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.
7 Comments
Greg, thank you for writing this blog. We all know the business model of architecture needs to change and, as a young designer (because the AIA won't let me use the title architect yet), I'm excited to be part of a necessary paradigm shift. I'm ecstatic about the recent buzz on this topic and I hope it continues. The recession is unfortunately weeding out the profession but at the same time it is weeding out rubbish business models. Mixed blessing. In my opinion, if the AIA has skin in the incubator game, then corruption will be right behind. Any incubator for arch start-ups needs to be an approach that fits with market economics.
Thanks for the post. Here is a quick note i put together on the train this morning. more to come. Dave
It's not about needing new firms or even needing more firms. I'd argue it's about innovation and rethinking the structure of practice. Time and time again small nimble companies disrupt the large established ones (read the innovators dilemma). I guess we didn't really articulate that point in our post. In a nut shell, small firms would have to figure out how to compete, they would have to be leaner (no internal design reviews with photo real renderings...), and... they have less on the line (don't have to feed 50+ people) so they can be a little more risky.
I'll keep working on how to better articulate this, possibly a follow up post. If you haven't already, check out the post from this weekend on salon.com
dave - oh, i think we all saw the salon article. i'm still worked up over it - not because it laid out the 'truth' but because how many times can we keep flogging ourselves to death? i'm f***ing sick of that - focus on the practices that truly are changing how we do business (like the fastco article on yves behar).
and we completely agree about the imperative to rethink how we all do this. (just as an aside, how many programs at the AIA national convention will hit this topic?) as a small firm ourselves (i think after age 5 you lose the 'startup' moniker), we're constantly having to figure out how to do it all better, differently, etc. and yes, we can do things a 50+ firm can't. at heart, though, don't you agree that the real issue is how architects are trained and/or think? it's getting better, but the generation before me (the ones now in their 50's and 60's) simply had a lot of people who aren't wired to do anything but 'get the project, do the project, get paid'. people 40ish and younger - i think we're a little more equipped to take some risk and chances with what we're doing.
(i've read 'innovator's dilemma, along with rework and (lately) the lean startup. each has their great moments and insights. what % of the profession do you think has? i'm guessing >5).
great to hear from you. let's keep it rolling...
I think you be generousness at 5% :)
Just re-reading your post and here are my thoughts/counters (friendly ones)
1. I think you are taking the incubator analogy too literally. This would not be about the 'exit' it would actually be 100% okay to fail. The AIA would be breeding a new type of your professional with the knowledge of what it takes to run a firm. Seems like great YOUNG partner track material for an acronym firm. I'd say, this is actually what the program would produce most.
2. No... (thought about leaving it at that but that's not constructive :) ). With that line of thinking people would not apply for awards or design competitions, and as much as I hate them, and wish people wouldn't. They do.
3. I'll start simple, don't make it, close down. Since they sell equity, they should not have debt, and therefore avoid bankruptcy. Back to #1, i think the program would expect them to fail. The few that don't, yes, have to be self funded within 6 months. My thought (can't speak for Steve) is landing the project is one of the hardest parts. Once you have the contract (6 months to get one) now you have a project to bill for and since you have to be self funded with in 6 months you CAN NOT do it for free (value discussion is for another day)
4. Are they really competition? I agree, that part is still a little under cooked. I think the only viable investment is an organization like the AIA.
5. Agreed, again i think the AIA could step up here. They vouch for the firms, put the advisory board in a much more front facing role. if a small firm backed by the AIA does not give you confidence, then i think there are bigger issues. I also think the teams would have to specialize (no internal competition) and have past work experience (some seemed to think we meant fresh grads, more like people 3 to 4 years out). I'd think the clients would peruse these firms understanding the context. I'd then put it on the GSA, and other government organizations that build, to help with this program.
As for the mentorship, I just think it lacks the immediacy and urgency, if i do it on the nights and weekends, i'll eventually have a deadline and stop showing up. I try to think about why this could not be solved in school and i always end up thinking to myself, because I didn't care in school. Until i had to figure out payroll I didn't care about payroll. Learning requires context, and without it you are not really applying (or genuinely interested) in the material.
I hope this contributes to the discussion. I am really glad you wrote a response. I feel the profession is at a critical point and architects have to embrace their value. it's not about BIM, IPD, Risk, Contacts, etc, i think it's about providing value, and properly providing that value as a service to clients that need and want it.
Another book to check out it Marvin Bower (http://www.amazon.com/McKinseys-Marvin-Bower-Leadership-Management/dp/0471755826/ref=sr_1_1?ie=UTF8&qid=1328569019&sr=8-1) He was a founding partner at McKinsey created management consulting as we know it today. He moved them away from production (drawing sets) and more towards imparting knowledge (i.e. charge MORE for SD).
Can we do a conference around this topic you think? I can ask at the GSAPP if they would be into it.
Thanks again!
Dave
dave -
conference would be great. there's certainly some very interesting case studies out there - hope to have a few documented in my next post here. let's talk and see if we can make one happen. i can see if georgia tech would host it as well.
Awesome!
I think that there are two parallel currents of thought at work here, which is to say that there is a common trajectory, but a fundamental disconnect. At some level, I think the disconnect has to do with the nature of “professionalism” and the conflicting demands of operating a design practice in the open marketplace.
A “profession” by definition is not driven by profits, it is driven by public service and the public good. The profession of architecture, requires not only a solid technical understanding of its subject matter (buildings), but also an understanding of the protocols of engagement in service to the public (or as NCARB would have it, the liabilities and responsibilities for health, safety, and welfare with regard to the built environment). This is a daunting combination, and as a result we have the sum of a NAAB accredited education, the Internship Development Program, and the Architect Registration Exams in place to establish a base level of competency to engage in this practice.
On the other hand, unfortunately, architecture offices also sink or swim on profits. Architects operate in the open market. We are asked to take the fee-based model of a profession and turn it into a sustainable, profitable business -- hence, as Greg puts it the “get the project, do the project, get paid” mindset. This is the legacy of our history as a profession.
As Dave ultimately points out, firms should do one fundamental thing -- provide value to a client -- and the market will reward them accordingly. This is the environment in which tech startups operate (all startups, actually), and tech culture has created incentives and incubators to help young entrepreneurs get innovative products, ideas, and value propositions out in the market. Many AEC offices have also found ways to innovate in practice in order to add client value (CASE itself is a great example), and are being acknowledged and rewarded for their contributions – at least by their clients, peers, and, perhaps, the broader market. Perhaps less so by, say … NCARB.
Furthermore, IDP and ARE are intended to be equitably distributed “opportunities” across the profession. They do not require or reward ideas -- only diligence and persistence. This makes them fundamentally inclusive: theoretically, everybody should be able to navigate the process, even if it takes 7 years (not including school -- which is the track I’m on).
Incubators, VCs, and the tech startup culture incentivize ideas and innovation -- they require and reward good ideas that translate into good business models and ROI (as quickly as possible). Startups require persistence and more. Everybody is welcome to take a shot, but the selection process results in a much more exclusive opportunity.
On one hand, we want to reduce the barrier to entry for young “professionals” (all of them), and this should include a good primer on “biz dev.” On the other hand, we want to incentivize and encourage innovation in practice and help promising young firms, who exhibit competence and a value proposition, into the marketplace (this might also mean a stronger, official acknowledgment that licensure is not the only path to practice in architecture). As a “profession,” as a field, as an industry, we need both of these things, but I think these are two parallel, mutually reinforcing, at times overlapping endeavors.
… Lastly, I’m pretty sure that conference could find a home at Auburn.
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