I. Executive Summary

Red Line Design provides a professional, corporate image to individuals and businesses through creative tailored graphics, specifically, logo design. The mission is to increase the prosperity of individuals and businesses with a corporate image that defines their identity and aspirations. Red Line Design will support this service by starting as a part-time, home-based business. It will operate as a sole proprietorship.

The graphic arts industry is full of business opportunities. Roughly 90% are sole proprietorships or other businesses forms with less than ten people. Orlando has 117 graphic design firms as of the 1997 Economic Census. Florida is ranked fourth among all states with 848 firms. Businesses of this kind are operating within a monopolistically competitive market.

Red Line Design will offer three services. Basic Logo provides those services associated with logo design. This level of service forms the core competency of Red Line Design. Total Package provides customers all the basic logo design services and includes copyright procedures. Total Package Plus provides all the previously mentioned features plus value-added marketing information relevant to the customer’s business and logo. The services will be priced at $347, $415, and $519, respectively.

For its cost-effectiveness, the use of secondary marketing research has been the primary means of gathering information. The objective of this research was not to obtain exact information to set-up a marketing plan. Instead, the process is meant to avoid information that is completely wrong. The three marketing opportunities identified are (1) small businesses and individuals, (2) special interest groups, and (3) government contracts. Through personal networking, these opportunities have had the most appeal and will be pursued by Red Line Design.

Trends in consumer preferences point toward simpler, minimalist logos. This is good for an inexperienced startup, but the competition competes on a far greater range of products and services. The promotion for Red Line Design is divided into three phases. The first phase is a four-month pro bono period. The second phase is focused on web site promotion and the use of Yellow Pages. The third phase will be designed and implemented when the business has had sufficient time to mature.

Red Line Design will require an estimated $769 in startup expenses and capitalization. Two sales forecasts have been created. The best case forecast indicates revenues of $10,325 in the first year. The worst case forecast indicates revenues of $5,341 in the first year. This business has no plan to sell services on a credit basis.

Using the worst case sales forecast and calculating a twelve month profit and loss projection indicates net profit of $3,659 in the first year of operation.

II. General Company Description

Red Line Design provides a professional, corporate image to individuals and businesses through creative tailored graphics. The primary activity is logo design in a personal, yet professional manner. The goal is to build a relationship with the customer. By forming this relationship and “holding the customer’s hand” through the graphic design process, trust is established. The part-time nature of Red Line Design supports these highly service-oriented activities.

The Red Line Design mission is to increase the prosperity of individuals and businesses with a corporate image that defines their identity and aspirations.

There are two goals that drive this business. The primary goal is to build solid relationships with individuals and businesses. This is measured by customers that are completely satisfied with their logo and the service they receive. In the first year of business, the goal is to build these quality relationships through pro bono work and word-of-mouth.

The secondary goal is to expand the scope of this business. Logos are the centerpiece of a corporate image. Logos are on stationary, vehicles, advertisements, products, basically everywhere. The part-time nature of this business lends itself to service-orientation where the focus is quality, not volume. Thus, the secondary goal will be achieved by leveraging logo design into more general graphic services.

Marketing logo design is a process of finding relationships that will enable this business to prosper. The key marketing strategy is to focus on long-term relationships without sacrificing short-term profits. The target markets are small businesses and special interest groups, preferably those with good growth potential.

The graphic arts industry is full of business opportunities. Roughly 90% are sole proprietorships or businesses with less than ten people. For a complete industry analysis, refer to Appendix A. Orlando has 117 graphic design firms as of the 1997 Economic Census. Florida is ranked fourth among all states with 848 firms. Businesses of this kind are operating within a monopolistically competitive market. The key is to differentiate with service, as experience is not Red Line Design’s strong suit, yet.

The core competency of Red Line Design will be customer service. A key component of this will be a customer database. It will contain a record of their transactions and archival material important to maintaining their relationship with Red Line Design, including graphics and any other design materials. If requested, a CD-R of their delivered product can be reproduced and shipped at a moments notice. Technology only supports the core competency.

Red Line Design will be established as a sole proprietorship. This will allow the greatest flexibility in its evolution to a graphics design provider that integrates its product.

