Getting Rich While
You’re Still Alive
DRAFT OUTLINE
Friedrich Nietzsche is reputed to have said about his
books that they were: ‘Stillborn from the
press.’ I am sure he was frustrated that in his entire lifetime, he is
reported to have never sold more than 200 copies of his works. Now if Nietzsche
had read the Design Economics Handbook,
maybe he wouldn’t have uttered this comment because he would have learned to
capture more of the value he created while
he was still alive.
Artists and institutions involved
with their education are increasingly aware of the need to train not only in
the creative arts but also as entrepreneurs. Who wants to end up like most
artists do where ‘death is a career move’? A novelist, a painter, a dancer, an
actor, a poet, a musician, a composer, a conductor, all of them are actually
entrepreneurs—persons for whom a basic understanding of economics, business and
entrepreneurship might come in handy.
As an engineer, who nearly
flunked Engineering Economics and then spent most of his career in business and
academia (teaching entrepreneurship amongst other things), I can certainly
appreciate the degree of difficulty creative people have in mastering this
subject. It took me quite a while to understand: that a price for a good or
service is (largely) unrelated to the cost of producing it, that a price for
something is (usually) set by agreement between a buyer and a seller, that a
dollar today is worth more than a dollar next year and not just because of
inflationary expectations or opportunity costs. But they gave me my Ph.D.
anyway.
My goal here is to give
Architects, Artists and Engineers the analytical techniques and an
understanding of the economic paradigm they are working in so that they can
shift the balance of power a bit more in their favor; for example, to make the
discussion between a client and an Architect about their fees a more informed
one, on both sides.
Let’s see if there are ways and
means for Architects or Engineers to increase their value to clients (and,
hence, their fees) by better understanding the creation of value through design
and the design program. Let’s try to understand the link between quality design
and creativity, on the one hand, and the overall return of a project for a
client.
In fact, we can demonstrate
that much of the value for many of the ‘things’ created by architects, artists
and engineers derive from their creativity and not necessarily from tangible
assets. (See my essay on the value for Treescapes,
for example). Why is it that when you multiply the stock price of a creative
company like Disney times the number of outstanding shares, one gets a value
for the company that is much greater than the sum total of its hard assets? The
difference probably is made up of the value of the company’s brand and its IP (intellectual property).
There is an unspoken crisis in
the creative professions. Architects are expected to lead project teams in an
increasingly complex development process without first having studied and
mastered the underlying municipal processes and, second, under a fee structure
that is increasingly unrealistic. Margins in the profession are being squeezed
at the same time as the expectations and needs of clients, municipal planners
and politicians, approval agencies and community activists are soaring. Young
professional architects feel that they are exploited by the system and that it
is financially unrewarding to establish their own practice.
Maybe we can refocus clients
away from an over-reliance on cost reduction and cost control; perhaps we can
convince them to look at the additional benefits that can be created from
additional spending. I know that Architect Supreme Douglas Cardinal managed to
convince former Prime Minister Pierre Trudeau that additional spending on his
superb Canadian Museum of Civilization would be more than justified by higher
attendance (and higher entry fees too, for the accountants among us). Maybe we
can reach a better balance between economic inputs and economic outputs. We
could learn to justify our designs using cost/benefit analysis so that we can
demonstrate to clients that higher design costs can be more than offset by
greater benefits.
I generally find that if we can
communicate the benefits of what we do more clearly and succinctly, it usually
results in higher commissions, faster promotions, more interesting work…
It may be interesting for you to
know that most entrepreneurs become entrepreneurs not for the usual reasons
(i.e., make-more-money, set-my-own-schedule, be-my-own-boss,
retire-early) but because they believe that they can create more interesting work for themselves than others can create for
them. Creativity is a very powerful drive in Homo Sapiens Sapiens. People generally want to feel that they are part
of something special—something bigger than themselves.
Creating something new can give it to them.
So at least one of our objectives
here is to give the student some techniques that allow them to take more
control over their workflow either as entrepreneur practitioners or as
intrapreneurs (essentially entrepreneurs working within larger organizations,
e.g., someone else’s practice) and, hence, have more interesting, more creative
(and rewarding) work.
Coincidentally, these are the
same techniques you need if you decide to become your own client—i.e., become
an architect/developer, say, or an engineer/entrepreneur. Artists are almost
always on their own anyway—they are true entrepreneurs—they don’t usually get
much help form outside sources of financing; there’s no VC (Venture Capital)
money for artists, I am afraid*.
