Atif Z. Qadir 00:03
Welcome to American Building. I'm your host Atif Qadir. Join me as we explore the skylines and strip malls, the crosswalks and rail crossings, the balconies, the buildings and the boroughs shaping the next generation of real estate. Let's build common ground.
Atif Z. Qadir 00:22
Today's guest is Joe Furey, CEO of Michael Graves Architecture and Design. Joe began his career in finance and technology working in securities and as a CFO for a business unit of a fortune 500 IT company that was before joining Michael Graves as the CFO in 2008 and acquiring the firm in 2018 he transformed the practice into a full service design and technology firm based in Princeton. Michael Graves now operates across the US and internationally, with roughly 165 staff across 10 offices. In this special episode of American building, we'll talk about the firm's evolution, refocusing the business strategy, growing core services, launching technology consulting, and scaling through acquisitions. So thank you so much for being here with us, Joe.
Joe Furey 01:24
Thanks for having me on and and this episode. A lot going on over the last couple of years, and fun to talk about. We've had some great success as a team. You mentioned 165 people. Every one of them contributes. So we're excited about where we are, where we've come from, and really more excited about where we're going in the future.
Atif Z. Qadir 01:46
Amazing. And that's going to be the whole theme of this special episode. Let's dive right in. So starting from the beginning, you're not an architect, you're actually an accountant by training. So tell us, like in plain English, what you learned in the accounting process that has really set the foundation for the role that you're playing at the firm now.
Joe Furey 02:09
Well, so interestingly, I was actually a political science undergrad with some crazy idea of becoming an attorney. Was fortunate enough to get a job at a school in an accounting at Yankee Stadium, and was my first boss, who happens to now be our CFO Mark pizzariello taught me what I needed to know, but I also needed to go back to school to take all the accounting classes that I never took as a political science major, and then bound the whole path to CPA exam and so on so forth. So that background is unique. I always draw on that undergrad degree and political science for a number of reasons, number of things.
Atif Z. Qadir 02:51
Maybe business development, chatting before a meeting, all that stuff.
Joe Furey 02:56
Back to, you know, accounting, and there's a couple types of accountants, and I always tried to be like I would say to throughout my whole career as an accounting and finance group in a company, we want to spend 80% of our time looking forward and 20% of our time looking backwards. So what processes can you put in place to sort of predict the future? So when you're closing the books for the month, not there's not surprises, right? We We, if we do a great job of planning and forecasting, then we shouldn't have a lot of surprises. So closing the books and getting the numbers locked down for the prior month should take 40% of our time, and that enables us and frees us up to spend most of our time looking forward and as finance people really partnering with the business lines to support them and give them the real help they need to do their jobs to run the business. So, and I take it back to football, if you lose the game, right? And your accounting person says, Well, look at the scoreboard. You lost 56 to nothing. Yeah. What the hell were you thinking, right? Well, a good coach is going to go in at halftime, when you're down. 28 nothing, and start making adjustments, right and come back and win the game. You know? 4235 that's what a finance person should be doing midstream every day. Hey, you know, we have an assumption in our plan. We're now going off track. Let's understand why we're going off track, and more importantly, what can we do to get back on track in a timely manner? And that's what I think separates the great finance people from the day to day type of people, and it enabled me to get outside of finance into running a business.
Atif Z. Qadir 04:31
So it sounds like the personality traits and the skills that you focused on or you highlighted were sure, being thorough and being accurate, which are probably traits that people will associate with, being an accountant, but more importantly, being creative, being a big picture thinker, being a problem identifier and a problem solver, and then using all that information to create that plan and strategy for what to. Do next? Does that sound right?
Joe Furey 05:02
Absolutely. Yep. Identifier and solver. Those are two things, and it's easier to identify the problem, particularly if it's, you know, sort of after the fact. It's different to say I found it early and, oh, by the way, here's a solution.
Atif Z. Qadir 05:15
So one of the things we'll dive into as we continue on is your transition to ownership in the firm. And I think both the problem identification and the problem solution are both really important skills, and I'd love to hear that theme come up again. You worked in securities, and for some of our listeners, that might mean Jordan Belfort and Leonardo DiCaprio and The Wolf of Wall Street. So tell us what you did there and what you learned in that part of your career.
Joe Furey 05:43
So I, I went there as and I've the titles will, you know, escape me. Maybe it was a Accounting Manager and then assistant controller. I was there for three, four years. It was a broker dealer, and I was in basically general accounting. And so it was everything from, you know, soup to nuts accounting. And then I tried to do some things that lent itself to the trade. Really the trading floor guys we're going to run, you know, their profitability, their P and L, taking a deeper look to see where we were making money, where we weren't. And again, what can we do to to change the direction there? But at that spot, my first job we we were operational finance and accounting, which was really good experience. And then there was corporate they did a lot of the, a lot of the nuts and bolts, other types of accounting at the broker dealer, tradition, North America tradition, government securities was, were the companies I was able to see literally end to end on the accounting side of things, and get, you know, involved in virtually every aspect of accounting, from start to finish.
Atif Z. Qadir 06:46
So that added to the knowledge that you gained, and then you took your first leadership role at a fortune 500 company. It's called CSC, and it's it was a technology services outsourcing company that operated in 70 countries at its peak, and it was bought by Hewlett Packard, if I understand correctly, is that right?
Joe Furey 07:05
It's called DXC now, but actually I had a stop in between there, which was at Solomon Smith Barney. I was pretty good with low I may I'm dating myself. Now, you probably don't even know what this is, but lotus, which was like the it was like, then Excel came out through Microsoft.
Atif Z. Qadir 07:22
But so I'm a huge I'm a budding F1 fan, so lotus, to me, means a racing car. Yeah, I presume you're talking about a software
Joe Furey 07:31
Yeah, I was like the precursor to excel. I guess it's gone now.
Atif Z. Qadir 07:35
I think Excel is on its way out as well, too.
