Optimism is a great thing. As integration firms move forward in 2013, we hope they’re anticipating a surge in business. After underwhelming industry performance in 2012 (see State of the Industry Report), that would be a godsend.
However, it’s important for integration firms not to let a blessing turn into a curse.
When integrators clamp onto a large project or a cluster of projects that triggers significant company growth, “the ride up is a lot of fun,” says NSCA executive director Chuck Wilson. “Then the ride down kind of sucks.”
Many integration firms have had to endure the heart-wrenching act of laying off employees over the last few years. As firms (hopefully) generate new revenue, they should take a measured approach to replenishing their workforce, otherwise they risk being in the same painful situation that Wilson says “so many companies have had to deal with over the past couple of years.”
Take Audio Video Systems (AVS) for example. The Chantilly, Va.-based firm saw nearly 100 percent growth in 2011 as it rode the success of three large government projects. A June 2012 CI profile examined the $71 million year that redefined AVS in 2011.
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There are lessons to be learned from what happened after the U.S. federal government’s cost-cutting Base Realignment and Closure (BRAC) initiative related projects came back down to earth.
While AVS showed huge growth in 2011, the two-decade-old firm did not expect this to continue in 2012. The firm bulked up its workforce in order to deliver on the BRAC projects, but had to right-size for 2012.
AVS sees how fortunate they were in 2011, but now plans for more gradual growth. Geographic expansion into Alabama and Hawaii to support the Asia Pacific government growth is what AVS believes will help define it in 2013.
Besides diversification, another way firms can insulate themselves from the year-after-a-great-year syndrome, according to Wilson, is to pay close attention to cash flow.
“So many companies, when they look at taking on sizable projects, underestimate how tight the lenders are right now in terms of taking risk,” he says. “Also, [integration firm executives] will assume that they have a great relationship with their [surety] companies.”
However, if it has been a while since a firm has bid on a large project, they can’t assume the surety partner is still willing to extend such a sizable bond. More than ever, Wilson says, surety companies need assurance that integrators have a high level of expertise in the particular type of project they’re pursuing.
Wilson advises integrators to make a point “to call your bonding company and make sure your lines of credit are still there.”
Integration firms that take on too much business can also run into trouble when they “inevitably send their B team to some projects,” Wilson says. “Those are the ones that come back to haunt you, because you don’t have the [highest] level of project management.”
Of course, the need to prepare for surges in business is a good problem to have. The trick is to be savvy and smart about taking on too much.