The receptionist at a well-known architectural office in Chicago answers the phone with a friendly “Nagle Hartray.” But the proper name—Nagle Hartray Danker Kagan McKay Penney Architects—rolls off the tongue like that of a corporate law firm, offering a clue to its size and ambitions. The architects, who last year had billings of $4 million, specialize in selective types of multifamily housing. For the past decade, the office roster has held steady at 27 employees. But that's about to change. “We have a mature staff,” says partner Don McKay, AIA. “We'd like to grow from where we are now to give them continued opportunities.”
By contrast, nine is the magic number of employees for Jim Morter, FAIA. The Vail, Colo., architect has his $1.5 million-a-year firm right where he wants it. Twice in his 32 years in business designing luxury homes for the jet set, he's had 16 people and two partners on payroll. But he didn't like it. “I've had excellent people as partners,” Morter says. “But I tend to be more hands-on with everything that goes out of the office. When it got to be different principals running different projects that I didn't have much involvement with, I felt uncomfortable.” In retrospect, the question for his practice became: How big is too big?
Residential architects have profoundly different ways of thinking about their businesses—and profoundly different kinds of practices. Starting out, the focus is simply on making a living. But sooner or later everyone confronts the question of whether to grow, and what size best fits the firm's mind-set and market niche. And although the business school approach to expansion is to follow a formal plan, in reality growth is also organic, a response to the market and the evolving talents of staff.
In the quest for bigger and better things, the most difficult step may be the first one. For a lone architect, taking on a second person represents a radical shift to being the boss and, with it, a tax obligation. “If an architect hires an employee he'll spend $50,000 plus provide benefits and computer equipment,” says Mark Zweig, president and CEO of ZweigWhite, Natick, Mass., a business consulting firm for architects and engineers. “It costs maybe $75,000 to do all that. Most architects just want to consume the income that comes in—that's the biggest barrier to growth. The more you take out for consumption, the less you have to spend on the things that make you grow.”
Once architects do decide to invest in an enterprise that has a life beyond them, the second classic plateau occurs when they employ 10 to 12 people, according to Peter Piven, FAIA, The Coxe Group, Philadelphia. At that point a principal starts to feel stretched. There's not enough time to meet client and staff needs, and he or she will start looking for a partner. “You do find firms that grow without adding principals as they add staff,” he says, “but it's very unusual, and they probably have people who act like principals even if they're not.”
In the 20- to 30-employee range, a firm starts to become more structured, Piven says, requiring a middle layer of management and certainly someone who looks after marketing full time. Another important break occurs at roughly 50 employees. Then the office is large enough to warrant a full-time operations manager or the equivalent of several principals sharing the load of design, human resources, financial management, and business development.creating value
Even in the earliest stages of growth, Piven recommends jotting down a strategic plan. “The old joke applies: It's hard to know if you're moving toward your objectives if you haven't clearly identified them,” he says. Architects contemplating their first hires should do a budget based on revenues and operating costs plus the projected salaries. The classic rule of thumb—that a practice needs to generate $100,000 in net revenues per employee (gross revenue less direct expenses such as consultant fees)—still holds true, though it could be more or less depending on the job position and the nature of the practice.
Every dollar paid in salary, Piven says, will cost a young firm another 25 cents in benefits. (For tenured firms with substantial profit and benefit plans, the ratio is closer to 40 percent.) “You have to make a qualitative decision about whether it makes more sense to keep struggling to do the work yourself or hire a person to help you,” says Piven. “I like to use the notion of highest and best use; people are more satisfied when they function that way. You make the change when your own time is being better spent at producing value for the firm—typically marketing, management, and front-end project leadership.”
Zweig puts another question to his clients: How will you attract top-notch talent? “There has to be a reason for someone to want to join,” he says. “Most small firms are poorly managed, and often owners can't separate their personal life from their business life. Have you thought about why someone good would want to work there?”
At Morter Architects, part of the answer lies in its human scale, sociability, and careful design. Morter hires talented generalists who manage their own projects from A to Z. No one is stuck cranking out construction drawings. “Everyone is an architect with a capital A,” he says. “We tend to work linearly instead of compartmentalizing things. I like the continuity of having people involved from programming through post construction. It's more fun, and we have no problem with working for each other on projects.”a walkable firm
Like the old-fashioned small towns that are most vibrant when people can walk around to do their errands, firms of 10 to 20 are walkable companies. They're big enough to generate multiple large jobs but not so big that the managers are cut off from their clients, isolated in a climate-controlled world of meetings. That was the fate Daniel Wheeler, FAIA, and Larry Kearns, AIA, hoped to avoid when they left Skidmore, Owings & Merrill to launch their Chicago firm in 1987. Since then, they've grown at a rate of one employee per year, literally one person at a time, and added two other principals—Mark Weber and Thomas Bader.
In a studio-oriented practice that's two-thirds residential and one-third institutional, the partners and their 11 employees run 20 to 30 jobs simultaneously. “What we've attempted to do is keep a very flat organization, so each one of our principals and our architects is responsible for a project from absolute beginning to absolute end,” Wheeler says. “It also helps to have an office that's not so big that we can't be in one single room for design critiques. That would be a bad thing, in our opinion.”
