Is Your Civil Engineering Firm Suffering from Profititis – Here’s How to Tell!

Key Concepts:

• Profitis: A condition where companies have strong revenue but weak net profitability, owner distributions, and cash flow.
• Profit Psychology: Shifting mindset from prioritizing revenue growth to focusing on bottom-line profitability.
• Less Worst: Identifying and eliminating underperforming elements of the business (projects, customers, staff, etc.).
• Profit CFO: Simplifying and streamlining financial reports and improving financial literacy among the management team.
• Profit Growth: Doubling down on the company's sweet spots and most profitable areas.
• 50/20 Principle: Cutting half of the worst 20% of underperforming elements in the next 30 days.
• Raise the Bar: Evaluating subcontractors (or other elements) based on contribution and alignment to values to identify and address underperformance.

1. Introduction and Profitis

• Anthony Fisano introduces Ben Hansen, the "Profit Doctor," who helps midsize firms become more profitable.
• Ben defines "profitis" as a situation where a company has strong revenue but struggles with net profitability, owner distributions, and cash flow.
• The goal is to shift focus from topline revenue to bottom-line profitability.
• The recent increase in private equity firms acquiring civil infrastructure consulting firms has put a spotlight on profits.

2. Private Equity Playbook and Profit Prescription

• Ben suggests applying the private equity playbook to midsize companies, even without a sale or acquisition.
• Private equity firms identify and eliminate underperforming elements of a company while doubling down on high-performing areas.
• The "profit prescription" involves shifting the mindset from revenue growth to bottom-line profitability.
• The business press's focus on Silicon Valley and SaaS companies promotes a "hockey playbook" of spending heavily for rapid growth, which is not suitable for most companies, especially civil engineering firms.
• The key is to use the right playbook for the "sport" you're playing, focusing on bottom-line profitability and cash flow for non-SaaS companies.

3. Four-Part Profit Framework

• Ben outlines a four-part framework to improve profitability:
  • Profit Psychology: Shifting from "getting the business" to "getting good business."
  • Less Worst: Cutting underperforming elements like bad projects, customers, staff, market segments, or subcontractors.
  • Profit CFO: Simplifying financial reports and improving financial literacy among the management team. Many CEOs in construction came up through the trades and may not have strong financial backgrounds.
  • Profit Growth: Doubling down on sweet spots instead of trying to do more of everything.
• By doing less of the worst things, companies save time and money, which can be reinvested in profitable areas or returned to the owners.

4. Application to Civil Engineering Companies

• The framework is applicable to civil engineering because many firms take on unprofitable projects or clients (e.g., government work without proper expertise).
• Project managers, who are often engineers or architects, may lack financial training, leading to unprofitable projects.
• Educating project managers on the financial aspects of projects is crucial for improving profitability.
• Civil engineering firms should analyze project types to identify the most profitable ones (e.g., roadway projects vs. residential subdivisions).

5. Optimizing Project Delivery and "Operation Dog Catcher"

• Companies with below-average profitability often have a disconnect between bidding, executing, and post-mortem analysis of projects.
• Projects may be 80% through the bid hours but only 30-50% complete, leading to cost overruns.
• "Operation Dog Catcher" involves identifying and avoiding unprofitable projects or fixing issues before they go astray.

6. The 50/20 Principle

• Ben applies a twist to the 80/20 rule, focusing on the bottom 20% of performers.
• The 50/20 principle involves cutting half of the worst 20% in the next 30 days.
• This can be applied to team members, products/services, customers, market segments, subcontractors, and vendors.
• Gallup's global workplace study shows that roughly 18% of employees are actively disengaged.

7. Raise the Bar Approach

• The "Raise the Bar" approach helps leaders identify and address underperformance.
• Subcontractors (or other elements) are evaluated based on contribution to the business (high, medium, low) and alignment to values (high, medium, low).
• The bottom 20% in the low-low intersection are prime candidates for reduction.
• Addressing problem areas frees up time and resources to focus on high performers.

8. The Importance of Audits and Pruning

• Businesses should periodically audit their activities to identify and eliminate unprofitable areas.
• This is especially important for companies that have organically grown over time and accumulated activities that are no longer effective.
• Cutting unprofitable activities saves money and frees up time for more profitable endeavors.

9. Final Advice

• Follow Ben Hansen ("Profit Doctor Ben Hansen") on LinkedIn for content on profitability.
• Have a "profit intervention" to focus on profitability.
• Be cautious about taking on marginal work just to keep people busy.
• Apply the 50/20 principle to cut half of the worst 20% in the next 30 days, focusing on terrible clients, market segments, project types, and staff.

10. Conclusion

• Ben Hansen provides actionable advice for civil engineering leaders to improve their bottom line by focusing on profitability, eliminating underperforming areas, and streamlining their operations.
• He encourages listeners to visit profitdoctor.com or connect with him on LinkedIn for more information and resources.