It’s hard to imagine a design firm with a more eclectic portfolio of products: an infinity-shaped chandelier of Swarovski crystals, a catalog of cheap colorful glasses for myopic Mexican children, a sleek step-counting bracelet for fitness junkies, a laptop with a child-friendly UI for techno-disadvantaged kids, a hip little stereo speaker for audiophiles, a sleek set of vibrators for the ladies, a gadget to let you make your own soda, and an environmentally friendly garden watering system, among others.
The contradictions embodied in that line-up–glam goodies for the 1% cheek by jowl with life-enhancing products for the bottom of the pyramid–start to make sense when you consider the designer at the firm’s helm: 47-year old Yves Béhar, born in land-locked Switzerland yet never more at home than when he’s riding a surfboard onto a Northern California beach.
Last week, Béhar’s firm, San Francisco-based fuseproject, struck a deal with the Chinese marketing conglomerate, BlueFocus Communication Group, that would give the Chinese a 75% share of the company in exchange for what the Financial Times reported was $46.7 million. Béhar wouldn’t confirm the number.
As the design industry buzzes about what that deal might mean for fuseproject, Béhar insists he’s confident that his firm won’t lose its soul, or need to rethink its business model, in exchange for the infusion of cold, hard cash. Which is, of course, easier said than done.
Fuseproject has a venture design-based business model, which means that the firm often takes an equity stake in its clients’ companies. Béhar and his partner, Mitch Pergola, first launched their venture business model while working with Aliph, the firm behind the Jawbone headset. Fuseproject had been hired to design the first version of the jewelry-like device, with its sophisticated noise-canceling technology, back in 2004. Despite glowing reviews in the design world, the device had connectivity and distribution problems that did it in, and Aliph went from 20 employees down to four.
But Béhar still believed in the product and wanted to keep improving it, even though the company had no money to pay for outside design help. So Béhar approached Aliph’s CEO, Hosain Rahman, with a different idea: instead of offering the work-for-hire arrangement typical of many design firms, fuseproject would take an equity stake in the company. Not only did that model work for Jawbone, but it realigned fuseproject’s broader business strategy. By sharing in the success of the projects they germinated, they could sell value, not quantity. The royalties they’d earn from their partnerships would free them from the mandate to constantly hustle for new business and add headcount, only to have to lay people off when business was thin.
Fuseproject’s model ultimately evolved into a tiered structure: at the base, traditional strategic engagements with clients like Samsung and Johnson & Johnson; those help to support more speculative equity partnerships with young companies like Edyn and Y Water. The combined returns of those two allow the company to take on social impact projects like One Laptop per Child, or See Well to Learn, the Mexican eyeglass initiative. “We bootstrapped the venture design approach and now are working with 25 companies,” Béhar says. Other design firms have since adopted variations of this model, helping to incubate new companies in exchange for a piece of the action. “In many ways this partnership model is the future of design,” Béhar says.
With the BlueFocus acquisition, fuseproject will be able to expand its business model, Béhar says. “Over the past seven years, we’ve been approached by other companies–from big corporations to Internet and IT firms to big advertising conglomerates,” he says in an interview. “But if that meant we would lose our independence to work on a variety of things in venture mode, it was a no-go.”
For BlueFocus, the fuseproject acquisition is the first step in launching a network in the U.S. According to Ad Age, the company hopes to increase its revenue 10-fold within 10 years, with 33% of its business to come from outside China. Last year, it bought a stake in two London-based firms: Huntsworth, a PR and health-care agency, and the social-media agency We Are Social. Béhar says BlueFocus plans to build a design-centric group in the U.S. and, as its first American acquisition, his company would be in a position to help define what that means. “I’m excited about taking that idea and building it to scale,” Behar says.
The BlueFocus deal, Béhar insists, is not designed to fund a bunch of fuseproject offices around the globe, although he won’t rule that out. “I’m not sure about other offices,” he says. “We already have deep and long relationships in Europe and Asia, and it hasn’t been clear that some of our clients even want us to be in Europe. They like the Silicon Valley spirit we bring–the sense of being deep in a dynamic startup.”
Nor, he says, is the deal about being able to pay competitive wages to designers who have become the Valley’s newest darlings–with compensation packages to prove it.
“Our people get approached all the time,” he says. “But the team (of 75 people) has been extremely stable. Their ability to affect the end result of an exciting project rather than disappearing into the ranks of thousands of employees in a large corporation is what attracts a lot of people here.”
Béhar says that BlueFocus funds will help give his business a stronger foundation, and let him be more aggressive in building the venture design model. And the company’s “generous” bonus pool is fed by returns from the venture partnerships.
He points to some of the company’s most recent venture projects: Edyn, a garden sensing system that lets people manage what they grow more efficiently–a potentially huge idea, given the current West Coast drought. And August, a smartlock system that lets you manage your home’s security from your smartphone or computer.
“One of our core values from the beginning,” Béhar says, “is editing. That means being an editor of the type of projects we work on, the outcomes, and results. It’s never about feature creep. It’s always about fulfilling the highest quality in a way that is most efficient and intuitive.”
Unlike some other Valley firms, fuseproject doesn’t bring a bunch of startups in-house, give them a few months of intensive instruction, and send them on their way. The equity models allows the firm to make fewer bets, but stick with them, Béhar says. “We take our companies all the way. We don’t give them a kick and see where they land.”
There are hazards to taking on a big-bucks partner. After popping the Champagne, and doing the relentlessly positive press tour, the hard work of a business marriage begins. Who does the dishes, who takes out the trash? Who sets priorities? Who picks the projects? Who’s watching the bottom line?
Joe Duffy, creative director and founder of Minneapolis’s Duffy & Partners, has seen, all too closely, what can happen when you sell your company to an outside firm. In 1989, he sold his company to the Michael Peters Group in London. Duffy was thrilled. But Peters was a better designer than businessman and the firm went belly-up in a year.
Lesson learned, Duffy says: “Do your homework. Michael Peters was one of my all-time heroes, but I thought of him relative to the work he did, not the company he ran.” Duffy shut his group down to avoid spending two years in London bankruptcy court.
He then rejoined his former partners at the midwestern advertising agency at Fallon, which was purchased in 2000 by the giant advertising conglomerate, Publicis. It was an opportunity to go global, and the group opened offices in Singapore, Tokyo, and Sao Paolo. The ugly underside: Duffy found himself constantly on planes, and managing creatives around the world.
Lesson learned? “If you’re managing that many people in that many places, you have no time for creative direction, let alone design. My fear, for somebody like Yves, is that he’s a hands-on designer. Yes, I was able to have a global impact, but I wasn’t doing what I love, which is design.”
In 2003, he decided the trade-offs weren’t worth it, and he left Publicis to open his own shop. Again. “If you’re independent you have control over who you work with, work for, what clients you take on, and how big a machine you build. When times aren’t good, somebody else will tell you what you have to do. You have to go to board meetings, and you may have to work with assholes who don’t think about design the way you do. The control you had is gone.”
Having seen the tricky business of corporate partnerships from both directions, Duffy has some final advice: “I learned from my mistakes,” he says. “Be really careful of who you’re getting in bed with, who you’ll be sitting across the table from, and who will make decisions that will control your life.”