The How-ToManual forFirm Growth

Richard von Luhrte FAIA, President of RNLProfessional Practice Instructor, University of Colorado

The How-ToManual forFirm Growth

TOPICS FOR DISCUSSION:

The reason firms stay small

The plateaus of growth

The types of large firms

Growth through enhanced capabilities

The large firm business model

The project organization

Creating a business plan to succeed

Discussion: Questions and Answers

S O Y O U W A N T TO B E C O M E A L A R G E P R A C T IC E?

The reason firms stay small

S O Y O U W A N T TO B E C O M E A L A R G E P R A C T IC E?

Firms that are small tend to stay small

The decision for an architect to stay small is certainly a reasonable choice for many practicing professionals. Small practices make up 85% of the profession, with most firms successfully practicing with 5 people or less (AIA).

There is increasing evidence that sustaining as a small firm is getting more challenging, and that while 85% of the firms remain small, they only do 15% of the dollar volume of work, as the larger firms, while only 15% of the profession, do 85% of the dollar volume of work!

T HE R E A S O N F I R M S S T A Y S M A L L

In today’s competitive environment, transitioning into a larger firm may be the only way to survive.

T H E G R O W I N G T R E N D T O W A R D S G R O W T H

The plateaus of growth

S O Y O U W A N T TO B E C O M E A L A R G E P R A C T IC E?

• Investing in multiple markets, and diversifying the practice to protect them against a downturn that destroys their business.

• Expanding geographically to protect themselves from market fluctuations.

• Combining through merger and acquisition, to become more powerful with a farther reach.

• Protecting themselves internally with more talent and redundancy of leadership.

T H E U P W A R D T R E N D T O W A R D S G R O W T H

Today, more than any time in history, firms are recognizing that growth is the future.Today the upward trend is for small firms to grow. There are many ways that this is occurring:

In today’s competitive environment, becoming larger may be the only way to survive.

T H E U P W A R D T R E N D T O W A R D S G R O W T H

Becoming a large firm does not just happen:

• Define what your talents are.

• Decide what is needed to enhance your capabilities.

• Determine how to position yourself for growth.

You have to know what you want to be and define the path to get there. It takes time, willpower, tenacity and MONEY!

SO YOU WANT TO BECOME A LARGE PRACTICE?S O Y O U W A N T T O B E C O M E A L A R G E P R A C T I C E ?

There are 6 general levels of practice size and scope:

1. The sole proprietorship: (1 to 10 people) One person practicing alone or with a small staff

2. The small firm practice: (5 to 20 people) One or two partners and a small staff

3. The mid-size practice: (20 to 50 people) A few principals and multiple market expertise, with specialists in design, technical, marketing, and management

4. The emerging large practice: (50 to 100 people) A growing firm that has multiple principals, and multiple studios in various market types, generally recognized as a specialist in a niche market

T H E P L A T E A U S O F G R O W T H

There are 6 general levels of practice size and scope:

4. The large practice: (100 to 250) Multiple studios led by principals and technical leaders, offices in multiple locations, and other disciplines in the practice, including interior design, landscape architecture, urban design, planning, and engineering

5. The mega-practice: (250 to 2000) Corporate structure with separate management structure for each office, and combined resources at a corporate headquarters. Expertise in a range of project types, with leadership in design, technical delivery, marketing, business, human resources, and finances

T H E P L A T E A U S O F G R O W T H

S O Y O U W A N T TO B E C O M E A L A R G E P R A C T IC E?

The reason why firms decide to grow

• To win larger and more complex projects

• To move beyond being a “generalist” into a specific area of expertise

• To broaden the firm’s capabilities and quality of work

• To expand into other market and project types

• To do work outside of their home town, and to grow geographically

• To have the resources to compete in a highly competitive environment

• To become a more significant participant in the civic life of the community

T H E R E A S O N S M A L L F I R M S W A N T T O G R O W

• Larger firms have the capability and the capacity to take on more complex projects.

• Larger firms generally have the in house talent to design, manage, and deliver projects.

• Larger firms are more often asked to be partners in design build projects.

• Larger firms have in house expertise in a broader range of technical delivery requirements.

