TZL 1393 (web)


TRUSTED ADVISOR, from page 7

we’ve been using that formula quarterly to internally value our firm. Key metrics and variables in the valuation formula we use are number of employees; net service revenue; backlog; EBITDA; pre-tax, pre-bonus profit; book value; and interest-bearing debt. TZL: They say failure is a great teacher. What’s the biggest lesson you’ve had to learn the hard way? BD: When we started our business in 2003, the founding partners all had expertise in single family residential projects and that market was booming for the first several years of our business. We focused solely on that market and didn’t even attempt to diversify into other markets. While we weathered the housing crash of 2007 longer and better than some of our competitors, it eventually brought our business to the brink of closure and put some of the founding partners in financial conditions worse than before we started the business. As we began to emerge from the recession, we began planning our strategies to better prepare for the next downturn. During one of our brainstorming planning sessions, our facilitator asked what we would do differently in the next downturn. One answer was that we would try to recognize the next downturn earlier and downsize ourselves earlier than we had done previously. To this the facilitator responded, “Why not build your business differently so you don’t have to downsize at all?” This thinking led us to recognize the value of diversification and the importance of marketing even in the best of times. Now, instead of being a 20-person, single discipline firm focused on the single-family market, we are an almost 60-person, multi-discipline firm with nearly identical revenue streams from the single family, commercial, and public sector markets. And while the last couple years have been the strongest revenue-wise in our 18-year history, we continue to increase our marketing budget year after year. We feel confident that during the next downturn, we will be able to shift resources into the stronger markets rather than simply laying off staff to survive. TZL: How many years of experience – or large enough book of business – is enough to become a principal in your firm? Are you naming principals in their 20s or 30s? BD: We have three new principals in our firm. The decision to invite them to join the ownership had more to do with the current owners wanting to run the business with these individuals and less to do with a required amount of experience and/or big enough book of business. That being said, all three were seasoned senior project managers who had several years of experience in many aspects of the business including developing and winning work. The youngest of these new principals was in their early 30s. We are currently developing new criteria to determine the next tier of principals. While experience will certainly come into play, we will be looking at other leadership qualities to round out the skill sets and the diversity of our current set of principals. I suspect that our next group of principals will likely consist of more people in their 30s than their 40s, but I wouldn’t be completely surprised (or opposed) to naming someone in their 20s if they met our criteria.

with the ownership group and provided us with some useful guidance to outline our first steps. The second consultant provided an overall DEI assessment of our company by conducting individual staff interviews, small group workshops, and an anonymous DEI survey. We also created a DEI committee comprised of organizational leaders and staff that will use our DEI assessment as a roadmap for change inside our organization and within our community. Through our efforts to date, we have come to realize that there is no finish line on this journey and that this important work will probably never be completely done in our lifetimes. But we believe that every step forward is a step in the right direction and no organization can solicit change if they don’t believe (no matter how small they are) that they can affect change. TZL: Can you tell me more about the strategic business plan? BD: We embarked on a five-year strategic plan centered around company growth a few years ago and I changed my entire focus toward implementing it. In just three short years, we’ve accomplished everything we set out to do: established marketing and accounting departments (previously we had no marketing and/or accounting personnel on staff), implemented more sophisticated accounting/project management software, created a formal organizational chart from scratch, acquired a complementary business, opened two branch offices, all while increasing net service revenue 15 percent to 20 percent every year. One of the overarching goals of the plan was to provide more career opportunities for our employees. Our staff has grown from 39 employees at the end of 2017 to 58 employees. During this time, we added three new principals, and have internally promoted more than 15 people in the last three years, compared to just a handful three years prior. This year, I plan to focus on creating the framework for our next strategic plan and we’re all excited to get started on the next Blueline chapter. TZL: Are you using the R&D tax credit? If so, how is it working for your firm? If not, why not? BD: We’ve been taking advantage of the R&D tax credit since 2016. We have found the tax benefits the company has received over the years is well worth the internal effort as well as the cost associated with hiring an outside expert to do the analysis, determine the qualifying credits, and provide all the necessary information for redemption to our tax accountant. We will continue to pursue R&D tax credits as long as this program is available and the type of work we do qualifies for it. TZL: How often do you valuate your firm and what key metrics do you use in the process? Do you valuate using in-house staff or is it outsourced? BD: We’ve only done one formal valuation, three years ago, by an outside consultant. At the time of the valuation, we also determined which of Zweig Group’s valuation formulas most closely matched our formal valuation and

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