anyone out there who has been cut on hours or cut in general getting ready to start up their own office? curious if the entrepreneurial juices are flowing...
The most difficult parts are surviving these times with little money but can be done and finding clients/projects, again can be done. You'll need to do the former if you have been laid off, and you might as well as be doing the latter instead of chasing for jobs that aren't actually there.
i'd say for me the entrepreneurial juices are always flowing to a point, but i'm not going to bother trying to start my own office until i have one or two large enough projects in the bag to carry me for a while and cover all the start up costs.
Done! Set up business, networking, marketing, doing a few competitions, some speculative work and doing work on side for former employer to keep funds coming in. Not really because of hours cut or economy but more like despite economy. Plus I moved and could stand the idea of working for someone else again.
Starting an architecture firm is like starting a restuarant. Enough Said, you have to have something to live on after you have made the investment in software and equipment. Loans against your home might let you really find out how much it is worth....and remember you have to pay it back. You must also realise there are no AIG bonuses in the making. Have fun!
really you can do that $200/hr stuff at $50/hr and still be happy...cracked software...laptop out of house...clients who don't like paying architects for their stamp and seal...
now's the time to get the shit done at shit prices...
then when the recessions over, after half the overpaid former architects have quit and become AIG employees, you'll be left standing.
I've had my own fledging practice for a little while, and I worked on getting it in better shape during my recent unemployment. I got a new full time job last month, but I'm still developing my own business just in case. Right now I have mostly pro-bono projects, but they are a good place to start for now. One of my projects in on an Indian Reservation in South Dakota where architecture licenses aren't required anyhow.
-talk to everyone you know that is not an architect
-work up a sweet flyer and post it at your local coffee shop
-advertise on craigslist
-mail every small time contractor/developer in town a flyer
-enter competitions to keep your juices flowing and new stuff to put on your website
-attend local communty meetings and hand out business cards to everyone you meet
do any 3 of those and you will probably get a project (might not be great) but you will get one.
I've been toying with the idea of starting my own digital fabrication shop for awhile now. I have a couple people who would want to do it with me as well as quite a few good contacts and networks. We're going to basically operate under the 'whatever pays the bills' mentality and try to get some projects going. We're in the process of running the numbers and making up a business plan, and will see where it goes from there.
As vvvijay, eigenvectors, and cadcroupier all said or implied: keep your overheads low. Don't go thinking you need top end software (for a traditional firm, that is - if you're doing rendering-type work you do), a cool office, fantastic business cards, etc. Just have a laptop and a cell phone and start talking to everyone you know. The laptop is good for hanging out in a cafe where you can become a regular and thus get work through talking to people. Start small: does the aunt who always doted on you need to expand her patio? The church administrative office needs to add a workstation? Brother-in-law wants to turn his garage into a "man cave"? Restaurant owned by the brother of your dentist needs to make their bathrooms ADA compliant? Every tiny job can lead to more work. And make sure everyone you do work for tells everyone they know how great you were to work with.
This mean, of course, that you have to be great to work with. You have to provide amazing service and make them feel they could never have done the job without you.
maisonorion, good for you using the pro bono work to get your name/experience out there. Good luck with it.
Also, to follow up on cadcroupier's comment about mailing small contractors: often small remodel jobs like kitchens involve material choices that the owners want some help with and the contractor doesn't necessarily feel comfortable doing. If you can convince a contractor that you are good for a couple of billable hours of material selection working directly with the client and will NOT try to hijack the whole job, that can get you started on a good working relationship that can lead to more jobs where you have a bigger responsibility.
The point is to not think of ANYTHING as too small. Even a tiny job can lead to bigger things if you make the client happy. I've posted here many times: my partner and I do zero advertising, we rely entirely on word of mouth recommendations and have built a good reputation. Most of our clients are only one or two degrees of separation from one another. The good side to this is we keep getting work, the bad side is if we screw up on any one job word will travel our network pretty damn fast. So, it keeps us honest!
a couple of larger firms in the TC are getting with the program, and seem to be creating incubator programs inside their "confines." they have some space that either they have lease agreements on or have available, and are allowing unemployed/underemployed architects use of space/tech/printing for gratis. you won't have connection to their respective networks, but use of software and eqpt is a plus. i hear it's still in the planning stages, but it sounds somewhat "promising."
I started my practice back in the 1991 Recession..recessions are good times to start a practice as it gives you time to build your practice methodically. In architecture, being on your own is the only way to go...dont waste a day working for anyone else ! I recommend it highly www.atelierv.com
Legally on paper, I own a planning firm. I did this about my sophomore or junior year of college so I could make it look like I have some experience.
Have I done anything with it? I tried but people seem sketched out to pay for services at cheaper price, a real estate company just wanted me to write "really nice things" about the places she should property and none of the developers around here will even talk to planners, governmental or independent, unless they really have too.
