The business of design is all about experiencing a product or service so you really understand what you are selling. In The Art of Innovation, Tom Kelly makes the observation that “you can’t design better experiences by staying in the office. You’ve got to walk designed experiences with your own two feet and see them with your own eyes.” Based on my past experience with building design projects and the fact that most design time takes place “in the office” and less design time “out of the office”, I would like to improve the overall design experience for clients and design teams by including a “benchmarking experience” as part of the design process.
I believe the “dream design experience” for a building project includes a “benchmarking trip” to physically take clients to visit buildings similar to what the client wants to build. It has been my experience that too many times this step is omitted from the design process to the detriment of the client and their ultimate end users .
From a historical perspective, communicating the vision of a building from imagination to reality has evolved over the ages. During the design process, architects have created visual representations of buildings for clients using many forms. These visuals have taken the form of single line drawings of floor plans and elevations to oil colored, perspective drawings. Over the years architects began to include miniature scale models to represent their designs. Today, in addition to all of the foregoing examples, cutting edge representations of our building designs include three-dimensional, computer-generated virtual models that allow us “walk-through” or “fly-by” representations of what a new building design will look like. However, I believe there is no substitute for physically taking a client to actually see a building similar to what is proposed. This “benchmarking trip” allows the client to physically walk through a building, to touch it, to see and hear it and “experience” it in every possible way.
Few architects use the technique of benchmarking. Why has this step been omitted? I suspect architects do not propose it or try to sell it is because of the additional cost of travel and accommodations. However, I have found that once an owner experiences a benchmarking trip, the client values the experience in many ways more than just monetarily. To paraphrase a well-worn cliché: if a picture is worth a thousand words, and a model is worth a thousand pictures, then visiting a building is worth a thousand models.
As designers we need to be cognizant of the main issues relating to the consumption of bottled water and the resultant problem of plastic bottles ending up in landfills. Below are my thoughts on the subject:
Issue/Problem 1: Bottled water is perceived as a more convenient alternative to tap water. Although water fountains are still required in public buildings by most state building codes, the tap is not the alternative of choice for many Americans. For whatever reasons, the tap is simply not as convenient as the individual, single serving bottle of water that has become the ubiquitous, easy-to-carry, personal alternative of choice for hydration. Regardless of whether we buy it at the convenience store, the grocery store or order it from our favorite restaurant, many of us choose the bottle versus the tap strictly because it is more convenient than finding a cup and turning on the faucet.
Issue/Problem 2: No longer a luxury item, bottled water has become a lifestyle choice for many individuals. There was a time when you were considered “socially acceptable” if you drank a certain brand of imported bottled water. Today, soccer moms and dads have made bottled water the drink of choice at work and at play, in the conference room or on the soccer field with their kids.
Issue/Problem 3: There may be a perception that bottled water is a higher quality product and/or has a better taste compared to tap water. This may be due to exceptional marketing on the part of the bottled water industry. Studies indicate there are no significant differences between the two regarding taste. Municipal tap water has higher quality standards than bottled water and the cost of bottled water is significantly higher than tap water. Therefore, my personal conclusion is this phenomenon must be the result of extremely effective marketing by the people who bottle and sell water.
Issue/Problem 4: Manufacturing and disposal of plastic water bottles are not sustainable and environmentally responsible solutions to providing personal, convenient alternatives to tap water. According to the EPI, the plastic most commonly used is polyethylene terephthalate (PET), which is derived from crude oil. “Making bottles to meet Americans’ demand for bottled water requires more than 1.5 million barrels of oil annually, enough to fuel some 100,000 U.S. cars for a year.” Furthermore, according to the Container Recycling Institute in Washington, D.C., 86 percent of plastic water bottles in the U.S. become garbage or litter. Finally, plastic debris in the environment can take between 400 and 1,000 years to degrade. (Source: http://news.nationalgeographic.com/news/2006/02/0224_060224_bottled_water.html)
How has the high tech industry facilitated international selling opportunities for small businesses? Outsourcing is one way that U.S. small businesses can enter and become successful with international trade. Design and construction professionals are only two examples of small businesses that are taking advantage of low cost, high speed Internet communications systems to outsource employee support to India and elsewhere.
