MODULE 1 1.

2 Design Firm Business Models

1.1 The Firm
Start-up and Small Firms
Twenty-first-century practice requires architects to adopt an entrepreneurial • When starting a firm, being intentional and strategic about a
approach dependent on risk-tolerance, self-awareness, and comfort with business model may be challenging. Understanding the options and
unpredictability. Starting a firm gives architect’s opportunity to leverage talent proceeding with self-awareness is essential.
and drive to create a work-life that is both personally satisfying and financially
rewarding. • A business model is a plan that articulates what business is
being conducted and how the business will generate income.
-Entrepreneurial Practice: Starting an Architectural Firm
The Architects Handbook of Professional Practice, 15th edition • David Maister, author of many books on management of
professional service firms, has identified 3-business models that are
Background common in organizations.
• Architects (master builders) have existed since early in the recorded
Efficiency-Based Firms
history.
• The earliest recorded architect is Imhotep (c. 2600 BCE) and • Efficiency-based firms are focused on fast and less-expensive project delivery
Senemut (c. 1470 BCE). Both of them are noble but there are no • Often specialize in one project type or a narrow range of services and tend to se
writings exist to describe how these architects performed their work. solutions and quick turnaround.
• The oldest surviving book on architecture, De Architectura by • Founders may hire more less experienced person for production assistance beca
Vitruvius describes the design and construction of towns, buildings , with a significant amount of routine work.
clocks, and machines but provides no information about the Efficiency-based Firms rely on repeatable processes
organization of architect’s assistants and the professional practice. • Hiring more less experienced person will help to keep production
• It is generally accepted that ancient architects, throughout human cost down, while freeing the founder to acquire more work.
history, most of them were wealthy individuals. • With repeatable elements and standard processes, project delivery
• 19th Century – architecture began to be practiced as a full-time can be streamlined.
profession.
• Profitability is dependent on volume and productivity and relatively
• The oldest active architecture firms on record are the Luckett & easy to obtain once systems are in place.
Farley in Louisville, KY and the SmithGroup in Detroit, MI, both Sustainable success in these firms requires continuous improvement of work
been founded in 1853. process and staying current with technology and trends.
• In UK, Brierly Groom is the oldest continuing practice founded in
1750 at York, England.

Definition
• A company which employs one or more licensed architects and
practices the profession of architecture.
• A company which specializes in providing architectural services to
clients. Such firms typically hire architects along with support staff
who help the architects do their jobs, and may be part of larger
company which handles many aspects of design and construction
process, from contracting to interior decorating.
• In RA 9266, Architectural Firm means a sole proprietorship, a
partnership or a corporation registered with the proper government
agencies.

