2015 Mid-Year CEO Outlook

As we have every summer, we reached out to six leading A/E CEOs across the country to hear how their organizations are performing so far this year. They shared with us where they see promising avenues for growth, how they are developing their next generation of leaders, and what their summer plans are to unwind…

Darin Anderson, CEO, Salas O’Brien, San Jose, CA

How has Salas O’Brien’s performance fared so far in 2015?

Salas O’Brien has been going through an extended period of accelerated growth. At the end of this year we could hit 1000% (thousand) percent growth for the last nine years. For 2015, we have already increased billings over 50% from the previous year.  Like prior years, our growth has come from both organic (approx. 25%) and acquisitive/merger growth (approx. 25%). More importantly, we have retained our clients and in most cases, grown with them. We have been focused on building relationships…this starts with our team members. We haven’t lost a Principal or Shareholder in the last 9 years and our turnover for all team members is less than 5%. We need to always stay focused on this because it is hard to find great talent.

In what market or service areas are you seeing promising opportunities for growth?

Fortunately for us “all boats are rising” in our sectors and regions, it’s just a matter of how much. We are also getting a little more than our share of the growth. We are positioned in growing regions (Northwest, California, Texas and Southeast) that have healthier economies and we are in strong sectors such as Telecom, Data Centers, Higher Education, K-12, Municipalities and Health Care with a growing commercial/retail segment. On top of that, most of our clients are “institutional” clients that own their real estate for the long-term so we are always doing substantial renovations and expansions in addition to new construction.

In 2014, Salas O’Brien acquired a MEP firm in Houston. What was the rationale for the combination and how has the integration gone so far?

The rationale was easy, we are on the road to grow Salas O’Brien into a leading national firm of like-minded, dedicated professionals and leaders that love what they do and will make us stronger. We were (and are still) looking for several things and the recent merger hit all the critical items for us: 1) Strong and capable leadership – that want to continue in their roles with the same authority and decision making; 2) Geographic expansion – strong regional market (Houston, Dallas, Baton Rouge); 3) Outstanding client relationships (blue chip clients); 4) Longevity of technical staff and commitment to relationships; and 5) Consistent performance – both billing growth and strong earnings.

After more than one year, we haven’t lost one person from the firm and added 14 people to the region…and Houston is a HOT market. We love our new team and leaders and have worked hard to unify the team – that has happened! The leaders are well integrated into the leadership team, we have grown new market sectors regionally, expanded and added clients (from existing clients in other regions) and are cross selling and working between all of our offices like ONE TEAM! The team is having a record year!

What are the biggest concerns your clients face today?

Our clients want to ensure they have trusted advisors that are highly skilled, that they know well and care about their projects. They have to be ready to go the extra mile to ensure success. A team that is experienced, is going to be proactive, save them money, advise of possible challenges with entitlements/permits, design, energy efficiency, code compliance and that are going to ensure attention to schedule and construction budget, while having a fantastic experience. In essence, clients want and expect it all today. The expectations are high for results and performance. Communication and expectation setting are very important to establish at the outset of a project.

How does Salas O’Brien identify and develop your next generation of leaders?

We really give everyone the opportunity to grow and develop in the organization. We have so many examples of people that have started as Engineering Interns out of school and have gone on to make Principal. We have a Biology major out of school that now 16 years later is running our Construction Management division and is a shareholder. We have an administrative assistant that 14 years later is a Senior Plumbing Designer. We provide opportunities for growth through challenging them “on-the-job,” we believe leaders are “identified” through their initiative, development and distinguished work product and relationship building. We then do everything to help them grow and stretch. We are a young firm.

The average age of our Principals is 47 years old. We are energetic and passionate about the work we do and are ready to take on the world. We are entrepreneurs and do outstanding design and CM work. We don’t have ceilings or limits, we want to develop our practice leaders and reward them professionally and financially. We give them a lot of leash so they can learn and stretch themselves, but always with mentors watching and there to help coach and lead when necessary to ensure we don’t make too many mistakes. Fortunately (knock on wood), we haven’t had a PL or EO claim in our history. This is a testament to the relationships we keep, processes we follow and technical work our team delivers.