Joe Furey 07:39
So, well, I don't even use it that much more. So, yeah, so, so I sort of fancied myself this sort of it oriented accountant, because I was literally writing macros and scripts and all these things, which was pretty cool. And so I had a two, three year stop at Solomon, which was leading up to y, 2k and the role was interesting because it was like in the IT department, but mostly it people and some project managers, but they needed someone with an accounting finance background that could talk to the trading floor people in that language and then be able to work with the IT people right and connect those dots. So that was, you know, two, three years, there and then, and then, of course, then, then CSC after that.
Atif Z. Qadir 08:29
So a big portion of that CSE experience and the nature of the company is understanding technology and outsourcing that work. And I think outsourcing is just one root of the proper asset allocation, or resource allocation rather, and talk to me about some of those skills or experience that you had there that colored your thought process as you transition later to micro graves.
Joe Furey 08:53
Well, you know we talked in the beginning about the key role of a finance person spend 80% of their time looking forward to help drive the business, and that is probably really where I honed that skill. And really double down on that so that you can imagine, you know, contracts CSC had with its clients, 100 and 50 million a year, somewhere 500 million a year. And it was infrastructure outsourcing and applications outsourcing, which was more people than, you know, stuff, whereas the infrastructure was more stuff and less people. And the bottom line was that, you know, the contract was set with a plan, an IT plan, a transformation plan, and it was a matter of understanding the contract. But more importantly, the BID model, which was an enormous series of Excel files that were essentially the assumptions for, you know, not your annual budget or your monthly numbers, but this was a five, 710, year set of budget assumptions that really had to get blown down to a more detailed level and then operationalized. So, for example, a plan might be that on. Day one of year two of a deal, a full impact of a transformation in the first year is going to take place. So in order to get that full impact that year, that means you have to have the entire plan executed by the last day of the first year, right? And so these were, this is like going from annual assumptions down into into details, so that might, you know, force a little bit of adjustment to the plan.
Joe Furey 10:22
But if the team wasn't executing on the plan in year one, and we were in for an absolute financial disaster beginning in year two, and I took the time to understand the deals, you know, what are we selling? Right? That was the question, what did we sell to this client? We need to understand that and then execute on it. And it wasn't like. It was, I enjoyed what I did, but part of what I did there I didn't like, which was a big component of that business was outsourcing jobs, offshore us, job. Sure, you know, I had to do my job, but that might have been the biggest reason I wanted to seek something else. And just didn't enjoy that part of our business.
Atif Z. Qadir 11:03
I feel like there is a Netflix show called Outsourced, which is, I think, have you seen that show? No, I will include it in the show notes. It's basically a vision of you at that stage of your life, like, literally, that's exactly what it is, really for us. It's a great one season Netflix show, one and done. Now let's shift gears. I want to talk about Michael Graves, the person so Michael Graves was a very well known architect, whether fairly unfair list architect, he's been known as and he is the father of post modernism, and some could say New Urbanism as well. So you're a CPA, as we just discovered, and you worked in IT transformation and outsourcing. So I don't presume that the two of you had tons of like social circles in common, or work kind of circles. How did you guys actually meet.
Joe Furey 12:01
I had reached out to a recruiter and said, find me a and by the way, my last job I was traveling all over the place. My kids were young, so I said, find me a CFO job for a privately held company in Princeton. And when the guy finished laughing, and he said to me, how many of those do you think actually exist as I don't know, just find it, and I'll get back to work. And I want to say less than a month, maybe two, three weeks later, he called me and asked me if I knew who Michael Graves was. And being honest, I said, sounds familiar, but I don't think so. And then I quickly, did you know? One quick search, and figured it out. And then I recognized buildings in and around Princeton. Oh, that's a Michael Graves building. Oh, that target. Yeah, I get it, yeah. Sorry. I pieced it together quickly. So then, then I came in for interviews. And let's see, I think I came in three, like three Wednesdays, or maybe in a row. And Michael was the lat day I met him and and Sharon Patrick was a consultant. Sharon was Martha Stewart, CEO, I think for a while, Mitch Sharon was consulting for Michael and leading the process for the search for this role. So it was interesting meeting her as well.
Atif Z. Qadir 13:13
So there's three meetings in a row, and what stuck out for you about Michael's personality, demeanor, approach to his business.
Joe Furey 13:24
So starchitect, you know, I figured that out fast, like how famous this guy was. Now, Michael, when I met him, this was 2008 it might have been 2007 you know, before the holidays that I was originally coming in, but Michael was already paralyzed a few years he was back in the office, you know. And I've seen videos of Michael pre paralysis, where he was, you could see the difference in him. He was a little slowed down, obviously,
Atif Z. Qadir 13:50
What was the circumstances of the paralysis?
Joe Furey 13:52
As I understand it, and without getting too technical and medical, he had like, a sinus infection that went crazy and started, like, attacking his spinal cord, and was in a ton of pain. Went to the hospital, and you know, it was, it was life threatening. There for a while, number of surgeries, yeah, but he had his mind. He had his his hands, so he was able to still draw, and he did a lot of painting, which he loved to do and still participated on the architecture side and the products side. When I joined the company,
Atif Z. Qadir 14:28
And I think he used that unfortunate circumstance to actually become an advocate for disability and alternative methods within design to make products and buildings more accessible. Is that correct?
Joe Furey 14:43
Yeah. So on the consumer product side, number of products, and the team in that business, Donald Rob and Ben, are still, they're doing a number of different products, but they still have a focus on accessibility types of products. And you know, Michael, you talk about starchitect again, just think about. This, hey, he was in the White House with presidents from Reagan up to Obama. I'm not sure that he actually was there with him, but President Obama appointed Michael to the Access Board, yes, to focus on accessibility. So, you know, for to be in those circles, right? I mean that the start, that's the starchitect, right? And, you know, he did great work, important work. And post modern had its time, you know, was very important in its time.
