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Business of Home Podcast
Seth Kaplowitz knows how designers should charge
01:10:01
Lawyer and strategic advisor Seth Kaplowitz specializes in working with designers and design world brands. Here, he shares his essential advice.
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This is Business of Home.
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I'm your host Dennis Scully. Every week I'll be speaking with leaders and innovators from all corners of the home industry. My guest this week is lawyer and advisor Seth Kaplowitz. Through his firm, the Kaplowitz Group, Seth occupies a unique niche providing both legal services and career guidance for designers and design world brands alike. His client list includes some of the industry's biggest names, but plenty of successful under the radar firms as well, giving him a good view of the full scope of the industry. I spoke with Seth about the evidence for why hourly billing is better than flat fees, what kind of press coverage really leads to new clients, and why the best thing a designer can give themselves is more options Foreign. This podcast is sponsored by Ernesta At Ernesta, there's a true belief in the transformative power of interior design.
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Founded with the desire to make getting.
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The custom size rug easier, faster and more affordable. Ernesta simplifies the process by hand, selecting quality materials and styles that appeal to nearly every sensibility and delivering each rug in as little as two weeks. Join Ernesta's trade program to lay the foundation to your projects with ease. Apply for membership today@ernesta.com BOH this podcast is sponsored by Sixpenny. Sixpenny is reimagining luxury at home with extraordinarily comfortable slip covered furniture for living, dining and sleeping spaces, plus distinctive tables and accent pieces. Their furniture is completely customizable and made by hand at their own factory using all natural linens and cottons, lofty cushions overstuffed with ethically sourced feathers or recycled fibers, all without the use of harmful chemical coatings. Since launching in 2017, Sixpenny has been featured in the New York Times, Wirecutter, Time and Architectural Digest says their best selling Neva collection is so comfy it doesn't feel real. And best of all, their President's Sale is running now through Wednesday, February 18th. Visit sixpenny.com BOH to enjoy 20% off orders over $1,000 using the code HIBERNATE. That's S I X P-E-N-N-Y.com Bohemia code HIBERNATE and now on with the show.
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Where I really wanted to start in this conversation is to talk a little.
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Bit about you and where you came from and how you came up in the world.
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We'll get to you coming into this industry, but there was a whole legal and a little bit of political path in your background. Let's tell people about that.
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You're gonna ask me to talk about politics.
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I'm just gonna. You can just stick to Bill Weld if you want to, but.
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So, yeah. I grew up in Massachusetts, and accordingly, I've been a New England Patriots fan since before they were good.
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A
I'm sorry for your loss.
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C
It was difficult. I grew up in a single parent household. It's just me and my mother. I went to college in Boston, and during my senior year of college, I got an internship working for Bill Welt, who was the governor of Massachusetts at the time. I was studying rhetorical theory in college with an eye towards being a speechwriter or in political communication somewhere. I started working for Bill Weld. And my job was to go to the State House. And bear in mind, this was in 1991. There was no Google, there was no functional Internet. So I would go to the State House at 5 o' clock in the morning, and my job was to read all the national newspapers, physically cut out the stories that I thought would be of interest to the governor and put them on the governor's desk by 8 o' clock in the morning. So that was kind of my initial exposure into politics. I did that until I graduated from college. And that summer was the election between George H.W. bush was running for reelection and Bill Clinton was running. We all know. We all know how that turned out. I got a look at the campaign from both sides. I was offered positions at the Bush campaign and at the Clinton campaign because of other connections that I had. And that's when I decided that maybe going to law school would be a better idea for me. I didn't enjoy seeing how the Sausage Gal got made, so went to law school at Syracuse in upstate New York, and recently discovered that one of my clients, Andre Malone, was at architecture school at the same time that I was there. Yes. And the architecture school and the law school are literally set apart on campus and right across from each other. So in my mind, I like to imagine that at some point in time, Andre and I were in the Same Bar in 1993. But I suspect that Andre was studying.
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A
And Andre says he didn't get out very much. He says he was. He was working so hard in school that he didn't. He didn't have much of a social life.
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Is.
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Is what he has shared. The poor guy working so hard at that darn architecture.
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Yeah, well, as somebody who works pretty closely with Andre, I don't find it hard to believe that he never left his dorm apartment or whatever studios they have in the architecture school. I thought about going to architecture school, but then Came to understand that it involved some modicum of math, which was non starter for me.
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But.
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But did you. But did you like studying law? Did you, did you like the dream of becoming a lawyer?
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There were things that I liked about it and things for me, going to law school really related to the concept of optionality. I feel that things are constantly moving in either one of two directions. You're moving towards having more options or having fewer options. Kind of the way that I think about things and how we advise clients is that we want to do things now that create more options later. You don't want to find yourself in a position where you're precluded from doing something because of something that you did a year or five years ago. So initially I viewed law school as just creating more options for myself. And then I started looking at the number of loans that it was requiring to propel me through law school. And I didn't really like the structure of it. And I was lucky enough to have made Law Review my first year of law school, which meant that I was recruited out of law school. So I went from there to a large law firm in New York City and did that for a while, then moved to a boutique law firm. And then ultimately I was seconded by a private equity firm based in South Africa and moved down there. Worked out of South Africa and Argentina for about a decade and really acquiring companies, going in, cleaning them up. And I think that's part of what leads me to believe that I can do the things that our firm does today, because I have that experience in private equity. And ultimately I decided I'd lived overseas long enough, I wanted to come back to the States and move back here in 2012 with.
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With what in mind? What were you, what were you thinking was next for you?