Today’s technology allows any small business to transmit large electronic files, including complex graphics and CAD files, back and forth between businesses over the Internet. This practice was nearly impossible only a few short years ago. ISP’s have increased their file transfer capabilities to allow many large files to be transferred via email. If necessary, very large files can be uploaded to FTP sites hosted by small businesses. This capability facilitates the rapid exchange of information and international commerce between small businesses located anywhere in the world.
A recent article in Design Intelligence articulates the situation regarding outsourcing in the design profession as follows:
“While this is not a new trend for the call center markets, the expanding role of U.S. design firms in the global marketplace is resulting in an increasing number of firms in such countries as China, India, Singapore, Russia, and Mexico that are providing CAD production, 3-D rendering, and other easily exported, technology oriented production activities to reduce costs and shorten deliverable schedules. With hourly rates as little as 25 percent of those for similar wages in the United States, foreign providers are partnering with large, multi-office firms for multi-year, long-term relationships for specific projects. Smaller firms, unable to find qualified, affordable talent in their local market, are sometimes outsourcing only one position yet deriving the same benefits previously available to larger firms. Future trends will be driven by the access to and quality of talent through offshore companies as well as the cost-effectiveness of the bottom line as the dollar’s exchange rate continues to fluctuate in a volatile global economy.” 1
Outsourcing is not only about lowering personnel costs. Firms located in India and Asian can not only be sources of cheap labor but are excellent sources of highly skilled and motivated workers. A simple Internet search for outsourcing architectural or engineering services reveals a number of international firms advertising these services. One example is Architecture Outsourcing Services located in New Delhi, India. This firm advertises itself as a “team of architects and engineers providing construction documentation services to building construction professionals in India and all over the world.” 2
The downside of outsourcing is the talent is not physically located in your design studio. However, these international firms can provide expertise similar to what can be expected from U.S. employees that normally provide basic design drawings and/or final drawings to be issued for construction. Architecture Outsourcing Services lists several client references located in India, Australia and Richmond, USA.
BIM Outsourcing is another example of an outsourcing firm located in India. This firm advertises itself as one of the largest global BIM Solutions & Cad Solutions Company in Kolkata, India. This firm provides “computer aided design (CAD) documentation, 3D modeling and Building Information Modeling (BIM) services to architectural, engineering, and construction firms. We create parametric, sophisticated, intelligent 3D virtual information model of your architecture or interior project using sketches, CAD drawings, photographs, and renderings.” 3
Outsourcing is not a new concept to entrepreneurs. Phil Knight and Bill Bowerman reportedly started the Nike company with $1,000 and outsourced their way to become the largest sports and fitness company in the world. This inspirational story is relevant to the current economic recession and for small businesses in particular. Outsourcing “…could be a way for young architects who don't have the capital to expand their own practices to enter successful bids for very large projects. Outsourcing could potentially liberate a lot of people with ideas from constraints and obstacles of running large, expensive practices. I (the author) believe this could have a profound effect on the architecture we see around us today. 4
4. Domus, February 2007, page 35.
4. Domus, February 2007, page 35.
Manufacturing is generally defined as the process of converting raw materials into products through the use of capital and labor.1 Similarly, I believe there are aspects of production planning and control that parallel the design and construction of buildings.
Products used in buildings today are an integral part of the highly competitive and complex process of manufacturing. While there are some factories that mass produce industrialized and modular housing units, most residential and commercial buildings in the U.S. are custom designed and fabricated on site one unit at a time.
I believe building construction sites can be viewed as manufacturing facilities that are designed to produce one product – a building. Like a typical manufacturing plant, raw materials are delivered, incorporated into production and/or flow through the site; labor and machinery are applied to the raw materials; finished units of production or subassemblies are incorporated into the project; and quality of production is monitored during the duration of the project.
Most buildings are custom designed to meet an owner’s exact specifications. Like many of the subassemblies incorporated in a construction project, buildings are produced by the job order system2 of manufacturing. No two units may ever be the same. Many items used in the renovation of existing buildings fall into this category as well. While manufacturers attempt to standardize their offerings, the actual fabrication and installation may require a custom design to meet the needs of a specific project. Structural steel and replacement windows are examples of job order system products.
