Strengths of Optimized Business Models in Response to the Industry Analysis
The business models described in the first chapter all take advantage of the industry analysis findings including Porter’s Five Forces and the current trends. However, they do so in a different manner. The traditional business models rely on specialization that depends on the trends, while the alternative business models actually target some of the driving forces. In this chapter I will discuss how each business model was built taking into consideration the industry analysis and aim to identify the better models within this dependency.
1. Design Architecture Firm
2. Local Architecture Firm
3. Market Architecture Firm
4. Niche Architecture Firm
5. Efficiency Architecture Firm
The models listed above are traditional business models in the architecture industry that are based on specialization within the industry. Firms that follow these models are positioned in the market based on project type or location. The choice of project type is frequently related to the trends such as mixed use buildings or senior housing. Note: some project types that are based on trends are more profitable than others. My interviewees all mentioned that specialization is a key to stay competitive in this profession, get projects and stay profitable. This is true for the traditional business model types and can be a great advantage in other business models as well. However, these firms are still competing for the limited number of clients unless they have a relationship with a frequent client. It works for the established firms to have these business models, but for small start-up architecture offices it is nearly impossible to specialize when the market is full of experienced professionals.
6. Non-Specialized Architecture Firm
The start-up architecture firms that are trying to follow the traditional models often fall into the trench of being a Non-Specialized Architecture Firm. They take any project that they can have and in the end do not gain a level of experience in any particular project type. This position should be avoided by all possible means as it leads nowhere.
7. One Stop Shop
This particular business model already starts targeting the Porter’s Five Forces Analysis findings and eliminates the power of supplier and the power of substitute. The power of architectural consultants such us mechanical or structural engineers is high (supplier). By creating a partnership with some of these consultants, a firm essentially eliminates having to bargain with these consultants. Instead they start referring each other to potential clients and thus increase profitability. In addition, because the contractor is part of the equation, the power of the contractor as a substitute will be limited because of the mutually beneficial partnership.
8. Architect-Contractor Firm
The power of contractor as a substitute is effectively eliminated in this business model. This leads to better profitability by gaining back the portion of work that the architect used to have, while being in a central role and acquiring even more scope through being a contractor. In addition, it allows for better design quality control through the construction process.
Note: both One Stop Shop and Architect-Contractor models will greatly benefit from being positioned in the market similarly to the traditional models, but since they are eliminating some forces they have even more opportunity to be profitable.
The disadvantage of these models is that building relationships with partners is a time consuming process.
9. Architect-Developer Firm
This business model eliminates the strongest force that threatens profitability, which is the power of the buyer. Also, in contrast with other models that were discussed, this model does not require a deep specialization in any area. It can actually be a way to enter a desired market for a startup architecture firm. If calculated properly this can bring good returns to the firm.
The disadvantage of this model is that getting the funding is a difficult process, but it is possible to start with small projects that are self-funded and later grow into larger projects.
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