Atif Z. Qadir 15:26
So like the Portland building, the Humana building, those are the classic foundational buildings that he worked on that created his name, yeah, so you come on as CFO. And because this is a special episode, we're going to focus a little bit less on the buildings, a bit more about the nitty gritty, the behind the scenes processes. So how was the firm exactly doing at that point, and what were the the opportunities that were in the hopper?
Joe Furey 15:51
So we're actually cranking pretty well. So there were a number of projects going on in and around 2006 what's now the same region was called the Nile Corniche. It wasn't a branded yet, but that project, which is the saint Regis in Cairo, Egypt, and Resorts World in Singapore, Sentosa. Those were two projects that were kicking off in 2006 and those were humming when I joined there was project at Princeton University, Texas, A and M temple, universe. I mean, there were number of projects going on in the office and those years, the year before that year, and maybe even the year after, like, that was like peak revenue for Michael Graves in the history of the company. But what was leading up, and I it all led to our strategic plan. And, you know, I've got a couple slides on this too. There was this sort of confluence of events that have that had happened that were almost catastrophic. So one, you know, with Michael being the starchitect the team, when he got paralyzed, they did a good job of carrying forward the business, but it was like that the next level down. They were not wired to be seller doers like, you know, we do acquisitions, and Ravi Walden starts his firm, Walden studio architects, and he doesn't have the benefit of a Michael Graves brand, right?
Joe Furey 17:07
He's got to go find work, sell it, convince somebody to hire him, and then go deliver good work to get more work. Not that we didn't do that. Of course we did. But when you have the brand, you know the phone rings more, right? So it's totally, it's a different thing for business development. So that was a big question, what happens, right? And it was happening actually, you know, Michael was getting, in real time, narrow ice, the post modern movement, like that style of architecture, you know, was we weren't doing that, right? And there was some perception of people like, Well, are you going to, you know you want to design my hotel, are you going to put a dolphin and swan on it? Well, it's kind of a silly question. Maybe it's a way of saying, you know, we're just not going to hire because we don't know you guys, and we have other or we have other people. So getting over that hurdle was part of the strategy. No, Michael was getting older. I said that, and then, you know, really the blessing and curse for us, I want to we do work all over the world. You mentioned it in the intro. We always have. And when the mortgage crisis happened, that took a huge impact to us with work in the US. And one of those years, like the year or two after that really hit, we had one year that was like 90 95% of our revenue or international projects. So you can imagine what would have happened we'd be done if we were not diversified to be doing work around the globe. And you know, that got us through that and then, and that really kicked off the beginnings of our strategic planning.
Joe Furey 18:37
And, you know, I just looked at this as a pragmatic business person. We have an amazing brand. The people that work here are amazingly talented. We have a great story, a great history. We got to repackage the brand a little bit, which we've done. We had done a couple times what we have now. I really love, you know. And then the big punch line there was, we're a mile wide at an inch deep. What do I mean by that? Well, one of Michael's lines was, people would ask him, What's your favorite project the next block? And that could be like going from a hotel to a museum to a campus building at a university. So we designed every possible type of building, but we weren't deep in any one sector, and a lot of times you need to show five in the last three years of similar types of projects and things like that.
Atif Z. Qadir 19:24
So on a funny side note, HH Richardson, who's the one of the most famous architects of the 1800s he did the Trinity Church in downtown Boston. He said when he was getting started, he was happy to design anything from a chicken coop to a cathedral.
Joe Furey 19:38
Yeah. And so you know that to me, the light bulb went off. It was pretty obvious, right? We needed to grow and build this portfolio through an acquisition strategy, which was maybe a crazy thought in architecture, even 10 years ago, it was happening on the engineering side, less so on architecture. It's not really heating up. I. You know, in our in our space, on the architecture, interior design side.
Atif Z. Qadir 20:03
We'll be definitely focusing on that. And specifically, you bought the firm in 2018 so how does that work, exactly, in terms of a process and structure of going from employee to owner?
Joe Furey 20:17
Yeah, so I bought in with equity. We still had the original partners. Well, that were left were still equity partners. I didn't buy 100% of it. And then, you know, in going forward with with future deals, we don't buy 100% of a firm. We're somewhere between 51 and 60% of the equity we acquire. Because this is, you know, it's a challenging business. I often say we're double complex in the sense that we're a people based business and we're a projects based business. So projects could be a month long, it could be three months long, maybe two years long or more. When you combine the complexities of a people based business and a project based business, you really got to understand the dynamics to buy a company. You one takes on risk. Our thinking on this is we're going to buy a percentage of the company because we want to manage that risk. But more importantly, for you, the owner of your architecture firm, we want to bring you in to mitigate our risk, but we also want to bring you in so that we can help you transition your firm, create a legacy for your yourself, your firm, your life's work, for your employees, but also help you monetize your business in a way that, if you just sold it out, Ryan 100% to someone you know, you make significantly less than what you'd be able to make with us, with with our structure, And bringing rolling equity and, you know, and participating in the growth going forward.
Atif Z. Qadir 21:44
Got it. So the way that you acquired Michael Graves is a reflection of the way that you are bringing on new firms to join the Michael Graves team. Is that correct?
Joe Furey 21:56
Similar philosophy of so when I was talking to the then partners of Michael Graves, obviously, I'm not an architect. I can't design buildings, and I might argue I can do a slightly better job than you guys are running a business. So let me focus on the business you focus on. I'm and will be, you know, happily ever after.
Atif Z. Qadir 22:17
In terms of the acquisition of the firm itself when you became the owner, acquisitions don't go smoothly, and a lot of the issues that come to bear happen after perhaps an acquisition. So talking about any of the problems that you identified and how you are able to go through and solve them, perhaps leaning on the skills and the experiences that you had earlier in your career.