III. Products and Services

Red Line Design is focused on logo design in a three-tier approach. The first tier provides the fundamental services associated with designing a logo to fit the customer’s needs. The second tier is focused on business needs, such as copyrighting and support materials. The third-tier provides a bit of marketing analysis relevant to each customer’s business. Some customers may want the minimum transactions required to obtain a unique piece of artwork. Other customers want a “total package” of artwork and the minimum legal paperwork that supports it. These three tiers of ervice are outlined below.

This illustration shows the business model that Red Line Design will use when starting and expanding into the graphic arts industry. The three product tiers listed after the illustration all fit within the core of the business model. Supporting Materials such as letterhead, business cards, web site design, and ad design round out the middle segment. The final layer of the business model, Corporate Image, suggests that Red Line Design will have all the components necessary to provide a business a complete corporate image. This includes all the aforementioned products and services, plus in-house printing.

Basic Logo
This provides the customer with only those services associated with logo design. This level of service forms the core competency of Red Line Design. The degree of service also depends upon the expertise of the customer. An informed customer has probably solicited artistic services before and is somewhat familiar with the design process. An uninformed customer has minimal knowledge about what he wants and, essentially, does not know what to ask for. However, the following process outlines the logo design process that every customer will receive. Every logo will be created to customer’s wants and needs, but be flexible for various mediums (online, low-quality faxes, letterhead, and other print media).

1. Evaluation of business identity. The customer is asked to complete a brief survey of their business which will convey critical information to the logo designer. The most important aspect of logo design is that the image fits the unique characteristics of the customer’s business. Successful evaluation in the first phase of design can eliminate unnecessary redesigns in later steps. This step is part of the service focus that will differentiate Red Line Design. Through a friendly, open dialogue and discussion, the customer becomes an active part of the process.

   Some customers may not want this “hand holding” if they are more informed about the design process. The focus of this process is to determine the customer’s exact needs. It’s possible that the customer does not fully understand the scope of their business and cannot express the abstract ideas needed to form a logo. Red Line Design will not only focus on what gets delivered to the customer, but why it’s important to their company’s image. This is time well invested because knowing the customer’s business intimately could lead to future graphic design jobs.

2. Generating first-run alternatives. The designer uses the completed evaluation provided by the customer, combined with other communications (such as phone calls, e-mails, etc.) to generate a set of four alternative designs. These designs are then sent to the customer for review and each logo is fully discussed. Once again, the focus is on the customer needs and wants and not mere transactions (accept/reject logo). Accompanying each logo will be a brief description of “what works.” An example is in Appendix F. This will convey to the customer what aspect(s) of their company is (are) being represented by the logos.

   The customer will select which logos he likes the best and why. Gleaning more information similar to that in the first step will help make future revisions more in-tuned with the customer’s desires. The dialogue now becomes more graphical oriented and shifts away from what their business does, and now focuses on what looks good. Colors, shapes, sizes, typefaces, and layout are redesigned for the next revision.

3. Generating second-run alternatives. The designer has gained important insights that will help render future designs. The next step is to generate another set of four logos that satisfy the stated needs of the customer. Iterations are kept to a minimum and the customer sees only a complete set of quality logos, not a vast array of low-quality sketches.
4. Additional renderings and final deliverable. This step completes the process of logo design. Colors are finalized, tweaking is completed, and the logo is prepared for delivery. A CD-R will be given to the customer containing all renderings and the final logo in various electronic formats. Another service provided to Red Line Design customers is a secure online account with all of the transactions and deliverables mentioned above.

Total Package
In addition to Basic Logo, the customer can opt for the Total Package that includes the basic logo design and copyright procedures for the designed logo. Businesses that wish to go the next step in logo design can have their final logo registered with the United States government. Red Line Design will act as a proxy and complete the necessary paperwork. Ownership of the logo will be registered in the customer’s name.

Total Package Plus
Customers seeking a more robust solution for their business will find this package attractive. It can satisfy the needs of a startup that doesn’t have time to learn the specifics of copyright laws or procedures. A simple, plain English paper will summarize for the customers the legal rights that they are now entitled (with their copyright) and what implications that has for their business.

The Total Package Plus does not provide a logo and a paper that says the customer owns the logo. The product differentiation is that each customer will receive a quality logo with copyright information specific to that customer and his business. For example, if the customer owns an interior design business, he would receive a summary report that relates this copyright information to his specific industry and business.

