This document discusses a study analyzing whether mid-sized consulting and engineering firms are poised for demise as some analysts have suggested. The study analyzed data from Engineering News-Record's Top 500 Design Firms lists going back to the 1970s. It found that mid-sized firms with revenues between $17-113 million maintained or increased their market share and numbers over time. Specifically, mid-sized firms in transportation remained constant, while those in general building increased by 11.6% over the years. This suggests mid-sized firms have more resilience than expected and can thrive without needing to grow into large firms or be acquired. The study challenges the view that mid-sized firms cannot survive long-term.

1. Volume XXVI No. 10/11, 2013 Environmental Business International Inc.REPRINT - Consulting & Engineering 2013
Continued on page 2
DEATH OF MID-SIZE FIRM IMMINENT?
NEW DATA SAYS “NOT SO FAST”
F
or a number of years now, many
observers of the environmental
consulting and engineering indus-
try, and the architectural and engineering
industry generally, have suggested that the
mid-size firm is on a course towards ex-
tinction. Pressed from above by more re-
source-rich large firms and from below by
more nimble and locally connected small
firms, the mid-size companies supposedly
face the choice of growing, selling out to a
larger firm, or perishing.
A mid-size firm, by this account, has as
much chance for long-term survival as the
great auk. Evolve out of the mid-size cat-
egory, or die.
Not every industry analyst or profes-
sional subscribes to this view. The mid-size
firm, however you define it—$15 million
or $20 million to $100 million or more in
revenue—never seems to go away. More-
over, a good number of firms within this
approximate revenue range are thriving
even as they resist the urge to sell, and they
insist on maintaining control of their own
destinies. In any case, real data determin-
ing whether mid-size firms are poised for
demise or can thrive as mid-size firms was
lacking.
Until now. An ongoing study by a team
of academics and industry veterans is gen-
erating findings indicating that mid-size
firms have staying power. How they’re do-
ing it will be the focus of the next phase of
the study, but for now, the data indicates
that mid-size firms can persist with a resil-
ience that may come as a surprise to some
industry analysts.
Industry veterans Gerry Salontai and
Rod Hoffman, now respectively with the
strategic planning, business management,
and leadership development consultancies
Salontai Consulting Group, LLC (Ran-
cho Santa Fe, CA) and S&H Consulting
LLC (Evergreen, CO), jest about whose
idea it originally was to peel back the on-
ion and look in depth at the “demise of the
mid-size firm” hypothesis. Both, however,
had long suspected that the hypothesis was
lacking in support, and they decided joint-
ly that it was ripe for analysis.
“Those firms that establish
and maintain very deep
relationships with clients
persevere in the ups and
downs of economics cycles.”
Salontai, formerly head of architectural
and engineering (A/E) firm Kleinfelder
(San Diego, CA), and Hoffman, national
director for strategic planning and acquisi-
tions for many years at multidisciplinary
engineering firm HDR Inc. (Omaha, NE)
until about 2008, formed a collaboration
with Jeff Holcomb, chief development
officer at Larson Engineering (St. Paul,
MN), and Colvin Matheson of Matheson
Financial Advisors (McLean, VA) to as-
sess the place of mid-size firms in the A/E
industry. As a key first step, they engaged
University of Colorado engineering profes-
sor Paul Chinowsky to, as Matheson puts
it, “slice and dice the numbers” from Engi-
neering News-Record’s (ENR) Top 500 De-
sign Firms lists going back to the 1970s.
Looking back that far would pull in a
full series of economic cycles, including
the 1980-82 recession, which at the time
“was the biggest since the Great Depres-
sion,” Matheson tells EBJ. Although the
lists reported revenue by groups rather
than individual companies prior to 1986,
and although the reporting segments have
changed over time (e.g., the Top 500 no
longer breaks out hazardous materials, even
though the ENR Top 200 Environmental
Firms lists do), the study period provides
a solid basis to evaluate company perfor-
mance through economic cycles, including
the latest one, which was “the deepest re-
cession in 80 years,” says Matheson.
The analysis broke the company popu-
lation into peer groups, with the “mega-
firms” constituting the top 10 by revenue,
the very large consisting of numbers 11
through 30 on the lists, the large check-
ing in at ranks 31 through 100, and the
medium-size firms constituting ranks 101
through 500. The number 100 firm on any
given list “had about $100 million to $115
million in revenue,” says Matheson.
MID-SIZE FIRMS GAIN
GROUND
A key finding in the “slicing and dic-
ing” of the data for these peer groups was
the following: firms with revenue ranging
from $17 million to $113 million main-
tained or increased their numbers and their
market shares in several key sectors over
the years, while constituting just 7% of
the total industry. In addition, the research
team found that the number of mid-size
firms in transportation remained constant,
while those in the general building sector
increased over the years by 11.6%.