Alternatively, other products used in construction are manufactured using a process system3 wherein individual units cannot be distinguished. Plumbing fixtures, pipe, electrical conduit, wiring and light fixtures are examples of process system products. These products are manufactured to meet standard sizes and specifications. Tradesmen fabricate and install these products in the field to meet a specific building design.
The first part of planning for the construction of a building as in the manufacturing of thousands of widgets is the design phase. The work layout must be assembled on paper and designed in great detail. The space requirements for the workers, machinery and equipment must be designed to accommodate the number of people that will function in each space. Access to each work station as well as delivery and storage of materials are just as critical on a construction site as in a manufacturing facility.
Like manufacturing, building construction is a problem-prone business. Regardless of quality control measures that are used by the design and construction team, there are no perfect buildings constructed. Because of the complex nature of the construction process, there are too many points of failure in the process where quality can be sacrificed over budget and production schedule. I have witnessed many cases where quality control has gone awry which I will illustrate in the example which follows.
One of the initial tasks to be performed in manufacturing a building is the construction of the foundation. At the appropriate time after the footings are dug, the forms are set, steel reinforcement is installed and the concrete is ordered from a local concrete plant. Most of the time, nothing goes wrong. However, there are several quality control checks that must be performed to assure compliance with specifications and proper installation.
Concrete is an example of a manufactured process system, a homogeneous product that is produced in a concrete plant. Raw materials in specific proportions are mixed with water to create specific structural properties for use in buildings. Adding water to concrete after it arrives at the jobsite can make it easier for workmen to put in place and meet a production schedule. Adding anti-freeze to concrete in winter will also decrease structural properties. However, both actions can potentially decrease the effective strength of the concrete and can cause failure of a structural system. For this reason, architects and engineers require testing of concrete by independent testing agencies to assure specifications for strength and quality are met. I have rejected concrete for foundations many times because test results did not meet specifications. Improper installation of structural concrete in buildings can have disastrous results.
Another example where quality control has gone awry is in recent years owners of existing buildings have replaced deteriorated single-pane windows with more energy efficient ones to achieve lower maintenance and operating costs. On several occasions I have encountered problems during the installation of replacement windows as a result of poor quality control in the fabrication process.
Replacement windows are manufactured in a factory to meet an owner’s specifications. Following fabrication, they are transported to a building site and installed by workmen. One of the critical steps in fabrication process is the on-site measurement of existing building conditions prior to actual production of the units. The job superintendent (production supervisor) is responsible for precisely measuring and verifying all existing window openings before placing the order for the windows. On several occasions, incorrectly sized windows were shipped to the jobsite. Because measurements were not taken properly, windows were rejected. Completion of the windows delayed the production/completion schedule and cost the contractor additional money to correct the mistake.
The design and construction process is manufacturing. Like quality inspectors and testers in the manufacturing arena, architects and building inspectors help assure quality control on building construction projects. The inspectors and testers do not report to the people responsible for production; they report to a higher level of management, generally the owner.
1. New Venture Growth, JoAnn and Jim Carland, p. 108.
During the last year we have been saturated by media reports about the financial meltdown in the U.S. After months of listening to the daily analysis from the “experts”, my perception is the crisis was triggered by a widespread relaxation of sound underwriting guidelines in the lending industry. Simply put, lenders made bad loans to people who could not afford them. To compound the problem, federal regulators failed to provide necessary oversight in a timely manner to prevent the complete collapse of the financial markets.
I believe part of the solution to our recovery from the recession will be a return to fundamental lending practices. Credit should only be extended to customers who are honest and can pay their bills. Lenders need to return to the basics. They should base their lending decisions on the four C’s of credit: character, capacity, capital and conditions.
Character is the most important factor that a loan officer should consider in making a credit decision. Honesty and integrity of the customer should be fundamental factors in assessing a person’s credit worthiness. What is the person’s credit history? Considering a person who has established credit and proven that he or she has repaid previous loans, on time and in full, is an excellent way to determine a loan applicant’s ability to handle debt.