Pricing
The actual cost of goods sold cannot be determined until market testing is complete and an appropriate cost structure determined. This analysis is described in the pricing section of the marketing plan and in greater quantitative detail in Appendix D.

IV. Marketing Plan

This section details the marketing research, planning, and strategies used to better understand the environment that Red Line Design will be operating. For its cost-effectiveness, the use of secondary marketing research is the primary means of gathering information. The objective of this research was not to obtain exact information to set-up a marketing plan. Instead, the process is meant to avoid information that is completely wrong.

The objective of Red Line Design is to focus marketing on segments that will maximize profit while simultaneously upholding the marketing concept. That is, Red Line Design will provide a service that focuses on the needs/wants of the target markets and deliver better value than the competitors. This marketing concept leads to sustainable profits.

Market Opportunities

1. Small businesses and individuals. This market includes small businesses that also include smaller divisions of companies that require outsourced graphics needs. This market also includes individuals that are seeking a graphic designer for purposes unrelated to business. An example of an individual seeking this service would be a boat owner that requires a custom logotype for his boat.
2. Special interest groups (SIGs). This market primarily consists of small organizations or clubs that require an image to enhance their visibility. The density of interest groups is also higher around populated areas such as universities and colleges. Because most interest groups have a diverse constituency, this also opens great possibilities for networking. Political parties are another form of an interest group. Although, the political market is highly cyclical-peaking prior to election periods.
3. Government contracts. The county and city government offers another market for profit. The Orange County government makes available all requests for proposals (RFP’s) via its web site. Winning bidders to the government make documents available that describe the scope of their work. If this includes graphic design relevant to logos, then that work could be subcontracted. The local government also has buying centers that may seek work without the red tape associated with formal RFP’s.

Economics
The graphic arts industry is supported mainly by sole proprietors and is, thus, highly privatized. Market research was conducted on this industry to determine the broad economic factors that can influence startup business like Red Line Design. Appendix A contains details related to conduct of firms, the structure of the industry, and performance. Also detailed are the barriers to entry, share of market by the largest firms, and geographic distribution (domestically and locally). Another discussion which is included is the nature of competition in the graphics arts industry, investment behavior, and research and development.

Current Demand and Growth in Target Markets
Within each market is a unique opportunity for growth and stable demand. A large influence is the current state of the economy. Each market has undergone changes in recent years both in demand and the opportunity for growth.

1. Small businesses and individuals. This market seems to be growing faster as the turnover rate of jobs has increased. As more people become alienated by conglomerate employers, small businesses have become more attractive. Small businesses provide part of the demand for logos. If smaller companies wish to compete with their larger counterparts, then a professional corporate image is necessary. As larger businesses layoff more people, the same trend can be expected. Individuals that seek customized logos fluctuate in demand with the market for luxury goods like boats. Right now, the economy is floundering and demand is shrinking as a result.
2. Special interest groups. This market has changed over the years. An example is Tau Beta Pi (TBP), the National Engineering Honor Society. TBP has recently hired a person at their national office devoted exclusively to “image.” That is, high-profile organizations, societies, and clubs are realizing that perception (image) is a big part of their success. Procuring logos are means to achieve that end. In fact, TBP underwent a logo redesign as the heart of their new image campaign. Good growth is expected for this market.
3. Government contracts. The government activity that demands logo design is usually associated with convention areas. An example is the Orange County convention that recently submitted a RFP for a complete graphics design package. The total one year contract was worth approximately $105,000. Growth is largely determined by the economy and political party, where spending on image is concerned. There is limited growth but low, stable demand in this market.

Strengths, Weaknesses, Opportunities, and Threats
The following analysis lists the unique situations relevant to Red Line Design. Strengths and weaknesses are internal to the business, opportunities and threats are external to the business.