• Larger firms have the technical specialists necessary to take on these larger projects.

T H E R E A S O N S M A L L F I R M S W A N T T O G R O W

To win larger and more complex projects

The types of large firms

S O Y O U W A N T TO B E C O M E A L A R G E P R A C T IC E?

Large firms come in numerous shapes and sizes!

The large general practice: HOK, ZGF — Fentress, RNL

The niche practice: KPF, HOK Sport, HNTB, Callison, WATG — H+L, OZ

The design boutique: Renzo Piano, Santiago Calatrava, Frank Geary

The geographically diverse practice: SOM, TSP, Gensler

The multi-disciplined practice: HOK, Davis, RNL

The primary specialty practice: Gensler, EDAW, Merrick

The unique specialty practice: Elkus Manfredi, Heller & Metzger, Fentress

T H E N A T U R E O F T H E L A R G E F I R M

• takes on the larger and more complex projects in a variety of market types.

• develops a reputation locally, and then expands to meet the needs of larger projects, and greater volume.

• expands geographically to become a similar model in a new community, taking on the regional large practice for larger and more complex projects.

• expands organically from within to take on more and larger work.

• competes for high prestige, highly visible work within the community and in the region.

• is most likely to get the “bread and butter work” because of their lack of distinction in any given market area.

• will reach a size threshold at which point it will no longer be able to expand.

The large general practice:

T H E L A R G E G E N E R A L P R A C T I C E

T H E L A R G E G E N E R A L P R A C T I C E

The niche practice:

T H E N I C H E P R A C T I C E

• evolves from the general practice, where one or more practice areas become recognized as a specialty.

• becomes known beyond the local community, growing in reputation regionally, nationally, and perhaps internationally.

• will develop a unique reputation to support growth. There may be other areas of work within the firm, but the niche dominates the firm’s reputation.

• achieves a visibility and reputation that generally exceeds size. The firm can be the “10,000 pound gorilla” in the marketplace.

• usually remains in one location, exporting talent to the project location, rather than multiple offices. There is no advantage for multiple offices because the clients will seek out the expertise wherever it is located.

Grows from a single location

T H E N I C H E P R A C T I C E

• grows around the reputation of a single designer.

• becomes recognized locally, then regionally, then nationally and beyond, growing to cover increasing recognition.

• is supported by a large organization –designers, model builders, graphics –and other experts who develop a large volume of work, leveraging the lead designer.

• grows teams of technical leaders and project managers who manage the work through the delivery process.

• generally grows in one location around the capabilities of the guru.

• teams with others to take on the larger and more complex projects.

• grows organically from within, with others taking on leadership that build on the reputation of the founder, or the design leader.

• tends to grow to mid-size, but never larger (the exception is Foster, who has transitioned from the Boutique leadership of a single figurehead, to design culture supporting multiple leaders.)

The design boutique:

T H E D E S I G N B O U T I Q U E

Expands to meet reputation

T H E D E S I G N B O U T I Q U E

• opens multiple offices to cover multiple regions to replicate the service and reputation of the general practice of the home office (EDAW as example)

• duplicates structure of the first office in each of its locations.

• may allow each location to create a unique identity based on regional needs, and unique market specialty. (NBBJ as example)

• can grow by training leadership and spinning them out to lead branch offices.

• can hire locally to build new offices around the leadership of an architect who has already established recognition. (Gould Evans as example)

• can be grown organically from within or through merger and acquisition of a regionally established firm. (RNL as example)

• may begin as a project office, expanding into a full fledged firm through marketing and providing full service capability. (HDR as example)

• may start as branch offices with one headquarters, evolving into equal partner offices, each with its own leadership and image. (HOK as example)

The geographically diverse practice:

T H E G E O G R A P H I C A L L Y D I V E R S E P R A C T I C E

T H E G E O G R A P H I C A L L Y – D I V E R S E P R A C T I C E

• expands by adding other support disciplines such as landscape architecture, interior design, urban design and planning.

• adds specialized services to gain a unique focus in a given field of research and development—such as sustainable design.

• can add engineering services to provide full service one stop capability under one contract, appealing especially to government clients.

