Why we gave up web design after 10 successful years to move to products
blog.silktide.com
blog.silktide.com
If you are in a services business, and you catch the products bug, it's all over.
This is my own opinion of course, and based on my own experiences.
When you enter the Web Design business, you do so because you are both technically capable AND creative (hopefully). The business honestly feels perfect, like what you were MEANT to do.
Then the Client steps in.
You realize that your creativity is rather meaningless. You can be given "free reign" to come up with a design, but at the end of the project, the Client will probably murder it with no regard for your expertise. Your creativity is stunted, and your soul dies as you have to start asking for permission to implement every bit of genius you want to throw at a project.
Then there's products. You create them yourself, for who you believe the customer may be, and your creativity and know-how form the product. When you are done, it's your own masterpiece. Now you sell it. Some will buy it and love it, others will buy it and hate it, others won't bother, others will tell the world.
But it's all OK. You keep iterating. When your "customers" give you feedback, you don't have to implement everything. And the things you do implement are usually loved by yourself AND your customers.
Like I said. If you are a "services" person and you get a taste of the "products" world, there's just no turning back.
I won’t go over all the articles points; I think it is well written. I am a bit envious that they have a product to transition too. However, I will point out two ways to help small agencies deal with clients. Specifically on how to take payments and whether to accept certain clients. Both of these areas will help alleviate stress in running the business.
1. Not getting paid. To fix this issue simply demand more up front. We start projects at 75% due. Have done this for 10 years now. Larger contracts, over $15,000, we will start with a 50%, 25%, 25% split. We have never started a project for less than 50% of the entire.
The key is that you never work on collection model. Never send an invoice for work completed. You always are working from your funds you have, so you are never at a loss.
Sure some clients balk at the higher up-front costs, but do you want those clients? Stick to your guns. If a client likes you and your portfolio, they probably will sign even if it means a bit more upfront costs.
2. Owning your time. We get our fair share of "interesting" clients, but have found a way to weed them out in the sales process. This way we only work with clients that we like and want to help. Key tips that it will be a "interesting" project and you may want to pass:
- Wanting to change our standard contract. Our contract is a short 1-page that is really fair to both sides. The more they change the harder the project will be, always. Stick to your contract. - The client needs to start, now, now, now. Basically someone internally has dropped a ball in scheduling and now it is your problem. Charge more to help them or pass on the project. - Disorganized email chains and hectic meetings. The client won't suddenly become organized during the project, which means you are now their organizer. Have fun with that project if you accept, but charge more for project management.
Anyways, I think going the product route is great for web agencies. But you can make a successful agency model work and have fun, we have for 10 years now.
Might be useful to see our own Terms, they're still online here:
www.silktidestudios.com/tandc
We always charged 50% upfront for anything over £1,000 (about $1,600). Projects over around £20,000 usually had three way splits.
Of course some bigger contracts (esp. government) insist on their own onerous terms but usually they're decent payers.
Hmm. Perhaps I should write an article on getting this too...
a) Look at our portfolio and call our existing clients, b) that we do most of our work in the first few weeks of the campaign so it is only fair to pay that high of an amount, and c) I don't want to have to pause the campaign to wait for a check, it just ruins the flow.
I have not really changed our contract in 10 years. It used to just be me and now we have 13 full-time, a few part-time and a few freelancers. So I know it can work and expand the business.
I really think that 50% is needed to start. It helps weed out clients that are hoping to get funds, or get free ideas, once the project gets going. It shows both sides are serious in committing their time and effort.
If you want, I can send you a sample contract. It is US law based, but the ideas are the same for your law. Just fill out one of our contact forms with your email and I can hit you back with the PDF.
Would it be correct to say that dealing with clients takes some 'back-bone' to have the courage to say no and to turn stuff down.
I'd never do that kind of stuff on a fixed price contract. I'd rather wash dishes or wait tables. Some of that work can be fun if you do it on a time & materials basis, but there's certainly less of that around.
I've seen a few companies try to move from 'contracting' to 'product sales' and it appears to be a difficult transition.