(* An interesting experiment is underway in NYC. An expert
panel has selected 250 young artists there to participate in the Artist Pension
Trust. Each participant contributes 20 of his or her works, which the Trust
keeps until they reach retirement age. Then, their works are sold—half the
proceeds go the individual artist and half are shared in a pool with the others
in the Trust. Thus, they share part of the upside with the other artists in the
Trust, they diversify their risks and they still have incentive to give some of
their best work to the Trust in the first place.)
We will also take a look at the
argument that anything that we create that moves the economy in a direction
that leads to a higher level of sustainability will also, almost by definition,
lead to economic gains as well. A more sustainable economy is nothing more than
an economy that can produce the same level of output with fewer inputs. I do
not accept the argument that it is a choice between ‘more guns and less butter’
or ‘more butter and fewer guns’. We will need more creativity and innovation in
this century than we have ever seen before to cope with the global issues of
economic disparity and environmental degradation.
As
Professor John Callahan in the Faculty of Engineering and Design at Carleton
put it: “Nothing is sustainable unless it
is also economically sustainable.” So using the techniques
we teach you in the Handbook will help you measure, in a predictable way, the relative costs and benefits of two
different designs or two different projects and is one way of helping you and
your clients make rational decisions. It also helps the economy reach higher
levels of efficiency; it rations capital and leads to greater levels of
sustainability too.
Existing research materials is
this field are either too simplistic, lack relevance to Architects, Artists or
Engineers or fail to convey the material in a manner that will actually assist
them in capturing more of the value they create. We expect that the Handbook
will find a wider readership not only for persons pursuing an education in
engineering, architecture or the arts but also in the general public who wish
to better understand design economics and the value of creativity.
My friend, Doug Cardinal (http://www.djcarchitect.com/), also
reminds us of our responsibility to our ‘patrons’. As Artists or Architects or
Engineers, we are responsible for using the resources put at our disposal
wisely. If your patron commissions a work of Art or Architecture from you,
That goes for Engineers too—we
don’t just want products that are safe, although we do want that obviously. We
want to produce on time (although no one I know will ever allow an Engineer to
be responsible for determining when a product or project is ready for the
marketplace. Engineers are incessant tinkerers and
perfectionists and if it were up to them alone, nothing would ever be ready for
prime time.) We want to produce on
budget. However, we also want to produce a flow of benefits that is hopefully
greater, maybe much greater, than its costs and we want to be able to demonstrate
that in some kind of reliable way—and this Handbook teaches you that.
I tell my students that benefits
are not always measured in monetary terms, although often they are. Perhaps a
new Museum measures benefits in terms of higher attendance (like the
By having the
world’s largest outdoor mural collection (1,200+), the City of Philadelphia
has: brought many graffiti artist in from the cold, given pride back to
communities that were in terrible shape, reduced petty street crime and
vandalism, brought people back onto the streets, increased tourism, increased
the retrofitting of down-at-the-heels real estate both residential and
commercial and increased jobs, economic growth and property tax revenues for
the City. The cost of a mural might be $5,000 or $10,000 might the flow of
benefits is much, much larger and these aren’t ‘unmeasurable’
benefits. Rigorous statistical regression analysis can tell us what these are
in terms of hard, cold greenbacks. I mean every time you don’t send someone to
prison; you are saving society a whole bunch of money. Every tourist that takes
one of the MAP walking tours is bound to spend some money at the local coffee
shop, art gallery whatever.
Bringing street artists (AKA,
Graffiti Artists) more into the mainstream and giving them
paying commissions has got to be better than having city police chasing them
down back alleys.
Now it’s true that even though
the City’s budget for jails and police might go down and the revenues from
local pubs and restaurants might go up, they might not be the ones funding MAP.
This is what we mean when we talk about externalities—they could be either
external costs or external benefits—external to the system but not unimportant.
This also known as the Free Rider problem, which might also be
a description we could use to describe what happens
when environmental benefits or disbenefits external
to our economic system are not taken into account when we create new products
or services. With a greater emphasis today on producing a more sustainable
built-form of the City and a more sustainable economic system, we need to do a
better job of bringing a notion of environmental costs and benefits into our
system of accounts.
Knowledge is power and one of the
lessons I preach to my students is to learn these techniques so that they can
disintermediate the economists and the accountants and take more control over
the product of their labors. It isn’t good enough anymore to say to yourself
that you can always hire someone to sell your work for you or to explain why it
has value. Our Dean in the Faculty of Engineering and Design at CU, Sammy Mamoud says: “You
don’t always get what you deserve in life, you get what you negotiate.” How true and how sad at the same time (and especially true if you
have to rely on others to speak for you. So don’t.)