• can gain work through one discipline (master planning as example) and leverage that work into other services (architecture and landscape architecture).

• can bring services that naturally belong together (architecture and interior design for civic and institutional work).

• can grow with one dominant discipline, with the others supportive.

• can mature with each discipline achieving market share in their own fields (i.e.: architects and landscape architects marketing their own services as prime).

The multi disciplined practice:

T H E M U L T I – D I S C I P L I N E D P R A C T I C E

Multi-disciplined headquarters with branch offices

T H E M U L T I – D I S C I P L I N E D P R A C T I C E

• grows around one of the major market disciplines, with other services supportive to the dominant capability. (Gensler grew worldwide around interior design, and added architecture and other services as support; EDAW grew around landscape, and Sasaki grew around urban design and landscape, each with other disciplines to support the primary).

• may evolve over time where all disciplines are equal, but the primary specialty will tend to still dominate the market image and reputation.

• tends to grow from a smaller firm, adding expertise in its primary market or discipline based upon volume of work and geographic expansion.

• multiple offices of the firm each assume the same identity as the parent location.

The primary specialty practice:

T H E P R I M A R Y S P E C I A L T Y P R A C T I C E

Unique specialty repeats itself geographically

T H E U N I Q U E S P E C I A L T Y P R A C T I C E

• grows around one major market focus, such as retail, hospitality, health care, etc. The firm’s growth occurs by gaining a larger market share in that focus.

• can team with other firms where their specialty is needed by the firm to win the work.

• may expand geographically with offices that are a clone of the parent firm, each office assuming the same market focus as the parent.

• gets its work by being the dominant service provider in a given market type (WATG in hospitality, Callison in retail, Elkus Manfredi in mixed use).

• evolves in one unique service of the practice, doing one thing well (i.e.: Heller and Metzger in specification writing; AEC sustainability design, etc.).

• tends to evolve in one location, without branches, sought out through teaming, or as prime where location no longer matters.

T H E U N I Q U E S P E C I A L T Y P R A C T I C E

The unique specialty practice:

Each office assumes a market specialty

T H E P R I M A R Y S P E C I A L T Y P R A C T I C E

Growth through enhanced capabilities

S O Y O U W A N T TO B E C O M E A L A R G E P R A C T IC E?

• Expanding your capabilities from within.

• Building duplicative and redundancy of your staff.

• Specializing in roles and responsibilities within the practice.

• Seeking a nationally recognized expert to expand your practice.

• Training and growing within, and exporting to new locations.

• Merger and acquisition to expand geographic reach or market niche.

• Building your team to manage growth.

E X P A N D I N G Y O U R E X P E R T I S E

In order to grow, you must be willing to develop others, to move past your own ego and control, and to build a team capable of handing more simultaneous work.

• Training of staff is critical.

• Delegation of leadership must be accomplished.

• The teams must be empowered and held accountable for performance.

• Peer review and quality control is critical to quality and consistency of product.

E X P A N D I N G Y O U R C A P A B I L I T I E S F R O M W I T H I N

• Interns must be on a career path to become leaders through growth.

• Delegation of leadership must be accomplished.

• There must be multiple designers behind the leadership of a senior designer.

• There must be multiple project teams created to take on multiple projects simultaneously.

• Peer review and quality control is critical to quality and consistency of product.

In order to grow, you must have multiple people in the same roles and a training program to advance others into parallel roles.

B U I L D I N G D U P L I C A T I O N A N D R E D U N D A N C Y O F Y O U R S T A F F

In order to grow, you must build expertise in each aspect of the practice—design, technical, financial, marketing, and people management.

S P E C I A L I Z I N G I N R O L E S A N D R E S P O N S I B I L I T I E S

• Leadership must evolve in multiple directions in the practice. Design must be complimented by technical leadership and project management.

• Business development must become a highly focused part of the firm with a marketing principal leading the effort of each area of expertise.

• The best firms are a trio of leadership, each focused in a given area of expertise—design, marketing and technical.

• The firm must evolve in multiple practice areas or studios, each consisting of designers, technical leaders, and project managers focused in their specific market niche.

