How Wide is Your Triangle? Business Models for Design Firms (Part 2 of 2)

In the first part of this article, I covered the 3 types of triangle-based business models common to design firms: Efficiency, Experience, and Expertise. In this second part, you’ll learn how to recognize when these models become unbalanced and how that impacts your firm. I’ll also help you figure out which business model you’re using. That is, how wide your triangle is.

WHEN THINGS GET OUT OF BALANCE

If you run an Expertise Firm or an Efficiency Firm, it is fairly transparent when staffing is unbalanced and relatively easy to correct. For Experience Firms, it’s a different story and many struggle due to the imbalance in their staffing.

The typical imbalance scenario is illustrated in Figure 5.

Figure 5: Experience Firm staffing can easily get out of balance

This situation happens when there are too many project architects/managers (PA/PM) relative to the number of principals and junior staff. Often, most of these PM/PAs have about the same amount of experience and many have been there for years. These are usually highly valued employees who understand the firm principal(s) and can get things done.

However, in many firms these PA/PMs face no possibility of moving up in their careers unless they leave the firm. So the most entrepreneurial and ambitious will likely leave sooner or later. There are obvious downsides to their departure – the loss of institutional knowledge, the cost of new hires, and the narrowing of future ownership transition options, for example.

There are a number of paths out of this situation, but much depends of the proclivities of the firm owners. If you are a firm owner that wants firm growth, the staff can be balanced by moving worthy PM/PAs to a 'partner track'. This involves identifying current and future 'rain-makers', mentoring them, and connecting them with your existing client base. Growth happens as the new partners begin to bring in new work. As the firm grows, hiring more junior staff completes the staff rebalancing.

If your firm is out of balance, but you don’t want it to grow, you need to face the likelihood of losing valued PM/PAs from time to time. It will also remain challenging to be profitable unless you have developed very effective work processes or are in a lucrative market sector.

Your best bet is to encourage and support the departure of PM/PAs when they are ready and seemingly aspiring for more. This will bring the firm back into balance through attrition, especially if the PM/PA is replaced with a junior person. Profitability will remain difficult unless this balance is carefully watched and work processes are continually improved. However, this strategy will maintain the firm at a size where the principals can be directly involved in every aspect of the firm’s work, which is the preference of many small firm owners.

HOW TO KNOW WHAT YOU ARE

If you run a high-design firm that does trendy retail stores, your firm will have to be different from the architect’s that designs the entire suburban shopping center.  For one thing, the shopping center architect needs many junior level employees to complete the production work, while the stylish retail architect needs cutting-edge creativity from her small staff. There are also differences in clients for these two types of jobs and these clients have differing expectations of their architects. It’s hard to do both in one firm, especially a small one, even though they are both “retail” projects.

How do you know what kind of a firm you have or want to have? Take this little test:

1. Clients’ most important reason for hiring you is:

1. You offer reasonable fees, while delivering a good product, on time.

2. You offer a portfolio of projects that shows you have done projects of equal size and complexity as the one they are  developing.

3. You offer specialized knowledge or ability that the client needs.

2. Your definition of professional success is:

1. Delivering good projects with effectiveness and grace.

2. Winning design awards for large and/or complex projects.

3. Being renowned for your expertise or design talent.

3. In your ideal workplace, you would be:

1. Acquiring projects and overseeing their execution by junior staff and project managers.

2. Working in sync with like-minded people on interesting projects in a collegial atmosphere.

3. Surrounded by colleagues who are intellectual peers capable of collaborating on projects needing advance knowledge.

Obviously, “a” indicates Efficiency, “b” indicates Experience and “c” indicates Expertise. Even though some of these choices are considered more “sexy” than others, try to be honest with yourself and answer with the letter that most describes your true feelings and experience. I know some of you will want to answer “all of the above", but that is just not practical in one lifetime. If two out of the three are the same letter, you have a good indication of your proclivities. It may turn out that you are truly even--one a, one b and one c--and if that is the case, it may be useful to consider how to narrow your focus and be more strategic. You are more likely to be successful if you do.

For more information: David Maister, in his classic book, Managing Professional Service Firms, espouses this theory on how professional service firms are shaped. Weld Coxe, fabled consultant and author of Success Strategies for Design Professionals, has also written about this idea.

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Rena M. Klein, FAIA, is also the author of The Architect's Guide to Small Firm Management (Wiley, 2010) and is principal of RM Klein Consulting.