I'm going to try and simplify a complicated issue and ask if anyone has any experience in becoming a partner in a small firm? I may have an opportunity to "buy" into the firm, whether it be by a bonus program or otherwise. We have not gotten down to any details yet, the valuation of the firm is being done right now. Certainly, there will be lawyers involved if things progress. I'm looking for some general feedback about other experiences or knowledge about the logistics of how this might work- or has worked in other firms. The firm is a PLLC with one owner. In the owner's view, ideally there will eventually be 3 or 4 partners.
not quite exactly the same thing, but there was an article in architectural record a few months ago about succession planning for firms... it included some details about how people become partners that might be helpful...
I know succession planning is hot right now but remember - the clients typically in a small firm hired the former owners - not you.
Its harder to do but our generation has to get out from under the shadow of the "boomer" and start our own firms or will just end up financing their retirements.
It's inexpensive and will give you a very quick, but very thorough, of the issues you need to address. It also gives strong guidance about most of the "dos" and "don'ts".
evilplatypus makes an interesting point ... however, the key decision for all second generation owners is how the risk (and cost) of starting your own firm compares to the risk (and cost) of buying out the founders of your existing firm. Often, the cost of buying their shares can be funded by the cash flow of the existing firm. All of the cost (and risk) of starting your own firm must be carried by you, or your banker.
ask lot of questions - is the owner looking to raise some personal cash (and 'selling' shares accordingly)? or are they genuinely trying to grow the firm and want to keep you as a core for that growth.
two quick thoughts: first, if you get serious, get your own valuation. you may be surprised, but there's a good chance the two numbers could be, um, different. remember, the owner has every need to have that valuation set as high as possible, so that he can get max value on the buy-in. second, i'd be wary of doing a buy-in that's related to actual salary and if you do a bonus based buy-in, make sure you are on explicit terms about how the bonuses for partners will be determined.
Thanks for the feedback. The owner is definitely not looking to raise cash. He wants to grow the value of the business (obviously a benefit to him as well as everyone else) and would like me to be part of it. Also, he has mentioned that he does not want me to be working for and/or running the competition. At this point I do wonder who will really benefit more from the situation but I am hopeful that it will work out. I'm not in a position where I can start my own firm- that is probably 5 to 10 years from now- nor am I convinced that would be my goal.
I would suggest a different approach and try persuading the owner to start the firm into an ESOP program. Statistically, ESOP (employee owned) companies tend to outperform their counterparts and will avoid starting an employee vs. owner culture at the firm. As the business grows this will prove very valuable.
architecture firms come in all sizes ... small to large.
per the latest aia firm survey, firms with 50+ employees acount for nearly 52% of total billings, but represent only 4% of all architecture firms.
in 1993, 86% of architectural firms employed <10 people; in 2005, 80% of architectural firms employed <10 people.
like it nor not, the trend is toward larger firms ... market forces are pushing us that way.
i agree with evilplatypus that a small firm probably is not a good candidate for an esop ... but, what about you guys who work in larger firms ... any esop experiences there that you'd care to share?
I worked at a firm that went from 100+ to 60 then 60 - 40 in 2 years. It wasnt an ESOP but did have about 20 people on the letterhead. Some were full partners, others all kinds of rediculous levels of partnership. In fact - it looked like they took in new partners just to keep cash comming in. Anyways - too many cooks spoil the broth. And by broth I dont nessessarily mean design. Best bet is to get a non architectural, business type who will be unmotivated by design issues. in times of critical analysis and planning they will help you run the firm like a business - your supplying a product and they can offer analysis most architects can not. It sounds bad but most of us architects are eternal optomists who never see the downside to anything until its biting us in the ass.
Yeah, and ESOP probably isn't the best for a firm with under 10 employees, but 20+ and I think it makes sense. We've all had the suck up co-worker just trying to get tapped for partner. Been at a place where one partner retired and about 5 people that didn't get asked up just quit the week after the announcement. Huge loss of talent up and left because they were sick of waiting for a promotion. The cost of replacing those employees probably was more than what setting up an ESOP would've been. An ESOP makes everyone a partner and everyone is invested in a productive and successful company. Drop the heirarchy and you'd be amazed how productive an intern or CAD tech will get when they see their share price rising.
I'm in a similar position now that mc3 was in in 2007... the founding principal at my firm is retiring, and the two other principals who will assume full ownership in the next year, approached another associate and me about joining the ownership team with an eye toward succession planning in the next 5-8 years. I'm just beginning the process, so I have more questions (really questions about questions) than info at this point, but I'm wondering if Architect's Essentials of Ownership Transition is still the best resource people would recommend or if there's something more up-to-date.
One of my concerns is about some of the work leaving with the current ownership team. The two of us who would be joining have 10-20 years with the firm, strong relationships with several ongoing clients, and we primarily do public work, where hiring is based in large part on the firm (and team members') work experience. I would also need to get more involved in the day-to-day operations management of the firm to be comfortable assuming an ownership stake.
Michael - largely, ownership is about how you share in the liability and profits of the company. Without knowing your particulars, one thing to understand is how profitable the firm is right now (how much is each equity owner making) and what's the overall valuation. And then what's the long term future for the company look like? Do you really want that responsibility and do you have a vision for where the firm could go/grow?
I don't know if that's the 'best' resource still but I do think it's worth reading, especially if you're just starting the journey.
Becoming a Partner
I'm going to try and simplify a complicated issue and ask if anyone has any experience in becoming a partner in a small firm? I may have an opportunity to "buy" into the firm, whether it be by a bonus program or otherwise. We have not gotten down to any details yet, the valuation of the firm is being done right now. Certainly, there will be lawyers involved if things progress. I'm looking for some general feedback about other experiences or knowledge about the logistics of how this might work- or has worked in other firms. The firm is a PLLC with one owner. In the owner's view, ideally there will eventually be 3 or 4 partners.
not quite exactly the same thing, but there was an article in architectural record a few months ago about succession planning for firms... it included some details about how people become partners that might be helpful...
