From Inspired Startup

In poker and in business, it’s much easier than you think to go on tilt.  The most dangerous thing about being on tilt is when you don’t realize you are on tilt.  For those of you who don’t even know what tilt is – going on tilt in poker is an emotional state whereby you can no longer make good decisions.  Most often than not, this occurs in poker when you are expected to win a hand and someone gets lucky to beat you for a big payday.  It can also occur if you start winning quite a bit and you start thinking that you are unbeatable (not too dissimilar from Wall Street the past few years).  If you can’t recognize when you are on tilt, you are bound to lose everything you have and seriously regret your decisions when you get your normal state of mind back.  Recognizing when you are on tilt in poker and in business will not only save you dollars in the long-run, it will also keep you positive and sane when things aren’t working in your favor and keep you hungry and humble when things are working really well.

I don’t think I’m a strong enough to avoid going on tilt.  I’ve found the best way to address the issue is to realize when you are in it and have a game plan for addressing it before it happens.  Here are five things that I keep in mind:

1.  Have a spotter.  Someone who will call you out when you make poor or irrational decisions.  For me, just having someone appeal to my sensibilities at the poker table or in business is good enough for me to quickly react and get back on track.  Perhaps, that is your advisory board, a board member, or even a trusted friend.  Who is your spotter?  If you’re in Seattle, go to events like Twiistup and meet like-minded entrepreneurs (full disclosure: I’m an investor and big fan of Twiistup).  Be connected, be in community, be a spotter for others.

2.  When things are going badly and it seems the business can only get worse, get perspective quickly.  Things tend to work in cycles and getting through the negative cycles gets you closer to the positive cycles.  Things are never as bad as they seem, and you need to stay positive.  Be confident, make adjustments if necessary.

3.  Maintain a healthy dose of humility and hunger.  You should always celebrate successes, but don’t get comfortable with success.  There is always reason to be conscious of competitors you haven’t heard of, employees that are looking to leave, customers that are pushing for lower prices, etc.  Having humility and hunger forces you to always be learning, innovating, striving for excellence.

4.  Taking a break.  When you recognize that you are on tilt, walking away will help you make better decisions.  I’ve been in some long, arduous negotiations and sometimes it can make me go nuts and make poor decisions.  Taking some time to re-evaluate and catch my breath have helped me see things more clearly.

5.  Have fun.  I don’t mean to be flippant, but poker is a game, and business in certain respects should be looked at as a game as well.  I’ve seen it too many times that when things get tough, you stress out trying to get even only to dig yourself a bigger hole.  In business, things get tough, you get reclusive, spend more time on the business, and get further into the weeds and not having fun.  Even when things are tough and mentally draining, what are you doing today to get back into the game?  How are you having fun each day?  How are you turning it into a game rather than work?

Generally, I tend to err on the side of being more steady – not getting too high nor too low.  I think it helps me stay sane and positive.  I know of quite a few successful entrepreneurs that are not very steady and get very high and very low.  No matter which personality you are, I think everyone has the propensity to go on tilt – how do you recognize it and how do you address it?  Let me know in the comments below.

From A Smart Bear: Startups and Marketing for Geeks

You didn’t start a business so that you could learn accounting, but learn you must! Here’s a little help.

QuickBooks lets you switch between two radically different methods of accounting with a click of a button. It’s nice to have accommodating software, but which one should you pick?

Never heard of either of these? Time to learn:

“Cash-Basis” accounting means you only count revenue and expenses that you actually have. Things that count: Receiving a check or credit card payment, writing a check to the telephone company, paying your credit card bill. Things that don’t count: Receiving a purchase order, receiving the bill from the telephone company, charging something on a credit card. So it counts only if real, hard cash comes in or goes out. Stuff that hits a bank account.

“Accural-Basis” accounting means you count pledged revenue and expenses. It’s the opposite of cash-basis — what counts are purchase orders (customers pledging to pay you), bills arriving (vendors you’re pledging to pay), and credit card purchases (debt you’re incurring). It doesn’t matter when you pay the bill or when the customer actually sends you a check.

So which should you use?

Which is better for paying taxes?

The IRS allows you to pay taxes with either style of accounting, but you want to use cash-basis.

You have to pay taxes with cash. With cash-basis accounting, you show a profit only if you have excess cash actually in your possession. If it’s in the bank, you can set it aside for taxes. It’s like a dagger through the heart, but you can afford it.

