Category Archives: Business

3 (Non-Obvious) Small Business Start-Up Tips

You’re the best salesman your company will ever have.

I too frequently hear introverted technical people say “But I’m horrible at sales.” This is largely a misunderstanding about what “sales” actually is. If you’re selling the correct way, it’s just a conversation to discover if and how you can help someone solve a particular problem. Sales not about converting the skeptical, but rather guiding the willing through the sales cycle. It’s important to keep in mind that selling is much more about processes than an innate talent. It can be learned–needs to be learned–because no one you hire will ever have the same passion for your product or service that you do. And, if you enjoy helping solve problems, selling is actually a lot of fun.

Counterintuitively, the proper time to hire your first salesperson is when you’re bringing in too much business yourself. A smart salesperson is going to want to be able to make a lot of money rather quickly. As an unproven small business, the best way you can do that is to immediately backfill your new hire’s pipeline with existing relationships and deals. This gives them the time and opportunity to learn your business while being able to afford to eat.

Nobody is going to give you a lick of respect until you’re earning real money.

Venturing out on your own requires a lot of fortitude and hard work, but don’t expect many people around you to understand. And the landscape is littered with failed entrepreneurs–you’re not likely to get many kudos from fellow business owners either. It can be nerve-wracking to make such a huge life decision without feeling the support of your friends and family. But let go of the resentment; after all you truly do have to earn that respect through succeeding.

It does get better after you’ve made it over initial hurdle of being able to support yourself on a livable wage. But don’t expect everyone to begin high-fiving you. Unfortunately, in my experience, the skepticism sometimes morphs directly into envy. I’ve learned to simply accept the frequent loneliness of entrepreneurship rather than allowing it to alienate me from those I care about.

Treat every dollar like it’s your last.

When you’re starting a business, don’t go out and buy a new computer or order custom shirts with your embroidered logo. Don’t buy stuff in order to feel officially “in business.” It’s easy, as a new business owner, fall into the trap that you need to “spend money to make money.” That is wrong. The surest way to make money is to sell something.

Consistently trying to turn $1.00 into $1.20 over-and-over again will be one of the hardest things you’ll ever attempt. It’s much, much easier to control your spending. If your profit margins are 20%, that means you’ll need to make $6,500 worth of sales to simply break-even on that new MacBook you rationalized buying. That’s quite a hole to begin digging out of before you’re even in business.


Your high IQ will kill your startup

This article was originally published on March 4, 2010 at Max Klein’s blog. It has since fallen off the Internet and into the great 404 void. I am republishing it here because it is one of the very few blog posts that I’ve read in my lifetime that have stuck with me. If the original comes back online, please kindly comment below and I’ll remove this copy from my blog.

In 2004 I was in Brazil, walking down the hill in Lapa to get some lunch. I was with a friend who I had met in the hostel I was staying – his name was Ofer. We were having a discussion about intelligence, and what role it plays in success.

Then out of the side of the road stepped a man. He was holding a knife in one hand and a bottle in the other hand. He spoke to us in fast portugese, clearly asking us to hand over the things we held. I stood there, not very sure what to do. Ofer started speaking quickly to the man, telling the man not to rob us.

What you have to know about Ofer is that he had been an Israeli soldier. He hated violence of any form, but he knew how to be violent.

The man threw the bottle on the floor and it broke into pieces, he picked up the bottle and lunged at us. I ran a short distance off, and Ofer stood there and dodged the man, all the while talking to him. The man attacked several times, and each time Ofer just moved aside.

Then finally, Ofer kicked the weapons out of the guys hands, punched him, and he fell. He then told me to run, and we ran down the hill to the restaurant.

We sat there and he continued what we had spoken about. He said: That demonstrates what I mean. The man with the knife did not know how to use that knife. If he had been as trained in knife fighting as I was in hand combat, he would have been able to destroy me. But he had a tool that he felt gave him an advantage, but it’s nothing compared to a person who has no tool, but has worked to develop what he has.

Intelligence is like a knife. If you are intelligent, you are at a clear advantage against people who are not intelligent. But if you are intelligent, and another person is not as intelligent, but the other person is willing to train harder than you, the other person will very quickly overtake you in ability.