The problem is that web shops tend to be driven by success at sales and to be undisciplined about business. They find it impossible to make a "to not do" list and stick to it. There's always the old client who's got a crisis that you need take care of, or the new client who's got deep pockets which (you think) will pay for product development.
A few months later there's the inevitable meeting where it turns out that the product is terminally late -- if the software developers have a backbone, they'll point out that they've spent 60% of their time on "legacy" projects so no wonder it's late.
Clients somehow need to be sold the idea that they will get better and cheaper delivery if they accept fixed costs, so that services can be productised, made profitable and improved, rather than buying one off non repeatable time for everything.
We are sort of seeing this as we get an increase in the number of product businesses being started, and so more types of activity are being productised.
In an ideal world all projects might look like that but in practice I think there's a chunk which don't. Agreeing fixed fees for these can be a horrible productivity killer because the estimates will tend to be way off and an "it's impossible to do this in the time/ budget allocated so why both trying" mindset can set in which de-motivates everyone working on it.
In this environment I think fixed fee can encourage corner cutting so for me it's about taking projects on a case by case basis and deciding whether fixed fee or time and materials is appropriate based on how predictable the scope and workload will be.
Hourly rates - incentive for productivity gains - this is a two way street. I base my fixed prices on my hourly rates (though I may raise these rates significantly depending on the client and the job) and try to estimate the hours needed. If bid good, then I will get my hourly rate. If I bid horrible then I'm either making more money or losing money.
Of course I want to get the job done as fast as possible (without cutting corners) to get the best rate possible for the job, but I also have to keep an eye on deadlines and the start date for the next project. There are always more factors than just money to give you incentive for productivity gains
I've run a web design company for 13 years (currently a team of three) and it's tough work. To your friends, you're the guy who can work anywhere and at any time, charge a decent hourly rate, etc. Reality is you're juggling hosting and domain invoices, maintaining decade-old sites, having your designs ruined by weird requests and on it goes. For every gem of a client, there is a difficult project that was tough to foresee or avoid for whatever reason.
My problems are never contract-related (I don't bother with them at all, figuring that if a relationship ever needs to refer to the contract, it's as good as lost) and rarely about being paid (the money gets there eventually). I also don't worry about competition from smallfry (rarely unhappy to lose a job because I'm too expensive). Yet even without such critical issues as legal, billing and competition, it's still a difficult line of work.
Why don't I experiment with products more? Since I am the client, I can't give myself a serious must-hit deadline and that final 10% never gets done. I also get distracted by the next idea before I finish the last one.
Sounds a little to me like the story of Pyra Labs, and many others that I can't recall.
The only way out is to create a product that can be packaged and resold to many different clients. This allows you to focus and develop one product, instead of spreading your talent across multiple projects. More importantly, it allows you to control your destiny because you schedule when and how releases happen.
It's farming, versus hunting and gathering.
I like that. Another way to frame it is that it's single vs multi-tasking. I remember reading that contemporary research found that those who multi-task are worse at everything they are doing. It's essentially what's described by this article - http://arstechnica.com/old/content/2006/03/6417.ars but applied to business models instead of teenagers.
I don't know many web designers who achieve that productivity ratio. Then again, hunter-gatherers had less competition, or at least could go and bash in the skulls of competitors.
At one time I worked for a medium-sized software company in the process of going public. One of the metrics analysts were keen on was the ratio of license revenue to services revenue. The lower that ratio is, the less of a product company you are and the lower your potential (and the crappier your IPO).
If all of your work is custom you're no better off than guy who installs kitchen cabinets for a living, in the sense that every new dollar comes in only as a result of new work. If, for some reason, the customer doesn't pay up you have very little to show for your effort.
About 6 months ago, I had an idea for a product, designed it, and put together the final team in the last 6 weeks. I've leveraged old contacts for customer development, and getting the demo done. Now we're pitching some of the largest VCs and angels in the world. Exhilarating stuff.
Maybe I just needed to find out myself, but there's a whole new energy level for myself, and those around me. I think the feeling of satisfaction has less to do with dealing with insane clients, and more to do with creating something that is my baby, rather than someone else's, though.