I also encourage my students to
build for themselves by themselves a Personal Web Site (PWS) for life. Again, they are disintermediating (this time, the techies) and
communicating in a powerful way with the Universe of Internet Users. They
should gather their personal IP there over their entire careers and, who knows,
one day they might find a way to make money from their PWS while lying on a beach
somewhere. I only wish the Internet was where it is today when I was their age.
I have no doubt that a PWS will evolve into a form of immortality for those
that know what they are doing.
Because the Internet is such a
disruptive and powerful force, no Handbook on Design Economics could be
complete today without examining its impact on the creative professions. We
will learn how to construct business models and re-engineer them for the
Internet Age. Business models are needed not only to help structure an
Architectural or Engineering Practice but also to assist them when they decide
to become Architect/Developers or Engineer/Entrepreneurs. Business models are
the engines of these businesses and having one means that the harder you work,
the more money you can make, which isn’t always true for architects and
engineers.
Obviously, this is valuable to
Artists too. It will help them answer questions like: do I sell direct, do I
use a dealer, what role the Internet plays, do I go to trade shows and fairs, how
do I find a patron and pre-sell my works …
Creative people need to do a
better job explaining why what they do is important to the community and to the
sponsors and patrons of the work we do. We need to do this so we can bring more
resources into play not just to increase our share of the pie but to increase
the whole pie. Many people believe that more pie for me means less pie for you.
If that were true, we would still live in freezing caves, lose our teeth at 20
and die before 35. No thanks.
Let’s go
back for a moment to a time (about 12,000 years or so) when trading activity
was about to begin. Imagine* a land with three families—the families of Ugh, Nnn and Zll. In this land, the
family of Ugh lived by themselves on a savanna. Ugh was an expert antelope
hunter providing his family with four antelopes a month. His carving skills,
however, were poor, producing only one set of flint knives per month. A mile
away, the family of Nnn is hungrier. Nnn is a fine producer of flint knives, producing three
sets of knives per month, but he isn’t much of a hunter, bagging only one
antelope per month.
The
families of Ugh and Nnn decide to co-locate, to form
a village if you will, at first, for the protection of both. By co-locating and
forming the first primitive village, they also open up the possibility of
observing each other and co-operating and trading between the families.
The
result is that after a few months, they decide that Nnn
must concentrate on producing flint knives and Ugh on hunting. The GDP (Gross
Domestic Product) of the two families before the co-location is five antelopes
and four sets of flint knives per month. After co-location and specialization, the GDP has increased to
seven antelopes and six sets of flint knives each month. This represents a
phenomenal increase in the well being of the two families.
So much so that this first village is producing goods
surplus to their needs. This sets up the
possibility of trading with a third family, the family of Zll,
who happen to be expert in producing textiles (i.e., sewn animal skins)
resulting in a further substantial increase in value for the emerging regional
economy.
This
simple example demonstrates why the 'more pie for me' doesn't necessarily mean
less for you. You will note too that this primitive economy works because
information about Ugh's hunting prowess is flowing
from Ugh to Nnn and information about Nnn's skill with flint knives is flowing from Nnn to Ugh. What this means is that it is the beginning of
an information economy and it shows how improved communications even in the 12th
Afterall, it
wasn’t until the introduction by Mark Andreeson of
the Mosaic Browser (later called the Netscape Browser) in 1993 that the PC
turned into a mass communications
tool—at which time, productivity took off. The long promised payoff from huge
investments in computers had finally arrived. Communications is the key and the
killer app on the Internet turned out not to be email (spam and overuse are
killing email’s utility), movies-on-demand (sheesh) or pornography but data—one standard, simple (point and click) way of viewing
information using a browser changed the world.
Humans
need each other like no other animal on the planet—we are uniquely
co-dependent. Skill sharing and specialization are fundamental to the
improvement in the human condition.
What we seem to be missing in many of our communities is the feeling
of belonging to the ‘tribe’; that feeling of belonging to ‘Team Ottawa’ or
‘Team
I have
given a lot of thought about how to engender more of this type of fellowship in
our cities and towns. I have always felt it is sad to hear so many middle aged
people reminisce about their high school days as the best days of their lives.
What about the next 60 years?
