Lifelong Learner is Engineering the Effort to Make Vertex a Billion-Dollar Business by 2030
By Richard Massey
It’s kind of difficult to describe Bill McConnell. The co-founder and CEO of The Vertex Companies, Inc. is certainly an engineer and an entrepreneur. Simple enough. But if you take everything else into account – the stack of licensures and academic degrees, the refined global outlook, and the talent for conceiving, and then implementing, robust and varied growth strategies – McConnell defies easy definitions. Born on the East Coast but a happy transplant living out West, McConnell is comfortable discussing risk profiles and forensics, or algorithms and derivatives, or oil prices and construction costs. You’ll receive great answers if you ask a few questions, so Civil + Structural Engineer took the opportunity to do just that.
A Conversation with Bill McConnell
Civil + Structural Engineer: Take us back to 1995. Why did you and your co-founders start the firm? What nugget of wisdom has remained with you from that time?
Bill McConnell: I grew up in an entrepreneurial household in Massachusetts and I knew from the time I was in college, if not high school, that I wanted to start an engineering and construction company. My father’s advice to me was simple – success comes to those that work hard and work in the right direction. In other words, have a great strategy and then outwork your competition. I’ve tried my best to follow this advice my entire career. Sometimes great wisdom comes from its simplicity.
When I graduated with a Bachelor of Science degree in Civil Engineering in 1992, the environmental sector was booming. Around 1994, I spoke with a friend of mine, Jeff Picard, and his boss, Jim O’Brien, that worked for a national environmental engineering company, about this booming marketplace. Jeff and Jim expressed a similar desire to open a business, and because environmental services were complimentary to design engineering and construction services, we started to develop a plan to incorporate a full-service AEC firm.
C+S: The buy-back from Tetra Tech was a critical moment in the history of the firm. Tell us about it.
Bill: Vertex experienced significant growth through its first five years of operations. This growth attracted the interest of several large AEC firms. In 2001, Tetra Tech, Inc. acquired Vertex. At that time, as remains the case today, Tetra Tech was a perennial top design firm in the country. It was an honor to work for the likes of Dr. Li-San Hwang, the founder and then CEO of Tetra Tech, and Dan Batrack, the current
CEO of Tetra Tech. I liken my experience there to earning an MBA on how to successfully run a billion-dollar business.
Between 2000 and 2005, Vertex expanded its forensic claims offerings that service the insurance and legal industries. At that time, forensics did not fit within any of Tetra Tech’s core service groups, so a strategy divergence developed, which prompted the management buyout of Vertex from Tetra Tech. This buyout created a win-win for both parties, and Vertex continues to work with Tetra Tech on certain projects today.
C+S: A well-known architecture firm in Boston recently surprised a lot of people by closing its doors for good. Why do firms, even ones with brand names, fail and go away?
Bill: Typical A&E design fees, like typical constructor fees, are thin when measured against the risk profiles for such services. Accordingly, taking your eye off the risk management ball, even for a short period, can be catastrophic. Moreover, firms that lack growth over time often realize profit margin erosion due to labor escalation that outpaces rate increases. Properly managing risk while focusing on growth is a balancing act that separates sustainable firms from non-sustainable firms.
C+S: You have extensive experience as an expert witness in construction disputes, particularly for cost and/or standard of care opinions. Is there a “typical” mistake or pattern that you have seen in these cases?
Bill: Yes. The majority of disputes that I am involved with have common themes. In terms of construction defect litigation, the disputes typically involve building envelope design and/or construction, and civil design and/or construction, that allegedly is not in compliance with applicable building codes, manufacturer’s recommendations, and/or industry standard publications. Designers and constructors that design and/or build to these requirements, and document adherence, can avoid disputes.
In terms of construction/design disputes that involve contract claims, the trend over the past few years is a significant increase in schedule and quality issues caused by the shortage of skilled construction workers. According to the U.S. Bureau of Labor Statistics, the number of construction workers in 2019 remains less than what it was in 2006, despite the significant rise in put-in-place construction spending between the two periods. This workforce shortage has caused most construction schedules to slip, and the taxed workforce has led to a rise in quality-related issues.
