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ARTICLE 1 - Effective Selling by Leveraging Cognitive Biases
by Blair Enns

Heuristics, Biases and Nudges

“Heuristics” is the ten dollar word for the mental shortcuts human beings take when processing information and making decisions. Such shortcuts are helpful when speed or efficiency is paramount in decision making, but they leave us prone to numerous cognitive biases that skew our thinking in ways that are well documented and predictable. Being aware of such biases allows us to “nudge” others toward certain decisions or behaviours without taking away their freedom to choose.

In this article I list the biases I find to be most useful for ethically influencing the choices of clients and prospects in a sale without misleading them or impairing their ability to choose what’s right for them. It’s also helpful to watch for these biases in our own decision making.

Whether nudging people in this manner is in the domain of the dark arts or not depends entirely on your own use and motivations. So, with your solemn oath to nudge only for niceness instead of evilness, let us examine some of the more interesting cognitive biases and how to use them.

Anchoring

Anchoring is the tendency we all share to overweight the first piece of information we receive on a subject. I’ve already dedicated an entire article to this topic and have covered it in a few webcasts as well, but only as it applies to pricing, where “anchor high” is the rule for salespeople and “anchor low” the rule for buyers.

Anchoring doesn’t have to be limited to prices or even numbers, though. The first idea raised in a problem-solving discussion will skew the discussion to that idea.

The original, and more complete, term for anchoring is “anchoring & adjusting.” We quickly anchor to the first piece of information as a starting point in our decision making then we enlist another slower, deeper system of thinking to make adjustments and arrive at a decision using a balance of these two fast and slow systems. Our adjustments however are typically shown to insufficiently counter the effects of the initial anchor.

Getting your ideas out first has an effect that is not easily undone, even when the other party knows what you’re doing. Be the first one to offer a proposal in any negotiation and anchor with a position that’s more exaggerated than your desired final one.

If you’ve ever presented three creative options to a client and thought of or explained those options in the ascending order of safe, bold & audacious then you’ve attempted to anchor. The mistake most make is pitching the audacious option last. Instead, lead with the audacious option first, properly anchoring it in the mind of the client. From there, watch it skew the discussion, increasing the likelihood the client will choose your bold middle option.

Social Influence

When your mother exclaimed, “I suppose if Billy jumped off a bridge then you would too!?” she was trying to counteract the influence of others on your behaviour. There are different types of social influence — some based on overt peer pressure and others based simply on information of what others are doing – but all can have a profound effect on decision making.

The most common example of attempts to leverage social influence in a sale include anytime you see the words “most popular” next to an option. The inference is that these people know something you do not so you’d better follow their lead. By telling your client that “most of our clients choose to hire us to do Y in addition to X” you’re leveraging social influence. As you are when you show your client or prospect what their competition is doing in their marketing that your client is not.

Occasionally, you’ll be asked to sell to a prospect with requests like, “Tell me why we should hire you.” You should never accept such an invitation. Instead, counter with something like, “How about instead of trying to convince you, I tell you why our current clients hire us and you can see if those reasons make sense for you?” You’ve now dragged your client’s peers into the room and are speaking for them, explaining what they saw in you. You’ve just swapped your own self-serving bias for your prospect’s bias to be influenced by others.

A bias related to social influence is the bandwagon effect, which sees the tendency to increase the conformity of one’s behaviour as the number of other people exhibiting similar behaviour rises. Implied in the bandwagon effect is a sort of tipping point, where even a small imbalance brings instability that builds until the vast majority ultimately conform to the new belief or behaviour. The modern vernacular is “going viral,” which is apt, because the spread of infectious diseases was the area of study that led to the observation of the tipping point effect, which has since been applied to other areas thanks to Malcolm Gladwell.

Framing Effect

We all intuitively understand that how we frame a choice, to ourselves or others, has a significant impact on the decision that gets made. The framing effect sees people draw different conclusions from the same information based on how the information is presented.

Loss Aversion Bias

I’ll move quickly to loss aversion bias because one of the simplest ways of reframing a decision to your advantage is to frame the choice as giving something up rather than acquiring it.

Loss aversion bias, also known as the endowment effect, is somewhat quantifiable. It’s been proven that people dislike giving up something they possess about twice as much as they like the idea of acquiring something they do not yet possess. This is just one reason why guarantees and offers to “try before you buy” are effective.

Loss aversion bias explains why you overpaid so much at that charity auction. Once you made a bid, the item was yours (in a part of your mind, anyway) and you valued it more than before you bid. If you were bid up by competitors multiple times then your sense of ownership, and of potential loss, increased, so you paid more than you planned to. It happens every time, even at corporate auctions where we assume the bidders to be more rational. They’re not. They’re as susceptible to such biases as those of us with smaller check books.

