Boost Your Architectural Practice with Effective Business Systems and Processes – Ray Brown

Welcome to the podcast that’s dedicated to helping business owners prepare their business for exit so you can maximise the valuation and exit on your own terms. This is the exit insights podcast presented by succession plus I’m Darryl Bates-Browsword, and today I’ve got rec guest Ray Brown. Ray is from a business called Archibiz and Ray specialises in working with architectural practices to help them get exit ready, increase their valuation, make them worth something so that they can get the most from their life’s work.

Hey.

Welcome Ray. Thanks for joining me today.

It’s nice to be here. It seems a long time since you and I crossed paths in Australia. I don’t think don’t know if it was anything personal, but when I was coming to Australia and my family you decided you would go to the UK. But we’ve caught up again now, so all good.

Well, I think we’re both chasing greener grass perhaps. And I found it in the UK. And you lost it by going to Australia?

No, Australia has been very good to us. I came here 17 years ago, been a business coach, and last five years we’ve focused on architects with a company called Archibiz. And the reason we went for architects was that I had a few architect clients already and they were just very receptive to coaching. They were willing to admit that they weren’t taught anything about business at university and they were ready and open to some business advice and some frameworks and ways of thinking about business. So it’s been very productive. Brilliant.

So Ray, over the years you’ve worked with a number of different industries, like a lot of business coaches and been industry agnostic, but you’ve decided to focus on the architectural world, as you say, because of their receptiveness. What is it you find that’s different or unique about architectural practices that you need to be aware of specialising in that sector that is subtly, or maybe not so subtly different to other industries?

I think it’s the narrative in architecture that nobody understands us. It’s been going for a long time, but not as a business. So people really have a weird idea of how it is to run an architectural practice. And the OD thing is that many of them end up in practice in their own. They are working for a big firm, they do some work on the side for a relative or friend, then they get overwhelmed with work and they suddenly give up their job and they’re in business whether they like it or not. And yet they’ve had no experience of business. No one’s taught them what we call the rules of the game and they can be quite naive around business. If I do good work that will speak for itself, the phone will ring and we’ll be really busy. And of course, we all know that you’ve got to go looking for work. You’ve got to position yourself in the marketplace and really. I think the key with architects is, as I say, the narrative that says sometimes architecture, good business is bad. And that’s perpetuated by a lot of the universities who do half a day on business during a seven year course. And that’s the introduction to business for these architects who are in business and suffer all the hardships that you and I know about that come from running a business.

Yeah. So it’s very similar story, isn’t it? Professional heads out on their own because they want to make a difference. They want to work with their own clients, they want to have a say in how things are done. And they’re often talking operationally, which is, I’m good at my product. If I’m really good at my product, then people will see the work I do and they’ll come flocking in to the doors and they’ll be queuing up. And as you allude to that, it’s not as easy as that. But that’s a similar story in all professions, and I think we can categorise that and go, that’s a similar story in a lot of businesses where they provide a professional service or a service professionally. What about architecture? Are there any particular rules or regulations that make it hard for anyone to run an architectural practice, excludes anyone from running or owning an architectural business?

Not really. I think they have a lot of rules and regulations, but they tend to worry about that and they tend to have a bit of the victim mentality. I’m sure you’re the same as me, but if you had a dollar for every time someone said to you, Ray, what you don’t realise is our industry and my business is more complicated than most.

The basics every time I heard that.

Exactly. So they’ve got to learn the basics. They’ve got to learn how to sell the product, how to run a business, the basics of finance. So we sometimes say to we started out, we used an analogy of chess and said, you need to learn the rules of the game. And one of my clients said, Rates, it’s not that complicated. It’s think more drafts or checkers. But we’ve actually come down again since then. And the analogy we use is Snakes and Ladders. Now, I told my ten year old grandson in sort of ten minutes how to play Snakes and Ladders, and he loved it. But if I hadn’t given him the rules of the game, if I presented him with that board, he just wouldn’t have had a clue. And I find a lot of architecture, they’re really that ignorant about business. And for some reason the industry has made that okay. It’s made it okay not to be across the financials or marketing or whatever aspects of business that we all need. You just got to have them to run a successful business.

