The Business of Architecture

Your Guide to a Financially Successful Firm

Kathy Denise Dixon, Timothy A. Kephart, Karl L. Moody

• Publisher: Routledge
• Year: 2017
• Print ISBN: 9781138190337
• eBook ISBN: 9781317279068
• Topic: Architecture
• Subtopic: Architecture General

The Business of Architecture is the essential guide to understanding the critical fundamentals to succeed as an architect. Written by successful architects for architects everywhere, this book shows the architecture industry from a corporate business perspective, refining the approach to architecture as a personal statement to one that must design and build within the confines of business and clients. The Business of Architecture will educate new and experienced architects alike with valuable insights about profit centers, the architect as developer, how to respond to requests for proposals, intellectual property, and much more.

1 Architecture Today: The Current State of the Profession

Kathy Denise Dixon, FAIA, NOMA

Architecture has always been a well-respected profession. History would tell us however, that it is also a career that is primarily reserved for wealthy white males, serving a clientele composed mainly of those who belong to the highest social and economic circles. The public’s general impression of architecture was that it was a service for the elite, and architects, for the most part, were fine with that impression.

Over the last few decades however, the profession has been increasingly looking inward with self-evaluation. Part of this self-reflection is brought about by the dawning realization that architecture after all, is not just about creating great design. For architecture to survive and architects to thrive, the profession must embrace a purpose that includes creating value for the firm and generating wealth as well as contributing to the culture of society.

For us architects, boosting income for ourselves and for our respective firms means that we need to show the greater public that good design is not simply a luxury, but an important factor in creating better living spaces, healthy environments, and more desirable real estate investments. Only then can we maximize the opportunities around us to generate a steady income stream.

But just how easy is it to accomplish this feat given today’s challenging economic conditions?

The Realities of the Market

At this point in time, a paradigm shift for architects would do wonders for the profession, injecting some fresh perspective and vigor into an otherwise ailing industry. It does not however, change the reality that the building market isn’t exactly at its most ideal point in the financial markets.

For one, the slowdown of the economy caused by the recession of 2008 also negatively impacted the professionals in this field. It has been reported that nearly 30 percent of individuals working in the industry lost their jobs during that minor depression. The unfortunate reality is that architecture continues to be the canary in the coal mine when it comes to the U.S. economy, and design professionals are among the first to feel the effects of an economic setback.

A downturn in the market results in decreases in lending, and ultimately, a substantial decline in construction. When no one is building, the skills of an architect are not required. During these times, keeping an architecture firm afloat is a challenge, and may compel industry professionals to look into other entrepreneurial ventures or career paths.

There is some light at the end of the tunnel however, as we seem to be leaving the rather dismal period behind with the construction sector starting to see some activity. Interest in architecture as a career choice has gone up as well. The NCARB (National Council of Architectural Registration Boards) reveals that there are a record numbers of individual taking the examination to become architects. This is very encouraging considering how the recession’s repeated layoffs devastated the profession in the years from 2008 to 2012.

But the questions still remain: Are these young test takers aware of the challenging business obstacles that are ahead of them? Will their design skills be enough to get them on the path of a lucrative career? Are they ready to adapt to the realities of the industry?

Since architecture schools do not usually teach business skills but focus almost solely on buildings and aesthetics, it’s not likely that young architects today are fully mindful of what awaits them in the real world. Those who are new to the practice could find themselves in for a rude awakening as they discover that the ability to create the best designs does not automatically lead to financial prosperity.

Both new and practicing architects should then arm themselves with the knowledge of the state of architecture as a profession and as an industry today.

A Look at the Factors Affecting the Industry

There are a several serious issues that surround the profession at present. These include: The tenuous relationship between academia and the workplace; the encroachment of other disciplines on the traditional architect’s role; the changing technology and advent of e-commerce; the economic “roll-up” of other industries; and demographics and diversity.

These five factors will greatly influence how the profession weathers the upcoming years, both financially and socially. Will the traditional architect cease to exist at all due to outside influences from other disciplines? Or will the current acquisition/merger focused economy leave only the large-scale players in the design game? Given the volatility of the times, there could be a number of ways in which things can play out. But ultimately, the answers lie on how we, the members of this profession, respond to the changing times and factors.

Let’s evaluate these concerns one by one:

Demographics

Records from the Bureau of Labor Statistics indicate that there were 112,600 architecture jobs in the United States in 2014. An NCARB survey however, shows that there are only 107,581 licensed architects. The lower number of licensed individuals compared to the number of jobs could possibly be attributed to architects leaving the profession during the recession and not returning. It is anticipated that there will be a shortage of architects over the coming years as the construction industry picks up steam again.

According to First Research (Dun and Bradstreet Company), the architectural services industry earns a combined revenue of $33B annually. There are approximately 23,000 firm locations with most companies having fewer than twenty employees. Further, Salary.com indicates that the mean salary for an entry level Architect I position is $47,639. This is in comparison to $65,014 for Mechanical Engineer I and $66,144 for Electrical Engineer I. Even from matriculation, the value of the architect is not seen as equivalent to the engineering sub-consultants that they hire.

Fortunately for the profession, the number of licensed women architects is steadily increasing. In fact, the number of females enrolled in architecture school has risen to over 40 percent in accredited programs. Currently, only approximately 17 percent of architects are women but the number is steadily rising.

Having low numbers of women and minorities in the profession is the result of years of silence by the industry on diversity issues. Moreover, concerns such as work/life balance, cost of examination, and cost of architecture school also play a large role in the low count for female, Black, and Hispanic licensed architects. The profession, like the nation as a whole, needs to come to grips with what other developed countries have achieved with regards to paid family leave, healthcare, gender pay equity, and other related issues in order to retain women in the field of architecture.

Revenues

Thus far since 2016, the discipline has been steadily growing overall, with the Architectural Billings Index creeping upward since January of last year. Signs are indicating that the profession has weathered the storm and is slowly bouncing back to the revenue highs prior to the 2007 recession.

Yet, surviving the hard days does not automatically indicate that easy times are ahead. Even with increased inquiries and billings, architectural services remains a very challenging industry, one where making high revenues is always a goal but seldom an achievement.

This is largely because for designers, the design phase never ends, and when more time is spent on one stage than projected, billable time could be lost. Plus, as a project moves forward, “scope creep” could gnaw away what might have been profits. The only way to ensure consistent revenues is to have many projects for the firm, but this could also backfire because you would end up accumulating backlog in the process.

That’s why it’s a wise venture to look for other sources of revenue other than from usual means. The architect is always waiting for a client patron to come through the door, that’s a given. But what if revenues can ...

Table of contents

• Cover
• Half Title
• Title Page
• Copyright Page
• Table of Contents
• Foreword
• Preface
• Acknowledgments
• Introduction
• 1. Architecture Today: The Current State of the Profession
• 2. Transitioning from Academia to Corporate Culture
• 3. What Makes a Successful Business?
• 4. Leadership Matters: Organizational Structure in the Firm
• 5. Profit Centers
• 6. Process Versus Product
• 7. The Architect as the Developer
• 8. The Basics of Financial Management
• 9. The Right Fit: Hiring People and Finding Clients
• 10. The Architect’s Plan for Branding and Marketing
• 11. Responding to RFPs and Building Relationships That Can Get You Ahead in the Process
• 12. Intellectual Property: Who Owns What?
• 13. Determining How Much Your Firm Is Worth
• Conclusion and Resources
• References
• Index