243: Stop Waiting in Line: Lisa Sauve on Owning the Risk

Speaker A: This episode of Practice Disrupted is brought to you by the American Institute of Steel Construction. The center's staff architects provide a curated collection of structural steel resources to help architects save time and money, reduce risk. Learn more@aisc.org Architecture welcome to practice Disrupted, the podcast on the business of architecture and how it's changing. I'm, um, your host, Evelyn Lee Faia Noma, architect, angel investor, and founder of Practice of Architecture. Whether you're running a firm, starting your career, or rethinking what practice looks like, this show gets into how architects actually change the way they work. Hello, disruptors. Welcome back to this week's episode of Practice Disrupted. Most of the conversations I have on this show start with an assumption that there's one way into the profession. School, internship, license, and firm. Lisa Sauve skipped most of that. Lisa runs Synecdoche out of Detroit with her partner, Adam Smith. Her first project came off of Craigslist before she finished undergrad. 110 square feet, $1,500. And she skipped graduation to build it. It, uh, won Archetizer and Inc's World's Coolest offices in 2009, which she found out after she already started grad school. She never went into practice. She was 22 and a single mother. And working on her own terms wasn't necessarily ambition so much as the only path that let her parent and build something at the same time. For about eight years, she worked with architects of record who stamped the drawings, and she held out on licensure deliberately as a model for another way to do this. She only sat for the exams when defending the model became more work than the work itself. She also doesn't bill time, never has. She takes equity. Instead of fees, she turns sweat equity into formal rent credit for a tenant who renovated her building and pays herself $50,000 a year on purpose. She asks every client one question. How did you arrive at that budget? And I realized sitting there, that's a question that almost never architects ask enough. We get into what it costs to carry that much risk, where the equity conversation actually starts, and why she thinks architects have to stop waiting in line for a client call.

Speaker B: Let's get into it. Hi, Lisa. Welcome to Practice disrupted. We're so happy to have you here.

Speaker C: Thanks, Evelyn. I'm really excited to have a conversation today.

Speaker B: You have so many different business entities. I want to say, the last time we were in Detroit together, you talked about how easy it was to spin up llc. But before any of that, I wanted to kind of take us back to the beginning and literally just start with

Speaker A: why architecture and why design?

Speaker C: It started originally having less insight and reflection in my own career. I definitely thought most of the influence came from drafting classes, which I started in middle school, had a, uh, really great vocational opportunity in high school and so really got deep into architectural drafting early on. But over the years I started reflecting on other influences in my life. And a lot of it actually comes back to a, uh, poster in my dad's office. And it's by Matt Groening of the Simpsons. Before he created the Simpsons, he created marketing campaign for Apple computers. And there was a section perspective of Bongo's dream dorm, which was to encourage students to like use their imagination and Apple products. So my dad worked for Apple back in the 80s and 90s. And I would just get lost in this poster. Right. And realizing over time how much being able to just dream up that kind of space and mentally move through it, that was a lot of where my curiosity started.

Speaker B: That's kind of the architecture side. What about the entrepreneurial side in you?

Speaker C: It's so much my dad's influence, I would say. In high school I spent my free time assembling circuit boards for my dad, who had bought one of the new Beatles when they first came out and realized that he wanted to program a key, uh, combination so that when you locked it, the windows went partially down, all the way down, et cetera. And so. Right. Created this little plug in device that he, you know, sold on the Internet to all the other nerdy bug owners and then recruited me and my siblings to assemble these for, you know, a few cents a pop that he then sold and then actually stashed all, uh, the, all of the proceeds to help pay for our college. And so I think it's just things like that, these like little small projects or small problems that you can identify and then just kind of finding little design solutions or ways to make progress towards it. That was always modeled in my life. And so nothing really felt like it was a big formal lift. That is entrepreneurship for me. It just felt like a natural tendency.

Speaker B: It's interesting that you mention small projects because we've talked about the small project that kind of launched your firm. Do you want to. Would you like to share with the audience?