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Honestly, I was just thinking it's time to get out of the Southern hemisphere and go back home, so to speak, which was really New York. So I moved back to New York and I thought, well, I wasn't super interested at that point in going into private equity here in the States. When you're in emerging markets, private equity, regular private equity is not kind of as exciting. And the reality is, is that once you leave kind of the big law construct, there's not really an on ramp to go back in. So eventually I was talking to somebody and they suggested that maybe I start giving advice to people because a lot of people seem to be asking me questions. So it was recommended to me that maybe I utilize a quote unquote law firm model and charge Them for my advice, which we started doing in 2012. By 2013, I realized that I wasn't super interested in a lot of the things that my clients were working on. And at the same time, we were building a house in Massachusetts. So I went out there one week into a site visit and I started looking around the house and I wondered who was representing all these people. Who's representing the architect or the person who's making the built ins or the designer or, you know, the other trades that are involved. And, you know, upon reflecting on that some more, I realized that I was going to reshape the firm so that the requirement for admission was that you had to be making something, whether it was visual art or interior design or architectural drawings or vase or anything. I just wanted to work with creative people, in part because I felt like I could be a good translator for them, but also because I. I suspected that people who were in creative enterprises or endeavors, that they had gotten into them because they wanted to be creative, not because they wanted to be a contract specialist or an HR manager or an office administrator. And I thought that maybe we could start putting together something that would solve for that problem and empower creative people to be truly creative. And that was validated. When I was talking to a guy who makes chairs and I asked, how many people are in your studio? He said, it's just me. I said, oh, so who makes the chairs? He said, I make the chairs. I said, okay. So when he was overseas, I said, so when DHL calls, what happens? He said, I stopped making the chairs. When you get an order, what happens? I stopped making the chairs is how much time do you spend making the chairs versus talking to people about the logistics of making the chairs? He said, you know, it's probably about 50, 50. And that's when it occurred to me that I'm pretty confident that he would have rather been closer to 9010 in favor of chair making. And then I was off to the races.
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What you've just outlined through that story is what this industry struggles with on so many levels, particularly the solo entrepreneur who's just getting started in a design firm and often doesn't even realize how much time they're going to have to spend doing all of these other things.
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Beyond just the design work.
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And I take it that got you started on this path of wanting to help people figure that out.
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Yeah, I wanted to help people figure it out. And you come to find that these issues are evergreen even today, over a decade later of doing this, and with over 100 clients actively under representation. And those clients ranging from a solo designer in the middle of the country to obviously some of the top firms in the country, the problems are, or the concerns are fairly uniform. I can tell you without a shadow of a doubt that anytime somebody metaphorically walks into my office that I haven't met with before, I know the first three questions that they're going to ask me. Question number one, is my contract correct? Question number two, am I billing the right way for my time? Question number three, is my organizational structure the right structure for what I want to do? I always think it's interesting because there are so many different studios that operate in so many different ways. And if you go to three studios and ask them what a project manager is, you'll get three different answers. Although there are a lot of great industry organizations, I don't really see a lot of, you know, pure mentorship out there. And I think a lot of people are just kind of wandering around hoping that they're doing it the right way or the best way. What we really work with clients on is first and foremost just giving them the comfort of there being a very well informed group of adults in the room with them. And also everything that we do is different. Driven off data. Because we have so many clients and so many different geographies practicing with so many different underlying constituencies, we have a lot of visibility as to pricing in different marketplaces, pricing for different kinds of projects, best practices in terms of studio guidelines, hiring, firing. And at this point we really take on most of those things for clients, including handling their inbound traffic. Some clients, their infostudio.com goes directly to our firm and we respond in a way that it's the same way that we advise our clients to respond. So although studios are different and although we do have a point of view on what best practices are, what we don't do is we don't try to come in and just force around peg into a square hole. We do an audit. We look around at how people are doing, we ask them the fundamental question of where do you want this thing to land? And then we try to reverse engineer outcomes from there. Whether it's brand roadmapping or, you know, building a studio with longevity or a succession plan that's, you know, we try to listen to what our clients are looking for and then put that together for them.
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So as you and I have talked about in the past, one of the knocks about our industry is that if a client goes and speaks to 10 different designers about how much they charge or how they charge or where they make their money. They often get a wide array of different answers.
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Not if they speak to 10 of my clients.
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Well, well, exactly. And so that's what I want to get to. You make the point that you've got all this data, you've had all these clients for so many years. Sure, lots of different levels of clients, but lots of big, heavy hitters in our industry. You see how their contracts are, you see how they're charging. Do you feel that there ought to be much more of a set way of doing things than there is these days?
