My Micro-Economy is Broken

My residential architecture firm designs, builds and renovates homes for high-earning individuals living in Westchester County, NY, one of the nation’s wealthiest regions. The success of our firm depends on these people having the income and confidence to invest in their properties.

With much effort and perseverance, our boards have been filled with work throughout the recession, mostly with smaller scale projects offering lower overall fees. Since 2008, revenues have decreased each year, with the year 2012 being the most depressed in the decade-long history of our firm.

Yet, we consider ourselves extremely successful. Firms throughout our region have shuttered and the unemployment rate for architects has continued to increase.

During the years before the recession, our project lists were loaded with large-scale residential projects. The historic Hudson Valley is full of old houses in need of renovation or reconstruction and our workload required a full roster of architects, support staff and a well equipped open studio in which to practice. Licensed architects and rent in Westchester County (located about 40 minutes north of mid-town Manhattan) doesn’t come cheap. We worked hard to build a reputation for the highest level of quality and innovative design, and our fees are commensurate with the expectations of our clients.

Many of our clients work locally for large corporations (Pepsico, IBM, etc.) or commute to New York City; bankers, venture capitalists, lawyers, doctors.

Residential architecture is a tough profession. It relies on homeowners having access to large sums of money. Some save a lifetime. Others earn it quickly with high paying salaries and annual bonuses. In order to commit to an architecture project our clients must have enough money left over after paying living expenses, taxes and savings. They must have enough confidence in their own economic situation to proceed with a project costing hundreds of thousands of dollars.  If that funding and confidence isn’t present and available, our project list shrinks and our earnings shrink with it.

Here is how my micro-economy works:

  1. Large corporations employ people at all levels. Some of those people provide services and/or knowledge to the company worthy of a high salary; an amount determined by the marketplace.
  2. As incentive to stay with the company and not seek employment elsewhere, the company offers benefits and annual bonus payments based on the company’s success and specific performance standards set for each employee.
  3. Each year, that valuable employee works hard, contributes to the success of the company and earns her salary. If the employee meets specific goals, further benefiting the company, she earns an additional bonus payment as per her agreement with the company.
  4. After taxes, expenses and required savings, if the employee has enough remaining, she puts it aside and saves for an architecture project; additions and alterations that will improve the function of her home and make it a place better to raise her family.
  5. With enough saved, she evaluates the current economic conditions and confirms the stability of her employment.
  6. With enough confidence in her financial situation, she seeks an architect and becomes our client.

So at this point, two conditions must be present for a residential architect to be hired. She must have enough money for the project cost and enough confidence in the economic conditions around her to pull the trigger and proceed with the project.

Money and confidence; without both pieces in place there is no project.

And here is where it gets worse.

If there is no project, there is no revenue for the firm to pay our employees, who then cannot proceed with their own “projects”. We don’t hire consultants (who also have employees). No contractors hired, no subcontractors, no equipment rented, no building materials, no products purchased, no suppliers, no laborers…

Each project benefits dozens (maybe ultimately hundreds) of people. When one project is delayed, the others that do proceed absorb the difference. When dozens are delayed, we have micro-economic meltdown.

My micro-economy is broken.

One or several of the links in the process of hiring an architect is missing. Have salaries been reduced? Bonuses eliminated? Have corporate layoffs caused a lack in confidence? Have new laws, rules and regulations caused corporations to take a defensive strategy of reduced expenses and minimized investment? With a pivotal national election pending, are corporations and employees alike, frozen by an uncertain future?

I don’t know the answer. I am an architect, not an economist.

I do know that our situation will not improve until our clients have the funding needed for their projects and the confidence to proceed.

How is YOUR micro-economy?

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8 Responses to “My Micro-Economy is Broken”


  1. 1 Susan Serra, CKD October 15, 2012 at 11:16 AM

    I think there are multiple reasons as you suggest for the continuing slowdown in addition to a fundamental change in thinking by those who might consider a project, i.e., the “new normal”. So, something has to give, and change and some of that change is how the business is structured. In my case, I have introduced (had been advised to develop) new revenue streams which has been a long, difficult, road. I remain positive of that track and have more to do to get things moving forward as I imagine they should, and can. I believe in developing multiple revenue streams and branching out well beyond one’s local territory which has been successful for me. But slow going? Yes.