Is that replicated? So as a graduate architect, joins an architectural practice. They go in, they do their work, and the culture or the style, the operating mode of that business is that they go in, they do their work, and they’re not exposed to financials or they’re not exposed to having to win clients or get clients on board until they reach a certain level. And they just maybe get to the point where they feel that work just magically arrives because someone just went and talked to someone and the work landed in their lap.

Yeah, and I think you’re absolutely right. I think the education that they get through role modeling, the companies they work for just tends to perpetuate the feeling that you don’t need the business of good work will speak for itself. And I had two perfect examples that my oldest client in Melbourne, they worked in really iconic precinct of the middle of Melbourne, Federation Square. They were really deep in the design side of that. Once that project finished, they set up on their own and effectively, they sat by the telephone and said, we’d worked on Federation Square now the phone should ring. And those two guys, when I met them, they were starving. They really were struggling, disillusioned, and really, unless they did something really significantly to change the business, they would be working for another practice within months.

So let’s use those guys as a case study. You haven’t named any names. Let’s call it the stereotype. Hey, I’m a professional. I’ve got all my qualifications, I’ve got a portfolio of having done some really good work before I’ve joined another similar person. And and we’re a similar mindset. We’re both equally as talented as architects. So therefore, if we start a business together, we got a great location, therefore we should do really well. And they set up. And what’s the old story? You sit in and you wait for the phone to ring, create a website. So therefore, that’s all I have to do. I’ve got, effectively, a brochure on the internet. People should find me and start queuing up. That didn’t happen. Maybe they waited 612, I don’t know however long they waited before they said, hang on, this isn’t working for us. We got bills to pay, we got mouths to feed with, families. We need help. Something’s got to change. Ring up Ray. Ray comes in and what do you do?

Well, I think that the key is to simplify business for people. Take away the scary elements of business. We’re an architect, so we speak a lot about the transition from technician to leader. As a leader, as a technician, you’re expected to have all the answers. You’ve been doing something for the last 20 years. Someone gives you a question, whether you’re the lawyer or an accountant or an architect, and your job is to answer that question. Once you start running a business, once you start leading people, you can’t have all the answers. You need to be asking for advice and asking for help. So what we do in the business is we effectively work in the four areas, the practice as a whole. How do we make that more efficient and make the numbers clearer? We look at the projects and how the projects are run all at a strategic level. Then we look at the people. So how do you manage the people? And the last part, which we’re beginning to think is probably the most important part is your perspective and your perception. How do you view the market? How do you view your practice? And typically one of our big issues is to try and get them away from the scarcity mentality. There’s an interesting paradox in architecture that we meet every single day. The architects will tell us we can’t get good people but we don’t have enough work in our pipeline. Okay? Those two things can’t really exist. If there was a shortage of work in the market, there would be plenty architects to employ. So it’s really changing that mindset and getting them to think abundantly, get them to position well in the market so that people know whether they’re a top end architect somewhere in the middle or somewhere doing a budget role. So the normal business aspects that we’d expect in any business.

Okay, so you’ve tapped on one of the key things that I think a lot of advisors out there see in helping grow a business or grow, let’s call it a practice and transition it into a business because that’s what we’re doing, isn’t it? We’re changing the mindset. If I’m understanding what you’re saying is you’re grabbing some people and you’re evolving their thinking from winning some work and basically finding my own work, aka self employed, to turning that into a business. That is a slick operating machine. That work comes in. The people in the business do the work. We provide the service to the clients. The clients are happy. And that is a perpetuating machine that grows beyond the small number of people that are just doing that. So if they’ve got enough work or they got more work coming in, then the capacity of the machine grows. So now we’ve got a business rather than just a couple of people doing work. And that’s the type of practices we’re talking about, isn’t it? Not those people who want to stay small and just lifestyle business self employed. It’s the ones who want to create a business and therefore something that they can hand over or effectively sell and create value in.