• The ability to grow as a niche market leader depends upon having the best experience and expertise in the field.

• The firm that is expanding must look nationally to find the right team leaders and niche players necessary to provide the leadership necessary for a specialized project.

• Niche leadership will grow a team of motivated people who work under his/her leadership, and who want to specialize in a given market type.

• Teams are kept together for multiple projects. The team markets the work, delivers it, and supports it.

• Teams are empowered to join the right organizations that fit their market specialty.

• Teams market their work in the way that clients want to see it. This may mean a unique way of telling the story or a unique way of doing the work.

You must build expertise within your practice by hiring the very best expert in a given market.

S E E K I N G A N A T I O N A L E X P E R T TO E N H A N C E Y O U R P R A C T I C E

In order to grow, you must develop leadership from within and provide opportunities for them to lead by exporting them to new locations where the firm wants to expand.

T R A I N I N G A N D G R O W I N G W I T H I N –E X P O R T I N G T O N E W L O C A T I O N S

• The path to leadership within the practice may include relocation. Incentives to relocate include promotion and the opportunity for leadership.

• The way branch offices retain the culture and the image of the parent firm is by building the practice around a key leader grown up in the home office.

• The leadership in the branch office can be supplemented by hiring locally to gain access to the local market and culture and to provide direct relationships.

Merger and acquisition can be a method of addingadditional markets to your firm’s resume, and as a means of geographic expansion.

M E R G E R A N D A C Q U I S I T I O N T O E X P A N D G E O G R A P H I C R E A C H O R M A R K E T N I C H E

•Merger of equals can create a larger firm that has a broader reach and more ability to win larger and more significant work.

•The acquisition of a market leader can expand your firm’s reach into a highly desirable new market.

•Merger or acquisition in another geographic location can provide the means of quickly entering a new geographic location.

•In most cases the dominant firm infuses the merged entity with leadership from the home office providing integration, culture and image.

• HR becomes an important addition to the firm’s leadership team supporting the staff, tracking performance, recruiting, managing legal regulations.

• Financial management and accounting becomes a primary leadership need in house as the firm grows and becomes more successful.

• CAD, IT, BIM, and other software and hardware support must be provided to manage the networking capabilities of multiple locations, and a larger staff.

• Training is a critical component of the operations of the larger firm.

• Recruitment includes intern recruitment and a new “freshman class” every year, at preferred universities, and recruitment of senior leadership.

• Discipline leaders need to be developed to lead teams providing unique services within the practice.

B U I L D I N G Y O U R T E A M T O M A N A G E G R O W T H

You will need to develop support capabilities within your firm for the increased complexity of the organization.

S O Y O U W A N T TO B E C O M E A L A R G E P R A C T IC E?

Creating a business plan to succeed

P L A N N I N G F O R G R O W T H — T H E B U S I N E S S P L A N D E F I N E S T H E “H O W”

In order to plan for the growth of the practice, the small firm leadership must develop a plan that defines the firm they want to be and how they will get there. The development of a business plan is a rigorous exercise that creates the vision, defines the goals, and charts the course to get there!

It works: By planning your course and defining the methods by which you will achieve your goals, your chances of actually getting there increase incrementally! Planning produces results.

What is a business plan?

• Written statement which describes the business’s vision, values, mission, strategies, goals and action plans by which management intends to achieve them.

• Most important objectives of a business relate to its values and its vision.

• Each business is different, therefore, each business plan is unique.

• Reflects the “best thinking” of the business.

B U S I N E S S P L A N N I N G

What are the criteria that distinguish a good business plan?

• A good plan is based on the vision, values, and mission of the business which is thoroughly understood by key team members

• The plan should provide “specific” strategies, goals and action plans for each key element that influence business results

• Should be based on a detailed objective assessment of the strengths and weaknesses of the business and personnel

• It should include the best thinking available, particularly of the members of the team

• It should consider the problems of the business from both short and long-range standpoint

B U S I N E S S P L A N – C R I T E R I A

Discussion: Questions and Answers

S O Y O U W A N T TO B E C O M E A L A R G E P R A C T IC E?