Thanks, I've found a few articles about ownership transition/succession and the information is definitely pertinent.
I know succession planning is hot right now but remember - the clients typically in a small firm hired the former owners - not you.
Its harder to do but our generation has to get out from under the shadow of the "boomer" and start our own firms or will just end up financing their retirements.
I became a Partner last year and you are correct. I avoid boomers as much as possible. I'd never make a deal with one.
i'm a boomer!
mc3: I strongly recommend that you obtain, and read, this book:
Architect's Essentials of Ownership Transition
It's inexpensive and will give you a very quick, but very thorough, of the issues you need to address. It also gives strong guidance about most of the "dos" and "don'ts".
Good luck.
evilplatypus makes an interesting point ... however, the key decision for all second generation owners is how the risk (and cost) of starting your own firm compares to the risk (and cost) of buying out the founders of your existing firm. Often, the cost of buying their shares can be funded by the cash flow of the existing firm. All of the cost (and risk) of starting your own firm must be carried by you, or your banker.
ask lot of questions - is the owner looking to raise some personal cash (and 'selling' shares accordingly)? or are they genuinely trying to grow the firm and want to keep you as a core for that growth.
two quick thoughts: first, if you get serious, get your own valuation. you may be surprised, but there's a good chance the two numbers could be, um, different. remember, the owner has every need to have that valuation set as high as possible, so that he can get max value on the buy-in. second, i'd be wary of doing a buy-in that's related to actual salary and if you do a bonus based buy-in, make sure you are on explicit terms about how the bonuses for partners will be determined.
read the book mentioned above - it's quite good.
Thanks for the feedback. The owner is definitely not looking to raise cash. He wants to grow the value of the business (obviously a benefit to him as well as everyone else) and would like me to be part of it. Also, he has mentioned that he does not want me to be working for and/or running the competition. At this point I do wonder who will really benefit more from the situation but I am hopeful that it will work out. I'm not in a position where I can start my own firm- that is probably 5 to 10 years from now- nor am I convinced that would be my goal.
I would suggest a different approach and try persuading the owner to start the firm into an ESOP program. Statistically, ESOP (employee owned) companies tend to outperform their counterparts and will avoid starting an employee vs. owner culture at the firm. As the business grows this will prove very valuable.
hmmmm .... "esop" has landed on the table ... anybody here have any real experience with one of those?
Architecture firms are too small to be ESOPs - I subscribe to the kill and eat model of business.
architecture firms come in all sizes ... small to large.
per the latest aia firm survey, firms with 50+ employees acount for nearly 52% of total billings, but represent only 4% of all architecture firms.
in 1993, 86% of architectural firms employed <10 people; in 2005, 80% of architectural firms employed <10 people.
like it nor not, the trend is toward larger firms ... market forces are pushing us that way.
i agree with evilplatypus that a small firm probably is not a good candidate for an esop ... but, what about you guys who work in larger firms ... any esop experiences there that you'd care to share?
I worked at a firm that went from 100+ to 60 then 60 - 40 in 2 years. It wasnt an ESOP but did have about 20 people on the letterhead. Some were full partners, others all kinds of rediculous levels of partnership. In fact - it looked like they took in new partners just to keep cash comming in. Anyways - too many cooks spoil the broth. And by broth I dont nessessarily mean design. Best bet is to get a non architectural, business type who will be unmotivated by design issues. in times of critical analysis and planning they will help you run the firm like a business - your supplying a product and they can offer analysis most architects can not. It sounds bad but most of us architects are eternal optomists who never see the downside to anything until its biting us in the ass.
Yeah, and ESOP probably isn't the best for a firm with under 10 employees, but 20+ and I think it makes sense. We've all had the suck up co-worker just trying to get tapped for partner. Been at a place where one partner retired and about 5 people that didn't get asked up just quit the week after the announcement. Huge loss of talent up and left because they were sick of waiting for a promotion. The cost of replacing those employees probably was more than what setting up an ESOP would've been. An ESOP makes everyone a partner and everyone is invested in a productive and successful company. Drop the heirarchy and you'd be amazed how productive an intern or CAD tech will get when they see their share price rising.
I'm in a similar position now that mc3 was in in 2007... the founding principal at my firm is retiring, and the two other principals who will assume full ownership in the next year, approached another associate and me about joining the ownership team with an eye toward succession planning in the next 5-8 years. I'm just beginning the process, so I have more questions (really questions about questions) than info at this point, but I'm wondering if Architect's Essentials of Ownership Transition is still the best resource people would recommend or if there's something more up-to-date.
One of my concerns is about some of the work leaving with the current ownership team. The two of us who would be joining have 10-20 years with the firm, strong relationships with several ongoing clients, and we primarily do public work, where hiring is based in large part on the firm (and team members') work experience. I would also need to get more involved in the day-to-day operations management of the firm to be comfortable assuming an ownership stake.
Michael - largely, ownership is about how you share in the liability and profits of the company. Without knowing your particulars, one thing to understand is how profitable the firm is right now (how much is each equity owner making) and what's the overall valuation. And then what's the long term future for the company look like? Do you really want that responsibility and do you have a vision for where the firm could go/grow?
I don't know if that's the 'best' resource still but I do think it's worth reading, especially if you're just starting the journey.
Block this user
Are you sure you want to block this user and hide all related comments throughout the site?
Archinect
This is your first comment on Archinect. Your comment will be visible once approved.