I talked to one or two architectural firms about bringing on planners (closest places to me) and one of them offered me a job as a secretary for 7.50 an hour (living wage? kind of important to planners).
I would but I'm a little sketched about doing business over the internet... I lose my ability to be an asshole or academically oriented if I have to be on my best behavior to impress people.
Hmmm... Practical thoughts on starting your own firm.
1. Don't work out of your living room. You will only get projects that go to people who work out of their living rooms. Don't underestimate the power of having a real office. Find something cheap and make sure you have a nice place to have meetings. I'm not talking about the starbucks down the street, either. Leasing space in another firm is an acceptable solution, because they usually have really nice conference room furniture. I did this my first 18 months of business.
2. Expect to invest accordingly in technology and especially legal software licenses. It increases your productivity and no matter how clever you are with bitorrent, you will have to buy the legal software one day. A plotter, while expensive (get a used one) is a profit center. I've made 10's of thousand of dollars off my plotter. The $6k I spent for my 1055cm plotter was paid back completely after the first project.
3. Cashflow is a killer. I went 9 months until my first paycheck, but it was all 9 months at once. The cashflow problem never goes away, and yes, your clients will not pay until you force them to.
4. Know what you are selling and don't over commit to what you can do. There's a market for small cheap architects. No matter how big and fabulous your prior professional career was, it's over when you start on your own. Expect to get all kinds of low-end work. You will find out why the big boys pass up certain jobs and clients.
5. Read the E-Myth. It will layout every mistake that you will most likely make if you manage to survive the first six months, including the mistake that you may have made to go into business for yourself. Most people (myself included) start businesses based upon a technical skill that they have, not realizing that they know nothing about how to structure a business. I cried through the first two chapters of this book (read two years after I started). I cannot understate the importance of understanding the basic concepts of this book.
6. Don't do it alone, get partners. Two (or three) heads are better than one. I have never met the person that could really do it all. Besides, you will not be able to afford employees for quite some time and someone has to help you get the work done.
7. Get insurance. It is expensive, but you will limit the kinds of projects that you can get until you have it. Just for reference, I pay $17k/yr for my insurance, which includes the E&O policy. Any client worth having will ask for an insurance certificate.
8. Learn the local codes and permitting challenges. Most of your projects will be local and you will run into many difficult-to-solve problems. Remember, that old guy that you used to ask for advice is no longer there to help. The people at plan review are your friends. Be nice to them. You will need them. Once you get good at this stuff, clients will find you. Trust me.
9. Marketing. Don't hang around other architects like yourself. Period. Your most likely clients will be young folks like yourselves. The 60 year old friend of your parents will usually not hire you, no matter how much cheaper you may be than anyone else. He will hire his 60 year-old architect friend that he has known for 30 years. That's how it starts folks. Focus on your contemporaries. (I learned this early on from the Pran book, AIA guide to starting your own firm)
10. Attorneys are expensive. Avoid them. Don't overpay to setup your LLC or partnership. If you are lucky you will find a good young attorney to moonlight on reviewing your contracts.
11. Don't expect to lose money every year and write it off on your taxes. The IRS will get you eventually for this. You have to make a profit to survive. Some of you will understand this, but many will not.
12. Try to use other successful firm principals as mentors. Most are more than willing to tell you many good tidbits of advice. The good ones realize that just because they tell you the secret of their success, they know that it is highly unlikely that you can repeat it. Be wary of working with your former employer on projects. You are their competitor, and they will treat you as such (badly). Don't think that you are different. The best mentors that I have had were NOT my former employers.
13. While we are on the subject of former employers...Last but not least, you will come to realize that your former bosses were perhaps not the complete buffoons and idiots that you thought they were, especially the ones that started with nothing and survived to one day hire you to work for them. You may despise that fancy German car that they drive (along with the entitlement attitude), but trust me, many of them earned it. You just weren't there in the beginning to see them earn it.
Does it pay in the end? I really don't know. After almost 5 years of having my own firm (10 years experience and licensed prior to starting) and completing literally hundreds of projects, I have recently sold my small firm to a larger firm, and am now a principal at that firm. Will I miss it? Doubtful, since I'm now getting the first regular paycheck in five years. On the flip side, Would I be where I am today without starting my own firm? I will never know.
#3,4,8, and 9 cannot be stressed enough. I'd say these are the biggest hurdles that sink newbie firms.
to add to #4, no project is too small or too mundane. Every project has the potential to lead to something else and expand your network. I think the biggest mistake people make is not expanding their network beyond their comfort zone. Working the old firm's circle, beating the old firm's numbers, etc. works for a couple of years tops, at some point you need to carve out your own place and expand your pool of potential clients, consultants, contractors, reps, etc.