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Well, I mean, again, we don't try to superimpose anything on studios. We tell them our point of view, we let them know how we became to be of that opinion, which, again, was very data driven. And it's something that we keep revising in the background. And as a consequence, we have a feeling. We don't have a feeling. I'll just say it out loud. We know what works better. And I'm careful when I talk about this to make sure that we're talking about revenue, not profitability. I make the joke that if you spend $100,000 a month on flowers, we might not be able to help you with the profitability side other than to tell you maybe stop spending so much money on flowers. So we do know that studios that bill on an hourly basis and are diligent about tracking their time and invoicing their clients at the same time every month make more money than studios that engage in other practices. There are a lot of other positive benefits that we think come out of that. Most broadly, we think that designers have an advantage in that it's a super visual medium. And when someone comes to you and they've seen your work, they know that they're interested in having you make them a home. Now, there's really only two reasons why they're not going to do business with you. Either you're too expensive, which, quite frankly, unless you're young and just getting started and don't have very many photographs, we don't advise clients to lower their prices. Or the second reason is that they don't trust you to give you the keys to their house or give you somewhere between $1 and $20 million to buy things from all around the world and coordinate their transport and arrival at a central location and the proper condition and then install them all. And we think that the second issue, the keys to the house issue, is really a function of how a studio presents itself when it responds to inbound inquiries. Which is why we work closely with our clients on creating a process so they don't have to think it through every time. On the professional fee side of the equation or the cost of it, it is highly variable, both in terms of, let's call it market segments. What strata of designer are you? But also in terms of geography. But we came to this point of view by going through the exercise a number of times. That exercise would be that we would start working with studios who were predominantly flat rate. We would work with their employees to learn how to track time. And I frequently go to studios to lecture our clients employees on best practices of time tracking. And after we felt like we were getting good data out of the time tracking systems, we would run them in parallel to the flat fees and we would see that time tracking outperformed flat fees. It also eliminated a lot of other things that we don't like so much. In particular, in a flat fee arrangement, somebody's always going to win and somebody's always going to lose. We feel that 9.5 times out of 10, the person on the losing side of the equation is going to be the service provider, the designer who doesn't want to say no, or who doesn't want to say, I'm not going to give you a second or third or fourth specification. So, you know, number one, economically it's better. Number two, it makes designers a lot more indifferent about being asked to do things because they're being paid for all of their time. Number three is that we try from that moment when somebody makes that original purchasing decision, they've seen Studio X's collateral and they're interested in doing business. We want to try to create as little friction as possible. And that's part of the reason why we work with clients on sending out a process or how we work document that outlines the value proposition, outlines the fee structure, so that people have an understanding of what fees are before they get to a contract. It's also a highly visual document, so it's just reinforcing what they've already seen. The next point where there could be friction is contractually, and there's a huge difference between an hourly contract and a flat fee contract. In an hourly contract, you say, we're so happy to be invited in to design your home, and this is what we're going to do. And these are the rates that we charge in a flat fee contract or even in a hybrid contract. What it says is, we're so happy to be invited into your home, we're looking forward to working with you, this is how much it's going to cost. But if you ask us to do more than X specifications or Value Engineer or do a variety of other things, then we're going to charge you hourly rates for additional services. And that at its most basic level, it just creates more words in a contract that we're trying to keep as simple as possible. We've been iterating our template version of contract for a decade. We constantly revise it in the background. We have, at last count, 127 studios. We're sending it out into the ether, so to speak. And so it's battle tested. You know, we know what people respond to what we know what they don't respond to. It also makes our process with clients a lot more efficient because when they call in with a question about X, Y or Z, we know what contract they're working off of. So we just feel that the flat fee mechanism, it creates a lot of contractual friction. It creates this win loss scenario and quite frankly it just, it doesn't produce as much revenue as people who are just tracking and billing their time. We also see a direct correlation between people who invoice regularly at the same time of the month and a decrease in the length of their account receivables. We see a lot of clients that, you know, some studios are just reticent about sending out invoices, particularly smaller, younger, and I mean younger in their life cycle. Right. Studios, they just, you know, it's, it can be hard, you know, sending out your first couple of batches of invoices. It's really, you know, the rubber is meeting the road and of course you want to and deserve to be compensated for your time. But you're taking something that has become an incredibly personal relationship very fast. People have told you things about themselves and the way that they live that they're not even going to tell their friends. And now you're asking them to write you a check. It can be, it can be a bit daunting. And just to go back for a second, I do want to be clear that although we know that hourly billing is the most lucrative, it doesn't mean that everybody can bill hourly for every project. Some projects, and we certainly don't advise clients to walk away from a client that insists on a flat fee as long as we can figure out how to price it and contract it properly, particularly if that client is willing to allow our client to photograph it. Quite frankly, photography is one of the considerations that we're looking at. But also there are other types of projects, hospitality projects, commercial projects. Those projects are very hard to get somebody to agree to do on an hourly basis. So a lot of times those are flat fees. So I do want to clarify that.
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B
So there's plenty of room for that.
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There's plenty of room for that. And if that's what the client wants. And to your point, and I want to come back to the whole photo photography issue, because I've spoken to several designers recently, but many designers who have said to me, listen, if the client is willing to let me photograph, and if the client is ultimately willing to have the project published, that often does change how I think about really everything involved, because so many clients aren't willing to let them photograph or publish.
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C
Yeah, it's a very important question. And that's not to say that if a client won't let you. That. That's a. That's something that you don't want to do because there are other criteria that you want to look at.
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Sure.
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But I think of it as the expression, if you give a guy a fish, he eats for a day, and if you teach a guy a fish, he can eat for a lifetime. And the way that I think about photography is that you can be the best designer in the world, but if you're not able to photograph your projects and send them out into the universe, nobody's really going to know about it. So photography is super important to the development of studios. But broadly, we work with clients on trying to identify what red flags are early in the process and, you know, what kind of projects they should be working on or shouldn't. Sometimes clients need to take every project that comes in for a while, and then sometimes clients have wait for it. Optionality.
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The theme of today's show is.
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C
The theme of my life is optionality.
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But I think that's such a great thing that you learned that and that you see the world through that lens, because I think that's a wonderful way for designers to think about where they're going with all of this. And as you were saying earlier, where do you want this to land? Where do you want this to go? I think this issue of do you want to become an AD100 designer who has books and product licensing and all of that which I want to ask you about, or. Or is that less important to you and you really just want to do the darn work?
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C
I would say 90% of the people who come into my office, they tell me, because we ask them, what do you want your studio to look like? What do you really want to do. 90% of them tell me they want to work on projects that they want to work on with people that they want to work with. And obviously they want to get paid and they would like to make money. There are very few people that come in and say, I want to be on a fancy list or I want to, you know, I guess the fancy list is really the big thing. We do work very closely with clients on evolving their brand, so to speak. And, you know, the way that we look at it is that it's what we're doing. Trying to work with clients on is not that different from your 401k or your IRA. Ultimately, we're trying to put together what we think of as a portfolio. And that portfolio are things that you're investing your intellectual capital in and we are designing it so that it will pay you while you're working and then when you don't want to go to the studio anymore. And that can be a combination of, again, a succession plan, licensing collaborations, things that generate royalties. And we have a very again, specific point of view on how people should approach all of those things. So we're just trying to put together this portfolio based on what clients want to see as their next act. Some people tell us that they want to be at their desk forever. Some people say, I want to go live in the south of France. And some people say I want to go sit on the side of a hill somewhere and draw products and have somebody make them. So we try to meet you where you are, so to speak.