Not so with accrual-basis. If you get a huge purchase order from a new customer, that would show as income; then the IRS wants their 30%, but since the customer hasn’t paid (and you, silly silly, paid your bills on time), you don’t have the cash to pay. Oops!

Cash is king, much of the time.

You’ve probably heard “cash is king:” Real cash (not purchase orders) pays your mortgage, keeps the internet up, and pays employees. Bills can be paid late, but they don’t take “accounts receivable” at the grocery store.

Thus for daily operations, cash-basis wins again. When you’re deciding whether you can afford a new advertisement, whether your payroll check is going to bounce, or whether you can actually take some cash out for yourself this quarter, you have to use cash-basis.

Which is better for understanding how the business is doing?

So far cash-basis has won every time, but when you shift your attention from daily operations to business analysis, cash is not king.

Here are questions best answered using accrual-basis accounting:

• Am I taking in more money than I spend?  (How close?  How is it changing?)
• Am I staying inside my own budget?
• Which expenses are eating my lunch?
• Are there unexpected expenses?
• How do I build a budget for the next six months?

Let’s take the first question as an example. Revenue-versus-expenses is important for every business at every stage of its life; no duh. What you’re really comparing is “revenue won” versus “expenses incurred.”

The trouble with cash-basis accounting is that it has nothing to do with when you incurred the expense, but rather when you paid the bill. You might have paid late (on purpose or otherwise). You might have paid early for a discount. The bill might have appeared on weird days so it just so happens that you paid a monthly bill twice in March and skipped April. Same with revenue — at Smart Bear it was common for a purchase order to be paid 5, 30, or even 90 days late. We won the order — the marketing worked, the sale was approved, tech support satisfied the end users — but who knows what in month the revenue would actually hit the bank account.

With the bulleted questions above, these cash-basis variances hide the important story. You need to measure intent, not the chaotic reality of money moving around.

Jason’s Scaredy-Cat Method:
Cash-basis revenue + Accrual-basis expenses

I’m conservative and pessimistic by nature. Yeah, I know, not adjectives you’d normally associate with someone who starts companies instead of holding down a job, but that’s not news.

So at Smart Bear I combined the worst of both worlds to build a safe model of how much money I could afford to lose on experiments. Why this peculiar cash/accrual split?

• Revenue only counts when the cash is in the bank (cash-basis). I’m uncomfortable incurring expenses when I don’t know when or whether a customer will pay. Collections are uncertain; I won’t depend on a dollar until they can’t take it away from me.
• Expenses count immediately (accural-basis). I’ve incurred the cost, so for planning purposes I have to pretend that cash is gone. Sure some cash-revenue might appear before the bill is paid, but it might go the other way, causing a temporary cash-poor condition.

This isn’t always an appropriate method. It’s bad for budgeting or forecasting because you’ll underestimate what you can afford, so for example you’ll unnecessarily limit marketing efforts. It’s bad when you’re getting your arms around the “revenue versus expenses” example because you’re not comparing the same kinds of money.

But this method is perfect when pondering an experiment. It’s perfect when you’re wondering if you can afford $5000 in graphic design work, a new $6500 marketing campaign, or whether you can hire someone and have 3 months of runway to discover that was a massive mistake.

It’s right for experiments because with this method you know for certain that even if the new effort is a colossal failure, you really can afford to lose that money.

More advice, more methods

What other methods or advice do you have for the intrepid entrepreneur who just realized she has to know something about accounting? Leave a comment and join the conversation.

From Futuristic Play by @Andrew_Chen

From A Smart Bear: Startups and Marketing for Geeks

This is a guest post by Jarie Bolander, author of Frustration Free Technical Management and a moderator at Answers OnStartups.

---

It’d be wonderful if you could run a business without interacting with anyone else — never relying on others to deliver quality work on time and never having to “be salesy” on the phone.

Yeah, but unfortunately you do have to rely on others to respond to emails and phone calls. This reliance can be a constant source of heartburn. So you can either take some Tagamet or learn how to get permission to follow-up with people.

Or both.

You Are Not Alone

Most people dread following up with customers, vendors and even employees. It sounds weird to extroverts, but many of us have performance anxiety that prevents us from following-up even when it’s in our own best interest. You would think that, as social creatures, we would love to interact with our fellow humans, but alas no.