Joe Furey 22:43
You know, coming coming back to Michael Graves after Michael's death, and buying in, like I said earlier, a great brand, talented people, but we had to do some work on the business, and I feel like I had a unique position in that. I had worked here for 10 years prior. So they the partners knew me and trusted me to run the business, treat them fairly and get them some time, to get them to buy into the thought process of acquisition. I mean, being a world renowned firm, it's probably a fair question we if we acquire a less known, more local or regional firm. How does that fit? And I think, you know, Karen Nichols is one who has been here for a long time. Though she's the longest tenured employee. She's everything to the companies. Basically performed in every kind of role, but I have her as strategic marketing. And what do I mean by that? So Karen the pre acquisitions, remember, a mile wide and an inch deep? Karen was brilliant. Is brilliant and but always managed to take, like, cobble together nuggets from different projects to get us to actually qualify, or get us really close to qualify for a project, whereas, if you read it black and white, like we don't have all the requisite projects to check that box.
Joe Furey 24:05
And I think she would say that initially she was skeptical of, you know what? What is it going to be like when we do these acquisitions? But now she has more ammunition to piece together the strategy and the projects that are required to check the boxes now that we have this, you know, 165 people and all these projects, and even to the point where it's like, we still, we know there are more projects out there that we don't have on the website or in project sheets. And architects do that, right? They don't, they just don't keep that up. And that's where we've made some investments in marketing to get in front of that. So I think that was like the biggest unknown or hurdle to get over. Is this going to work? How is this going to work? Because the the academic, I could picture some people whose names I'm not going to mention, questioning, you know, why would Michael raise be doing this? And I look at it like number one, we're healthy as a firm. We're doing more work around the country, around the. World, we've created value in our company for our all of our shareholders, you know, the existing ones, and those who join and we were doing great work, and we're so what's, what's wrong with that? And there's certain projects, like you said, the chicken coop, like you know, there's certain projects we would do that. Maybe they'd still call on the website. You do a project for someone, if it makes money. What's wrong with that?
Atif Z. Qadir 25:24
The core of what you're saying as those two challenges that come to play after the acquisition of the firm and you becoming the leader, is that first word, I think, in summarizing it, is trust and Pete. Buttigieg had a great book that he released in 2020 kind of summarizing the state of our country in a political sense, in the word Trust. But I think that that has so much to of relevance within a business world, especially with this large leadership and structural change that you're talking about. And the other one that you really leaned in on in that description of the challenges, was marketing and business development, and a lot of that is about the narrative that you sell, and that the ammo that you have to tell a convincing narrative. I want to then focus in on another question, okay, so you take it with a firm and one of the key aspects of the business, one, or actually, let me take a step back, lay out the bullet points in very clear, plain English, after you've done your first 90 days as the CEO, what your business plan was in order for this firm to go to the next level that you wanted to go to.
Joe Furey 26:33
So at that point, it was marketing more sophisticated or strategic to get the reach broader, then develop relationships with people, get them to know you, like you, and trust you, to hire you to do the work. While we had the brand, we did not have a lot of those deep connections, right? And with that, I mean, it's just take care of those two things. If you take care of those two things, revenue comes in, you know, then the rest is managing a business, which is important and it's hard. But I always say, like getting revenue is the hardest part of any business, most people can manage a P and L, you know, if you're in business, right, some better than others, but getting the work is the hardest part. So that that big focus was around getting the work, we also focused on the strategic plan, which is where we are now, but getting that off the ground, who was going to finance us to do those first acquisitions? And then, of course, we got interrupted with covid, so we actually bullet point number one was sort of organic fix, organic growth. Bullet point number two, strategic, inquisitive growth, and figure out how we're going to get that bullet point number two going. So we're focusing on number one, which was of the now is important. And you know, we win a project, we win a project, win project, do it, and then cope.
Joe Furey 27:53
And I think it was three or four projects within a month that were awarded, negotiated there's at least four that on top of my head that never came back, by the way, and then, you know, when covid started. But then what happened was, this gets back to the brand. We get a email from Saudi Arabia, from NEOM so one of the Giga projects going on in Saudi asking if we would be interested in participating in a competition as well. We don't like competing for free, like doing work for free. And the gentleman that was like, No, well, we paid good fees for the competition, and I listened to him, and, you know, and now we've done a number of projects, and are still continuing to work on a couple of very, very big projects in Neom right now. So is it strategy, or is it luck, or a combination of both, right? That, you know, amen. And then, of course, you know, things settle down and and the organic work we were doing, you know, kept going. A lot of that. It's, you know, it's culture too. And that's, that's another thing you know that, I mean, take a step back. And you talked about, when I came back here, some of the things, and I don't want to gloss over this, we had done some surveys with all the employees of like, what do we do? Well, what could we do better? What do you think our core values are? What do you think our core values should be? And the interesting thing that we did there was we, we would not let any equity shareholders participate in those surveys. We it was all the staff that were not equity, you know, and that went a long way to some other initiatives. So what do we do? Well, what do we need to do better? Set up about four or five different initiatives, technology being one of them, of initiatives that we were going to focus on and invest in to make the company better, all part of that organic startup.
Atif Z. Qadir 29:43
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Atif Z. Qadir 30:47
So the key piece that you started on with, it's that organic growth, and then the growth through acquisition. So let's focus on that first one, and specifically you mentioned earlier the product, a product element of Michael Gray's design portfolio, and that was absolutely a revenue generating portion of your business, and that has subsequently been spun out. Or is that the correct term to use?
Joe Furey 31:11
Way back, it was all part of the architecture firm. It was spun out as a separate company long before I joined Michael Graves, 2000 through 2003 something like that. And then during most of my time, or during my time when Michael was still alive, we had common ownership between architecture and products. And then old Michael passing away, for focus, the three got Ben Whitner, Robin and Donald Trump, who collectively have close to 100 years with Michael Graves. They worked the deal out with the other shareholders, and now we have separate ownership of the two companies, but we still are under the Michael Graves brand. So I refer to that as saying we used to be brothers and sisters, now we're cousins.
