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Posted: 07/07/09 06:24am  Reply with quote
Architecture Firm Diversifies to Blunt Effects of Economy

By John Reid Blackwell, Richmond Times-Dispatch, Va.

When an economic recession takes a kick at your business, a seven-legged stool is much harder to knock down than a three-legged stool.

That's how one partner with the Richmond-based architectural and design firm 3north described the company's approach to sustainable business.

"In prior downturns, residential work really helped carry us through," said Jay Hugo, one of the four principals in the firm that was founded in 2000.

That has not been true in this downturn, but the firm has pursued a diversification strategy that its principals say has helped it adapt as the economic downturn hurt demand for construction and architectural work

3north's business model has focused on building a network of affiliated or subsidiary firms that work in disciplines often related to the firm's core architectural business, but branch out into such areas as landscaping, home additions and art acquisition.

"When one market turns down, you still have the other ones to pull you through," said Kristi Pipes Lane, another principal in the firm. As the residential market turned down, "we have really relied on switching gears and doing more interior work and landscape work."

3north has created several smaller businesses in which it has ownership stakes, including a real estate development firm called Red Shed, and an art acquisition business called Whole Art.

"We wanted to redefine how we practiced as designers," Hugo said.

"Rather than waiting for [business] to arrive on our doorstep, we wanted to try to control our own destiny through a more sustainable business model, and to create some of our own projects as well," for example, through real estate development.

Red Shed, for instance, "is another way to level out the troughs in the economic cycle," he said. "We can have our own projects on standby that can backfill our pipeline if other projects are not starting."

Whole Art grew out of a market demand the firm saw for supplying specialized or historic art, especially for hospitality industry clients, said David Rau, another principal in the firm.

"The interesting thing is that it has in some cases been our entry to our other work," he said. "A hotel owner will become aware of us, via the artwork company" and seek other services from the firm.

An affiliated firm called Grace Street Home Additions focuses on the market for home renovations, which has started to pick up this year, said Scott Ukrop, the chief executive of the business, which shares office space with 3north.

"People are finding it makes sense to invest in their existing house," Ukrop said.

Under 3north's business model of linked, interdependent firms, "you are a little bit lighter on your feet," Ukrop said. "But you also have more surface area and interaction with the community and different trades."

Most recently, 3north has added another business to its extended family -- Water Street Studio, a landscaping design firm with offices in Charlottesville and Richmond.

3north's business model is a novel approach for architectural firms, said Brian Frickie, immediate past president of the Virginia Society of the American Institute of Architects.

"What they have done is different than any other architectural practice that I am aware of," said Frickie, a principal with Kerns Group Architects in Arlington.

"They are applying the same creativity that most architects apply to their projects and designs to the way they are operating their business," he said.

Many architects, Frickie said, are focused so much on the creative side of the business that they don't think enough about their business model, but this economic downturn is putting more attention on the business side.

"Anytime you diversify from one service to another service and product type, you make yourself more able to weather any storm," he said.

"The key is that people have to see different ways to doing things, even if they are not architects . . . no matter what business they are in, or if they are thinking of starting a business."

One of the important elements of the business model, the partners say, is that each of the satellite firms functions independently.

"The key to the model has been that each of those legs is a smaller, entrepreneurial, independent practice that has to stand on its own and have a sense of velocity about it," Rau said.

During the downturn, the business model has allowed the company to change its focus as demand shifts and projects become available.

"Right now, we have a huge landscape job working through the firm," Lane said.

That job is the planned restoration and renovation of Richmond's Monroe Park next to Virginia Commonwealth University's academic campus. 3north is handling the design work for the park.

The firm also has pursued other projects that are somewhat different from its portfolio. For example, it has tackled more government work and university building projects, such as the renovation of the historic Carolina Inn on the campus of the University of North Carolina at Chapel Hill.

3north has been able to utilize its business model to lessen the impact of business cycles, Hugo said, because the firm can stretch its involvement in projects by doing more work on the front end of project planning, as well as the back end during and after construction.

For instance, Porter Street Purchasing, another one of its network of firms, provides purchasing services for clients for such products as furniture and plumbing equipment -- well after the design phase is completed.

3north employs about 25 people in its core business, but a total of about 50 work under the umbrella when all the related businesses are included.

While 3north cut back on positions after the downturn hit, the firm has recently hired one new employee and has three open positions for which it is recruiting, Lane said. One key thing, she said, is that the firm's employees are able to adapt to different project demands.

"It has really helped that our people are flexible and can do a variety of things," Lane said. "They do not just do one type of design. We really have the flexibility and are very agile and can make a turn on a dime." ------
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