[Editor's Note: I have an irrational fear of the phone. When it rings I'm overcome with a sense of dread. I have to work myself up to placing an out-bound call. It's not anti-social — I love personal and electronic interactions equally — it's something specific and bizarre and, I've since learned, fairly common.]

Our irrational dread stems from the following fears:

• Fear of rejection: The real reason people don’t follow-up. It’s hard to get rejected by a customer or partner, or even a stranger. If you get permission to follow-up, this rejection is less likely.
• Don’t want to be annoying: This is the most common excuse people give for not following up. This is why it’s important to set natural follow-up points so you can get permission to call, email or meet.
• Conflict avoidance: A reason that people don’t call you back. If you set up the interactions so that any potential conflict is reduced, then they will want to talk to you.
• Awkwardness in asking for something: Asking for the sale or clarification produces a lot of anxiety. The trick to asking for something is to make it the natural next step to your series of follow-ups. That way, it builds up gradually.
• Trust that what you say will happen: A common problem when someone works with you. No matter who you interact with, you need to follow-up with them if they committed to get something done for you. They might have forgotten or gotten busy.
• Too busy to worry about it: This is common for the overworked entrepreneur. You should never be too busy to follow-up on things you want done. Think about it. If it’s important, then you need to ensure it gets done. Otherwise why did you start it?

Permission Follow-Up

The most powerful technique to get others to help you achieve your objectives is to create natural follow-up points that make it easy for you to contact someone. Think of this as permission marketing applied to following-up. Permission Follow-up allows you to contact your customer, vendor or employee because you have a pre-established agreement on when it’s appropriate for you to communicate with them. The power of this technique is that you make them want to receive your email, call or meeting.

Or at least expect it. When the other person expects you to contact them, and you do, none of the excuses above are applicable.

Natural Ways to Follow-Up

Okay, I am sure most of you are feeling that Italian veggie sub you had for lunch starting to bubble up in your throat. Relax. There are tons of ways to create natural follow-up points that will make getting that customer meeting, dealing with that difficult vendor or making sure your team releases it’s products on time.

Here’s a bunch of specific methods. Next we’ll apply them in a scenario.

• Take responsibility to do the follow-up: This is most direct way to get permission to follow-up since you actively took responsibility to contact them. When they agree, then you are set. It’s on your calendar, not theirs.
• Set mutual deadlines: Deadlines are a great way to set expectations and points of reengagement. This will make whomever you are interacting with expect your next communications especially if the deadline is to give them something.
• Additional information: Committing to and delivering additional information will setup a natural way for you to interact. When you do follow-up, your contact will expect your call.
• Specific actions you are responsible for: When you take and complete actions it shows that you value follow-up and that makes others expect this from you.
• Status updates: Anytime your situation changes or you release a new revision, is a perfect time to give a quick reminder or update.
• Relevant books and articles: A good way to reengage with people is to send them relevant posts or articles. When you do this, it reminds people who you are and allows you to dialog about other opportunities.
• In town: Face to face meetings are the most effective ways to follow-up on cold leads or to accelerate a deal. Just being in town makes it easier for your contact to meet you and that might be the one thing that pushes your interactions to the next level.
  
  [Editor's Note: I have found this to be an especially effective tool. My technique: Whenever you're going to be in a city, call everyone and say "I'm going to be in town anyway, could I just swing by for 15 minutes? Or longer if you want to go over something?" Almost everyone will agree, and there is nothing like real face-to-face interactions, especially in the age of digital arms-length relationships.]
• Mutual friends: An introduction (or reintroduction) by a mutual friend can be a powerful follow-up method if your interactions have stalled. Your mutual friend can also be an excuse to reconnect.
• Ask for clarification: When you ask for clarification, it shows that you are striving for understanding and if done after an interaction, reminds your contact of what you talked about.
• Time has passed: Sometimes the passage of time can be used to your advantage as long as you have another entry point (like a status update or a mutual friend). In some cases, just sending a “checking in” email or note, can be all that is needed to follow up with other interactions.

These natural follow-up points must be injected into an interaction at the appropriate time — when the interaction needs an inflection point or as a way to tie up some loose ends. Sometimes, it may take several different methods since people respond differently to following-up. (Most have the same anxieties as you do!)