C+S: What kind of damage can a lost court case do to an engineering firm? Are most firms properly insured or not?
Bill: Claims against design firms generally involve alleged standard of care violations, which often lead to a negligence cause of action. Fortunately, resultant damage due to negligence is typically covered by professional liability insurance. However, it is not unusual for smaller design firms to carry insurance limits that range from $500K to $2M, which can present an under-insurance problem on larger claims. Larger design firms often carry excess policies that cover larger losses. Projects with wrap policies can address insurance limit issues.
C+S: Vertex went to a full ESOP in 2013. Six years in, what’s the headline?
Bill: The headline is that we have had record revenue and income growth since transitioning to an ESOP, and we couldn’t be happier with our decision as this is creating long-term wealth for our employee-owners. Being an ESOP is a differentiator for Vertex, and differentiators are a key to success in the competitive AEC marketplace.
C+S: Vertex has had a location in Mexico for 10 years. What’s the market like there, and what are the long-term prospects?
Bill: The key to a successful business practice in Mexico is to achieve local self-sustainability and to not rely exclusively upon work from outside the country. Doing so avoids the drastic swings in revenue caused by geopolitical issues.
C+S: M&A is in Vertex’s DNA. What’s the secret to successfully integrating firms?
Bill: Vertex is laser focused on embracing a defined integration process at this point in our lifecycle. We understand that integration can be difficult for large and small AEC firms alike, and that it’s always a work-in-progress due to constant changes in how AEC companies operate (new technologies to leverage efficiencies, etc.). Our process now involves an early outline and playbook for each acquisition that covers organizational structure, accounting, branding, marketing, sales, etc. Having a mutually agreeable timeline for implementation – early in the process – helps to avoid differences in expectations downstream. Also, having an executive team (mainly our COO, Ben Strong) that appreciates this process in a proactive manner is essential to getting through known-unknowns that inevitably arise during transitional periods.
C+S: You’ve talked about becoming a $1B company. How do you do that without an IPO?
Bill: We will achieve this goal on or before 2030. Funding to get to $1B in revenue is indeed a challenge, unless several attractive MOEs present themselves. We have self-funded our growth to date, and we are proud of that fact. However, we would be foolish to rule out an IPO option. If we get to the point where we feel that an IPO is necessary to meet this goal, we would present that option to our employee-owners for consideration.
C+S: What’s been the firm’s best project in the last five years and why?
Forensics: In Forensics we measure this in terms of our client base – we are currently working for top property and surety carriers (Travelers, Zurich, Liberty, AIG, Chubb, etc.), top construction law firms (Watt Tieder Hoffar & Fitzgerald, Peckar & Abramson, Fox Rothschild, etc.), top AEC firms (Jacobs/CH2M, Tetra Tech, etc.), and top construction companies (Clark, Turner, Kiewit, etc.).
Engineering: Four Seasons Puerto Rico, Mandarin Oriental Grand Cayman, Pier 6 at Brooklyn Bridge Park.
Construction: Boston University Data Sciences Center (Boston), Independence Plaza (Denver), US Military Transient Quarters (Bahrain).
Environmental: Cambridge Crossing (Formerly NorthPoint), Industrial Property Redevelopment, The Lab (Denver), Union Point Naval Air Station Redevelopment.
C+S: You have three degrees, are currently working on your Ph.D., and completed the part-time, three-year business program at MIT. What’s behind your hyper-drive for education?
Bill: I’m a firm believer that education has no finish line. With this perspective in mind, gaining multiple degrees over a 30- to 40-year window is not a daunting pursuit. To the contrary, attempting to gain a bachelor’s, master’s, and doctoral degrees while in your 20s is extremely difficult, not to mention expensive. Moreover, pursuing these degrees in one decade is a full-time endeavor, and it comes at a serious opportunity cost, as most individuals establish their career path by 25. Entering the corporate world at age 30 can be a serious handicap. What’s more, obtaining advanced degrees while you are working lets you incorporate lessons learned into your daily routine, which increases retention.
