DesignByThem

Dorothy

Nicholas Karlovasitis and Sarah Gibson are the young business owners of industrial design studio, DesignByThem.

As young designers who launched their own business after graduating from the University of Technology, Sydney (UTS) in 2006, Nick Karlovasitis and Sarah Gibson bypassed the traditional path of working for others and establishing a name in the industry.

Today, Nick and Sarah’s DesignByThem range includes furniture, lighting and accessories, all of which balance a definite sense of fun with clear-cut function. Their products also reflect an understanding of sustainability in design and a commitment to local manufacturing.

They also provide industrial design consulting services to a range of clients in many different fields, creating a diverse range of products, from medical through to fashion hardware.

Creativeinnovation.net.au spoke with Nick and Sarah about the process and challenges of starting a design business as graduates.

Sarah Gibson and Nicholas Karlovasitis

Sarah Gibson and Nicholas Karlovasitis

What inspired you to launch DesignByThem?

Sarah Gibson:
We wanted to start Design By Them when we were back at uni, and we had seen a lot of people that had graduated who were finding it really tough to get their products manufactured and a lot of Australian designers chase work overseas, e.g. furniture manufacturers in Italy and the Netherlands.

So we thought it would be a good idea to start something like that here. Were not the first to start something like that but the idea was that it would be a collaborative business that brought in other designers. And also that it was run by designers so that we could understand where the designs were coming from and make it beneficial to them as well.

Nick Karlovasitis:
We worked for other people for a while but I think we always intended to be self-employed in Australia. Our intention never was long-term employment with someone else. We thought: we are young, we have nothing to lose, take a punt and see where it ends up.

Sarah Gibson:
As a designer you usually have to spend a good few years doing the hard yards. So we thought we could try it and if it doesn’t work out then we would have developed our business management experience. It’s good to do it when you’re young as you don’t have kids or a mortgage or anything like that to lose.

Nick Karlovasitis:
I did the ‘hard yards’ at a company. I think I was a bit burnt out (laughs). We were fortunate because we had some really good contacts at UTS and they knew what we wanted to do and they gave us the biggest hand in setting us up because they gave us something to fall back on. They said quit your job, pursue what you want to do and we can offer you one or two days here tutoring or lecturing. As we built up the business they were quite accommodating. The people at UTS were great.

Sarah Gibson:
Instead of working nights at a café and then coming to work the next day and being really tired you could work in an area that was related to what you were doing and you could see students and what they were creating. When I first started I was doing three jobs!

But then it was great to fall back on teaching; just doing a couple of hours a week in a field that’s related to your business.

Cathy Lockhart and Douglas Tomkin (Industrial Design at UTS) were very supportive in helping us to get started at the university and as consultants on projects such as Designing Out Crime.

'WebLight' DesignByThem

‘WebLight’ DesignByThem

How did you calculate the risks/returns of entering this market?

Nick Karlovasitis:
Sarah did a small business management course for six weeks.

Sarah Gibson:
But there is only so much scenario planning you can do with our type of work. So really most information came from speaking to retailers and industry and slowly you start to pick it up.

Nick Karlovasitis:
A lot of it depends on the success of a product that you launch – so you can’t easily estimate how many units you will sell based on the existing market. It’s funny because looking back at our first business plan, we thought we were going to sell so many units. What were we smoking!

Sarah Gibson:
We were so optimistic – we thought we were going to pick up all these retailers so quickly, for X price and X amount. At least it gave us an optimistic outlook.

Nick Karlovasitis:
Going in there blindly optimistic was a good thing whereas a lot of people get put off, they think its too hard. But if you just go in and you’re a bit naïve, it actually helps. We didn’t think we were going to make a profit for the first five years. We prepared ourselves.

However, Sarah thought it would be in the first two years; she was a bit more optimistic. It was a big investment, we were going to take our time but we actually made a profit every year except the second year. That is interesting because we didn’t hit any of our targets either for the first three or four years.

Sarah Gibson:
We always wrote business plans. If there is a competition or something it forced us to get organised. We used those opportunities as a way of forcing us to write the business plan. If you don’t have a deadline you are never going to get it done. So it comes in spurts, and we don’t refer to our business plan all the time but it’s a concrete starting point.

Nick Karlovasitis:
One of our friends is a financial analyst and so he takes all the emotion out of our decisions. He is completely heartless about decision-making and says ‘no, scrap that, that’s a waste of time’. We bounce ideas off him and its quite funny because he calls me up from work sometimes when he needs something creative. Its handy having people like that who you can ask for advice and they will give us a new perspective, like ‘you’re putting so much energy and money into that, you can see it’s making a loss, just cut it’.