Scenario: A Customer Interaction

Let’s put this into action.

Perhaps the most important customer interaction is your first meeting. It sets the tone for everything to come and is ripe for planting those follow-up seeds. Here’s how it might go:

You: Beth, thanks for meeting with us. We were introduced to you via Matt over at KoolTech. Matt uses our Wizbang SaaS client and thought you guys might find it useful too.

Beth: Yeah, Matt told me about you guys. It sounds like you might have something that will work for us.

You: Excellent. Matt’s a great guy and we were excited to have Matt recommend we get together. Did you get the information I sent you about Wizbang?

Beth: Actually, no I didn’t. However, I did read you site and think I have a good idea what you do.

You: Why don’t I reconfirm your email and send it on to you?

Beth: Sure, it’s ….

You: I will send this out when I get back to the office. Does that work for you?

Beth: Yeah.

You: Excellent. How about we show you our demo?

Beth: Thought you’d never ask.

Demo Ensues. Ooo’s, ahh’s

Beth: Great demo. It looks like just what we need. Can you send me a quote? Budgets are tight.

You: Sure. We can also set up a guest account for you and your team to try it out.

Beth: That will work.

You: Why don’t you give me their contact info and I will set them up

…

You: Beth, thanks for your time. We really enjoyed meeting you.

Beth: As did I.

You: I captured a couple of next-actions for me. They are …. Do you agree?

Beth: That’s great, just so long as I don’t have to do anything else.

You: Wonderful. I will get back to you in a week with that quote. Will that work for you?

Beth: Yeah, that works.

You: In the mean time, I will setup some guest accounts and follow-up with you to see how it’s going.

Beth: Sounds good. Talk to you soon.

The above interaction had several follow-up seeds planted (in bold) that are ready to be harvested. All of the responsibilities are on your shoulders, and your customer gave you permission to follow-up. This means that they will be expecting your call or email.

So what happens when they don’t return your calls or email? Permission follow-up handles this as well. Not only are you planting follow-up actions with your direct contact, but with others they work with, like what happened above (setting up a guest account for other team members). Doing this allows you to have several entry points. Taken in combination, these entry points give you a better shot at getting your call or email returned.

Go Ahead, Give it a Shot

Practicing permission follow-up does feel awkward. Just stick with it. Over time, permission follow-up will produce results and you will get more comfortable with it. The simple fact is that other people usually don’t place as high a priority on these things as you do, and you have to lean on them to get things done.

It’s not about leaning hard or being an asshole. It’s just about getting permission to follow up.

What tips do you have for following up with customers or vendors? Would any of the techniques here bother you? Leave a comment and join the conversation.

From cdixon.org

I can’t remember the last time the tech world was so interesting. First, innovation is at an all time high.  Apple, Google, Facebook, Twitter and even Microsoft (in the non-monopoly divisions) are making truly exciting products. Second, since the battles are between platforms, the strategic issues are complex, involving complementary network effects.

Twitter’s moves this week were particular interesting.  A lot of third-party developers were unhappy. I think this is mainly a result of Twitter having sent mixed signals over the past few years. Twitter’s move into complementary areas was entirely predictable – it happens with every platform provider. The real problem is that somehow Twitter had convinced the world they were going to “let a thousand flowers bloom” – as if they were a non-profit out to save the world, or that they would invent some fantastic new business model that didn’t encroach on third-party developers. This week Twitter finally started acting like what it is: a well-financed company run by smart capitalists.

This mixed signaling has been exacerbated by the fact that Twitter has yet to figure out a business model (they sold data to Microsoft & Google but this is likely just one-time R&D purchases). Maybe Twitter thinks they know what their business model is and maybe they’ll even announce it soon. But whatever they think or announce will only truly be their business model when and if it delivers on their multi-billion dollar aspirations. It will likely be at least a year or two before that happens.

Normally, when third parties try to predict whether their products will be subsumed by a platform, the question boils down to whether their products will be strategic to the platform. When the platform has an established business model, this analysis is fairly straightforward (for example, here is my strategic analysis of Google’s platform).  If you make games for the iPhone, you are pretty certain Apple will take their 30% cut and leave you alone. Similarly, if you are a content website relying on SEO and Google Adsense you can be pretty confident Google will leave you alone. Until Twitter has a successful business model, they can’t have a consistent strategy and third parties should expect erratic behavior and even complete and sudden shifts in strategy.

