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MARK ZWEIG, from page 1

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they either individually or collectively exit from the firm. And this value is not just restricted to an external sale. It could be in an internal sale just as easily. How do entrepreneurial firms perform better than the rest of the industry? Consider the following statistics (pulled from Zweig Group’s Successful Firm Survey ). These are realty telling! ❚ ❚ Fast growth firms (those growing at a rate of 20 percent or more for three years in a row) make an average of 16.2 percent pre-tax, pre-bonus profit versus 9.9 percent for all firms ❚ ❚ Fast growth firms have an average revenue of $133,690 per employee versus $126,840 for all firms ❚ ❚ Fast growth firms make a 39.8 percent return on total assets (pre-tax, pre-bonus) ver- sus 19.7 percent for all firms ❚ ❚ Fast growth firms have a median total annual principal compensation of $290,000 ver- sus $194,000 for all firms ❚ ❚ Fast growth firms are worth a median of .59 times NSR versus .47 for slow growth firms Let’s consider the case of two principals. They each joined A/E firms out of school and at age 40, both became principals in the companies they worked for. Principal “A” became an owner in a $5 million NSR slow-growth company (growing by 5 percent a year) and Principal “B” became an owner in a $5 million high growth entrepreneurial company (growing by 20 percent a year). Ten years later, by age 50, Principal B’s career and financial position is dramatically different from his counterpart, Principal A, in the slower-growth, not-so-entrepreneurial firm. Both owned 20 percent of their firm’s stock when they bought in. In year one, Principal A, working in the slow growth firm, earned $194,000 in salary and bonus. His ownership was worth .20 (.47 times $5 million), or $470,000. By year 10, he would be earning $301,000 annually (assuming a 5 percent annual pay increase) and his stock was worth $729,000. Over 10 years, he would earn $2.44 million. His 10-year total would be $3.169 million. Not too bad considering he still has another 15 years to work, assuming he retires at age 65 (and many of us will hopefully work well beyond that). Principal B, on the other hand, was earning $290,000 in salary and bonus the first year he became a principal in a high-growth firm. His initial ownership was worth .20 (.59 times $5 million), or $590,000. By year 10, assuming a modest 5 percent annual pay increase, he would be earning $450,000 in annual salary and bonus, and his stock would be worth $3.05 million. His total of salary and bonus earned over 10 years would be $3.65 million making his 10-year total $6.69 million. Pretty amazing considering at this point Principal B is only 50 years old and still has another 15 years to work. Do I still need to convince you of the benefits of building an entrepreneurial firm? Now you know why we will be doing a new seminar this year – Building an Entrepreneurial Firm, in a number of locations around the U.S. in 2016. We’ll start with dinner, drinks, and comedy the night before to get everyone in the right frame of mind. Then we will teach you what we have learned over the last 28 years of working with companies in this business. 2015 was an amazing year for our industry and for Zweig Group. The time has never been better to be more successful as an architect, engineer, planner, or environmental consultant. Happy 2016, All! MARK ZWEIG is Zweig Group’s founder and CEO. Contact him at mzweig@zweiggroup.com. TALK TO US Do you have an interesting story to tell? Is your company doing things differently and getting results? Let us know. We’d love to contact you and feature you in an upcoming case study. If interested, please email abennett@zweiggroup.com.

1200 North College Ave. Fayetteville, AR 72703 Mark Zweig | Publisher mzweig@zweiggroup.com Andrea Bennett | Managing Editor abennett@zweiggroup.com Christina Zweig | Contributing Editor christinaz@zweiggroup.com Sara Parkman | Editor sparkman@zweiggroup.com Megan Halbert | Design Assistant mhalbert@zweiggroup.com Liisa Andreassen | Correspondent lsullivan@zweiggroup.com Richard Massey | Correspondent rmassey@zweiggroup.com Jake Crawford | Intern dcrawford@zweiggroup.com

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E-mail: info@zweiggroup.com Online: www.thezweigletter.com Twitter: twitter.com/zweigletter Blog: blog.zweiggroup.com Published continuously since 1992 by Zweig Group, Fayetteville, Arkansas, USA. ISSN 1068-1310. Issued weekly (48 issues/yr.). $475 for one-year subscription, $775 for two-year subscription. Article reprints: For high-quality reprints, including Eprints and NXTprints, please contact The YGS Group at 717-399-1900, ext. 139, or email TheZweigLetter@TheYGSGroup.com. © Copyright 2016, Zweig Group. All rights reserved.

THE ZWEIG LETTER Januray 18, 2016, ISSUE 1135

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