It costs plenty money to begin an architectural practice, unless you hand-draft your plans and operate out of home. If you don't have the financial resources to both support yourself (and kids/family?) and front-fund a number of significant business expenses long before first client check is collected and successfully cashed, then this plan may be overly optimistic. You need a client base and strong connections with quality people. You need adequate financial resources. You need the stomach to deal with difficult clients and reluctant collections, issues that aren't related to architectural design but wind-up front and center to your business.
Here in Chicago at least, a sole practioner-architect usually earns far less than an employed architect working for an established architectural firm. Many survive only because there is a spouse earning a steady paycheck, and/or because their lifestyle is either extremely modest or subsidized by family money. Many here dealt with a client base of small residential and commercial developers here who were unscrupulous Eastern European/Western Asian immigrants with ambitious plans and questionable (at best) business practices. Anyone listen to NPR today regarding real estate condominium development experiences in Chicago's Rogers Park neighborhood? Couldn't have been better said. This client base has evaporated, along with Chicago's condo boom, leaving a trail of troubled and poorly-built condo developments in the neighborhoods.
Big developers generally retain larger established architectural firms, and it's difficult to poach such a client for a new upstart firm.
1. I was able to survive because my wife of 15 years made good money in consumer products and I was not overextended with personal debt or a fancy house.
2. One must let go of one's former clients, as they will not desert your former firm for you. Its not personal.
3. To elaborate on the marketing points, most marketing is indirect. Tell as many people/friends as possible that you are available. Most if not all of your friends will not hire you if they are smart. They will, however recommend you to their other friends. Honestly, it is best to limit the amount of work that you do for your friends. They are often not your friends before the project is over with. Smart entrepreneurs will sometimes include "no friends and family" clauses in their partnership agreements.
4. Chicago, ill makes some great points about the things that will take up much of your time as well as the costs associated with starting your own firm.
5. Here's another odd thing that I discovered: Go out to lunch (and benefit lunches, etc.) as much as possible. Get out of the office. I went to a benefit lunch for a cancer organization last week, and voila, left with business cards of two potential leads from people I either knew or was introduced to by folks I know. Long shot leads probably, but leads nonetheless.
6. Every town is really a small town (other than NYC, perhaps) and there are just not that many major players in any one industry, such as development and construction. Try to think of your town this way and to understand who knows who. Learn to play the name game.
7. In the end, your survival is often just dumb luck. I ultimately survived my first few years based upon a non-architecture consulting contract for the local government. It provided steady monthly cash flow, and I got to meet many important people.
Although it might seem counter intuitive, now is a great time to start an office. It takes a certain skill to be scrappy about getting work. And now is the time to be scrappy. Larger firms, or firms that started up when times were good, did not have to be scrappy. Its a learned skill and one that will be valuable throughout your career. So starting out now seems opportune to me. Also, you would have the competitive advantage of being small and cheap, which is what people that are building now are looking for.
Moontoast - I have had the opposite experience with former firms/clients. My former boss has been one of my best "recomenders" in the past, and one of the past clients that I worked with at my former firm has recommended me to work (with my former bosses knowledge - I left on very good terms).
And great point about marketing. It is not about selling, but just basically letting people know (even random people) what you do. Everyone likes talking about architecture, so let them know that you are competent without selling. I have gotten work from the guy that sold me a car and the surgeon that operated on my finger (accident with a wine glass stem).
Tyvek- (Great story on the surgeon. That is exactly how it happens.) Yes, I left my former employer on good terms and they did in fact refer me some cast-off work. As soon as I became a threat and was marketing against them, all the 'support' evaporated. I really had a lot of respect for my former employers, so it was a huge disappointment. I should not have been surprised, however.
Some will take the approach of marketing themselves to other firms on a contract basis. I did market myself to other architects for contract work in the beginning, and even got some work. What I ultimately discovered, is that in order for me to make any money, I had to charge real hourly rates for my skills since I had overhead, E&O insurance, rent, etc, which most firms were Just not willing to pay.
Here's an example. Say you work out of your living room doing contract work for $50/hr. Lets say you manage an annual utilization rate of 65%, (which would actually be pretty good for a contract labor person). So 2080 hours x 65% = 1352 hours billed in a year. Assuming you collect every penny of that (ha!), you are looking at gross income of $67,600/yr. Now you get to pay self employment taxes of around 35% (what I always paid), for net income of $43,940. Not so bad you say? You need health insurance, plus you have expenses for internet, software, computers, mileage, etc. which someone else used to pay for, and oops, there goes your money.
Many firms will balk at paying $50/hr or more, unless you are very senior level experience, since the numbers just don't work for them. They lose money on paying you this amount. Trust me. So you lower your rate to $35-$40/hr. Suddenly, things are not looking so good.