What are your plans this summer for rest and relaxation?

It’s going to be a very busy summer. I have plans with the family to go to Maui for 10 days (will ride my bike up Haleakala), then will be running the R2R2R at the Grand Canyon with some friends one day this summer, throw in a couple cycling races, then with the family for a long weekend at the Islands of the Puget Sound and finally the World Duathlon Championship in Adelaide, Australia at the end of the Summer.

Lawrence R. Armstrong, AIA, CEO, Ware Malcomb, Irvine, CA

How has Ware Malcomb’s performance fared so far in 2015?

Our performance is very strong.  We are achieving significant growth year to date, as well as throughout the past five years.  We recently opened our 17th office in Miami, Florida.  Both our revenue and profits are healthy this year.

With 17 offices across North America, in what market sector or geographic regions are you seeing promising opportunities for growth?

Every one of our offices is busy and growing right now, but we’ve seen the greatest activity in Northern California and up and down the East Coast. The industrial market has been very strong across North America.  In certain markets, especially the West Coast, the office and creative office markets are gaining momentum.

Ware Malcomb has periodically acquired architecture and interior firms for strategic expansion. What factors impact your criteria when evaluating possible targets?

First and foremost, we look to see if they are located in one of our target geographic markets.  Second, do they specialize in similar types of work that we do?  Also, will they be a good cultural fit with our company? Those are the main criteria. If they have similar clients both on the commercial real estate and corporate side, they tend to understand our type of work and the pace. Lastly, we are a very collaborative company, so they need to be that way as well.

What are the biggest concerns your clients face today?

Our client’s biggest concern is having flexibility in their real estate. Whether we are designing a large distribution center or office space for a multi-generational workforce, we need to create flexible space that can accommodate changes to their business over time.

How does Ware Malcomb identify and develop its next generation of leaders?

We have several strong training programs within the company that identify potential and emerging leaders at different levels. We provide an annual mentoring program, open to all of our employees. We encourage our employees to express their desire to grow, and we try to help support their personal and professional goals.

What are your plans this summer for rest and relaxation?

My summer plans are to travel. I have a couple trips planned with my wife, and I’m planning to spend time in my art studio.

Keith Kuzio, P.E., President & CEO, Larson Design Group, Williamsport, PA

How has Larson Design Group’s performance fared so far in 2015?

It has been good.  We were coming off a year of 15% growth and solid profitability in 2014, and we set very ambitious goals for this year. Through the first half, our sales, revenue and profit numbers all show double digit growth over last year’s performance in the same time period. Based on projections for the second half, we should see another year of very strong growth and profitability.

In what market or service areas are you seeing promising opportunities for growth?

In the transportation market, we’ve been able to capitalize on the large PennDOT P3 Rapid Bridge Replacement project that is currently ongoing.  That’s allowed us to grow our bridge and highway design staffs considerably and is giving us valuable experience in the P3 alternative project delivery approach.  We’ve been securing some significant surveying projects in transportation, energy transmission and electric generation related work. We’re also shortlisted for a large P3 project opportunity that involves public transit agency CNG fueling infrastructure and garage modifications across the Commonwealth of Pennsylvania which will be a significant project if we are successful.

Your firm has made sizable investments in the energy sector to take advantage of the shale region throughout Pennsylvania and Ohio. Has the decline in oil prices over the last year impacted that segment? 

Without a doubt, current energy prices are impacting the segment.  As early as January, many of our energy clients had re-opened and cut 2015 capital budgets and drilling programs which had a direct impact on services and fees that we were projecting for the year.  No business likes these kinds of challenges, but the current climate has given us an opportunity to know our clients and their business dynamics better. Partnering with these clients, we’ve trimmed fees where we can, and we have been focused on identifying and implementing cost reduction strategies to help lower our clients’ breakeven operating cost.  By being proactive with these efforts, we’ve built trust and are retaining clients. This should allow us to maintain performance in this sector at about the same level as in 2014.

What are the biggest concerns your clients face today?

