Contract - November 2013 - (Page 22)
PHOTO COURTESY RICHARD POLLACK
Implementing an Ownership Transition:
I Built a Firm-So How Do I Get Out?
by Richard N. Pollack, FAIA, FIIDA
Many design professionals believe that creating their own firm
would be the pinnacle of their career. Their dream is to advance their
design skills and have control over their own professional destiny. But
sometimes, the all-too-soon realization is that starting a business is not
easy, running it is more than a full-time job, and there is no guaranteed
outcome of success.
We all know that becoming interior designers and architects
is not the clearest path to making the most money, but for those
of us who love it, the career satisfies our personalities and innate
capabilities. Starting and running a firm is often the mechanism for
combining design sensibilities and increasing compensation. But at
some point you will want to leave your own firm, either for retirement
or other pursuits.
Ownership transitions cannot be snap decisions, even within
a successful firm. You have to make a conscious decision to leave-
long before you are ready to do so. The biggest problem facing exiting
firm principals is delaying the decision until only a few years before they
want to leave-that does not work. In order for the firm to continue to
be successful without its founder, a thoughtful transition needs to be
implemented, especially to secure a positive legacy.
I started my firm in 1985 and made the decision in 2000 that
I wanted to leave for new adventures by 2012-a 12-year planning
horizon. I handled the ownership transition process just like any
five-phased design project:
* Programming (PG): develop criteria that have to be understood
and solved in order to begin working toward a solution.
* Schematic Design (SD): consider various test options that begin
to solve the programming criteria.
* Design Development (DD): drill down into details of the options that
lead toward an appropriate result.
* Construction Documents (CD): retain consultants with expert
knowledge of the disciplines needed to document the solution,
collaborate with stakeholders, and work to an effective project budget.
* Construction Administration (CA): execute the project.
For my transition, the PG phase involved sharing the 12-year
planning horizon with senior staff and then the whole firm. I developed
key planning components, which needed to be solved to create a
successful transition plan. A future leader needed to be recruited, since
such a person did not already exist on staff. I had to investigate various
options for financial and organizational structures to support my
personal and financial goals, and also determine what systems the firm
needed to operate without my continuing contributions. The firm's
ability to generate work and revenue without the founding principal's
business development efforts was also a factor to consider.
A recruiting effort for the future leader began during the SD
phase, using in-house resources and a hired recruiter. Meetings were
held with our knowledgeable CPA to understand various ownership
transition financial models, such as internal sale, external sale, and
an Employee Stock Ownership Plan (ESOP).
The future leader was recruited and hired to kick off the DD phase.
A detailed review of the transition's financial options led me to focus on
an ESOP. The ESOP approach connected well with my philosophical
and financial goals. My hippie, socialistic tendencies led me to pursue
this plan because staff would own stock in the firm without purchasing
any stock. Too many young professionals do not save money, and the
ESOP "makes" them save.
The CD phase began with hiring an ESOP consultant to establish
the plan and to explain the nuances to all staff. We then began to
implement the financial components of the ESOP. To take over my
responsibilities, new financial and legal systems were discussed and
applied. Specifically, senior staff was trained in banking relationships,
financial oversight, professional service contracts, and corporate
governance. This developed a radically different business development
approach that was less reliant on one major rainmaker-me.
Concluding with the CA phase, a staff meeting was held at
least once each year to explain the ESOP and to further explain plan
benefits for both myself and the firm. At this point, consistent, open
communication is critical to success.
The most interesting reactions to my ownership transition
announcement were from principals of other firms, who all said exactly
the same thing to me: "So you actually did it!" This was usually followed
by: "How did you do it?" If you are considering a transition of your own,
consider this planning outline to start the process. Good luck!
Richard N. Pollack, FAIA, FIIDA, writes a regular column for
Contract on business practices in design and professional
development. Pollack is the CEO of San Francisco-based Pollack
Consulting, which supports firm growth and success through
improved business development, winning presentation techniques,
recruitment of top talent, business coaching, and ownership
Table of Contents for the Digital Edition of Contract - November 2013
Contract - November 2013
Columnist: Implementing an Ownership Transition: I Built a Firm—So How Do I Get Out?
Highlights from HD Americas
Breakthrough Design at 100% Design in London
Product Focus: Beyond the Plank
Product Focus: Hands-On Shopping
U.N. North Delegates’ Lounge
Stuart Weitzman Milan Flagship
Marc Jacobs Beauty
Bricks Over Clicks: Enhancing the In-Person Shopping Experience by Design
Designers Select: Tables and Casegoods
Small Project: A Sales Gallery Previews Zaha Hadid’s 62-Story Condo Tower in Miami
Contract - November 2013