Atif Z. Qadir 32:01
Okay, so that was something that predated your ownership of the firm. So your background is in information technology, so perhaps I shouldn't be surprised that you have added a new service to the core architecture and interior services that is technology consulting, so tell us what exactly you're doing internally as perhaps within the technology practice, but importantly, how you're driving revenue for the business through that service.
Joe Furey 32:34
Two things, one, back to trust and those surveys technology. You know, we needed more technology. And the younger people who I had to trust, came to me and said, We should make this investment in that investment, and I had to believe in them that, you know that was going to pay off. You can't really pin it to an ROI, but I knew we needed to up our game in technology, across the board and separately, and more to your to your point. I think as one of the acquisitions we have done was with parallax. We were a client of theirs. They were hired by us to help, and this is what they do help architecture, engineering and some contractors really use Revit the right way, if I'm gonna just say it simply. So they do training, they do licensed content models, libraries, etc, and they will also help with staff augmentation on projects, particularly when there's a problem with the Revit model. And Aaron Mahler is the president of parallax, my partner, and he is an industry expert. And so what I believe in in our industry is that the pivot from from auto pad to Revit is a hard transition, and I believe in the industry right now, as of today, that firms and people are not really using Revit to its maximum capability. And so, you know, doing that deal with Aaron and with Arrow x do two things for us. One, it helps us accelerate. We want to be out in front of the industry, you know, to be in on the right side of the curve of downward pricing pressure. And two, you know, as we're executing our acquisition strategy, he's the integrator for us with each firm that comes in, in terms of and he's gone around, I think he's hit four offices already with training inside, and he does training for other clients as well. If you want one word on why integrator.
Atif Z. Qadir 34:29
So he's an integrator so that allows your customers from that service to be able to unlock more value, to be able to increase their margins by utilizing their staff resources more effectively. Does that sound right?
Joe Furey 34:43
Absolutely. And I look at it internally as well. Okay, I don't want to be a hire and fire firm, and so everything goes back to our strategic plan a mile wide and an inch deep. So if you come join us octave and all you've ever done was multifamily work, but we've you. We've got commonality across the platform with Revit and everything. So you could pivot from a multi family project to a government project, because the learning curve of Revit and how we do things internally has been mitigated for you. Then if your sector slows down due to high interest rates, we can have you then go work on other projects within micrograve, so you don't have to be forced to do layoffs, which people based, project based businesses, right? That's the thing that you have to deal with in our industry, in our space.
Atif Z. Qadir 35:32
That makes sense, because you're allocating one resource with one opportunity. Okay? So I want to dive into one of the key pieces of the business transformation that we've been talking to, which is acquiring business. So growth through acquisition. So walk us through your acquisition playbook in terms of things like sourcing opportunities, integrating opportunities that you decide to pursue, and then measuring success after acquisition. I'm sure there's multiple steps in between all of that.
Joe Furey 36:10
Sure. So sourcing, initially one or two of the advisors or Business Brokers now we work with, we've worked with maybe four or five, six of them. That's one area. Me going to conferences, meeting, some people's another. What's also happened is, now that we've done eight or so, we get inbound calls from firms themselves, or from introductions from some of the firms we've already acquired, and one in particular, Jose Carballo. We were actually working with him on a couple of projects pre deal. And I said to him, what's your succession plan? What are you going to do? And, you know, he really didn't have one. I said, Well, let's talk. Let me help you. And, you know, so that's on. So there's a number of ways, and it's really, you know, there's, it's a deep dive into this to get really the right answer. And it's, it's unfortunate when there's, sometimes there's advisors that are maybe, you know, they're prioritizing certain components of the deal that are not in a long term best interest of that owner.
Joe Furey 37:18
And you know, it's, it's my job to try to cut through all that and make the case. And sometimes I'm successful, and sometimes I'm not, because of that communication gap. So a number of different source opportunities, I don't particularly like cold calling doesn't feel right. I don't like it, so I avoid that. So then, you know, you talked about integration as another topic. You know, the diligence, before I get to integration, the diligence, and of course, you have your normal financial due diligence, etc, but I mentioned earlier that the people part of the diligence is the most critical. We're going to become partners like we're not. We don't acquire you and send you off to retirement. We don't acquire you and, you know, sort of push you down three levels in the organization. We do an acquisition of a firm, and the leaders of that firm remain leaders of their business unit and become leaders in the bigger company and partners with with everybody else that are partners company. And that's really what we're building. So that diligence of will, do you like me? Do we like you? Does everybody? Can you get along? Can you work together when something goes wrong? Because it absolutely will, something will go wrong, and so on. And we got to be positioned. We have a plan to mitigate, you know, that kind of risk. But most importantly, Can we roll up our sleeves together and fix the problem.
Atif Z. Qadir 38:41
That's the word trust that we talked about earlier.
Joe Furey 38:44
Yeah, exactly, exactly. And then, you know, integration is absolutely critical to this thing. So if we go off and we acquire 25 firms, the sum of all of the valuation of those firms will be diminished if we don't integrate, if we integrate properly, the sum of those valuations is going to go up, right if we do things the right way. And so our integration plan, we have a roadmap, a checklist, whatever you want to call it, and usually right after signing, and sometimes just before signing the deal, if we're confident it's there, we begin that. It's a weekly call with, you know, five or six key players on within micro grids at the time, and then 123, or however many on the acquired side, we rip through these, you know, 8590 different tasks. And we budget a whole year of time to go through that integration. And most of the items are done now. We're getting them done within six months or less. At times, we've had three or four integrations going on simultaneously, and our team here, led by Sean camo, our COO Justine bird HR Mark, who I mentioned earlier, and others, Drew. Really good job of just managing through that process.
