Making profit from property

The UK design industry needs to wise up and take advantage of the value created by intellectual property, says Peter Matthews

Design consultancy is a crap business model. At least 27 years’ experience tells me that it’s deeply flawed and only really works if you’re very small or very big. Since Nucleus has been medium-sized for most of its existence, it has often been hard work managing the unpredictable peaks and troughs of this project-based industry.

To ameliorate this, we tried many things. We diversified by founding a management consultancy; we opened (and closed) offices in new markets; we innovated by co-founding Internet start-ups. But we never found a scalable way to ‘make money while we sleep’.

The conundrum for all consultancies is that you get paid to create value for others. That’s fine if fees are McKinsey-esque, but in the fragmented design industry – oversupplied with skills, yet prone to breakaways that set up shop for peanuts and charge for their time like monkeys – fees are always under pressure.

Eventually, around 2002, having just bought Nucleus back from the company we had sold it to 12 months earlier, the solution became clear – understand how to exploit intellectual property.

IP is the stuff we create for clients and sell for the time it has taken us to develop. As one of the few brand consultancies that specialises in all things Web-like, we have closely observed how the Internet is changing the value of IP. On the one hand, it’s undermining the value of copyright by enabling free access to original content and, on the other, it’s creating opportunities to realise value from IP that can go global in months.

I’m firmly of the opinion that the West needs to get a better handle on IP, as it’s the only way to create and protect value from our knowledge and creativity now that we can no longer compete with the East for manufacturing and services. So, figuring out how to make money from our own IP became central to our strategy and that’s why we took the unusual step last year of acquiring Hallmark IP, a London firm of IP attorneys.

Result – a new Nucleus business model. At its core remain our consulting projects, focused on interesting assignments for interesting clients, and now offering an integrated brand IP life-cycle service, from creation to protection to enforcement. Alongside this sit our Internet and IP-managed services, which provide us with long-term contracts and predictable revenues. Together they form our core business ‘engine’.

Then, reinvesting much of our core profit, we practise what we preach by backing our own ideas. We use our specialist knowledge gained in consulting work to identify unrealised opportunities, based on what consumers value in this time-poor, information-rich world. We then design clearly differentiated proposals backed by enforceable IP rights that address those needs and launch them as fully operational businesses.

This strategy enables us to continue to be at the leading-edge of consulting, but also to realise value from our own IP, as each venture can be spun out of the group in the future. Interestingly, our clients love what we’re doing because it proves our understanding of operational issues and provides clear evidence that we know what we’re talking about.

For a supposedly innovative industry, design consultancy hasn’t changed much in the past 27 years, but the world has. As ‘old media’ tries to adapt to new ways of doing things, so must the UK design industry. If you want a fair share of the value created in this process, then you need to move into the IP business and start backing your own ideas with your own money.

Peter Matthews is the group managing director of Nucleus

CREATE MORE VALUE FROM WHAT YOU DO

• Decide whether you have the stamina to sustain the ups and downs of the traditional project-based business model long-term
• Identify how you can supplement consulting income with more predictable revenues, such as managed services, licensing, ventures
• Define what level of risk you are comfortable with

WISE UP ABOUT INTELLECTUAL PROPERTY

• Understand your own value chain and the role of IP within it
• Assess the value you create for your clients and consider different ways of charging. You could measure returns (and have the cash flow to support it), and consider risk-reward pricing
• Educate clients about the importance of IP; they will argue less about fees when they realise you are creating tangible value for them

DEFINE A CLEAR BUSINESS STRATEGY

• Identify how you can capture more value from your knowledge, creativity and expertise