First of all, it's not just your firm. As if you didn't know.
Recession problems are common problems—until they happen to you. A lot of firm principals today are young enough never to have experienced a deep, long downturn. (Many of their older colleagues have been there, and reserve a special chill for recalling the early '90s.) So a lot of principals know what to do because they've heard the standard advice: Trim expenses (including, sadly, staff); conserve cash; and so on.
The problem is, firm leaders don't always know when to do those things. Even if cutting back looks inevitable, some don't have the stomach for it or handle it badly.
The leaders who live to tell are those who confront their problems head-on. (The number of unemployed architects at the moment would suggest that many principals have done just that, for better and worse.) And though layoffs are grim enough, there are also clients to deal with—clients who may be months behind in paying you. There are also, believe it or not, a few clients out there who will still hire you, but you have to weigh carefully which jobs are worth chasing and which are a waste of your time and money.
Competition has gotten much tighter. Architects in smaller firms are shocked to see big firms' names on shortlists for things like tedious routine maintenance contracts—contracts that were the smaller firms' exclusive domain in better days. Check out the 100 firms that showed up at the preproposal meeting for a modest library renovation for the city of Malibu, a response the city's project manager calls unprecedented. And do you know how far below the bone some of your colleagues are cutting their fees, simply because cashing checks, of any size, feels good? (Not that there are a lot of checks flying around, period.)
Things are clearly dire. Besides waiting on an exceptionally bold client to come forward or for stimulus money to flow your way, what are you supposed to do?
As most architects have recognized by now, things are unlikely to return to normal soon. And though the problems are the same among most offices, some principals have found sensible rather than sheepish ways to try to handle what's ahead. We talked to a number of them around the country and compiled some of the best advice we found.
THE KINDEST CUT
Laying off staff is hard, which is why some firm leaders procrastinate about doing it. "I'd like to think we did it at about the right time," says one principal. "Some people, especially architects, hesitate to make those hard decisions because they affect all our lives."
But the process doesn't need to lack dignity. Bob Clark, the president of Baskervill, an architecture and engineering firm in Richmond, Va., knows there are employers who give laid-off staff members a box and an hour to pack their belongings before showing them the door. There may be a security guard present. Locks may be changed. All because the boss heard somewhere that that's how you do it. Clark figured that there must be far less creepy ways to handle layoffs.
Baskervill had to cut 10 percent of its staff before Thanksgiving, a move Clark calls "somewhat proactive" based on the principals' forecasts. "We had to protect Baskervill at all costs and keep it profitable," he says, pointing out that anything else would be a disservice to those who remain.
The firm gave departing employees severance pay, and "more than normally required," Clark says. Once they made the announcements, the principals brought in a leadership consultant to hold a daylong seminar in résumé writing and interview preparation for the people leaving. Also, there was no hustling them out of the building. To the contrary, the firm keeps a desk open in the office for laid-off employees to use if there is any work they need to retrieve for job hunting.
A similar scenario played out at Denver's Shears-Adkins, now a 10-person office after letting four people go in October. "In a smaller office, everybody knows what's going on" in terms of clients and projects, says Chris Shears, a principal. "It was obvious that we weren't really going to be able to keep them busy." The firm didn't offer severance, but helped with résumés and references, and even managed to find a job for one person.
The office, Shears adds, remains open to former employees for whatever they need—and the offer has been made as well to people laid off by clients' companies. "Our phone and copier are theirs. They can come in and bring their laptop, and do whatever they need to do," says Shears. "They look at us and say, 'Really?' But we're all in this struggle together."
Roy H. Higgs is the CEO of Development Design Group (DDG) in Baltimore, a firm that was doing fine until last fall: "Suddenly, at the end of September, early October, it was as if someone turned the lights out," he remembers. "We ran right into a wall with cash flow. Everybody stopped paying." Several of DDG's projects in the U.S. were canceled.
Among the approximately 30 people (out of about 110) whom DDG recently had to lay off were a number of foreign nationals reliant on work visas. "We helped them with legal fees and problems if they decided to stay," Higgs says. "But some of them came back and said, 'We can't find a job.' So we paid for their return [plane] fares. We helped them every way we could."
Many principals are torn by the possibility that work could pick up again just after they've let go of staff members in whom they've invested deeply. And it's expensive to hire all over again. "The reality is that it can cost $100,000 to recruit someone," says Marjanne Pearson, an architectural recruiting consultant in Petaluma, Calif. "When you figure the time it takes and the investment that person takes—and getting them oriented—there's a real trade-off between letting someone go ... versus keeping them and getting some productivity in a way that is of value to the firm."
About that productivity: A lot of firms are now housekeeping, taking care of things they had no time for when business was brisk, such as getting LEED accredited, beefing up detail libraries, expanding their building information modeling (BIM) capacity, and improving their web presence. In the last recession, Clark notes, Baskervill's principals took time to revise the firm's hiring and employment policies. A smart thing to do, but it turned out to have a downside: "We didn't have any dead weight when this recession hit," Clark says. "All the folks we let go were really good folks, so that part stunk."
