Catch up on this meaty discussion about the business of architecture, the long-term tabu Architects face with fees and getting paid, and how to benefit from discipline and structure to change this game
In this webinar organised by BQE Australia, Steve Burns, Chief Creative Officer at BQE Software, teamed up with Warwick Mihaly, Principal at Mihaly Slocombe Architects & Author, to discuss best practices for monitoring KPIs that determine client, project and staff profitability, how to learn business management ‘on the job’ and lessons learned from 30+ years experience running Architecture firms.
Watch the webinar recording or simply read this webinar-log summary to find out the changes that need to be made in your practice in order to reap financial rewards and what is really important in order to create a thriving and sustainable firm.
DISCUSSION'S MAIN TOPICS
- The issues with Architecture education
- Taking advantage of the technology out there
The balance between design and business
Architecture needs a new business model
- Be firm about the business side of the business
Architecture as a business and what is required
The issues with Architecture education
Steve Burns: To start off, I would like to discuss what we feel is the foundational problem with architects and their compensation and their success: it has to do with education. I was educated here in the United States and everything was focused on this idea that it's all around a design studio. I was wondering, what is it like for you?
Warwick Mihaly: Probably the same. We had a couple of practice-based subjects at university in the second half, but I think that's to be distinguished from business, learning how to administer a construction contract, I think is very different to learning how to negotiate about a fee.
SB: One of the things that architects expect is that they're really going to learn on the job, it has a lot to do with where you end up working, how well run that firm is and there's really nobody there who is a mentor for running a business.
WM: I'd actually argue that even if you are at that sort of firm, you don't necessarily get that extra layer of education. I worked in a great architecture studio after graduation, but I look back at that time and I think I had zero transparency about fee setting. I had no idea whether or not my projects were making a profit or not. Once I was totally over-servicing a client and had no idea I was even doing it because it wasn't part of the dialogue.
SB: That's absolutely true. If you're managing a project and you're not being shared the contract, the budget, you know nothing, you're flying blind. Every manager of a project is the CEO of their own little business. That project is a business, and they're responsible for it. And if they have all the tools available to them to make it profitable, then all the projects will likewise be profitable, hopefully, and then the firm becomes profitable. In fact, Fabian was just asking: "Do you think you should be open with your staff with fees on projects and how much you were earning hours, labour?". If you were asking me, I'm a fairly transparent person. I believe in letting people know.
WM: I would agree with that sentiment. For anyone who's read my blog, I'm all about hyper transparency. I think you can go too far and you do need to balance it with privacy and sort of the needs and interests of your team and there's real value in it.
Taking advantage of the technology out there
WM: I get teased a lot by my team for my passion for Microsoft Excel. Now we have automated software in our studio like Core to help us, but I feel the brain juices needed of me to design a layout for a house or whatever are the same that I use when I think about the design of our business. I think it's very similar to what we do in design.
SB: I agree, but I will tell you I take great issue with spreadsheets. The problem with Excel spreadsheets in business is it's okay for an one off analysis, but for the regularly running of a company, it's fraught with error, right? It's like going back to drafting by hand, as opposed to taking advantage of the technology that is out there, whether it's our Core platform or a competitor's platform. So I think the sooner a firm can adopt some structure, have an armature from which they can hang their firm on, they will be better off.
The balance between design and business
SB: By the way, Warwick, I think there's a fellow named Simon who asked you: "Do you feel you ever have to compromise the design by limiting the time spent on a project because the fee doesn't allow it?"
WM: I reckon in a perfect world, we would all be able to achieve great design within the time allocation we've got within. The central belief that I subscribe to when it comes to my dual interests in architecture and business is that we can be both great designers and great business people. It's not easy to do that, but I reckon that's the challenge to try and work out a way of being a sufficiently efficient in the design work we do so that we're not just working forever and then work out a way to build our business model so that we can charge enough money for it.
SB: Very few times you see an architect being promoted in the press because they've created a very successful firm. Did you want to share with everybody on your thoughts there?
WM: I think traditionally architects are incredibly good at sharing and celebrating design outcomes. You go across to Silicon Valley, it's not enough to have a great idea. It has to also be a great idea that is going to be financially rewarding. And I think the more we talk about it, the more we do webinars like this, the more that will change in the way we think about the work that we do, which will eventually lead to better outcomes in this very issue that we're discussing.
Architecture needs a new business model
SB: People are actually enjoying technology and that's why Silicon Valley for you is such a role model. People are not just looking for the unicorn but they're actually looking to bring value to people. So if they're not bringing value to people, they're not going to be sustaining. So that's just another little point I wanted to make about technology and business.