C+S: How did your executive team come together to develop the partnership on the degree program with the University of Colorado Denver?
Bill: One of Vertex’s differentiators is our Lifetime of Learning Program. Vertex understands that the ever-increasing student debt level is a national crisis. We sought to create a win-win program where employees could obtain advanced degrees without taking on additional debt-load, while Vertex would develop a more qualified workforce. Accordingly, Vertex met with several universities and decided to form a partnership with the University of Colorado Denver because they share our entrepreneurial mindset and appreciate how distance learning is a great benefit to students with full-time employment and corporations that have multiple office locations. To tackle this undertaking, Vertex appointed Russell Fitzpatrick as our Chief Learning Officer. Russell is working with CU Denver and a select number of other institutions to provide our employee-owners with a variety of advanced degree options.
C+S: Forensic, Engineering, Construction, and Environmental. Of the four key offerings, which one creates the highest utilization?
Bill: During bull markets, it is common for our Engineering/Construction/Environmental groups to maintain extremely high utility figures. Thus, for the past decade, these three groups have operated at high utility levels, save for a couple of aberrant quarters. During bear markets, utility for Engineering/Construction/Environmental tends to dip on private sector work. To the contrary, our Forensics services are non-cyclical and are steady, if not improved, during bear markets. We consider this economically-hedged service blend one of our keys for both short-term and long-term predictability.
C+S: Over the last few years, what state or states have produced the most growth?
Bill: Vertex is fairly mature in the Northeast and Rocky Mountain regions. Thus, our largest growth has come in our Southeast, South, Southwest, and Northwest operations. Vertex’s goal is to achieve regional office sustainability in all 25 of our offices, which will require full service offers in each market.
C+S: Look ahead five to 10 years. What does every CEO of an AEC firm need to know?
Bill: There is no question that the U.S. will face a bear market within the next three years. I almost welcome a minor correction to ease resource issues and construction inflation. This mild recession will be coupled with the already-slowing global markets. In addition, the federal deficit and debt level will soon become the country’s number one issue, which will soon come to the national stage as the percentage of entitlement (health care and social security) and interest spending is on a steady rise. The increase in federal entitlement and interest spending will greatly reduce the available money to fund infrastructure spending, which has been the case for the past decade. In fact, the percentage of U.S. public construction spending as a percentage of the U.S. GDP has dropped by approximately one-third over the past decade alone. Thus, funding will be an issue in the public sector for years to come. That said, CEOs will need to face this brutal reality and need to plan accordingly. Lastly, AI and IOT advances will create great opportunities and cause massive disruptions in the near future. AEC firms that remain ahead of the technology curve will have a leg up. Those that fall behind will face inevitable hardships.
C+S: 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?
Bill: Running a $100M business is different from running a $10M business, just like running a $100B company is different than running one that’s $100M. Vertex’s management team is acutely aware of this fact, and we have supplemented our team with individuals that have helped, and will continue to help, with this transition. We also realize that to be a billion-dollar business, we will need to continue to supplement and/or rework our team to get to the next level.
C+S: What happens to the firm if you leave tomorrow?
Bill: If you asked me this question 10 years ago my answer would be “a major setback.” Since then, Vertex has put in place an executive and middle management team that is not dependent on any one person. Our four service areas are each run by Managing Directors, and each service that we offer, 16 in total, is managed by Executive Vice Presidents. Since incorporation in 1995, we have never been in a better position in terms of leadership transition.
C+S: Diversity and inclusion is lacking. What steps are you taking to address the issue?
