There must be something in the air. My last post - about a recent conversation FastCo had with fuseproject’s Yves Behar - looked at that design firm’s equity role with some of the startup clients they work with. Later that week, David Fano and Steve Sanderson of CASE took a look at transferring the culture of startup incubator’s to the world of architecture in their Practice 2.0 series with our friends at ArchDaily. Last week, a colleague in town, on seeing my post here, met up for lunch to discuss his ideas and proposals to help re-focus the AIA’s efforts towards supporting more entrepreneurial firms. Throw in a couple of freshly minted discussion posts here at archinect and startup fever, like spring, is definitely in the air.
But really, is this a surprise? Isn't the necessity of the turbulence swirling the past 3 years enough to cause any profession to look deep and hard about how it operates? Especially one which has the dubious distinction of having its recent graduates unable to find meaningful employment in the profession they’ve trained for? Or the one which has cast so many of its most experienced off to the side like so much flotsam? Yes, it’s a time to radically reboot in how we approach the structure of the profession. No sacred cows here...
So, for today, I wanted to take a few minutes to both respond to the article by David and Steve and to extend it further than a simply reply on their post would allow. I’d highly encourage reading it quickly, as there’s nuance that won’t be covered in depth here, but to sum up their major points:
So, how would it work in their model? In a nutshell, funding would be channeled through local AIA chapters to provide startup capital and salaries for screened applicants, to help them get started. Shared workspaces, supplies and mentors would be provided to give these firms the best chance to succeed. Each firm in the program would stay for 6 months. Some mentors may be able to take an equity position in the new firm if they provide more help in securing larger projects.
In short, it’s an attempt to create a self-perpetuating ecosystem that enables young, dynamic practices to succeed in the marketplace at a faster rate than they might have otherwise. And I’m down with that ambition – it’s both worthy and one that you could argue is necessary to attract the best and the brightest into our fold.
Yet, I don’t think importing the technology incubator model to the profession is the right path. Over the years, I’ve personally had a chance to see some of these in action, both as a designer (working on the first offices for many of the companies coming out of one) and, more recently, as a co-owner in a technology startup. Really, you can boil down the concerns into a few key points:
• Incubators exist to help technology companies that can scale and make tons of money. They didn't evolve to address a professional need - it’s solely to maximize the chances of investors to create companies that can make tons of money. Companies that can’t are quickly cut off and there’s enormous pressure on the ones who do succeed to scale quickly. Architecture, fundamentally, is a slower pursuit. Margins on fee-for-services is low. Failure rates for small firms are relatively high. In short, there’s not much of a reason for traditional capital to invest in this model, unless someone has a truly unique and revolutionary approach.
• If an incubator model is simply to be considered altruistic – noble enough – it still has to address issues of funding, screening and ultimately choosing to back certain firms over others. Strictly monetarily, 6 months of working capital for 2 people, if we're including salaries and normal benefits, could be as high as 150-200k per firm. I’m guessing Atlanta, if this were available, could have as many as 100 young (and not so young) practitioners | firms wanting to participate. That’s 15M of startup capital being drawn from somewhere. Just for the 10th biggest market. So, if we have 1M a year available for funding (and that's 5x the annual AIA budget right now), the program serves between 5-10 firms, max. And that could be ok, but would it create even more discouragement (and potential members who might quit AIA) among the 95 firms wanting to get into what’s supposed to be a revenue-neutral system?
• 6 months is both too short and too long – it’s too long from the standpoint of simply being coached in business essentials and too short to complete a typical project cycle. And really, if it takes six months to get the project in, under contract and underway, do you want to kick out a firm right when the most critical part of the project is starting to go? Also, if work comes in during that period, would the incubated firm need to start paying its own way or are they still drawing on the seed money? And what happens if you can’t land enough work to be self sufficient after 6 months? Does the company have to file bankruptcy, something that would definitively harm them in potential future endeavors? Probably not, but do you prepare those firms for that possibility?
• In addressing the equity questions: does any small firm really want to be indebted, financially, to a larger firm that (in this economy especially) is very likely to be your competition? Would the need to pay back some kind of return conflict with being able to plow any profits back into the firm to position it for future growth? And how would firms be able to create exit strategies for the investors without crippling the firm or their own financial positions?
• Lastly, it’s hard to start up a firm without having meaningful experience practicing for one simple reason: clients usually hire firms so they can entrust you with their money. You’re not just creating an artistic expression; you’re generating a return on their investment (in whatever monetary or non-monetary forms). The reality is, the vast majority of clients are conservative in the sense that they’re going to favor experience and stability over the alternatives. Being in a startup incubator won’t change that perception (and, by the way, all professions deal with this same reality).
But enough of the critique – as mentioned, they’re on to something and are spot on in diagnosing the issues. Perhaps an alternative to a formal incubator, one could stage a series of three 2 week ‘bootcamps’ throughout the course of a single year that would give early practitioners the tools to begin thinking about starting a firm (or manage the ones they’ve founded). In depth case studies and hands on instruction could still be integrated. In between those, perhaps there’s a less formal (from a legal standpoint) mentorship that is established between the startup and another local firm. Perhaps meeting for a few hours a week to review progress and help guide these firms to the next level. It won’t solve the issues with IDP but could be developed in conjunction with the AIA and the schools.
Again, it’s an interesting idea and I’m thrilled other people are taking on the problem. And I hope David and Steve take this as a constructive dialogue of the highest order. It’s a conversation long overdue and hopefully it’ll help draw more people into seriously thinking about how to develop the next generation of professionals.
So, what are some of the other alternatives we might consider? We’ve probably burned up enough column inches in this post, so let’s move on to a fresh one…
Central to the blog is a long running interest in how we construct practices that enable and promote the kind of work we are all most interested in. From how firms are run, structured, and constructed, the main focus will be on exploring, expanding and demystifying how firms operate. I’ll be interviewing different practices – from startups to nationally recognized firms, bringing to print at least one a month. Our focus will be connecting Archinect readers with the business of practice.