9 min read
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With 110 employees, $25 million in top-line revenue, and 15% profits, Guy Geier is a managing partner, leading one of the largest architecture firms in the U.S., FX Collaborative.
Geier joined GrowthForce Founder and CEO, Stephen King on Path to Profit to discuss how, through decades of experience and navigating the COVID-19 pandemic, he has learned to create a blueprint for building a successful architecture firm.
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Let’s dive into some of Geier’s key advice for surviving difficult times, operating an architecture firm in the new normal of the post-pandemic, tracking the KPIs that are most meaningful to an architecture firm, and testing the waters of artificial intelligence.
Geier’s Blueprint for a Successful Architecture Firm
Leading an Architecture Firm Through a Pandemic
The pandemic was a challenging time for all businesses, including FX Collaborative which saw business slow and revenue decline. As a result, the firm had to make difficult decisions to reduce their employee count to better match the demand they were receiving. Geier explained that while some employees left the company through natural attrition, after moving away during the remote work period and ultimately looking for different jobs locally, others had to be let go.
Geier explained that the firm’s leadership did their best to make smart decisions during this process, looking to their project and department leadership for recommendations and also looking to the project workflow and timelines to assess the firm’s actual need in terms of employees.
They then did their best to hold onto the employees that were still with their firm because operating with such a lean crew put them in a somewhat risky position that required them to work toward excellent employee retention rates. To hold onto their employees, they strove to provide challenging work and to recognize success. They continued giving promotions and took money out of the budget for their leadership’s year-end bonuses so that they could continue to pay their employees year-end bonuses, despite generating less revenue and profits.
Geier also pointed out that they didn’t cut the firm’s marketing budget during the pandemic. This budget was seen as necessary for continuing to attract clients and generate revenue during the pandemic. However, they did make changes to the way they spent their marketing dollars, truly evaluating the audiences they were targeting to ensure they were targeting potential clients whose business they were likely to win – instead of risking precious dollars on pipe-dream or unlikely clients.
Settling Into a New Normal: Remote Work and Hybrid Work Models
As was the case with many businesses during the pandemic, FX Collaborative was forced to shift to a remote work model. They found, like many other businesses, that the shift to remote work was challenging at first, but eventually led to improved productivity with employees working harder and longer hours from home.
However, for an architecture firm – especially one called FX Collaborative – a 100% remote working model did not align with the company’s collaborative processes that benefit greatly from the ability to interact face-to-face with one’s colleagues in the office. After the mandated remote working period ended, their initial return to the office was voluntary for about a year with many employees returning to the office of their own volition.
For about one-and-a-half years, the firm has returned to the office part-time with a hybrid work model that requires employees to work at least three days out of the week at the office. They’ve found this model to improve both their productivity and performance in addition to the quality of their services over both a 100% remote and a 100% in-office work model.
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Financial Strategies for Business Growth: Geier’s Most Valuable KPIs for Architecture Firms
Geier keeps a close watch on FX Collaborative’s numbers. The KPIs he tracks most carefully on a month-to-month basis include:
Utilization Rate
Geier evaluates productivity using the utilization rate metric. This is calculated by dividing the total cost of direct labor by the total firm cost. They look at this metric overall and also for each individual employee. The firm has different targets based on how many non-billable hours each employee has. For the higher-ups, more non-billable work time is expected than for entry-level positions. Monitoring utilization rate helps the firm keep track of productivity and productivity expectations throughout the firm.
Gross Profit
As all businesses should, Geier’s firm tracks gross profits, aiming for a rate of 60-65% to ensure enough margin for their overhead costs and target net revenue.
Total Labor vs. Billable Labor
They keep an eye on the nature of the work being performed in the firm by comparing total labor vs. billable labor on a monthly basis. This helps them keep an eye on workflows, pipelines, and overhead costs.
Net Profit After Expenses
After all expenses, FX Collaborative aims to generate a net profit of 15%.
Break-Even Point
They also watch their break-even point, which sits at around 2.5 times labor costs. Monitoring the break-even point helps to ensure they generate enough revenue on a project to cover the costs.
Net Labor Multiplier
The net labor multiplier equals the firm’s net revenue (less any pass-throughs) divided by direct labor. This KPI reveals how much revenue you earn for every dollar you spend on labor. The target is to achieve at least 2.5 times, with a goal of reaching 3 times as many revenue dollars compared to labor dollars.
Net Revenue per Employee
FX Collaborative also looks at some KPIs on individual employees. In addition to the utilization rate, they also track net revenue per employee. While this metric can be an indication of performance, it is most useful to their firm for pricing projects. When they calculate fees, they look at whether the pricing structure will ensure they’re going to hit their net revenue targets, depending on how many employees are working on a certain project and how many estimated billable hours there will be.
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A Place for Artificial Intelligence in Architecture Firms
Although ChatGPT was released just over a year ago, artificial intelligence tools seem to be making their way into almost every industry. While Geier acknowledges their usefulness, he also said that caution is necessary when implementing AI tools in architecture, and he doesn’t believe that many architects’ jobs will be at risk as a result of AI advancements in the AEC industry.
As Geier explained, he sees AI as a useful tool for helping to eliminate or accelerate the process of certain repetitive tasks in architecture. He says it can be useful for producing things like construction documents, performing code research, or writing up specifications for a design. He also sees it as a useful generative tool that can help architects quickly come up with several ideas, approaches, and alternatives to ensure they are looking at a challenge from all available angles.=
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While this aspect of AI is useful, it is not perfect. For example, when AI doesn’t know an answer, it often generates what are called “hallucinations” or false answers. So, close oversight and careful editing performed by a person with experience and knowledge is very necessary with the use of AI.
Additionally, Geier says that AI and its machine-learning tactics lack soul. It is not capable of generating its own ideas but can only pull from information and ideas that already exist. AI also is not capable of using context, past experiences, or client preferences when it is generating ideas. Only human architects can offer this kind of thought leadership that draws on past experience, considers the client, and makes choices in terms of the context of a design – and this human-driven, soulful thought leadership is irreplaceable, according to Geier.
A Successful Architect’s Parting Advice
When asked for any final advice for achieving business success in architecture, Geier left us with an anecdote about pursuing a project where the client’s brief requested a particular approach to masking the building on site. He and his colleagues felt that it was the wrong approach and made no sense. They attended the meeting and pitched an alternative approach. Yes, he admits it was a gutsy move, but they won the project.
As Geier said, “You have to challenge everything . . . You can’t take everything for granted.”
His advice is not to take anything at face value, but when your opinion differs be sure you can back up your differing position. To be successful in architecture, you need to trust your gut, you must take risks, you have to push the envelope, and always be sure you’re doing so intentionally and intelligently.
Trust Your Gut and Back It Up With Numbers: Outsourced Accounting for Architecture Firms
As the leader of an architecture firm, Geier proves that you need to become an expert in more than architecture and design; you also need to know, understand, and use your business’s numbers. While natural business leaders can gain some ground by trusting their gut, it’s not a fail-safe method of business leadership.
If you find yourself struggling to get a firm grip on your firm’s numbers and are not making as many data-driven decisions as you should be, then outsourced accounting for architecture firms can help. An outsourced bookkeeping and accounting provider – and even an outsourced CFO – can help you establish an efficient, sound, and accurate accounting system designed not only to keep your firm compliant but also to take your business leadership skills to the next level with financial guidance and an AEC Scorecard filled with the metrics your firm must track to achieve success.
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