Absolutely. And that’s something that’s become in front of mind for a lot of older architectural practice owners. They’ve never thought about succession. And what does this look like? Is it a trade sale or do I sell to the next layer and are the next layer of managers ready to go? And we use a structured diagram that demonstrates to them you’ve got to think like a shareholder. You’ve got to think like a board member. Maybe we’ll speak about board separately and then think like an employee, but separate from that, you’ve got to think of the business as a separate entity. And that’s the biggest change for most architectural practices. Most practices grow through one person or two or three people and then they add on helpers as they need them. And what happens in a situation like that is it becomes what we call a they business. So if we interview the staff, we say where’s the business going? Where does it fit in the market? Or I think they want to grow or I think they want to get a new office, or I think he wants to develop this side of the practice. And the first thing if you want something that’s saleable is to produce a we business that everybody people should come and work for the business, not for the individual. Because that’s where the value is in building.

So for any businesses out there hearing this at the moment, have a listen to the language that your employees are using. Are they talking as us them language or is it a collective we language? If it’s we, then that you’ve got a business or you’ve got the start of a business. If it’s us them they type language, it’s more likely to be a self employed with a number of helpers, which what you’re saying is there’s the first flag that the business is not likely to be worth a lot. So the first solution that you bring is to go, well, let’s start thinking. Let’s break the business down into the functions. We’ve got a shareholder function that needs to be fulfilled, we’ve got a board function that needs to be fulfilled. And the board has a certain role, the shareholders have a role and then we’ve got that job function. I forget the term, you used it, but we’ve got working in the business, as Gerber called it, where I’ve got a job to do. But that’s a different hat, a different function to the board hat that I wear and the shareholder hat that I wear. So there’s exactly something you start with.

Yeah. And I think it’s a realisation to people that it’s the business that has purpose and vision and culture and the strategy, it’s not the individual. So having the business with these attributes and the one top of list for me, which is very again, paradoxical for architects, we sometimes say to architects when we meet them at the beginning, can you show us the drawings for your practice? And they kind of look a bit scans. What do you mean drawings for the business? Well, what does it look like when it’s finished and the penny kind of drops? They’re building the business one brick at a time and they’ve got no vision of the end game or how big it’s going to be, how many people, nothing that the employees and the stakeholders can buy into and that obviously feeds through into retention planning for the future. And it is weird that architects would think they could build a business with no concept of what it looks like when it’s finished.

And yet that’s exactly what they do for their clients.

Every day. They do the briefing meeting and the fact find and all the things that we know about. And then out of that comes what we would call an energising view the future. And we build a pyramid around you’ve got to get alignment in your practice, alignment around the shareholders, the employees, all the stakeholders. So then people can commit and then we can get a degree of anticipation. If you don’t have that vision, then it’s really hard for people, what am I aligning with and what do you want me to commit to? And really, I don’t know where we’re going, so it’s hard to anticipate the future.

Yeah, and I notice you’re using the language and maybe I’m missing something, but you’re talking about when people feel aligned to where you’re going, which I don’t know if you’ve been doing this deliberately, but which is subtly different to I’m bought into where you’re going.

Yeah, I think that’s right because I think the company individuals have an individual relationship with the company, not with the individual. And I think that can sometimes use an analogy of a four legged stool. The employee puts work in and takes money out and the company puts money in and takes work out. If that’s not in balance and that revolves around what’s my career going to look like in the future, how much am I going to earn? Will I be able to afford my mortgage? And you don’t want that coming from an individual. You want that coming from a well run, solidly based company that you can align with the values, you can align with the vision and really see your future being realised by putting the effort into the company.