Speaker C: Yeah. All of those. Yeah. So, right. Like from a small circuit board to small interior office or a small pavilion, it again goes to like nothing feels like a big lift when you do it incrementally. So first project found on Craigslist before finishing undergraduate was a call for interior designer for A graphic Design office for 110 square foot suite in a larger residential converted to office building in Detroit. And so applied took on the project, skipped some classes, definitely skipped graduation to build out this project. But, uh, so that project, $1,500 to be able to buy all the materials, which was just several sheets of plywood, and then calling on some friends who had a studio nearby to be able to use to fabricate all the pan and install it just felt like exactly the scale from a series of small design competitions that we did into something bigger than furniture, but smaller than architecture. And that project went on to win Archetizer and Inc.com's World's Coolest Offices way back in 2009, as that, uh, affirmation that we found out as we started grad school, when I say we, my partner, Adam Smith, we met in studio in undergrad and then started all of these kind of small projects. And then we did it again at the end of grad school, submitted to a competition and won for the Young Architects Pavilion in Atlanta for $5,000. So they just always felt just one step further that we were aspiring to successfully earning the opportunity to realize that just built that confidence and that skill set over time.

Speaker B: So much so that you actually never went into a practice.

Speaker C: Yep, for several reasons. Right?

Speaker B: Yeah, let's talk about that.

Speaker C: That first project graduating was in 2009, so definitely wasn't a ripe moment that architecture firms were hiring, even though I knew I was going to grad school in the fall, like summer internship. Of course, this makes sense. Then you start seeing that there are no opportunities out there. And if they're out there, we were still definitely in a moment where internships were seen as free labor. And I was a single mom. So a lot of this also came out of necessity. I'm 22 years old, I have a 2 year old, and I need to figure out how to parent and close all of these gaps. And so the flexibility actually of working on small projects in my own time, asynchronous to the other demands of my personal life, really was the only path forward. And so that's why it all kind of started in this way. It wasn't out of some, um, higher ambition more than it was like a humble necessity, actually.

Speaker B: First of all, a single mom in an architecture school too, is equally as daunting. And it's like, I want to say kudos, but like, kudos is not enough for taking that on. So talk about the progression over the years because, I mean, eventually you moved away from the smaller projects. And at one point, you were actually needing to get an architect, obviously, to sign like, or partner with an architecture firm to sign off on some of those drawings.

Speaker C: Yeah, Right. And so the first interior design project was definitely furniture scale. We did some window screen panels and some, uh, movable furniture that nested together and things like that. But there were no major changes to the overall space or trades required. And so we were working in that realm for a little bit, just like any other interior designer might take on a project. But then it started ramping up. There was a food truck that we loved, that we started eating it every day when we heard they were ready for brick and mortar. And once they were ready for brick and mortar, mortar, they called us because we continued to say, call us when you're ready. But that was. Right, a tipping point. Walking through a raw space and knowing that we were going to have to pull permits but still weren't licensed. And so reaching out to Adam's previous faculty member, teacher, uh, and mentor, explaining the situation, and him agreeing to come on as an architecture record and oversee, uh, the work that we were doing and stamp it. And so it gave us a path to actually accept the project that we were pursuing, and then the framework to explain it to our clients in terms of how that procedure is actually going to work too. So that worked out for about eight years as relationships with a few different architects of record, being able to prepare permits and drawings and them overseeing our work. And that's where I actually accumulated a lot of my experience hours too. So that was my pathway to licensure. And only at a friction point where traditionally licensed architects saw what we were doing from the outside. So didn't, you know, see all the details, I think became concerned and conversed about it to our clients and contractors and building inspector.

Speaker B: We're so bad at, uh, complaining about others rather than lifting them up so

Speaker C: much, and it became distracting to our own work. And for a long time, I resisted getting licensed specifically to try to be a model for alternative practice. But once that work became a distraction to it. Right. That I had to put effort into teaching other architects modes of working legally and what their assumptions versus what the actual activities were and whose roles and responsibilities were performed on these projects. I just caved and said, all right, time to take the tests. I already started accumulating the hours as a backup plan. Let's go take the test. But it definitely just became, you can hold out for so long as a model, but once it becomes a distraction point, uh, I just didn't want to manage that anymore.