  2. 2 Mark R. LePage, AIA, LEED AP October 15, 2012 at 10:07 PM

    Susan:

    The whole concept of a “new normal” is very frightening to me. The deterrent to our clients proceeding with projects is much more related to confidence than money. I believe if Americans had more confidence in the economy, more confidence in their leaders, more confidence in their futures, they would starting spending again and the economy would begin to truly recover. Without knowing what tomorrow will bring, clients are hunkering down and waiting for more certainty before pulling the trigger on large expensive projects. Accepting a deep recession as a “new normal” is just not what Americans have ever done.

    I am so impressed with what you have done to diversify and extend your brand. You are a role model for many in the industry. Thanks for taking the lead and showing us that it can be done.

  3. 3 Perry Cofield October 16, 2012 at 9:14 AM

    You have descibed the conditions that lead to solo practice…every man for himself operating under the far lower overhead of home-based practice. I first learned of this option in the 70s when the lead designer in a prominent firm in FL spoke of its advantages. My friend was just describing another aspect of economic reality. Solo is the truth serum of practice- can you wear all the hats and survive? It takes far more than a degree to have the reputation, knowledge and skill to do this.

    Perry Cofield AIA

  4. 4 nung October 16, 2012 at 11:19 AM

    I see many architects who owned big firms and worked on huge projects retired with less money than truck drivers.
    There is no money to be made unless you are one of the top star achitects.
    Actually many star architects bankrupted during this recession too.
    Some younger architects do not want to serve the rich . The best way is to invest in properties instead of buying fancy softwares and hardwarees ; trying to impress clients or outgun fellow architects.

  5. 5 Susan Serra, CKD October 16, 2012 at 11:35 AM

    Mark, it depends on how long your personal version of these new conditions have been experienced. For me, it’s been since 2007. If it’s recent for you, maybe it’s a little harder to accept. If today’s conditions have been experienced over a longer term, then, perhaps some changes are in order within your business, in all areas, since none of us has a crystal ball and it appears to be highly doubtful that things will suddenly spring back. That, I would bet on.

    I have one theory which is that this near catastrophe back in 08 may have forced most of us to “grow up” which means to appreciate what we have rather than to keep feeding the status/material beast. But, then again, it also depends on what market you want to serve. There’s the high end and then the “this kind of rich” market which is smaller but presumably still interested in living at a high level. Are you reaching that market effectively?

    It’s also a big country with opportunities to offer a menu of services (including consulting) via an online platform to perhaps a wider demographic. I’ve done that and have worked via an online project management site doing detailed work as well as hourly consultations for people around the country…and a few in Europe! On some occasions, I’ve visited the job site twice. It’s very doable. The point is to be nimble which entrepreneurs can be!

  6. 6 John Henry October 20, 2012 at 8:27 AM

    Scattered thoughts:
    This is a very competitive business. What makes it worse is unlicensed draftspeople in the loop. They are also doing large scale projects as well.
    I appreciate your profile analysis of the wealthy custom client. I also try to serve them but in a much lower economic environment. If you are struggling in an area that has the most bucks per square mile, woe to the rest of us.
    I am glad it has not been my imagination that for three or four straight years hardly anything has improved — and possibly has gotten worse!
    The AIA statistics are erroneous. For single family practitioners, we have suffered the most and the worst although the corporate suits are now close behind. Like the government stats, we are all much worse shape than is being reported.
    I survive off my website. I was getting hits from all over the world and I really didn’t depend on the local market which is run by a builder cartel (the high end product).
    The hits are just now, only in the past three weeks, improving and I see people (the ones you profile) starting to come out of the woodwork. I hear realtors here saying that people are pulling the trigger to move forward with existing home purchases. This is the best news I have heard in over three years.
    Unfortunately, we as a profession, have been decimated and too many have lost too much or all we worked for in the past 25 years.
    I blame the AIA and the government for negligence.
    The government bailed out the wrong industry; the AIA sat on its hands.
    Shame on them.
    I have had close friends and neighbors ask: why don’t you do something else, why don’t you try to find another job?
    Yes, I suppose we could all be working at Home Depot or flipping burgers.
    I have had a great amount of ambivalence about what we do.
    I am angered that we were not told in the universities that ANYONE can design a house and get it built as long as the drawings are approved by the building departments. (exceptions are high end communities with covenants prescribing architects. but even in these are the rules bypassed)
    “Architecture” depends on enlightened clients and ample budgets, and qualified architect. Without one of the components, the end is simply four walls and a roof.
    Then we have the copyright issues.
    I went to China five years ago and realized they are copying everything we do.
    Those who post their plans online or in a book are directly plagiarized. And then there is the shake n bake product. They take several plan ideas, many with no idea what some rooms are intended for, and mix and match with horrid elevations that are also glued together from several sources. They would rather do this in most cases than hire an American architect.
    Well, for that matter, this is the same here.
    I saw a patchwork quilt of cut out floor plans from brochures being taped together at a respectable custom builder in fact.
    It is easy to get discouraged. After all, this is our second Depression. FLW started a school and wrote books during the first one. Smart guy, or was that his wife?
    My contention: residential architects could disappear off the planet indefinitely. There are enough savvy builders with all our plans in their drawers and engineers out there to cut and paste ad infinitum. Oh yes.
    But, if construction comes back strong, we will have another 15 years to earn back what we have lost. Lovely.