Moontoast, not sure how much of that post was directed at me, but I have never done consulting work. I don't really think of that as "going it on your own". And in terms of referrals, what I am talking about (for context) is over 6 figures of architectural fees per year for several years. But I agree, I have not competed directly against my former employer and once I do, I expect that to dry up.
That is all great advice. Thanks for posting it here.
I'm interested in starting my own firm but need a little more experience first and want to wait until I have a partner who wants to do it with me. There is just too much work (especially marketing) to do alone.
in the meantime I am working as a freelancer to keep some money coming in as I develop a website, work on my portfolio, write and network.
Moontoast - I'd say your utilization rates for contract/freelance work are about right. Although you can combine that with a few small independent projects and use them more to fill in for each other.
So if you charge $35 p/h for contract and $65 per hour for independent projects. Your average is $50. By combining both avenues of work stream maybe you can increase your utilization rate up to 75%.
so, 2080 x .75 = 1560 x $50 = 78,000.
If you are doing your taxes right, you should be able to write off quite a bit. Lowering your tax base to 15% = $11,700
So, $66,300 before beneifits. I would have a computer, internet, software anyway whether I work in an office or not. And instead of being a personal expense only, you can now write some of this off on your S/E taxes.
yeah, but you don't know what your net will be until the end of the year. For planning purposes you can use gross.
in Moontoast's post he was talking 35% of gross income.
I said more like 15% of gross income.
you said no 25% (I assumed you weere talking about gross, since that is what we were talking about)
When do you bill clients by percentage vs an hourly rate? and what percent is the going rate these days - I'm sure it changes depending on size of project and building type. Some rough guidelines would be helpful.
Not sure how you base any taxes on gross, as that will vary dramatically (buy a bunch of computers one year, not the next, etc.). But I am no tax guy.
When I first started my company my taxes were probably 20-25% of gross, as there were very little expenses. Now it is less than 10%.
I suppose you have to base it on something, though. If you are just a freelancer/contract worker, you should have a pretty good idea of what your expenses will be (ie not much difference between gross and net).
great posts everyone.
any thoughts on how to pass on a portion of the expense for professional liability insurance? is that strictly in overhead?
i've heard horror stories of new partnerships starting and obtaining the insurance for a project (3 years min. committed to the policy) and then the project drops...so they are out a portion of the funds to cover the policy that they initially took up for the project. i've never seen anything in the B141 defining this, has anyone ever written in a security of funds for that?
just curious...
I am all for people doing this, starting their own firm.
Now, does anybody see why we are paid the way we are?
How many of these new out of work licensed architects will start their own firm and cut their prices to compete with the existing firms that have also cut their prices in order to survive? Then when theses new firms hire new interns, what will the pay be for them?
Thats life in the jungle OTFence. Some will leave, some will get squeezed out. The most committed will find a way to survive.
Root - that happens all the time in construction. You purchase more insurance in order to bid the job and then if you dont get it, your stuck with it for the rest of the year. I dont know a whole lot about profesional liability insurance and e/o insurance but a 3 year comitment seems unlikely.
E&O insurance isn't always an overhead expense ... if you can talk your owner into purchasing a project policy (and, if you can get an insurance company to write that sort of coverage) then the cost of that insurance is a cost of the project - not a cost to the firm.
regrettably, such coverage is becoming quite hard to find and it is very expensive. and, it takes an enlightened owner to make this work. but, IMO the owner is better served by this approach than by the regular E&O coverage most of us carry.
Sounds like there are two schools of thought emerging here - one being to get office space, equipment, insurance, software, etc. all set up before actually starting to do projects and the other being to start out with nothing and worry about things like office space and insurance once you have some projects under your belt.
The first approach seems to expose one to much less risk, at least from the perspective of liability, but the second approach is much more realistic, especially for people who have no cash reserves or who have a full time job and want to start doing their own thing on the side before going for it full time.
But I think it also has to do with the types of projects you will be going after.
If you are going after commercial or public work, no one is going to take you seriously working out of your living room without insurance. If residential remodels are your bag, then a laptop, cell phone and a coffee shop is the way to go.
anyone considering starting a new office?
anyone out there who has been cut on hours or cut in general getting ready to start up their own office? curious if the entrepreneurial juices are flowing...
yep. as soon as i can get an affordable attorney and accountant to consult. i am thinking an LLC.
i'll be your attorney!
As soon as I can get licensed, of course, I would also need potential projects ...
Yes.
not a bad idea at all.
The most difficult parts are surviving these times with little money but can be done and finding clients/projects, again can be done. You'll need to do the former if you have been laid off, and you might as well as be doing the latter instead of chasing for jobs that aren't actually there.
Keep your overheads low, network, stay positive.
yes
my hours haven't been cut but I've been looking for a slice on the side along the lines of anything arch/const/graphics/media/3d
i'd say for me the entrepreneurial juices are always flowing to a point, but i'm not going to bother trying to start my own office until i have one or two large enough projects in the bag to carry me for a while and cover all the start up costs.
