Sunday, February 13, 2011

Starting a new Architecture Firm - Lessons Learned

I have to apologize for my absence in the blogosphere. For the last six months I have been setting up a new company focused on the practice of Architecture and Interior Design. (For all you Pocono Modern fans: not to worry. Things in Jim Thorpe are unaffected) Luckily for me, I had already done this back in 2005 so I knew what to expect. What I could not anticipate was the current economic climate and the changes to the way business is done. Having now worked through most of the challenges, I wanted to recount some of the more interesting moments in the hopes that others who are considering starting a new firm (or any business for that matter) can be prepared. And while this topic diverts from the usual shop talk of Architecture, I hope that some may find it useful if you may be considering breaking out on your own.

Challenge #1 - Credit for small businesses is virtually non existent. In the old days, you fill out an application with an office supply company or an equipment company and they open an account for you. If it turns out that you don't pay your bills, they shut your account and send you collection notices until you pay. If there is equipment involved, they come and take it. Simple. This is not the case anymore. In order to get any account opened (from the phone company to the copier lease) I had to provide a valid credit card, checking account, professional references and sign a personal guarantee statement. In some cases, I was even turned down despite having near perfect personal credit. The bottom line is that if your company is less than 2 or 3 years old companies don't want to take the risk on you. My recommendation would be to start an LLC on paper even before you know you want to set up shop. That way you can say your company is alot older and skip alot of the red tape that a new business has to deal with.

Challenge #2 - Prices have skyrocketed. For the last few years, business has been down. Many companies have responded to this by raising their prices. I guess they figure if they are going to do less business, the business that they do have should be more profitable. In addition to this, raw material and shipping costs have generally gone up due to additional fuel costs and labor wages. The best way I know to combat this is to try and buy slightly used things that you can get a deal on. For example, there are many places that sell second hand office furniture (such as desks, chairs, and filing cabinets) where the pieces are like new. You can also get computers and office equipment off lease at a big discount. Let somebody else pay for the new stuff. Get yourself a better deal and save a little bit of the planet at the same time.

Challenge #3 - No one wants to help you. I remember when I started my last firm, there were people lined up to try and help us get work and spread the wealth around. Today, everyone is trying to take care of themselves. Most businesses are just trying to stay afloat until things normalize. Many have already laid off people and are operating on a skeleton crew. Companies are cutting back to the bare minimum and that doesn't leave alot of room for going out of their way to look after your interests. If you are going to build a company now, you have to do it on your own.

Challenge #4 - Every company has cut back on something. When we order product literature for building products, we used to get these big binders full of information. Now we get a stack of loose tearsheets with no binder. Companies used to beat down your door to come in and do a lunch presentation where they provide the lunch. Now you don't get so much as a cookie until you actually throw some business their way. Most companies think that these small saves add up to big savings. To me though, it tells you which companies are stable enough to satisfy a customer and which companies have poor management and are fighting for their lives.

Challenge #5 - The cost of money. If you are lucky enough to get some business line of credit or a business credit card, be prepared for really high interest rates. Despite record low borrowing costs from the federal government, banks are taking it to the few customers they have left. I recently cancelled a business credit account from Citibank when they jacked my rate to 28.99%. President Obama's credit card reform bill has done little to avert these kinds of abuses. Combine that with the fact that banks are not lending and you have a perfect storm for high interest rates. My suggestion would be to pay cash for as much as you can and use smaller local vendors that may extend better credit terms. They may charge a little more for the item, but in the end you will be ahead.

So, that's kind of what I have been doing for the last few months. I promise to return to my normal Architectural subject matter in the next post. For those of you who are also working on new businesses, I wish you all the best.

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