Secondly, a customer’s capacity to repay a debt is another key factor to consider in evaluating a credit risk. Does the person have job? Are there other sources of income? There must be sufficient income after household expenses such as food, insurance and medical costs to repay the loan. Reliability and stability of future income based on a person’s skill level, potential earning ability and length of time of employment are also important criteria in evaluating a person’s capacity.
Capital is the financial strength of a customer. Net worth equals assets less liabilities. Lenders use this financial equation in evaluating a person’s financial strength to make a decision on a loan application. Real estate, automobiles, cash on hand in banks and in savings accounts, stocks, bonds and life insurance are all assets that lenders consider in reviewing a person’s financial statement. Outstanding automobile loans, mortgages and other debts are considered liabilities in considering a person’s financial strength. The greater the net worth or financial strength of an individual means the lender’s risk of default on the loan will be minimized.
Finally, the fourth C of credit represents conditions. There will always be conditions involved in any lending decision. Any condition that could potentially affect the applicant’s ability to repay the loan is considered a condition. For example, the applicant’s possible loss of employment or a decline in the applicant’s health could affect a lender’s decision to extend credit. The best way for a lender to determine any possible unforeseen condition will be to evaluate the applicant during the interview and the application process.
Credit is necessary for individuals and organizations to conduct businesses today. Evaluating a person’s honesty, integrity and ability to repay debt can be accomplished by using the four C’s of credit: character, capacity, capital and conditions.
According to the U.S. Small Business Administration (SBA), companies with less than 500 employees account for over 99% of all businesses in this country. The SBA’s December 2007 report “The Small Business Economy: A Report to the President” confirms the impact that small firms have on the U.S. economy. This report states that in 2004 small firms accounted for all net new job growth in the country. Furthermore, half of all private sector employment and output are attributed to small businesses.
While these statistics are significant, the fact remains that the survival rate for small companies is dismal. SCORE estimates that only two-thirds of all new firms survive at least two years; 44% survive four years; and only 31% survive at least seven years. The conventional wisdom of many experts has been that business success or failure for entrepreneurs is the result of financial or economic difficulties. However, other experts believe that fraud may be the principal factor in business failures because most fraud goes unreported and is seldom prosecuted. Compared to larger firms, small companies are not likely to have internal financial controls in place nor do they conduct periodic reviews and audits. As a result, small businesses do not realize a fraud has been committed until it is too late.
According to an article published by the Association of Certified Fraud Examiners (ACFE), organizations in the U.S. lose an estimated seven percent of annual revenues to fraud. The ACFE report states the damage is worst among small businesses. The loss suffered by firms with less than 100 employees was $200,000, higher than the loss for any other category.
The ACFE recommends several steps a small business can take to identify and manage potential fraud. Recommendations from this article are as follows:
1. Be proactive. Establish and maintain internal controls to prevent and detect fraud. Management should model expectations that the firm has a zero tolerance for unethical behavior.
2. Establish hiring procedures. Every company, regardless of size, should have formal employment procedures. Verify previous employment, educational and credit history and check references. Incorporate on-going employee evaluation into annual performance reviews.
3. Train employees in fraud prevention. Provide training so workers are aware of procedures for reporting suspicious activities by customers and/or co-workers.
4. Conduct regular audits. Financial and inventory departments are obvious areas for routine audits. Conduct surprise audits for all areas of the business that are critical. To help establish a strategy to prevent fraud, the ACFE publishes a Fraud Prevention Check-up.
5. Call an expert. Fraud detection is not a core business skill for most entrepreneurs. When a fraud is suspected or discovered, call a professional for help.
Establishing and maintaining a high ethical environment within a firm is the best strategy to combat fraud. Owners and managers of the firm must create an atmosphere where unethical behavior and fraud are unacceptable.
E-commerce in the United States continues to increase faster than all other economic activities in the country according to a recent U.S. Census Bureau report. This may be due in part to the general increase in the online population. Nevertheless, of the more than 26 million small businesses today, Goecart.com claims that sixty percent of these firms have an online presence. With these sobering statistics, entrepreneurs should seriously consider the pros and cons of doing business entirely online without the need for a physical storefront or presence.