Done! Set up business, networking, marketing, doing a few competitions, some speculative work and doing work on side for former employer to keep funds coming in. Not really because of hours cut or economy but more like despite economy. Plus I moved and could stand the idea of working for someone else again.
Anyone intersted in buying someone elses firm?
I wonder if competitions are the way to go when you start off. Thoses are not billable hours.
The Big Dog Atelier...watch for it. <WOOF!>
Starting an architecture firm is like starting a restuarant. Enough Said, you have to have something to live on after you have made the investment in software and equipment. Loans against your home might let you really find out how much it is worth....and remember you have to pay it back. You must also realise there are no AIG bonuses in the making. Have fun!
really you can do that $200/hr stuff at $50/hr and still be happy...cracked software...laptop out of house...clients who don't like paying architects for their stamp and seal...
now's the time to get the shit done at shit prices...
then when the recessions over, after half the overpaid former architects have quit and become AIG employees, you'll be left standing.
I've had my own fledging practice for a little while, and I worked on getting it in better shape during my recent unemployment. I got a new full time job last month, but I'm still developing my own business just in case. Right now I have mostly pro-bono projects, but they are a good place to start for now. One of my projects in on an Indian Reservation in South Dakota where architecture licenses aren't required anyhow.
Scott
maison-orion.com
maisonorion - how do you find your projects?
if he told you he would have to kill you...
seriously...
-talk to everyone you know that is not an architect
-work up a sweet flyer and post it at your local coffee shop
-advertise on craigslist
-mail every small time contractor/developer in town a flyer
-enter competitions to keep your juices flowing and new stuff to put on your website
-attend local communty meetings and hand out business cards to everyone you meet
do any 3 of those and you will probably get a project (might not be great) but you will get one.
I've been toying with the idea of starting my own digital fabrication shop for awhile now. I have a couple people who would want to do it with me as well as quite a few good contacts and networks. We're going to basically operate under the 'whatever pays the bills' mentality and try to get some projects going. We're in the process of running the numbers and making up a business plan, and will see where it goes from there.
As vvvijay, eigenvectors, and cadcroupier all said or implied: keep your overheads low. Don't go thinking you need top end software (for a traditional firm, that is - if you're doing rendering-type work you do), a cool office, fantastic business cards, etc. Just have a laptop and a cell phone and start talking to everyone you know. The laptop is good for hanging out in a cafe where you can become a regular and thus get work through talking to people. Start small: does the aunt who always doted on you need to expand her patio? The church administrative office needs to add a workstation? Brother-in-law wants to turn his garage into a "man cave"? Restaurant owned by the brother of your dentist needs to make their bathrooms ADA compliant? Every tiny job can lead to more work. And make sure everyone you do work for tells everyone they know how great you were to work with.
This mean, of course, that you have to be great to work with. You have to provide amazing service and make them feel they could never have done the job without you.
maisonorion, good for you using the pro bono work to get your name/experience out there. Good luck with it.
Also, to follow up on cadcroupier's comment about mailing small contractors: often small remodel jobs like kitchens involve material choices that the owners want some help with and the contractor doesn't necessarily feel comfortable doing. If you can convince a contractor that you are good for a couple of billable hours of material selection working directly with the client and will NOT try to hijack the whole job, that can get you started on a good working relationship that can lead to more jobs where you have a bigger responsibility.
The point is to not think of ANYTHING as too small. Even a tiny job can lead to bigger things if you make the client happy. I've posted here many times: my partner and I do zero advertising, we rely entirely on word of mouth recommendations and have built a good reputation. Most of our clients are only one or two degrees of separation from one another. The good side to this is we keep getting work, the bad side is if we screw up on any one job word will travel our network pretty damn fast. So, it keeps us honest!
a couple of larger firms in the TC are getting with the program, and seem to be creating incubator programs inside their "confines." they have some space that either they have lease agreements on or have available, and are allowing unemployed/underemployed architects use of space/tech/printing for gratis. you won't have connection to their respective networks, but use of software and eqpt is a plus. i hear it's still in the planning stages, but it sounds somewhat "promising."
great advice from LB as usual.
http://www.bdonline.co.uk/story.asp?storycode=3118342
I started my practice back in the 1991 Recession..recessions are good times to start a practice as it gives you time to build your practice methodically. In architecture, being on your own is the only way to go...dont waste a day working for anyone else ! I recommend it highly
www.atelierv.com
atelier, Thanks for your encouraging words
BTW..did I say..Nice web site
Legally on paper, I own a planning firm. I did this about my sophomore or junior year of college so I could make it look like I have some experience.
Have I done anything with it? I tried but people seem sketched out to pay for services at cheaper price, a real estate company just wanted me to write "really nice things" about the places she should property and none of the developers around here will even talk to planners, governmental or independent, unless they really have too.