So what might Twitter’s business model eventually be?  I expect that Twitter search will monetize poorly because most searches on Twitter don’t have purchasing intent.  Twitter’s move into mobile clients and hints about a more engaging website suggest they may be trying to mimic Facebook’s display ad model. (Facebook’s ad growth is being driven largely by companies like Zynga who are in turn monetizing users with social games and virtual goods.  Hence it’s no surprise that a Twitter investor is suggesting that developers create social games instead of “filling holes” with URL shorteners etc.) Facebook’s model depends on owning “eyeballs,” which is entirely contradictory to the pure API model Twitter has promoted thus far.  So if Twitter continues in this direction expect a lot of angst among third-party developers.

Hopefully Twitter “fills holes” through acquisitions instead of internal development. Twitter was a hugely clever invention and has grown its user base at a staggering rate, but on the product development front has been underwhelming.  Buying Tweetie seemed to be a tacit acknowledgement of this weakness and an attempt to rectify it. Acquisitions also have the benefit of sending a positive signal to developers since least some of them are embraced and not just replaced.

What’s Facebook doing during all of this?  Last year, Facebook seemed to be frantically copying Twitter – defaulting a lot of information to public, creating a canonical namespace, etc. Now that Twitter seems to be mimicing Facebook, Facebook’s best move is probably just to sit back and watch the Twitter ecosystem fight amongst itself.  As Facebooker Ivan Kirigin tweeted yesterday: “I suppose when your competition is making huge mistakes, you should just stfu.”

Disclosure: As with everything I write, I have a ton of conflicts of interest, some of which are listed here.

From A Smart Bear: Startups and Marketing for Geeks

I remember “disruptive” when it was called “paradigm shift.” That phrase died during the tech-bubble along with “portal” and “think outside the box,” yet the concept has returned. Don’t follow along.

When I get pitched — usually by someone raising money — that they “have something disruptive,” a little part of me dies. You should be worrying about making something useful, not how disruptive you can be.

“Disruptive” is the in-vogue word for the opposite of “incremental improvement.” A disruptive product causes such a large market shift that entire companies collapse (the ones who don’t “get it”) and new markets appear.

Disruptive is fascinating, disruptive changes the world, disruptive makes us think. Disruptive also sometimes generates billions of dollars, which is why venture capitalists have always loved it and always will.

But disruptive is rare and usually expensive. It’s hard to think of disruptive technologies or products that didn’t take many millions of dollars to implement. Most of us don’t have access to those resources, and many of us don’t care, because we’d rather work on an idea we actually understand and can build ourselves, an idea that might make us a living and be useful to people.

There’s nothing wrong with incremental improvement. What’s wrong with doing something interesting, useful, new, but not transcendental? What’s wrong with taking a known problem with a known market and just doing it better or with a fresh perspective or with a modern approach? Do you have you create a new market and turn everyone’s assumptions upside down to be successful? Should you?

I’m not so sure. Here’s my argument:

1.  It’s hard to explain the benefits of disruption.

Have you tried to explain Twitter someone? Not the “140 characters” part — the part about why it’s a fundamental shift in how you meet and interact with people?

Hasn’t the listener always responded by saying, “I don’t need to know what everyone had for lunch. Who cares? What’s next, ‘I’m taking a dump?’” They don’t get it, right? But it’s hard to explain.

There are ways to elucidate the utility of Twitter, but even the good ones are lengthy and require listeners with patience and open minds — two attributes in short supply.

“It’s hard to explain” should not be a standard part of your sales pitch. “You just need to try it” and “trust me” don’t cut it. That may be OK for Twitter — today — but what about the 100 other social-networking-slash-link-sharing networks that didn’t survive? Ask them about selling intangible benefits.

2.  It’s hard to sell disruption, because people don’t want to be disrupted.

If you’re reading this you’re probably more open to new ideas and new products than most, because you’re inventing a new product, starting a company, or you’re just ruffled because I’m pissing on “disruptive” and you’re looking for nit-picky things to argue with me about.

But most people are creatures of habit. They don’t want their lives turned upside down. They launch into a tirade of obscenities if you just rearrange their toolbar. When they hear about a new social media craze they cringe in agony, desperately hoping it’s a passing fad and not another new goddamn thing they’ll be aimlessly paddling around in for the next decade.

