These days, it’s relatively easy for digital practitioners to start up a business of their own. Just fill out a few government documents, buy some computers and software licenses, create a studio website, and you’re off to the races. Lean back, smoke a cigar, and cash those cheques. If only it were that simple.
Over time, we guarantee you’ll make mistakes, even if you’re super-organized. You’ll be able to quickly catch and fix some of them, but others will turn into avalanches of stress, anxiety, and lost revenue. Bank on it. Whether it’s an employee-related issue, the payroll company not filing the right paperwork with tax agencies, or a client holding back key information required to make your project successful, you’ll have to become adept at damage control.
Happy Cog’s Greg Storey and Greg Hoy have been running shops collectively for almost two decades, and one thing they've learned is that watching others screw up is one of the best ways you can learn not to. A few years ago, they started a retreat called Owner Camp for people who own their own digital studios.
Each retreat is three days of open and honest discussion, much of which centers around lessons learned the hard way. In the spirit of those conversations, they'd like to provide a glimpse of some of the mistakes they have experienced, a few that their peers have endured, and the lessons they've all learned.
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Keeping money flowing
Managing cash flow can be the bane of a business owner’s existence. Most of us start out relatively small, with a handful of employees and a workload that enables us to get by without angel investors or lines of credit. Once the business grows, things get trickier. For instance, clients might sit on your invoice for a week or more, even if you delivered it to them promptly. Before you know it, your 30-day payment arrangements have been extended.
One such experience happened to Owner Camp alumnus Warren Wilansky, who owns and runs Plank, a digital design studio in Montreal: “In year two of running Plank, we made the mistake of not planning well (or, make that: at all) for the tax bill that hit our desks one day. We didn’t have enough money in the bank to pay it, and at that point we didn’t even have any kind of monetary safety net or line of credit.”
Thankfully Wilansky managed to find a way to make his payment and avoid further trouble. A line of credit can be an extremely useful tool in helping to manage cash flow. Banks like to see a demonstrated history of creditworthiness, and it’s worth the effort to apply ahead of time. The process can take several weeks, so don’t wait until you’re in dire need of cash. Plan for things to go wrong when things are not going wrong.
Transparency can be difficult to manage, whether it’s with a single business partner or a hundred-person organisation. Determining what (and what not) to share with your colleagues is a decision you need to make for yourself. It can be a damned-if-you-do and damned-if-you-don’t proposition. We’ve found that some level of transparency is necessary to get the most out of your team members and to help them grow as leaders. If you do it right, you’ll earn their respect. However, too much transparency – no matter how good your intentions – can create feelings of entitlement which can undermine your relationships with your colleagues.
We worked with an individual with whom we chose to share increasing amounts of information. When we encountered a slow sales period, cash became scarce. We ended up taking on a workload that was more aggressive than we typically would have. For a number of reasons, we didn’t feel that sharing the details of our financial situation was the right thing to do. We felt it would have created too much anxiety.
The employee questioned why we were taking on more work, and strongly objected to it. Our increasing levels of transparency had created an expectation, and we now felt obligated to share the reasons behind the difficult decisions we were making as businessowners. The employee was not aware that the two of us had not paid ourselves for two months in order to pay them, provide them with health care and keep making contributions to their retirement accounts. It was incredibly stressful.
Since then, we’ve been continuously evaluating how much information to share with our co-workers. We’ve been more forthcoming with sharing financial information, and we’ll likely continue to do so. Some companies are completely transparent about salaries. We don’t feel like we’re there yet.
Choose your partners wisely
Carl Smith, nGen Works founder and CEO knows there are key moments in your life when you get the opportunity to make a vital first impression. After hundreds of hours of work and six months without revenue, nGen Works was ready to say hello to the world in late 2003. They sourced thousands of email addresses from business cards and old emails. "We created a three-minute Flash movie showcasing our animation talents. We spent weeks crafting the perfect email. We fine-tuned our message within an inch of its life.
"Then, the day before hitting ‘Send’, we learned there were ways to track email messages in order to gain extra insights. A quick AltaVista search led us to a company in California that looked amazing. Not only could it help us track the success of our messaging, it could help us personalize the emails – we went with them.