I talked to one or two architectural firms about bringing on planners (closest places to me) and one of them offered me a job as a secretary for 7.50 an hour (living wage? kind of important to planners).
I would but I'm a little sketched about doing business over the internet... I lose my ability to be an asshole or academically oriented if I have to be on my best behavior to impress people.
Also, I should probably quit this site but there is no quit or delete post buttons?
Hmmm... Practical thoughts on starting your own firm.
1. Don't work out of your living room. You will only get projects that go to people who work out of their living rooms. Don't underestimate the power of having a real office. Find something cheap and make sure you have a nice place to have meetings. I'm not talking about the starbucks down the street, either. Leasing space in another firm is an acceptable solution, because they usually have really nice conference room furniture. I did this my first 18 months of business.
2. Expect to invest accordingly in technology and especially legal software licenses. It increases your productivity and no matter how clever you are with bitorrent, you will have to buy the legal software one day. A plotter, while expensive (get a used one) is a profit center. I've made 10's of thousand of dollars off my plotter. The $6k I spent for my 1055cm plotter was paid back completely after the first project.
3. Cashflow is a killer. I went 9 months until my first paycheck, but it was all 9 months at once. The cashflow problem never goes away, and yes, your clients will not pay until you force them to.
4. Know what you are selling and don't over commit to what you can do. There's a market for small cheap architects. No matter how big and fabulous your prior professional career was, it's over when you start on your own. Expect to get all kinds of low-end work. You will find out why the big boys pass up certain jobs and clients.
5. Read the E-Myth. It will layout every mistake that you will most likely make if you manage to survive the first six months, including the mistake that you may have made to go into business for yourself. Most people (myself included) start businesses based upon a technical skill that they have, not realizing that they know nothing about how to structure a business. I cried through the first two chapters of this book (read two years after I started). I cannot understate the importance of understanding the basic concepts of this book.
6. Don't do it alone, get partners. Two (or three) heads are better than one. I have never met the person that could really do it all. Besides, you will not be able to afford employees for quite some time and someone has to help you get the work done.
7. Get insurance. It is expensive, but you will limit the kinds of projects that you can get until you have it. Just for reference, I pay $17k/yr for my insurance, which includes the E&O policy. Any client worth having will ask for an insurance certificate.
8. Learn the local codes and permitting challenges. Most of your projects will be local and you will run into many difficult-to-solve problems. Remember, that old guy that you used to ask for advice is no longer there to help. The people at plan review are your friends. Be nice to them. You will need them. Once you get good at this stuff, clients will find you. Trust me.
9. Marketing. Don't hang around other architects like yourself. Period. Your most likely clients will be young folks like yourselves. The 60 year old friend of your parents will usually not hire you, no matter how much cheaper you may be than anyone else. He will hire his 60 year-old architect friend that he has known for 30 years. That's how it starts folks. Focus on your contemporaries. (I learned this early on from the Pran book, AIA guide to starting your own firm)
10. Attorneys are expensive. Avoid them. Don't overpay to setup your LLC or partnership. If you are lucky you will find a good young attorney to moonlight on reviewing your contracts.
11. Don't expect to lose money every year and write it off on your taxes. The IRS will get you eventually for this. You have to make a profit to survive. Some of you will understand this, but many will not.
12. Try to use other successful firm principals as mentors. Most are more than willing to tell you many good tidbits of advice. The good ones realize that just because they tell you the secret of their success, they know that it is highly unlikely that you can repeat it. Be wary of working with your former employer on projects. You are their competitor, and they will treat you as such (badly). Don't think that you are different. The best mentors that I have had were NOT my former employers.
13. While we are on the subject of former employers...Last but not least, you will come to realize that your former bosses were perhaps not the complete buffoons and idiots that you thought they were, especially the ones that started with nothing and survived to one day hire you to work for them. You may despise that fancy German car that they drive (along with the entitlement attitude), but trust me, many of them earned it. You just weren't there in the beginning to see them earn it.
Does it pay in the end? I really don't know. After almost 5 years of having my own firm (10 years experience and licensed prior to starting) and completing literally hundreds of projects, I have recently sold my small firm to a larger firm, and am now a principal at that firm. Will I miss it? Doubtful, since I'm now getting the first regular paycheck in five years. On the flip side, Would I be where I am today without starting my own firm? I will never know.
fantastic post Moontoast.
#3,4,8, and 9 cannot be stressed enough. I'd say these are the biggest hurdles that sink newbie firms.
to add to #4, no project is too small or too mundane. Every project has the potential to lead to something else and expand your network. I think the biggest mistake people make is not expanding their network beyond their comfort zone. Working the old firm's circle, beating the old firm's numbers, etc. works for a couple of years tops, at some point you need to carve out your own place and expand your pool of potential clients, consultants, contractors, reps, etc.
