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This is my greatest hits album of major business mistakes I've made over my career, both as a freelancer and while working within agencies of all shapes and sizes.
I presented this first at the SCAD Entrepreneurial Forum in Savannah, GA on February 18, 2011. The material is drawn from my second book, "Success by Design: The Essential Business Reference for Designers," which will be out in Fall 2012.
9My Top 10 Design Business
Failures / David SherwinWe fail in managing clientswhen errors slip through,and we can’t describehow they’ll be resolvedto the client’s benefit.“IT’S OKAY, WE’LLFIX IT! DISCOUNT?FREE SITE? AGH!”“YOUWHAT!!!!!”
11My Top 10 Design Business
Failures / David Sherwin2. Gauge the impact ofthe error to your clientand to your project team.MARCH21 –$2,100
12My Top 10 Design Business
Failures / David Sherwin3. Write a plan describinghow the error willbe mitigated.Dearest client,It is my duty to inform you that TuesAlso, the server room caught on firenothing left but a burnt hulk of metalThe backups all failed as well. Since wnot satisfied, seppuku is an option. Plelet me know i
20“The trick is to turn
down work butto have the client remember you asa positive person that they want towork with in the future.”—Fiona Robertson RemleyDirector of PM, Wunderman
21“The trick is to turn
down work butto have the client remember you asa positive person that they want towork with in the future.”—Fiona Robertson RemleyDirector of PM, Wunderman“It can be advantageous to offer a conditional ‘no’rather than a direct refusal… It’s easy to see a projectas a poor fit because one or more variables aren’t right.The temptation in that case is to decline the projectoutright. However it can be worthwhile to offera different solution that is more favorable to you…”—Nathan PereticCo-founder, Full Stop Interactive
23DAMMITIT’S YET ANOTHERPERSON THAT’S TELLING
MENEVER EVER TO DO SPEC WORKSO THEY CAN WIN THE PROJECTSI WANT TO BE WORKING ON TODAYSO I’M GOING TO DO SPEC WORKSO I CAN WIN THAT PROJECTWE ARE ALL BIDDING ONAT THIS VERY MOMENTRIGHT? RIGHT?
26Spec work will distract you
from paid work,and reduce the value of every designer’seffort. Even if you are an in-house group!“WE DO NOT DODESIGN WORKON SPEC.”“AS A CONDITION TOHIRING YOU, MAY WESEE SOME ADVANCEDESIGN WORK?”
27Make smarter bets. Mature your
businessfrom dealing in spec work:1. Network yourself to clients that alignwith your values2. Move upstream in the client’s process3. Use time under contention for workyou can gain from (money, project leads)
30Did you leave wiggle room?•
Write narrow estimates and briefs.• Be specific about quantities.• Craft a process for reviews and approval.• Set boundaries for late approval from a client.• Actively remind clients about defined scope.• Capture every major decision in writing.• Get formal approvals in writing.
31Shape deliverables foryour audience.Creating an
executive presentationfor the CEO can be a differentdeliverable than what yousend to your regular contact.Plan and bill time for it.CEOVP OFSTUFFEVP OFOTHER JUNKOTHER VPYOU DON’TKNOWMANAGERMANAGER MANAGERMANAGERWORKERWORKERWORKERWORKERWORKERWORKERSHOW ME WHAT’SIMPORTANT—WHOOPS,GOTTA RUN!DETAILS,DETAILS,DETAILS…YOU WANTTWO MEETINGS?(ULP.)
32Make your deliverablesself-contained.Keep asking, “If
I’m not hereto defend the work, will itstill make sense to anotherpotential stakeholder?” VP OFSTUFFEVP OFOTHER JUNKOTHER VPYOU DON’TKNOWMANAGERMANAGER MANAGERMANAGERWORKERWORKERWORKERWORKERWORKERWORKERHAVE YOU TRIEDRED FOR THE LOGOCOLOR?UH, WE HAVEA FEW CHANGESFOR YOU…CEO’SHUSBANDCEOOH BOY.HEY ARTIE,COME LOOKAT THIS…
33Always point backto the strategy.Clearly
express how thedeliverables map back tothe stated client and userneeds, brief, etc.CEOVP OFSTUFFEVP OFOTHER JUNKOTHER VPYOU DON’TKNOWMANAGERMANAGER MANAGERMANAGERWORKERWORKERWORKERWORKERWORKERWORKERGOOD, WE’REALL SAYING THESAME THINGGOOD, WE’REALL SAYING THESAME THINGGOOD, WE’REALL SAYING THESAME THING
35My Top 10 Design Business
Failures / David SherwinEstimating Process:1. Project the number of hoursthe project will require2. Set a schedule thataccommodates those hours3. Generate costs for resources,based on hourly rates4. Select a pricing model to matchyour current business context5. Translate your detailed estimateinto a cost estimate for your clientHere’s common mistakes thatcause estimates to deviate.
