President, Choice One Engineering Corp. (Best Firm Civil #2 for 2018), a 45-person firm based in Dayton, Ohio.
By Richard Massey
“We had been planning for our transition for seven years, and though it came sooner than we had anticipated, it has been an extremely smooth one,” Hoying says. “Additionally, by opening shares to anyone who has been with the company for more than three years, we have been able to transition the shares being bought back by the company to new owners without a financial toll being taken by the company. The key to the entire transition was to plan for it early so when it came time to move forward, we weren’t stuck with unexpected scenarios.”
A CONVERSATION WITH MATT HOYING.
The Zweig Letter: How many years of experience – or large enough book of business – is enough to become a principal in your firm? Are you naming principals in their 20s or 30s?
Matt Hoying: I am defining principal as a shareholder of the company. To become an owner of Choice One, you need to be a regular (non-seasonal) employee for three full calendar years. After three years, we feel that both the employee and the company have had a chance to understand if we are a fit for each other, and if so, we offer ownership to those employees. Because of this, we have quite a few owners that are in their 20s, with many purchasing shares when they are 25 or 26 years old. If by “principal” you mean a position of leadership in the company, we are an entire company of leaders who think, act, and feel like owners. The leadership in the company is determined by how much responsibility the employee is willing to take on and willingness to continuously learn and improve. If that is the definition of “principal,” then we have an entire company of principals, half of which are in their 20s or 30s.
TZL: Do you tie compensation to performance for your top leaders?
MH: Everyone at Choice One is compensated in the exact same way. We have our base salaries, and then a bonus program that is based on the performance of the company, which is calculated in the same way regardless of position in the company.
TZL: Do you share base salary or bonus amounts with your entire staff?
MH: We share our compensation philosophy with our staff. Everyone in the company knows how salaries are determined, but we do not share the individual salary of each employee. In the same way, everyone knows how the bonus is determined, but we do not share the exact bonus amount that each employee receives.
TZL: What actions do you take to address a geographic office or specific discipline in the event of non-performance?
MH: We operate our company with a Deming approach, which would suggest that it is our systems that are leading to the non-performance and not the people. In the event of non-performance, we spend time dissecting and trying to understand what the cause of the non-performance is. Until we know “the story behind the numbers” as Deming would put it, there isn’t anything to correct. We then spend time discussing where the system is breaking down and what we can do to correct the issue before addressing it as non-performance with the employee.
TZL: Have you ever closed an under-performing office? If so, tell us about it.
MH: No, we have not closed an under-performing office. Recently, our newest office wasn’t generating quite the amount of revenue we were forecasting. After evaluating the situation, we realized that the clientele that fit our way of operating and valued our differentiators were smaller in number than we had originally estimated. This led us toward an alternative operating plan for the office, which is based on a new strategy we are testing in that market that more aligns our strengths with the clientele in the area.
TZL: Internal transition is expensive. How do you “sell” this investment opportunity to your next generation of principals? How do you prepare them for the next step?
MH: We went through our internal leadership transition two years ago. I wouldn’t have said it was expensive for us. We had been planning for our transition for seven years, and though it came sooner than we had anticipated, it has been an extremely smooth one. Additionally, by opening shares to anyone who has been with the company for more than three years, we have been able to transition the shares being bought back by the company to new owners without a financial toll being taken by the company. The key to the entire transition was to plan for it early so when it came time to move forward, we weren’t stuck with unexpected scenarios.
TZL: When did you have the most fun running your firm, and what were the hallmarks of that time in your professional life?
MH: It’s still happening. There is something different every day, it seems, for me to learn from our employees or other business owners. Being young and dumb has its advantages. I know I don’t know it all, so I am constantly looking for those opportunities to learn and to see how I can adapt those lessons into tangible ways of moving the company forward.
TZL: Describe the challenges you encountered in building your management team over the lifetime of your leadership? Have you ever terminated or demoted long-time leaders as the firm grew? How did you handle it?
MH: To describe them as challenges for me would be a long shot. I have been very fortunate that the previous leadership of the company has been extremely gracious in their approach to transitioning the management of the company. Again, having been in the plan for years, it was a very slow transition that allowed the company to get comfortable with it before it actually happened. From my end, I will forever be grateful that the former management (founders of the company) was willing to take the approach of slowly adjusting their roles within the company to allow us to utilize their experience to keep the company moving in the right direction.
TZL: How do you promote young and new leaders as the firm grows?
MH: Promotion isn’t a term we utilize. We have a flat organization structure where the employees set their ceiling within the company based on how much they continue to learn and improve. We provide opportunities for more responsibilities to all of our employees based on their abilities, experience, and willingness to take them on.
TZL: In one word or phrase, what do you describe as your number one job responsibility as CEO?
MH: Follow our vision.
TZL: What happens to the firm if you leave tomorrow?
MH: That’s the cool thing about the way we operate with our transparency and flat organization structure. The company will keep progressing forward. We have always put a strong focus on making sure that there isn’t anyone in the company that isn’t replaceable (and that’s not to sound threatening). We have very few things that only one person is involved in, so I am confident the company would band together to keep the ship moving in the right direction.
TZL: With technology reducing the time it takes to complete design work, how do you get the AEC industry to start pricing on value instead of hours?
MH: That’s a hard question to answer, because value means something different to everyone. What one client sees as a value, another may care less about, and we have seen that. To be able to price on value, it requires a true relationship with the clients to understand what is important to them. To be clear, I am not talking about a sales call where the salesperson finds out what is important. I am talking about the kind of relationship we have with our friends and family where we know what’s important to them through true, genuine care and dedication.
TZL: How are the tax cuts impacting your business? Have salaries and bonuses increased?
MH: We have not noticed impacts we can directly tie to the tax cuts. Additionally, we have not specifically increased our salaries because of the tax cuts. However, we base our salaries on market surveys, so if other companies are doing this and that is reflected in the survey, then indirectly ours have increased as well.
TZL: How have the tax cuts impacted your firm’s valuation? Do you plan on doing another valuation due to the tax cuts?
MH: We value our firm in a method other than utilizing EBITDA, which we base around our firm’s revenue, current assets, and previous years’ expenses. Therefore, tax cuts do not currently impact our firm’s valuation.
TZL: Are you currently pursuing the R&D tax credit?
MH: We are not.