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What's Your Firm Type?

Mar 1, 2008 12:00 PM, Michael Eby, Editor-in-Chief

If you're looking to grow a business, you've basically got two choices: foster growth from within (sometimes referred to as organic growth) or expand via acquisition. As with most everything in life, there are pros and cons associated with each method.

Relying on internal growth to expand your business allows you to move at your own pace, promote from within, and hire additional employees to fill the gaps in your organization. I view this approach as the “slow-and-steady” option. Firms that take this approach generally don't put themselves in a position of high risk. Although they maintain tight control over their operation and keep close tabs on all facets of their organization, they can do so at a price. In taking this approach, you could easily miss out on some key action in high-growth markets. If you don't ramp up fast enough to take advantage of a hot market, you could miss out on some lucrative projects. By the time you get around to growing your operation to step into this area of business, it may be too late.

The second option to grow a business is through a merger or acquisition. This approach allows you to quickly gain access to new geographic areas and market segments. You immediately expand your talent pool and project management capabilities. You can also avoid the troubles associated with seeking out and hiring experienced professionals on the open market — a key issue in the electrical design arena these days. I view this as the “fast-and-furious” option. Although firms that take this approach can easily increase revenue levels and take advantage of economies of scale, they may also put themselves in a position of high risk. You can create some real headaches for yourself on the organizational front in the form of overlapping departments, clashes in business culture, and dissatisfaction and distrust among employees.

A review of this year's Top 40 Design Firms article on page 34 shows that both growth strategies can produce some healthy annual percentage gains in design services revenue. For instance, what I consider to be one of those internal growth-type companies on our list, R.G. Vanderweil Engineers of Boston has posted double-digit revenue gains for several years now. Taking the more aggressive route of expansion through acquisition has also produced double-digit revenue gains for Edmonton, Alberta, Canada-based Stantec, which announces new acquisitions on a regular basis.

The difficult question to answer is: Is one method better than the other? Although examples of success and failure exist on both fronts, I think to some degree the answer lies within each of us. If your personality fits the risk-taker mold, then seek out a firm that falls into the “expansion-through-acquisition” category. The constant state of change in this type of organization will serve you well. On the other hand, if you're a “steady-as-she-goes” type, then work for an organic growth-type firm. As you can see, both methods can produce on the revenue front.

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