Starting an Architectural Firm

The ability of start-up and small firms to succeed in the new economy has increased Experienced-Based Firms
owing to a number of factors that enable expanded capacity and reach. These are: • Experienced-based firms are proficient at solving non-routine and complex
Infrastructure, Collaboration, and Global Practice. design problems.
*** • Requires founder to have knowledge and experience in solving complex
Infrastructure - Technology is enabling architects to start their own firms to expand design problems and serving on teams that regularly execute significant
their capacity and the possible types of engagements. The chance to leave a larger projects
firm and go out on one’s own does not necessarily mean giving up large projects or
participation team that executes them. Working with larger project firms does not • The initial management challenge is to match the project task to the “pay
necessarily require a big operating budget. grade”
The evolution of file-sharing technologies, building information modeling (BIM), Experience-based Firms rely on applying accrued knowledge
multiplatform collaboration, and online project communications and management tools • Hiring a skilled and experienced architect to assist the founder once
have enabled small and start-up practices to quickly develop offices that are cost- the workload of the firm grows, as opposed to intern, may be the
effective, flexible, and scalable. best practice.
*** • Virtual collaboration with other experienced collaborators is also an
Collaboration excellent strategy for project delivery.
New firms can serve as expert consultants, contract production staff, or valued Sustainability is enhanced when they are adept at creating and acquiring new
collaborators. Founders of start-up firms have the opportunity to thoughtfully assess knowledge from doing projects that can be applied to future commissions.
their skills, strengths, and areas of interest to determine project opportunities that are
good fit. Depending on the nature of the project team arrangement, firms can take on
discrete tasks or serve in support role, demonstrating value and expertise.
New firms also have the option of expanding their services to include the construction
phase through ongoing collaboration with contractors. For instance, if the founder has
the interest and aptitude, incorporating Construction Management into a practice,
either as Adviser or as Constructor, is a possibility to expand one’s scope beyond the
design phase of the project. Architect-Led Design-Build offers the possibility of
influence and revenue (commensurate with the additional risk) beyond the design
phase of the project.
***
Global practice
Advances in production technologies and telecommunications have greatly improved
access to the global design market for firms of all scales.
With the appropriate roles and responsibilities , it is possible for a variety of practices
to work and compete successfully in the global marketplace.
Smaller firms, or those in a start-up mode, with an appetite for international work may
want to consider entering the international marketplace as a designer (perhaps in
collaboration with a local associate firm), or in a consulting or support role.
Expertise-Based Firms
• Expertise-based firms have service offerings that rest upon deep
knowledge and/or exceptional talent.
• These firms include those headed by “starchitects”, with their
unique style and abilities, or, more commonly, specialists in a
narrow band of professional knowledge.
• For founders who have deep knowledge or unique talent, an
expertise-based firm may allow a financially successful one-person
firm to be established and sustained.
• Administrative help is advisable to free the principal to complete
billable work.
• Few, if any, mid-level and junior staff are needed to complete the
work.
Expertise-based Firms rely on deep knowledge or unique talent.
• More commonly, expert practitioners will partner with experts in
their related field to offer a broader range of services.
• Many also connect with academic institutions that allow expert
practitioners the opportunity to teach and facilitate research
activities.
• One- or two-person firms can be very successful using this model
since profitability often depends on high hourly rates for services.

1.3 Start-up Business Planning

A friendship founded on business is a good deal better than a business founded

on friendship. -John D. Rockefeller
It is common sense to take a method and try it. If it fails, admit it frankly and try
another. But above all, try something. -Franklin D. Roosevelt