We spent the final 24 hours before launch manually entering names into our spreadsheet so we could personalize our messages. With great anticipation, we waited for launch time. Beers were chilled and operators were standing by. We scanned the message one final time. Then, whoosh. It was away. Within a minute, we got our first response. “Hey, I clicked on this link and it doesn’t work.” We took a look. None of the links worked. It turned out, our new email partner’s system was completely down."
In 2014, Greg Hoy wrote about how tough the economy has been for digital agencies. The first quarter of the year was disastrous for many. When encountering times like these, it means having to make tough decisions which can lead to crippling debt and a demoralized team.
James Archer, of Phoenix-based UX design firm Forty, recently faced this challenge and came away with some strong advice: “The brutal truth of business ownership is that sometimes layoffs are totally appropriate, not just for the business itself, but for everyone involved. Nobody had ever told me that, though, so when things got rough I started digging a deep hole in our credit line, trying to keep the team together when I should have just recognized that we were overstaffed for the work we had coming in.
"To make it worse, some team members eventually got nervous about the financial imbalance caused by trying to preserve their jobs, and wound up quitting anyway. In retrospect, everyone would have been better off if I’d let some of them go six months earlier. If you’re thinking about whether you need to consider layoffs, it’s probably already time. Get it done, and keep your business strong for the future.”
When starting a studio, possibly the biggest unknown you need to face is figuring out how much to charge for your services. We’re asked this question all the time. Happy Cog founder Jeffrey Zeldman used to tell us, “You’ll work just as hard for a $5,000 website as you do for a $50,000 website.” He was absolutely right. Clients want what they want, so get ready for it.
Aaron Quinn, the co-founder of eHouse Studio in Charleston, South Carolina, has a great story to illustrate this point: “In the first year of business, we were asked to price a redesign of a large website for an organization. It had recently launched its site, but was unhappy with it. “At the time, the four-team members of our company worked together to detail every hour and task to price the project. It was one of the largest projects we had taken on to date.
"Our expectation was that the client wouldn’t be pleased with the sticker price, having just built its existing site. In the presentation, we nervously approached the final price tag of $30,000, all we could say was, ‘It’s going to be around 30’. The client’s reply was, ‘30? Thousand? I paid over three times that for the first one, where do I sign?’ That was our first realization that we were under-pricing what we had to offer and we could actually charge the correct value.”
With all of the methods we have to communicate with now, there is one that consistently causes problems: email. It’s simply too easy to screw up on email if you’re not paying attention.
Years ago, we were asked to participate in a pitch to redesign the website of a very prestigious organization. After weeks of dialogue and prep work, we made it to the final selection round. On a Sunday morning, the prospective client emailed us to ask if we could answer a list of follow-up questions she provided.
As we read the email, a reply hit our inboxes from a business development person we were working with. These words, included in the email response, are tattooed on our brains: “These guys are being a pain in the ass, but they’re a world-class organization and they’ll look great in our portfolio.”
The problem? He’d hit “Reply to all”. The response went to the client too. Ugh. We spent the rest of the day carefully drafting the most thoughtful and humble apology we could muster. One person, hurriedly typing a response, had just insulted a group of people who do the work of angels. On Monday morning, we gracefully removed ourselves from consideration, wished the client well, and let the business development person go.
Last year, our company went through a good deal of change. In years past, we’d tackle client projects geographically – our Austin office would handle work near there, and our Philadelphia office would focus on work in the northeastern US. As our company grew, it became clear that this structure didn’t scale well. After carefully considering a new team-based approach, one of us published a long, energetic post that outlined all of the juicy details with a new organization chart.
After clicking ‘Submit’, he closed his laptop and went on a week-long vacation. Needless to say, few people were completely freaked out by such a substantial change and immediately asked questions that a few of us didn’t have detailed answers for. When the vacation was over, our management team talked about what happened. Know that if you are conveying life-changing information to your staff that they’ll have questions about it. Be available for them.
None of these situations have a one-size-fits-all solution. The one common denominator that business owners have is the fact that they own businesses. Apart from that, things can be quite different. The secret is sharing information and applying what makes sense for you. We encourage you to talk to each other. There’s plenty of work out there. Sharing a secret or two won’t put you out of business, it’ll make you stronger. Mistakes are a good place to start.
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