By Jon Xavier, Technology Reporter
Featured in Silicon Valley Business Journal
Speck Design, a design and innovation consultancy that helps companies research, design and market new product ideas, is a small business getting a lift from Silicon Valley's rising tide. Sales at the 26-person firm have grown about 30 percent in the past two years to about $9 million.
Six years after the global recession, Speck's expansion reflects a classic Silicon Valley up cycle. Venture funding in the first quarter of the year was nearly double what it was in 2013, and the same quarter saw the hottest IPO market since 2010, according to the National Venture Capital Association’s MoneyTree report.
At larger companies, things haven’t been this good in a while — Apple Inc. posted its best quarter ever at the beginning of the year, and Google Inc., Facebook Inc. et al. have also enjoyed strong growth. Combined, the influx of money into the startup space and big profits on the established-company side have created customers for shops like Palo Alto-based Speck, which has designed a diverse range of products for companies both large and small. It helped create Cisco's first teleconferencing system as well as Accuray's Cyberknife surgical robot and the instrumentation panel on the 2010 Audi A8.
“Things are very good right now, but the bad times are still fresh in a lot of people’s minds,” Speck CEO Elisa Jagerson said. “There’s a sense of ... well, not that the good times will end soon, but that it’s best to strike while the iron’s hot.”
And that mindset has set the stage for something that’s had a big effect on how fast Speck operates. Not only are product cycles shorter now, but with competition this fierce, there’s less margin for error. In hot categories like wearables and the Internet of Things, Jagerson said, a product not only has a limited window to get to market, it has to meet with almost immediate success to justify its existence.
Because of that imperative, she said, the question Speck needs to answer for its customers is becoming less “How do I make this technology into a product” and more “Is this even a product I should be designing in the first place?”
“It’s a lot of pressure for them. What we’re seeing more and more is our customers coming to us wanting a reliable process and set of people that can help them dramatically shorten the exploration, innovation and design process and be ever more accurate,” she said.
Speck has responded by buying other firms in related industries, bringing research and marketing under the same umbrella as the industrial design and engineering teams that have always been at its core. The idea is to engage with customers earlier in the process of creating a product so that they can save time and effort by not pursuing things that research says won’t work.
Jagerson sees a lot of room for growth in that model. And she’s comfortable enough with the reliability of Speck’s product that she wants to put the firm’s money where its mouth is. Increasingly, Speck is looking for ways to share in the success of the products it designs, either through profit sharing agreements, by taking equity, or by spinning off companies as a joint venture. It’s still an experimental idea, Jagerson said, but she thinks that it will be a model that becomes increasingly common in consulting.
Such agreements aren’t uncommon with startups, who often can’t afford to pay otherwise. What has changed is that big customers are increasingly looking for that kind of partnership as well.
The problem is that the amount of money spent internally on R&D has stopped tracking with future growth, Jagerson said — large companies can’t necessarily keep up with the innovation pace of smaller, nimbler startups. That’s driven mergers and acquisitions activity to record levels.
According to Thompson Reuters, the $70.1 billion in tech M&A in the first quarter of 2014 is the highest level since 2000. But that also has increased the appetite for consultancies that can deliver speed and agility, and what companies are willing to do to get it.
“I think as a consultancy, if you feel strongly that the product you’re making will be a success, you want to share in that success. But the question was always, how?” she said. “That’s changed. Companies are coming to us saying we’d love to partner with you, we’d love to share our upside. People want us to be their partner — they’ve always wanted us to be their doer, but now we’re a partner.”