Co-written by Martin Willers
The world is experiencing a boom in interest around startups as well as in design and the combination of the two is seen as the perfect cocktail for creating new and innovative offerings. Despite this perfect marriage, startups still seem to be baffled about how and when to engage design. This beget the question "Why don't design consultancies create startups?"
Design firms have traditionally been afraid of the large investments needed to launch physical products. Costs ranging from the legal fees for securing international intellectual property rights, to tooling for production, to shipping and insurance can be at a scale larger than the yearly profit for a small design firm. Therefore, it has been considered a big risk to possibly get stuck in the "Valley of Death" area that refers to the time when projects run out of funds and create a negative cash flow before a steady stream of revenues can be established.
These barriers have been substantially lowered due to new ways of funding product development. The folks at crowdfunding sites, such as Kickstarter, have backed over three hundred design projects with more than US$100k each. That scale of investment is on par with typical seed financing. Design has also reached a higher standing in the business community and is more often considered a key component in early stage investment. High valuation for design driven companies like Nest thermostats (bought by Google for $3,2b), Beats by Dre headphones (bought by Apple for $3b) and the crowdfunded Oculus rift 3d glasses (bought by Facebook for $2b) have furthered strengthened interest for smart hardware design from investors.
So, what makes design consultancies better suited than others to create start-ups?
For starters, they have a process for understanding what people want. From day one things will just look and feel better and smarter with design thinking on board. They already have a track record of creating successful products for other companies and they also know how things get manufactured and branded in a commercially viable way.
Furthermore, they are staffed with project planning experts and are used to working in diverse teams. They can eat the operating costs for offices and part time staff assistance and use the fluctuation of downtime and associated none-billable hours occurring in a consultancy.
Most crucially, they can build a working prototype and film people testing it in real life. This story can then be packaged and re-told to other people on crowdfunding platforms to see if the idea flies in a larger context and market.
When all these aspects are considered, it's hard to understand why we have not seen more startups from design agencies. It may be a question of risk aversion, when making the decision about investing resources into client acquisition, with a somewhat predictable medium term return versus launching startups, with a long-term uncertain return.
Design may also underestimate their capabilities to build a "bridge" straight from user insight to validation onto the market. This shortcut is very hard to duplicate for anybody who does not have such resources in-house. Ultimately this user driven process will allow more great ideas to be commercialized.
Special thanks to Martin Willers for researching and co-writing this article.