So Ray, what you’ve talked about so far is there’s two things that I’ve heard so far. The first one is around the vision and the culture. And let’s call that the style of where the business is going and the behavioral style, if you like, of their standard operating norms of how they’re going to get. There no architectural skills required for that. This is just pulling a group of people together and inspiring them about a compelling future and something that they feel aligned to. The next thing that you mentioned was basically of going, hey, look, there’s various functional roles in a business that need to be performed. You didn’t use the language, but we’ve got marketing and sales. We need to know who our clients are and how do we reach them. And we need to do some focus work on doing sales where clients aren’t just going to come and throw themselves at us. And then I imagine we’ve got some various roles throughout the business. Different people do different things. So you’ve talked about those two key areas. Are they the main areas you work on in a business? Or is there other areas that you see showing up regularly in architectural practices as well?

Well, strictly speaking, we don’t go too deep on any of those really. We stick at a strategic level because we say to people, we are not expert consultants in marketing or finance. We’re not accountants. What we are are business people. So the key secret sauce that we think we add to business is the monthly board meeting, which is the rhythm of looking holistically at your business for an hour, 2 hours a month, having decent financial reporting. So we start with the CEO’s report, just consolidating what’s been happening over the last month, good and bad, that can then be communicated to the staff. We then look at financials, high level PNL, few KPIs, some forecasting, and that we describe as the business scorecard, what’s working, what’s not working. And many accountants wait for their accountants, tell them how they did last year. They’ve got no visibility around current performance sometimes. I had a new client last month and I said in the middle of the following month, what was your billings last month? You had no idea. So finance, first, operations second, efficiency utilisation, how you’re using your resources within the company, and then finally sales and marketing. Do you have a decent pipeline? Have you got enough work? Have you got the lead indicators in your business that will tell you that your sales and marketing is not up to scratch or you’re not winning enough work to pay the bills and meet your budget in six months or in nine months time? Because architects are to some extent in a really fortunate position. They complain about not having enough work in the pipeline, but they’ll tell us they’ve got ten months work or nine months work, whatever. And I sometimes say to them, you could be in retail, you don’t know who’s coming in your shop tomorrow. You’ve got nine months work and you’re still feeling worried and concerned about the future. So the board meeting then, and then finally we do projects, so business improvement projects that the board needs to keep across, that keep on track. And what we say is if you take a minimum of five decisions at every board meeting each month, that’s 60 a year. I don’t care what the decisions are, if you make them with good intent, your business will transform over that twelve month period.

Okay? So you’re teaching them, you’re pulling them out of the operating. So the leaders of the business, the key people of the business, you’re pulling them out of the forest the day to day operating, the doing the architectural work, putting them into the strategic environment which you’re going, this is the board of the business. We need to be focused on what’s the business going to look like tomorrow. Probably in six to twelve months time. Let’s consciously make those decisions today. Start with small decisions, but working to a plan because we’ve now got a plan of what the business looks like, whether it be a business plan, strategic plan, what have you, but we’re going to make small bite sized changes to be consciously day to day having those conversations and making choices. But the key thing is the only way we can make those choices is if we’ve got some sort of measuring monitoring system in place that gives us visibility of what’s really happening on a current day by day basis rather than six or twelve months behind purely from a financial and you use the term lead indicators. Can you expand on that? What do you mean by lead indicators?

Okay. If I was an architect running an architectural practice, a key lead indicator for me would be like a six month rolling average of work secured, because they tend to pick up work in lumps. Big jobs and then nothing for a time. And then another big job, perhaps, unless you’ve got some visibility on a metric that you can measure each month. So we just ask them to add up how much work they’ve won in the last six months, divide by six and record that number. Record that number each month. And if you’re not picking up enough work on that basis to cover the budget that you’ve set and again, budget is another conversation, but to cover the budget income that you’ve set in nine months or six or nine months time, then it’s unlikely you’re going to meet those budget numbers. So that’s what we would call a lead indicator of what’s going to happen in the future. Whereas a Lag indicator, which is the other term, is how much profit did you make last month? That’s gone. Times passed. You could do nothing about that. You need to know those numbers. But there is a difference between the lead and the lag indicators.