Strengths

• Proprietor has a bachelor’s degree in computer engineering and will soon earn an MBA
• Total control over business operations
• Extensive web development experience (five years)
• Low (near zero) overhead for conducting business at home
• Good network of persons in target markets
• Risk of default is non-existent because no debt financing is used for startup expenses
• Shutdown expenses are minimal because invested capital is negligible
• Business is derived from a hobby-the goal is to first extend that hobby to test market (only cost is the time value of money), then shift focus to profit-making if test marketing is successful
• Zero commute time to work
• Total commitment to business; no conflicts of interest

Weaknesses

• Negligible portfolio of logo design experience
• No public awareness of business
• Marketing, such as promotion and placement, may be difficult
• Part-time businesses have a slight disadvantage over full-time businesses; operating hours may conflict with customer’s
• No real-world experience with business startups
• True cost of service cannot be determined until a complete logo is designed, delivered, and evaluated
• Cost structure may not support some customers that demand higher relationship-based interaction
• Pricing of service cannot be determined until cost of service and demand are determined
• Final location and hours of operation are still undetermined
• No supporting staff; a one man operation

Opportunities

• SIGs are a growing market segment that require logo design
• Logos are becoming more simplistic and minimal-easier to design for inexperienced startup businesses
• Competitors will have difficulty seeing Red Line Design strategy or even its inception
• Web site will provide a front-end comparable to much larger firms
• Perceptions of the business can be formed as none currently exist
• Proprietor is a current student of UCF able to capitalize on easy access and communication with other students and SIGs
• Newspapers provide quick access to new business names and contacts

Threats

• Demand may outstrip time allowances
• Graphic design firms that provide a more complete solution (printing on various media)
• Freelance artists that have extensive portfolios of logo design
• In a tough economy customers demand unrealistic pricing, thus deemphasizing a business focused on customer relationships
• War with Iraq could complicate an already weak economy
• Balance of family and business activities
• Larger design firms and professional freelance artists

Trends in Consumer Preferences
The evolution of logo design points to simpler, minimalist logos. This trend translates to less “artistic” logos and to more abstraction. One possible explanation is the diverse mediums that logos must traverse while still maintaining their identities: facsimile, internet, print, and TV. One possible result is homogenization of product offerings, making the industry monopolistically competitive. This is discussed in more detail in Appendix A. The goal is to buck the trend and provide products and services that are matched feature-for-feature but that provide a higher level of benefits.

Product
The Products/Services section described products and services from the perspective of Red Line Design. However, the usefulness is determining how the customer might view those services. The following section provides a detailed breakdown of each product and service feature and how the customer can derive greater utility (benefits) from Red Line Design than the competition.

Now that the features and benefits have been discussed, it is helpful to understand the post-purchase services available. Once the sale has been completed, the customer can securely obtain his/her logo from the Red Line Design web site for up to six months from time of sale. Anytime after the services are rendered, the customer can request another CD-R containing the original documents; this is available for $8.00, including shipping (with delivery confirmation) and handling charges.

Going above and beyond (offering an augmented service) is a part of Red Line Design. If a customer is dissatisfied with the service or logo, a basic referral program will be in place to offer a suitable alternative to Red Line Design. However, if a customer is satisfied and desires a greater level of service than Red Line Design can provide, then the referral program will strive to service these customers, too. These different types of customers will be explained in the next section. The referral program is intended to boost associations with local graphic design/printing businesses and form networking opportunities.

Customers
There are three customer types that Red Line Design will serve. The characteristics they all share are based upon the minimum service structure and business model established for Red Line Design. The basic service provided is logo design. Depending upon the customer’s desired level of service, they are classified according to three possible outcomes, thus, three customer types. They are illustrated by this diagram. All customer segments augment the Red Line Design portfolio, the most important step for a startup design business.

1. Low Networking, Portfolio Builders. These customers desire the lowest level of service, the Basic Logo. They will be small business owners, individuals, or special interest groups that have a vested interest in simplicity. The name of this customer type has implications for Red Line Design-offering a low level of potential networking for additional logo design jobs, while simultaneously building Red Line Design’s portfolio of work. Special interest groups and individuals have limited interest in copyrights. The design aspects are paramount-image is the main value. They will most likely see the copyright as an unnecessary added expense.
2. High Networking, Portfolio Builder. These customers include small businesses and government contracts. They may consider the copyright optional but express a delayed interest. Thus, because the customer does not have an immediate interest, the potential for networking is higher than those customers who would terminate the relationship after obtaining the logo.
3. High Networking, Portfolio Builder, Additional Services. Customers that desire the full range of services are likely to request additional services such as printing. This is commensurate with a larger graphic design firm, but not beyond the scope of Red Line Design’s service offering. As mentioned earlier, part of the post-purchase service is a referral program that refers customers to other firms that can provide printing, and other advanced graphic design services. The intent is to build a network of businesses that can lead to more of this type of customer. A small business interested in building its corporate image and developing a strong presence is likely to be the most profitable type of customer.