Joe Furey 40:03
And it seems easy. It's like, you know, change this, do this, but like, it just takes focus and repeat and a lot of times. And it's a lot of people I've talked to where, where acquisitions can go wrong. And I think that that this whole area of integration, it could be different components of integration, but this is the area where something goes really sideways because they either don't have a plan, or they have a plan, maybe don't execute it consistently, or maybe they just miss the key components. I've heard stories of, you know, somebody does an acquisition of a firm, and then they rip that firm apart and put people in different departments or areas within the acquire and the acquired firm loses its entire identity. And if it's a different industry, you know, I'm not going to say that that's the wrong strategy in a different industry. The way I view this is, we're acquiring a firm that has been successful for decades, in many cases. And why would we buy something and then just rip it apart? Like, what's the point of that? That it makes no sense to me. I'd rather buy something that's doing well, right? And then what we bring to the table of a bigger company with a broader portfolio, more people an international brand, right? One plus one should equal three there. Nah. You know, rip it apart and, you know, hope that the pieces fit into, you know, another part of your business.
Atif Z. Qadir 41:34
Well, what about this? Then, Joe is we talked about the people and the projects are essentially what make an architecture firm. Have you come across opportunities where there are good individual people and there are good projects that the company is able to work on, but because of the internal structure, the resource allocation, the people just aren't working well together in that situation, perhaps. Does that, like, sound like an opportunity where you would take people and, like, pull them apart and put them into different places? Have you come across opportunities like that, or the business would even exist if that happened?
Joe Furey 42:11
Yeah, I think they'd be struggling. If they, if a company couldn't get along internally, they're going to be struggling most likely. And then if they're if they can't get along internally, we probably would, even if we were going down the path, we probably wouldn't be able to negotiate a deal, because the dynamics on that side would would disrupt it. But assume we did right, and when then we we closed that deal and we brought them in, then we would knowingly be bringing in a dynamic into micro graves that could be negatively disruptive, right? And so we've like, in our process, we would have cut that one off real soon.
Atif Z. Qadir 42:48
Yeah, along the way, yeah, got it. So you talked about sourcing, we talked about integration. I want to dive a little bit more into that. So as you are bringing a firm on, actually, let's take a step back. Is there is the evaluation process? So tell me more about how you get to that decision about whether you want to pursue a company or not. Is it asset class? Is it geography? Is it some other thing that you are looking for?
Joe Furey 43:17
Yeah, well, I generally can look at the design like, you know, on their website, or whatever, and determine, hey, this is good design, great design, or maybe it's not even good design. If I'm not sure, I'll send it to Robert blazer partner, and he'll weigh in, you know, because design question. But I, you know, I'm not an architect, but I'm a user of buildings, right? And I have an opinion on what looks good and what doesn't, but I'll defer to my architecture partners on that. But it really does come back to people, right? So if they do good work and it's a good business, and they're great people, right, those are the ingredients, then you get into two other aspects. Are they? Where are they, geographically? And then what sectors are they in? So geography, it's just more reach, it's more clients, it's more projects.
Joe Furey 44:09
So generally, the continental US is where we're looking in terms of market sector, again, mile wide, an inch deep. We've quadrupled in revenue since the first acquisition, but we're still a mile wide and an inch deep, right? If you compare us to the top 10 firms in the industry. So it's not like we said, well, we've done enough acquisitions in this building type. We're done if it's a good business, it's more like we're not at capacity, anywhere near capacity. And then there's other sectors where we are very thin, like healthcare, for example, is we only have a few active projects, and, you know, we need to, we need to build that sector. That's one where we, you know, we really want to find the right partner, you know, and do that one. So all of those things go into the evaluation. But if you know, they check the box on sector. Software, financials, photography, design capability, but culturally, we won't get along. Kill the deal.
Atif Z. Qadir 45:08
That's a really great overview of that evaluation process, and you specifically mentioned healthcare. Does healthcare in your context, mean hospitals? Does it mean medical office, Senior Care, like, what do you include in that bucket?
Joe Furey 45:22
This the Senior Care, Senior Living. We we've, we're building that we have a good amount of that. It's more in the hospital side, MLB a little bit. But really, the bigger the infrastructure projects, hospitals and emergency rooms and things like that.
Atif Z. Qadir 45:39
And in terms of evaluating success once someone has come on, you talked earlier about the typical structure where person, a leader, and his team, will come on, and they're they expect the expectations that they stay on. They keep on producing and take advantage of a lot of the branding strength and the back of house and organizational strength of the firm. When you are sitting down with partners from the firms you have acquired every quarter, every year, what are the things that you are focusing on in terms of the evaluation
Joe Furey 46:09
So at a high level, it will set, excuse me, we set the annual budget, and the budget is going to be, you know, Set in a way that that marries current reality to the deal we did. We obviously want each year's budget to be such that they hit their targets for their earn outs, right? We want that. We also have a very incentive rich program the way we structure these deals, where we allow, not only allow, we want the acquired team to be able to simplify this, to eat what they kill. So above the baseline deal, if they double, let's just say, in revenue and profit, we let them take upwards of 70, 80% of that excess profit and cash flow to incentivize them to keep growing. The budgets will be built. So we'll take that into account in how we actually, you know, measure success, sort of after the fact, and the budgets we're going to build based on reality as we know it, you know. So it could be that in any one year, you know, the budget is such that they're not going to hit their target, and then we'll push it, and if, if they're successful, if they're close, obviously we want to pay the Earn outs and everything.
Joe Furey 47:21
But we don't want to really set targets that are unrealistic, and we and we understand that this is a people based, project based business. So we got to have a little patience from time to time, things like, right now interest rates are still very high, and it's really impacting our multifamily and our hospitality sectors. Gonna come around and you know, then those guys will their P and L will straighten out, and they'll be in better shape. So you gotta have a level of patience. So we look at it that way, but we also drill down monthly into, I don't know, 10 or 12 KPIs. That really is insightful, because it's standard across all the business units. But you get to see where you know, if you if you throttle this a little bit, and you throttle that lever a little bit, profitability can go up. And it's a clear line of sight into the levers that drive profitability in a people based, project based business.
