Thriving through the recession

CE May 2010 » Features » BUSINESS STRATEGIES
Firms pursue hot markets by cautiously diversifying services and clients.
John Geddie

There’s no question about it — the economy has been in a deep freeze for many months. National economy-watchers see promising signs of a thaw, but it will be many more months before the marketplace returns to “normal.” The economic downturn has heightened competition in virtually every market. As Keith Rupert, president of CTA Architects-Engineers in Billings, Mont., said, “Many firms have abandoned their target marketing strategies and are chasing everything in sight. Our clients report that it is not unusual to get 50 submittals for a single project. Even multiple-award task order contracts find us competing with dozens of firms for each task order.”

That view of the competitive environment is shared by Lee Cammack, president of JUB Engineers, a regional firm based in Boise, Idaho. Cammack indicated that the city of Meridian, Idaho, recently went out for RFPs in 19 categories and got an overwhelming response. Purchasing agent Kathy Wanner with the city of Meridian said 32 firms responded to an RFQ solicitation for a town of only 80,000 people. With a smaller pie and more firms trying to get a piece of it, Spencer Francis of Bowman Consulting Group in Richmond, Va., said, “The competition for every job that comes out is as stiff as it’s ever been.”

So how can your firm thrive and prosper in times like these? The secret is a combination of pursuing hot markets and a longer-term strategy of diversifying your firm’s portfolio of services and its client base.

First, take care of your existing clients. Dazzle them with service. If your clients have experienced budget cuts, show them that you are still concerned about them. Look for creative ways to add value without expecting anything in return. Your existing clients will remember you favorably when conditions improve. Second, revisit your marketing targets. Refocus on those potential clients you have the greatest potential to win work with and launch a campaign to show them you are the best choice. Third, understand your competitors’ value propositions. Marketing is all about positioning. It’s hard to position your firm when you don’t know what you are positioning relative to. Learn about your competitor’s strengths as well as your own, and find your firm’s unique value proposition — the things you can do better than anyone else.

Fourth, cautiously diversify. If the economic downturn has taught engineering firms one powerful lesson, it is the danger of being too narrowly focused. The way to protect your firm from the ups and downs of individual markets is cautious diversification into adjacent markets or with a new client base for the services you already provide. Remember that the further you get from the core services you now provide, the less likely you will be successful.

If your firm has historically served the private sector, you won’t make significant inroads into the public sector overnight. Nor can a firm with its roots in public-sector work instantly transition into the private sector. The markets are inherently different with different drivers. But now is the time to begin building relationships with potential new clients. Invest some time in market research to learn about the challenges they face every day, whether it be declining budgets, increased regulation, or the changing sentiments of their constituents. When you figure out where the potential client’s pain is, you are poised to provide an appropriate remedy.

Engineers who have historically focused on private-sector work have borne the brunt of the economic decline. The residential land development market is virtually dead in most sections of the country. In cities such as Houston, developers have moved ahead cautiously on some projects. “Those developers who had projects farther along in the pipeline or where the price point for the homes was right are moving forward,” said Allen Watson, president of Houston-based Cobb Fendley. However, those bright spots are extremely rare nationwide.

The prospects of the transportation market may be brighter now that the battle over health care reform is no longer at the top of the political agenda. Arnie Cohen, president of CP&Y in Dallas, said, “We are one step closer to a highway and transit bill to replace SAFETEA-LU now that the battle over health care reform has died down.” Cohen said prospects for quick transportation legislation may be enhanced by the fact that transportation spending would fuel job growth.

High-speed rail has garnered the attention of firms nationwide. In fact, more than $8 billion in funding for high-speed rail was recently awarded by the federal government. Since much of the funding is to be used to improve existing rail lines, small- to medium-sized firms could be selected for some of those projects.

Design-build transportation markets also remain strong, and although many of the teams are already in place for projects funded by recent stimulus spending, opportunities exist for firms to act as subcontractors in cities where vast amounts of transportation design and construction are underway.

The health care market is seeing some movement and the Wall Street Journal reported that the qualification of millions of new people for health insurance may create new demand for medical office space. Even so, the competition for health care projects is intense. CTA’s Rupert said, “Hospitals are looking at national consultants for even modest projects. Many national firms are intensely chasing health care work.”

Many firms find that the energy market for engineering disciplines remains solid. Mechanical and electrical work, commissioning, and energy retrofits are keeping firms busy, especially as owners look for ways to rein in energy costs. The push for clean energy sources such as biofuels, geothermal, and wind energy is also being funded in many states.

After a flurry of activity by state and municipal governments during the first year of the American Recovery and Reinvestment Act, spending has slowed. Firms nationwide report that budget woes affecting state and local governments have meant fewer projects put out to bid. The exceptions are agencies with bonding capacity and a revenue stream to support it, such as water utilities and municipal utility districts. In Virginia, several school districts are building new high schools and renovating others.

An aging infrastructure and population increases will continue to fuel growth in the water and wastewater sector. The need for moving water from one location to another is also a growth factor. “There’s plenty of water on the east side of Texas and a lack of it on the west side of the state,” said Cobb Fendley’s Allen Watson. “Getting the water to where it’s needed should mean more water projects ahead.”

Despite the temptation to chase work on the fringes of a firm’s core competence, or with clients where no relationship exists, many firms are going back to the basics of marketing. As CP&Y’s Cohen stated, “We are building relationships in markets that will have money and are aligned with our core business.”

It’s easy to get distracted when times are tough and abandon the tried and true marketing ideas that have proven successful. Firms that will successfully weather the economic storm are the ones that regain their focus and approach the future with logic and rationality.

Difficult times create opportunities in the water/wastewater market
The U.S. water and wastewater industry is evolving because of evaporating funds, system failure, increased pressure on natural resources, and strict regulations. However, according to FMI, alternate methods of financing, design, and project delivery provide engineering and construction firms with new opportunities.

Total U.S. water supply construction put in place has grown from $7.6 billion in 1999 to $16.6 billion in 2009. It is expected to grow to $20.2 billion by 2013. The total U.S. wastewater construction market has more than tripled in size during the last decade, from $3.2 billion in 1999 to $10.3 billion in 2009.

The responsibility is on innovative engineering and construction firms to offer solutions, said FMI. Design-build and construction management at-risk project delivery now represents about 20 to 30 percent of all U.S. water and wastewater projects. FMI expects these numbers to shift toward design-build and other alternative delivery methods as municipalities are forced to find new ways to deliver projects faster, cheaper, and more efficiently to meet stringent consent decrees while operating within limited budgets.

John Geddie is president, Geddie & Associates, Inc., a management consulting and training firm based in Albuquerque, N.M. He can be contacted at john@geddie.net.


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