Competition
The design firms most visible to the community, with the most extensive portfolio, and with a well established business network will be the main source of competition. As stated in Appendix A, there are approximately 117 firms within the Orlando area. This information is six years old but is not likely to have changed drastically.

Red Line Design is competing with a set of businesses that provide (mainly) a diverse offering of services: printing, web design, logo design, brochures, business cards, posters, illustration, annual reports, direct mail, photography, and various graphic-oriented documents. A complete listing of local Orlando graphic design business is in Appendix B.

Most of those companies listed will compete on a far greater range of products/services. Many of the competencies listed in the previous paragraph highlight these aspects. However, Red Line Design will only focus on logos and, to excel at that, must focus intently on beating these jack-of-all-trade businesses. None of the companies with larger advertisements have listed copyright registration as a unique feature.

Niche
Red Line Design’s niche will be to serve business startups that have specific needs for a logo and want little more except a well-designed, copyrighted, original piece of artwork that identifies their business.

Promotion
Spreading the word about Red Line Design involves a three phase plan:

1. Portfolio Building with Pro Bono Design. Lawyers do it and so can designers. The premise for Phase I is simple. The easiest way to build a reputation among numerous people with fewer negative consequences is by volunteering time and effort. The pro bono effort will first focus on local area special interest groups, volunteer organizations, and small businesses. These are the main market opportunities identified earlier (government organizations may have little interest in pro bono designers with little experience). The key is to leverage the massive network of these customer types from within UCF. There is the small business incubator and a mass of clubs and organizations. Building the portfolio is the key to obtaining customers willing to pay. Advertising is simply a matter of contacting individuals directly (cold calling/e-mails) and stating my proposition quickly and succinctly. “Free” always gets attention. Another tactic is a one-time advertisement in the local newspaper that says Red Line Design will provide 20 free logos to help build its portfolio. The tactic is designed to build awareness. If a list of 20 customers is not queued, then another advertisement must be placed. During this phase, Red Line Design is not yet declared a true business, simply a free design service.
2. Yellow Pages and RedLineDesign.com. Phase II will utilize the fresh portfolio created from Phase I and build upon it. The web site will provide a 24-hour online showcase for these original logos. Further, the web site will emphasize the pro bono work-highlighting the entrepreneurial attitude of Red Line Design and providing a profile of each logo. This promotional phase marks the official opening of Red Line Design. To accompany the opening, Red Line Design will submit its small ad to the local yellow pages (including web site address and phone number). Refer to Appendix B for a list of the current yellow page entries under “graphic designers.” Again, costs remain a key concern for this small, part-time business. New businesses are announced in the Sunday newspaper. These are prime candidates for new business during Phase II of Red Line Design’s promotion strategy. The strategy is proactive and seeks new businesses that could potentially need a professional logo combined with copyright services. A business (and personal) network developed from Phase I will help to augment these efforts.
3. Referrals and Full-time Business Opportunities. The final phase, Phase III, can only be attained if the demand for logos is exceeding the part-time hours of Red Line Design. This promotional phase can only be accurately assessed after Phase II has begun. There are several certainties, however, that cannot be overlooked. The costs for promotion should increase due to increased business activity, and the referral program must actively complement any inadequacies of Red Line Design’s service. This referral program could become part of Phase III promotions, at which time Red Line Design should investigate a diversified product/service offering comparable to other graphic design firms.

Promotional Budget

1. Portfolio Building with Pro Bono Design. The costs associated with this step are only those incurred by the promotional ad in the newspaper. Total budget should be $200 per year.
2. Yellow Pages and RedLineDesign.com. Costs have increased significantly from Phase I due to the yellow pages and the costs associated with maintaining the web site. The costs for the web site are a constant $95 per year. Since RedLineDesign.com will be used almost exclusively for promotion and portfolio demonstration, all costs associated with web site maintenance will be allocated to the promotional budget. Total budget should be $400 per year including web site and yellow pages.
3. Referrals and Full-time Business Opportunities. This budget cannot be anticipated until Phase II is well under way.