Atif Z. Qadir 48:14
That's a very clear, clear structure that you're describing.
Joe Furey 48:19
So and what, I'm sorry, Atif, one more thing. At the end of the day, we always have the eye on the valuation growth. So the more we all you know, the more acquisitions we do, the bigger we get, and the better we are. All financially, all of those things are going to drive that valuation up. And all of the partners that we've acquired and have micro grids, we're all going to participate in that as well. So again, like I said, a very rich incentive structure for firms that we acquire a controlling interest in, but let them roll a lot of equity and participate in the growth of this.
Atif Z. Qadir 48:57
And when you say the valuation of the company, it's based on a measure of the profitability as well as the multiple that is applied to the profitability of a firm. So are there specific things that you've observed that increase the multiple that is applied to your business? For example, adding a technology business, or adding engineering services, perhaps down the road? What are some of those things that you've explored around increasing the multiple that's applied to the revenue, the profitability of your company, right?
Joe Furey 49:27
And obviously the easy one is scale, the bigger behavior, the multiple. But I think, you know, the brand is very key for us. And you know, an add to that valuation, to that multiple, and then, you know, just using the term the platform company, which is what we are, what we have. So we have a brand led platform company that at some point a private equity investor can invest in and just let it keep going, because we know what we're doing in terms of running the business and integrating and that go, take it back to. Integration. That's, I think, the one area. And there's a number of things in there that we focus on, like it's, they're sort of very tied and parallel. It's important the things we focus on for integration drive the value of our company, in terms of monthly, annual profit. If you do these things, you will be a healthier company. And also, if you do these things, a private equity investor is going to put place more value on that. And let me give you an example, succession planning. We're in the middle. We've now, you know, we've done we're up to 165 people as now we're formalizing this process into our routine annual performance management review process. So if I'm sitting across from somebody who's looking to invest in us, and I don't have an answer for what happens when I'm gone, or if I get hit by a bus, what happens who takes over? And then, you know all the different leaders?
Joe Furey 50:55
Well, when this person retires, who's going to take over that business unit, that studio or or be the leader in hospitality design, etc. So we, we think through that for the like I said, the parallel purpose, it's important for us, because you need to do that stuff to run a business effectively. And the ultimate goal of having the private equity investor, if they, if we didn't do that, right? They're going to say, Well, you may be worth this, but now we have to come in and do all these things that you didn't do, so we're going to discount you. So I try to look at it through their lens. Everything in, everything we do, and it's, there's not really a conflict there, like, well, this is good for the private equity side, but it's really not healthy for our business. We avoid those. I don't know that there are, I guess. You know, harvesting the business right to drive profitability, might drive a higher valuation, but it's very short term in nature. It's not good and healthy for our business. So we really try to keep them, you know, keep ourselves focused on, on, on all of those things.
Atif Z. Qadir 51:58
Great. So you are looking to build a growing architectural design, technology, other related services business in the midst of really significant economic turmoil and really significant technology transformation. So talk to me about things like demand volatility around Office, interest rate volatility, and how that impacts the two sectors that you mentioned earlier, and the rapid integration of AI into your workflows that will change what your people are actually doing as you're bringing on more people from other companies. So given the background that that is the one that you're working with now, how would you define the vision of your firm going forward?
Joe Furey 52:47
All right, so you know the economic impact. It's really those two sectors for us, multifamily and hospitality and that, and that really makes up for the most part, three studios. There's crossover in others. But the three that are focused on multifamily or hospitality are impacted. They have countless projects that are through concept entitled approved, where our clients, the developers, are just waiting for the interest rates to come down, and then they'll pull the trigger. So I think when that happens, and that was me knocking on wood, I'm real hopeful and optimistic that a number of these projects are going to turn loose, and we'll be in hiring mode if that happens. Other than that, things are pretty good, you know, overall, I mean, and I think that it's going to be great once we see the now, is the reduction 50 basis points. Does that move it? Is it? Is it a full point? You know, that I really, I don't know. I think just the long term, like, if it's, if it's more than that in the long term, that might be enough to really, to get things going. So that's, you know, my, my point of view on the impact from the economy, you know, on us, on the technology side. You know, I'm old, right? I know what I don't know, and I try to really trust the younger people. And you know, Aaron is much younger than I am. And, you know, from a parallax and a Revit standpoint, like he's just, he's a rock star in that space, and there's just been so much.
Joe Furey 54:23
And like, you know, Austin Crowley, another younger, very talented designer that we have, you know, he's one of the guys who came to me several years ago, said, Hey, we need to invest in this, this and this. I'm like, Well, what's that going to do for us from a return on investment? And, you know, he was like, What do you mean? You know, I he got it, but like, he couldn't really tell me, like, we spend $1 we're going to get $10 back. And, like, I know that, like, it's like, marketed to, like, you go trust, if you spend money, you're going to get a broader reach, and good things are going to happen. But it's hard to really pinpoint exactly, you know, the return on that dollar. And the same with the technology, but I knew enough to know what I don't know and trust these younger people to run with a few of these different softwares like so the rev, it's the big one. And then there's there's end, you know, and several other you know platforms. I'll forget the names to them and mess it up. You don't want to hear it from me anyway.
Atif Z. Qadir 55:22
But maybe a future episode with one of the the talented younger folks.
Joe Furey 55:26
Yeah, let those guys talk this stuff, because they're they're real good at it. But the world is changing. We know this AI is disruptive, and it's impacting virtually every business. There's components of it in what we do with Revit, with parallax. There's things in on the design side, like, I could tell you, on the administrative side, you know, we have a consultant. We brought in a friend of mine, and so our finance, accounting, marketing teams are using AI more and more for different tasks. And then on the design side, Robert blazer and Austin and others, they're using it for. You know, it's like, I guess the way I would say this, being a non architect, it's a way to generate an idea quicker and then take that idea and then do your thing with Revit and, you know, all the other software we do architects still need to be architects. I don't think that. Like, yeah, AI is going to replace Robert blazer, right? Or it's just not, not going to happen. What it's going to do is going to make us more efficient. Will there be less of jobs? Certain types of jobs with all this technology change, absolutely. But other things, other jobs are going to be created. I take this back to an accounting standpoint, right? There was a time not that long ago that accountants used manual sets of books, right? And then, then the computer came.
