have a look in this INcA article..

www.idsa-sf.org/inca.htm

.pdf file 2004 issue No1 title “why royalties”

it is about a model of designer-customer co-operation that sounds interesting. Do you think it can workk out? In what cases?

ok, i understand it is time consuming to download it so…here it is:




why royalties?
feature 01
Richard Holbrook
Founder and Creative Director, RM Holbrook Associates
inca / fall 2004 p.5
One of my earliest surprises was this: Whenever the
engineering or manufacturing groups made a presentation
of their work, the executive team would generally take
the recommendations de facto, with little discussion or
input on direction.
However, when the styling director would make a proposal,
there was tremendous discussion, deliberation, re-direction.
It seemed as if the lawyers and MBA’s that made up the
executive team understood that engineers are “experts”
whose ideas and counsel are to be taken seriously — but
designers…well, they’re here to help us see possibilities, and
we’ll make up our own minds about what looks right to us,
thank you very much.
During the first five years of running my own design
firm, I adopted the traditional paradigm and tactics of
professional service firms: fee based, phase-by-phase
program structures, with “options a, b or c” offered up for
my clients to review.
I submit that the common complaint — “the client picked
the wrong concept” — is a direct result of this paradigm.
Designers have positioned themselves as option providers,
not solution finders.
Selling Time or Selling Talent
In our drive to give our profession more credibility and appeal
to large corporations, we have adopted a form of practice
used by lawyers and accountants. Professional services,
by definition, are easily formulized and systematized.
Creative direction, on the other hand, defies a formulaic
approach and requires individual talent, inspiration and
“pixie dust.”*
Interestingly, when industrial designers speak of whom
they admire, they typically name “celebrity designers” —
Phillipe Starck, Mark Newson, Antonio Citterio, Raymond
Loewy, and Charles Eames. All of these designers have
built their businesses on a retainer/royalty basis, and
yet this model is still the exception among independent
designers and design firms.
I submit that the common complaint, “the client
picked the wrong concept” is a direct result of this
paradigm. Designers have positioned themselves
as option providers, not solution finders.
I had a very interesting conversation recetly with Eames Demetrios
— film maker, artist, and grandson of Charles Eames. We talked
about what made Charles and Ray Eames so different from more
conventional and generally less successful designers. Demetrios
believes they were truly independent — they did not approach
design as a service activity reactive to the direction and sponsorship
of clients. Instead they structured projects as explorations and
experimentation with ideas or materials they felt were interesting
and compelling.
Second, and most profoundly for me, they were not afraid to “bet
on themselves.” Starting with their early experiments in molded
plywood, and through work with Herman Miller, Vitra, IBM and
others, the Eames’ consistently invested resources and time into
projects they believed in. The legacy of the work is strong testament
to the power of their passionate proactive design process.
By contrast, I believe that there is a fundamental conflict of interest
set up with a fee-based, phase-by-phase model. When one phase is
over and the time/resources have been spent, the difficult dilemma
of business owners (who happen to be designers as well) is to forego
profitability for design quality, or finish the job, get paid, and move on.
Shifting Gears, Embracing Opportunities
In my own practice I’ve had the good fortune to work with two
companies that changed my view of the designer/client partnership
and helped me to appreciate the power of a relationship based on
true sharing of risk and reward.
Late in 1989 I was contacted by Ed Hart, then President of Casablanca
Fan Company. At that time, Casablanca was regarded as the leader
in the industry. However, Ed believed that to continue to grow sales
Casablanca needed to reach people who wouldn’t even consider the
practical benefits of ceiling fans because the image of the product itself.
Fans were by the perceptions of a fan as typically used in traditional,
historically referential interiors. To gain the market share he sought,
Ed needed someone who was not “in the club,” who could push the
boundaries and challenge assumptions.
Ed insisted on structuring a royalty agreement for our work together,
with a minimal monthly retainer to cover basic costs. He explained that
if I succeeded in creating new products that would truly accomplish
our collective goals, I would be paid much more that any fee-based
compensation plan could accommodate. If I did not, I would make very
little, and the company would not have risked much investment.
view from the chair | editor’s letter | why royalties | designing for large retail channels | inventing play | designing for extreme sports | communicating with objects | is choice bad?
inca / fall 2004 p.6
Over the seven years I worked with Casablanca, we created dozens
of products together that expanded their market and established
new directions for what ceiling fans represent today. We introduced
integrated halogen lighting, easy to use electronic controls, new
colors and finishes, clean and elegant design statements.
And in the process I made more money for the time invested than
I could ever have imagined. However, the money was only part of
what I gained from the relationship with Casablanca. The lessons I
learned about collaboration, conviction about an idea, and shared
risk/reward were ultimately more valuable to my future.
Nurturing Ideas, Protecting Ownership, Rewarding Success
These lessons from my work with Casablanca were reinforced, and
my conviction to using a royalty model for my business was further
cemented by my collaboration with Herman Miller for 11 years.
When I began working with Herman Miller in 1990, the process
of design development in place was to partner with designers
that can bring a unique and passionate voice and work as part of
a team made up of Herman Miller employees, other independent
resources, and supplier partners. The notion of letting a designer