Pricing
The services offered by Red Line Design will follow a three-tier approach. Each level of service is incremental to the previous. A derivation of pricing is shown in Appendix D. The opportunity cost of running the business was weighed against several factors to determine the costs (and, therefore, prices) of doing business part-time.

Pricing is not critical at this stage of business development. The key to success is to determine the true costs of these activities while developing the portfolio on a pro bono basis. Before Phase II of promotion is launched, prices will be adjusted according to the true costs of providing service.

Proposed Location
Location is not critical to the operations of Red Line Design. It will start as a part-time business and consume negligible space in an apartment.

If the business progresses to a full-time operation then more space will be allocated from the apartment. In the early stages of development, location will have little or no impact on customers, as most transactions will occur online, on the phone, or over fax. This fits the image of a small, fast-moving startup.

Distribution Channels
Services will be distributed directly to the consumer with no middle-man. This will be accomplished through direct mail (delivering the CD-R and proof sheets), e-mail (to speed the logo review process), and fax (so the customer may communicate at any time during the day).

Sales Forecast
These tables show the 12-month sales projections for Red Line Design. The top table shows the best case scenario. The bottom table shows the worst case scenario. In both situations, it is assumed that 20 logos will be produced during the Phase I promotional period.

V. Operational Plan

This section explains the operations expected during a week of business. These aspects are anticipated and may change once the business becomes fully functional (during Phase II of promotions).

Service
Because Red Line Design is a home-based business, it will be subject to a domestic schedule. Time will permit on the weekends and some during the evenings. The project-oriented nature of this business lends itself to irregular hours. Customers can expect timely delivery of logos to their fax and/or e-mail. Reaching Red Line Design for a phone conference during daytime hours is possible.

A short survey will follow each successful sale, enabling a feedback loop to Red Line Design. A continual process of improvement will be used to eliminate unnecessary aspects of conducting business and areas needing enhancement.

Location
Only a phone, fax, computer, and internet connection are necessary. These items consume minimal space. Expensing the square footage used exclusively for business use would yield only a negligible tax deduction. Part-time operations are conducive to this small scale business endeavor.

Legal Environment
Licensing requirements are necessary when starting a business. An occupational license can be obtained from the Orange County government for a minimal fee. Fees for registering a fictitious business name are also required. The name Red Line Design must be registered and announced in the Sunday newspaper as a formal business opening.

A copyright for Red Line Design’s logo will be obtained via the U.S. government. Obtaining a copyright only costs $30. This will ensure the security and longevity of Red Line Design’s original logo artwork.

Credit Policies
Red Line Design has no plan to sell services on a credit basis. Perhaps, if future level of operation permits, this will become a more relevant issue.

VI. Startup Expenses and Capitalization

These startup expenses have been estimated using current market averages for products found at online vendors. The acquisition costs are negligible and will be paid as one-time expenses with funds provided by the sole proprietor. The contingencies are non-specific costs that cannot be anticipated. They are calculated by taking 20% of the total of all other startup expenses.

VII. Financial Plan

Twelve Month Profit and Loss Projection
This brief analysis is the twelve month profit and loss projection for Red Line Design. The first four months of revenue are blocked off because this is Phase I of promotion; everything for the first four months is pro bono. Most expenses have been estimated. Telephone, utilities, and web server expenses are based upon expected usage. The sales revenue for each month is calculated from the sales forecast in the Marketing Plan section; the values are from the worst case scenario.

VIII. Appendix A – Industry Analysis

Structure of the Graphic Arts Industry

Industry Overview
Using the North American Industry Classification System (NAICS), the graphic design services industry is located in the 541430 subsection. The industry name “graphic arts” is also commonly cited and will be used in this report interchangeably with the term “graphic design.” A complete listing of indexed names is in Table 1. This business will focus on the “corporate identification design service.” In short, this business will design logos for other businesses. To quote the U.S. Census Bureau:

This industry comprises establishments primarily engaged in planning, designing, and managing the production of visual communication in order to convey specific messages or concepts, clarify complex information, or project visual identities. These services can include the design of printed materials, packaging, advertising, signage systems, and corporate identification (logos). This industry also includes commercial artist engaged exclusively in generating drawings and illustration requiring technical accuracy or interpretative skills.¹

Number of Firms (Domestic)
The graphic arts industry has businesses spread across the entire United States. However, the greatest concentration is in California, with over 2000 firms. The figures in Table 2 are from the U.S. Census Bureau’s 1997 Economic Census. The number of firms has, no doubt, increased since the census was taken. The growth of this industry will be discussed in a later section. The total number of U.S. firms is 14,631. On a local note, Orlando had 117 establishments at the time of the census.²

Geographic Extent
The graphic design industry is represented in all 50 states. Of the top-ten states with established firms, five are east coast states. The least number of firms is in Alaska. California, with the most design firms, has more than the bottom 29 states combined.

