What if Laurel & Wolf gets *really* big?
Today, Laurel & Wolf is an online interior design service with about 60 employees who support a network of more than 1,000 hand-vetted interior designers across North America. Leura Fine launched the design network from her Los Angeles dining room in 2014, and it has been catching fire ever since.
Laurel & Wolf has a long way to go before having 577 retail locations like HomeGoods, 800,000 local professionals like Houzz, or 10 million monthly visitors like Pinterest, but it has immediately monetized its network without massive real estate or inventory overhead. This type of service offers an extremely lucrative business model that provides early-stage startups with a lot of fuel (e.g. cash) to grow faster, organically. It is similar success that has has led to the growth of Uber, which is now rivaling traditional car companies, Tesla, and Google as the destined king of self-driving cars. Suddenly, this article’s headline image has become less crazy.
How does Laurel & Wolf make money?
Laurel & Wolf participates in the human tech economy, disrupting the traditional version of interior design services by shifting from face-to-face design consultations to a social network platform. Each customer approaches laurelandwolf.com with the intent of hiring an interior designer to help design a space in their home. The company offers three design packages in which users pay a one-time flat fee that includes the entire design process from start to finish. Laurel & Wolf takes a 25 percent cut of that fee, while the rest goes to the independent designer. (Note that this designer is essentially a freelancer or independent contractor, not an employee of Laurel & Wolf.) Laurel & Wolf also offers custom business design services and personal shopping assistance, but this user-based design service is its core revenue stream. Each project averages 10 days, rather than the months of work typical of a face-to-face interior designer, leading Laurel & Wolf to have higher turnover and a lower number of outstanding accounts receivables. The largest costs for the company will be servers to manage digital transactions and user accounts, marketing to acquire users and designers, and employee compensation. Relatively speaking, these costs are rather low.
How does this differ from the business models of Pinterest, Houzz, and HomeGoods?
HomeGoods participates in the traditional goods economy as a traditional retailer with an extremely small eCommerce presence. This means most of its sales are earned through expensive physical and manual operations. HomeGoods earns approximately 12% pre-tax profit margin on all of its revenues due to high costs like an estimated $450 million in product inventory and over $1 billion in real estate and employee compensation. Both can continue to be optimized, but true breakthrough in costs would require a significant shift in operations. Thanks to growing interest in affordable interior design, HomeGood’s parent company, TJX, still plans on increasing the number of stores by 50% in a massive expansion plan. This trend bodes well for Laurel & Wolf, as well, as they make interior design services more affordable and accessible to the masses.
Pinterest and Houzz govern with an entirely different business model, participating in the information economy. Neither company has assets for sale as their core business operation. Pinterest, with over 100 million active users, primarily makes money not through these users directly but through advertising sales to brand sponsors. Houzz, with about 35 million users, also makes money through advertising sales to brands and premium listings of professionals registered on the site. Both Pinterest and Houzz have ambitions of creating another revenue stream through a marketplace of tangible goods. To date, Houzz has been more successful, largely because it is more singularly focused on the home goods category than Pinterest’s anything-and-everything approach. Houzz launched its marketplace in 2014 and has since rapidly expanded its inventory and has redesigned its homepage, disguising the original photo-sharing concept as more of an eCommerce site. In the future, Houzz will face competition from traditional goods retailers (e.g. HomeGoods), eCommerce retailers (e.g. Wayfair), and design-inspired networks (e.g. Pinterest), which may complicate its operations.
How could Laurel & Wolf win?
Laurel & Wolf participates as a disruptor in the human tech economy. This sounds like an oxymoron, but it is the crossroads of the traditional services economy delivered by humans and the tech economy delivered by computer science. It invests in technology that maximizes the potential of human beings to produce great amounts of value from their natural (in this case, cognitive) abilities. Laurel & Wolf aims to disrupt an existing inefficient practice in interior design, formerly reserved for professionals with special credentials, clients with massive disposable income, and a long time period for negotiations.
Does this sound familiar? Consider a startup who disrupted the traditional hotel services industry by broadening the types of spaces people can rent for accommodation as well as the types of people who can manage those spaces. Or, consider a startup who disrupted the traditional taxi services industry by also broadening the number of people who can earn compensation from transporting passengers. Promisingly, Laurel & Wolf has the potential to tap into human potential without the costly industry and governmental resistance that Airbnb and Uber face. Based on the precedent set by Airbnb and Uber, Laurel & Wolf has a definite potential to become the largest interior design firm, which would not be difficult in an extremely fragmented industry. Users of Uber/Lyft and Airbnb has demonstrated that so far, they are comfortable with having a limited set of tech brands to choose from for meeting a specific service need.
But how could Laurel & Wolf eclipse the size of Houzz, Pinterest, and HomeGoods? It is unlikely that Laurel & Wolf will amass more users than Houzz or Pinterest, given that those platforms are part of the free information economy and allow any person with even a slight interest in design to become an active user. Laurel & Wolf will be able to convert these users into paying customers much easier than either of those platforms, which is a clear business model advantage as it offers its users a very clear service for a very clear unmet need. The key to Laurel & Wolf’s potential size is how many people will now consider interior design services given a much lower cost model. In theory, this could be a decent population since when people buy interior decorating goods today, they are really buying a room’s aesthetic transformation rather than just an item.
Social networking websites, while extremely alluring, are another type of player in the information economy, like newspapers, magazines, search engines, and TV programs. Advertising dollars will continue to be distributed across a highly fragmented set of media options, which has proven to become only more fragmented with time. It is conceivable that unless this social media industry starts to consolidate via media conglomerates like the television and newspaper industries have, any individual site may not earn much revenue on its own in the future. As for HomeGoods, the traditional goods and traditional retail industries have proven to remain highly fragmented without government intervention. People have demonstrated that having multiple stores, boutiques, shops, and malls to choose from is actually a pleasurable experience, and consolidation is not an unmet need for customers, at least.
Thus, focusing on the potential of its business model, Laurel & Wolf certainly could become a major influence in the interior design world. It would be much more interesting to see need-based consolidation rather than industry-based consolidation, which is why this article’s headline image shows a Laurel & Wolf conglomerate with a number of also design-based businesses supporting its growth, rather than a media-based conglomerate with Facebook at the helm. To be clear, if Houzz, Pinterest, or HomeGoods cashed in on their current strengths to diversify into these other industries, the logos in this article’s headline image could shift with one becoming the new headliner. All in all, the complementary nature of combining the information, services, and goods/retail economies — both tech and traditional — under one roof could lead to a significant level of innovation, business prosperity, and consumer/user delight.
David Sylvia, this post’s author, is the founder of Crusoe World, an innovation consultancy with all-in-one life and business strategies for leaders of a new world. After traveling to 23 countries and growing billion-dollar brands, David and Crusoe coach bold leaders with life advice, business model, and brand story frameworks so one day they may make a mark on the world. #findyourstory and #exploremore