President and co-founder of ADC Engineering, Inc., a multidisciplinary firm based in Hanaham, South Carolina.
By Liisa Andreassen
“Commoditization is a problem all engineers face,” Dillon says. “We don’t have any pricing strategies. We simply offer fair fees for the scope of work defined and encourage discussion if our fee is higher than expected. There are always comparisons to other firms and other projects and we sometimes lose work due to not offering the lowest fee.”
A CONVERSATION WITH MARK DILLON.
The Zweig Letter: What are the three to four key business performance indicators that you watch most carefully? Do you share that information with your staff?
Mark Dillon: Quarterly, we watch billings as a percentage of salaries, work backlog, and billings compared to past years. The billings, as a percentage, let us know how we are doing relative to meeting overhead and making profit. Month-to-month reports on this are not as informative as quarterly reporting as you can have an exceptionally low or high month that is not really indicative of the overall health. The backlog trend lets us know the status of work in hand as a multiplier of monthly billings. A healthy backlog gives us confidence for staff retention or hiring. Comparing the backlog to past months and past years is an indicator for future billings. The billing trends let us know if we are progressing toward overall yearly goals and it helps us see positive or negative trends.
We share financial information with senior staff partnership and department heads, but not with the overall company staff. We feel it’s important that the staff has confidence in the company’s financial health, so we hold monthly meetings where the staff hears from each department about upcoming and current projects.
TZL: How far into the future are you able to reliably predict your workload and cashflow?
MD: We can predict workload and cash flow approximately three months out. The cash flow is easier to predict as we know billings at the end of any month, and we have enough payment history to reliably predict future income. Workload can change based on owner decisions. In some cases, owners delay projects due to funding or tenant issues and delay projects that had resources committed. In a good economy, this happens less but in an uncertain economy we see this happen fairly often.
TZL: What role does your family play in your career? Are work and family separate, or is there overlap?
MD: I am blessed to have a wonderful family life that has meshed well with my professional career during the past 30 years. This timeframe has seen all my children grow to adulthood. We experienced all the typical events of ball games, dance recitals, vacations, birthday parties, and graduations, all while work progressed and deadlines were met. My family, especially my wife of 35 years, has been very supportive and encouraging. They have comforted me and energized me during the mostly positive, but sometimes negative, business events, always giving me a respite from work life.
TZL: What, if anything, are you doing to protect your firm from a potential economic slowdown in the future?
MD: When we discussed financial data during the Great Recession, we realized that we had survived several negative economic downturns since 1990 and didn’t even know it. As a small company with a home office in a mid-sized tourist city, we’re somewhat insulated from national trends. The 2008 event affected us, but not nearly as severe as other firms or national trends for firms our size. From the company’s beginning, we’ve been fiscally responsible which has allowed us to build and maintain a strong financial foundation. Having a diverse portfolio of sectors has also benefitted us when the economy slowed. In the end, our best protection from future negative events comes from ensuring a quality work product along with a high level of client commitment and tracking the trends previously discussed.
TZL: How are you balancing investment in the next generation – which is at an all-time high – with rewards for tenured staff?
MD: This has always been a challenge, but seems heightened as investments in development have increased. We have a tremendous desire to see the next generations succeed within our firm. When the founding partners were considering options for ownership transition it was an easy decision to transition internally. This allowed us to promote our senior project management staff into ownership and to bring new energy into the partnership. Collectively, the partnership is already discussing the next generation of owners. While this is the primary investment in the next generations, we’re also investing in internal mentoring and continuing education which we do with local speakers and national webinars.
Just this year, our PTO policy was changed to benefit employees who have been with the company more than five years. Previously, employees had to be with the company for eight years before receiving an additional 40 hours of PTO, but we felt that was too long to wait to reward our employees’ loyalty and dedication to the firm.
TZL: When you identify a part of your business that is not pulling its weight in terms of profitability or alignment with the firm’s mission, what steps do you take, and what’s the timeline, to address the issue while minimizing impacts to the rest of the company?
MD: We track the financial performance of each of the various disciplines as well as each of the firm’s branch offices. There’s no panic if one discipline or one location shows a temporary downward trend. We know there are always cycles and we have absolute confidence in our staff to know that any negative result will be reversed. One benefit of having multiple disciplines and locations is the balance that it affords.
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?
MD: We value the firm annually to set the stock price each year. We have a process for stock sale or purchase that can happen annually. The valuation is performed by our independent accountant using standard repeatable evaluation techniques which give us confidence from year to year of fair valuations.
TZL: Ownership transition can be tricky, to say the least. What’s the key to ensuring a smooth passing of the baton? What’s the biggest pitfall to avoid?
MD: Our transition plan is intended to be very attractive to future owners, so our process is carefully documented and thorough. As engineers, attention to detail is in our blood and so far, that has been a key element of process success. Another key element is simply the level of talent and commitment of those who have been offered ownership. So far, we have not experienced a big pitfall, but from experience, I would say that if someone sees an ownership transition happening in the next year, he/she is already behind the ball. The process is complex and takes at least 18 to 24 months.
TZL: What unique or innovative pricing strategies have you developed, or are you developing, to combat the commoditization of engineering services?
MD: Commoditization is a problem all engineers face. We don’t have any pricing strategies; we simply offer fair fees for the scope of work defined and encourage discussion if our fee is higher than expected. There are always comparisons to other firms and other projects and we sometimes lose work due to not offering the lowest fee. Our firm enjoys an excellent technical reputation which tends to associate us with more complicated projects that rely on our technical abilities versus just using the lowest priced engineer. We believe we offer the best overall value, and of course the client gets more than they pay for.
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?
MD: We do not have a set age, or years of experience metric that we use. We simply try to recognize the value of the individual and the contribution that person makes to the company. The original partners are now in their 50s and partnerships have been offered to senior project managers in their 40s and 30s.
TZL: What happens to the firm if you leave tomorrow?
MD: If I were to leave, the specific department that I manage would be just fine. Two of the newer partners are in my same department and they are excellent engineers, managers, and leaders. I’m confident they would do great in my absence.
TZL: A firm’s longevity is valuable. What are you doing to encourage your staff to stick around?
MD: We’ve been blessed with a staff that has remained loyal for many years. I don’t think there is any one feature or quality that has caused this retention. I believe a combination of family atmosphere, good compensation and benefits, challenging work, and respect for the employee have contributed to the longevity.