Uniquely Identical?

Ever wonder why the harder you work to stand out, the more you seem the same?

A few years ago, I stood at the front of a ballroom filled with about 400 hundred interior designers and asked them this question:

What makes you so different that your ideal prospective clients will be inspired to choose you?

Hands went up across the room, some of them quickly and with real confidence — service, taste, relationships, track record, we really listen, we’re full-service and on and on.

I called on one woman, and she explained, with great pride, that her firm had adopted a 3D software application that allowed her to show clients renderings and make sure they would get exactly what they wanted. She was certain this separated her from the pack.

I then asked the audience whether, just by chance, anyone else happened to offer a similar capability.

About 75 hands went up.

Later that day I broke the group up into smaller breakout sessions. The assignment was to look at the websites of at least six other designers in your group, and to make a list of the key capabilities they offered on their sites.

And then, to compare that to your own site.

The groups broke up and we reassembled en masse. I have to say, the crowd was more than a little “blah.”

They had begun to realize that they were putting potential customers in a position not unlike placing an alien in a cereal aisle. Let me explain.

This analogy comes from the fabulous book, Different, written a Harvard marketing professor named Youngme Moon.

Imagine you are standing in the cereal aisle

In the book, Moons asks you to imagine that you are standing in a supermarket and must select a cereal you have never tried before.

Truth is, this would be easy because you are what Moon calls a connoisseur of cereal, meaning that you would filter by reduction, ruling out the children’s cereals and the sugared ones and the oat-based ones until you arrive at something close to what you already like.

Now imagine an alien drops from the sky into that same aisle — no history, no preferences, no working notion of what a cereal even is. No matter how much intelligence we grant him, he is overwhelmed, because where the connoisseur sees a hundred meaningful differences the novice sees only a wall of sameness: a hundred boxes of roughly the same size, similarly priced, each shouting its virtues in the same bright colors.

He lacks the filters that would let him tell one from another, and so he cannot choose. He is in search of simplicity, but overwhelmed by choice.

The trap Moon identifies is this: as a category (cereal or interior design) accumulates more and more options, the differences between those options gradually cease to register as differences at all, until heterogeneity comes to be experienced — her words — as homogeneity.

What was meant to be different, begins to look the same.

Google understood this. Before Google, the search engine game was a never-ending war between companies like Yahoo! and AOL to see who could jam the most ads, banners, and likes on a single web page.

Want to know about sports, politics, history, weather, movies, celebrities, money and everything else under the sun? Go to Yahoo! or AOL.

And then a funny thing happened. A website was introduced that had taken all of that away. All of that choice was gone. There was, simply a white page with a small white box in the middle of it.

Google.

Within years, Google became the lone behemoth and Yahoo!, AOL, and dozens of others struggled to survive.

Because Google didn’t “augment” or add. It reduced. It took away.

If you came in certain that you were different, the difficult news is that the very things you have been adding in order to stand out — the refreshed website, the blog, the e-design tier, the trade program, the white-glove concierge experience — are likely the very things that have made you resemble everyone else.

The harder you worked at distinction the more thoroughly you buried it.

Rather than becoming unique, you became uniquely identical.

The vital role of tradeoffs

Let me remind you of the definition of strategy:

“A choice of complementary activities done different from or better than competitors, and acceptance of the tradeoffs.

That’s it. That’s all you need to do to reach you highest goals, but you can’t pick and choose the parts you like. You have to do all of it, including the tradeoffs. (And sometimes, especially the tradeoffs!)

Southwest Airlines is the business school poster child for tradeoffs. For over thirty years, they removed flyer choices such as reserved seats and meal service. They were willing to lose a large segment of flyers to achieve their primary goals of quick turnaround and low fares.

They made the tradeoffs and mastered the complementary activities that made them the most profitable airline in the US for decades.

Many larger airlines tried to copy the Southwest strategy and couldn’t because they could not bring themselves to truly make the necessary tradeoffs. They kept reserved seating. They kept meal service. And they failed.

So, the useful question is no longer, “What more can I do?”

But rather, “What less can I do…and do it brilliantly?”

What am I prepared to stop doing — to give up entirely — so that I might master that which will lead to being known for the one thing that is genuinely mine?