Nature of Competition
This industry operates within a monopolistically competitive market. The nature of graphic design is to convey a message. Anyone can offer that service but firms focus on differentiating. The competitive advantage is whose firm has the most effective, creative designers to translate that message. The ease with which businesses enter the market is also a characteristic of this form of competition.³

There are a large number of relatively small firms. This is another trait of monopolistic competition. Indeed, over half of the workers in this industry are self-employed, which is seven times the proportion in other related professional occupations.⁴

Share of Market by the Largest Firms
The largest firms in this industry capture market in terms of quantity and the diversity of their service. They claim market share with the range of substitutes they can provide. If a business wants a total package (i.e. a completely new corporate image), they want everything provided by one firm. This firm often has greater physical resources, a larger staff, and is capable of providing everything necessary. Private businesses hark back to the old days of tradesmen and specialized skills. They may have greater talent, but can’t provide the low-rate “chop shop” capabilities of a larger firm, which can provide high quantities of graphics at low prices, undercutting the competition.

Demand curves and Lerner indices are not available for this industry. Although, specialized marketing businesses such as TrendWatch Graphic Arts provide such detailed information–at a price. Their current report sells for a mere $20,000.⁵ Freelance designers and small sole proprietor businesses simply can’t obtain this information. The small number of public graphic design firms complicates this fact.

Past or Existing Barriers to Entry
Entering the graphic design market is relatively easy. Most freelance designers, sole proprietors, and other small-sized businesses can set-up without the fixed costs associated with other business (such as restaurants). The greatest barrier is the loyalty of previous customers. In logo design, as with other graphic arts, the future clientele is based upon previous clientele. Designers must build a portfolio. Naturally, designers with greater skill often have larger portfolios. They can generate business easier than an amateur. To summarize this barrier is to say it’s all about reputation.

Extent of International Competition
There are graphic design services across the globe. However, the nature of graphic design lends itself to individual work. Firms that are very large (> 1,000 employees) but do not have an in-house graphics department may seek design services internationally.

Conduct of Firms

Pricing Behavior
Pricing for graphic design is largely a measure of the artist’s portfolio. Charging by hourly rates or by project is the discretion of the designer. Project-based pricing is more common on the Internet among design firms. Hourly rates apply to employed workers of larger firms. For September 2002, the average hourly rate for graphic design was $59.49/hour. Historical rates for graphic design are found in Table 3. Currently, desk top publishing (DTP) is at $53.62/hour, while web site design reached $58.21/hour.⁶

Mark Fertig, a professor of graphic design at James Madison University says, “The money’s not as good for me online. I’ve had to cut my prices.”⁷ Finding work on freelance web sites is another method common to graphic designers. Much like bidding on eBay, the winning contract for a logo design or other graphic design, goes to the lowest bidder.

Research and Development Activities
The newest research in graphic design is credited mostly to the software programmers. Although, graphic designers utilize the newest graphic software, they are usually the ones to submit bug reports and other suggestions to programmers. This feedback loop is common to most areas of design.

Graphics software is usually bundled with other DTP titles. The genre of web graphics, DTP, and photo editing software titles are lending themselves to a broader population of PC/Mac users. The progress made by software designers towards more usable software combined with lower prices, has opened the graphic design industry to more lay people. This is opening the market to a slew of people without formal graphic design education.

Investment Behavior
As most graphic design firms are private, investments are usually by the owners. Since more than half of graphic designers are self-employed, startup costs are minimal, and entry barriers are minimal, the nature of the field lends itself to working at-home. However, the word “printing” is usually found with the word “graphic design” when searching the Internet. The two search phrases are synonymous because printing often requires skills common to graphic design.