Speaker B: Well, another interesting thing about the path you took is the access that you have to the financials, right, of everything that you're doing. So what are some of the biggest lessons that you learned along the way? Just by going directly into being a

Speaker C: business owner, you get to see everything and do everything right. I think like being entry level, you're put on a team and you're incrementally given parts of, you know, and tasks of a larger project where there was no one to turn to, to either delegate or direct work that I didn't have the knowledge for. And so it required really quickly to be humble and ask for clarification from clients, to just have a natural curiosity about what they were up to and then having to do the same on our side as well. So that first project off of Craigslist, we got the check for $1,500 from the client. He made it out to Synecdoche and we go to the bank to cash the check to go buy materials. And of course the bank is like, there is no Synecdoche and we can't cash this into your personal account. So learn very quickly at 22 how to form an LLC, get an EIN number and open a business checking account. Right? And it's just every single time you confront a problem and you have to learn how to solve it, there's no one else, there's no HR department, there's no finance department. It's all you. And you know, a lot of it is being resilient to address and learn how to solve those problems as they show up, because a lot of them aren't predictable, especially on the business side.

Speaker B: I mean, you even admitted to being. I just like how open you are, you know, naive as hell in the early days, but then now, you know, towards licensure, dangerously knowledgeable. The other thing I like about you is like this, this idea that you are, and we never talked about it earlier, but you are kind of holding yourself up for a model then of uh, a different way to practice. Why did you ever feel like you needed to do that?

Speaker C: I mean, I think that that comes from the motherhood part. At some point it really does become systematic burden for a lot of people to achieve each one of these steps. And so to find a pathway that doesn't have the linear and, I don't know, heavy burden of it just felt like something really worthwhile to say we, we can endure of uh, providing those services without licensure. Like what is the merit of Licensure as a small firm, I will still affirm, like, it gives me, uh, freedom and flexibility to go take on the projects and have that agency. But if your tendency is to be in a large firm, you may never be stamping something. Right. It really is just an external marketing to say that you have the authority to speak on behalf of something, but you may never actually carry that direct responsibility that goes with licensure. And so I think sometimes all of these things are flipped in a weird way that we uphold licensure as something super important that isn't really applied and practiced the way that we measure its importance. And then we really diminish the work that we constantly do in collaboration with others, especially if we're not licensed. And so to be able to just say, hey, if the system's not working for you, like, there's a way to still do the work you love, that just felt like something necessary to, you know, model for a while.

Speaker B: The other thing that's interesting to me is that you. You kind of bunk the system. I feel like you and I are bunk the system, right? You want to go against the system, but at the same time you want to bring others along. So, Michigan aia, right? You were getting complaints from members, and now you're engaged in Michigan aia.

Speaker C: Yeah, well, I just came back from, uh, N. CARB Higher Education Licensing Advisors Summit in Minneapolis a few weeks ago too.

Speaker B: So now you're fully within it for change, I guess is the question.

Speaker C: Yeah, the licensing summit was really highlighting, like, how do we increase the pipeline? And I just kind of raised my hand was like, do we have a pipeline problem? Like, is this a, uh, like, what is the problem here? And why is this defined as something to be discussing right now? And at the same time, ATNCarb is working on different pathways to licensure, some that might not even include education. And so it becomes an interesting proposition that my pathway might actually be easier and come with less friction and be kind of a sanctioned opportunity to earn licensure. But, uh, at the same time, it's like, to what we're measuring in terms of, like, the competency and the knowledge, and then my experience of the competency and knowledge that I actually use every day. And where I see the merits of architect, I still push back. As a practitioner and an educator, I actually see it a bit differently still than, you know, what NCARB is outlining. And I think those are all healthy discussions to have, depending on if everybody in the room wants to have them. But yeah, I am. I'M not afraid to make a room uncomfortable with discussions of merit.

Speaker B: So speaking of discussions of merit and valuation, you have this whole, and we had a whole conversation about knowledge based valuation and you just mentioned, uh, us undercutting our fees and not really being paid for that value. Can you explain it to any architect? The architect that's worried about raising their fees or the architect that doesn't even understand how to value it?

