Executive Corner: A New Age of A/E Entrepreneurship Is Here
With industry headlines everywhere addressing severe talent shortages, rampant consolidation, record backlogs, digital transformation, inflation and private-equity involvement, one intriguing development has quietly gone under the radar. During the last five years, some of the industry’s brightest young leaders have formed a growing number of startups. And given A/E demographics, coupled with a healthy long-term infrastructure and building outlook, we believe we’re on the verge of a boom in newly created firms everywhere.
The Next Generation
During this time, I’ve enjoyed countless conversations with young founders from every background, geography and discipline. These men and women courageously “took the plunge” into starting new environmental, architecture, surveying, engineering and construction companies. A generation shaped by capitalist contests and mogul influencers from “Shark Tank” and “The Profit” to Elon Musk and Beyoncé is stepping out from the Baby Boomer shadows. These motivated individuals also incorporate a 21st-century mindset to design their organizations by breaking molds with mission, technology, diversity, balance and culture.
Contrast today to the disruptive labor aftermath of the Great Recession 10 years ago. With massive layoffs and dwindling project opportunities, dislocated individuals started firms but mostly put out one-person “shingles” or became freelancers and 1099 contractors. Ultimately, they participated in the foundation for the 2010’s “gig economy.” However, speaking with founders today, the current landscape is much more oriented toward purposeful growth and building long-term value.
Factors driving A/E startups include the following:
1. The largest U.S. population segment is 30- to 40-year-old Millennials. The majority of new ventures in our sector are launched by professionals that possess 10-15 years of design or consulting experience. They steadily build their technical knowledge and business-development skills upon college graduation by working at larger A/E employers. By their mid-30s, they have the confidence to leave and recognize the sacrifices involved. Although perhaps more risk-averse than the Baby Boomers were, the sheer volume of Millennials bodes well for widespread startups. Incidentally, that number of prime-age individuals today is substantially larger than similar Generation X levels earlier this decade.
2. Economic and societal turmoil encourages startups. Tough times empower individuals to seek out better opportunities for themselves—it’s the “American Way.” Microsoft and Apple were hatched during the stagflation 1970s, as were many A/E organizations currently on the ENR 500. And while getting an exact read on the number of new A/E firms produced each year is elusive, the Washington, D.C., research and policy firm Economic Innovation Group recently reported a surge in professional-services firms born throughout the pandemic. They note that “professional and technical service firms accounted for 23 percent of the approximate net 746,000 business establishments added between Q3 2019 and Q3 2021.” My hunch is 10 years from now, we’ll see a proliferation of mature A/E firms that will point to pandemic origins and motivations.
3. Emerging technologies and nascent markets created enormous prospects. My conversations with a range of entrepreneurs included several traditional A/E practices, clients and services. However, I’ve also heard fascinating stories from owners who moved into positions with new offerings and tools that barely existed 10 years ago. Think about dynamic and evolving areas such as ITS (intelligent transportation services and mobility), digital water modeling and data analytics, drone technology and ancillary GIS/geospatial software and collection, renewable and alternative energy design, and ESG and sustainability consulting.
4. Barriers to entry have never been lower. Ask anyone who’s experienced what the costs of starting an A/E firm were like 15 or 20 years ago: finding affordable office space; a storage room full of servers and pricey telephone networking equipment; maintaining an internet site; finding employees through newspaper ads; and sending out voluminous U.S. mail campaigns for announcements and lead generation. Not today. Convenient and reliable cloud software, mobile communications, and advanced smartphones have made starting a business faster and easier. On top of it, the pandemic spurred a range of flexible “work from home” collaboration models, allowing some employees to be based anywhere. And, of course, the advent of social media has dramatically facilitated recruiting, networking and marketing efforts.
5. Lack of ownership opportunities and poor M&A integration have contributed to talent exodus. One common theme across my discussions with founders is they bristle at the labels put on their generation: entitled, lazy, want things handed to them, would rather play than work, etc. Many of them shared that they either hit a ceiling at their current employer, felt neglected or passed over, or didn’t see meaningful chances for ownership participation. Some left because their firm was part of a sale that went poorly, leaving their careers adrift or a cultural difference they didn’t expect. Others who departed for the above reasons were grateful for various federal and state set-aside programs as an incentive to get going.
To all of those brave A/E leaders living the dream and building that organizational blueprint for long-term success, congratulations! For those contemplating a new endeavor, plan carefully, get good advice and trust your gut. Carpe diem!