Bill: We spend a lot of time thinking about this topic. Several years ago, we recognized that our approach was too “by the numbers” and not well grounded in a philosophy that is supported throughout the organization. We believe that diversity is having a seat at the table, inclusion is having a voice, and belonging is having that voice be heard. We work to create an environment that supports these beliefs and then work hard to sustain it through our actions. Attracting people of color, women, and other underrepresented groups/protected classes is just one piece of our work. Providing a workplace that fosters the sense of belonging is what engages and retains people.
C+S: Are you currently pursuing the R&D tax credit?
Bill: We are researching this issue. As an ESOP, I don’t think we would qualify for any further federal tax credits; however, we are considering the potential for state credit opportunities. Based on the number of Vertex employee-owners that are working towards doctorate degrees, via our Lifetime of Learning Program, we conduct significant R&D on numerous AEC topics every year.
C+S: Engineers love being engineers, but what are you doing to instill a business-development culture in your firm?
Bill: Vertex’s President, Jeff Picard, tackled this challenge head-on several years ago. Our program gives primary responsibility to our dedicated business development team for bringing in new accounts. In contrast, we assigned primary responsibility to expand existing accounts to a number of our production team members. To manage these processes, Vertex’s Marketing Director, Lisa Dehner, and our in-house IT group, developed our OneVertex CRM software that is specifically designed for this “new account/existing account” growth initiative. We also understand and embrace the reality that certain production personnel are simply not cut out for sales interactions, so we require these individuals to participate in business development activities such as authoring white papers and writing blogs; therefore, the entire company is involved in business development.
Bill McConnell at a Glance
Ph.D. in Civil Engineering (concentration in construction management), University of Colorado, Anticipated Graduation 2020
M.S., Civil Engineering, Columbia University 2014
J.D., Sturm College of Law, University of Denver 2011
Entrepreneurial Masters Program, (Birthing of Giants Program), Massachusetts Institute of Technology/Young Entrepreneur’s Organization 1999
B.S., Civil Engineering, University of Maine 1992
- Expert witness for construction disputes, has testified over 150 times
- Professional Engineer (PE) – Civil, State of AZ, CO, FL, IA, IL, MA, MD, MI, NC, NE, OR, TX
Age – 50 years
Spouse – Kelley McConnell
Children – Tessa (13) and Shelby (10)
Hobbies – Golfing / Reading / Spending Time with the Family
Last Book Read – Bitcoin Billionaires by Ben Mezrich
Favorite Food – Sushi / Italian
Best Vacation Spot – Nantucket MA
Music – Jack Johnson
The Vertex File
Compass Project Management, Inc.
Optistar Consulting Services, Inc.
VTX Consulting Services Inc.
Vertex Ingenieros Consultores, S. de R.L. de C.V.
VERTEX Tenant Improvement (TI)
2019: Zweig Group’s Hot Firm # 73, Best Firms To Work For #31
On Zweig Group’s Hot Firm List Since 2014
On Zweig Group’s Best Firms To Work For List since 2015
Multi-year Recognitions for Growth/Excellence by ENR and Inc. Magazine
25 Offices in 18 States, Canada and Mexico
Partner Locations: Europe, Central & South America, Asia Pacific
We Care: We succeed because we care about our clients and employee-owners. This is the lifeblood of VERTEX and is the foundation of our other core values.
We Add Value: We look to add value on every assignment. This leads to repeat business and long-term relationships with our client base. We pass on projects where we cannot add value.
We Operate with a Constant Sense of Urgency: We respond to client requests quickly and deliver our projects on time because we respect their mission. We treat each assignment as if it’s our most important.
We are Growth Focused: Service area expansion and regional growth allows us to better serve our clients around the globe. Continued growth also provides our employee-owners with exciting opportunities for career advancement.
We Embrace a Lifetime of Learning: We remain ahead of the curve on industry trends and technological developments based on our continuing education strategy, which provides our employee-owners with a clear roadmap for professional development.
To view full interview, click here.
Richard Massey is managing editor of Zweig Group publications. He can be reached at email@example.com.
*This article was originally published in Civil + Structural Engineer in September 2019