In the public sector, the biggest concern continues to be how to fund and maintain infrastructure assets given the political and public opposition to increased taxes to support system preservation and improvements. A few public clients are trying alternative project funding and delivery processes involving P3s, but many of our clients lack the risk tolerance to implement innovative funding approaches.  In the private sector, the biggest client concerns are focused around how to maintain growth and profit margins in the midst of intensifying competition.  In both sectors, many continue to express concerns with the lackluster economic recovery that we’ve experienced over the past few years and what that means for the long-term.

 How does Larson Design Group identify and develop your next generation of leaders?

Our leadership development is still somewhat informal, but we are beginning to work toward a more holistic approach. During the past year, we have been focused on improving employee engagement and simplifying and communicating the company’s vision, values, and strategic priorities more clearly and effectively.  Also, senior leaders are listening more and closely observing and recognizing staff that demonstrate behaviors that define our company values.  Over the next six months, we will design a formalized leadership program that will be implemented in 2016. Those staff that are identified as living our values and embracing our vision for the future will be the initial nucleus of the leadership program.

What’s on your summer reading list?

I’ve just completed two very different, but compelling books on teamwork – Patrick Lencioni’s The Five Dysfunctions of a Team and General Stanley McChrystal’s Team of Teams.  I am currently working on Michio Kaku’s Physics of the Future which looks at how science will shape our lives and civilization by the year 2100. I’d also like to read Unbroken, the biography of Louis Zamperini, by Laura Hillenbrand.

Randy Neuhaus, P.E., President & CEO, S&ME, Raleigh, NC

How has S&ME’s performance fared so far in 2015?

S&ME is on target for a very good year in 2015. In fact, it will be a record setting year for us. Our performance in 2015 shows both revenue growth and increased profitability. The performance includes improvement organically as well as significant growth as a result of the acquisition of Littlejohn at the end of 2014.

In what market or service areas are you seeing promising opportunities for growth?

We are seeing improvement in most of the markets we serve. Our client base is primarily in the private sector although we serve the state and municipal markets. Transportation and Energy continue to be strong markets for us, including services to the shale gas industry in additional to major utilities. The retail/commercial market is continuing to improve and the healthcare and entertainment markets continue to be very steady for our design services.

In late 2014, you acquired Nashville-based Littlejohn, a multidiscipline engineering firm with over 130 employees. What was the rationale for the combination and how has the integration gone so far?

The leadership of S&ME recognizes that the A/E/C industry is changing. This change is a result of many forces such as the M&A activities and development of the very large and mega firms. More and more companies are offering a full line of services to their clients and in many cases the clients are developing a preference for using one firm from conception through due diligence into design and finally following through construction.

Traditionally, S&ME was a geotechnical, construction engineering & testing, and environmental firm. We believe by adding civil design, community/municipal planning, landscape architecture, economic development and redevelopment, and land surveying through the Littlejohn acquisition, we now have the ability to offer our clients services from conception to construction. As a medium-to-large size firm we believe expansion of our services was critical to our future growth. The integration is moving along smoothly and we have seen a great deal of collaboration and early success in offering this full line of services.

What are the biggest concerns your clients face today?

As the economy continues to improve we are seeing the need for additional engineers and other professionals. The market is getting tighter and finding the right talent is a continuous challenge for us. It is also important to know and understand the markets, to recognize the next “wave of opportunity” and to make sure we are on the front of the wave as the opportunity approaches.

Another challenge for firms of our size are competing with the mega firms and demonstrating that we have the capacity to service major clients on major projects. This was another reason we pursued the Littlejohn acquisition. We believe there are teaming opportunities for firms of our size to compete on any level. Funding continues to be a challenge especially for the transportation and infrastructure related markets. Everyone in the industry and political arena knows and understands that our infrastructure is in dire need of attention. The dysfunction in our State and Federal Governments to address the problem is a concern. I believe we have to educate and engage the general public to pressure government officials to develop a plan to address the long needed infrastructure spending.

How does S&ME identify and develop your next generation of leaders?

