Is your firm among the many that have been seriously hurt by the Great Recession? If your firm is half the size as it was in 2008, you are not alone.
According to the AIA’s The Business of Architecture: 2012 Firm Survey Report, firms that managed to survive the recession have, for the most part, gotten smaller. There is no doubt that times have been tough, and Table 1 shows just how bad it has been.
Table 1: Change in AIA member firm size since 2009
It seems as if the old yarn, “the bigger you are, the harder you fall” is apropos here. But almost everyone suffered. The fact that there are more solo practitioners today than in 2009 isn’t exactly great news for the profession, although the opportunities for the one-person shop are better than ever.
Firms of fewer than five fared better than the larger firms only because firms newly downsizing replaced some of the firms that went under. The sad stories are the same all over the country. Many firms that specialized in one project type saw their market disappear overnight. Others that had built their firms on long standing relationships watched as their bread and butter projects were scooped up by new competition that would never have considered these projects before. Many have struggled to survive, often reduced down to the founder plus one or two.
Most of these firms did not have faulty strategy or poor execution, and it is important to remember that management of a firm through this economic crisis was/is extremely difficult. Throughout the hard times, based on my observation, many firm owners have showed remarkable respect for their staff and have exhibited enviable resilience.
The good news: technology and new ways of collaborating have made the flexibility of small firms an asset and is reducing the negatives of having a very small organization.
The bad news: many firm owners are traumatized and don’t know where to go from here. They want to rebuild but are not sure how.
Is the Recovery Real?
According to the AIA’s Architecture Billing Index, the recovery seems to be in full swing. Anecdotally, it is spotty, depending on where you are and the market in which you work. Figure 1 shows the typical business cycle as it applies to the construction industry. If rents in your area are beginning to increase and construction activity is picking up, you know that you are already in the recovery phase of a cycle.
Figure 1: Construction Business Cycle
Figure 2 charts the overall business cycle in the U.S. since 1990. When change in GDP is +3-4% or above, we are experiencing good times. The boom market that preceded the Great Recession, interrupted only by 9/11, was the longest expansionary period in the modern era. This expansion was unusual in that it was not accompanied by inflation although salaries for architectural staff did take a long overdue jump. The extreme nature of the Great Recession and the 4 long years that have followed are shown clearly in this graph. Percent change in GDP for 2012 is an anemic 2.2%, up only a bit from the 1.8% of 2011. Overall the recovery is less than robust.
Figure 2: Percent Change in GDP from 1965 - 2011
Now is a Good Time to Reboot
Nevertheless, if you practice in a locale or market sector that is recovering, and even if you’re not, this is the perfect time to reboot and re-launch your practice. There is an opportunity now to become thoughtful and strategic in how to grow your firm in a sustainable manner, in contrast to the opportunistic whirlwind common to boom times. Building on what you know, adding knowledge assets, and being creative about how you apply your talents are the keys to new success in the new normal.
So, the question remains, how can you reboot your firm and set yourself up to prosper in the recovery? See part two of this article tomorrow to find out about using strategic design thinking to help you do just that.
Rena M. Klein, FAIA is the author of The Architect's Guide to Small Firm Management (Wiley, 2010) and principal of RM Klein Consulting, a firm that specializes in helping small firm owners run their firms better.