State of the A/E industry

I may be known locally for the houses and other buildings we built or rebuilt through our design-build-development company Mark Zweig Inc.

But the truth is, the other business I started in 1988, Zweig Group, is known nationwide as the leading provider of management information and education for the architecture and engineering (A/E) industry. And I have worked in the A/E industry for a total of 40 years now, having had ownership in several different firms both before and after starting Zweig Group.

Each year, we work with the top management of literally hundreds of A/E firms, helping them with every sort of management problem, from business planning to mergers and acquisitions to turnarounds to appraisal. We also do more than 20 studies on all aspects of the industry annually and provide awards each year to the 100 fastest-growing A/E firms and those that are identified as the Best Firms to Work For.

The point of all this is I have a unique perspective on the industry, having dedicated my professional career to it.

So, what is the state of the A/E industry today? Here are my observations and thoughts.

The A/E industry is very healthy. The average firm made a 15% pre-tax, pre-bonus profit last year, and had a three-year growth rate of 15%. But if those numbers don’t impress you, the real eye-opener is the average pre-tax, pre-bonus return on equity was 60.2%.

Not many businesses can claim that as their industry average. Salaries are high (average base salary for principals is $179,400), bonuses are large (average of $68,200, not including shareholder distributions), and firms are very busy with significant workloads and backlogs of work nationwide.

Our local firms in Northwest Arkansas are reflecting what we see nationally. Do I think firms are universally doing what they should be doing to sustain this kind of performance? No. Marketing efforts are still woefully inadequate. While most firms’ marketing capabilities have improved over the past decade, their budgets and activities have been slowly declining because business is basically so easy to get for any qualified firms with the capacity to do it.

The No. 1 problem cited by firm management today is their inability to find sufficient qualified staff. That is one of the top challenges cited by A/E firm owners and managers for several years. In spite of that, most A/E firms have little or no recruiting budget. That’s why it has been and remains a problem today for most companies. And A/E firms aren’t just competing with each other for the limited talent pool in many fields. They have to compete with both the public sector and more significant industries that are recruiting architects and engineers.

A/E firms need to be realistic about what hiring costs are and commit to spending the necessary money to get this issue off the top of their “problem” lists.

The No. 2 problem cited by management is the performance of the U.S. economy. In spite of its overall strength, some industries and markets served by A/E firms have been negatively affected by tariffs. But beyond that, there is a growing uneasiness that the strong economy cannot last. More owners and managers are reporting they think we are “due” for a recession. Although I make no claims to be an economist, when you look at how long this boom has lasted, combined with the fact we are now in an election year, I think you’d be crazy not to consider some slowdown will have to occur during 2020.

I’ve got a lot more to say about this business, but I am out of space. I will add, however, that I’m glad to be here in Northwest Arkansas with some great firms like Garver, Marlon Blackwell Architects, HFA, Crafton Tull and many more.

Mark Zweig is the founder of two Fayetteville-based Inc. 500/5000 companies. He is also an executive in-residence teaching entrepreneurship in the Sam M. Walton College of Business at the University of Arkansas. The opinions expressed are those of the author.