  7. 7 Mark R. LePage, AIA, LEED AP October 20, 2012 at 8:14 PM

    @ Susan – In 2008, our revenues fell off a cliff. We are very determined and have been executing a plan for survival since we saw the storm heading our way in 2007. We are much more successful than most of our peers, but that isn’t saying a whole lot. This recession has lasted much longer than it should have and I feel that with different pro-growth policies in place, we’ll see our economy start to improve for real. I completely agree with you regarding diversifying and growing beyond our local economies. That is excellent advice, but accepting that the dismal economic conditions we are experiencing is the “new normal” is just not something I can do. Every bust this nation has experienced was followed by a boom. I am optimistic that our turn will be no different.

    @ Nung – I’m trying to change that mentality with my work here at Entrepreneur Architect. Stay tuned.

    @ John – Very interesting comments, especially your thought that the government bailed out the wrong industry. Although, I don’t think the government should be using our tax money to be bailing out any private industry, it is interesting to consider what might have happened in a scenario where the building / housing industry was bailed out rather than the banks and automobiles. It is very clear to me why though… the builders and architects are not unionized. There is no large organized voting block.

    Although FLW had is own issues, he certainly was an Entrepreneur Architect. There are many lessons to be learned from his unyielding determination to succeed. I was fortunate enough to visit both Taliesin and Taliesin West this past year. In addition to experiencing the amazing architecture, the opportunity to learn more about his entrepreneurial response to the depressed economic issues of his time was so inspirational.

    I agree that if architects don’t start evolving they will soon be in serious risk of extinction. We need to look beyond the traditional design studio model to alternatives such as Design/Build, Architect as Developer and many others.

    Thank you all for taking the time to comment.

  8. 8 Paul October 22, 2012 at 9:03 AM

    I’m a partner in a small midwest firm and am I’m about ready to get out of the profession. Our small part of the world has been particularly hit by the recession, especially the construction industry. I’m tired of chasing after jobs with depressed fees just to justify cash flow.

    I’m tired of the professional establishment pursuing “green” over the viability of the profession. Telling us there will be a need for new architects in the future (hah! Too many to begin with… we need a few decades of not enough architects).

    I’m far enough along, too, that if I wanted a job in the profession, they are few and far between. I’m “too expensive” (and quite frankly, have too much financial baggage to not be “too expensive”, either).

    For those who say the path forward is that of the sole practitioner: That’s fine for smaller projects, but they won’t give the “big” projects to such a firm, no matter how qualified or capable.

    The other issue, and I think bane to the profession: specialization. Too many clients look for firms that specialize in one type of work. This is bad for at least a couple of reasons. First, the cross-pollination that occurs between project types gets lost. You get stuck an a rut of doing what you’ve always done because it’s easier, faster, more profitable, and known. Second, being tightly linked to one industry makes you very vulnerable to that industries micro-climate. If you do healthcare and the healthcare market tanks, then what do you do? You’re not “qualified” to other things.

    Back to where I started, I’ve developed skills as an architect that are transferable to other industries. I’ll be sad to leave… I’ve always enjoyed designing, but look forward to the challenges and opportunities in a more stable and sane industry.


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