Don’t make the mistake of using loss aversion bias as your reason for working for free in the buying cycle. The client is committed to you only once they’ve parted with their money, so use a guarantee but don’t begin working on the engagement until they’ve paid for the first phase. That’s when the endowment effect becomes your friend.

Sunk Cost Bias

If you’ve ever increased your investment in a pitch in the face of information showing that the original investment was a poor one, then you, my friend, have been had by the sunk cost bias.

We all understand that mistakes in investing and hiring need to be ruthlessly corrected once the error of our ways becomes apparent, but most of us can rationalize why we should keep going for just a little while longer. And then longer still.

What expensive new business opportunity are you pursuing right now under the undue influence of a sunk cost bias? Now that you know what to do, will you do it or will you keep investing and rationalizing until the inevitable conclusion? We all know how this movie ends. (Pass the popcorn.)

Certainty Bias

At least one study has shown that when someone claims to be “99% certain” they’re only 40% likely to be correct. So, when you hear someone make this claim, the smart thing is to bet against them.

An interesting related bias is something known as the Dunning-Kruger effect which sees unskilled individuals tending to overestimate their abilities and highly skilled experts underestimating their own abilities. The short of it is that if someone appears overconfident in their own abilities, they probably are. Place your bets accordingly.

Confirmation Bias

Confirmation bias is the most common, obvious and powerful of all the biases. It is the tendency to look for and invite information that supports preconceptions and existing beliefs while ignoring information that challenges them. Pay attention and you will see it everywhere.

The book Immunity To Change, by Psychologists Robert Keegan and Lisa Laskow Lahey, maps out three core stages of “mental complexity” in human beings that the authors claim have little to do with education or even measurable intelligence.

To paraphrase their work in simple terms that I’m sure would make them uncomfortable, the first level of mental complexity is where we embrace certain ideas of others and become followers. The second level is where we author our own ideas, and the third level is where we become aware of our biases to our own ideas and are able to further them but also to rethink, reshape and even recant them if necessary. (Keegan and Laskow Lahey use the term “stages” rather than “levels” and they identify five of them in their model but for the sake of simplicity and clarity I’m sticking to the truncated idea of three levels here.)

What’s interesting about the second level, where I believe most competent, successful people lie, is that once you start showing conviction for your ideas, those around you become aware of your biases and tend to bring you information that supports your point of view, while withholding information that challenges it. This feedback loop increases your certainty. The higher up you go in any organization, I believe, the more your certainty becomes entrenched. That’s why all dictators and most governmental leaders are delusional.

People at these first two levels also only seek out information that confirms their biases. So, while someone might be well read on a subject, the breadth of their reading rarely allows for differing ideas, leading to the type of intransigence that makes the company Christmas party so eventful.

Global warming is a fantastic arena for the demonstration of confirmation bias on both sides of the debate. Most of those who don’t believe the planet is warming at least in part because of the activities of humans become more entrenched in their position as they accumulate more information, and most of those on the other side equally become more convinced of the certainty of the apocalyptic forecasts as they accumulate more information. Both sides should be softening their positions based on the available information but their confirmation biases see them cementing those positions instead.

It’s a mistake to assume that the only thing standing between a person and enlightenment is data. It’s almost never the case. The more the average person thinks they know something, the more susceptible they are to confirmation bias. This holds true for scientists (regardless of their protests that science is above bias) and us muggles.

This highest level of mental complexity, where we are aware of our own biases, is rare air. How many successful people do you know who really invite challenges to their thinking or beliefs? How many of us truly consider viewpoints that are at odds with the ideas we’ve worked so hard to develop or the ideas of others to which we’ve become so committed? Less than 1% of the adult population, according to Keegan and Laskow Lahey. Chew on that for a minute.

We’re Only Human. So, Let’s Take Advantage.

We are all rife with biases. They originate in the gap between our two systems of thinking – our quick, intuitive, shortcut-based system that lets us do complex things like simultaneously drive a car while talking on the phone and drinking hot coffee without much conscious attention or cognitive cost, and our more considered, analytical system that lets us do long division.

These systems work together to allow us to parallel process our way to decisions in an incredible manner that even the world’s best computers cannot replicate. The intersection of these two systems just happens to leave us open to a bit of hacking, if one knows where to look. I’ve just told you some of the places to look.

ARTICLE 2 - Hacking the Value Conversation
by Blair Enns

The value conversation is where value pricing theory goes to die. The difficulty in mastering this conversation is what causes most people to give up on value-based pricing completely and revert back to selling time and materials. It needn’t be so difficult, though.