Agreed. Companies like http://www.cssilize.com/ are difficult to compete. They charge as low as $39 and have instant PMS.
On the other hand, there will be huge demand for mobile app themes.
PSDs are good for specs, but not directly converting into the actual end project.
I also had problems getting customers to pay me on time (and some at all). Some realized we weren't a big company and figured we wouldn't have the money to go after them in court.
Customers also loved to completely change the spec halfway through the project and then get angry when we tried to charge them more money.
The motivation is a killer site to put in your portfolio, potential future projects from that client or friends of that client, and certainly tackling new challenges.
And the trick is not to bend to every situation. There are plenty of big companies that respect outside talent. HBO/Target/CNN off the top of my head.
Not sure how I see the difference between this and the phrase you get by substituting "Customers". It's all well and good deciding to be entrepreneurial, but if the shmoes with the $$ don't play along, it's not going to be fun. You're going to have to compromise your ideals to sell product.
To me, a better way of describing the shift from consulting to product development is that you can sell the same development effort multiple times when it's a product. Thus, no matter how well the consultants work, there's an upper limit on their income.
It's early days for us, so I can't speak from years of experience, but so far there are marked differences for us:
1. We have a lot more customers. Before one or two of our web designer clients could hold us ransom over a big cheque - the sort of thing we needed to make payroll. Now we'd need a mass exodus of customers for the same to happen, and usually that would be because we screwed something up (i.e. it's fair).
2. Customers now have clearer expectations. Web design customers can expect all sort of things which they consider reasonable, and don't understand why they're not (e.g. supporting a website 5 years after you built it, changing their business fundamentally mid project, expecting 'as many designs as it takes' to get right etc). I know you can and should educate your customers, but essentially you're dissatisfying them. With products, generally people pay a fixed amount to use a thing for a time. If it doesn't work, we refund them. Simpler and happier all round.
I totally agree with your last point - if you can scale it pays better. So far, the jury is out on that one for us, but let's see where it goes...
However, if an agency has a lot of customers, each with only a percent or less of total revenue, then its a much more stable platform. You can decline representation of certain clients and they do not effect the total revenue.
Of course, a product line might be better. All customers under one pricing model, customization is limited, and it scales easier. Good stuff.
So even with 200 customers our income came mostly down to a handful of customers each month.
Here's the difference: Replacing a customer is easier than replacing a client. If you build widget X, but then your customer decides they want Y instead, all you have to do is find one other customer in the world that wants X and you sell to them instead. Whereas in a consulting relationship you tend to have to throw X away and build Y, because hey, you're under contract and the client must be appeased.
(In theory you can write a contract stating that if you build X for a client and they refuse delivery you can repurpose X and sell it to a different client. In practice... consultant-built work product and an actual product are different in so many annoying little ways - assumptions about client's specific workflow and IP baked in, for example -- that this is never as easy as you think, and rarely easy enough to be worthwhile.)
Firing a customer is also easier than firing a client. They buy in little discrete chunks. Just apologize that your product no longer meets their needs and they won't buy the upgrade, or they'll cancel their subscription. In the absolute worst case you'll issue a refund. But compared to the soap-operatic stress-filled lawyeriffic delights of contract negotiation such events are almost a delight.
With a good design you should be able to customize without losing the integrity of the product, but if you didn't design with that in mind you have a problem. Customer requirements may also go beyond what even a good, decoupled design is capable of. You can therefore end up in the same situation as the consultancies, only with lots of customized, hard to upgrade or refactor versions of your product.
With a service, how much you earned is directly linked and therefore constrained by effort your able to apply. Ultimately limited to the number of hours in a day.
Alternatively, when developing and selling a product, the amount of money you can make is more limited by how good (and how well marketed) the product is than it is the effort you are able to put into developing the product.
My view is that you can make living providing s service, sometimes even a good living. You can make a fortune selling products.
You probably would have been able to cater to clients from all over the world through video chat. Or is there something about face-to-face meets that makes your task easier?
(Have run a web design company for 13 years now.)
More power to them and all that do this.