Starting a New Firm: Practical Advice for the Adventurous
Almost every architect has, at one time or another, contemplated starting a firm. There are an almost unlimited number of reasons why one might do so. But why would anyone start a new practice when the economy is bad? With the marketplace more competitive than usual, it would seem that a new firm wouldn’t stand a chance.
Contrary to this conventional wisdom, many people start firms during periods of economic recession. Charles Dickens’s A Tale of Two Cities famously begins, “It was the best of times; it was the worst of times.” In a way, recessions are like that. They often create conditions that allow new practices to emerge out of circumstances that at the outset seem more like crises than opportunities.
Layoffs are one reason that people strike out on their own. Because labor costs are approximately 40 percent of an established firm’s net revenues, it’s almost a sure thing that individuals who are quite capable of starting their own firms will lose their jobs when income declines and there is no relief in sight. Although cutting those at or near the top of the salary schedule may not be the smartest decision, in the short term it provides the greatest economic benefit. Sometimes good people leave because they already see the writing on the wall.
At that point, these “liberated” individuals are left to contemplate their futures. Inevitably, some will become masters of their own destiny and leap into the great void called independent practice.
As Massachusetts architect Earl Flansburgh wrote in RECORD some 20 years ago, “There is no good time to start a new firm, only better times.” He was right. Although it may be easier to start a firm in a booming economy, recessions often bring new firms great opportunities. Clients who may be reeling from the same economic pinch that’s affecting our profession frequently welcome the arrival of new firms with lower cost structures. Clients often find young professionals’ personal service and eagerness to please very appealing. On the other hand, larger firms that have been unwilling to take on small projects when they are busy may find they are unable to compete effectively for such projects when they need them just to keep their overhead covered.
What it takes
Houston architect S.I. Morris was being too modest when he said, “It’s not very difficult to do well in this business. All you have to do is get work and execute it successfully.” Of course, it’s not that easy. So, what fundamental attributes should a firm’s founders have? They must be leaders—that is, capable of creating and communicating a clear vision for the future—and they should be able to motivate others to help them achieve it. A firm’s leaders should be able to articulate how their new firm intends to distinguish itself in the marketplace; for example, by using a unique design philosophy or technical superiority, or by pledging to give clients extraordinary service.
From a practical perspective, owners must be able to manage people, which is different than being good leaders. Managers assign tasks, make work plans, supervise, mentor, and develop talent. They need marketing and selling skills to keep the firm busy. Finally, owners must have money-management skills and provide enough capital to finance the firm’s start-up and meet additional financial obligations as they arise.
It is unusual for any one individual to have all of the skills necessary to start, build, and lead a successful practice. That’s one reason why new firms often start as partnerships.
Teams of people who can work together and are mutually supportive usually create far better businesses than any one person can alone. Partners can help settle technical, legal, or managerial questions and are useful where more than one pair of eyes is essential to maintaining work quality. Many sole proprietors feel unable even to leave their firms long enough to take a reasonable vacation; a partner can keep the bases covered.
The classic firm leadership mix combines individuals who have the business-development skills needed to get work; the technical acumen to successfully complete it; and the management aplomb necessary to work with personnel and achieve the firm’s financial goals. Things work best when each partner appreciates the importance of these attributes and has the ability to assume some of the responsibility for each of them.
Regardless of the firm’s organizational structure, the relationships between principals can either be a fundamental strength or can significantly damage the company’s chances for success. Here are some things to consider when thinking about a suitable partner:
- You will probably work best with partners whose values are compatible with yours.
- Partners should like, respect, and trust each other. They do not have to be close friends, although this can be helpful.
- Partners do not have to put in equal effort or achieve equal results, but each must fill a principal role'as a manager, design partner, or business developer, for exam-ple'and make a principal-level contribution to the firm's well-being.
Once you've chosen a partner or partners, here are some keys to making the arrangement work:
Most successful partnerships have principals with complementary personalities and skills who respect their partners' different capabilities'in fact, one of the best things about your partners could be that they are not just like you. Strive for fairness in all things'allocation of financial distribution, professional credit, and the other rewards of ownership.
Put the basic understandings of the partnership or shareholders’ agreement in writing—ambiguous or less-than-thoughtful language in such agreements has caused many partnerships to unravel.
If it turns out that your partnership doesn’t work, you should try to end it quickly, and if at all possible, amicably.