Sunday, December 29, 2013

Business Model for Innovative Masonry Design

The focus of my work as a masonry designer has been manufactured concrete block.  I have chosen to focus on this specific field of masonry because it presents a way to have a large impact on how we build things.  The concrete block industry is ubiquitous, with block manufacturers found throughout the US and around the globe.  The science and engineering used to manufacture concrete block have been developed to a high art; the methods and materials used by this industry have evolved over the past hundred years or so to an incredibly high state of efficiency and economy:  very high strength concrete masonry units are produced and sold at a very low cost.  The consumer reaps the benefits of over a century of science and engineering development and is able to purchase this superior masonry product at a very low price.  Manufactured concrete block represents incredible value to the consumer.

Introduction of a new masonry unit which employs the machinery, manufacturing equipment, materials, and distribution processes developed by industry stands on the shoulders of over a century of genius and ingenuity of skilled engineers and the hard work of block makers and working masons.  Thoughtful design allows a maximum benefit of the existing infrastructure of the concrete block industry.  A new design should work well with the existing materials, equipment and processes already in place.

The challenge of introducing a new masonry design to the manufactured concrete block industry is creating a business model which creates greater profits for the block maker and a better product at a low cost for the consumer while still providing some profit for the masonry innovators who bring new designs to market.  How is this done?

The key to achieving these goals is high volume of production.  Since the product (concrete block) must be sold at a relatively low cost to stay competitive with other forms of construction, a large volume of this product must be sold.  This has long been realized by industry, and is the driving principle behind the development of concrete block manufacturing equipment.  This principle has brought block manufacturing to the highly efficient state of development in which it exists today.

The block designer has to provide a value proposition to the block maker.  In my case, the value proposition is that the block maker will sell more product at a higher price and make greater profits.  We can do this by providing use of our molds to the block maker at no cost.  The very high efficiency of block making equipment means that a block maker can produce substantial inventory of product in a relatively short time.  This means that the block maker does not require a set of molds to be in constant use: inventory for a year’s worth of sales can be produced in a relatively short time.  This means that molds can be rotated among different manufacturers, and a given set of molds is shared among a number of block manufacturers.
The masonry system I have developed creates a better building system at a lower cost for the consumer.  This is the value proposition for the customer: a better building at a lower cost.  Since the entire building is made from manufactured block, the consumer purchases a higher volume of block.  This meets the needs of both the consumer (a better building at lower cost) and the block maker (higher volume of sales and greater profits).

Finally, there must be profit for the developer who brings an improved masonry product to market.  We must recoup the substantial investment in molds, the costs of product development, and the costs of sales; while finally still providing profit.  This is achieved through royalties.  The masonry designer does not pay the block maker to produce block beforehand, and the block maker does not pay the designer until block are sold.  The block designer gets a percentage or a royalty on block sold by the manufacturer.  Again, the key to this is a high volume of sales.  The masonry system I have developed requires a large number of block because the entire building is made of block: this is how high volume of sales is achieved.  To make this feasible it is necessary for the number of block made and sold by the manufacturer to be measurable and verifiable.    This is typically achieved by gauging the rate of mold wear on a set of molds.  A typical set of molds is usually good for around 100,000 production cycles before wear parts on the mold need to be replaced (e.g., if a mold produces 2 block per cycle, then production is 200,000 masonry units before wear parts are replaced).  It is also possible to simply sell the mold to a block maker; however the production capacity of a set of molds will usually exceed the total sales of a specialty block.  It makes more economic sense to rotate the mold among various block manufacturers.  This also saves the block maker the expense of having to purchase molds.

Using this business model, we can meet the needs of the block maker and the customer while still creating substantial profit.  Our current model is able to produce a very high strength, fireproof, very low maintenance, attractive building envelope for a cost of around $10 per square foot; average costs of building envelopes are typically around $200-350 per square foot (we create an incredible value for consumers).  This model avails itself of the high efficiency of the concrete block manufacturing industry and creates a superior construction system at a lower cost.   The customer gets a better building at a great value, and the block maker and masonry designer realize more profits.