Productizing Practice: Growing Revenue Without Growing Staff

The potential revenue growth in architecture and design practices, as professional service firms, is limited by the number of staff and the associated gross margins. Even with technological advances, most firms cannot achieve gross margins above 40 percent. Therefore, in order to increase profitability, a firm ultimately has to continue to grow its staff. But productizing—the act of modifying a concept or tool internal to an organization to make it suitable as a commercial product—is one way that firms can get around this conundrum to create alternate revenue streams. Below are three different ways to integrate productization into practice.

Developing and selling a product
The first strategy is straightforward: designing products—such as furnishings, lighting, floorcoverings, fabrics, or wallcoverings—for the interiors industry. Or, perhaps a designer is more fortunate to develop products with broader mass-market appeal. Famously, the late Michael Graves and his firm designed a multitude of products for Target, and celebrity designer Nate Berkus has an ongoing relationship with that retailer. A number of other firms have done well by designing and selling products. But initial success does not necessarily mean a contract with a large retailer: As with most endeavors, it is wise to start small and eventually push for larger distribution.

For example, a few years ago, Los Angeles– based design-build firm Marmol Radziner launched its own line of jewelry marketed as a “natural extension of the architecture firm.” The collection is now available in more than 100 stores worldwide and online. Also in Los Angeles, Rios Clementi Hale Studios has its office one floor above the store it owns, called notNeutral, which sells furnishings and decor that the firm designed. Many of the patterns found in notNeutral echo those from textiles, metal panels, and other surfaces in the firm’s award-winning architecture.

Delivering product as a service
If tchotchkes are too small game, consider the success of prefabricated buildings. Architect Michelle Kaufmann of California was one of the first to create a product out of an entire service offering with the success of her Glidehouse prefabricated homes. Capitalizing on the public’s increasing interest in prefab, Kaufmann sold the assets of her company, mkDesigns, to Blu Homes in 2009. Alternatively, LivingHomes brings the designs of Ray Kappe and Kieran Timberlake to the public through its prefabricated offerings.

Going beyond the residential market, design strategy firm MKThink successfully spun off a building technology company, Project Frog, which delivers prefabricated building kits. Now a separate company entirely, Project Frog has received $50 million in venture capital funding. While it began as an endeavor to develop a better solution for modular classrooms for K-12 schools— it now includes products for data centers and healthcare environments.

Creating a product out of a service
Rather than finding ways to increase profit margins, consider opportunities to package the services that the firm already offers in new ways. Do you have a great approach to stakeholder engagement that is replicable? Better yet, is there a way to create a digital toolkit or interactive tool that allows potential clients to both input information about their project and receive some preliminary feedback on potential approaches?

SYPartners, a managerial consulting firm based in San Francisco, has developed a number of print and digital products that help clients get “unstuck,” find their “superpowers,” and become better leaders through storytelling. The firm has even created a passive income stream by sharing a product it uses in-house: Teamworks, a softwareas- a-service (SAS), was developed internally and is sold to companies as a tool to keep teams engaged and aligned. This SAS costs $59 per month or $599 annually, and clients include Perkins+Will and Target.

The solutions that architecture and design firms provide are ripe for productization, whether as three-dimensional objects or innovative approaches to problem solving. Technology continues to make these endeavors easier through 3-D printing, the growing use of data in design, and the many ways the built environment is being tracked through the Internet of Things. Product opportunities are not necessarily a means to give one firm an advantage over competitors. Rather, for the firm’s own financial growth, the potential exists to provide the necessary capital to take on new endeavors or to continue to sustain the practice when clients are not seeking design and construction services. Productization comes in many forms and sizes. Which one is right for your firm?

—–
This article was originally published in Contract Magazine.