Want another example? Well, imagine the finest heart surgeon in the world — thirty years at the top of his field, the man to whom the most difficult cases are flown from across the globe — and notice how complete your confidence in him is.

If you or someone you love needs heart surgery, this is the man for you.

Now suppose I mention that he also performs a little oral surgery, and some breast augmentation on the side, and the occasional tummy tuck, and hair plugs, and that he has lately agreed to host a reality television program and wants to appear on Dancing With the Stars.

Your confidence in him as a great heart surgeon falls, and it falls not because you have concluded that he is bad at any of those other things — for all you know he is genuinely accomplished at every one of them.

Rather, your confidence falls because excellence, as we intuitively understand it, is a narrowing rather than a broadening, and the surgeon who does “everything” has signaled you, without intending to, that he is committed to nothing in particular.

The narrow practitioner earns our trust; the well-rounded one we struggle even to remember.

This is the move that every great escape brand has made, and it has always been a move of subtraction. Google launched a nearly empty page into a world of cluttered portals and won precisely on the strength of what it refused to place on the screen.

In-N-Out has served the same six items on an unchanging menu for decades while its competitors piled on salads and breakfast platters and desserts.

The most successful firms did not differentiate harder than their rivals; they escaped the contest altogether. (If your familiar with “blue ocean strategy,” rest assured that will be coming up in a future newsletter.)

First recognition, then revolution!

Discovering that you have likely become uniquely identical is the easy part.

The harder part is becoming truly different, knowing the one thing your firm in particular should pour itself into, identify, and master the key capabilities for.

And, of course, make the necessary tradeoffs.

That’s the definition of strategy, and strategy is the only thing that will truly separate you from the pack.

Below, I’ll take you through a case study of how one consulting client of mine wanted to do more, was convinced to do less, and thrived in a market she loves.

*EXPANDED EDITION INCLUDING DETAILED WORKSHEET AND DIAGNOSTIC*

Every interior design firm principal knows that if total sales are higher than total costs, a profit will result.

The problem is that mosts of the costs that are truly eating away at your profits, 24-hours a day, are not those found on a P&L statement or any other accounting report.

In fact, your bookkeeper, accountant, and CPA spend no time at all thinking about them; they may have never heard of them.

How bad is it?

Based on my experience working interior design firms to develop compelling strategies, I believe as much as 80% of your “true costs” are of the invisible type.

To make matters worse, these hidden costs are also the cause of much of the complexity that grows in design firms like hydrilla choking a lake. And if you’ve been following my work for a while, you know that “complexity is the killer of small firm profits!”

How Complexity Grows Out of Control

Consider what happens to a single function — say, accounting — in a growing design firm. This is an especially rich area since many designers equate dealing with accounting somewhat like dealing with a root canal!

Imagine yourself on the very first day you decided to hang out your shingle. You wanted to design, but the responsible entrepreneur in you knew there were other responsibilities as well.

For example, you opened a business checking account. Simple. Twenty minutes each month to reconcile. Knowing what came in and what went out with little more than a glance. You are in control, and the accounting function for your business costs you almost nothing.

But your business grows. Six months later you have eight clients at different stages, a few credit cards, and some tax filings due. Uh oh, time for the responsible entrepreneur to hire a CPA!

The CPA (who probably knows little or nothing about an interior design business…but that’s for a different newsletter!) insists that you purchase QuickBooks. That makes sense — you’ve also formed an LLC, hired a part-time employees and you need real “books.”

Conveniently, the CPA provides a bookkeeper who comes out to your office and sets up something called a “chart of accounts.”

You’re not quite clear why this chart of accounts contains sixty-eight expense categories and you just nod when the bookkeeper explains you’ll be on an accrual-based accounting system.

For your whopping 1 1/2 employee, including you, you follow the bookkeeper’s advice and also add a payroll service.

You begin receiving monthly financial statements that show a profit or loss, but that number has no relationship to the number you see in your checking account, the one that used to make perfect sense to you!

By year two, you hire your own bookkeeper to replace the CPA’s — hoping to get information you can actually understand and use. The new bookkeeper revamps everything: six custom spreadsheets, new data exports from the payroll service, a custom workflow that she’s very proud of.

The tail is now officially wagging the dog.