work unconstrained and uninfluenced by critique or direction in the
early stages of a program is integral to the culture of the company
established by George Nelson and the DePree family. This process
can be agonizingly uncomfortable for designers habituated to a
conventional “design options and client feedback” approach. But
ultimately it can also be extremely liberating, and I believe it sets up
the best opportunity for achieving true innovation and maintaining
design integrity.
Coupled with a business agreement that creates the potential for
substantial reward if a program is commercially successful, and
conversely, has limited cost to the company if sales don’t meet their
expectations, this process can create powerful results for Herman
Miller, for designers, and for end users.
The Ambi chair for Herman Miller was an extremely challenging, and
sometimes frustrating, example of the power of this proposition.
Charged with creating a new low-cost work chair in a short time frame,
with clearly defined cost and investment criteria, I was faced with
tough decisions about risk, innovation, artistic aspiration. Ultimately,
we created a chair that has been a tremendous commercial success
for Herman Miller in a part of the seating market where they had been
unable to compete. Ten years later and still going strong, the Ambi
chair has been a standard at companies such as Fidelity Investments
and Nortel Networks, generating over a hundred million dollars in
sales, with strong margins, and royalties in excess of two million
dollars to date.
Defining Success and Failure
The work I did for Casablanca, and the Ambi program for Herman
Miller were tremendous successes for everyone. But I’ve had my
share of disappointments and surprises as well. My two best known
programs — The Levity Collection for Herman Miller, and the dna
venture created with Teknion both resulted in tremendous critical
acclaim and interest, but failed to achieve sales sufficient to sustain
momentum.
Timing can be everything, and both of these programs suffered from
bad timing.
The Levity Collection was launched at a time when Herman Miller
was in the throws of a re-organization, and when the company was
focused almost exclusively on commercialization of a major new
furniture systems program (Resolve). In spite of the promising
response to Levity, few resources were made available for marketing
support or cost effective manufacturing of the products, and the
program never gained traction with the large corporate customers
that Herman Miller serves. The unfortunate result was disappointing
sales and small royalties.
The dna venture was launched during the downward spiraling
economy of 2002, to very positive critical acclaim and promising
initial sales. Unfortunately, faced with mounting losses in their core
business, our partner company neither provided the resources to
support the venture beyond our start-up period, nor allowed us to
bring in outside funding or continue on our own. Choosing instead to
force a closure of the venture, the unfortunate result was a complete
write-off of an investment of millions of dollars and thousands of
hours of work.
On the basis of financial return on investment, these two programs
must be considered failures. However, I believe that neither life
nor business should be measured in purely financial terms. The
experience gained, exposure, and critical acclaim I received have
been extremely valuable in my business and my life. So the adventure
was excellent in both cases.
right: The Levity Collection
for Herman Miller
view from the chair | editor’s letter | why royalties | designing for large retail channels | inventing play | designing for extreme sports | communicating with objects | is choice bad?
inca / fall 2004 p.7
Royalty Rules
Through good and bad experiences, profitable and not-so-profitable
programs, I remain convinced that creating a retainer/royalty
business model is the best way to achieve design excellence and
motivate designers and client partners with financial reward tied to
shared success.
Some of the lessons I learned have led me to these general guidelines
to my business activities and relationships:
• Become an expert in the industry and product area you are
targeting — if your products don’t sell there will be no reward.
• Design products that many people will want to buy — niche
products generate small returns.
• Pick partners that truly want to promote and sell your products
— and get a commitment to staff and support the program fully
and enthusiastically.
• Find a very good, very experienced intellectual property attorney
— your agreement is the foundation for the relationship, in good
times and bad.
• Find a very good, very experienced auditor. Everyone makes
mistakes, and mistakes on royalty calculations are both common
and expensive.
• Don’t be afraid to bet on yourself!
Summary
Obviously, not all designers or projects are suited to a royalty-based
model. Products with short shelf life (consumer electronics), products
that have high technology value add (computers), and products
where price drives sales (commodities) are typically more suited to
a fee-based model.
But when industrial designer’s contribution truly drives product value
and customer desire/satisfaction, I believe that the benefits of a shared
risk/reward model far outweigh the short term challenges.
As designers, we all strive to be respected as creative professionals,
with ideas worthy of nurturing, investment, support. Who better to
bet on our ideas than ourselves?
Richard Holbrook is the Founder and Creative Director of RM Holbrook Associates,
a design consulting practice, and of Richard Holbrook, Inc., a manufacturer and
distributor of furniture and accessories.
A 1981 graduate of Art Center College of Design, Richard worked four years in the
Styling Studio at Peugeot Automobiles in England and France, before returning to
Los Angeles to establish RM Holbrook Associates, Inc. His clients have included
Casablanca Fan, Herman Miller, Steelcase, Teknion, Thermador, Tropitone, Yamaha
and other well known brands. His work has received awards from IDSA/Businessweek,
ID magazine, The Chicago Atheneum, and has been exhibited at the Museum
of Modern Art.
— Bill Stumpf, codesigner of the Aeron, Equa, Ergon
and Caper chairs for Herman Miller.
Creative Direction requires
individual talent, inspiration
& pixie dust.
*

