Will You Design or Build?

January 3, 2011

Often the best way to appreciate an industry is to compare it to others. Finding best practices in like industries helps develop strategy.

Ira Friedman is the CEO of Bay Audio, a manufacturer of custom speaker solutions. He holds an MBA from the Harvard Business School.

Alas, as we all know, the AV business is unlike anything else, which is why there are so many inherent strategic problems. The AV business attempts to accomplish two things: “design” and “build.” Compare this to architecture, interior design, or any of the building trades, and you quickly see the problem. Architects and designers design. They don’t build. And most trades–electrical, plumbing, flooring– build. They don’t design.

I’m hard pressed to find any other established industry that successfully accomplishes both. Which leads me to believe it can’t be done successfully over time.

Historical Precedence
Look at the strategic arc of most mature service industries and you’ll find that the early years were a hybrid of design and build. As these industries matured, however, companies began specializing in either discipline. For instance, in the early years in America, plumbers were tinsmiths and metal workers who could design a residential plumbing system, fashion an appropriate pipe or fixture, and install the metalwork in the home. These multi-discipline businesses were sought after and paid well for their skills.

Over time, plumbing entrepreneurs saw specialization as a competitive advantage. Some business owners focused on the design of residential plumbing systems, eschewing the drudgery of metalwork and installation. Other companies beefed up the manufacture of standardized plumbing parts. And other companies specialized in installation. The generalist who did it all was put out of business by the overwhelming cost savings offered by his specialist competitors.

The plumbing design specialist became sought after for his intricate understanding of the system, and his ability to design an elegant solution. To facilitate his work, manufacturers began establishing standard parts that a plumbing designer could specify. The plumbing installer purchased these specified parts, resold them at a modest mark-up, and profited by selling his labor on a piece-work or hourly basis.

And today, how is the business distributed? There are countless numbers of designers–highly educated, well-paid professionals working in architectural and engineering firms. There are a consolidated number of successful (and wealthy) plumbing supply manufacturers and distributors. And most importantly, there is a multitude of plumbing installers–hourly-wage individuals selling products at 17 points, happily earning a modest income.

In an increasing number of jobs, Hollywood, Florida’s Firefly Design Group has served as a design consultant to a homeowner client, helping introduce potential ESCs, who are then chosen by the client via sealed bids.

Will the AV Industry Follow?
That is the arc the AV industry will follow as young competitors come into the market looking for an advantage. Soon we will see the acceptance (and advanced stature) of design-only operations. These companies will prepare complete design and engineering documents for a comprehensive system. Engineers and designers will staff these companies. Schooled in architecture, design, contracting, audio, video, control, lighting, and IT, these specialists will make a compelling case for their work. And because they wash their hands of the installation, they can act as consultants, selecting the best products and the best installation team, with no apparent conflict of interest. Today a handful of these design-only businesses exist, and while they might seem like outliers, they are but the beginning of a larger shift away from generalists.

Concurrently, we will see a consolidation of manufacturers as the power of product choice is elevated to the design team. With fewer more highly educated specifiers, fringe and me-too manufacturers will find it hard to compete. And, to round it out, we will soon see a horde of hourly wage installation-only companies.

Look at the “earned price per hour” for an architect, a general contractor, and any tradesman on the jobsite, and you’ll see how dollars (and profit) flow up toward design and away from product margin. This points to an instinctual economic truth: buyers enjoy rewarding the thinker, but not the reseller, and because the AV business is a hybrid of thinking (design) and reselling (build), the buyer is confused, agitated, and annoyed as they pay dearly for design and product.

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