Change is hard, so a person has to be experiencing real pain to want change. Selling a point-solution for a point-problem is easier than getting people to change how they live their lives. Identifying specific pain points and explaining how your software addresses those is easier than trying to tap into a general malaise and promising a better world.

3.  Most technology we now consider “disruptive” wasn’t conceived that way.

Google was the 11th major search engine, not the first. Their technology proved superior, but “a better search engine” was hardly a new idea. In retrospect we say that Google transformed how people find information, and further, how advertising works on the Internet.

Disruptive in hindsight, sure, but the genesis was just “incrementally better” than the 10 search engines that came before.  (Or 18.)

Scott Berkun gives several other examples in a recent BusinessWeek article. He highlights the iPod — an awesome device, but not the first of its kind. Rather, there were a bunch of crappy devices that sold well enough to prove there was a market, but no clear winners. Here an innovation in design alone was enough to win the market. Not inventing new markets, not innovative features, not even improving on existing features like sound quality or battery life — just a better design, unconcerned about “disrupting” anything else.

Setting your sights on being disruptive isn’t how quality, sustainable companies are built. Disruption, like expertise, is a side-effect of great success, not a goal unto itself.

4.  The disruptors often don’t make the money.

The construction of high-speed Internet fiber backbones and extravagant data centers fundamentally changed how business is conducted world-wide both between businesses and consumers, but many of the companies who built that system went bankrupt during the 2000 tech bubble, and those who managed to survive have still not recovered the cost of that infrastructure. They were the disruptors, but they didn’t profit from the disruption.

Disruptive technology often comes from research groups commissioned to produce innovative ideas but unable to capitalize on them. Xerox PARC invented the fax machine, the mouse, Ethernet, laser printers, and the concept of a “windowing” user interface, but made no money on the inventions. AT&T Bell Labs invented Unix, the C programming language, wireless Ethernet, and the laser, but made no money on the inventions.

Is it because disruptors are “before their time,” able to create but not able to hold out long enough for others to appreciate the innovation? Is it because innovation and business sense are decoupled? Is it because “version 1″ of anything is inferior to “version 3,” and by the time the innovator makes it to version 2 there are new competitors — competitors who don’t bare the expense of having invented version 1, who have silently observed the failures of version 1, and can now jump right to version 3?

“Why” is an interesting question, but the bottom line is clear: Disruption is rarely profitable.

5.  Simple, modest goals are most likely to succeed, and most likely to make us happy.

It’s not “aiming low” to attempt modest success.

It’s not failure if you “just” make a nice living for yourself. Changing the world is noble, but you’re more likely to change it if you don’t try to change everything at once.

I made millions of dollars at Smart Bear with a product that took an existing practice (peer code review) and solved five specific pain points (annoyances and time-wasters). Sure it wasn’t worth a hundred million dollars, and it didn’t turn anyone’s world inside-out, but it enjoys a nice place in the world and it is incredibly fulfilling to see people happier to do their jobs with our product than without it.

Had I tried to fundamentally change how everyone writes software, I’m sure I would have failed.

I made less money personally at ITWatchDogs, but the company was profitable and sold for millions of dollars. We took a simple problem (when server rooms get hot, the gear fails) and provided a simple solution (thermometer with a web page that emails/pages you if it’s too hot). There were many competitors, both huge (APC with $1.5 billion market cap), mid-sized (NetBotz with millions in revenue and funding), and small (sub-$1m operations like us). We had something unique — an inexpensive product that still had 80% of the features of the big boys — but nothing disruptive.

Had we tried to fundamentally change how IT departments monitor server rooms, I’m sure we would have failed.

There’s nothing wrong with modesty. Modest in what you consider “success,” and modest in what you’re trying to achieve every day:

My daughter convinced me that insisting something be Deeply Meaningful With Purpose can sometimes suck the joy from it.  –Kathy Sierra

Of course it’s wonderful that disruptive products exist, improving life in quantum leaps. And it’s not wrong to pursue such things! But neither is it wrong to have more modest goals, and modest goals are much more likely to be achieved.

You must have your own thoughts on this subject!
Leave a comment and let’s continue the conversation.