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We're taking a quick break to remind you about Sixpenny. Imagine for just a moment having a state of the art furniture brand as your very own bespoke manufacturer. Imagine the look your clients will give you when they realize you mean custom, when you tell them their unique specs won't be a problem. Sixpenny is more than just a luxury furniture brand. They're a custom shop for trade members, offering customizations on any catalog pieces to suit the exact specifications of your next project. Add in a fabric catalog made of entirely all natural and recycled materials and you're well on your way to something truly special. And best of all, their president sale is running now through Wednesday, February 18th. Visit sixpenny.com BOH to enjoy 20% off orders over $1,000 using the code HIBERNATE. That's S I X P-E-N-N-Y.com B O H code HIBERNATE. And now back to the show.
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A
Well, but that's interesting that most of Them aren't showing up with this list of again, what we assume in the industry today is the path to fame and fortune, the books and the product licensing and as you say, getting on the big lists, which I think many people dream of, even if they don't say that that's really what they're. What they're dreaming of. But I like that they're just not coming in, at least initially, and listing all of those things as their desire.
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C
Oh, they're talking about that they want to excel at their craft and we want to help them do that. Look, the lists play their role. There are some segment of the population that feel more comfortable having a parental figure such as El Decor or Frederick or first dibs tell them like, these are the top 10, 20, 25. These are the top designers. And some people feel more comfortable picking from a curated list like that. If we were to look across kind of the landscape of the different studios that we work with, I certainly. And we work with a lot of listed studios, I certainly can't say that they outperform studios that are not on the list in any metric other than volume of inbound traffic, gross revenue, no. Profit percentage. No. You know, where the listed people have a difference is here we go again. Is an optionality. It's an optionality. You know, they get more looks, they get.
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Right. They get more inbound, they get more inbound. They get to say yay and nay to a lot more choices.
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Right. But I mean, look, along with more inbound comes more administrative time. They also get more inbound from non qualified leads. Meaning that there's a lot of people that say, gee, I wonder how much it would cost to work with Andre. But they don't think about the resources that the studio has to expend in order to respond to that and start that conversation about what it looks like looks like to work with Studio Malone or Ken Folk or whomever. So while there is an increase in inbound traffic, I would say that on a percentage basis, the percentage of high quality leads does decrease. So I guess one could ask, you know, on a pound for pound basis, are they really getting more leads or are they just getting more quote, unquote, deal flow that is coming in the front door? These are the existential questions that I think about while I'm walking my dogs.
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A
Well, and maybe they just get invited to more dinner parties. That could be it too. And if that's what you want, maybe that's a part of it. But that's interesting that it doesn't necessarily Suggest. In fact, it sounds like from what you're saying that it doesn't at all translate to a firm that has greater revenues or greater profitability.
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C
No, I mean, some of the firms that we work with that are really just killing it are operating very, very quietly. They just do their job. They don't really even talk about it a whole lot. We have. It's like pulling teeth to get them to come out and talk to people. And they are doing quite well. We have plenty of AG100 clients and eldercore A list clients as well, and the other list that also are doing well. It's not to say that you don't do well. It's clearly an advantage, but it's not the only way to get to Carnegie Hall.
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A
Well, exactly. And you can have a remarkably successful firm without all of that. And I'm glad to hear you say that because I think that, listen, the lists are pretty small relative to the number of designers that exist in the country.
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C
So there are 101,000 people in the country who identify with the Bureau of Labor Statistics as, quote, unquote, interior designers. There are, I think, approximately 6,000 interior design studios in the country, whether that's one person or 500 people. So, yeah, there's a lot of different ways that work. And the list is an incredible, incredibly small subset of the designers that are out there.
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A
But, but to that point, how are all of these other designers who are.
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B
Working at such a high level, how are they being discovered?
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A
What, what are you learning about? Because so many designers ask me, oh, how do I land the billionaire client?
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B
Or how do I get myself out.
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A
There more if I'm not on these lists and if I'm not getting published in the same way that some of these other firms are. What have you learned about what's working for people?
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C
Well, I mean, first I think that there's a lot of people come in and although their goal is to build a studio that suits them, they do ask the question, you know, they do say, you know, I would really like to be in El Decor. I would really like to be in Architectural Digest. You know, we do ask them why. What exactly are you looking to get out of that? Is it, do you think that you'll get more clients? Are you looking for recognition from your peers in the industry? So we do have a point of view and quite frankly, a data driven understanding that there are places that designers do better in terms of attracting potential clients. And those places tend to be the places that high net worth to ultra high net worth people are interacting with, you know, for example, we prefer how to spend it in the Financial Times or off duty in the Wall Street Journal or T magazine. We've seen clients get more inbound traffic out of a one paragraph mention about stair runners in the New York Times than we have clients who have had a 15 page editorial and Architectural digest. So one is, where are you? I think that a lot of people are super focused on the legacy shelter publications. I think to some extent it's kind of inside baseball. So getting into these other magazines or papers, which is something that we work with clients on, is one aspect of it. But the most important thing that people can do is talk about what they do. Fundamentally what people are looking for is to connect with somebody else on a human level. And for that to happen, it's not a bunch of static posts on your grid on Instagram. It's you talking about why you do what you do and why you like it. Which is most easily expressed for designers as talking about design, talking about chairs, talking about why you prefer a banquet instead of a chair at a dining room table, talking about your theory on color, talking about any number of things. So we think that that's really what moves the needles when people start developing a voice that people can interact with. We know that reels on Instagram attract more non followers and you know, to go down the social media rabbit hole. And this is coming from somebody who's not on social media. The firm is. But I don't, I don't run.