How your intelligence will destroy you

People who are born intelligent start off life with everything easy for them. They don’t have to work hard to get good grades, they never really have to do much to get ahead. The major challenge of early life is school – and school is designed for average people. So intelligent people just breeze through.

But there is a point where every intelligent person faces something that requires more than intelligence. It requires hard work, it requires the ability to fail, it requires being able to do tough tasks, boring tasks. For the first time in their life, in spite of their intelligence, these intelligent people are challenged, and they start failing. Like when they first attempt to create a startup.

And that’s where most of them retreat. They focus on things they can’t fail on, and ignore the other important things. They start to blame other things (like the school system). They procrastinate. They refuse to face new problems because they know they will not be able to handle them, and this does not fit into their worldview that they are invincible.

Let me tell another story. In 2007, I had dinner with the father of my girlfriend in Paris. He is currently a vice president at one of the top 5 consulting companies in the world. He is a jewish french immigrant from Morroco – he came in the 70s to France with no money and no connections, and he made it up to become Vice President, even though he studied to be an engineer.

I asked him: How did you do it? How did you start from being an immigrant to become executive material? He told me: I got this far because I’m intelligent. He continued: But there were many many people as intelligent as I am who graduated together with me. They are still engineers right now. The difference between me and them is that when I arrived, I knew that I did not have family here in france, I did not have connections. And I knew there were a lot of other people as intelligent as I was, and who had all these advantages. The only way to be successful then would be to gain a slight advantage over them – I had to work and train harder than they did, I had to get to know more people than they did, I had to learn more about more things that they did.

We started off equals, but at some point all the effort I put in started to pay off, and where they stopped improving themselves, I continued, and I got better and better. Where they were afraid to try new things because they would fail, I tried and I got better and knew more, till I was good enough for the job I hold now.

How this relates to you

Being intelligent is like having a knife. If you train every day in using the knife, you will be invincible. If you think that just having a knife will make you win any battle you fight, then you will fail. This believe in your own inherent ability is what will kill your startup. Success comes from the work and ability you put in becoming better than the others, and not from some brilliance you feel you may have within you.

So don’t believe that the brilliance of your idea is what will make you successful. What will make you successful is when you are out there every day, doing something new, challenging yourself, trying new methods, studying new ways, having a lot of small failures, then getting better every day.


How Much to Charge as a Freelancer: Why Almost Everyone Gets it Wrong

“How much should I charge as a freelance designer/developer/programmer?”

This is one of the most commonly asked questions by freelancers (both newbies and veterans alike.) Well-meaning responses posted on messageboards often include a link to one of several online calculators. The inputs include questions like “how much is your monthly Internet bill?” and “How many vacation days do you take each year?” The final question on the of most popular of these calculators is “How much profit do you want?” What a curious question… For anyone trying to grow a business, there is only one correct answer: As much as possible. These pricing tools are broken at a basic level because they’re asking the wrong questions.

The most valuable class I ever took in college was ECON 101. It fundamentally changed the way I viewed business and has had lasting influence on how I make decisions. One of the lessons that has stuck with me is that the price of something has almost nothing to do with it’s cost. Neither the cost of a beef patty or the hourly wage of the cashier affects what McDonald’s charges for a Big Mac. What matters is the price of the Whopper down the street and what a customer is willing to pay to avoid having to pack his own lunch. Businesses seek to maximize revenue; they will always charge what the market will bear, regardless of the product cost. The price the market is willing to pay is a function of the available alternatives.

Quite simply, your clients don’t care what you pay for Internet access so it has no bearing on what you can charge them. Your overhead does affect how much money you have leftover at the end of the month (profit). It’s important to be mindful of costs, but they don’t belong on a spreadsheet used to figure an hourly rate.

The problem with the question “how much profit do you want?” is that getting the answer wrong means that you’re either undercharging (thus missing out on income) or overcharging (and losing business you could profitably undertake). And, unfortunately, there’s no way to arrive at the correct answer by examining your costs.

Getting to the right answer

Figuring out how much to charge as a freelancer means understanding the price of the client’s alternatives. This tends to be more of an art than a science, thus does not neatly fit into an online calculator—and “price” isn’t always purely dollars. There’a IBM WebSphere partner here in Michigan that bills $750/hr for what is largely Java development. Yet, I can find someone similarly skilled via for less than $40/hr. Additionally, anyone who has been in the business for even a short amount of time knows that talent has very little to do with how much you earn. So, your costs and your skills have nearly no influence on your income as a freelancer. What gives? The two most important factors to consider are: a) the size of your client and b) the probable value of your work.