From Tony Wright dot com

15 years ago, you couldn’t even BEGIN to look for a house without a real estate agent (who takes 6-7% of the purchase price from the buyer). Today, the internet has changed that. 10 years ago, someone starting a small business had to eat a cost of thousands of dollars to get a solid looking logo– often more if they didn’t want to roll the dice on just using a solo designer (of if their first designer didn’t create something that they loved). Today, a small business can get dozens of designers working in a public forum for $500. I think that’s AWESOME. But like real estate, there are casualties. And, like real estate, there is anger. But to me, “transactional design” (the kind of design that can take a few hours to net a good product and doesn’t require a lot of consultation) is an inevitable casualty of the global economy and the evolution of the internet (see 99Designs).

It’s a Global Village Now

I was in India for 3 weeks last year and was STUNNED at the cost of labor. We rode in taxis for the entire trip and spent less on them than the 1 way trip home from the airport in Seattle. Talented tailors would throw in manpower of tailoring a shirt if you just bought the cloth. If it’s unfair to pay $500 for a logo, was it unfair for me to pay Indian market rates for a taxi ride (usually less than a buck or two)?

The $300 bounty for a winning logo design is a kings ransom for a young designer in most of India (and the rest of the world). Guess what, Western world? You’ve got to compete– and Walmart has taught us over and over again that consumers aren’t going to pay 10% more (much less the 1000% more that an onshore hourly designer would cost) just so they can feel good. Some of them will- but most of them won’t. We can’t put the genie back in the bottle here. You’re better off trying to find creative ways to compete than bemoaning the unfairness of it all– it’s like a cottage seamstress complaining about the existence of the new textile factory down the road– technology changes markets.

For a rural Indian designer, entering 10 contests per week and winning one for $500 might be a huge win (and he doesn’t have to write a single proposal!). And that designer might be damned talented. How different is this than a services business investing $500k in sales effort on 10 different $10m RFPs and ultimately winning one? In fact, isn’t this just a different sales investment/risk than costly networking, proposal writing, advertising, etc., etc? Heck, the designer doesn’t even have to issue a Net-30 invoice– 99Designs drops the money to the winner pretty instantly.

So I’m assuming that the gripe with design contests isn’t that people are getting paid LESS than they used to, but rather that they could get paid NOTHING even after expending the time and effort of producing a logo. Which brings me to my next point:

Whether you are a Business or Freelancer – getting paid requires that you risk time and money.

If you want paying work without spending time/money or taking risks, you should go find a job with a paycheck.

My first business (a technology consultancy) was CONSTANTLY investing staggering amounts of money and time to get customers…. We had sales guys, who made healthy base salaries and some commissions. We went to networking events to establish relationships with people who could be customers someday. We took existing clients to lunch to chat about projects on the horizon. We sent out custom holiday cards to every client every year to keep us visible. We built and maintained a web site with a rich and updated portfolio. We had snazzy business cards that had to be kept up to date. We had really nice business clothes for the clients that cared about such things. We cooked up gorgeous custom proposal documents for customers– and these proposals required considerable analysis work and consultation with the customer (spec work!). We even responded to RFPs sometimes (rarely). All of these efforts can come up empty, of course. Many of them did, but in aggregate, my business grew like gangbusters. Software is no different. I heard that Salesforce.com spends 60-70% of their topline on sales/marketing. Much of that is probably wasted, but I’m sure they are in a constant state of making their marketing spend more efficient (just like 99Design entrants are probably in a constant state of gauging the kinds of contests that will net them the most bang for their effort).

In short, getting paying work cost TONS of time, money, and risks (how many freelancers do you know who average 100% billability in a 40 hour work week over a year?).

If you are a fresh-off-the-boat designer (or a rural one), you should expect your costs and risk here to be higher than if you’re not. You’ll have to invest more and get less as you build up relationships, your skills, and a portfolio. If there are too many designers eager for work (as I believe there are right now– the design world is NOT growing as fast as were churning out design grads), the market is going to make this harder for you. Don’t like markets? Get a paycheck-job or go learn Ruby on Rails (then you can fall out of bed and land on 2-3 lucrative freelance offers).

