Lessons learned – Architectural sims

Posted September 24th, 2017 by russfrazierwp and filed in Business and Economy
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In 2005 I created an LLC, Synthegenic, that was intended to be a vehicle for commercializing ideas. I had just completed an MBA and was certain that if I worked hard at applying all that business knowledge, I could achieve financial independence – the closest thing to true freedom that I can think of.

I spent a great deal of time developing software, writing business plans and doing a lot of government grant application research. Having gone through the NCSU HiTec program, I was experienced with working on the commercialization aspects of brand-new technology. At that stage of technology development, it isn’t clear whether a technology will ever make any money, or if it is even useful for anything at all.

I created a fuzzy-logic based expert system whereby I could screen ideas very quickly for economic potential. This sort of application is not unheard of in some organizations, as it’s well understood by management researchers that ideas fall like raindrops but only a very few end up being economically feasible. The more quickly an organization can screen the unworkable ideas from the workable ones the better.

Well, one of the ideas that got through my sieve was a sort of architectural design simulator. A 3D application and system that would allow architectural clients and designers to engage in self-directed walk-throughs of designs. Like a First Person Shooter (FPS) game or Second Life, the client would log in to the system, download the “map” and be able to walk or fly themselves around the site. However, unlike an FPS game or Second Life, the site would be limited to just the project design, would be updated as necessary continuously throughout the project design period, would be available to clients only and would have features to alter the design, accurate ephemeris data for sun and moon, lighting, shadows, weather and the surrounding ambient environment, including sound.

The vast bulk of configuration work would be behind the scenes.

I envisioned a technology-based service that would shift the tedious, time-consuming and frustrating computer software work away from architects and onto a dedicated team of Computer Aided Design (CAD) engineers. Architects would find this attractive because it would free them from work that wasn’t design-related and it would improve the way they communicated certain design ideas to their clients.

During the entire phase of a project, the virtual site would be available, first perhaps populated by a simple naked ground site, then with simple sketches and then with increasingly solid structures and landscaping as design elements became more certain. All that is quite possible with modern game development technology. My main development focus was building this application system.

The several people I discussed the idea with were more enthusiastic than I anticipated. Almost all of them thought it was a good idea. But, as indicated above, a good idea does not mean it can drive a viable business model. A lesson I learned in business school and took to hear

My thinking was that I could find a collaborative architectural partner who would be willing to help me work out things like:

  • How to quickly and systematically convey an abstract hand drawing to the CAD engineers so they could make it into an equivalent abstract foreground object for the simulation
  • How to convert Autocad drawings into a format the simulation system could use
  • What kinds of ideas are best conveyed in a simulated environment and which ones don’t carry over.

I badly needed to check the viability of the business model. I created a business plan for the project which included a model showing what the proposed prices would look like for an architectural firm that wanted to use the service. The way I saw it, architects would only be able to justify an additional cost like that if they could cut costs somewhere else. I had no idea if adding the service would result in reduced costs elsewhere for them. I was fairly certain that nobody in the architectural field would pay for an extra service without being able to cut something else out. They were already expensive and adding additional services would only eliminate more potential clients.

The other side of the business model was true cash flow from operations. I could squeeze out a one-digit IRR by increasing the number of projects and having personnel run multiple projects simultaneously. I used a reasonable cost of capital derived from proxy firms, but it was significantly higher than that IRR. I was not willing to assume outsourcing CAD work to a low-wage country or things like harsh and inexpensive work environments. That whole picture made it less and less compelling to investors who might want their 30% in five years.

One warning flag came when I was doing research into similar firms. I did find a software project that embodied the same ideas. It apparently didn’t take off and become a growing business concern. It didn’t look to me like it was ever sold as a stand-alone technology. So there was something going on with the business assumptions around the whole thing. And I was likely to make the same assumptions.

It was clear, after creating these business models, that

  1. The project would be operating on a thinner margin that I hoped and
  2. That there was no guarantee that the architectural firms would buy it.

Those were two key considerations.

Even after all that doubt, I had managed to set up a meeting with a local architect, just to get a reaction. Well, I got a reaction, but it wasn’t what I expected. She interrupted me before I could finish the entire presentation and declared the thing no different than SketchUp. SketchUp is for modeling. My technology is more like a customized FPS game where the modeling is done elsewhere and multiples users can log in…

Anyway, I was not prepared for a negative reaction like that, and did not even know how to respond. I had completely expected at least a courteous response, if not an encouraging one.

One takeaway that I can claim from that experience is that objective truth is no match for human bias. And that my salesmanship was poor. Sales people know that people might react in hostile ways and they know how to respond appropriately.

The other takeaway is related to overcoming barriers to entry. There are understood barriers when a competitive product or service enters an existing market. But when the product or service is brand new and unknown to the potential market, the barriers are completely different. The standard strategic considerations of economies of scale, differentiation, etc. don’t necessarily apply because there isn’t any historical record yet to base any of that on.

I think my initial instinct of finding a development partner within the customer community was correct. It is essential to develop a new unknown technology or service with guidance from the customers. And a brand new product or service that was already being used by an early adopter or thought leader within the customer market would make it easier for others to accept it. However, I overestimated my own ability to sell, my ability to be effective outside my field, and I underestimated human bias.

I did not trust my cost of capital estimate when I should have admitted that it looked prohibitive, given my requirements of fair compensation and realistic expenses.

Finally, my screening tool did not have the necessary additions required to estimate the barriers associated with introducing a novel product or service. It assumed acceptance associated with novelty, not rejection.

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