Archive for the ‘Lessons in Startup’ Category

Lessons in Startup: Business Plans

Posted on January 8th, 2012 by emdash in Lessons in Startup, Pixel Foundry

It’s true that to start a business, you’ll need a business plan of some kind. At the very least, to receive a business loan, your bank will want to take a look at one. Despite this, a lot of small businesses (especially sole proprietors) never get around to developing a plan, or believe they don’t need one.

The Pixel Foundry business plan took a while to write, partly because it was our first time being serious about starting up a company… but mostly because Statistics Canada is useless when it comes to properly categorizing and tabulating information on our industry. For us, the market research was the most difficult part of the entire writing process.

There are many good reasons to write a business plan. We decided against the bank loan route, but still needed the written document… here’s why:

  • The marketing plan section forced us to consider where we’re going to find our clients and how to reach them. From what I’ve seen with friends who’ve started up a business, this is where small businesses tend to fail. If you build it, they won’t come… because they don’t know you exist. Spend some time on this area and the financials – even if you don’t write a formal business plan – is my advice.
  • The financials section gave us a breakdown to let us know exactly how much we need to break even, pay ourselves salary, or grow and expand our business. From this, we could extrapolate how many projects we should take on per month, what our hourly rate should be, and how many clients we should aim to work with ongoing. Nearly every freelancer or small design studio charges too little at first, and we were no exception, but having these numbers prevented us from pricing ourselves into a corner.
  • The research section made us scope out the competition. This helps you develop your USP (more on that in another blog post) and find out if you are even offering something people want. We also gained information on how much other small design studios and freelancers charge, and what their portfolios include.
  • We worked on an exact list of goals over a 2 year period, including when to lease an office, when to hire freelancers to help out with work, and how many new clients we wanted per month. Remarkably, we’re close to our goals, perhaps because we set them with realistic expectations. It’s easy to get caught up in the grind of producing work… this goal-setting keeps you focused on the true reasons you’re starting a small business instead of working for someone else.
  • We knew what equipment, software, office space, and expenses would be before we even looked at whether or not we needed a loan. It turns out we didn’t need to go through the hassle of a business loan, since we didn’t have much for overhead. Too many people think they can’t start a small business without a huge investment. It helps, but if you’re tough, you can sacrifice for a while and be financially independent from the start.

If you don’t want to go through the process of writing a business plan, I’d urge you to at least write a goals sheet, financial statement, and marketing plan. These are the sections we have found the most helpful. You’ll probably find out later that your numbers were wrong, your marketing plan needed adjusting, and your goals weren’t realistic. Keep revising your business plan and referring to it… it is not a static document to be filed away!

Small Business BC offers an interactive business planner. Other samples and templates exist online.

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Lessons in Startup: The Personal Cost of Entrepreneurship

Posted on April 29th, 2011 by emdash in Lessons in Startup, Opinion, Pixel Foundry

Alternate Title: Help, My Friends Have Forgotten I Exist

When you’re working for yourself starting up your own business, it truly becomes your sole focus in life. The long hours, combined with the fact your work doesn’t leave you at the end of the day, can leave you too drained for anything else.

I’d never try to talk someone out of starting up a small business (quite the opposite, I’d argue many of the reasons people talk themselves out of chasing their dreams are invalid) but it’s important to know that you’ll have to make a lot of sacrifices for the first while.

Here are some of the things you can expect:

Love & Romance: You’ll be busy starting up your company and won’t have time for these things. Well, okay, that’s an overgeneralization. If you’re already in a relationship, your long hours devoted to your business can put strain on things. Your partner might end up feeling jealous, then weird about feeling jealous. You may find you want to devote time to the person you’re with, but your mind is often elsewhere… worrying about tasks, perhaps, or planning strategies for the next few months. You might be too exhausted at the end of the day for intimacy. I’m fortunate enough to have a relationship that is mutually supportive… we’re both entrepreneurs. However… I’m not going to lie, the fact our schedules conflict can annoy me.

