Where Are All the New Design Firms???

Adversity aversion is all the rage these days...

by Bill Thomas


  • My Unnamed High School Football Coach, circa 1986

I decided to play high school football not because I had any talent for it, but because it was the only way to fit in at my small, highly factionalized 4 year institution (emphasis on institution). My senior year, we got a new coach, some hotshot from a local college who took over a sectional champion that was just one win away from going to State. His “theme” for the team that year? Adversity. Like, “we are really going to overcome it?” Well, maybe, but we didn’t. We went 2-8. His style did not encourage overcoming anything, particularly not 4th quarter deficits. Some scars run deep, and that season is one I will come back to in future articles…

Fast forward to a few years ago now (sheesh, the time really flies). I took a leap of faith and started my own law firm with a couple friends I practiced with for over 20 years. We shared a common vision, wanted to create a new culture, and together, build a specialty practice to better serve our clients. To do it, we had to overcome a lot of adversity. Our only regret is that we didn’t do it sooner. And in talking with other entrepreneurs from different professions, that seems to be a common sentiment: the quicker you put trust in your ability to succeed, the better off you will be.

However, in talking with another professional colleague this week, he shared an emerging trend: there are too few new design firms being created. He said that, from his perspective, no one wanted the risk, they preferred working for someone else. Or, they would rather see their smaller firm gobbled up by a much larger one. The result could be a future of larger, full-service firms, national companies, and less and less specialization from local, small shops who know the market and regional peculiarities.

A 2015 Wall Street Journal article explored the phenomenon, hypothesizing that Millennials simply aren’t starting businesses. Their assessment of the situation was bleak, frankly, for the future of any profession. Reporting a 10% drop in new venture creation – generation over generation – the WSJ article attributed the decline to a number of factors. Millennials came into the work force during the 2008 recession, and as a result, were either unable to find work, or were under-employed. While this eventually changed, they did not acquire the same level of experience, mentorship or practical know-how to start their own business as their parents did before them. Another metric holding them back was significant student loan debt, making them much more risk averse.

Further constraining the drive for designers to strike out on their own is the desperate need for talent and fierce competition driving up wages in the current job market. The AIA highlighted the problem faced by many architectural firm owners: competition for talent and significant salary increases needed to keep employees happy. In their January 2022 Architectural Billings Index (ABI) report, they note that the market is so tight and competition for talent so heated that most firms were increasing salaries for all experience levels, and adjusting their expectations for remote work. Why take any risk when you can continually better your standing in such a competitive market.

In their Financial and Economic Survey, published in June 2020, Appleseed Strategy provided survey results from 31 companies about how the AE market is faring, what trends they are expecting and their forecasts for the future. In June 2020, the outlook was bleak, due to the pandemic, but those forecasts have since rebounded some in their 2021 study.

Challenges for design firms present opportunities or obstacles. It is critical in such times that AE firms connect with and attempt to understand their clients’ needs and objectives to best position themselves as a trusted advisor. Expanding offerings, enhancing expertise and providing strategic guidance gives clients the security they need to navigate difficult times. But these things require cutting edge technology, sufficient staffing levels, strong existing relationships and depth and breadth of expertise to carry out. No doubt, these trends alone could be contributing to contraction in the market as opposed to new firm formation.

Appleseed’s 2021 follow up report showed their predictions mostly bore out. Interestingly, an enduring challenge to firms was keeping staff, as many saw turnover, not to startup opportunities, but to other firms competing for talent in a buyers’ market for lateral moves. Respondents noted the challenges of maintaining or creating a strong firm culture in the face of remote work, as many still had not returned to an in office pre-pandemic “normal.”

One thing was clear from their survey and reporting: there are incredible opportunities for firms that embrace technology, remote work, the new working model of small group collaboration, diversity and inclusion, and particularly strategic positioning in disciplines that can address climate change impacts on design. These things can be either an impediment to start-ups, or just the differentiation needed for someone to establish themselves as an emerging “firm of the future.”

Hopefully, young design professionals will catch up to the idea that it is worth it to take a chance, to overcome the seeming adversity. Perhaps soon we will see a new trend towards specialization, localization and innovation which only comes from a group of risk-takers willing to take that leap of faith. Go team!

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