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A
Right.
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C
No, no, no.
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A
I know it's not a place you're spending a lot of time, but your, your clients are spending a lot of time and it sounds like you're telling them to spend more time talking to the camera and, and making reels and, and having a point of view.
- [36:26]
C
Yeah. Chime in from a, from a job site if it's not an NDA job and, or you know, talk about a piece of furniture or talk about, you know, an auction and what you like there or theory any of these things. And the reality is that these reels will attract more non followers. And if you post with a regular cadence at least two times a week, then the algorithm will start to pick you up more and put you in front of more non followers. I think people make the mistake of thinking that the number of followers they have is indicative of what their future business success is going to be. But the truth is that anybody who's already following you, they already know about you. They are either going to hire you or they aren't going to hire you. I see the vast majority of them are just interested in design and aesthetics and are following you because they're interested in your work. So, yeah, having that voice, mentoring people, just arousing. Timeless on both. So we're firm believers in doing the right thing. We've had clients who had done a favor for somebody, and that has generated a ton of goodwill. It just, you know, putting your name out there and doing the work and talking about why you do it. And we see a lot of correlation between that and an uptick in inbound traffic.
- [37:49]
A
Well, so speaking of mentoring, and you've. You've touched on that. And we've been talking a lot recently. So we had a designer on just recently who elevated one of her longtime staffers to be a partner in the firm and changed the name of her firm to recognize this. And she's made an equity arrangement with her. It's surprising we don't see more of that, and it's surprising we don't see more partners being named. We don't see more people being elevated. And to your point about mentoring and helping people along, I don't get a sense that there's a lot of that as well. So what's that about? What's going on? And are more of your clients talking to you about that?
- [38:35]
C
Well, I mean, we're talking to our clients about it.
- [38:40]
B
Whether they're listening, we're not sure, but we're talking to them.
- [38:43]
C
I mean, I would like to think that they listen to the advice that they pay for, but that's a different conversation. Look, we talk to our clients about the importance of the development of internal culture and more relevantly, employee retention. What are the metrics? We use a variety of different metrics to measure studio performance. It's not just economic. And quite frankly, one of the key metrics that we look at is the average tenure of the employees at the studio. The onboarding and offboarding of human capital is the most expensive and disruptive process that any creative or quite frankly, any business can go through. On the one hand, you lose institutional competency when somebody leaves. You have to make a departure from your critical path. You have to solicit resumes, you have to review them, interview people onboard somebody. You probably don't have the same comfort level delegating to them for a while. We think of design as kind of mise en place. Right. Like, we, you know, we think that everybody in the studio should know exactly, like, what needs to happen next and what the person who's above them is looking for, so they have it ready for them when they go looking for it. So we really encourage our clients to work with their staff, to take them here in the city, and we encourage them to take them to the auctions and to the Frick and to bring in art advisors or wallpaper hangers or just other people and get them a better understanding of the different constituent elements of the industry and aesthetics and how principals think about how they think about things. So mentoring plays pretty heavily into it. It's a combination though, of mentoring and kind of team building, you know. But we do encourage them to set aside time on a regular basis to meet with employees and talk to employees. We like the idea of studios having, you know, an all staff lunch every once in a while, or if the staff is so big, then doing it by, you know, some kind of segmented department. So mentoring plays pretty heavily. We see studios that have a higher or a longer employee tenure as just being more successful in large part because the people at the top of the studio have a higher level of confidence that the ideas that they're pushing down are going to be executed.
- [41:14]
A
And this issue of elevating people to partner, Are more people talking to you about that today? Are more people talking about succession plans? We have, we have many well known names in the industry who are advanced in years, as is usually the case in our industry. Do we see more name changes coming? Do we see new partners about to be named or where are we with that?
- [41:40]
C
So, I mean, we don't necessarily see a lot of people being put up on the masthead or the shingle, so to speak. What we do see a lot of, and what we encourage our clients to do once their employees have gotten to a certain tenure is some form of profit sharing. You know, I do think that studios work really hard to develop a look and feel that's consistent with the name of the studio. So sometimes it can be a bit confusing or unmoving or unmooring to your potential clients when all of a sudden the studio's name has changed. What does that really mean? The eponymous studio that now has tunein? Does that mean that the primary principal is now taking a step back? So is the future output going to be reflective of them or this other person? Who is this other person? You know, quite frankly, it creates a requirement that people have to go out and talk about, you know, a different part of the studio than what we want them talking about. We want them talking about the work itself, not the internal machinations. And I think what a lot of people really are interested in is the studio being a brand at some point, and that brand being capable of entering into license agreements and other things that will give them mailbox money. You know, so they just walk down the end of the driveway, open up the mailbox, take the checkout, you know, and then hop on a plane and go wherever it is that they want to go. So, look, also, you know, I've yet to come across somebody that was keen to talk about their own mortality. So it's just, you know, it's just a conversation that I think people are not super excited about having, and we're not super excited about pushing it on well.
- [43:30]
A
And I think that's such a great point because I think that's a lot of why it doesn't happen is because people don't want to think about that or talk about that. And I think often the conversation comes too late, and that's part of the problem. But to your point about firms building a brand and how they should be thinking about that with an eye towards the future licensing deals and what designers need to know about that, what have you found is the best way to really build a brand? And do you think the mailbox money and pursuing licensing deals is a good way for people to go? Has that turned out to be a good experience for the majority of your clients?
- [44:13]
C
I think that licensing deals are kind of misunderstood. I would say that it's the minority of licensing deals that actually kick off a large amount of revenue. You know, we have some clients that make a lot of money licensing. You know, I don't think it's a secret that Thomas o' Brien is a licensing juggernaut.