WM: I remember back at uni, I was presented with one or two opportunities. Do you want to be in business so you can be an architect? Or do you want to be an architect so you can be in business? And I think the correct answer is: I want to do both. I want to be in business so I can do design things, but I also want to use architecture as a vehicle to run a successful business. And I think the mistake that traditionally architects made was thinking that those two things didn't have to coexist.
Be firm about the business side of the business
SB: Which is a good sequel to a question Steve asks: "What are your thoughts on how sheepish architects are in asking for payment for the work that they do?". Money is a very difficult subject for a lot of architects to bring it up. But you have to be firm about the business side of your business. Your client really ought to respect you. So why would an architect be afraid to talk about money? Can you explain to me what is your feeling on fees and getting paid?
WM: One way of answering that question is to talk about this. You've got your main fee, that's generally either a fixed or a percentage fee and represents the majority of the income that we make. And then anytime our client asks for a scope change, that would then be pushed into hourly rates. And over the years, we've become much more proactive about insisting on additional fees when we've been asked to do stuff that we hadn't originally agreed upon. It can be quite a confronting conversation that people, particularly those who haven't been taught, how to do it properly.
SB: Blair asks: "I've got a relatively new practice. It's been charging really competitive fees, but now I'm exploring ways I can negotiate higher fees. What ways do you regularly justify fair and profitable fees to prospective clients?"
WM: Give it a crack. If you've been charging 10% on a particular job up until now, and you feel like that's really not enough, on the next job ask for 11%. And if that works, and you get the win or ask for it 10 times more, and see what percentage of those projects you win and whether or not you get any feedback from your prospective clients to say whether or not was too much or too little. So you should, as a general rule, be constantly pushing the boundaries of what you can charge. And yeah, you might lose a couple of jobs, but if you win one at that higher rate, well then that establishes a new benchmark for you. That's the way you're going to grow.
SB: I 100% agree with you, but I would also want to add that the best time to market your business is when you have no time to take on a new client. And basically, you can say that you can take the project, but it's going to cost this much more.
WM: There's a comment on the chat, I think jokingly saying, "please teach me how to win a project at 10%". Well, if you're currently at 6% and you want to get to 10%, like that's the long-term goal. Set up a strategic plan over three years. And if you increase the percentage fee by 1% every year and take it slowly, you don't have to switch everything on all in one hit, you can break it down into smaller measurable exercises.
Architecture as a business and what is required
SB: There's something that Kate asked and I think it's really interesting. "Managing an architectural business needs to be sophisticated, rigorous, and innovative, like never before. Do you think we can do it?". Again, if architects think that what they provide is architectural design services, they're not thinking hard enough about the value they can bring a client. And especially now with this whole COVID-19 and the entire transformation that has to happen in our cities, in our offices, even in our homes. There's so many things about the built environment that you can provide.
WM: As Kate and I have talked about in the past, Perth is a really challenging place in Australia particularly because of the mining booms, the current lack of a mining boom, and the predominance of volume builders there, that you've got to get as creative about business as you are about buildings basically.
SB: Alexandra writes: "architects are a luxury to have on a project and therefore a grudge purchase". Now, there's a problem in that thinking. You've got a skill and you think you're a luxury, a luxury isn't a skill. So I don't think you're really sharing what you bring to any project, Alexandra.
WM: I'd also like to challenge Alexander's thinking. So what if we're a luxury service provider? I think with the right mindset in our own individual practices and the right skill sets in being able to present ourselves in a way that makes us desirable. I reckon we can overcome that. I reckon plenty of architects do overcome that.
SB: By the way, a number of people are enquiring about how do you make that happen and how have you had that conversation? I would like to say a lot of this starts with a really well done contract or proposal letter. You need to truly identify what is the scope of work you're providing.
WM: Your client-architect agreement is one of the most powerful tools that you have at your disposal. And I reckon every young architect starting their architecture practice should go and get the proforma template that the Australian Institute of Architects or ArchiTeam publishes, and use that. Get to know it, get to understand where it's limited and where it is powerful and where it matches up with the way you like to do things. And then spend every single year from that point onwards in your career basically tweaking that client-architect agreement.
SB: I wanted to close with my own thought on looking at opportunities. I think architects are so well suited to solve problems not just design problems, but all kinds of problems. And I would just want to encourage people, especially today where the world is filled with problems that take your skills and think about how best can you help solve some other major problems.
WM: I think the fact that we probably covered 50% of the territory that we had expected to cover through this conversation reveals that this is an incredibly meaty conversation and I'm really pleased to be part of it. I think that it's a collective endeavour and if everyone who is here today is thinking about improving the profitability of their architecture studios and the sustainability and viability of them, then that's a really great starting point. I'd love to see more of these conversations happen across the states and territories of Australia and individual communities.
Check the post-session Q&A here to see more on the discussion. And keep an eye for our next sessions. The discussion will go on!
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