You are just along for the ride and you now spend about a minute looking at the monthly statements before tossing them into a bottom drawer. (And yes, one client of mine truly did proudly produce a bottle of vodka from that draw to show me how she deals with the monthly ritual!)

By year three, the accounting function that was supposed to free you up to design has become a part-time job. One you never applied for, have no training for, barely understand…and one that imposes a hidden cost on your firm—the cost of complexity.

But Wait, There’s More!

Now multiply this same cancerous trajectory across every function in your firm. Marketing. Technology. Procurement. HR. Each one started as a single block, and each one underwent its own version of this expansion, challenging you to keep up.

Each one is now generating hidden costs that will never appear on a financial statement — because they were never paid with money. They were paid with time, focus, and the slow erosion of the owner’s ability to do the work the firm was built to do.

What Accounting Doesn’t Measure

Every business owner talks frequently about different “costs,” but can you define the word?

A cost means something given up in the process of doing things. Notice what’s missing from that definition. The word ‘money.’ Accountants added that later, for their own convenience.

By the original definition, the hours your junior designer spends reconciling two incompatible software platforms every month are a cost. The project you didn’t pitch because you were buried in vendor disputes is a cost. The bookkeeper you kept for three years after you knew she wasn’t right, because switching felt impossible, is a cost. None of these appear on your P&L. All of them are real.

There is a framework for understanding exactly where these costs live — and more importantly, where they’re doing the most damage in a design firm. It identifies five distinct categories of hidden cost that are almost certainly operating in your business right now. Some of them are recoverable. A few of them are surprisingly easy to eliminate once you can see them.

Your P&L will never point you there.

In this Expanded Edition of the Interior Design Business Brief, I’m going to provide a detailed process for identifying the hidden costs within your business, including a ranking scale to help you set your priorities for attacking this problem.

Below, I’ll introduce five specific categories of hidden cost that are almost certainly running inside your firm right now — what they are, where to look, and what to do about each one. This is the framework your P&L will never give you.

About Catching a Whale

There is no path to financial success for interior designers without occasionally landing large, marquee projects that are many times larger than their average.

The problem is that this is exactly the kind of project that can not only make a firm. but can break it as well.

Every designer I have worked with has a version of the whale story. It goes something like this: the call comes in, the project is enormous by any standard you have ever applied, and for a few days the possibility of it sits in the back of everything you do. You run the numbers in your head. You think about what that project would mean — the portfolio piece, the cash, the credibility. You want it badly.

I am not here to tell you that instinct is wrong. Catching a whale is, in fact, one of the only reliable paths to building real wealth through interior design. Most design firms operate on a roller coaster of sales — strong years, quiet years, and occasionally a year that is neither. It is the occasional whale that turns an otherwise decent year into a great one, and a great year into the kind of excess cash that eventually makes work optional. In twenty-five years of working with design firm principals, the firms that built lasting financial security almost always had a whale or two in the story somewhere.

So yes, hunt the whale because landing one every now and then is essential to your long term financial security.

But understand what you are fundamentally changing the nature of your business when you do — because the part of the whale story that rarely gets told is what happens to the firm in the aftermath.

Breakeven Math is Not Accounting; It’s Survival!

To understand the risk of landing a whale, you need to understand how a design firm’s economics actually work — which is different from how most business textbooks describe them, and different from how your accountant and accounting software portray them.

A standard breakeven chart shows revenue climbing at a smooth 45-degree angle until it crosses the total cost line. That picture is accurate for a donut shop because every day looks pretty much like the last, and word of mouth and advertising can help that firm grow in a steady “up and to the right” fashion.

It is not accurate for an interior design firm. Your revenue does not climb smoothly. It spikes, drops, recovers, and spikes again. The roller coaster is not a failure of planning. It is the structural reality of a project-based business serving a client base with discretionary budgets.

Let’s go back to the donut shop. First client in line spends $12.50. Next spends $4.75. Third spends $22.40. But trust me, no one in that line is getting ready to spend $102,000!

But for you, it’s entirely possible that Client #1 will spend $7,500, Client #2 will spend $35,000, and Client #3 will spend (or want to spend if you can handle it) $275,000! Or maybe $735,000!

No other business I’m aware of has such a great variance between their smallest client and their largest. That creates serious management problems.

Unlike Other Industries, Your Breakeven Point MOVES!