Atif Z. Qadir 56:44
And there's that expression balance the books, literally means books.
Joe Furey 56:49
Yeah, closed the books, right? But there's still need, still need accountants. It's just you do the job differently, and probably there are fewer people doing that. But that's just the evolution of business that, but it's, I think it's scary for people, because a lot of more than, I think, in the past, with, you know, with the more powerful computers and the software, I think now you hear more like, well, AI is just going to take your job away. And, you know, maybe at some point, you know, in the future. But I don't think it's like, we're not going away, where your design you're a developer Atif, right? So who's gonna sign for the professional liability insurance? Or if AI is push a button and here's your drawings in your building, where's your comfort in that as a developer?
Atif Z. Qadir 57:35
So I think from from that question, what you're talking about is a skill set around being an architect, or in the example that you've given about being a developer, is both about the vocation, like the doing of the thing, the drawing of the building, or the preparation of a pro forma that allows a particular project to make sense, and then there is the taking of the responsibility of that. And I think that whether that's a personal guarantee on a loan in the case of a developer, or that is stamping a set of drawings with your livelihood on the line courtesy of an insurance company helping out those second set of things I don't think are. There's a clear answer of what that means with AI. So I would imagine I'm interested in your perspective, because you're in the thick of it, is that a really successful architect understands the pieces of the vocation that should be given over or can be given over to something else, but really hone in on where does that responsibility aspect come in, in terms of leadership, like, yes, leadership, and also things like guarantees and licenses.
Joe Furey 58:48
Yeah, and it's, I mean, just go back from drawing everything by hand to using AutoCAD to using Revit, right? It's an evolution, but there's still architects through that whole process, right? And I guess, in the whatever, what the 80s, when, you know, people started using the computer to draw and less by hand, perhaps there were conversations like, oh, you know, our jobs are going to go away. I would imagine that happened, and it's happening now, you know, those conversations, but there's still, it's just going to make for more efficiency, you know, and then maybe there's less of a certain type of job and that, you know, opens up opportunities for people in other areas. I'm not worried about it. I just know we need to embrace it. I don't have all the answers, but I, what I will tell you is, if you don't embrace the technology changes in business, you're that's a recipe for faster.
Atif Z. Qadir 59:40
In that very heartwarming message, I want to focus in on the ask. So you guys are a growing business, and we talked a lot about acquisitions as a key component of your growth strategy. So what kinds of businesses should we. Reach out to you, and why should they reach out to you about potential discussions around acquisitions?
Joe Furey 1:00:05
Yeah, well, so it, you know, architecture firms and engineering firms. There's 80,000 you know, AE firms out there, and 90 plus percent of them are 30 people or less. So generally, that means, generally that they don't have the professionalized infrastructure. Many of them don't really know what they're going to do. They're they're entrepreneurs, they're business owners. What's going to happen with their life's work when they want to retire? And an internal transition is one. But generally speaking, those internal transitions don't work out or because the people looking to buy from the owner don't have enough money to pay the owner. What the owner wants for the business, and frankly, probably deserves understanding what your value of your company is, understanding the things that you need to do to drive the value up, professionalizing the business, that's a whole series of different things. And so if you're in that world and you're asking yourself those questions, then you know, reach out, because you may be, if you're interested, and we're interested, there's an opportunity to become part of micro graves as an architecture interior design firm, or if not, there's an opportunity for me to help you figure out what your path is.
Joe Furey 1:01:20
I've had, unfortunately, enthusiasts, really, it's not a fun conversation. When I'm talking to a business owner who's in their 70s, they don't have a successor. They don't have anything of a succession plan. They want to retire in six months and sell the common and it's just sad that, you know, they worked for 50 years, and that's the end result of this business. And I hate seeing and you know, in architecture, we joke about it a lot, like, you know, they're talented people, they're brilliant people. Architects are brilliant people. But many of them, I won't say most or all. I'll just even say many of them, are not really focused on the Business of Architecture, and that really is a disservice to the industry, and that's where we can help. I can help somebody focus on that, and by bringing firms into micro grants, I mean we can really move the value and give you a plan, a legacy, a spot for your people, and the valuation and the financial reward for your life's work at a level far greater than you could just selling it outright and going away and disappearing. It's a different deal, and certainly running it into the ground. I mean, that's unfortunately part of an exit strategy, one option and an exit strategy. And I think it's just horrible to think that way.
Atif Z. Qadir 1:02:41
What is the best way for people to get in touch with you?
Joe Furey 1:02:45
Joe, my email is on the website, jfurey@michaelgraves.com. When you go to team and email is the easiest way.
Atif Z. Qadir 1:02:56
That email is perfect way. And then for anyone that wants to reach out to the podcast, you can do so via LinkedIn. We'll send those messages over to Joe as well. I appreciate your time today. This has been a fascinating special episode to understand the behind the scenes, nuts and bolts, of how a firm transitions, how a firm grows, and how a firm looks for it. So thank you for your time.
Joe Furey 1:03:20
Thank you Atif, good seeing you.
Atif Z. Qadir 1:03:25
I'm Atif Qadir, and thanks for joining me on American Building. If you enjoyed this episode, be sure to subscribe on your favorite listing app and leave a rating and review. America's housing crisis is one of our greatest challenges. But what are the real solutions? Hear from the developers and other industry experts driving meaningful change. Get our exclusive guide housing in America, eight ways we can solve our way out of a crisis at americanbuilding podcast.com you you.