Size matters

The size of a client affects their buying decisions and what rate they’re willing to pay. Starting a business is a very risky endeavor, thus when talking directly to a small business owner, buyers tend to be very risk-tolerant people. They’re also being persuaded to part with their own, personal money. Most small business owners are willing to tolerate a higher risk of project failure in order to save on costs. For freelancers just starting out, this is why smaller clients are ideal: as someone with an unproven track record, it’s an easier sale if the price is right.

Larger businesses operate very differently. They tend to be more sophisticated buyers who are working with an allocated budget. Their primary concern is ensuring that a project is done correctly and on-time because its a component of a much larger initiative or strategy. The decision makers are often much more risk-averse than small business owners because it’s their reputation on-the-line, not their own pocketbook. Freelancers with a roster of proven successes can frequently charge larger businesses an hourly rate matching those of a well-paid lawyer, yet would struggle to get a fraction of that from a smaller client for very similar work. People who provide social marketing or online lead generation services often see this massive divide in rates.

Quantify your value

We tripled pageviews and increased annual sales by more than $1.2 million dollars.

This is a pretty powerful statement that is listed directly on my company’s website. It was the result of work we did over a few months for a client that dramatically increased the SEO of a SaaS application and streamlined some e-commerce operations. Unlike a typical portfolio piece, I don’t have a screenshot of the client’s website (which we didn’t design anyhow), I instead explicitly quantify the value of our work. Crunching the numbers takes a whole lot of guesswork out of figuring out what a similar client might be willing to pay for similar services. I highly recommend that this process be done after the completion of every project.

While it does get simpler with hard numbers, there’s no magic formula because it depends on the size of the prospective client, the size of the opportunity, and a multitude of other variables. Most importantly though, it’s dependant upon your ability to communicate the value of your services. In other words, your ability to sell yourself is one of the most important factors in determining what you can charge as a freelancer. For the readers who’d rather gouge out an eye with a spoon than consider themselves a “sales person,” this sounds like a raw deal. However, it’s not all that scary once you really understand what “sales” actually entails. Most technical people have the potential to be way better at sales than they realize. I will expand upon this topic in a future article (follow me on Twitter and stay tuned.)

Where to start

Okay. What if you’re a new freelancer and don’t yet have any proven, quantifiable successes? Where do you start? Return to considering the price of the client’s alternatives. Predictably, this would include the rates other freelancers in your industry. But a common mistake is to confuse your alternatives with the client’s alternatives. If a small web design client doesn’t know about (and wouldn’t consider it even if she did), then you don’t have to pay mind to price of your competitors there. US-based workers frequently complain about the prices their Indian counterparts charge via the online marketplaces. However, unless both people are bidding on the same jobs posted on these sites, they are not direct competitors.

Alright, alright… a lot of readers are going to be disappointed if they’ve read to the end I never lay out exactly how to figure out how much to charge as a freelancer. Here is what I’d recommend if you’re starting from zero:

  1. Ask around and get five rates for competitors. Match them as closely to you as possible: age, years of experience, location, size of past clients, portfolio, etc. This is going to require a bit of legwork and feeling like you’re being nosey. Do it anyhow.
  2. Drop the highest and lowest hourly rates, average the three remaining and reduce by 10%. This will put you on the slightly cheaper side of the average.
  3. Continue to charge this rate as until you get too busy. Getting “too busy” can be tough to spot from down in the weeds. It generally manifests itself as feeling overwhelmed, not caring about your work as much as you used to, and increased irritability with clients.
  4. Increase your rates by 10% on existing clients and 20% on new clients. This should slow the stream of work coming in. You want to occasionally hear “you’re too expensive.” If you never hear that, keep raising your rates until you are. If you always hear it, reduce your rates (slightly).
  5. Rinse and repeat until you have enough quantifiable successes that you can use the more sophisticated, “value add” method of determining what your services are worth.

Your mileage will likely vary. Keep a close eye on your market and make sure you’re listening to clients. Good luck to you.