These data do beg a question however:
Do they show that mid-size firms are more
resilient than some have suspected, or do
they simply show that there is a life cycle
for A/E firms—growth from small to mid-
size and then either continued growth to
“large,” or acquisition by larger firms, or
failure, with a constant stream of compa-
nies moving through the pipeline?
“It’s a little of both,” says Salontai.
“There are some firms that have gone
through the cycle from small to medium

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to large and very large. They’ve done that
quite successfully and done it by design,
putting together a strategy that allowed
them to do so.”
Other companies have gone through
portions of the cycle and “ultimately sold
the business,” Salontai continues. “And
there are others that have stayed in the
mid-size firm category.” These firms have
“maintained their ownership structure and
not sold the company, because it’s their
stated goal not to do that. They’ve em-
braced a philosophy that says, ‘we’re going
to stay privately held, control our destiny,
and grow at a respectable rate,’ and they’ve
succeeded in doing so. They want to create
a ‘generational-type’ company.”
There are many firms—some clients of
Salontai’s—that “are very committed to
their ownership structure.” They cite that
strong desire to control their own destiny
and to foster a collaborative culture that
facilitates professional development as the
primary reasons for that commitment. If
there were a third reason, it would be an
ability to retain competitive advantage and
provide more attention to the client, Sa-
lontai observes.
RESILIENCE OVER TIME
Hoffman goes back to the study data
to underscore the view that mid-size firms
are, indeed, demonstrating resilience.
Over the 35-year study period, he points
out, about 1,550 firms were listed on the
ENR 500 at one time or another. Of these,
61 firms have been listed every year—not
necessarily increasing in rankings, but at
least remaining on the list—and of those,
31 were what the study team classified as
mid-size firms.
Taking a deeper look, the team found
that, of the 61, 37 firms actually did in-
crease their rankings over time, and of
those, 18 companies were mid-size firms.
“Then it gets really interesting,” Hoff-
man tells EBJ. Of the 37 firms that stayed
listed through the study period and in-
creased their rankings, 17 out-performed
their peer groups. Of those 17 firms, 10
were mid-size companies. “These guys
aren’t going away. They are performing
quite well.”
There were other findings that pre-
sented some surprise, not just about mid-
size firms but about the nature of the A/E
industry generally, Hoffman points out.
Most tellingly, while many analysts have
tended to regard the ENR 500 as very rep-
resentative of the industry, that population
of companies actually accounts for only
one-third of total industry volume.
“Two-thirds of the revenue generated is
coming from firms not on the ENR 500,”
he notes. The total universe encompasses
about 115,000 firms, so “it’s a smaller-firm
industry.”
MA TARGETS ARE SMALL
Which makes sense of some of the
historic data around mergers and acquisi-
tions (MA) in the industry, he hastens
to point out. “One question we asked was,
are the mid-size firms the ones primarily
being targeted in acquisitions,” says Hoff-
man. “We didn’t find that. In fact, there
seems to be evidence that the smaller firms
are the ones being targeted.”
The smaller pickups align with a shift in
MA strategy from acquiring companies
in the same market sectors to acquiring
firms that bring some diversification to the
table, Hoffman explains. The majority of
deals during the period from about 1985
to 1995 were additions of firms that could
strengthen existing market positions—in
general building, or energy and power, or
water and wastewater, for example—but
since then, deals have increasingly been
MA Activity and Market Consolidation in ENR Top 500

3. Environmental Business Journal, REPRINT
Strategic Information for a Changing Industry
used to implement a diversification strat-
egy rather than simply build on historic
strength.
“By 2005, the ratio is about two to
one,” says Hoffman. “That’s very clear in
the data. There’s been a big transformation
in MA, from strengthening the basic
firm to market diversification.”
The notion that mid-size A/E firms
live an imperiled existence derives at least
in part from the idea that they face some
special pressures. There’s some truth to this
idea, the research team acknowledges.
“What we generally hear from mid-
sized firms is that they feel squeezed from
the top and the bottom,” says Matheson.
“Big firms drift down into their markets
or territory, selling strong project resumes
and portfolios, with very skilled talent to
put in their marketing packages. They may
have some cost advantages based on size,
but generally may be more willing to ‘buy’
the work with low fees just to cover their
overheads and keep their personnel busy
until the economy and marketplace finally
finds its footing.”
Clients may now be more aware of this
“bait and switch” tactic, “and that bodes
well for the mid-sized firms who rely on re-
lationships and direct contact with princi-
pals and the firm talent,” Matheson notes.
Meanwhile, “the pressure from small firms
comes from their very low overhead struc-
tures—for a different reason—and from
the fact that they simply charge lower rates
and claim they can do the work.”
PRESSURE? DEAL WITH IT
To mid-size firms that complain about
these pressures, “my response is, ‘so what?
Everyone has competition. Deal with it,’”
says Matheson. “That is the reality, so you
better know what it is you are selling and
what your buyer is buying, so you can
build the case as to why they should hire
you. Maybe it is best to let low-price jobs
go to others,” he notes, acknowledging that
some firms are not so disciplined.
