As part of the research for my new book, Success by Design: The Essential Business Reference for Designers, I interviewed a wide range of people who had run successful design studios. When I drew up my shortlist of who I should talk to, Ted Leonhardt was at the top of my list. Specifically, I wanted Ted's perspective on what it's like to grow a design business.
Ted and his wife Carolyn founded The Leonhardt Group, an agency that they grew to $10 million in fees and a staff of 50. In 1999, they sold their agency to Fitch. Ted went on to the position of Chief Creative Officer for Fitch Worldwide with responsibility for 27 offices from London. In 2003 Ted began his management consulting practice. Carolyn provides support while creating and bringing new vintage homes to market in St. Helena, California.
What follows is a transcript of our conversation in April 2011.
DS: How do you grow a design business?
TL: My favorite quote on this is from Michael Gerber who says, “Work on the business, not in the business.”
Design business founders who want to grow must move from being an expert in a skill area, like design or strategy, to being an expert at running their business. That's a very fundamental shift. You can't concentrate on growing your business if much of your time is taken up in project work for clients. Client work is all consuming and it should be. Great work is the result of that total focus. But, your business needs the same kind of total concentration if you want to grow. Your business must become your project. Many designer/owners are reluctant to make this necessary change.
The single most important factor in successful design businesses is the people. And the most common problem is poor people management.
Design comes from people. Great design comes from happy, committed people. Happy committed people see a bright future for themselves and are receiving coaching, praise and regular constructive feedback. If employees feel they are a valued part of a team, doing work they respect and enjoy, the firm will grow and prosper. Carolyn and I used to say: “great work plus happy people produces profits.”
Ironically, owner/designers can get in the way of growth. As a successful designer, you have insights into how things should be done. You develop a feel for how to produce great work and deal with management and client situations. As you transition other people into design leadership roles, inevitably they're not as good as you are. They make mistakes, and instead of providing clear, instructive feedback you take back authority and solve the problem yourself. Or, you see something that doesn’t work and you criticize instead of helping them understand why it doesn’t work. Over time these negative experiences turn people off, and instead of growing in their positions they begin to lose their commitment to you and your company. They lose their belief in the vision that attracted them to the business in the first place. And the result is that your business doesn’t grow.
Employees need clear positive guidance, instructive feedback and specific praise when they do something right. We all need this kind of clarity in order to keep on track and moving in the right direction. That’s what management is all about.
Owners who want to grow their businesses need to understand that the business is their creative project, and that empowering their people is the way to grow. That means that the virtual circle of the business is your job, but it’s powered by your people. It’s your responsibility to make sure there is enough work, that the work is being done well and that it meets expectations and that completed projects are turned into marketing tools that support your outbound sales effort by creating inbound opportunities. You negotiate new opportunities as they come in. The one area of expertise you can never give up is sales.
DS: What about an individual looking to grow a studio?
TL: Step One is that first hire. Look to your skill set and say: “What functional role can I give up? What role can I easily fill with billable work? Which role will relieve me from something time consuming?” Perhaps it's one of your weaker skill sets, something someone else will do better. Manage your employee, treat him or her with respect and honor. Keep things friendly, but professional. Then look for employee #2.
Second, you must learn to lead by setting expectations: creative expectations, budget expectations, time expectations and deliverables. You work with the team to make sure the expectations are appropriate. You ask questions to find out what is going on if expectations are not met. Another great rule of thumb for managers is “ask, don’t tell.”
The third factor is client management, and that means understanding other people’s agendas. The overall agenda and goals of a client project may be clear, but within the client team the goals may be different. One client may have a baby at home, and need to be home by four every day – putting unexpected time constraints on team meetings. The Senior VP may be focused entirely on a particular feature of the project rather than the publicly stated goal because he has been a champion of that feature in other products. So, he’s thinking “I must have a hit with this product feature” throughout the effort. Meanwhile the rest of the team is wondering why he continues to bring up a single issue. Understanding these semi-hidden agendas and dealing with them in a positive way is essential to your success and to growth. A common hidden agenda is the client team leader’s need to appear knowledgeable and effective to the other team members and senior management. Your job is always to help your client succeed and look good while succeeding.
For the success of a business, the most important group to be involved with is the client team, so you are in the meetings when the project is being discussed, and not relying on PDFs and emails. You must know why they are making decisions to push something this way or that. You must be there, listening, asking questions and refining your perspective on the fly.
DS: What factors or metrics can a studio owner use to monitor their overall happiness?
TL: Creative shops are happiest when there is slightly more work than what the numbers say you should take. You can calculate how many hours to expect from a billable employee — 35 hours a week x 50 weeks — to determine your revenue target and work load. Then focus your sales effort on achieving 5–10% more sales than that. Creative people like to be busy. The worst is not having enough to do. It's demoralizing, and it destroys budgets as people expand their project workload to fit their free time. Happiness comes from being busy, but not overwhelmed — a delicate balance. We always kept the staff load and head count slightly below the actual dollar count coming in.
The other number to focus on is fee revenue divided by staff size. Well managed firms in the US produce around $200,000 a year in fees per employees. In major markets it’s higher, in smaller markets it is less.