One of the primary advantages of conducting business entirely online is the lower startup costs involved in launching a web store compared to the startup costs of opening a bricks and mortar store. You don’t have to rent or buy a facility to sell products nor do you have to stock and decorate a store to attract customers. The costs of registering a domain name, designing a website and the other initial setup costs for an online business are hundreds of dollars compared to the thousands or hundreds of thousands of dollars to establish a physical presence to sell your wares.
Lower overhead costs to operate a web-based store offer significant advantages over a physical storefront. An online website can be maintained for as little as $50 to $100 per month with many web-hosting companies as compared to spending thousands of dollars per month required for a bricks and mortar business. An e-commerce business can conduct business from a dorm room or a warehouse instead of a fully decorated retail store. Depending upon the business, it is entirely possible to avoid stocking any merchandise at all and ship products directly to the customer from your supplier, thus lowering operating costs even further.
Another cost-saving measure for a web-based business is the fact that online stores do not have to employ staff to transact sales. E-commerce stores can have only a few employees or none at all, depending upon the type of business. As the owner of a web store you may not have to worry about payroll, payroll taxes, benefits or other problems with managing employees. Online stores never close so you don’t have to worry about overtime, holidays and vacations. Web- based businesses also do not have to worry about shoplifting or employee theft. Because of these lower costs, a web-based store can have a lower break-even point; make the venture more profitable sooner or do so at a lower sales level.
Conducting business online helps to broaden your market area and increase the opportunity for reaching more customers in your target market. A virtual presence means the physical location for an e-commerce business is much less of a factor than the location of a bricks and mortar business. For example, instead of a neighborhood magic shop, you can have an international magic shop. An online niche business selling cowboy boots for people with six toes has a much greater opportunity for success than a similar business selling out of a storefront only to hometown friends and neighbors.
Online advertising is different with an online business and can offer significant advantages over a typical retail establishment. It is difficult, if not impossible, to obtain customer information in the conventional retail model of selling products. When you advertise with conventional print media, television or radio, you generally have little or no feedback on which method of advertising is working. With e-commerce on the other hand, customers who visit your web store can give a significant amount of information on buying habits that can help shape your future promotions and advertising.
E-commerce stores must be listed in online directories and search engines to get noticed. You can hire professional firms that specialize in search engine optimization and spend a lot of money. A less expensive approach to do this is to use a submission program similar to Selfpromotion.com. For the bootstrapper, this site is inexpensive, easy to use and shows you how to get listed with Yahoo and the other major indexes. Listing in search engines and indexes is free but you don’t have much control. To have better control, you need the assistance of pay-per-click programs like Yahoo Search Marketing and Google Adwords to target and direct traffic to your online business for pennies per visitor. Selfpromotion.com offers a tutorial on using pay-per-click programs cost-effectively.
Cash flow can be more attractive for entrepreneurs with an online store versus a bricks and mortar store. Most business transactions conducted online are through the use of credit cards. Like a bricks and mortar establishment, a merchant account may still be required to transact business. However, you can process payments without physically swiping cards through a card reader. Alternatively, depending upon customer acceptance you can choose to avoid establishing a merchant account and use an online service like PayPal.com.
There appears to be only a few downside reasons for conducting business entirely online. Rather than choosing the impersonal approach of e-commerce, some people prefer the social aspects of direct contact with a salesperson in a traditional retail environment.
Other individuals prefer the option of physically examining products to make sure they get what they want. Instead of viewing products in the virtual world, they like to “kick the tires” so to speak before they make a purchase decision. They like having the option of returning a product to the store if it doesn’t fit or if they later decide it’s not the right size, color, texture or finish.
There is another segment of the population that is reluctant to give personal information over the Internet such as name, address, phone number and least of all, credit card number. Over time this fear is gradually diminishing as e-commerce becomes more ubiquitous. It is ironic that these same individuals do not think twice about giving personal and financial information to an unfamiliar salesperson in a traditional storefront business.
Do you want to be a better communicator? I'm reading an excellent book on communications entitled "Words That Work" by Dr. Frank Luntz. The gist of the book is this: "It's not what you say that counts; it's what people hear."