Speaker C: Yeah, well, and uh, this goes back to like having a view inside your client's business and how your own business operates. So from the beginning, right, a lot of our questions, right, all of our inquiry about what problems we're trying to solve go back to like, right, other than single family homes, single family residential clients, every other client has some form of value proposition and business or development model that they have aligned values with and then action items to go with those things. Architecture has a way that we have defined how we measure hours or fee or scope, but the reconciliation between those things doesn't consistently happen at the beginning of the project. To say, what's your model? Where are your expenses, where's your revenue? And where's the actual problem? When we're called in as architects, we often believe the client that their assumption that architecture will solve it is true and continue on that assumption to accept that scope of work and believe that architecture is the solution. So I think the first step for us is that we've been able to

Speaker B: like

Speaker C: remove ourselves a step, think more holistically and wonder what will solve this problem. And sometimes it's not architecture, right? Sometimes it's communication or marketing or operations or strategy, right? And so then figuring out what, what is our design solving for, then we can map it to, is this solving a revenue issue? Is this solving an optimization issue? Right? Is this right? And, and that's where we actually bring alignment between those things that we can understand their business model where they're either missing an opportunity to make more money or losing money because of something internally. And then translate that back to exactly how design services can provide a solution for it. And I think like nuts and bolts of that. There's a couple of examples of how we had, aha, uh, moments asking our clients, this is our very casual post occupancy analysis, hey, how's it going? How's business? Right? And most clients would say, you know, better than our projections. And we, we do like to say that design probably had some credit for it. And a couple specific examples that we could map. We designed a piercing studio. We completely reconsidered the Jewelry counter from it having a front and a back made a 360 custom furniture piece that sat uh, in the middle of the room. And so it became a really nice surface for consulting before piercing for selecting pieces. But it didn't feel transactional. Kind of a front and a back and the owner put all of their higher end Julia in there and this was the focal point. The secondary jewelry went on wall shelving behind it. And so they saw a uh, major increase in jewelry sales and profit because more customers were focused on what was presented to them front and center instead of being like, can we just go down the jewelry counter towards the budget row? Right. And so the metric that we were provided was that they generated more profit in half the amount of time to pay off the build out of the project. Right. So another way to say that ah, is instead of paying the bank loan for more months, they were able to pay themselves that profit margin. And we're like, great, if we could have part of that slice. That was something that you weren't expecting that you were still going to be paying off bank loan right now instead of already earning a profit. How can we get a performance bonus and or measured it as we start to get into, you know, equity in terms of the long term instead of just mapping like single point metrics and doing performance based on that, the long term bet, uh, of the business or the development project.

Speaker A: A uh, quick thanks to our partner, the American Institute of Steel Construction AISC Architecture Center. It takes a huge amount of time and energy to create an elegant structural system. But as an architect, where do you start with the diagrams and terms architects need to express their design intent? Find resources and inspiration@aisc.org architecture or contact the team at architectsisc.org how do you have that conversation?

Speaker B: Uh, in the beginning though, when you're setting up the contract, what's your problem?

Speaker C: Right. So in office design we definitely had clients come and say, hey, we're in a similar market and we're seeing recruits or employees migrating over to this other company in town and you've designed all of their offices and we think that they love being there instead of in this IKEA startup world. Can you help us? Well, uh, yes. Let's create a quality office environment that people want to go to and it encourages collaboration and better product at the end of the day. And some of that is like, well, what's the cost of recruitment? What's the loss from attrition? And so you can run those numbers on staffing all day long and then Say, all right, let's run an experiment. Can I have a six month budget of recruitment and attrition to do office renovations? And then let's see if it turns around. Right. And so it's a way to understand a client's budget. Right. They have expenses and they have revenue and figure out how to toggle those in relation to each other. Instead of architecture just being a cost. Right. It always has to have some value. And that value isn't about my time, it's about their returns. So that's uh, like we don't track time, like we don't bill it. We don't have billable hours, We've never billed time. Because the client doesn't care about how much time I spend on things. Right. They care about if they're getting the outcome. So If I spent two hours or 10 hours, the only reason that matters is if they have to pay more. And so efficiency is actually better for both of us because I can control my profit margin and their client experience when time isn't actually mapped as part of the transaction.

Speaker B: Have you ever gotten to a conversation, as you said, where the value or the outcome isn't architecture?