If you’re looking for someone special, you might have a harder time of it. Dating requires attention: attention to the other person and learning about them, attention to yourself and making yourself feel confident and attractive, etc. Chances are, your business requires more attention than the stranger you met off okCupid.com. I also have a sneaking suspicion that many potential mates will find your ambition intimidating, especially if you’re female.

Friendships: You can’t pull that late night getting a project ready for a client and go out to the pub. You might think you can do both, but you can’t. There are only so many hours in one day. So you turn down invitation after invitation, explaining you have work to do, and your friends are confused because it’s after working hours. Here’s the thing: they’re not going to understand. They may accept your reason, but they’re not going to really get why it’s important that you work on Saturday night. It’s useless to try to make them understand, because they haven’t been there. But, they’re your friends and they’ll understand that you’ll have time to hang out later.

Money and Finances: As far as the bank is concerned, self-employed means unemployed. Unless you have a stellar credit rating and a great relationship with your bank, chances are they’re going to be a jerk about lending you money for anything personal. My long-time big bank refused me a $500 limit credit card once, with the reminder that I can always re-apply if “I get a full-time job”. (I switched to a credit union instead.)

Now, there’s really a few ways to finance your small business… you can take out some small personal loans and grow as you can afford to, work from home for the first while, and hope you break even and don’t need to get a “real job”. That’s rather what the Pixel Foundry is doing. You can also seek investments or business loans. If your small business requires a lot of money to start up, you might have to do this. Regardless of how you fund your business, you’re not going to be writing any cheques to yourself for a long, long time. (Well, okay, you can always take your investment money and splurge on Herman Miller office furniture, fabulous salaries, and foosball tables with it… you can also be out of business within the first two years, like every other tech startup that does that.) Prepare to eat a lot of ramen and borrow money from friends to cover your rent shortfalls.

Housework: If you ended up getting an office, you might end up feeling like you live there, not home. I probably have the last apartment in Vancouver (other than my boyfriend’s) without a dishwasher. When I come home after a 12 hour workday, the last thing I want to do is the pile of evil-looking dishes in the sink. So it gets bigger, and eviller. Entrepreneurs should only have a needy pet (e.g. dog) if they work from home or can bring puppy with them to work. (Note: cats are pretty low maintenance, just don’t forget to feed them.) You can’t run the vacuum in a rental apartment at 1:00 am (unless you’re 207 down the hall from me, in which case you’re a jerk.) So mess piles up, and can feel overwhelming and stressful. My advice: try bribing a family member or friend with baked goods to get them to help out.

Your hobbies: Forget it. Pick them back up in a year or two.

I hope I haven’t talked you out of entrepreneurship. These sacrifices aren’t much different from ones I made to attend college, so I know I can do it… and if you went through college/university, you can do this too. University just has more beer involved.

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Lessons in Startup: Is Entrepreneurship a Good Fit for You?

Posted on March 18th, 2011 by emdash in Lessons in Startup, Opinion, Pixel Foundry

A few weeks ago, Kelly and I were asked to talk to the third year IDEA class at Capilano University about starting up Chestnut St. Pixel Foundry. Talking to young, un-jaded design students about their future is a really rewarding experience… getting their fresh perspective on what we were doing helped remind us why we started up in the first place. :)

The presentation we’ve put together has a lot of valuable information and fodder for Lessons in Startup posts, including a slide about the sort of person for whom entrepreneurship is a good fit.

Our talking points:

It’s easier to start a small studio if you are young with fewer responsibilities. During your startup, you can’t expect to make money for a while. Banks don’t care that you have a dry period while building up your clientele, they still want you to pay for your mortgage, car lease payments, etc. If you’re just starting out your adult life and you don’t have these financial worries, it’s less stressful to start up a small business. A lot of people believe one should get their life established before embarking on a business endeavour… I feel the responsibilities of family, home, car and insurance payments, etc, actually make it harder on both you and loved ones.

