2023 Is Full Steam Ahead—For Now
We’re at that time in January when we have largely stopped wishing each other a Happy New Year, our resolutions have been either partially or fully abandoned, and we’re locked into making 2023 another record year for our firms.
Last week, I connected with the CEOs of three successful industry firms to get their takes on what 2023 has in store for their organizations. For now, at least, it’s still full steam ahead. Here’s what they had to say:
President & CEO
Hitchcock Design Group
“All gas, no brakes is our philosophy in 2023. But admittedly, it is a confusing set of indicators right now. I haven’t experienced it before. As owners, we have been through the Great Recession, and we had some scars from it. But what we see now is different—persistent interest rates and inflation, labor shortages, costs of adding staff going through the roof with recruiters, and insatiable demand from our clients. You see what’s on TV, but then you see your backlog.
In my business, if I can see four months out, I’m fat and happy. Four months of current backlog is what I’ve seen for the last 35 years, and it’s always been good enough. Now our current backlog is 14 months. I have never experienced that before in my career.
We are kind of just floating with the industry and making good decisions as we go. Our revenue grew 20% last year despite the labor pool shortage. About 20% of my time shifted from business development to attracting people into the firm and existing people into ownership.
In any case, we had to prep for growth by making sure our project management tools and intranet were propped up, and our systems were strong. We smoothed out onboarding, and we got productive with new hires more quickly. We will add another 10 or so staff and will be at least 55 employees at the end of 2023. That’s been our trajectory for the last few years. On the revenue and profitability side, our sales increased 40% and revenue went up 20% in 2021. It was a record year for us, yet we blew that out of the water in 2022. Our profitability was up 45% last year.
Burnout was a real threat, but we still managed to keep voluntary turnover to zero. In fact, we haven’t had anyone voluntarily leave our company in the last five years. We find that people leave because of their supervisors, so we trained our supervisors to be good managers. We treat staff well, too. We pay at the top of the market.
Despite the talk of a recession, we are not going to change our approach. We intend to be good businesspeople, stay conservative, set achievable goals, and then hit it out of the park. That’s our cycle. But it certainly helps that public and institutional markets are through the roof right now. On the private developer side, projects keep going. There’s nothing going on hold. That said, we are not growing for growth’s sake. We are very picky about how we do it. Our goal is stability, profitability, and growth—in that order. That’s what we value and will continue to value.
We’re having fun. We like our business and our culture. We are making money and doing a lot of interesting work, and we are very diversified in our people and our portfolio. As a result of all that, we think we’ll end 2023 with the highest revenue we’ve had in our 44 years in business.”
President & CEO
“We’re well-diversified across different markets and have added geographic regions, and that has improved our outlook for 2023. We think while there will be a downturn in residential—and it’s actually already happening and impacting our business—it’s not the majority of our business. We can sustain a percentage of a downturn in that percentage of our work.
Our commercial development is pretty heavily into industrial and logistics, and there won’t be a big negative impact there. We are focusing on where our clients still have strength and positive movement. We anticipate transportation growing and being strong, as well as power and energy. We are a bit newer there, but we are growing and will focus on continued growth in that market. It’s another sector we don’t believe will be negatively impacted by a potential recession. In the meantime, we won’t pull out of residential, but we will divert some resources to stronger markets. Looking back, we had a very strong 2022 with 32% growth in revenue, which was partly achieved through an acquisition. We are figuring out now what our revenue target will be for 2023. We think we could win more work if we did another acquisition. And if we could hire enough people, we could grow another 30%.
In any case, the governor will be how many people we can hire and acquire, not how much work we can win. For us, we saw a little uptick in turnover in 2022. A lot of industry firms experienced that. If you can work from home, the whole world is open to you. So we are focusing on retention as well as recruiting. At 340 staff, we want to hire 80 people next year. We think we have that much work. But if we need to hire 80 people, we can’t lose 30. Then we have to hire 110. We’re still below the industry norm for turnover despite the uptick, but we still want to drive it down.
To that end, we are focused on leadership training in 2023. We want to make sure people feel connected to the firm and have opportunities. And we must be competitive with salaries. We did a big exercise with peers and got a decent feeling with where the industry is going with raises.
But as I am sure is happening with a lot of firms, we are paying new people more than what we paid the same level of staff the year before, so we need to bump those people up to even things out, and that pushes the whole salary structure. We need to be solid in recruiting and retention—we had a great year in 2022, but we are entering 2023 with a really strong backlog—as strong as it has ever been.
We are just resource-constrained in terms of how much we can grow. To make the most of what we do have, we are going to continue to invest in technology so we can improve efficiency. We have evolved to look at technology as a strategy and not just a tool. We are also looking to push client interaction and development down the ladder and trust more of our people with that responsibility. We have to challenge ourselves to give people the chance to step up and manage clients. For some, it’s a mindset change—but let them surprise us.”
“We had a really good year in 2022—almost 10% over our goal, and profitability was through the roof. I can’t complain. Now we just need to do it again. I hate to turn the calendar so quickly, but I have high expectations for our firm and everyone in it. And we should be able to come through because we are better-equipped now to withstand a downturn. Our client base is nearly 50/50 public to private. We are a lot more involved in public-sector work than we were even a couple of years ago, and we built up a lot of backlog.
Homebuilders are definitely pulling back. We have projects that are being cancelled and purchases are slowing down. Home builders have paused. Sales are little to none. They had been going hard after profits and rather than dropping prices and stringing things out a bit, they went aggressively after high margins. At least partially because of that, they are slowing down. Around here, home builders are cutting one-third of their staff. The pause looks like it will last at least six months. Interest rates and construction costs are driving this housing downturn. Construction costs, in particular, are hard to track. They eat into spending budgets on other projects, which end up getting delayed or canceled as a result—and that’s even happening on the public side in some cases.
We will see a slowdown of 30-40% in private work, especially in the first half of the year. Overall though, it’s still not that bad. Las Vegas is resilient, and the sagging sectors will come back. In the meantime, the population in Las Vegas is growing, and there are plenty of opportunities. The school districts have a pretty good tax base, we’ve picked up airport work (the FAA has a lot of money out there), and there are opportunities with water, especially in our area.
On the private side, industrial/warehousing and big-box retail/commercial centers are still very active. We will maintain our focus on strengthening our relationships with large clients that value what we do and supply us with large projects. We don’t want to be a mile wide and an inch deep with our client relationships, or we’ll be the first ones out the door when things get tough. As our types of projects shift, we will move our people to where the demand is. We don’t want to just keep our 150 people busy. We need to get things done.”
Questions? Comments? Call Mark Goodale at 508.254.3914 or send an email to [email protected].