this seems a continuation of some other threads on Fees, new tech trends in manufacturing and other stuff.

i disagree with this:

“Design products that many people will want to buy — niche
products generate small returns.”

and give this as a potential rebuttal: The Long Tail | WIRED

article is about digital content. but with RP in the future, the point is moot.

Interesting article, thanks for the post.

I just read “The Long Tail” in Wired last night and was really struck by it. If you haven’t read the article, you should (not necessarily related to royalties but in general a fascinating piece) - it basically says that online services that can have huge inventories (I dunno like 5 million books versus 150,000 books) are regularly moving merchandise BEYOND the top 10,000 items. Bricks and mortar can only afford to stock things that sell more than twice a year, but if your inventory costs are near zero (i.e., digital media) then you can inventory a huge amount of items and you can make money on all of them, not just the top. It’s very counter-intuitive, but then again, it’s explained so well, that it ends up seemingly very logical.

Provcative piece, definitely.

outside of digital media i’ve noticed the same expanding opportunity for regular products. glad the article was of interest.

YKH-- I read that “Long Tail” article on the way into work this morning, and I am floored! Great read, very exciting thoughts, especially for those of us who prefer our media outside the mainstream. Being indie can be profitable.

As far as connecting the “Mass Niche Market” to product development, can you give some examples? An obvious one are Amazon/Ebay/Etc’s ability to bringing niche physical products to the world… but what are some other opportunities for product design to link up with this concept of the “Long Tail”?

tbh i’m hesitant to say. examples i’d use are things i may pursue.

my suggestion is to take your hobby and use it if possible. example: if you’re into car modification, then develop your own set of mods (think someone had a thread in Materials related to RPing tail lights). obviously something really low-cost probably won’t fly. too expensive for RP. so you have to find a niche that works from a business pov. but look around. you’d be surprised at what some people spend. there’s an established low-volume community doing custom toys. making $100 nylon action figures (using rotocasting) in small batches. i had an article on it but lost the link.

[edit: eBay/Amazon are only distribution. they aren’t the market.]

Good point on the rotocast action figures-- a store opened here in Chicago called Rotofugi that sells those kind of things-- a niche for sure, but is it a truly profitable one? Not sure.

The WIRED article pushes the point that the mass aggregation of niche markets is what makes the Long Tail profitiable-- the bigger the obscure inventory the better. By this logic, a product designer releassing a few niche products here and there will not be as profitable. Sounds like we would need to either:

  • Create a massive amount of items to cover the sprectrum, or
  • Create high cost niche products

Sounds like you have been down this road… what are your thoughts?

fueledbycoffee - PM’d