The nature of design

The best work general comes from seasoned professionals who engage in a deep discovery process, run through a lot of iterations, and work closely with the client. That being said, you can see flashes of brilliance without all of this, especially in the world of “transactional design”. Some of the stuff on 99Designs is GOOD. For a logo, book cover, or smallish web site design (especially for a smallish business) the difference in value received between a $30,000 engagement and a $500 contest is not worth $29,500. In fact, the contest might (on some occasions) yield better results faster. Even if it doesn’t, it’s CERTAINLY faster and can help with brainstorming. From a purely economic point of view, rolling the dice with a contest is a quick experiment to run that might yield exceptional results. I could design a good from-the-hip book cover in a few hours and it MIGHT be great… Design can be random and certain design tasks are 90% inspiration and 10% perspiration rather than the inverse. The bigger the design project, the less this is true, obviously. Again, I think logos (for small businesses) is the sweet spot.

Supply & Demand

As a business, we try to be as fair as possible with vendors, but we’re in business to be profitable. If I look at the winning designs on 99Designs and I generally like them more as much as any designer’s portfolio, is eschewing the cheaper option really the way to go? Paying bottom dollar prices CAN mean that someone somewhere is being exploited. I’ve seen no evidence that the 99Designs designers are exploited however, though it’s obvious that there are designers with higher costs of living in the US who simply can’t compete on transactional design services.

If you answered “yes, as a matter of principal” to the last question, how do you feel about internships (unpaid or crappy pay)? How do you feel about buying sneakers that were made in a Chinese factory with awful working conditions (check your feet, please)? How do you feel about the fact that the average Google employee generates over $1m per year in revenue but gets paid less than 10% of that #? Shopping for the best dollar-to-value ratio generally means that someone gets a disproportionate cut of the wealth in the transaction (even just a little bit)… Though are Google employees really getting screwed? Is an Indian designer getting screwed if she’s pulling down $20k year on 99Designs? And where is the outrage about things like iStockPhoto? Or 99Designs’ Logo Store? Is responding to a clear need in a design contests for a speculative chance at pay really that different from a photographer tossing up a speculative photo on iStockPhoto and hoping that someone might eventually buy it? The ones that have great photos make a ton of money. The ones that suck probably need to take photography classes. Heck, is it really that much different from my startup, where I spent a big (expensive) chunk of my live to launch something hoping that someone would want to buy it? Isn’t a startup in the “spec-work” category?

Design contests are a meritocracy in the extreme– good designers can probably make good money and (with a track record of winning and a great portfolio), eventually graduating to less-speculative lead generation if they so desire (though I bet GREAT designers could net thousands a day on 99Designs). Bad ones don’t and have to seek other marketing avenues or other lines of work. Again, welcome to business. Given the huge number of designers that enter contests OVER AND OVER again, clearly many have decided that they’d rather roll those dice than roll the dice associated with RFPs, Adwords, hiring salesfolks and other lead-generation efforts.

These are just some thoughts. As a designer, I’ve never done spec work (unless proposals count– they probably should). As a business, I’ve never asked for it… But from either side of the table, I’m not sure I have an ethical problem with it. So from one (admittedly kinda mediocre) designer to the rest of you– how are design contests “damaging” designers beyond the way that Google News is “damaging” newspapers?

From Futuristic Play by @Andrew_Chen

Just a quick FYI on an upcoming conference – here’s the details if you’re interested:

Startup Lessons Learned is the first event designed to unite those interested in what it takes to succeed in building a lean startup. The goal for this event is to give practitioners and students of the lean startup methodology the opportunity to hear insights from leaders in embracing and deploying the core principles of the lean startup methodology. The day-long event will feature a mix of panels and talks focused on the key challenges and issues that technical and market-facing people at startups need to understand in order to succeed in building successful lean startups.

• Conference agenda
• Speaker list
• Where it is

I’ll be on a panel on Minimum Desirable Product with Dave McClure and others. We’ll be talking about the dynamics of incorporating design into a lean startup methodology, with all the difficulties and tradeoffs that entails.

25% discount if you use the link below:

Register for the conference.

From Startup Whisperer

From How to Start a Two-Bit Operation: Small Business Tips

A few days ago we asked the supportive community over at Hacker News for some feedback on PickFu. We were extremely pleased to see that the overall sentiment was positive and that there were other entrepeneurs out there who have the same need for quicky and cheap polling.  In the spirit of some of the comments, we now offer a few more options for the number of reponses (50, 100, and 200) and for some basic demographic targeting (gender and age group).

If you’ve got some new logos you need to a/b test go give it a try!

Justin