36My Top 10 Design Business
Failures / David SherwinEstimates need breathing room.All project estimates should include padding. Itallows space for the creative process. This paddingshould be built into value-based and hourly estimates.The designer wants 20 hours.Give her 24 hours in the estimate.CREATIVE PADDING IS 20% OF ESTIMATE IN THIS INSTANCE.SOME DESIGNERS, WHEN SELF-ESTIMATING, CAN BE OFFBY AS MUCH AS 50%–100% ON A NEW TASK.
37My Top 10 Design Business
Failures / David SherwinRun numbers by teammates.The surest way to piss off a designer ordeveloper: give them no control of theestimate you provide to a client, thending them for not meeting the estimate.Solicit their feedback on an estimatebefore you submit it.“WIRES IN TWOHOURS #FAIL.”
38My Top 10 Design Business
Failures / David SherwinInclude a project markup.This is usually between 10–20% of the total estimate.This mark up is to cover the following:• Possible increases in scope• Shifts in schedule: all delays always cost theagency money!• Negotiation over price: to secure a contractwithout hurting your bottom lineYou can’t do interactive work without doing this.Project markups are shared with the client.Never cut them out.
39My Top 10 Design Business
Failures / David SherwinUse actuals as a reference point.If you’re bidding a project that is similar to ones thatyou’ve designed in the past, always refer to the actualtime and money spent fulfilling those earlier projectsas a reference point in your estimation process.Ideally, you’ll be able to review your final budgetfor that project, itemized by task.?
40My Top 10 Design Business
Failures / David SherwinPrice vendors with theappropriate markup.Depending on how much time you have to pulltogether an estimate, you may not be able toincorporate hard costs:• Stock photography• Front- or back-end development• QA/testing• Custom photography or illustration• User research honorariaSuch services should be listed in your contractas outside the scope of the project and to beinvoiced at an additional cost.
41My Top 10 Design Business
Failures / David SherwinBe paid for managing vendors.Fully consider costs that you will incur, on an hourlybasis, to manage the sourcing and fulfillment of services.Include these as part of your estimated hours.Simple example: Quality assurance for site• Soliciting three bids• Negotiating and selecting a bid• Setting up a PO for the costs• Getting the testers access to the site• Communicating and tracking fixes• Billing for the work
42My Top 10 Design Business
Failures / David SherwinKnow the value of a discount.Clients will ask for discounts. The conversationbegins like this:• “I can’t afford $2,000. I can pay $1,500.”• “What about a ‘friends and family’ discount?”• “You are far too expensive. Can you do mea favor and reduce the cost?”• “Can you throw in a brochure for free?”Clients ask for discounts all the time. Don’t beoffended by these requests—just know how to handlethem. This is how you learn to negotiate money.
43My Top 10 Design Business
Failures / David SherwinWhen should I give a discount?Rarely, and only once with any client as part of anegotiation. Giving discounts can dilute the perceivedvalue of your services, and should never be standardoperating procedure.Some believe discounts apply when you want to:• Win a new client• Win a client’s trust to gain bigger/better projects• Win back a client’s trust if it has been lost throughpoor prior performance (a slippery slope)However, a discount can only be yielded when you aresure that you can still deliver a strong product thatwill be successful, on time, and on budget and at profit.
44My Top 10 Design Business
Failures / David SherwinThey want it for less?Then deliver less.If the client keeps trying for a discount, reducewhat you are fulfilling for them:• Reduced deliverables• Reduced scope inside deliverables• Direct-to-bill vendors• Revised schedules
46My Top 10 Design Business
Failures / David SherwinDo you have enough money in the bank?You need at least 3 monthsof income banked foroperating expenses.Running a business off credit instead of cash isa recipe for disaster. You should save as much moneyas possible before starting any business venture.Nothing that you do as a business owner will giveyou more peace of mind than a large savings account.
47My Top 10 Design Business
Failures / David SherwinClient Name Projected RevenueNew Project for MegaCo $2,000Updates to last year’s LittleCo project $800Total $2,800You need to know where potential future revenuewill impact your backlog and billings.Remember that this is theoretical! You won’tclose every opportunity that’s presented to you.Do you track your project pipeline?
48My Top 10 Design Business
Failures / David SherwinDo you keep a backlog of work?Try to maintain a3 to 4 week backlog.This is the amount of time you are booked for,running at full capacity.You should always factor time into each week’sschedule to pursue future business and managea consistent pipeline.
49My Top 10 Design Business
Failures / David SherwinDo you extend credit too far?Client Name 0–30 Days 31–60 Days 61–90 Days Over 90 DaysMegaCo $100 $500 $1,000LittleCo, LLC $50 $50Mom-n-Pop $25 $25 $500Total $175 $575 $1,000 $500Why aren’t you asking for payment up front?Withholding credit if the client has major invoices past due?Providing a discount if the client pays within 30 days?
