Ep 151: Starting a Business

We are finally conceding to a request that’s been made a thousand times – do an episode on starting an architectural business – a topic that I have resisted for essentially 6 years, and I think I’ve finally broken. This is not as easy of a topic to discuss as you might think because there are a million different ways you could answer a question this broad. In an attempt to make this conversation of value, we are going to start at the beginning, and we are going to eat this whale one bit at a time. Welcome to EP 151: Starting a Business

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Starting at the Beginning jump to 1:36

Business plans are not that difficult to prepare, and when created properly, they can be used as a guide to help make long term decisions on to best set up you new firm. Since we are going to go about today’s conversation at the beginning, we are going to adopt the strategy of “eating this whale one bite at a time”.

Student Example Business Plan from Andrew's class — *Student Example Business Plan from Andrew’s class*

Executive Strategy jump to 4:40
The first thing to do is to take some time to figure out exactly who you are, and more importantly, who you want to be – which means creating an overview of your firm, its mission, and goals. For me, the most important part of this process is to focus on your goals. This can mean a handful of different things, (type of work, geographic location, size of your new firm, how much money do you want to make, etc.) but how you decide to answer this question will fundamentally guide your behavior in the beginning

Summary of services offered and target market jump to 7:12
This should be an easy one for most people to figure out. What type of work will you be providing and who will you be providing it for? Let’s say you want to start a residential architecture firm. Will you be focusing on developers, builders or end users as your client base (maybe all three?) Will you be designing new houses, additions renovations, full documentation or something at a reduced capacity (i.e. “Builder set”?) Maybe you think you will simply be taking on whatever you can and for whomever – which is a reality for most people starting out in a residential firm but you still need to have some sort of understanding at what level of service and documentation each of these user bases will require and how to establish an appropriate fee for each one (which is probably the most asked question I get on this topic).

For the record, there is no canned ready-to-serve answer to this question due to the number considerations that fall into place.

Firm Description jump to 11:10
History of the firm (if any if it is a modification of an existing firm) and its partners. This is exactly what you think it is and might be the easiest thing about creating a business plan. The purpose of this section is to really demonstrate competency to the people you want as clients. This is really a personal history of the individuals that make up the firm (which could be one) but it explains how and why you ventured out to create this firm.

Develop a Vision and Mission Statement jump to 12:40
I am not a big fan typically of mission statements, mostly because I don’t think people use them properly. A mission statement is typically used to clarify what business you are in, focus your goals, and identify your business objectives. They should be internal vision statements to help guide the decision making process not some pandering message shared with the public espousing things you should be doing anyway (like providing excellent service, providing solutions, or any sort of “listening to your clients”)

I wrote a post on Mission Statements back in 2014 (https://www.lifeofanarchitect.com/mission-statements/) and my thoughts on the matter haven’t changed at all. Other than me making fun at how bad a lot of them are, there are two key takeaways on this matter – Keep it simple and at a high level, and your mission statement should reflect the future (meaning it’s not about who you are and what you’ve done – it should be about who you want to be and where you want to be.)

Location and facility jump to 19:03
Okay – I lied. This is the easiest one to understand. You need to find out where you are going to work. Home office? Renting space? Subletting a smaller piece of someone else’s space?

Legal Structure (sole proprietorship, partnership, corporation, etc.) jump to 21:10
This one is easy to list out what your options are but you should really spend some time working through this. Each business structure has distinct advantages and disadvantages and your choice depends on factors such as the number of owners, liability concerns, tax considerations, and the level of regulatory burden the business is willing to bear. It is reasonable for you to spend some time and money to consult with legal and financial advisors that can help you choose the best structure for your business.

That having been said, here are the ones you will most likely be working through:

Sole Proprietorship
Considerations: A business owned and run by one individual, with no distinction between the owner and the business entity and the owner is personally liable for all business debts and obligations.

Simple and inexpensive to set up and maintain, ideal for small operations.
Full control over business decisions and operations.
Personally liable for all business debts and obligations.
Limited ability to raise capital compared to other structures.
Taxed at individual income tax rates, potentially offering tax advantages for small businesses.

Partnership
Considerations: A business owned by two or more individuals who share profits and liabilities. The liability varies by type, but in general partnerships, all partners are personally liable and income is reported on the partners’ personal tax returns.

Shared decision-making and responsibilities among partners.
Partners are personally liable for business debts.
Can be easier to raise capital with multiple partners.
May have limited resources for growth compared to larger partnerships or corporations.
Taxed at individual income tax rates, with profits and losses divided among partners.