There’s a hack to the value conversation that a successful former client of mine pointed out after reading the manuscript of Pricing Creativity: A Guide to Profit Beyond the Billable Hour. When he explained it to me over dinner I thought, “This is brilliant. I should put it in the book.” In the end, I didn’t include the hack because I feel strongly that mastering the value conversation is one of the most valuable skills in all of business – a skill that can transform careers and businesses. So, while encouraging you to learn that skill, I’ll now give you the shortcut. But first, some context.

Perhaps the Most Valuable Skill in Business
There are three tiers of financial success in a creative firm that I can correlate to pricing strategies. The lowest tier of true financial success is occupied by the efficient cost-based pricers – those firms that bill as many of the available hours as possible. An efficient firm might bill around $200k in adjusted gross income (AGI) per full-time equivalent employee (FTE), whereas the average cost-based firm might bill around $140k in AGI per FTE.

The next tier of success is where you find the value-based pricers – those who charge based on the value to the client and not based on their costs or inputs of time and materials. These firms escape the limits imposed by the pursuit of efficiencies, moving their AGI/FTE number north of $200k, into $250k and maybe even the $300k range.

The very highest tier of financial success, however, is reserved for those value-based pricers who master the value conversation. These firms can push into the $400k range and beyond, with no real theoretical limit. A well-facilitated value conversation not only has a profound effect on the income of the firm, it creates more value for the client and it is a thing of beauty to behold. I consider it to be one of the most valuable – perhaps the most valuable – skill in all of business.

The Value Conversation Framework
Here’s the simple four-step framework for facilitating the value conversation:

  1. Confirm the client’s desired future state (What do you want?)

  2. Agree on the metrics of success (How will we know we have achieved these things?)

  3. Uncover the value that would be created by hitting these metrics (What’s this worth?)

  4. Offer pricing guidance (I’m going to bring you a range of solutions in the $Y to $X range.)

There’s lots of nuance around the “how” of each of the four steps above, but it’s really that straightforward. You’ll notice that by the end of the value conversation you haven’t even begun to think about solutions. Your entire focus is on the client: what they want, how you’ll measure their success, how much value you might create for them, and finally, some initial ideas on what you might charge for helping to create such value. After this conversation, you retreat to think about costs and solutions, building and pricing your proposal accordingly, while following the rules set out in Pricing Creativity.

The Reality: Few Get There
So, why are there so few firms mastering what seems like a simple conversation and moving to the highest tier of financial success?

The reasons are many:

  • This mastery is a sales skill and not a pricing skill

  • It requires you to be selling from the expert practitioner position and not the vendor position

  • It’s tactical knowledge acquired from doing, not implicit knowledge acquired from reading or listening

  • It requires you to be talking to client-side executives charged with value creation and not middle managers charged with managing a project or budget

  • The first few conversations can be awkward, and few push through the awkwardness to get to the incredible riches on the other side

All of these reasons and more make a value conversation hack so valuable. So here it is…

The Hack
Early in Pricing Creativity, I tell the story of the first time I saw a one-page proposal based on value rather than inputs. It was the principal of that firm that I found myself having dinner with while the book was in pre-production. Commenting on the manuscript he said, “You left out my hack!” What did he mean, I asked? He replied that he never mastered the value conversation. (Chapter 9: Master the Value Conversation – to me, perhaps the most important chapter in the book.)

Instead, early on in the sale – much earlier than I would advocate – he would put a one-page proposal on the table with three options. But he didn’t view this proposal as the final one. In fact, he said that the initial proposal was never the final one. It was only there to serve as a catalyst for discussion over what the client really valued. The hack, according to my client, was to put at the bottom of each option, “Choose this option if X is important to you.” X might be speed to market, customer service, low risk, knowledge transfer or anything else. He would then ask the client, “Which one of these options is the most appealing to you?” The client would point to one, and in doing so, reveal what he most valued. This would direct the conversation. “Ahhh, so educating your team as we develop the product (or programme) is something important to you?”

In this way, the early proposal led to a more targeted value conversation in which the client and the firm could talk through specific value drivers that the client had revealed by simply pointing to an option, all while framed by the context of the initial prices. The discussion would result in the firm coming back with another proposal more specifically targeted to what the client most valued.

To Hack or To Hold Firm?
As someone who values rule-breaking as much as I do rule-making, I love this hack while I simultaneously worry about sharing it with you. There is no substitute for mastering the value conversation. I’ll repeat that I believe it might be the most valuable skill in all of business, but I also know that the size of the gap between those who understand value pricing and those who truly implement it is problematically large, especially in the creative professions.