It costs plenty money to begin an architectural practice, unless you hand-draft your plans and operate out of home. If you don't have the financial resources to both support yourself (and kids/family?) and front-fund a number of significant business expenses long before first client check is collected and successfully cashed, then this plan may be overly optimistic. You need a client base and strong connections with quality people. You need adequate financial resources. You need the stomach to deal with difficult clients and reluctant collections, issues that aren't related to architectural design but wind-up front and center to your business.
Here in Chicago at least, a sole practioner-architect usually earns far less than an employed architect working for an established architectural firm. Many survive only because there is a spouse earning a steady paycheck, and/or because their lifestyle is either extremely modest or subsidized by family money. Many here dealt with a client base of small residential and commercial developers here who were unscrupulous Eastern European/Western Asian immigrants with ambitious plans and questionable (at best) business practices. Anyone listen to NPR today regarding real estate condominium development experiences in Chicago's Rogers Park neighborhood? Couldn't have been better said. This client base has evaporated, along with Chicago's condo boom, leaving a trail of troubled and poorly-built condo developments in the neighborhoods.
Big developers generally retain larger established architectural firms, and it's difficult to poach such a client for a new upstart firm.
Some good points.
1. I was able to survive because my wife of 15 years made good money in consumer products and I was not overextended with personal debt or a fancy house.
2. One must let go of one's former clients, as they will not desert your former firm for you. Its not personal.
3. To elaborate on the marketing points, most marketing is indirect. Tell as many people/friends as possible that you are available. Most if not all of your friends will not hire you if they are smart. They will, however recommend you to their other friends. Honestly, it is best to limit the amount of work that you do for your friends. They are often not your friends before the project is over with. Smart entrepreneurs will sometimes include "no friends and family" clauses in their partnership agreements.
4. Chicago, ill makes some great points about the things that will take up much of your time as well as the costs associated with starting your own firm.
5. Here's another odd thing that I discovered: Go out to lunch (and benefit lunches, etc.) as much as possible. Get out of the office. I went to a benefit lunch for a cancer organization last week, and voila, left with business cards of two potential leads from people I either knew or was introduced to by folks I know. Long shot leads probably, but leads nonetheless.
6. Every town is really a small town (other than NYC, perhaps) and there are just not that many major players in any one industry, such as development and construction. Try to think of your town this way and to understand who knows who. Learn to play the name game.
7. In the end, your survival is often just dumb luck. I ultimately survived my first few years based upon a non-architecture consulting contract for the local government. It provided steady monthly cash flow, and I got to meet many important people.
Although it might seem counter intuitive, now is a great time to start an office. It takes a certain skill to be scrappy about getting work. And now is the time to be scrappy. Larger firms, or firms that started up when times were good, did not have to be scrappy. Its a learned skill and one that will be valuable throughout your career. So starting out now seems opportune to me. Also, you would have the competitive advantage of being small and cheap, which is what people that are building now are looking for.
Moontoast - I have had the opposite experience with former firms/clients. My former boss has been one of my best "recomenders" in the past, and one of the past clients that I worked with at my former firm has recommended me to work (with my former bosses knowledge - I left on very good terms).
And great point about marketing. It is not about selling, but just basically letting people know (even random people) what you do. Everyone likes talking about architecture, so let them know that you are competent without selling. I have gotten work from the guy that sold me a car and the surgeon that operated on my finger (accident with a wine glass stem).
I'm on a roll this weekend.
Tyvek- (Great story on the surgeon. That is exactly how it happens.) Yes, I left my former employer on good terms and they did in fact refer me some cast-off work. As soon as I became a threat and was marketing against them, all the 'support' evaporated. I really had a lot of respect for my former employers, so it was a huge disappointment. I should not have been surprised, however.
Some will take the approach of marketing themselves to other firms on a contract basis. I did market myself to other architects for contract work in the beginning, and even got some work. What I ultimately discovered, is that in order for me to make any money, I had to charge real hourly rates for my skills since I had overhead, E&O insurance, rent, etc, which most firms were Just not willing to pay.
Here's an example. Say you work out of your living room doing contract work for $50/hr. Lets say you manage an annual utilization rate of 65%, (which would actually be pretty good for a contract labor person). So 2080 hours x 65% = 1352 hours billed in a year. Assuming you collect every penny of that (ha!), you are looking at gross income of $67,600/yr. Now you get to pay self employment taxes of around 35% (what I always paid), for net income of $43,940. Not so bad you say? You need health insurance, plus you have expenses for internet, software, computers, mileage, etc. which someone else used to pay for, and oops, there goes your money.
Many firms will balk at paying $50/hr or more, unless you are very senior level experience, since the numbers just don't work for them. They lose money on paying you this amount. Trust me. So you lower your rate to $35-$40/hr. Suddenly, things are not looking so good.