So financial reporting is kind of what happened and keeping score, so to speak. But what you’re saying is a lead indicator is we need to be tracking the activity of what we’re doing that will ensure that when we report what happened is what we want to have happened. Otherwise, if we just wait and see what happened, it’s too late, we can’t make any changes. Is that correct?

Yeah, I think that’s right. Most architectural practices that we meet have no budget, so they have no idea they work on a break even. We need to bill 50 grand a month to cover the costs and that’s about as far as it goes. We encourage them to create a twelve month budget for the financial year, to lock that in in their accounting system so that each month they can compare their actual performance against the budget they set at the beginning. What we ask them to do then is to, as each month passes, we ask them to prepare a forecast. So the forecast then becomes the actual year to date and then the rest of the year planned out. Now, if you’re an accountant, quite often you’ll find it’s actual year to date plus the budget for the rest of the year. We don’t think that’s such a good idea. You now know things that you didn’t know when you set the budget three, six, nine months ago. So your forecast needs to incorporate that knowledge. So put the year to date actual add in the forecast of the year, and now you know, this is where we think we’re going to end up in six or nine months time. That still gives you time to do something about it. Yeah.

So you’re continually updating your forecast based on real, live, up to date information?

Absolutely. And we do compare at a really high level what the new forecast looks like in comparison with the original budget. Does that mean that if you’re sitting on a board, you’re expected to deliver the budget? So if there’s a discrepancy showing up between, let’s say, the forecast year end profit and your budgeted year end profit, are we going to accept that or are we going to take some remedial action?

00:25:12 – Darryl Bates-Brownsword
Okay. So, Ray, I think you mentioned to me earlier that you work internationally.

00:25:16 – Ray Brown
Yes, we do. We have got clients now Mexico, Norway, UK. And recently we’ve picked up a new client in a place called Yellow Knife in Canada, which is very far north. And there’s very interesting operational problems for an architectural practice, but very successful business in Canada.

Okay, so how do you work with them? How does your business Archibiz engage and interact with a client when they’re overseas? I assume there’s a bit of zoom calls, but what level of detail? You mentioned that you get involved at a board level and setting the strategy, but how does it work working with you? What do you do?

Okay, so we have a number of different offerings. We’ve got a signature online training program called Designing Architectural Practice Success DAPS program. And we encourage all prospective clients and clients to take that course because that gives them the basics, that’s the language, the vocabulary of business, some rudimentary stuff around reporting. Some people think that’s enough and they stick with that. Some of the bigger practices say, well, we want more than that. So they do the DAPS program. We then do a business review. We interview all the staff, we interview clients, we look at websites, we look at fee proposals, all the elements of the business, and then we feed that back to effectively the board of the practice. At that point, again, they can say, well, that’s fine, we can implement ourselves, or which is more typical, they engage us as business coaches. And that takes two forms coaching the management team, or sometimes only the practice leader here herself, and then chairing the board meeting. So the board meeting. We keep coming back to that as the key change in the business. This is now a point in time once a month where we’re going to look strategically at the business using tried and tested easy to prepare reporting. And that’s a godsend for these people, because they don’t want to figure these things out for themselves. They want to have the conversation. But how do we have the conversation once a month?

Okay.

And that engagement can go on for quite some time. We’re not time limited. If people want to stop, there’s no contract. But typically we have long term engagements with our clients on a coaching front.

So you get involved at the strategic level. You guide them, you help them transition their business from a self employed type of model into a business that is using management, good management practices and driving the business forward. Now, what happens when the founders of the business start to go? Well, how do I get out? I’m ready to move on to something else. How do you help? Do you value the business? What do you do there?