Speaker C: Yep.

Speaker B: Or you said you've gotten through those conversations, then do you hand off the work at that point and you say, I'm not, I'm not your solution, or what do you do then?

Speaker C: No.

Speaker A: Right.

Speaker C: We got a fabrication shop. We've done brand design, we've done startup organizational management. So some of it right. Again, being naive. I never saw that. Inside an architecture firm, the tendency is to hire a bunch of consultants. My naive approach is architects solve problems and we seek out the knowledge and build our skills to solve those problems. So when it was an architecture, I was like, great. How do we figure out how to do an engagement session or communication strategy and all these other kind of deliverables? Sometimes we're meeting the client even earlier on where there isn't even architecture to be the solution. And so we're doing development feasibility. And they're like, we need a space. It's like, do you need a space? Maybe you need to share a space. Right. So sometimes their idea of a program and it's like, I bet we can find a partner tenant that is actually going to have reciprocal uses that can reduce your overall cost month over month and initial capital cost. And so we kind of zoom back out, review the problem definition and then come back at it with a, uh, stack of solutions. We do use consultants like one, don't make me engineer things. And so we'll bring on brand designers or landscape designers, civil engineers, all those things too. Again, it's always just knowing your limits. Uh, and when we get really ambitious, it's like, do you train a team to do that work in house or do you just bring on the collaborators? So it's always a balance and every project's different. That's why it's practice.

Speaker B: I love how you frame it that way. I do want to talk about kind of the collection of businesses that you have right now and how each is serving you and how you're using this value based model for tenants example in your building. There's so much to cover there, I guess. Which one do you want to start with?

Speaker C: I think, uh, right. This, all my entire kind of modality came from necessity, you know, bootstrapping. When people tell me about fundraising, all these things, I'm like, I don't know, you just roll up your sleeves and you do it. And so all of these modes I think came that we've been practicing under. Empathize with limited resources, uh, capital resources, but maybe high talent resources. And so that discrepancy to. And then how to realize a project when you're low on capital but you know, high on skill made us have to recalibrate exactly. The delivery model, the business model that it went into. And so we started our business. I, I did a side note, I did a Goldman Sachs Small 10,000 small businesses program. And we had to, right, like model our, like EBITDA and our ROI from day one. And it was like, how much did you invest to build this business? I was like zero dollars. And so right, like your returns just are infinite because there was no money invested into it. Because we started with student license software that was not on a SAS model. Right. It was like Adobe on a cd and that's it. And then you just. Every project funds the project and so there are no funds into it. So total bootstrapping and seeing other small businesses and development ideas. We were like, how do we measure that again? And the first versions we worked for some tech offices and we were just even seeing paying employees less and offsetting that reduced compensation with shares to vest. Right. It's like compensation doesn't just take one form. And being able to see that model as one of the more kind of transparent pathways instead of just like the architecture model of like let's go the AI salary calculator and that's the salary you can expect. But compensation, different models, great baseline. All right. What are the different ways to measure compensation? Right. With Benefits with cash, but then for us, right, with shares, with vested shares and equity. And so that's really what tipped us off. Especially when one of our clients sold for $2.3 billion and we said, shoot, we should have gotten shares in that one for a reduced rate in fee. But yeah, that became, I think, a big tipping point for us in a way that we started sliding that combination of compensation.

Speaker B: So I feel like you, I mean tech, you gave a great example, but most people also don't have that example. So let's just talk about how you even in the development of your building, how you traded like literally out like work product, right. From tenants for future rent.