Legal Requirements
Company registration or setting up a legal Philippines entity is an important process.
There are several choices for firm’s legal structure. Here are the most common organized
under Philippine laws:
• Sole proprietorship
• Partnership
• Corporation
Sole Proprietorship is a business structure owned by an individual who has full
control/authority of its own and owns all the assets, personally owes and answers all
liabilities or suffers all losses but enjoys all the profits to the exclusion of others.
General Practitioner (any projects that comes through the door) A Sole Proprietorship must apply for a Business Name and be registered with the
Department of Trade and Industry- National Capital Region (DTI-NCR).
• Most design firms will start in an opportunistic manner.
Requirements for registering your business name under Sole-Proprietorship:
• Having a project to do is a prerequisite to starting a firm.
• Certificate of Business Name Registration from the Department of
• All opportunities need to be explored, but not all opportunities must Trade and Industry (DTI) [READ: Registering a business name]
be accepted.
• Barangay/ Municipality/ Regional clearance (depending on the
• Accepting any project that comes along can lead to a strong scale and scope of the intended operations)
generalist practice and can be a strategic choice in itself.
• Business permit from mayor’s office
• Generalist practices may be particularly successful for firms
established in smaller communities.
• Business Tax Identification Number (TIN)
Pros:
• The downside of this strategy is for many practitioners and start-ups
is that it may limit the depth of professional knowledge acquired • The process of registration is easier. You don’t need to register with
the Securities and Exchange Commission (SEC) or Cooperative
over time, leading to fewer opportunities for complex projects.
Development Authority of the Philippines (CDA).
• The process of business registration is also less expensive.
• You have full control and ownership of your business.
• You don’t need to comply with the regulations and reportorial
requirements of SEC or CDA.
• Closure or cessation of business is easier than closure of
corporation, partnership or cooperative.
• Filing of taxes with the BIR could be more efficient since you and
your proprietorship business share one and the same Taxpayer
Identification Number (TIN).
• You don’t need to pay for documentary stamp tax on the issuance
of original subscription of shares of stock since proprietorship has
no shares of stock unlike a stock corporation.
Cons:
• Sole proprietorship is less attractive to investors since the transfer
of ownership is difficult compare to a corporation which can easily
transfer shares of ownership through assignment.
• Once you decide to expand and incorporate your business, you will
need to cancel your sole proprietorship business registration with
the BIR which can be a difficult process.
 • A proprietorship business ceases to exist when the proprietor dies. Virtual Office
While a corporation can continue to exist even if its stockholders die This office arrangement offers users a professional ambience and permanent telephone
since shares of ownership are transferable and assignable to number with answering services, and in some cases mail handling, while reducing the
another person or entity. overhead costs of a traditional office.
• The liability of a proprietorship business is unlimited. This is not a physical space rental.
Particularly attractive to firms without a dedicated or permanent office space that would
• Corporations are more appealing to big customers than a benefit from having fixed contact information for calls and mailings.
proprietorship since the latter are still considered a small business
and it only has one owner. Co-working Space
A work space shared with other professionals, within or outside the design disciplines, is a
• Since your proprietorship business is sharing the same TIN with popular office concept.
you, your business tax deficiencies will also reflect to your personal These workplaces are set up to foster interaction between users.
taxpayer’s record. Sole practitioners seeking potential synergies and collaboration with other like-minded
*** industry colleagues, or simply seeking to simulate the congeniality of the office environment,
Partnership is a Midway between the sole proprietorship and corporation is the may benefit the most from this space arrangement.
partnership form of business.
Partnerships are registered in the Securities and Exchange Commission. Shared Office
Some types of business must be partnerships. Some types of professional practices, Subletting office space from an established firm or sharing permanent office space with a
like law and accounting, can only be organized as partnerships. number of other sole practitioners is the most conventional of the flexible office arrangements.
If you are the main investor, and the one personally liable, this position is called For the leaseholder, there are some obvious benefits such as sharing overhead as well as
the general partner. The others are called limited partners because they have only having tenants who offer unique skill sets and professional services.
limited liability, as if they were shareholders in a corporation. For start-up renters, a shared office space could offer benefits such as reduced start-up time
Under the Civil Code of the Philippines, a partnership is treated as juridical person, and cost efficiencies.
having a separate legal personality from that of its members. While these arrangements are often short-term, since firms outgrow their shared office space
It consists of two (2) or more partners. A partnership with more than three thousand arrangement, some firms may find natural synergies and ultimately consider long-term lease
pesos ( 3,000.00) capital must register with Securities and Exchange Commission commitments to capitalize on both the cost-sharing benefits and the partnering opportunities.
(SEC).
*** Logistics - Infrastructure
Corporations are juridical persons established under the Corporation Code and Full suites of Internet-based applications can be easily hosted with basic functionality at no
regulated by the Securities and Exchange Commission with a personality separate and cost, and open-source (nonproprietary) applications have lowered the historical software
distinct from that of its stockholders. acquisition investment costs for new businesses
The liability of the shareholders of a corporation is limited to the amount of their share Telecommunications tools, such as Skype® Internet phone service and web-meeting services
capital. It consists of at least five (5) to fifteen (15) incorporators each of whom must provide relatively low-fee services while considerably improving the lines of global
hold at least one share and must be registered with the Securities and Exchange teleconferencing for firms of all scales.
Commission (SEC). Minimum paid up capital: five thousand pesos ( 5,000.00). Cloud-based data sharing tools like DropBox® allow multiple users to access electronic files
A corporation can either be stock or non-stock company regardless of nationality. Such from a remote, independently hosted server that is hosted for a monthly fee, thereby
company, if 60%-Filipino, 40%-foreign-owned, it is considered a Filipino alleviating the business owner of the typically higher hard and soft costs of maintaining and
corporation; If more than 40% foreign-owned, it is considered a foreign-owned periodically upgrading a conventional in-office server.
corporation.
Pros: Logistics - Financial Resources
• Limited liability Start-up financing is difficult to obtain as architecture firms and their owners are required to
• Relatively easier to get additional capital for it meet stringent loan eligibility criteria. Without considerable personal savings or personal
Cons: loans, start-ups need to be wise with their resource allocation and thoughtfully prioritize office
start-up investments. While firm IT infrastructure needs can be obtained at a minimal cost,
• Double taxation there are still significant financial
Choosing the appropriate legal structure for your company has a profound impact on its eventual success, so do not
considerations take
that this to
needs decision lightly. at the outset of setting up a professional services
be addressed
The good news about this is that, should you find the status quo not ideal, it is possible to change tofirm,
a different form
including butofnot
business
limited structure. But youand
to office fixtures canfurnishings,
only make licensing
a wise judgment on this
and insurance,
crucial matter if you have a basic understanding of the advantages and disadvantages of the options. marketing and business development, salaries (for the founder and/or staff), and supplies.
Approaches to gathering start-up
financing specially for new firms without established credit history:
Financial Setup
• Secure personal funding and loans through: Credit cards; Personal loans;
• Financial planning is a vital part of getting ready to open a new firm. Vendors and supplier loans.
• Key task in the financial setup are the following: • Securing investors through: funding spin offs and; partnership
o Accounting system arrangements.
o Establishing tax identification and filing status • Secure grant funding through micro financing or crowd funding.
based on legal structure
o Business bank account Marketing
o Professional advisers including an accountant Social media tools provide a means of online communication between the user and a
and attorney larger audience.
o Start up funding Marketing for a start-up is a relatively accessible and cost-effective endeavor with the
Many firms seem to have the potential for success, yet because of poor financial relative abundance of powerful and popular Internet-based social media applications—
management, they fail. An accountant is the one member of your professional specifically Facebook©, Twitter©, Pinterest© and LinkedIn©
team who can best help keep your finances in order. In fact, many consider Start-ups can use these social media applications to create a platform for broadcasting
finding a good accountant the most vital ingredient for success. updates and virtually any message at the click of a button.
-Peter J. Patsula
(Finding A Good Accountant, Banker, Insurance Agent & Lawyer) Consider the following when using social media:

Logistics - Facilities
• Who is the potential audience
Logistics is the detailed coordination of a complex operation involving many people, • Motivations and objectives behind such a marketing approach and
facilities, or supplies. the value of content being broadcasted through these potentially
Facilities - Home offices keep overhead low and are eligible for tax deductions, their “viral” media tools, and
inherent cost-effectiveness and flexibility is a natural fit for many solo practitioners and • The commitment and level of effort to maintain these applications.
startups.

Rental office space or "executive" suite

The predominant typology of emerging office arrangements. Fully furnished, rentable
office spaces for hourly, daily, or monthly rental. Provide offerings beyond the rental of
physical workstations, including social/meeting/ conference spaces, high-speed Internet
bandwidth and connectivity, and telephone and receptionist service, as well as mail handling.
Typical production necessities of an architect, such as large-scale plotting and scanning,
are usually not readily available in executive suites, and there are generally no spaces or
accommodations for equipment storage or services like model-making or photography.
MODULE 2 A business plan is primarily an organizing tool used to simplify and clarify
2.1 The Business Plan business goals and strategies, which might otherwise appear complex and
For design firms, business planning can be divided into four primary intimidating. However, a business plan is also a sales tool. If it cannot convince
aspects: purpose, finance, operations, and marketing. Once purpose is at least one other person of the value of your business idea, then either your
understood, plans can be developed within each of the other three functional arenas. idea is not worth pursing, or your plan needs major rewriting.
Business plans are meant as documentation of intentions and the proactive measures -Peter J. Patsula (Writing A Business Plan)
designed to accomplish goals.
2.2 Entrepreneurial Practice

Self Awareness
As a founder, the key to successful strategic and opportunistic choices is self-
knowledge in two key areas: level of comfort with collaboration and tolerance for
risk.
Founders with self-awareness and integrity about these two issues can successfully
shape a firm based on their own values and proclivities, using their understanding of
self as a primary firm design criteria.
Level of Comfort with Collaboration
How much trust and how much control feels comfortable to a firm’s founder is a
function of personality and inclinations. The comfort zone will vary for different types of
decisions; for example, a founder may feel comfortable collaborating on project
management, but not allow collaboration on design decisions.

