technology | Nov 29, 2023 |
Design Manager’s new CEO wants to build a community

Investors like to talk about something called the “power law”—a term borrowed from mathematics and absorbed into venture capital lingo—and how it explains the cutthroat dynamics of doing business online. Roughly speaking, it refers to the phenomenon of one or two players in a market exponentially growing, eventually coming to totally dominate the field, crowding out or buying up the competition. The power law can help explain why we have one Google and not 10 competing search engines; one Spotify and not a vibrant landscape of different music-streaming platforms.

Power law dynamics are real, but they have not yet come for the world of project management software—there is still no one tool that everyone uses. That creates a dilemma for designers (“Should I use Design Manager, Studio Designer, Houzz Pro, Mydoma, Indema, Design Files or Style Row? Wait for a new tool to drop? Or just organize everything in Excel?!?”), but it also creates an opportunity for established players and entrepreneurs—the trophy is still there for the taking.

That opportunity helps explain why last year, 1stDibs was able to sell the longest-running project management software in the game, Design Manager, to Chicago-based private equity firm Performant Capital for $14.8 million (1stDibs says it netted $9.7 million on the deal). Now, a year after finding itself under new ownership, Design Manager has a new CEO: Kevin Lee.

Lee comes from tech, not home, but since starting the role, he has put himself through a boot camp of sorts, attending High Point Market and Dallas Design Week and meeting with designers at every level of the industry. Business of Home chatted with the CEO about the project management software landscape, the biggest challenges ahead, and why he wants to build a community—not just a set of tools.

Why is there no category-dominating project management software in this industry?
If you look at the cross section of how design businesses work, there are three facets: The designer wants to manage the project and the client relationship. The procurement manager wants to manage all the goods that are coming in and out. And the accountant or business consultant wants to know, “Are we profitable?” And if you look at all the software that’s available, there are really only two within this space that do all three of those functions—project management, invoicing and accounting—within one integrated system.

You’re talking about Studio Designer and Design Manager?
Everyone else punts the accounting piece away and says, “We’ll integrate with QuickBooks.”

It seems like there are a lot of startups in this space. What do you think is behind that?
There are two big dynamics. One is that the barrier to entry for development is much lower now—there’s “no-code” programming. You can develop a mobile and web app on the same platform using simple tools. You or I could get one up in 48 hours.

The second thing is that [all of these startups] have taken advantage of something that Design Manager and Studio Designer missed and are now picking up on. It’s that this is not a B2B business. It’s not just Design Manager selling to an interior design business [that only uses the software internally]. It’s Design Manager selling to an interior design business, and part of that software gets shown to a client. It’s really B2B2C, a business-to-business-to-consumer model.

These startups have picked up on the fact that they can develop something really quickly, and designers who use it can present an invoice to their client and it looks like—even if you’re a solopreneur that’s only been in business two years—you’ve been in the business for a long time. That’s something you’re going to see us working on [at Design Manager] in the next 12 to 18 months.

Big picture, what do you want to change about Design Manager?
For one, we’re going to be putting a more modern front end on the system. But we’re also going to be releasing capabilities that are very specific and unique to interior designers’ needs. At the end of the day, these are still small businesses, even the relatively large firms. And when you’re making business decisions that have to do with cash flow and capital, or how you manage hourly fees, profit and markups, it doesn’t hurt to [ask others], “Am I doing this in a way that’s going to be sustainable for my business long term?”

So you’re going to see us become less purely transactional and more: “Yes, you can do the transaction in our system, and if you would like support from our community, we’re a place for that as well.”

How would that work?
I spent my first three months here immersed in shows like High Point Market and Dallas Design Week, and I went to a retreat with about 40 designers to learn how they think about business. The feeling I came away with is that to start an interior design business and run it well, it takes a village. What we’re doing is creating an ecosystem so that at any point, you can turn to who you need to—someone that is not only the appropriate role, but the appropriate “sizing,” if you will. What you need to pick the right receiver as a solopreneur is very different from someone who has 16 designers on staff and wants a different receiver because they’re moving to Jackson Hole, Wyoming.

Would that entail actually hiring people to answer those kinds of questions?
We’re figuring it out. The implied network already exists today. There are a lot of people who consider themselves part of the Design Manager community, which I’m really proud of, but we’ll be formalizing that over the next 12 to 18 months.

In some situations, they’ll be pointing us to the right questions, the right answers, and the right audiences for those questions and answers. And in other cases, they’ll actually be delivering those on our behalf, and there’ll be some remuneration for that.

Interior design is famously an industry that is slow to adopt new technology, and I imagine a lot of designers get comfortable with their tools and don’t want to change. Are you trying to get people to switch software, or are you just focusing on new designers?
There’s a lot of the market that’s still available, either because they’re on a system they’re dissatisfied with, or they’re cobbling together a little bit of QuickBooks, two startup tools, some things on spreadsheets or on paper—that sort of thing. So we’re coming to those people and saying, “We can save you time, make you more money, and make you more predictable from a business perspective.”

The other thing you’re going to see us do in the next 24 months is make our system more componentized, so you don’t have to buy the entire thing—you can just take invoicing, or project management. You can pick the components that make the most sense.

Why not try to sell people on the whole thing right away?
A lot of the time, [design firms will tell us], “My burning problem right now is I have to send an invoice. I’m doing project management in Excel all day long, but I’ve already spent $75,000, and I need to get a $100,000 retainer yesterday.” They have an invoicing problem, so they’ll go pick an invoicing tool, and then three years later, they’re like, “Wait a minute, I’ve got three disparate tools. What do I do here?”

What’s the biggest headwind for you?
When I talk to people and say, “Hi, I’m the CEO of Design Manager!” a lot of folks know what Design Manager is, but then when I start talking about Studio Designer, they’ll be like, “Wait a minute—that’s a different company?” It’s like Coke and Pepsi. So I think that’s probably the biggest thing: We’ve got to break the Coke and Pepsi tie.

Performant Capital is a private equity firm. What’s the exit strategy for them?
One of the reasons I like Performant is that they’re interested in building an enduring market leader. And if you can build an enduring market leader in a vertical niche with recurring revenue and the ability to expand, you can take it to the next, larger private equity fund, as opposed to having to sell it to a strategic buyer.

Like 1stDibs for example.
Exactly. Because once you do that, [the strategic acquirer] has some strategy that you have to plug into most of the time, either through technology or through their sales force. Today, the way that it’s structured, we can stay independent and call our own shots. We can do what’s right for the business and for the industry, as opposed to trying to squeeze it into somebody else’s business strategy.

Maybe part of the reason there hasn’t been one category-owning software is that it’s a relatively small business. It’s a real opportunity, but it’s not a trillion-dollar opportunity.
In the world of private equity, there’s the kind that you see on TV and in movies, like Gordon Gekko. This is obviously not that. There’s also the kind I would call “house flippers,” which is: “I’m going to go in, it’s going to look good, but behind the scenes, it’s going to be bad materials.” This is not that either. There are categories of private equity where the expectations of their investors are not: “You’re going to make hundreds of millions of dollars on this thing.” This is: “You’re going to make a very nice return, because we’re going to bring in experienced management and we’re going to take a solid approach to an enduring business.” That’s what we have here.

Want to stay informed? Sign up for our newsletter, which recaps the week’s stories, and get in-depth industry news and analysis each quarter by subscribing to our print magazine. Join BOH Insider for discounts, workshops and access to special events such as the Future of Home conference.