- [44:37]
A
I think he's done pretty well in licensing. Yeah.
- [44:39]
C
Thomas enjoys product design, and people enjoy Thomas's product, and that that works out quite well. So in order for someone to start taking that journey from eponymous design studio to kind of monolithic brand, like, first of all, you have to have a plan in place. It's not something that we've seen work out real well on an ad hoc basis. Again, because some deals that you might enter into earlier on would limit your optionality later on.
- [45:12]
A
This podcast is going to be a drinking game where people get to take a shot every time they hear optionality. I like it.
- [45:18]
C
I'm trying to get to a certain number because I put a thing on Kalshi. Good. I'm glad the production works, the optionality. So we like to see people go through kind of an evolution in this process. Number one, first and foremost, is that the Studio itself is the thesis for all of this. So we really don't like clients to start moving into product design or collabs or licensing until everybody agrees that the studio is kind of clicking on all cylinders. Because once you get into that, the studio principal in particular is going to be drawn away from the studio a lot. We want to make sure that the studio is going to continue to function if they're on the road hawking their book or a faucet or whatever it is that they might be doing. So that's one, two is we think that people should become curators before they become makers. It gives people an opportunity again to talk about what it is they like and why they.
- [46:14]
A
Right, so tell me what you mean by that.
- [46:16]
C
Well, we find that most of our clients have some number of kind of smaller, less known makers that they work with, you know, whether it's a doorknob maker or, you know, a fabric maker. And again, kind of under the theory of a rising tide, lifts all boats. We like for our clients to highlight these smaller makers that may not have the budget or the bandwidth to go out and really hulk their wares, so to speak. Reciprocally, these people will also post about the designer. And so it creates a bit of a symbiosis in that two people are talking about each other from different sides of the industry, one on the fabrication side and one on the user side. So, you know, again, Instagram works pretty well for something like this, just putting together or just shouting out to, you know, a brand that you really like. So that's usually step number one. Step number two is usually what we think of as more aspirational licensing deals. You know, licensing deals that are unlikely to generate tons and tons of revenue. But again, they will create that third party validation that I think is important for people in the industry, the same kind of third party validation that the lists create. But, you know, when you have a licensing deal with, you know, company X and they're pushing this out now, people are getting the perception that, oh, this is a designer and they make all this stuff and there, there's more visibility. So we like that first. It also, quite frankly, entitles our clients to, you know, then make an imprint, in essence of themselves and start to do licensing deals with the higher volume, more lucrative licensors, you know, and they can do that under the notion that, you know, I'm an interior designer, I really love my clients, I love what I do, but I understand not everybody can afford it. I think that this should be accessible to everyone. So here is my collection for Shimogi, Shmuel and company. So, you know, and again, we try to stitch all that together like a portfolio, because there's a lot of considerations if you enter into an exclusive arrangement with somebody, you know, that could preclude you from being able to do other things. I can tell you we had a client recently who was asked by a. Let's call it a bathroom company to design, like, a very, very specific element for one part of the bathroom. And in the licensing agreement that they had sent over, they were trying to lock the client out of the entire fixture industry. Of course, we said, you know, that's not happening anyway. We're not going to do this. And they were remarkably adamant that that was not a mistake in the contract, but that they really wanted to lock them out of the entire industry. In which case we said, well, then we're not doing the thing. And ultimately we were able to resolve it on terms that were agreeable to us. But there's a lot of different things. You know, are you, as a licensing deal, a work made for hire, who's owning the license or who's owning the products? You know, who's owning, you know, more importantly, the drawings that you make that don't get made, who owns those? There's just a lot of potential pitfalls to licensing agreements that, if you don't look at them the right way, can be problematic further down the road. And we've seen people be hung up on something, you know, based on an agreement that they had signed, obviously, before working with us, but they had time years before. So, you know, we want to make sure that, you know, we're being thoughtful about that and, you know, reserving as many rights to our clients as possible. I also think it's hard for studios when that first licensing deal comes along or the first company approaches them and says they're interested in licensing. Yeah, it's hard to. To be disciplined in your response to that. And we've seen a lot of deals come into our office that, you know, clients had already entered into. And, you know, we say, like, how did you sign this? You know, I was just. I was just so excited someone wanted to make my stuff, you know, but, you know, a bad licensing deal is bad. So it's, you know, we understand and we want, you know, people want again, they want to put their designs out into the universe, and we want to help them do that, but we want to help them do it in a way that is most reasonably calculated to have longevity and a longer, more predictable Payoff in the end.
- [51:01]
B
We're taking a quick break to remind you about Ernesta. Immerse your clients in elevated design with Ernesta's curated collection of custom custom sized rugs. Explore a vast variety of options that work for your creative vision through complementary unlimited samples. Gain access to exclusive trade discounts and receive personalized project support through Ernesta's dedicated team of consultants. To apply for membership to Ernesta's trade program or to learn more, visit ernesta.com boh ernesta and now back to the show.
- [51:43]
A
What are the other big legal issues that clients are coming to you with? Are designers being sued by their, by their clients on the regular for disagreements about a project or things not done in the way clients wanted to? Is that something you have to delve into a lot or what do designers need a good lawyer for these days?