Limited Liability Company (LLC)
Considerations: A hybrid structure that provides the limited liability of a corporation with the tax efficiencies and operational flexibility of a partnership. Owners (typically called members) are not personally liable for business debts and liabilities. Typically, income is passed through to members and reported on their personal tax returns (similar to a partnership). An LLC can choose to be taxed as a corporation.

Provides limited liability protection for owners’ personal assets.
Flexible management structure suitable for small businesses.
Pass-through taxation avoids double taxation.
More complex and costly to set up and maintain compared to sole proprietorships and partnerships.
Limited ability to raise capital compared to corporations.

This is a really important footnote to this section … you NEED to invest the time and part of your startup capital to meet with an attorney and an accountant. We expect people to recognize the insight and knowledge we have as experts in our fields, so take the time to do the same with the people who will assist you in setting up the foundation of your new firm.

Market Analysis jump to 27:44
If I am going to start a new business, it is critical to have a good understanding o f the market you are entering into – which is not the same as being able to do the work. If you are going to start up a sole proprietorship and take on custom modern residential projects, it would behoove you to know who else provides this service in your area and whether or not you can offer something of value that is either better, or significantly different. There is some cult of personality that exists in our industry – meaning people hire you not necessarily because you are the best available, but because of you specifically. How do you answer the questions

Pricing strategy jump to 31:37
This is probably one of the most important areas to focus on, yet I will readily admit that it is the most likely to change from whatever you initially decide. You will end up have to determine what your expenditures are, as well as determining what sort of target profit you would like to attain, while taking into consideration that value the marketplace has put upon the services you are offering up for consideration. Keep in mind that depending on who your client it (end user, contractor, consulting, etc.) you might have a different number in mind for each group. Furthermore, you need to recognize where there is value – meaning, you don’t offer services that people don’t want while at the same time, adding the financial ramifications of that work to you pricing strategy.

This is not a particularly difficult section to determine for yourself, it’s just a difficult section to generically cover for the masses.

Financial Plan jump to 34:47
Estimate the funds needed to start the business, including office space, equipment, and initial salaries. You can visit the Small Business Administration and they have a spreadsheet you can download that will help you calculate your startup costs. (https://www.sba.gov/document/support-calculate-startup-costs) The form is for a fictional pizza business so you have to make some adjustments but it will help paint a reasonable picture for you on the items you should consider as expenses.

Legal and Licensing Fees jump to 36:41
Budget for legal expenses, such as business registration, licensing, and permits.

Insurance jump to 36:57
Consider the cost of professional liability insurance and general business insurance. Depending on the work you are pursuing, this is something that you should talk to an advisor about as many small businesses don’t carry this particular expense. I’ve heard other architects talk about that the risk of getting sued goes up once you have a policy in place meaning nobody sues you if you don’t have any money. Depending on how you set up your legal structure, you can give your personal assets some coverage in this area.

Technology and Software jump to 38:48
Budget for computers, software licenses, and other technology needs. This is a real one to think about as software costs are no joke and things can get out of hand really quick. You also need to think about computers, possibly a server, cloud service, backup, etc.

Marketing and Branding jump to 41:01
Allocate funds for website development, branding materials, and initial marketing efforts.

I always get a bit of a chuckle when I think about the marketing for an architectural startup firm. This is where most architects pull out there graphic designer hat and go nuts – mostly because it’s fun and if you are starting a new business, you’ve probably been thinking about this part for a long time!

Would you rather? jump to 56:01

It is possible that Andrew and I have answered some version of this question before, but seeing how neither one of us can actually remember, we are going to make a fresh run at it …

Would you rather live in a mansion in the middle of the desert, or a shack in some tropical paradise.

The keys words in this question are “shack” and “mansion” … at least from my perspective. Neither one of us is put off by either a desert or a tropical paradise but shack might be a little rough. Shack suggests a certain amount of bare minimums in place and when I start thinking about the bugs that live in tropics is enough to put me off. Andrew and I pretty much ended up in the same spot, deciding that it wasn’t the materials things driving us but rather the lack of bugs!

Despite the fact that I have put any sort of discussion around starting a new architecture business off for YEARS, there are some easily identifiable reasons why the time spent creating one is worth the effort. A successfully prepared business plan is invaluable as it provides a clear roadmap for growth and development, helping to articulate the business’s vision, mission, and goals. When done well, it offers a comprehensive analysis of the market, identifying opportunities and potential challenges, and outlines strategies for marketing, operations, and financial management. This detailed plan enables anyone starting off on this journey a way to make informed decisions, and possibly most importantly, manage your resources effectively.

If you have been through this process and feel like there is a key consideration worth adding to the list, please add it below for others to consider.

Cheers,