And why
is it that they loved those days so much; for many of them, it was the
closeness of their friendships and their participation in teams—teams to
participate in scientific competitions, debating societies, putting out the
school year book, playing sports, going to parties, whatever. They felt they
were part of something bigger than themselves.
It is
about more than just feeling good about yourself. It’s
about improving living conditions and productivity too. Sports teams,
festivals, artist colonies, the performing arts, entrepreneurs, researchers,
community events, random mixing, all those people involved in creative pursuits
seem to add to the feeling of belonging which leads to higher ‘team’ spirit.
People working in teams can create far more than the individual working alone.
City-State Team Spirit = Universities +
Entrepreneurs + Researchers + Artists + Festivals + Performing Arts + Sports
Teams = Creativity + Productivity
Ideas are
not limited. They are for all intents and purposes infinite, perhaps the only
thing (other than numbers) that is infinite in supply. There don’t appear to be
any limits to human ingenuity.
Richard Florida
(http://www.creativeclass.org/) created
the Bohemian Index to reflect the level of creative enterprise in city-states.
How many artists live there? What is the tolerance for diversity? How many
theaters are there? How much rehearsal space is there? What kind of public
support is there for the Arts?
So why is all this important?
Well, research has shown that highly educated, highly productive people are
attracted to places with a high Bohemian Index and guess what? There is a
positive correlation between having highly motivated, highly creative
entrepreneurs and intrapreneurs in your community and economic, social,
educational, cultural and environmental progress there too. Tolerance for
diversity is, to my mind, especially important since a diverse population
presumably leads to a diverse economy and an atmosphere of tolerance is likely
to give rise to a peaceful society. There can be no sustainable economic value
created whatsoever in societies where there is a breakdown in social order.
Thus, a diverse economy (rather than a mono-cultured one) in a society where
there is respect for all human and
property rights is going to be a more robust economic ecology.
The Design Economics Handbook was
written to give creative individuals more power to control their professional
destiny and because, at least in my view, individuals and individual efforts
count.
Copyright, Dr. Bruce M. Firestone,
* Taken
from a speech by me to the Mayors Breakfast Series,
Getting Rich While
You’re Still Alive
DRAFT
TABLE
OF CONTENTS
Foreword
Chapter 1 Introduction
to Design Economics
Chapter
2 Creativity and
Value—Capturing More of the Value You Create, Build and Hold
Chapter 3 Business
Modeling for Professionals, Creating Your Own Client or Becoming Your Own
Client
Chapter 4 Concept
Planning, Due Diligence and Functional Programming
Chapter 5 Scheduling
and Critical Path Methodology
Chapter
6 Introduction to
Budgeting (Estimating Costs and Benefits) and Cost/Benefit Analysis using
Internal Rate of Return or Cap Rates
Chapter 6 Financing
Chapter 7 Supply
and Demand Theory—Pricing Your Services and Products
Chapter 8 Marketing
Your Practice, Your Projects or Your Work
Chapter 9 Market
Research—Statistics, Probability Theory and Regression Analysis
Chapter 10 Negotiating
and Selling
Chapter 11 Contracts,
Payments, Consulting, Retainers,
Chapter 12 Ethics,
Dealing with the Media and the Value of Your Reputation and Brand—Establishing
Trust and Becoming Part of the Business Ecology
Chapter 13 Harnessing
the Power of the Internet—Productivity Gains, Reversing Out the Work, Custom
Outputs from Standard Inputs, Personal Websites for Life, Collecting Your Personal IP, Making Money ‘While
You Lie on a Beach’ and Intellectual Property Law
Chapter 14 Future
Vision
ADDENDUM I For Architects—Urban Design, Highest and Best Use, City
Planning and Lobbying, Re-engineering City Processes, Land Titles, Title
Insurance
ADDENDUM II For Artists—Relationships with Agents, Dealers and Others
ADDEDNDUM III For Engineers—Sustainable Systems
ADDENDUM IV Creditor
Proofing
Appendix A Suggested
Essay Questions (For Architects, Artists and Engineers)
Appendix B How
to Present Effectively (‘Bull
Appendix
C Student-led Lectures
(FAQ and Answers) (For Architects, Artists and Engineers)
Appendix D CPM
Assignments (For Architects, Artists and Engineers)
Appendix
F Design Assignments and
Cost/Benefit Analyses (For Architects, Artists and Engineers)
Appendix G Sample
Final Exams (For Architects, Artists and Engineers)
http://www.dramatispersonae.org/DesignEconomicsFrontPage.htm
http://www.dramatispersonae.org/