As I craft this parting advice I find myself wondering what I would do if I were in your shoes (Win Without Pitching is a productised service business – we don’t value price the way a customized service firm like yours should) and I don’t think I would deviate from proper sales process and a good value conversation. But not all value conversations are good and easy, especially in the beginning. And like all good hacks, I would keep this in my back pocket for those situations where I saw that an elegant theory was clashing with my harsh reality.

So use at your discretion. If you do try it, I’d be interested in hearing how you make out.

ARTICLE 3 - Stop Giving The Client What They Want
by Blair Enns  

“If I’d asked my customers what they wanted they would have said ‘A faster horse.’”
-Henry Ford

A mainstay of some agency new business conferences is a few highly coveted clients on the stage lecturing the agency audience on what they want from their agency partners that they’re not getting. While it would be foolish to dismiss these client entreaties out of hand, it would be just as foolish, I believe, to give them what they want.

Taking a cue from Henry Ford’s playbook, Steve Jobs famously said, “How will my customers know what they want if I haven’t showed it to them, yet?” It sounds like arrogant bluster, but he believed it and he was right.

I don’t have to cite the multiple studies that have proved human beings are terrible predictors of what they will like, I only have to ask you to recall that situation where you thought you won the pitch, because in the client’s words, “You ticked all the boxes,” only to lose out to a competitor who ignored the client’s checklist and proposed something radically different. We all know of examples of this and most of us have had it happen to us, whether we were the burned compliant rule follower or the one who challenged the client’s own ideas of what they wanted.

A friend who is undertaking a massive home renovation recently told me a story of briefing two architects on the job. Both he and his wife presented a detailed list of everything they wanted in the newly renovated home. The first architect came back with a design that ticked every box. My friends, the clients, were delighted. They didn’t think they could possibly get everything they had asked for. But the second architect essentially ignored the brief and did what he thought was best for the building. The design was radical. I think my friend used the word “shocking.” They took a couple of weeks to think about it and then went with the radical design, which not only didn’t check many boxes on their list but “scared” them and was 20% more expensive. That’s right, they paid a 20% premium for a scary solution that defied the brief.

This happens all the time. The lesson we take from it is not that we should never give the client what they want, but that often, when the client is constructing the brief on their own, they leave out things they haven’t considered or with which they have no previous experience. Those clients on stage telling agencies what they want are building those lists from their pasts. Most of their wants are about avoiding repeats of previous disasters. By indulging them the best you will do is “check all the boxes.” But who really wants to go through life just checking all the boxes? Not me, not you, and not even your clients.

Make Challenging The Client Your Competitive Advantage
In large, multi-layered firms, and in particular those where ownership is separated from management, the appetite to really challenge the client isn’t there. There may be one maverick in the firm keen on it or perhaps even two, but off to the side and in the layers above there is always at least one person who sees their role as “don’t screw this up.” So that’s the approach the agency ends up taking on the opportunity: let’s give the client what they asked for and not screw this up. That is a key difference in the culture of an entrepreneurial firm–and I mean that in the literal sense that the firm is run by an entrepreneur who not only has skin in the game but may have all their net worth tied up in it–and a firm run by managers who report to other managers who report to parent companies who report to holding companies who report to investors. The first has the authority and risk profile to challenge the client’s idea of what they want and the other has neither.

If you’re in the latter group and you find yourself competing against firms in the former and you are not pushing back, deciding what is best for the client in spite of how you’ve been briefed, then you are failing to leverage one of your most significant competitive advantages.

And it’s not just the big boys and girls that fail to push back and routinely give the client what they want. Many entrepreneurial firms behave this way too, for reasons of personality, “politeness” or poor training.

Intermediate/Senior Architect Position Available at Dorrington Atcheson Architects (DAA)

If you are an architectural all rounder with an eye for detail and enjoy a collaborative approach then don’t miss this opportunity to join DAA, a boutique, design based architectural practice in Grey Lynn. These roles are highly sought after and don’t become available often, so act now.

$80,000 – $99,999 Grey Lynn, Auckland

The successful applicant will need to be design focused with a passion for architectural detailing and design as well as an enthusiastic team leader able to mentor other members of the practice.

We require someone who is goal driven and milestone focused. Able to organise and deliver to a program and manage several balls in the air at once.

This is a great opportunity to involve yourself in all facets of the architectural profession from design, to detailing, to documentation to site in a fun and vibrant environment. 

EXPERIENCE AND EDUCATION
- an architectural degree
- minimum 5 years experience working as an architect in NZ
- have an understanding of the processes within an architectural practice, from design, resource and building consents, documentation and construction
- an ability to liaise with clients
- an ability to build relationships with the team on site
- an ability to solve detailing as required
- an appreciation of concept design with the ability to deliver this through to construction
- NZIA registered preferred

 

CV and portfolio to info@daa.co.nz