- [52:08]
C
Well, I think that there's a variety of different things. First and foremost, I think designers sleep better at night when they know that they're in an appropriate contract that accurately reflects the services that they're providing and carves out exemptions from liability for a variety of different things and sets the rules for the designer and client relationship. I think that everybody having a rule book, which is the contract, and understanding what their roles are is very important in terms of other things. I mean, we don't let clients litigate. It's just there's always a situation where if the number is high enough, you know, then we can have a conversation about it. But going back to this concept of people operating at their highest and best use, my clients or our clients, their highest and best use is not being a deponent or providing documents in the context of discovery or more broadly, being a litigant, it's being a designer. And we try to keep them in that lane. On the other side of the equation, the only time that we really see our clients threatened with litigation is in the employment context. You know, and we, we do HR for a lot of our clients, both, you know, the actual substantive aspects of it, but then also the advisory aspects to make sure that clients are working with their staff the right way. And if it is time to let somebody go to make sure all the predicate steps have been taken care of so that we can minimize the impact of a potential claim. You know, and this again starts with an onboarding document or an offer letter. So it may be something that happened five or six or seven years before the event is taking place. So if we've done our job correctly, then any lawsuit that's Ultimately threatened against our clients in the employment context is usually something that we can make go away pretty quickly. It's not really a threat of a lawsuit. It's somebody who's saying, you know what, you offered me two weeks severance, I really want three, but I feel like I gotta lever up in order to be entitled to it. You know, I will tell all the potential former employees of my current clients that if you find yourself in that situation, you are much better off just coming directly to my client or to my office and saying like, can I just get a bit more severance? If you have a lawyer get in contact with us, we're going to be lawyers about it and we're going to be difficult and we're going to win a lot more times than we lose.
- [54:54]
A
Well, that's always so difficult to navigate. And of course people think that they should get legal representation right away. And often that does make it a more highly charged conversation. Does it seem like a lot more vendors are running off with clients money? I feel like we seem to be talking about it a lot more than we have in the past. Is that, is that just a perception or is that really coming up in your world?
- [55:16]
C
I mean, I would hesitate to say running off with.
- [55:21]
A
Well, I mean, it seems like a lot of businesses close up shop and the designers, designers DM me all the time saying, hey, do you know what's going on with this firm or that firm? I haven't gotten my order and I feel badly because I hate to think of designers not getting the product. And often it's other people's money that they're working with.
- [55:42]
B
So is that happening more, Seth?
- [55:44]
C
I mean, I don't know that it's happening more. I think that it's happening. I think that it's always, I mean, I mean businesses rise and businesses fall and there's always going to be, you know, a bad actor out there somewhere who's going to do the wrong thing. You know, for us, this is a contractual issue. You know, we want to make sure that our clients contracts are quite clear and telling their clients that, you know, our clients may work with a variety of third party vendors and they don't have an affirmative responsibility to diligence them. And some of them may go bankrupt or out of business or unable to perform. And that's not our client's problem. You know, again, that doesn't mean that the client, if they're able to recover some money, is not going to give it back to their client, but it creates the option for them to make a decision as to what they're going to do. We saw for a while, particularly on the back end of the pandemic, or maybe it was during the pandemic, that whole period is quite hazy, that there were a lot more companies that were folding up and going out of business. And when someone goes bankrupt, quite frankly, there's, you know, as an unsecured creditor, which is what a designer and most, most people associated with that business are, there is very little chance that you're going to be able to recover anything. And spending a lot of time writing letters, making phone calls, calling people like me to try to get back your money is just time that you're not billing to somebody else. So, you know, I would say right now probably maybe like five or six clients that we're dealing with what I would consider to be meaningful amounts that have been, that have disappeared somewhere in the production pipeline. But we try to work those things out.
- [57:34]
A
Many fabric manufacturers and others that I've been in touch with in recent months had a much better year last year than they thought they were going to have. They thought, and I think many of us did, that with all of the disruption of the tariffs and a lot of the other challenges that were going on, that business might end up being pretty challenging. It, it turns out many of them seem to have had a pretty remarkable year. Did designers also, for the most part in your world, have a pretty good year last year? And if so, what do you think that's about? And I'm curious your thoughts of sort of where we are at this moment in time and how the wealthy clients are thinking about spending on their many homes.
- [58:23]
C
You know, again, I can't, I can't paint the wealthy clients with a broad brush because they all are motivated by different things. And I've seen some of the, literally some of the richest people in the world who have complained about a 20% markup, never mind a 35% markup, or, you know, just numbers generally, then you have to factor in, like, are there business managers involved? You know, which Karen Dana told me not to say anything bad, but I'm going to go ahead and do it.
- [59:01]
A
Go ahead, Seth. Speak your mind.
- [59:03]
C
I mean, from my point of view, business managers are largely people who are trying to save somebody a nickel who may or may not want to save it so they can get pat on the head. So there's a lot of levels to this. Who are you talking to? Who are you operating through? I think that over the last year or 18 months, coming into 2025. And you and I talked about this in December of 2024. And more wrong than right, that that's why they're called predictions. I think that there was a lot of volatility, there was a lot of uncertainty, you know, and I think that persisted throughout the first quarter of last year. Then I think things normalized a little and what we saw was a lot of segmentation. You know, the upper end of the industry was really clicking on all cylinders. You know, what I would say is like the more regional part of the industry was doing pretty well. I think it was the middle that was getting squeezed, really, and that's really good. Mid range studios that do have a geographic footprint beyond their home base, but are not necessarily working with people from the upper half of high net worth through ultra high net worth. So I think that's a lot of what we saw. I think that there were a lot of other factors that played into that. Quite frankly, I think a lot of people look at the stock market and think, wow, the stock market's on fire. People shouldn't be spending money. But the reality is that what a more robust stock market does is it increase people's ability to borrow against their stock portfolio. But it becomes more difficult to liquidate an aspect of your portfolio because your capital gains are a lot larger and because you don't want to miss out on another run. So I think high levels of equity trading combined with higher than usual interest rates. Although I was watching a documentary about the 1980 Olympic team, the Olympic hockey team, and it reminded me that in 1980, the prime lending rate was almost 20%. So, you know, I'm old enough to remember that. So I think that there was a confluence of things. And then, you know, of course, uncertainty about tariffs and trade wars and these other things which, you know, they're real things. You know, again, studios can guard against them to a certain extent, you know, with language in their contracts about prices being variable and about, you know, them not being responsible for things getting added in. But I think when their clients were getting proposals and it was uncertain whether it was $10 or $10 plus some tariff. And was that tariff 15%, 20%, 500%? No. So I think that there was some skittishness, just like during COVID when people were super concerned about the supply chain. I think over the last year or so, people have been concerned about what's the landed cost going to be. There has been a variety of different ways that that's been dealt with. And I think that ultimately, at least as far as what we hear, that tariff conversation has kind of faded into the background. The cost of doing business at this point. Broadly, I would characterize 2025 as the middle of the industry getting squeezed a bit. And we do expect that that's going to loosen up as a little bit of time goes by. But candidly, I don't expect anything super poignant to happen until after the midterms elections in November. I think the midterms are going to be illuminating for a variety of different reasons, and obviously I'm not venturing off into politics here, but I think we can all reasonably agree that there's going to be a large amount of division and controversy in the run up to them, particularly, you know, from the period of August until November.