It’s easier to start a small studio if you have some money saved up. A lot of small businesses fail within the first couple of years. It’s also usual to expect to not make money in the first year or two. While I advise against having a parachute (I still believe it makes an entrepreneur lazy!) it’s good to have some savings to live off, or a backup plan for life expenses. Can you afford to live without income for a year? Can you move back in with your parents, perhaps, or take out a line of credit, or reduce your spending to a point where you don’t need a regular paycheque?

It’s easier to start a small studio if you continue to have part time work to pay bills. If you don’t have savings (I certainly didn’t, my student loan payments made sure of that!) you should consider keeping a part time job that covers your bare minimums. In my case, I work one day a week as a marketer/direct mail designer/web developer/admin at a small seminar business. I’ve been fortunate enough to be able to choose my schedule there, keeping things flexible for my studio work and clients. This job ensures I have some income during dry studio periods.

It’s easier to start a small studio if you already have freelance clients. While your costs might be higher as a studio due to your overhead, many of your existing clients might be convinced to work with your new team. After all, you can now offer more expertise and faster turnaround. Even if they’d prefer to still work with you alone, they might refer you to others looking for a design team for their company.

It’s easier to start a small studio if you have an independent mindset and prefer working without constraints/management. I will be the first to admit I don’t work well within office politics. My work mindset is to get things done efficiently… I don’t really tolerate bureaucracy or suffer egos (hopefully I have enough tact that I don’t step on too many toes!) Because of this, I thrive in a small business environment, but get resentful when working with larger groups. An entrepreneur has to be able to problem-solve and survive in business, whether on their own or in a small team. You can’t look to others for leadership; you are the leader! (Some people are happy to have others tell them what to do and are able to leave their work behind at the end of the day. These people may be great employees, but they probably shouldn’t be an entrepreneur.)

My advice to someone considering a small design-related business? Start now. It’s scary at first, but once you dive into a startup, you discover that everything is far easier than you thought possible. The biggest regret I’ve heard talking to other entrepreneurs is “I wish I started sooner.”

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Lessons in Startup: One client, one contact.

Posted on December 1st, 2010 by emdash in Lessons in Startup, Pixel Foundry

Clients hate dealing with more than one person. While I’m speaking as a design studio, I suspect this is true of any service-based industry. If more than one designer/accounts person is contacting a client, they just get confused about who to speak to when something comes up.

Unless your client is over the age of 40 or so*, the primary method you probably use to communicate is email. Email is not just a useful communication tool; it also provides a record of everything said between two people. If a client gives me changes to a design over the phone, I have to scramble to write them down clearly and remember what my shorthand means later. If they email me, I print off the email and check each change off upon completion. Guess which is more efficient and less prone to errors?

When you get more than one contact in this mix, it ruins the email communication flow. There’s no longer a clear record of who said what, because you’ve got two+ separate email records. Everyone has to remember who said what, and talk between themselves to figure out where the project stands and its status. This doesn’t make for clear communication, and eventually the client is going to get tired of repeating themselves to more than one person.

This is why advertising agencies and larger design firms have an accounts services/client services person. An accounts services representative acts as a go-between for the studio, talking to clients on behalf of the creative team. Since designers, art directors, and web programmers are not necessarily the most tactful communicators, this can keep everyone happy.

However, while accounts people are usually trained in marketing to some degree, they’re not designers, so they may not have the design education necessary to make recommendations to the client. There’s still a lot of back-and-forth involved. It’s a necessary step with a larger studio, but at Chestnut St. Pixel Foundry, we cut out the middle man to keep things efficient and streamlined.

So, without accounts services people, and with more than one partner/designer at the Foundry, how do we keep communication clear with clients? Generally, one of us is the main contact with each client, even though all of us might be working on the project. (Some clients have only ever met one of us!) This ensures the client knows exactly who to call when something urgent comes up, and keeps our communication records (email) clear and consistent.