No, we get on the phone to Succession. Plus. That’s what we do. Ask for some help with the people in Melbourne because we’re not experts in that. And there’s technical aspects and legal and tax aspects that we say no. Again. We work at the high level. Do you want to try and sell the business or do you want to prepare the next level of people for a management buyout or a handover to people that you know already? If it’s the second scenario, we can probably help a bit. We can coach the next level. We can do some management training in terms of the sale of the business. Our only advice, really, is get your business working. Well Get your business, making profit, get your business so it’s not overly dependent on you as the owner, because we can’t sell you. We can sell the business. And we need something that’s robust if you’re not around.

So let’s make the business as dependent on the owner or the owners as little as possible. Which is a slight mindset to a lot of professional service type businesses, isn’t it? Where the owners or the founders are the key people for bringing business in.

Yeah, I think that’s right. But again, there’s always the double deck of bus scenario. And we often ask that what happens if Bob or Darryl gets ill or knocked down by a bus? How would the business survive? And quite often the answer to that question is it wouldn’t. The business just wouldn’t survive without them. So even that realisation and that spreading the load and spreading the relationship building and the relationship maintenance across the business, that’s how you spread the reduce the risk and increase the value.

Yeah. So increase the dependence on the processes and the systems rather than the people.

Absolutely. A business that sometimes it’s hard for. Architects because quite often they have the name above the door as an architectural practice. And that can be a complication because quite often we see architectural practices go from surnames to three letters KSA or KWC. And I think that’s a good move because it cuts away, who are these people? I only want to deal with the boss. All the things we come across that we’ve got to fight against so that the value is in the business, not in the relationships of the individual or even the skills of the individual.

Okay, so Ray, we’re getting close to the end now and you’ve shared a few tips. What’s the biggest in your experience and working with architects around the world? Is there a common theme that you work on or is there an area that you kind of look for and go, hey look, I always know I can add huge value here. Is there a key topic that you look for first?

I think yes, we can help most businesses because most architectural practices, if we get the right people, if somebody’s coachable, we can show them how to improve their business. And something we’ve been really focusing on ourselves fairly recently is rather than seeing what we do as fixing a problem or an absence of business skills, we’re actually saying why don’t we see business systems and processes as actually a competitive advantage, a strategic advantage? Because when you come right down to it, there are many architects can build your house or design your office. And yes, you look at the architectural websites and all you see is pictures of buildings. But if you’ve got a good and well run business that’s risk mitigation for the client. There’s added value there that we feel most architectural practices don’t see and certainly don’t capitalise on. Okay, so that would be the one piece of advice. It would be differentiate your practice and your business beyond just the work that you do.

Yeah, sell the system, not the people is kind of what I heard.

Sell the systems and people but not the product. You got to go beyond that picture of a building and saying to a client, do you want something that looks like this? There’s a lot more to it than that.

Brilliant. Because at the end of the day, the client is buying an expectation, a promise that you’re going to be able to design the building that they love once they’ve engaged you. It’s a concept, an idea and they want confidence that in your ability to fulfill that vision they’ve got in their own head or that aspiration.

Yeah, absolutely. If I was looking for an architect, I would looking for an architectural practice that has low staff turnover, that makes a profit and is stable, that communicates well with our clients, that provides a good service. And those are all over and above getting a good design for my building. That’s not enough. I need more. But I think architects miss that opportunity to compare themselves with the competitors using some of these additional layers in the conversation.

Okay. Hey, Ray, look, you’ve shared some wonderful insights today, and I imagine there’s a number of architects that are listening to this and they’re going, okay, so what’s the one key thing? So just by way of recap or if it’s something you haven’t shared, what’s the one key thing? You want an architect listening to this to take away from our conversation today.

Learn about business and let that supplement and add to your passion and your skills. Don’t see it as something that’s not in your area or not something that you need to be interested in. Business can be fun, as you know, if you get it right and you’re looking at the right information, running a business can be fun. And we can get rid of some of the angst and the sleepless nights that many be people having business unnecessarily.

Brilliant, Ray. Thanks. Really appreciate you sharing your exit insights with us today.

It’s been a pleasure. Look forward to seeing you in UK at some point.