Speaker C: So, right. That we put a number on it when we budgeted our building, right. Sources and uses. I need this much bank loan to buy a building and renovate it. And I can charge this much rent. That's going to pay off my bank loan and cover, you know, taxes, utilities, maintenance, et cetera. If I can lower my bank loan, I can lower my rents, right? It's again, uh, both sides. Sources, uses or expenses and revenue. So when we started like recruiting tenants, the first one was our friends at the skate shop. We had done some little builds and projects together before. Skateboarders are just amazing humans. They understand the urban context more than anybody and naturally are kind of guerrilla builders, right. The two owners were electrician and a contractor. So I said, hey, you guys want to come renovate my building? And they said, yes, but actually we were looking in the neighborhood to open a retail space in Detroit. I said, great, what if we just made this a win win? You renovate my building and I'll give you space. And so once we wrote the lease, we formalized that at $150 an hour on agreed upon scope of work can be accumulated as rent credit. And so as they worked on the building and they turned in timesheets and then we just accumulated rent credit and they earned over a year of free rent. And so it allowed them as a small business to say, we've got a little extra time, we can bootstrap this. Like we don't have the extra cash to start a second store, but nights and weekends and you know, Mondays when we're closed at the other store, we, we can do this and this is how we can open a second store, right? Is that sweat equity? And when you can formalize sweat equity, it actually unlocked a year for them to build the client base, figure out what was going to sell in Detroit different than their Ann Arbor location, get the messaging out all with a very low overhead because they didn't have rent to pay. So it gave them more Runway to take the risk to a second location. And it gave me a lower construction loan, so a lower debt service, so a lower amount of rent I needed to collect to pay for it.

Speaker B: On the client side, you're asking for numbers to help them understand their problems and help them understand the value you're bringing to them. That architects, and I would say other vendors that they probably work with don't

Speaker C: usually ask for because we're trained for it to be taboo.

Speaker B: Well, how receptive are your clients to that then?

Speaker C: I guess at some point, all architects have to have the conversation, what's your budget?

Speaker B: Right.

Speaker C: So at some point we are having the numbers conversation. And then you have to say, how did you arrive at that budget?

Speaker B: Well, that's the question that we never ask, honestly, how did you arrive at that budget?

Speaker C: Again, maybe I'm just naive because I don't know what other architects don't ask. This is what I asked. How did you arrive at that budget? They're going to ask us once we get the design back and we get bids. They'd be like, how did you get so out of budget?

Speaker B: Right. Yeah.

Speaker C: So how did you arrive at that budget? Like, why do you think this is the value of the renovation? Why? Like, because they're going to tell you, oh, I thought tile was going to be, you know, $10,000. I was like, yeah, for the box of tile. But the labor, the crowd, the shipping. Right. Things like that. So. Right. Like testing their assumptions, even just on the hard costs of a project are really important. But also to be like, you've decided this is a number worth investing in. How did you come to think that that investment, you were going to get a return on that investment. That is the core of how a budget's established. And so just being able to ask, how did you come up with this budget, I think really actually unlocks just a lot of the reasoning behind it that unpacks the client's values. Some of it might, you know, sometimes they're like, I, uh, asked some friends and they said it costs 150 bucks a square foot to renovate space. And you're like, all right, so, you know, but you know, at the end of the day, they're like, so it's a half a million dollar project. And you're like, okay, how do you think you're going to recover that half a million dollars? Like, what's your timeline?

Speaker B: I also think that's Not a question that most people ask.

Speaker C: But it's the only way to prepare to similarly defend our design recommendations in alignment with what they're valuing and the expectations of how they're going to get that return.

Speaker B: I don't think architects ever actually think about that. Like two very simple questions, very simple architects. The architects never ask.

Speaker C: Well, in that's like a larger, like where architecture has become derivative as a practice. Right. Like we've handed off that kind of inquiry either to the client's responsibility that we just trust they have the answer and we don't dig further, or to our consultants and that we're just one piece of a service delivery model and whatever we're asked of and mandated to do, we deliver on that. Instead of what I think our responsibility is, is to like zoom out and understand like where and how to address that problem overall.

Speaker B: So I have another question for you. Kind of antagonizing this picture. So many times our clients have gone into our buildings and have not used them in the way that we expected to use them, even though we went along with the higher ups about the best use of the space. So looking at the piercing studio, for instance, if they just had horrible sales people and it didn't matter if that jewelry counter was front and center, that's essentially additional risk then, right. That you're kind of assuming that they hold up their end of the bargain too.