Whereas an office with just a few architects can be quite lonely, being surrounded by a diverse group of people fills the creative well. Currently on Wheeler Kearns' roster are architects from Germany, Japan, Brazil, and Jamaica, along with people who've studied philosophy and literature. “We're keen on making sure there's a variety of backgrounds and voices,” Wheeler says. “It helps spread the social understanding that the office has.” Because of their careful hiring and deliberate pace of growth, the partners have never had to lay off an employee. Three of the four who have left the firm resigned because of family circumstances; the other quit architecture altogether.
Managers of mid-sized architecture firms know numbers, and they understand what makes their companies tick. And while natural evolution is part of the picture, it's no substitute for practical vision. That's why San Diego architect Brad Burke, the founder of Studio E Architects, has always navigated on paper. At 15 employees, two partners, and $2 million in annual revenues, he's dead-on the plan he envisioned in 1986. Back then, Burke spelled out the types of residential projects and clients he wanted to take on and the goals for his staff and work environment. “It's not like I followed it exactly,” Burke says, “but the fact that I thought about it ahead of time and wrote it down was a great help.”
Like Wheeler Kearns, Studio E has grown patiently, one person per year on average. Often that meant turning down attractive work while the firm established a solid base in the community. “A fundamental principle from day one was that unless we knew we could support someone full time for the foreseeable future, we'd not hire someone,” he says. “I think we've been successful by trying to stay close knit, keeping a staff that's here for the long haul.” Still, offices that don't bulk up to do bigger projects will continue to do the same work year after year. Burke's incremental approach to growth, slowly filling his coffer with the kinds of people he wanted to keep, helped ensure that when the time came to shore up the company at the next level, there would be partners-in-waiting. For Studio E, that point came 10 years down the road, when Burke promoted long-time employees Eric Naslund and John Sheehan.
A two-year and a 10-year plan, which get tweaked at the annual staff retreat, keep the firm on course. Now that Studio E has hit its goal, Burke is thinking of restructuring at the principal level to grow a little more. He says it would mean bringing in a specialized person to mind the store—a task that the partners divvy up now—so they can stay involved in projects. “We want to be positioned in the market to take on some large five-story mixed-use urban development and even do design work on larger projects than that,” Burke says. “But we don't want to get so large that we feel we've got to feed the machine to keep everyone here.”sustainable practices
That's the balance firms of all sizes try to achieve. The key to hiring on an even keel is to maintain a smaller workload when it could be larger and to work more efficiently when things are busy. When Studio E's work pace picks up, Burke offers overtime. “Nobody is salaried,” he says, “We pay for every hour they work. If it seems like a year-plus crunch, we'll go and hire someone.”
In a crisis, many firms get creative, relying on a network of independent architects who are willing to help out. “We have some fabulous people we can bring in and work with on a project; we develop those relationships,” says Julie Snow, FAIA, who employs 12 people at Julie Snow Architects, Minneapolis. “It suits people who can't quite support a practice because they're teaching at the University of Minnesota. We've used several other people as a stopgap who are super independent and don't want to be part of a firm. It's a huge asset.” Much of her work is on multifamily projects that have a compressed time frame.
“You learn to work efficiently, and you make sure that young people coming in are mentored and fit well for the long haul,” she says. “Everyone learns everyone else's skill set, so nobody feels like they're drawing in the dark.”
Only once has Wheeler Kearns hired help on contract. Rather, the partners politely put clients on a waiting list. And they use summer interns for tasks that fall by the wayside when the office is racing deadlines. But as methodical as the firm's growth has been, the decision to add employees is also intuitive. “It's a matter of having the emotional confidence that you can handle more work and stretch your firm that much farther,” he says. “I think people enjoy working with other people and other backgrounds, and that's the ultimate reason we want to hire people. If we see someone who looks like they'll enrich the work we do, we try to hire that person. The next year when we're looking at a mountain of work, it could be a great mesh.”a bigger sand box
That is precisely how Nagel Hartray has swelled to its current size of 27: by slowly investing in gifted staff. The partners gauge the market by talking to other architecture firms. They hire as a last resort and ride out the dips, so that when there's a lot of work, they have good people to do it. Growth has resulted from the contacts they've made doing different projects, one thing leading to another. In the firm's early days, kitchen remodeling and single-family homes led to townhouse projects with developers. Now its average-size job is $5 million, with much of the work in the $10 million to $20 million range.
Nagle Hartray needs a certain volume of work in order to remain robust. A healthy ratio of revenues to employees was once $100,000 to 1; now it's 25 to 30 percent more money than that, says McKay. So the firm is stepping up its marketing. Thanks to its long-standing reputation, single-family work pretty much walks in the door. Multifamily work, however, has become very competitive, with developers of greenfield sites buying architectural services almost like a commodity. “We're not well suited for that,” McKay says. “Our goal is to continue to do multifamily projects, but our future lies with a select group of developers who are going into older downtown areas and delivering something to a particular type of site or client.”
At somewhere between 15 and 20 employees, Nagle Hartray took on a full-time marketing person who responds to proposals and puts together materials for interviews and publications. But the formal business development role lies with the principals. “Now we'll have be more specific about what markets and what clients to target, and pursue them before there's a job available,” McKay says. “It's something we need to do much better if we're serious about growing.”
cheryl weber is a contributing writer in severna park, md.