David Arends, president and CEO of CR architecture + design (Hot Firm #19 for 2016), a 175-person firm based in Cincinnati, Ohio.
By Liisa Andreassen Correspondent
“Entrepreneurship is not a standard genetic of architects, so it’s something that has to be nurtured,” Arends says.
A conversation with David Arends.
The Zweig Letter: What’s your philosophy on fee/billing and accounts receivable? How do you collect fees from a difficult client?
David Arends: It’s pretty simple. We bill on a 30-day cycle for work completed. All payments are due 30-day net. When a bill goes beyond that, we try to find out why. Late payment is often a client’s way of communicating that there’s something they’re not happy about. In most cases, it’s not that they don’t have the money, there’s more to it than that. So, first, we try to find out if there’s something on our end that we need to work on and correct. If it’s simply a matter of a repeated delinquency, we then have to assess if we want to work with this client again. Luckily, we don’t have a lot of problems with A/R.
TZL: What’s the recipe for creating an effective board?
DA: I’m not a big fan of inside boards, but the state requires that we have one since we are a C-corp. As a result, we have two boards – one inside and one outside – and they each have different functions. The inside board is more a matter of ratification. The outside board is the one that drives me. It’s made of people who have no specific interest in the company. It’s a non-voting board and everyone comes from a different industry – none are from our field. A third-party helps us to select the members and they are brought on to help in three key areas:
- Fast growth
- Marketing excellence
- Operating excellence
We’ve had an outside board for eight years now and it’s hugely valuable.
TZL: Is there a secret to effective ownership transition?
DA: No. There’s no secret. There are so many variables – size of firm, services, etc. I’m a big fan of the “less is more” concept. I’m in a position where I am 100 percent owner and I don’t believe that ownership should be given to just anyone simply because they do a good job. You really need to understand what ownership means. I prefer to reward people through compensation and benefits and most of the time people want that. When you tell them what ownership really entails, they’re usually like, “No, I don’t think that’s for me.”
TZL: How do you go about winning work?
DA: We’re fortunate enough that 80 percent of our revenue is from existing clients. We don’t chase projects, we work on developing potential client relationships first. We stalk clients before they stalk us. What do I mean by that? I mean that we research everything we can about clients we want to approach about new work. We are then in a position to meet them and have a meaningful conversation about working together.
TZL: What’s the greatest problem to overcome in the proposal process?
DA: Fully understanding the deliverable and being respectful of client requests. Often, we need to help them more clearly define their needs. Sometimes they are not sure of the questions they need to ask.
TZL: Once you’ve won a contract, what are the “marching orders” for your PMs?
DA: Follow protocol. When I see a project going sideways it’s always because one of the steps in our protocol was not followed. We need to solidify the contract, define the scope of the project, set the budget, ensure we have right resources, etc. Sometimes people forget about that stuff.
TZL: How does marketing contribute to your success rate? Are you content with your marketing efforts, or do you think you should increase/decrease marketing?
DA: If you ask 10 people what marketing is, you’re going to get 10 different answers. For me, marketing is linear and it has to be in this order:
- Call marketing. Brand building; clearly defining who we are.
- Relationship development. This won’t be successful if number one hasn’t been achieved. You’re never going to be successful if you just chase RFPs.
- Project focus. If number one and number two happen, projects will follow.
Marketing is achieved through all the usual channels – social media, marketing collateral, etc. Our linear marketing works for us.
TZL: What has your firm done recently to upgrade its IT system?
DA: I have no idea. I just write the checks. No … really … we’re continually investing in video conferencing technology, Revit, and rotate our work stations out every three years.
TZL: What’s the best way to recruit and retain top talent in a tight labor market?
DA: Recruitment and retention is somewhat of a mess in our industry. I recently read that 88 percent of the employable workforce in the U.S. does not love their job. Out of that 88 percent, 30 percent have their resumes on the street. Seventy percent of the same group would be flattered if approached by another company. As a result we have hired two in-house recruiters. They drink our Kool-Aid and are focused on reaching out to that 70 percent. We’ve had a huge success ratio. As for retention, a 14 percent attrition is expected. All of our peers have the same issue, too. Last year, we did a study of people who left over the last three years. We learned the top reasons were:
- They had the wrong manager
- They were in the wrong roles
- They were not being engaged
We’re working on those items.
TZL: What’s the key benefit you give to your employees? Flex schedule, incentive compensation, 401(k), etc.?
DA: Our benefits are pretty traditional. We’re not doing things like pet insurance. We provide excellent medical insurance, generous PTO, dental insurance, and disability. We have healthy profit sharing. For example, a starting employee will typically get an average distribution that equals 20 percent of their salary. That’s not bad for someone who is just starting out. Culture is also important. We’re engaged in the community and staff likes to know that. We have an open culture and we’re accessible and flexible. As CEO, I have no door. I have a glass wall. Anyone can come in at any time. I circulate around a lot and also visit our other offices on a regular basis. I ensure that staff has opportunities to grow, too. For example, we don’t just give opportunities to people who have been here for years and have tons of experience. We don’t subscribe to that. We recently had a 27-year-old employee open a new office in Denver.
TZL: How do you raise capital?
DA: We’ve never had to. We’re financially healthy. I hate debt. Every so often we dip into a line of credit, but pay it back right away. Cash is king.
TZL: What’s your preferred strategy for growth, M&A or organic? Give us a synopsis of how your firm effected growth in the recent past.
DA: I’m a fan of organic growth. We have three strategies, but No. 2 below is our preferred one:
- Cold start. Send someone into a region you want to be in and set up shop. You have to be patient with this one.
- Warm start. You find a market where you already have established client relationships and resources. You send in senior leadership to really understand the local market.
- M&As. We’ve only done one – it was my firm.
TZL: What’s the role of entrepreneurship in your firm?
DA: There needs to be more of it. Entrepreneurship is embraced. Right now we have a 32-year-old woman who is putting together a business plan to open a new office in Texas. (Entrepreneurship is not a standard genetic of architects, so it’s something that has to be nurtured.)
TZL: What’s the greatest challenge presented by growth?
DA: People, people, people. When you grow, it’s difficult to get to really know everyone. Do I know who has a dog or what their kids’ names are? Probably not.
TZL: What’s your prediction for 2017 and for the next five years?
DA: CR is celebrating its 35th anniversary this year. I’m bullish on where things are till mid-2019. Then, I think we’ll see a small recession – similar to 1991. Our business model is buffered by being in eight different segments, so when one is down, another is often up. Diversification is key.