I think this book can be a very useful resource for anyone who wants to be a better communicator, especially those of us who are learning to blog. Check out Dr. Luntz's chapter on The Ten Rules of Effective Language. His ten rules are:
To illustrate Dr. Luntz's premise of his book, President Barack Obama used words very effectively to help accomplish his goal of becoming the first black President of the United States. On February 16, 2008 he said: "Don't tell me words don't matter. 'I have a dream' - just words? 'We hold these truths to be self-evident, that all men are created equal' - just words? 'We have nothing to fear but fear itself' - just words? Just speeches? I do not reference the above quote because I agree with Mr. Obama's politics. I use it because I think he effectively used words that worked in the last election to capture the White House. Whether it's politics, marketing or blogging, words matter. Read this book. I think you will agree.
To illustrate Dr. Luntz's premise of his book, President Barack Obama used words very effectively to help accomplish his goal of becoming the first black President of the United States. On February 16, 2008 he said:
"Don't tell me words don't matter. 'I have a dream' - just words? 'We hold these truths to be self-evident, that all men are created equal' - just words? 'We have nothing to fear but fear itself' - just words? Just speeches?
I do not reference the above quote because I agree with Mr. Obama's politics. I use it because I think he effectively used words that worked in the last election to capture the White House. Whether it's politics, marketing or blogging, words matter. Read this book. I think you will agree.
Our good friends at the Internal Revenue Service do indeed recognize goodwill. The IRS defines goodwill as “the value of a trade or business based on expected continued customer patronage due to its name, reputation, or any other factor.” The IRS also defines “going concern value” as “the additional value that attaches to property because the property is an integral part of an ongoing business activity. It includes value based on the ability of a business to continue to function and generate income even though there is a change in ownership.” (Source: http://www.irs.gov/publications/p551/go01.html)
The concept of goodwill is established in legal and economic terms. However, in reality, the answer to the question of whether goodwill exists is: “it depends.” Like fair market value in real estate, I believe goodwill can only exist in the marketplace if there is a buyer willing and able to pay for this asset as part of the total value of an on-going business.
The textbook definition of goodwill is a “sustainable competitive advantage” of a business created by a “distinctive competency.” Coke and Pepsi have distinctive trademarks and other intellectual properties that create distinctive advantages in the marketplace and should be transferable. These assets should be considered valuable goodwill in determining each firm’s total value. There is probably little doubt that companies like these have a sustainable competitive advantage and therefore can argue their case for having a substantial amount of goodwill.
We can all aspire to be the next Coke or Pepsi and have few worries when it comes to retirement. But as the seller of a business, how do we enhance or improve the real or perceived value of goodwill in the mind of a buyer?
Let’s pretend I own an architectural firm. I consider myself an entrepreneur and I want to sell my practice so that I am free to buy and operate other businesses. Historically, selling an architectural practice is difficult. First, as a professional practice, there is a limited universe of potential buyers, e.g. other architects. Most colleagues I know have either sold their firms to the staff or literally given the business away after a long period of trying to sell the firm. Young architects today appear even more cynical and less likely to pay for a firm’s goodwill. Nevertheless, establishing a transferable value for goodwill can be a way to maximize the total value of a business.
The owners of many small businesses, including professional services firms, usually represent most of the goodwill or intangible assets of the business. Professional service firms, like accounting, legal, dental and architectural firms, do have value and can be sold.
In addition to the hard assets of the company, the value of a business can be based on some of the following: stability of cash flow, number and transferability of customers or clients, repeat business and the overall reputation of the firm. Enhancing any one or all of these should improve the value of the business.
One way to enhance the value and transferability of goodwill of a business is establishing a condition of sale whereby the business owner agrees to remain with the company during a transition period. In my hypothetical example, since I represent a large portion of my firm's goodwill, I could agree to remain with the firm for a year or more to increase the buyer’s comfort level so that most if not all existing clients are transferred and the business operations continue successfully until I’m out of the picture.
Existing employees may represent the best source of potential buyers of a business since they already have an understanding of the nature of the business, the client base and the culture of the firm. In addition to current staff, competing firms from across town or from another state may recognize the existing firm’s good business management practices and its well-maintained client management systems, both which can increase the firm’s value. These items are all part of a firm’s goodwill.