The investment in printing sometimes can affect graphic design. Robert H. Rosen of RH Rosen Associates, Inc., a graphic design consultancy, says, “Financial services providers, which only two years ago were showering the printing industry with funding options, have turned down the lending spigot.” He adds, “While a lot of companies like lending money to printers, they’re considerably more cautious today because of the drop in resale value of equipment, the primary source of lending collateral.”⁸

Lenders are more cautious of graphic design firms that require heavy machinery for printing. For other graphic arts firms with little more than creativity, the collateral is almost non-existent.

Non-Price Competition
This form of competition is most visible in advertising. Logo design firms and graphic arts companies commonly advertise on the Internet. Very few graphic design firms seem to advertise in the phone book. Thumbing through the yellow pages under the word “graphic,” yields only a few businesses.

In a 2000 report by the Internal Revenue Service, they classify sole proprietorship tax returns by the NAICS industries. Those industries are then categorized with line items, including advertising. However, the 541430 industry is only broadly referenced as “other miscellaneous services” under the broader 54 NAICS code for “professional, scientific, and technical services.” Very generally, advertising accounted for 5.2% (124,414/2,396,565) of cost of sales.⁹

Performance

Profitability of Industry/Firms
Aggregate information on profitability is not readily available. The sheer number of private firms to public firms is enormous. However, a national survey by howdesign.com may shed some light on the industry. The average national salary for graphic designers in April 2002 was $45,375. For the southern region of the U.S., including Florida, the average dropped to $40,453.¹⁰ Discerning the profitability on an industry-wide basis is not possible without more information. However, the compensation of workers provides a tolerable insight to how well the industry is doing. The Bureau of Labor Statistics writes in its Occupational Outlook Handbook that, “artists employed by…design firms generally work a standard 40-hour week.”⁴

Innovation
Much like research and development, the innovation of an industry is dictated by the success (or failure) of new technology. For graphic design, PC equipment that was prohibitive in price is now at reasonable levels. Not only hardware but software has decreased in price. Very little separates what PC technology is available to the small-business owner and a large business owner. However, heavy metal equipment associated with printing is depreciating very rapidly; the side effect is a glut of old technology.

Growth
According to a November 2001 article in Monthly Labor Review, there will be “strong employment and output growth.” Jobs are expected to increase from 2000 to 2010 from 2.3 million to 3.3 million.¹¹ The Bureau of Labor Statistics claims that, “Employment of artists and related workers is expected to grow as fast as the average for all occupations through the year 2010.”4 A December 2001 report by Graphic Arts Monthly cited that “economic conditions” was the top business challenge, adding that, “creative firms don’t seem abundantly optimistic about the future.”⁸

IX. Appendix B – Omitted from Online Version

X. Appendix C – Gantt Chart

The Gantt chart indicates a few of the key activities of the first seven months of operation. The four-month period from July through October is Phase I of promotion, a pro bono design period used to test the market. During that period, the business plan will be revised slightly, the web site developed, and various supporting documents will be finalized. In fact, many aspects of the business plan will be revised over the life of the business.

Networking is an ongoing activity. It’s not a scheduled event, per se, but requires sustained effort throughout the initial phases of the business. Equally important is the final location of Red Line Design. Being a part-time business, planning must account for daytime activities such as a full-time job. Also, relocating from the Orlando area will require additional planning. The post-graduation plans for the proprietor must be finalized.

XI. Appendix D – Pricing Structure

The total cost for each product includes the wages associated with labor and the cost of materials. However, since this is used to pay the owner of the firm (the sole proprietor), it is not included as a cost when calculating the 12-month profit and loss statement; only the cost of materials is used when calculating the 12-month profit and loss (among other expenses). The 12-month profit and loss is shown in the Financial Plan section. Demand will be predicted after the pro bono promotional period, costs better assessed, and the pricing will be adjusted accordingly.

XII. Appendix E – Omitted from Online Version

XIII. Appendix F – Logo Portfolio Samples

These images were selected from the graphics page and “what works” commentary was added to discuss the effect each image achieves.

This entry was posted by Matthew Crumley on Friday, August 3rd, 2007 at 9:34 PM. Matthew is currently a software developer who works on simulation devices and their user interfaces. In his spare time he reads the news, dabbles with code, is active in his homeowner association, and enjoys life with his wife and pet terrier. You can leave Matthew a comment or trackback from your own site. Follow comments to this entry via RSS. Explore other posts marked with these tags: business, graphic design, logo, project.