President and CEO of LACO (Best Firm Multi-discipline #46 for 2018), a California firm with a famously branded shirt.
By Liisa Andreassen
“During the lean years, it wasn’t very attractive to become an owner,” Nelson says. “We had difficulty in retiring underperforming principals as well as attracting new owners. We have since improved our financial performance and focused on attracting more shareholders by having tangible benefits of ownership and cultivating our rising stars.”
A CONVERSATION WITH MIKE NELSON.
The Zweig Letter: When did you have the most fun running your firm, and what were the hallmarks of that time in your professional life?
Mike Nelson: There have been many ups and downs over the years, but I would have to say from 2017 to 2018. It was a strong growth period for us. We acquired a survey firm and several key new hires and improved our company culture. We had a number of marketing initiatives that really took off. Our marketing efforts for “#inmylacoshirt” was a great success – more than I ever expected and I am really proud of our team for building company culture around this initiative. We promoted our staff doing community service events, traveling, enjoying nature, going to site visits on projects or anything else they are passionate about in their LACO shirt. Our staff really enjoyed it and went above and beyond from skydiving to international travel and even a wedding! I am also proud to say we received a Zweig Group Marketing Excellence award for our #inmylacoshirt staff yearbook.
TZL: Are you currently pursuing the R&D tax credit?
MN: Yes. This is the second time we are doing it. It has considerable benefits and we’re still learning the ropes about how best to take advantage of it. It’s all about capturing those opportunities up front rather than after the fact. It can offset investments, encourage companies to stay up to speed on regulatory changes, and can encourage innovation. It’s good for the industry.
TZL: Do you share base salary or bonus amounts with your entire staff?
MN: We do not share base salary information or individual bonus amounts. We do share company overall performance on key performance metrics, such as net service revenue, utilization and profit. We also share the total or gross bonus amounts that are distributed quarterly. We are not always profitable in every quarter and profit sharing is adjusted accordingly (i.e., different percentages for employees, managers, owners, etc.)
TZL: Have you ever closed an under-performing office? If so, tell us about it.
MN: Yes. It was about 10 years ago. We simultaneously opened offices in Concord, California (one hour east of San Francisco), and Ukiah, California (two-and-a-half hours north of San Francisco). Both were a slow start, but Ukiah has grown significantly since then; Concord failed and we closed it after one year. There were several contributing factors to the differences between the two office locations. Concord was a more sophisticated and expensive location and was a bigger stretch for us, geographically. The San Francisco Bay area is a challenging market with well-established competition that was much better capitalized than we were at the time. In general terms, successful Bay Area firms are either very large or highly specialized niche providers (there are successful firms outside these parameters, but most have been established for a longer time). We couldn’t get traction in the Bay Area market in a time frame that we could capitalize on.
Overall, LACO has had success as rural generalists providing a range of professional services rather than as an urban specialist or being a very large firm. Other factors include the quality of the leadership in each location and the ability to capture market share. In Concord, we were a small fish in a very large pond whereas in Ukiah we became big fish in a small pond in a rural area that was more similar to our experience and history in Eureka. Ukiah now accounts for 41 percent of LACO gross revenues.
TZL: Internal transition is expensive. How do you “sell” this investment opportunity to your next generation of principals? How do you prepare them for the next step?
MN: This is a great question. LACO had challenges with this during the economic downturn. In 65 years of business, LACO has had to navigate at least three major ownership transitions and several smaller transactions with shareholders. During the lean years, it wasn’t very attractive to become an owner. We had difficulty in retiring underperforming principals as well as attracting new owners. We have since improved our financial performance and focused on attracting more shareholders by having tangible benefits of ownership and cultivating our rising stars. We now have eight owners, but it’s still a challenge. Preparing the next generation for ownership is an area we can still improve on, but we start with identifying candidates and pairing them up with a strong leader. They do things like go to client meetings together. Last year we also acquired a small firm of eight that had strong leaders that could be on track for ownership.
TZL: Describe the challenges you encountered in building your management team over the lifetime of your leadership. Have you ever terminated or demoted long-time leaders as the firm grew? How did you handle it?
MN: We had a principal who had kind of “retired in place.” I had to deal with that and really retire the person through termination. It was time to make room for new leadership. We’ve also grown to a size that is beyond some of our expertise and, as a result, are looking to add more people from the outside to join the board, including people from other industries.
TZL: In one word or phrase, what do you describe as your number one job responsibility as CEO?
MN: Keep everyone going in the right direction.
TZL: The seller-doer model is very successful, but with growth you need to adapt to new models. What is your program?
MN: It’s a current challenge. All of our key managers are in seller/doer roles. They do it all. The challenge is there is too much on their plate. It’s a bandwidth situation. We are working to take the seller/doer model to the next tier and distributing more to project managers. Right now we have three to four department managers who do it all. We’re looking to train more mid-level people to handle more of these tasks. It’s similar to our internal transition leadership model. We have to manage burnout.
TZL: Diversity and inclusion is lacking. What steps are you taking to address this issue?
MN: We are looking to have more female managers and working through internship programs and with universities. Currently, three out of our eight owners are women and we are pretty proud of that. We have a high level of diversity at the firm and have tribal members as key managers. It’s important to have a variety of opinions and backgrounds – we need different perspectives.
TZL: A firm’s longevity is valuable. What are you doing to encourage your staff to stick around?
MN: We have declared that we want to be among the Best Firms To Work For. We’re a professional but fun place. While we can’t compete with the perks offered at places like Google and Apple, we do pretty well in that department. We have lots of social events, ping pong tables, and communicate to people that we’re not just a place to have a job – we build careers. We want people to know that we’re in it for the long-term.
TZL: If the worker shortage continues, do you see wages increasing to encourage more talent to enter the AEC space, or will technology be used to counter the reduced work force?
MN: There’s continued wage pressure. We’re working to bridge the gap and are promoting our strong culture. We encourage flexibility, promote working from home, and highlight that we are in an area where there is a lower cost of living when compared to many other regions. We’re working to capitalize on our culture – smaller teams on projects and opportunities to work on specialty projects. So, quality of life, cost of living, and interesting jobs.
TZL: Engineers love being engineers, but what are you doing to instill a business culture in your firm?
MN: We’re working to train project manager assistants or project coordinators. It’s rare to get people who can do it all well. People tend to gravitate to what they like to do. We’re pairing up people to work together. For example, tech people who show a strong affinity for financials – they’re likely a strong candidate for the leadership track.