What this means in practice is that your firm’s breakeven point is not a static finish line you cross once and stay above, as is the goal with most businesses. It is a moving target — one that shifts every time you make a structural decision about your business. When you’re dreaming about how much a big project would be “worth,” you should spend an equal amount of time worrying about how much it will cost. Here are some common costs that scale up to support the outsized job:

* Hiring additional designers, project managers, procurement staff, and administrative support

* Leasing larger office or studio space to accommodate expanded staff and client expectations

* Increasing payroll burden beyond salaries alone (benefits, payroll taxes, insurance, bonuses)

* Investing in upgraded software systems such as CAD/BIM, rendering, PM, accounting, and collaboration tools

* Purchasing additional hardware and equipment (high-end workstations, printers, sample storage, phones, servers, vehicles)

* Expanding marketing and business development spending to attract or sustain similarly sized projects

* Raising operational overhead through more complex project delivery requirements: travel, consultants, legal review, bookkeeping, procurement coordination, warehousing, white-glove logistics, and client service expectations

The whale doesn’t wreck firms by failing to materialize. It wrecks them by arriving — and as a result, prompting decisions that outlast the project by years.

They’re Called “Fixed Costs” for a Reason

When you land a project that is many times larger than your average, one of the first inclinations is to hire. Perhaps a junior designer or dedicated project coordinator. Maybe a procurement person to manage the volume of product flowing through. These are reasonable hires. Each one is easy to justify against the revenue the whale is generating.

For example, you might think: This project could easily grow to $450,000; a $60,000/yr junior designer or project manager would be well worth it. In fact, it’s the smart thing to do!

I’ll save the challenges of making a good hire for a future newsletter and focus on the $60,000 salary for this one. This number is not simply a variable, or direct cost associated with the project. Rather, it raises your breakeven point permanently — or at least until you make the difficult decision to reverse course.

The math is not complicated, but it is sobering. A full-time employee with a fully burdened salary of $60,000 — wages, payroll taxes, benefits — needs to be covered by gross profit before it contributes a dollar to the bottom line. If your firm’s contribution margin is 32%, your firm must generate an additional $187,500 in revenue just to break even on the hire.

That includes after the whale is gone! That includes forever!

The designers who use whales correctly — who staff them without permanently raising their breakeven, extract the excess cash before their overhead absorbs it, and exit the project with their firm stronger than when they entered — are the ones who eventually build sustainable financial security. The ones who get it wrong will spend the next several years working at the same intensity for a fraction of the financial gain.

The difference between those two outcomes is not talent or luck. It is six specific decisions that must be made before the project starts. Let’s look at them now…

Last week we looked at how pricing is the single most sensitive variable in your business, and how every penny of a price increase flows straight to the bottom line.

We also looked at “anchor pricing,” the psychology of perceived value, and why the “right” price has almost nothing to do with your costs and everything to do with what your client believes you’re worth. (Perceived value.)

This week, we’ll go deeper. I’ll put you in the front row of an MBA class that could be held today at Harvard or Stanford. We’ll discuss “Strategy 101,” but you must not let the business terms scare you away. You must not think that because your firm is small, that these high-sounding business tools won’t work for you.

These stories are all illustrating the same principle, one that behavioral economists call anchor pricing: when a higher reference point exists, the next lower price looks dramatically more attractive than it would standing alone. The jewelry was not underpriced at $20; it was unanchored. Without a higher number nearby to signal value, it read as cheap.…

Today, I want to introduce you to a different and far more sane model. As a case study, I’ll use one of my ActionMap clients who markets just one week a year. Not one week per quarter. One week per year. The rest of the time, she is designing. (Or snow skiing; more on that in a minute.) Her calendar fills itself.

This is not luck, and it is not a niche s…

Every designer has sat through the form-follows-function lectures. It’s one of the foundational principles of the profession — the idea, traced back to the architect Louis Sullivan, that the shape of a thing should be determined by what it needs to do.

In practice, most designers apply this rigorously to client projects yet then completely ignore it when…

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And, I would say that 90% of those welcomed the experience about as much as a trip to the dentist. One client of mine simply tossed them into her bottom drawer, right next to the bottle of vodka she kept in case her CPA or bookkeeper wanted to “go over” the statements with her!