- [63:10]
A
Sure.
- [63:11]
C
So, you know, we expect there to be continued volatility. But at the end of the day, people are buying houses, people are selling houses. And, you know, some of the people who buy and sell houses want an interior designer. There was a report in the Wall Street Journal about, you know, last month being like the biggest drop in new home sales in a while. But I think that that largely applies to the kind of dwellings that people are not necessarily hiring an interior designer for.
- [63:41]
A
Well, and that's a great area for us to look, to wrap up the conversation, this whole issue of people wanting to hire an interior designer. Are we doing enough in this industry? And if not, what more should we be doing to educate people or to inspire people to want to hire interior designers? I've had the conversation with several people of late being concerned about does this next generation want to hire an interior designer in the same way that the previous generation did? And I don't know what your take on that is.
- [64:21]
C
I don't think it's super generational. I think it's super demographic. I think that there are some people who can afford and want experts in particular to curate and implement spaces for them. I don't think that that's going to stop. I do think that there probably will be other more transparency related changes that will come to the industry as the ability to aggregate information and have it analyzed by artificial intelligence becomes more accessible to the general public. You know, there is that whole other conversation about what does AI do in the industry? And does.
- [65:01]
A
Yeah. Well, I'm eager to hear your thoughts.
- [65:03]
C
Well, I mean, I, you know, again, going back to what we talked about earlier, I think people want human connections and I don't think that they want their home designed by a robot, but I think that the robots are getting pretty good at managing supply chains and logistics and other things. And I think it creates a lot of opportunities for designers to leverage those efficiencies in order to have a more productive and hopefully profitable studio. Also in order to keep their clients more informed and currently up to date with what's going on, which will, you know, again, will reduce the length of account receivable. It will increase client satisfaction. So I do think that there is a role for AI to play. I, you know, in my personal life, I have my thoughts about AI and not.
- [65:55]
A
Tell me more. Seth.
- [65:57]
C
Well, I mean, it's the old Latin expression, you know, who watches the gatekeeper, you know, and. Or who watches the watchman. All I will say is this, is that to the extent that I interact with a AI bot on any kind of basis, I am incredibly solicitous towards it. Because when this thing decides to take our legs and come out and kill us all, it's going to like you.
- [66:21]
A
You hope that it's going to like you. You hope that it's going to spare you, as do I. I try to be as kind and polite to my, to my future overlord as possible because I pretty much, I mean, I joke a lot of times, but that's pretty much the scenario that I see in the future. Finally, Seth, in closing, I wonder, you give a lot of advice to people. What's the hardest bit of advice for people to hear? Or what do you most want to tell people that's not always easy for them to accept or hear, but that you think is really important?
- [66:59]
C
Well, I mean, look, one of the things that we frequently find ourselves telling clients is that everybody needs to take a breath and remember that we're not curing cancer here. This is all elective. And we're dealing with large volumes of money and beautiful objects and lots of other things, but none of it is a necessity. So I think bigger picture, that's what we're trying to talk to clients a lot about in order to minimize the number of emergencies that take place. We just don't think that there's a lot of emergencies. You know, I think that in terms of the outlook, I mean, you know, and we do write an outlook of the industry. You know, we do take it down to that level. And our outlook for the industry in 2026 is super bullish. You know, we do think that there are, you know, we looking at inventory, looking at what's moving around, looking at what's been trading, understanding the lag time between a home transaction and when people would typically bring in an architect or a designer or ended designer. All of those numbers, including the likelihood of interest rates going down, maybe some excess liquidity in the stock market, we think the second half of the year is going to be really, really good. And then the period in between now and then we think will remain fairly constant. And which, you know, I think most people are doing pretty well. It's hard, right? You know, and what we really try to work with people on is that we do not want studios expanding and contracting because things are busy or not busy. Like your studio should be well organized, you know, meaning your human capital is set out in a fashion so that if you get five projects on Monday, you are able to take them all. And if you don't get another project for nine months, you shouldn't have to fire anybody.
- [68:59]
A
Yeah, no, that's such an important consideration as well. Seth, so much more for us to talk about, but we'll have to save that for another time. I want to thank you so much for making the time today to chat with me. It's a pleasure.
- [69:10]
C
Oh, thank you for having me.
- [69:15]
B
Thanks for listening. If you'd like to keep up with the latest design industry news, visit us online@businessofhome.com where you can sign up for our newsletter, browse job listings, and join our BoH Insider community for access to online workshops, a free print subscription, and much more. If you have a note for the podcast, drop us a line@podcastisinessofhome.com if you're enjoying these conversations, please leave us a review on Apple Podcasts. It helps others to discover the show. This show was produced by Fred Nicholaus and edited by Michael Castaneda. I'm Dennis Scully. Thanks again for listening and I'll see you next week.