pretty accurate drawing done. I also worked at one where I had to draw everything by hand to then get it done by a draftsman. I learned AutoCad for that reason alone. I have never employed a drafter. There is a difference in a general drafter and a structural drafter.
3. Stay 100% away from the "hard to get along with and pay poorly clients". Let the competition have that 10% to 20% of the market. Do everything reasonable you can to keep the "easy to get along with and pay good clients". That is probably less than 15% of the market. After that, you will fill in with the "hard to get along with but pay good" and the "easy to get along with but pay poorly".
4. I started at home with good computer and a minimal office. I started with no capital. I had a falling out with partners in another business and did the "got fired while quitting" gambit. The lack of capital makes life very hard but I worked through it.
5. Buy a plotter that can do Super B paper (13x19). They are cheap and provide a large enough drawing for general design in office.
6. Websites work good for general marketing. They did not exist when I started but by the time they did arrive, I already had more business than I could handle alone. I never wanted any additional help so I never needed one. Had I wanted to grow more, I would have a reasonable but not elaborate website. A one person firm has to be really efficient and good at what you choose to do for projects. All you can do to make more money is work more hours. When you have a multiple person firm, you make some money off each person you employ. I wish I had planned to be multiple person rather than solo.
7. Decide what structural projects are your strong suits and weak suits. Work on getting better at the weak ones now or stay away from them altogether. Sell your strong suits.
8. Learn that a potential client who only asks your hourly rate is not a sophisticated client. Money = rate x hours. If they do not understand you may be faster than the competition, they may not be worth having for a client.

 

[Agent666]

While I'm not a sole practitioner by any means, for the past year I've only been working part time on an on call type basis for a guy who is a sole engineer at his own company.

His number one problem as I see it, is that he prices jobs based on what the market can take/expects for that type of work because there is always someone else out there who will go lower. It's not that they do a better job or are more efficient, if anything they do an absolute terrible job and basically take design shortcuts, produce poor documentation, cost more time and inconvenience to all parties during construction, but damn it they are up front cheaper and all the client sees is dollar signs.

It's hard to convince the clients that you are actually adding value when they have zero concept of what you do and they think all engineers are created equal.

If possible avoid this race to the bottom, price based on what it takes you to do the job (realistic hours x realistic rate), if you miss out on the job you miss out on needing to spend double the what the market will take price & time and potentially avoid more profitable work in the process.

But I guess it's hard because if he doesn't win some work like this he is sitting there doing nothing, so he's in this vicious circle. It's just the reality of doing residential type work, you are dealing with one time use clients 95% of the time. I always thought it would be nice to work for myself, but after seeing what it's like in this environment I'm looking at going back to big business engineering again (as much as I hated aspects of that as well).

Certainly based on my experience of helping him out on a fixed fee based on his fee, which he already had accepted but was too busy to do the work himself. I'm actually making less than a graduate at the moment when I am working, but I like the one week I'm working, and one week I'm on holiday mentality of my situation. I've had one job that based on the hours I've had to put in I think I earned in my hand about a quarter of my normal hourly pay from my previous employer and this was drawn out over several months. I enjoyed the fact I can do it all on my own time, but sometimes I just miss having others around to shoot the crap with. A big part of the satisfaction I get from engineering is contributing to others, mentoring and the like, if you are by yourself there is none of that so something to keep in mind depending on your inclinations and personality.

Become a pro at knowing what work to turn down basically (the crux of what some of the other posters are saying). You're better off being light on work some weeks rather than getting pulled into something for the sake of doing something that ends up wasting your time and effort for zero gain if it delays you or deflects you from servicing work you would rather be doing due to it being more interesting or profitable.

 

[TheDW]

It's just the reality of doing residential type work, you are dealing with one time use clients 95% of the time.

If those clients are all you work with then yeah, you won't turn a profit, and every project/client will give you a headache.

The profit in residential structural engineering is in working with builders and developers who build a ton of homes. I'm in a 2-man shop and they're probably 80% of our work. Honestly I think the only reason we still do the one-off stuff is so that we will still have that potential cash flow if and when there is a slowdown with developer construction in the area.

It's hard to convince the clients that you are actually adding value when they have zero concept of what you do and they think all engineers are created equal.

Absolutely. The only real value of an engineer to them is when you pick up the phone and help put out their fires in the field. We're just another box to check before getting their permit and making their buck and getting on to the next job. If you slow things down for them, they have no loyalty, and will find someone else.