Developing the next generation of leaders is a challenge that many firms are facing today. I believe there is a great pool of talent within S&ME and we welcome the opportunity to develop this talent. We have a Leadership Development Program that is a good basis and training for the “rising stars” within S&ME. I believe this program does a very good job of identifying talent and is the beginning of the training of our future leaders. However, we also know this program isn’t the complete answer. One area we are finding a shortage of talent is in the 4 to 8 year experience level. I believe this is a result of the lack of hiring during the recession years and now we have a shortage in this experience level. We understand the future of S&ME is dependent on the next generation of leaders at all levels. We are performing an assessment to determine our leadership developments needs and to develop a process by which to address the leadership development question. This assessment is for both the short and long term leadership succession.

What are your plans this summer for rest and relaxation?

I enjoy the outdoors, hiking, fishing, mountain biking and spending quiet time in the mountains of western North Carolina. It is especially peaceful and enjoyable when our children and granddaughter join us at our place in the mountains. I also have some short trips planned that coincide with some of my business travels.

Laurie Parsons, P.E., President & Principal Engineer, Natural Resource Technology, Milwaukee, WI

How has Natural Resource Technology’s performance fared so far in 2015?

After significant growth in 2013 and 2014, our leadership team set aggressive performance goals for 2015 that we have not quite met for the first half of the year. That behind us, the outlook is positive, with a strong backlog through year-end. Our focus is continued progress on strategic plans for targeted regional expansion of our services in the environmental consulting business. .

In what market or service areas are you seeing promising opportunities for growth?

Most significantly we see promising opportunities in environmental management needs for energy and private sector clients. As the economy continues to improve, redevelopment of urban waterfronts is ramping up.  With this, we see high potential for opportunities on projects where we can deliver on our niche service expertise in contaminated sediment and in-situ remediation technology. The government sector is also steady, with increasing opportunities under small business categories along with our teaming partners in site restoration design and construction services.

Recognized by various media outlets for your growth and employee-friendly culture, NRT has expanded by adding new employees, offices and capabilities. What’s the key to managing all of that growth effectively? 

It helps to keep one of my favorite quotes top of mind: “growth is optional, change is inevitable”. At our option, growth has required that our entire team embrace constant change in the organization.  This includes fine tuning processes, shifting resources, taking measured risks, working cross teams, engagement and empowerment, and retaining top talent. I am confident this also contributes to the fact we enjoy a high staff retention rate. Effectively managing our growth would not be possible without ideas and creativity from all staff throughout the firm, in addition to insight and guidance from our external resources. It has been critical to have external business and technical advisors that share our philosophy and are willing to invest with us in long term partnerships as we grow. It is also helpful to look back as we continue to grow, and learn from our decisions, recognizing we can do it better going forward.

What are the biggest concerns your clients face today?

I would say balancing limited resources in the right areas for desired performance whether public or private clients. Specific to the environmental consulting industry, of great concern for private clients is the uncertainty of changing requirements that affect future liabilities.

How does NRT identify and develop your next generation of leaders?

For the best success, we pay attention to matching strengths to the position for our next generation of leaders. I have found it takes a continuing effort to empower and give learning opportunities to developing leaders. In the science and engineering fields, we can over-focus on technical training.  As such, we mindfully put a high priority on leadership training and coaching to effectively work in a high functioning collaborative team environment.  We also purposefully involve developing leaders in strategic aspects of managing the firm.  We set outcome-based goals where we can and let the next generation learn and be creative in attaining those goals.

What are your plans this summer for rest and relaxation?

Rest and relaxation in my case usually involves activity in the outdoor environment. Time on the water with family is a must, whether in a sailboat, powerboat, kayak or canoe. If not on the water, it will be cycling on country roads.

Will Schnier, P.E., CEO, BIG RED DOG Engineering | Consulting, Austin, TX

How has BIG RED DOG’s performance fared so far in 2015?

2015 has been a great year for us so far. We’re substantially on track to hit our business plan goals as a company and should end up the year with $13.4M in revenue, up from $9.3M in 2014. We opened our Dallas office in June, which also marks an important milestone for BRD. We’re now established in every major city in Texas with offices in Austin, Dallas, Houston, and San Antonio. The strength of the market has been very refreshing in Austin and San Antonio, which are our most mature offices. Our Houston office took a revenue hit at the beginning of the year, but more recently our projects and backlog have also increased in that office; in fact, Houston has proven quite resilient.