Moontoast, not sure how much of that post was directed at me, but I have never done consulting work. I don't really think of that as "going it on your own". And in terms of referrals, what I am talking about (for context) is over 6 figures of architectural fees per year for several years. But I agree, I have not competed directly against my former employer and once I do, I expect that to dry up.
That is all great advice. Thanks for posting it here.
I'm interested in starting my own firm but need a little more experience first and want to wait until I have a partner who wants to do it with me. There is just too much work (especially marketing) to do alone.
in the meantime I am working as a freelancer to keep some money coming in as I develop a website, work on my portfolio, write and network.
- Lucas Gray
www.talkitect.com
deposit up front and contracts....
Moontoast - I'd say your utilization rates for contract/freelance work are about right. Although you can combine that with a few small independent projects and use them more to fill in for each other.
So if you charge $35 p/h for contract and $65 per hour for independent projects. Your average is $50. By combining both avenues of work stream maybe you can increase your utilization rate up to 75%.
so, 2080 x .75 = 1560 x $50 = 78,000.
If you are doing your taxes right, you should be able to write off quite a bit. Lowering your tax base to 15% = $11,700
So, $66,300 before beneifits. I would have a computer, internet, software anyway whether I work in an office or not. And instead of being a personal expense only, you can now write some of this off on your S/E taxes.
How do you see getting taxes down that far? Gotta be one hell of an accountant!!
You'd be in the 25% tax bracket. Don't forget self employment tax too.
if you are paying 25% of gross income in taxes...you are doing something wrong...period.
gross revenue rather
Self employed you should be paying taxes on your net income
yeah, but you don't know what your net will be until the end of the year. For planning purposes you can use gross.
in Moontoast's post he was talking 35% of gross income.
I said more like 15% of gross income.
you said no 25% (I assumed you weere talking about gross, since that is what we were talking about)
When do you bill clients by percentage vs an hourly rate? and what percent is the going rate these days - I'm sure it changes depending on size of project and building type. Some rough guidelines would be helpful.
-Lucas Gray
www.talkitect.com
Not sure how you base any taxes on gross, as that will vary dramatically (buy a bunch of computers one year, not the next, etc.). But I am no tax guy.
When I first started my company my taxes were probably 20-25% of gross, as there were very little expenses. Now it is less than 10%.
I suppose you have to base it on something, though. If you are just a freelancer/contract worker, you should have a pretty good idea of what your expenses will be (ie not much difference between gross and net).
I bill hourly...but use 10% as my benchmark
great posts everyone.
any thoughts on how to pass on a portion of the expense for professional liability insurance? is that strictly in overhead?
i've heard horror stories of new partnerships starting and obtaining the insurance for a project (3 years min. committed to the policy) and then the project drops...so they are out a portion of the funds to cover the policy that they initially took up for the project. i've never seen anything in the B141 defining this, has anyone ever written in a security of funds for that?
just curious...
I am all for people doing this, starting their own firm.
Now, does anybody see why we are paid the way we are?
How many of these new out of work licensed architects will start their own firm and cut their prices to compete with the existing firms that have also cut their prices in order to survive? Then when theses new firms hire new interns, what will the pay be for them?
Just saying.
Thats life in the jungle OTFence. Some will leave, some will get squeezed out. The most committed will find a way to survive.
Root - that happens all the time in construction. You purchase more insurance in order to bid the job and then if you dont get it, your stuck with it for the rest of the year. I dont know a whole lot about profesional liability insurance and e/o insurance but a 3 year comitment seems unlikely.
insurance costs are definately overhead.
E&O insurance isn't always an overhead expense ... if you can talk your owner into purchasing a project policy (and, if you can get an insurance company to write that sort of coverage) then the cost of that insurance is a cost of the project - not a cost to the firm.
regrettably, such coverage is becoming quite hard to find and it is very expensive. and, it takes an enlightened owner to make this work. but, IMO the owner is better served by this approach than by the regular E&O coverage most of us carry.
Sounds like there are two schools of thought emerging here - one being to get office space, equipment, insurance, software, etc. all set up before actually starting to do projects and the other being to start out with nothing and worry about things like office space and insurance once you have some projects under your belt.
The first approach seems to expose one to much less risk, at least from the perspective of liability, but the second approach is much more realistic, especially for people who have no cash reserves or who have a full time job and want to start doing their own thing on the side before going for it full time.
Is that a correct assessment?
pretty much 4arch...
But I think it also has to do with the types of projects you will be going after.
If you are going after commercial or public work, no one is going to take you seriously working out of your living room without insurance. If residential remodels are your bag, then a laptop, cell phone and a coffee shop is the way to go.
I'd like to go after commercial work but don't have the budget for anything more than a laptop and cell phone!
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