Sarah Gibson:
And we take it on board, but sometimes you still stick to your guns because that’s your creative instinct.

How would you describe your business model?

Sarah Gibson:
The business is broken into Products and Services. Products is divided into two markets that we sell to – the specifier market – made up of interior designers and architects. This includes the sale of products directly. And there’s the wholesale market for retailers in Australia, which is primarily design gift stores. If you were to look at the Services, it is very varied but its product design consulting.

Nick Karlovasitis:
And that really varies, that is where we have a huge variation in clients and projects.

Sarah Gibson:
But it’s the clients that come to us – it’s not something we chase. We work on projects that we think are interesting and that’s been very good because it’s given us an income that we can feed into product development. This generated the majority of our income during the first two years. So, we still have the consulting but as we have more retailers and products we will need to even more selective due to time constraints.

However after five years, our products have overtaken consulting services now.

Nick Karlovasitis:
With consulting we only try and take on three or four projects a year. We want them to be interesting projects. Sometimes they are not even great money-makers, but in saying that, they contribute to the brand and we’re always learning by working with clients in fields like fashion and science.

What were your start-up costs?

Nick Karlovasitis:
It was expensive because we started with nothing. That was the biggest mistake. We didn’t start up with any capital and we didn’t want to borrow from friends or family.

Sarah Gibson:
So we used personal finance to run the business because you can’t get a business loan within the first three years of business operations. They won’t let you unless you have a guarantee, like someone’s house.

Nick Karlovasitis:
I don’t think many people feel comfortable with that.

We always had offers of financial assistance but we thought that the business should be able to run itself, on its own funds. That meant borrowing money ourselves or through the business, so that the business could eventually pay it off. We needed to prove to ourselves that it was viable – that the business could work.

Sarah Gibson:
The upfront costs weren’t too bad – however 3D software and product development were the most expensive. In terms of our overheads we kept them quite low. When we started we rented a much smaller space and shared this with another team. That definitely helps you as a start-up – it’s about keeping overheads low for as long as possible.

That’s how you can be competitive as well. You can have a higher profit margin on your products when you don’t have to pay so much rent. Also in terms of product development costs, we were quite conservative (after the first project which we learned from), especially in R&D.

By investing small amounts and learning from those decisions so that now we can invest a lot more based on our experience. If you can invest small amounts and try a few different things and not just put all your eggs in one basket when you start off, that does help.

Nick Karlovasitis:
In saying that, one of the things we find with some other furniture designers is that they focus on a single prototype. So they’ll spend a lot of money doing a prototype of a chair rather than running it through a production process and producing 30 chairs.

There is no point in investing $5,000 to make one chair and then going to the production process and making all these changes. You are better off putting that $5,000 into the production process. You will probably end up spending twice as much but you will have some product that you can sell at the end of it.

It’s all about being able to take risks. I think that is what separates us from a lot of our friends that wanted to do something similar. It is just about saying ‘I’m willing to go into a bit of debt and back myself, put $3,000 on this and $5,000 on this,’ and if it doesn’t work out then you learn from it and wear it.

How many staff do you employ now and in the beginning (2006)?

Sarah Gibson:
We recently hired our first employee because at the moment 80% of our time is spent on operations or logistics and 20% on design. We’ve become very efficient at product development. We fit in our design time around everything else and I design in my head a lot these days. I am always thinking and designing.

Nick Karlovasitis:
The way that we get our design time is by tying this into the business operations. We have a product development board so we can clearly see what we are doing. Without that it becomes difficult to push projects through. This has been good in terms of making sure we are constantly moving forward as it allows us to pick a particular product and just make sure that we initiate and complete it.

Sarah Gibson:
We’ve also got one or two interns working with us a couple of days a week. We sit down in the morning and have a design session, even if it’s for 15-20 minutes, before we jump into operations. Then we jump back into design in the afternoon, if we have time. That puts us in a good mood and it’s something fun to do.

Nick Karlovasitis:
Because we had invested in product development and equipment we decided to make an investment in people. This is why we recently hired someone to take the load off us with the operations. That way, we can focus on design and growing the business. It’s the right time.

'Butter Stool' DesignByThem

‘Butter Stool’ DesignByThem

You are coming up to five years, are you going to revise your business plan?

