Three firm leaders describe how to survive an economic downturn
What can architects do to prepare for financially turbulent times?
The last several years have seen a major boom in the architecture business, but now a period of slower growth indicated by the Architecture Billings Index is pointing toward an impending downturn. In preparation, three firm leaders—Tim Dufault, FAIA, president and CEO at Cuningham Group; Carole Wedge, FAIA, CEO at Shepley Bulfinch; and Ed Shriver, FAIA, founding principal of Strada—share their insights on how their firms weathered previous tough times and what they’ve learned from decades of financial ups and downs.
What lessons have you learned from the Great Recession and other, smaller downturns?
Tim Dufault, FAIA: Diversification has been a key part of our practice; we try not to be too invested in any single market. Consequently, we can mitigate the typical fluctuations that happen in each of the different areas. Plus, I believe our geographic distribution – having six offices across the country – has helped alleviate some of the regional-based issues that pop up.
Overall, our strategy has always been to focus on keeping a healthy mix of project types at all times. As the economic conditions in each of those markets change, we adapt and adjust appropriately.
Carole Wedge, FAIA: Downturns affect capital building projects and slow things down considerably, but they don’t eliminate all work. During the Great Recession, one of our board advisors would say, “It might be 25% slower but 75% of the work still exists, so make sure you’re staying close to your clients and helping with their needs.”
In a recession, stick to the things you’re really good at, make sure you’re talking to your clients at all times, and try and figure out what they need from architects. It could be more strategic planning, space utilization, small renovations, or a capital project that might be able to go through with a lower budget. Remember that you are always valuable as a problem solver.
Ed Shriver, FAIA: As for lessons learned, I’ll start with my rule number one: The talking heads don’t know any more than you do. I remember – a month or two before Lehman Brothers collapsed – thinking, “I don’t understand why the economy is doing so well.” Everyone was saying, “Don’t worry, it’s not a bubble.” Two weeks later, boom. At that point, I said, “You know what? I’m not an idiot, and those people aren’t as smart as they think they are.” Pay attention to what you’re seeing, and trust your gut.
"Pay attention to what you’re seeing, and trust your gut." - Ed Shriver, FAIA
What steps have you taken in the past to survive during a downturn?
Shriver: The first thing we did during the Great Recession was to call our landlord. We knew he was in the same boat as the rest of us, and an empty office space is much less valuable than a tenant paying 75% of the rent. So we negotiated a discounted rate, which was in place until the recession ended. He was open to the idea, and we were able to show our employees a commitment to exploring outside-the-box options before considering layoffs. Hey, the worst thing he could do was say no.
We also cut all salaries, including the partners, by 20%. But we also cut our work week from five days to four. Essentially, our staff was getting paid for the same effort; they were just getting less pay. And the partners still worked five days, even with the trimmed salaries. We could at least continue marketing. I think that meant a lot. You have to take care of your people first; that’s been our approach from the beginning.
Dufault: What we did, and I don’t think many firms do this: for staff that we knew were valuable and could use over the longer-term, we set up rolling, 90-day furloughs. We basically put certain staffers on unpaid leave. They still had benefits, including health insurance; they still accrued vacation; and they were eligible to apply for unemployment. If things turned around at any point over those 90 days, we could bring them back. At the end of the 90-day period, we could decide to either extend the furlough for another 90 days or – if we really didn’t think a positive change in the market was coming – release them.
We went that route because it’s expensive to hire and to terminate. On average – when you take into account interviewing and onboarding costs, plus the productivity losses while they learn our systems and standards – it costs between $40,000-50,000 to hire a person. That kind of money goes a long way, even if business is turning around, so we were very interested in directions other than termination.
Wedge: Maintain a good relationship with your banker. Keep a constant level of communication so they know you and your business well if and when you end up really needing them. You want those relationships to be healthy all the time, but particularly when times are bad. And if you don’t talk to them until things get tough, they’re less likely to be helpful.
You also might want to think about cutting vertically. Think about reducing a couple principals, or seeing if anyone wants to retire early or become a consultant. Someone might say, “I’d love to take six months off, or I was thinking about retiring anyway, or call me if you need me.” It’s another signal to your employees that you’re considering every scenario.
"Maintain a good relationship with your banker. Keep a constant level of communication so they know you and your business well if and when you end up really needing them." - Carole Wedge, FAIA
What signals do you watch for to indicate that your workload may be slowing in the future?
Shriver: The ABI is down, and has been for a while now. I’m seeing projects that start and then stop suddenly, which is unusual. And I’ve seen, not with our firm but elsewhere, a rise in legal claims. Lawyers are out talking to developers and builders, and they’re getting more aggressive. I’m starting to see and hear about claims that never would have been filed 3 years ago. People are starting to look for extra money; architects have insurance, so they could be thinking, “Let’s see if we can get a little of that.”
What advice do you have for young professionals who may be bracing themselves for their first ever downturn?
Dufault: My advice to young people always starts with, “Make sure you’re focusing on how you deliver the greatest value.” Regardless of your role in the company, you need to be delivering value that is exceptional and recognized. That’s the best protection in a downturn. And it doesn’t mean working 80 hours a week; it means, “How are you bringing to the table what the company really needs?” For many young people, this can be hard to understand, and firm leaders are not always the most communicative when it comes to those discussions. But really try to become a valuable resource that will help the company grow and prosper in good times and bad.
Wedge: The more cross-trained you are, the nimbler you are. The more willing to do anything you are, the more likely you will stay employed. If you become hyper focused on one area, or your skillset is not looked at as broad, or you aren’t perceived as willing to pitch in and help when needed, then I think you’re at greater risk in a downturn. They say “hire for attitude, train for skill.” If you have a good attitude, I can probably train you to do anything. And you likely won’t be the first person we consider if and when layoffs become a necessity.
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Steve Cimino is a Los Angeles-based writer and editor with a focus on architecture and design.