*Note: This is a perhaps unfair generalization, but I have noticed that younger people tend to prefer email communication over phone, myself included.

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Lessons in Startup: Expense Everything.

Posted on November 25th, 2010 by emdash in Lessons in Startup, Pixel Foundry

Pixel Foundry is a general partnership, not a corporation, and Em Dash Creative is a sole proprietorship. When it comes time to do taxes, it’s a fairly simple affair and Kelly and I manage it ourselves.

In Canada, partnerships pay taxes via each partner and their percentage split. I usually owe taxes, not the other way around. (All the people talking about spending their tax returns in April make me grumble.)

To reduce the overall taxes, the idea is to try and balance the partnership’s income with its expenses. While I want to turn a profit, naturally, the idea is to not forget about any expenses I can claim.

What should we be expensing? Here’s a partial list:

1. Any and all transit to and from meetings. Cab receipts, skytrain receipts. Keep them all. (You can also claim your personal public transit costs in Canada, provided you use transit cards or pre-purchased tickets.)

2. Any and all food/lunches/dinner where business is even remotely discussed. Think about it: you have to get lunch at work anyway. You might as well hold a lunch status meeting once a week, pay for it out of your own pocket, but expense it through your partnership. Need work-related advice from a friend? Do it over coffee, expense it. The idea being, these are things you’d have to pay for anyway, and you can count them against your partnership’s income when it gets to be tax time.

3. Work from home, even only some of the time? Expense part of your house. This is calculated by square footage of your office space (mine is large, since I have taken over half the living room) and time spent there. Don’t forget any of your square footage. I have a bookcase in the bedroom that contains business and software books. I count the bookcase as well.

4. All furniture and non-tech large investments can be claimed over a period of years rather than all at once (capital costs). This means if your first year has a lot of expenses, and the following years do not, you can still have some part of your startup costs helping you out for taxes. In Canada at least, you’re not supposed to claim computer technology this way, since it does depreciate over time.

Tip: What can’t you expense? Alcohol. If you have to entertain an out-of-town client, don’t involve drinks, it’s just a waste of money.

If you’re fortunate enough to live in British Columbia and collect HST*, your expenses’ HST counts against the HST amount you collect. This seems obvious but we forgot about this for months. With just GST, the amount was negligible, but with a suffocating new 12% tax, it makes a large difference.

Got any expense/accounting tips below for sole proprietorships, self-employed people, or general partnerships? List them below.

*Note: sarcasm.

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Lessons in Startup: Always take a deposit.

Posted on September 12th, 2010 by emdash in Lessons in Startup, Pixel Foundry

(This post is the first in a probably-ongoing series documenting challenges faced at Pixel Foundry. Starting up a small business with big ideas but limited resources is a constant learning experience.)

You really have to take a deposit on design work up front, before you even write a creative brief or start sketching ideas. This seems like a given, but I’ve talked to a few freelancers/designers who don’t do this. (!!)

Until you receive a deposit on a project, you’re basically working for free. In the case of a small design studio, you’re also losing money… for all the time you spend in your office working without income, you are accumulating expenses and paying to maintain your office/studio. Unwelcome stress!

There’s several other good reasons to take a deposit up front:

  • It shows the client is serious about the project. They’re committed to it financially, so they’re also going to be invested in its progress.
  • It also shows they’re able to pay you for your work.
  • By breaking up the project’s payment, the client gets smaller, more manageable bills. Clients like this. It makes more sense for them to pay a smaller invoice every month than one huge one at the end.

At Chestnut St. Pixel Foundry, we ask for a 30% deposit of the project estimate up front. Until we get the cheque, I generally assume the project isn’t going forward. If the client is flaky about paying a deposit, or they take forever to get in touch with us about paying it… they’re probably not a good client to work for anyway!

As for work on spec, and design contests? Just, NO.

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