Control-centered practices - architects keep a tight rein on information, knowledge,

and drawings (or models), sharing only the minimum necessary for subconsultants to
perform their work.
Collaboration-centered practices - information, knowledge, and drawings (or
models) are readily shared and the entire team participates, to varying degrees, in the
co-creation of the design.
Founders with a high degree of comfort with collaboration have the opportunity to
participate on collaborative teams (either as a leader or an expert contributor). In
addition, a highly developed interest in collaboration may lead to joint ventures with
other firms, or participation in emerging project delivery methods such as Integrated
Project Delivery (IPD). Founders who enjoy collaboration are likely to have success in
growing their firms through cultivating an empowered and engaged staff.
Founders who prefer a more controlling style may choose to be solo practitioners or
leaders of very small firms where they can track everything and be completely in
charge. Firms such as these can also be successful, especially when the founder has
specialized knowledge, unique talent, or access to high margin markets. Being a solo
practitioner or leading a very small firm can also be the choice of those who enjoy
In Figure below, each aspect of the business plan is shown to have each of the other
external collaboration but prefer to do much of the internal project work themselves.
aspects within. For example, consider Marketing—each quarter of the Marketing
Clearly, there is a spectrum of practitioners within the boundaries of both extremes, but
quadrant is related to one of the four major quadrants. The financial aspect of
firm founders who have self-awareness about their place on this continuum are more
Marketing is a marketing budget; the purpose aspect of Marketing is alignment of the
likely to acquire and execute their projects with integrity—to say what they mean and
marketing message with vision; the operations aspect of Marketing has to do with
to mean what they say. In addition, self-awareness about level of comfort with
improving job acquisition processes such as the proposal writing; and, finally,
collaboration will help to unapologetically develop a firm that truly takes advantage of
the marketing aspect of the Marketing quadrant is outreach to new prospects and
the founders’ strengths.
forming new relationships.
Risk Tolerance
Starting a firm is risky. Architectural firms operate in an environment of unpredictability
where success or failure is not solely predicated on the talent and effort of the
founder(s). Though there are ways to mitigate unpredictable risks, such as purchasing
professional liability insurance and planning contingencies on projects, other risks
must be accepted as inevitable, with corresponding actions taken to prepare for these
risks. Architects who feel uncomfortable with the unknown may find self-employment to
be overly stressful. Many deal with the unpredictable nature of practice by
simultaneously engaging in other endeavors that supply more reliable incomes, such
as teaching, or becoming a construction management adviser or building inspector.
2.3 Why Firms Fail?
Reasons Why Firms Fail
Martin Zwilling, a venture capitalist and contributor to Entrepreneur magazine, has
developed a list of 10 reasons why first-time entrepreneurs fail (“10 Top Reasons Why
First-Time Entrepreneurs Fail,” Entrepreneur, September 2012):
• Lack of or inability to execute a business plan
• Slim or no-revenue pro forma (projections)
• Limited business opportunities
• Inability or ineffectiveness in execution
• Too much competition
• Limited or lack of valuable intellectual property
• Inexperienced team/staff
• Underestimating resource requirements
• Lack of marketing
• Lack of resilience—giving in too early
The list above may be helpful to consider as a checklist for those architects who's
Firm owners can customize the diagram above to suit their own business plan and about to start their own firm. Most of the items can be addressed through careful
update the diagram as some goals are completed and some are altered by external planning, realistic assessment of SWOT, and thoughtful self-awareness.
circumstance. The fractal diagram above can be used as a tool to plan and track firm Architects, who are trained as planners and designers, can bring their abilities to the
development activities over time. creation of their firms. Starting a firm without articulating the mission, markets, project
For start-ups, marketing is likely to be the most important aspect of the business plan execution, or potential revenue stream is equally foolish. Considering these issues
initially, but marketing is not possible without knowing purpose. It is not possible early in the firm planning process and throughout its start-up phase is the key to
to effectively deliver projects acquired without holistic knowledgeable operations. sustainable success.
Overall profitability will be elusive without financial management. All the parts of Writing a business plan that includes an operations and financial plan is one
business planning are interconnected. way to bring discipline and careful preparation to the endeavor.