Sarah Gibson:
We’re actually focusing more on the operations manual because of having a new employee. We need to get the HR sorted out. This is linked to the business plan because its implementing systems or ideas that we have from the last plan we wrote. So we will look at that first and then do another business plan next year. We’ve got to get better at reporting so we can use those insights in the next plan.

Nick Karlovasitis:
We don’t really have that many business insights. Most people use their bank balance as an insight but it doesn’t factor in all the other things such as an increase in sales stock. You might think ‘my bank balance isn’t growing that much’ but that does not reflect your investments in assets, you’re new retailers, or an investment in new stock. So of course your balance does not reflecting that right now, but in six months – what will the situation be? That’s why we need deeper business insights.

All of our systems have really been designed for two people, just for us. So were looking at developing systems for simple things like regular days for packing things, what will our contacts be, what IT systems will we need to make business more efficient. These are really simple things, which are boring but can you save hours.

Sarah Gibson:
Systems give you piece of mind so that you are not worrying about that side of the business as well. If that is all sorted then you are much more fresh so you can just focus on design.

What were the key business stages you went through over the past four years?

The first year was a steep learning curve. It really was, every day, ‘oh god’.

Sarah Gibson:
But it wasn’t that very busy either, that’s why it was really tough. It was frantic but not because we had to get stuff out the door, but thinking constantly of, ‘what do we do’ to set up the business.

Nick Karlovasitis:
We were really lucky – we always had work so we never experienced not having clients. We were really fortunate in the first year. We had regular clients. We weren’t selling products. So it was all about planning and learning, because Sarah did the small business course. We were just starting to get in contact with some retailers, but we didn’t have a range to offer them.

Sarah Gibson:
The second year was about trying things, like marketing, and thinking, ‘how do we expose ourselves?’ We started to produce products but it was a steep learning curve because we quickly realised that that was just the beginning. You’ve really got to work out how to promote your products and who to speak to, so it was all about marketing.

Nick Karlovasitis:
In the third year we had great products and we were supplying to retailers and we were reliable. That was a test for us. So the focus was on developing customer service. It was also about managing manufacturing because up until that stage we only had a handful of retailers so we never had that pressure of ‘we’re going to run out of stock’. All of a sudden we had a few more retailers and it wasn’t that easy any more because we need to start planning, and that’s when cash flow started coming into it.

Sarah Gibson:
You think in the third year that the cash flow thing is easier but it’s actually harder because you have to invest it as you have higher demand.

Are you going to take your products overseas?

Sarah Gibson:
Yes definitely. However for now we are quite enjoying it and just making sure that we get it right here first. I don’t think there is any rush especially in the current economic climate.

Nick Karlovasitis:
When we do go overseas we want to be really ready. We went overseas last year and had a look around and spoke to retailers and designers and we always had the idea of using Australia as a test bed, and we didn’t think we could be profitable in Australia alone. It’s been quite nice to find out that it is profitable. When we started, we thought we were going to have fifty retailers in Australia and after three and a half years we only had twenty.

Sarah Gibson:
That’s when we realised we were being optimistic for such as small country in such a niche market. We’re pretty picky about who we sell to because that’s your brand as well. If your product is seen in a pharmacy as opposed to a design store, that’s going to affect your brand.

What strategies have you used to increase sales?

Nick Karlovasitis:
Over the last three months we managed to double our retailer base.

Sarah Gibson:
We did this by attending a trade fair in Sydney – which was a risk. But now we have enough retailers to be commercially viable here and test ourselves for an overseas market. You can’t test yourself if you only have ten to fifteen retailers, its not enough.

Nick Karlovasitis:
I was reluctant at first because the trade fair cost $4,000 and I thought we could invest in another product. However, Sarah said, let’s just test it out. It’s given us more confidence in the products.

We now need to load the business with some real strain so there’s strain on the inventory and cash flow.

What are the primary traps for start-ups in this sector?

Nick Karlovasitis:
Not spending money (because that means not taking risks), waiting for a grant and a lack of planning. Yes you can design something really nice but how are you going to turn that into income?

Sarah Gibson:
Most creatives are all focused on the idea and not making them happen.

Nick Karlovasitis:
I think you need to remember you’re in business. You’re not just a designer who works in a company; you’re the whole business. You need to think; I’m going to create a design and turn it into dollars using so and so method.

What challenges do you face looking forward?

Sarah Gibson:
I think making the business scalable. It’s all very well to try and make profit but you have to be able to work out things like resourcing, how many people can we bring on board. Even if your product and retail base is growing – so will everything else in the business, so you have to be able to keep up with it. I definitely think that this is going to be a focus for us.

This article was originally published at Creativeinnovation