It's not just out of charity that Clark and his colleagues try to make the layoff process as gentle as possible. "One of those we let go might be our client next year. We do have a lot of Baskervill alumni who are clients," Clark says.
STOP THE BLEEDING
Alas, because there are numerous ways to bleed financially, reducing staff alone won't solve all your problems. Principals are looking harder at their habits around cash, credit, and collections—"conservative" would hardly be the word these days—and tying up every loose end.
Often those loose ends lead right back to clients. At Los Angeles–based Gruen Associates, Mike Enomoto, a partner, finds that clients generally pay about "98 percent of the time," he says. But lately, an increasing number have fallen behind. "Our strategy is to stop working," he says. "Not because we want to. We have to do that because I can't continue to fund their projects." Private-sector clients present the highest risk, he says. "The public work is drying up, but once we do the work, they do pay."
You can have decent billings and a positive profit/loss statement, "but cash flow is something else," says DDG's Higgs. "One has to focus with a great deal more emphasis, with threats and concrete boots," to bring in money owed, he says. "That's what's going to make or break you."
October was one of DDG's worst months for collections ever, but December became one of its best. "Everyone got on the phone," says Higgs. "Folks who never discuss monetary matters with clients started chasing delinquent and not-delinquent accounts." And at a time when some architects would rather shrink from their bankers, DDG's principals called theirs regarding a line of credit they had not been using. "We said to them that we were looking at a rather tumultuous 2009, and that we might need to activate a line of credit," Higgs says. "They said, 'Great. We appreciate the heads-up.'"
Clark says that though Baskervill has a long relationship with its bank and an unsecured line of credit, the principals have reason to worry that the bank might merge or be bought out. So they tested the credit line. "In the middle of December, we borrowed $100,000 and gave it right back the next day," he says. "Just to make sure everything was OK."
On the expense side, some principals are cutting pay across the board, shortening workweeks to four days in lieu of (or in addition to) layoffs, talking with landlords about more favorable leases or trying to sublet space, curtailing travel and entertainment to the essential, and trying to manage their own debts better.
Jonathan Barnes, principal of his eponymous firm in Columbus, Ohio, persuaded his bankers to give him a "much better deal" on the firm's interest rate, whereupon he transferred an outstanding credit-line balance to a new loan. "We've been successful managing that credit, and it's been useful," he says.
A lot of clients are expecting lower fees these days. Have you noticed? And some firms are willing to accept them—they may even offer them.
But it's a really bad idea, both for individual firms and for architecture as a profession. "The clients who select a firm based on lowest cost are the clients you don't want," insists Michael Strogoff, a consultant to design firms. "Those clients will cost you more."
Nonetheless, to hear architects tell it, the practice is widespread. "Some of these guys are just buying these jobs," says Dan Withee, principal and founding partner of Withee Malcolm Architects in Torrance, Calif. "They're housing guys. They're literally buying jobs at 50 percent lower than everybody else. What do you do with that?"
One thing you do, if you can, is to remind clients to beware of such firms. "If you're a client, you have to be afraid," Withee says. "If you see a fee that's too low, that [architect] may not be there to finish the thing."
The surest way for architects to avoid the low-ball rodeo is to redouble marketing efforts. Some principals are hiring marketing staff, even as they lay off design and technical staff, to help rationalize their attempts to get their names out there.
"I hired a marketing person because I knew we were going to put out more RFPs and RFQs," says Enomoto. He says Gruen Associates is targeting transportation projects in particular. "We looked at all parts of the public sector but moved toward transportation," he says. "If any area was going to grow, that had to be it."
As Enomoto suggests, you have to pick your targets with extreme care. "Competition is up threefold, fourfold, fivefold," he says. With so many firms going after jobs in desperation, this is no time for birdshot, or to try crossing over heedlessly into a specialty in which you have little or no experience.
Architects are also watching their active clients carefully for signs of instability. Shears says that in the past six months, he's had to pull his firm out of one project because he saw trouble ahead. "I didn't feel their funding sources were adequate," he says. "They were using equity for projects that wasn't necessarily targeted. I walked out of a meeting one day and shook my head. I looked at the architect I was with and said, 'We're going to leave this project. We're going to do it and do it diplomatically.'"
The client was upset, he says, but wound up halving its staff two weeks later. "You don't always get the whole truth," Shears adds. "You get a little bit of it. People say they're doing fine and they're not."
Shears is 61 years old. It takes his kind of experience to know when doing things the harder way is best. If anything good comes out of this recession, it is that that kind of wisdom is changing hands generationally. Baskervill principal Brent Farmer says he and his partners remember the past two recessions well, which has helped immensely. The firm's first three quarters of 2008 were quite prosperous, and then this latest downturn began.
"We looked at each other and said, 'Remember all those things we said we'd do if it happens again?' We stuck to it. We sucked it up and did it."