In what market or service areas are you seeing promising opportunities for growth?

We have an abundance of growth opportunities in Houston and Dallas; both of those offices should double in size each of the next two years. We have no shortage of opportunities in the MEP space. We’re actually choking back our growth in that service line in order to maintain quality and to focus on improving our operations with the goal of strengthening the foundation of that profit center so future growth can be more effectively managed. We’re also actively looking for strategic acquisitions in the transportation, traffic, and structural engineering fields.

In 2014, you made your first acquisition, a local mechanical, electrical and plumbing design firm. What was the rationale for the combination and how has the integration gone so far?

Our growth strategy is three fold: first, we want to expand into high growth, highly educated markets in the southwest with our core land development business; second, we want to overlay complimentary engineering services like MEP, structural, and transportation engineering onto our existing offices; and third, we want to diversify our client base to include a health mix of public revenue sources.

The MEP service line was incredibly attractive to us because of the shortage of qualified MEP consultants in our markets combined with the great track record and relationships that the Johnson Consulting Engineers team offered. We had worked with JCE for over 10 years, both as BRD and in our former roles. Their team was really good and they dominated the Austin MEP market, so it was a no-brainer when we had a meeting of the minds. Anecdotally, it feels that for every MEP firm in Texas there are probably 5 or 6 civil engineering firms.

The integration of Johnson Consulting Engineers into BIG RED DOG has been executed very well, led by our Austin President Brad Lingvai and Vice President David Johnson. The MEP team has moved into our Austin headquarters and we’ve doubled their headcount, client list, and monthly revenue since November 2014. All of that during a time when I tell you we’re choking back the growth – we could easily have grown five-fold during the same period, but at what expense? Not a single MEP team member has left us for competitor, so we’ve done a good job of explaining what’s happening and making the team members be a part of the planning and ultimately the success of the venture.

What are the biggest concerns your clients face today?

Costs are going up and this development cycle is getting a bit long in the tooth. We have represented to our team members that we are at the start of the 4th quarter of this upward development cycle and our clients feel that pressure too. We think there are 2 years left before we see a softening of the revenue. In terms of the cost concern, everything is going up. Cost and schedules are being extended further. Clients are seeing great difficulty in getting certain trades on their job site and the same pipe that a utility sub would have installed in 2010 is at least 20-40% more today.

BIG RED DOG started in 2009 and is one of the fastest growing engineering firms in Texas, with nearly $10 million in 2014 annual revenue, all while adding new managerial talent, systems, and processes. What’s the key to managing all of that growth effectively?

There are three big keys for us: first, the team we have assembled is best in the state in my opinion;, second, the clients with whom we partner are market leaders in their own right; and third, the State of Texas is experiencing the greatest migration wave of US citizens in the past two decades. We’re in a perfect demographic storm in Texas with over 1,000 people moving to our markets every day of every week. When you take those demographic trends and combine them with outstanding staff and clients, the growth becomes much more manageable. Our clients demand fast results, exceptional communication, and fair billing, and we’ve been able to consistently deliver that, which keeps them coming back and causes them to spread the word about the performance and capability of our firm. Our management team is excellent and is getting stronger every single month that we’re in business. Seven of our nine officers are still under 35 years old today, so we have plenty of runway to continue our growth and in a few years’ time we’re just be getting to the prime of our careers.

Our business plan has us reaching the $100M revenue mark by 2024. So we’ll have to build 10 more BIG RED DOG’s all the while we continue to successfully manage the first one we’ve built. Growth is important. It’s more fun than managing a company not growing or a company that has revenue problems. It also creates opportunities for our people to step up and become leaders or officers or shareholders of the company.

What are your plans this summer for rest and relaxation?

Our family is planning on taking a few shorter vacations. We’ve got a week planned at Hyatt Lost Pines in August and prior to that we’re planning on taking a trip to Big Bend and Ruidoso, New Mexico. If our 8 year old has her way, we’ll also make a stop at Disneyworld this summer.

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