Speaker C: Yeah, I mean. Right. Some of our first investment projects were small businesses. So we were investing in a business not in the architecture project per se. And so it was really, are these operators the top of their industry both in terms of the service that they're working in or the product that they're working in and the business acumen to deliver like that business. Right. Uh, every single investment is a marriage. Right. These are long term and reciprocal responsibility. And so again, it's a getting to know you phase to figure out where are these clients capabilities to adopt what we're presenting. And it's our responsibility as designers not to recommend something that we don't think is actually going to get adopted, we might think is cool. But if their personality or user traits don't actually align with that recommendation, it's the wrong recommendation. Right. So I think there's like some humility in that. Like, oh, it'd be cool to try this thing out, but it might just have to wait for the right match. That it's not just like any piercing studio, it's one that we knew. Once you have that one on one consulting and conversation that it becomes this individual curated experience. And that entire project was circled around us, mapping out the user experience as a ritual. And this came from a lot of their brand language. And so them just talking about it as a ritual. We knew that they had both like, uh, a care and a sensibility that they were going to continuously deliver on. And so this wasn't going to be some leftover thing that they needed to figure out how to work on or work with that it was going to be integrated into their methods from a business owner perspective.

Speaker B: I mean, some of these plays are longer plays then. Um. Right. But you need to pay your employees today, next week. Today.

Speaker C: Yep.

Speaker B: How do you balance all of that?

Speaker C: Maintain a personal lifestyle that has no scope creep. Right. Like as a business owner, I can continuously live on a $50,000 salary that I don't get a raise because every raise I get actually just turns into the margins that are spent on reinvesting either in synecdoche or into project businesses. Right. And so that raise for me is down the road, but for everybody else. Right. I've got to create the return. So yeah, it's definitely a cash flow game to decide, like, can we take on this opportunity? Do we have enough other cash flow to manage the baseline operations of the studio so that we can forego a fee on this project to see the long term returns. And the flip side, going back to like starting all of this during the recession is okay. We have a few projects that are delivering distributions and passive income so that when something falls away, we have that supplemental income. So the volatility is actually smoothed out a bit more than if we were just an architecture firm riding the billings index roller coaster. That is now because I think most

Speaker B: people don't understand distributions and how that would have worked. And why is she getting monthly distributions. Give us an example there of how that played out.

Speaker C: So a development project that uh, we were part of, we wrote a fee, uh, proposal as if we were an architect providing services with a number associated with it. So it was like $200,000, right. For fees and services. And then we rolled that up into equity. We said, don't pay us this 200,000. And as an expense, this becomes part of the investment. On the sources side, right, you get a bank loan, you get friends and family money, and your architect has committed $200,000 worth of equity. Now that equity is sitting, invested into the development. The development is generating revenue through leases and operations. And after it pays all of its expenses, there's some profit margin in several cases where uh, an lp, a limited partner. So it's really kind of the first tier of investors with a out the same amount of operational say that the general partners, which are like the main owners, have. And so, right, we're very passive in those projects. But because we're passive, we're also guaranteed the first return in what's called a waterfall distributions, usually at a certain percentage rate. And so when those revenues come in and those profit margins come in, when we get the first guaranteed return and those distribution checks of that margin based on a percentage of how much equity we hold. So depending on, um, the operating agreement of the development, those might come monthly, quarterly, semi, annually. Right. But they also come with the other side. When you are an owner, instead of just get the profit share, it means you might also get a capital call. So, whoops, something big happens that we thought the roof was good and we didn't have to replace it during the project. And now we have to replace the roof and we're $200,000 over budget. How much more money can we get from the bank? And then how much more do we have to front as, uh, partners? And how do we come up with that? Right. And if we can't come up with it with cash or supplemental services, our shares get diluted and another partner has the ability to buy a portion of our shares with that additional capital call proportional to, you know, that offset. So. Right. It's a risk reward measure in all these things. It sounds great, but it's just to say, right, like there are pain points to all of it too.

Speaker B: Who decides the equity split though? Because, I mean, I feel like a development project's a little bit easier because, you know, people have spreadsheets you can kind of run the numbers through right before. But for even small businesses, how do you have that conversation about. Well, this means this percentage of equity to the business.

Speaker C: So.

Speaker A: Right.