Ultimately, “we hear the same things
from small firms, large firms, and very
large firms,” Matheson remarks. “And my
guess is that it does not matter what indus-
try you are in either; they all seem compet-
itive. There are good clients and there are
not-so-good clients, and most of us want
to spend our time with clients that value
what we do. If they value the marginal
difference in fee structures that firms may
have, then that tells you something about
working with them and the market you are
serving.” Salontai and Hoffman agree with
these points. Salontai adds that to focus
on whether the pressures facing mid-size
firms are unique or special in any way is to
get caught up in distractions. “Obviously
there are different pressures with all types
of firms. The question is not whether they
are special—it’s whether they are impor-
tant.”
“Obviously there are different
pressures with all types of
firms.The question is not
whether they are special—it’s
whether they are important.”
Hoffman suggests that firms, regardless
of their size, that do not feel threatened
by others “are staying true to their busi-
ness model, be it operational excellence
(low cost), customer intimacy (client ser-
vice), or product excellence (innovation).”
What causes stress “and the feeling of be-
ing squeezed is drifting from your business
model—trying to play in two, or even
three,” he stresses. The old adage, ‘you
cannot be all things to all people,’ applies
here.”
These responses speak to the question
of how the mid-size firms that are thriving
are doing so. The “how” and the “why” are
the focus of the next phase of the research.
The research team is looking to take a Jim
Collins approach (author of Good to Great
and Great by Choice) to determine defini-
tively why some firms have not survived
while others have prospered. “We want to
go back and look at the data and then ac-
tually talk to the leaders of some of these
companies,” notes Hoffman.
Drawing upon his experience, Salontai
offers some thoughts on where to look for
the answers to the “why and how” ques-
tions. “I definitely believe there are a few
differentiators” in the mid-size firms that
succeed. “A client focus is clearly a dif-
ferentiator. Those firms that establish and
maintain very deep relationships with cli-
ents persevere in the ups and downs of eco-
nomics cycles.”
Providing good service—as every firm
claims to do—is part of it, but that doesn’t
get to the real differentiator. “Firms that are
really client-focused make it a mandate to
thoroughly understand their clients’ busi-
ness as well as bring clients into theirs—
not only to speak but also to participate in
forward-looking workshops,” says Salontai.
Different Size Firms Dominate Different Market Segments

4. Strategic Information for a Changing Industry
Environmental Business Journal, REPRINT
Such firms also have programs in which
“the top executive reaches out to the top
clients every year. Throughout their orga-
nization, they are all over the clients—and
that can translate into relationships that
differentiate.”
DON’T BURDEN STAFF WITH
RED TAPE
The internal side of that differentiator
is having the right people on board, and
“getting them into the right seats and giv-
ing them the right tools,” he explains. Not
that there’s anything wrong with provid-
ing your staff with top-tier benefits, but in
Salontai’s view, a key differentiator is keep-
ing the bureaucracy, red tape, and other
obstacles from getting in between the pro-
fessionals on staff and the clients.
Both of these differentiators speaking
to something deeper—business funda-
mentals. “I think there are too many firms
in this business that run their firms as life-
style businesses,” Salontai says, pointing
out that “life style business” can refer to
different things, from country club mem-
berships for staff or sending professionals
out to lots of conferences, to emphasizing
ownership interests. “A shareholder-value
or business-fundamentals company is one
that focuses on making money and instills
that value in its people at every level, be-
cause it knows the firm can be more com-
petitive and stand the test of time.”
Pointing to work by management con-
sultancy McKinsey, Hoffman notes other
differentiators in the successful mid-size
firms. They plot a course towards several
horizons on the path to growth, and accu-
mulating capital through solid profitability
is critical to reaching Horizon 1.
“Firms that are profitable have stronger
balance sheets, they have capital, and they
aren’t draining the swamp every year by,
say, giving it all out in bonuses.” Horizon
2 involves being nimble—acting “ahead
of the market” by keeping track of the
trends—and deploying the accumulated
capital to move with those trends and take
advantage of the opportunities.” Horizon
3 “is way down the road,” towards a long-
term strategy, Hoffman notes.
The data thus suggest that mid-size
firms appear to be here to stay, and who
knows—perhaps the recent recession
honed their ability to thrive. “Over the last
few years of economic downturn, firms
have learned to do more with less,” says
Matheson. “I think the resulting sharpen-
ing of business practices will actually auger
well for mid-sized firms that have survived
this long period of economic malaise and
uncertainty. When the markets finally do
begin to show more certain and sustained
growth, I would watch out for the mid-
sized and large firms out there. I think the
very large and mega-firms are going to be
the ones squeezed!” 
Excerpted from the Consulting and
Engineering 2013 edition of EBJ and
reprinted with permission from Environ-
mental Business International Inc.
All rights reserved.
© 2013 EBI Inc., www.ebionline.org