Speaker C: We had a photography studio where again, I was like, here's what I'm doing. I'm doing the business forming. We were doing the brand, we were doing the architectural design and the permitting and a bit of the construction coordination as well. And we were doing a lot of the FF&E procurement. Right. We needed. It was photography and like a rental event space. So. Right. Tables, chairs, all that sort of stuff. So we could buy that at a discount. Right. So measuring even the trade discount as a value that we were offering. So we had to buy the stuff, so that counted more as an expense. But being able to buy it at 50% off became part of my equity. And Then what my partner was contributing on, um, the build out. Right. In recruitment. So we did our best to say, like, how do we measure exactly what we're putting in? And then run the math of, oh, you put in 56%, you know, of the value and the cash, and I, uh, put in 44%.

Speaker B: Okay, I see how you're bringing that together. Given the total cost of the project. This is kind of where the equity.

Speaker A: But how do you do, again, kind of, how do you do that at

Speaker B: the beginning of the project when you're thinking about fees?

Speaker C: Because you know the scope, right. Like, how do you, how do you establish scope at the beginning of the project? Right. At some point we as architects just have to write a fee proposal. So I write, I write a fee proposal like I'm going to write it for any other project. There's no differentiator. Sometimes, you know, this is when you see a project more holistically. It may be, we know we're going to buy FF&E, we don't know exactly what it is yet. And then you just amend the operating agreement. If some of those investments shift and if the partners are like, I want to maintain these shares again, they can contribute proportionally to maintain that same proportion of shares.

Speaker B: You've given us a lot to think about in terms of how you're budgeting your projects, what it means to increase your own risk, but what that means from a risk reward perspective on the back end. And I think you are still kind of holding up, uh, what you do as a model because you're not only a practitioner, but as you said, you're an educator. Why are you an educator?

Speaker C: Testing ideas in practice is right, one way to do it, but then thinking through them outside of an individual project and trying to contextualize them more broadly to a profession is a whole different exercise. Right. So having to really translate what I'm doing on the day to day into a new mode of professional context teaching actually allows me to do that instead of just individually reflecting on it. And it really gives me another modality to say, does this have legs to resonate across the profession and in different modes? So sometimes I, you know, question, how would you do this in a design research practice? Right. How would you do. Like, there's a lot of different ways that, uh, especially in architecture school, the careers and outputs look differently and students come with a lot of different ideas of their own career trajectories. And I get challenged to say, how is what you're proposing going to fit in to this scenario? Uh, and I can't brainstorm every one of those scenarios and pressure test it. And teaching is a really great way to do it.

Speaker B: So if more firms were to follow your model, if more students that you get m moving through the system come out thinking differently about what our value is as architects, what is your hope for the future of architecture and the profession

Speaker C: that we are? Initiators and hopefully also instigators. So oftentimes architecture is waiting for a client to call and that client is the initiator deciding that the architect is a solution instead of us as an industry observing and identifying problems and initiating the modes and methods to solve them. And I say instigator because I think we need to also instigate the modes of change as well. Right. So a lot of the time we come up against code and we're trying to do something unique or special. Right. We designed some of the first permit sanctioned non gender bathrooms in Michigan. It's the whole process, you know, before the latest code change and. Right. Like the interpretation of the code made it really hard for the code reviewers and inspectors to approve it. And so it's like we understand what the intent is, but these are the actual outcomes that are allowed because of how it's written. How can we open it up more to still protect health, safety and welfare while providing additional design outcomes? Right. So we have to, we have to push against the edges of these things to actually push for code reform and change that allows diverse range of outcomes. Right. We know housing five over ones. This is the natural output because of fire separation and use. How can we push that code further? Right. Single stairs are finally coming online in code adoption because we're realizing about intensity, access, how urban design and municipal services have to work in conjunction with architecture and thinking about those systems more whole. So I think architecture has to stop waiting in the line, the sequence to play its part and get further ahead in the process and initiate projects where they need to be in the built environment.

Speaker A: Hi Disruptors. Thank you for joining us on this episode of Practice Disrupted. Want more of this between episodes? Start with Practice Rebuilt, our weekly newsletter on the business of architecture@uh, practiceofarchitecture.com newsletter. And when you're ready to stop reading about change and start testing it in your own firm, get on the list for the lab@, uh, practiceofarchitecture.com lab. We'll see you next week for a new conversation. Conversation on change in the profession.