50My Top 10 Design Business
Failures / David SherwinDear MegaCo,For your records, below you will find a current account statement.Current Account Balance Invoice Project Due Date Amt Due31–60 DAYS PAST DUEJanuary 1, 2009Invoice724WebsiteDesignDue:January 31, 2009$10061–90 DAYS PAST DUEDecember 1, 2008Invoice721WebsiteDesignDue:December 31, 2008$100Outstanding Balance $200Do you chase accounts past due?
51My Top 10 Design Business
Failures / David SherwinDo you depend on just one client?No single client shouldaccount for more than 25%of a studio’s business.When it happens—and it will!—immediatelydraw up a list of new potential clients to call…
53My Top 10 Design Business
Failures / David Sherwin 52 WEEKS PER YEAR – 2 WEEKS SICK-LEAVE – 5 WEEKS OF HOLIDAY (!) = 45 WEEKS PER YEAR x 40 HOURS A WEEK = 1,800 HRS/YEAR / 60% UTILIZATION RATE 1,080 HOURS PER YEARYOU CAN ACTUALLYCHARGE YOUR CLIENTSDo you know your real billing rate?
54My Top 10 Design Business
Failures / David SherwinYOU CAN’T BILL100% OF YOUR TIME!Do you know your real billing rate?80% Creative direction80% Design80% Production80% Project Management30% Marketing Self-Promotion10% Administration60% Blended rate 52 WEEKS PER YEAR – 2 WEEKS SICK-LEAVE – 5 WEEKS OF HOLIDAY (!) = 45 WEEKS PER YEAR x 40 HOURS A WEEK = 1,800 HRS/YEAR / 60% UTILIZATION RATE 1,080 HOURS PER YEARYOU CAN ACTUALLYCHARGE YOUR CLIENTS
55My Top 10 Design Business
Failures / David SherwinLabor costFixed overheadDebtTaxes $50,000 PER YEAR+ $14,400 ($1,200 / MONTH STUDIO EXPENSES)+ $10,000 ($100,000 DUE PAID BACK IN 10 YEARS)+ $7,900 (MINUS 15.8% OF SALARY PER YEAR)= $82,300 PER YEAR TO EMPLOY THIS PERSON/ 1,080 HOURS= $76 PER HOUR IDEAL BASE RATE FOR AN EMPLOYEEEstimate labor costs like you are hiring an outside employee.Do you know your real billing rate?But… Where does profit fit in?What if I can’t find enough work to fill 1,080 hours?
56My Top 10 Design Business
Failures / David SherwinLabor costFixed overheadDebtTaxesContingency $50,000 PER YEAR+ $14,400 ($1,200 / MONTH STUDIO EXPENSES)+ $10,000 ($100,000 DUE PAID BACK IN 10 YEARS)+ $7,900 (MINUS 15.8% OF SALARY PER YEAR)= $82,300 PER YEAR TO EMPLOY THIS PERSON/ 1,080 HOURS= $76 PER HOUR IDEAL BASE RATEx 1.5 OF BASE RATE= $115 PER HOUR “REAL” BASE RATEEstimate labor costs like you are hiring an outside employee.Do you know your real billing rate?What happens when you run the numbers?
57My Top 10 Design Business
Failures / David SherwinYr biz says:Creative Direction $200/hrUser Experience $120/hrVisual Design $120/hrDevelopment $180/hrTHESE ARE NOT ALL OFYOUR CAPABILITIES, ESP. IFYOU HIRE CONTRACT HELP.What capabilities are you really billing?Accurate billing is also about future capabilities you might fulfill.
58My Top 10 Design Business
Failures / David SherwinWhat are your current capabilities?Write all the tasks you can fulfill with your current skill set.Note what you’re really good at, and what areas youwant to grow into. Map them by project lifecycle.ProjectCommissionResourceAllocationVIsualDesignCoding ScriptingCompat-abilityTestingLaunchAccessibilityContentPopulationDatabaseDesignFunctionalSpecificationCopywriting+ EditingConceptDevelopmentBusinessAnalysisContentStrategyInformationArchitectureAssetPreparationTechnicalSpecificationUsabilityTestingCodeDebuggingSearch EngineOptimizationAcceptanceTestingAccountingMaintenance+ImprovementSWEET SPOT GROWTH AREA NOT A JOB FUNCTIONSTART FINISH
61My Top 10 Design Business
Failures / David SherwinNow, for something completely different…PROPOSALRESEARCHBRIEFRESEARCHREPORTSITEMAPCONTENTINVENTORYCONTENTSTRATEGYCONTENTCREATIONMOODBOARDSUI DESIGNCONCEPTSTEMPLATEDESIGNSTHINGCLIENTWANTSBADLYWIRE-FRAMES
62My Top 10 Design Business
Failures / David SherwinMy Top 10 Design Business SuccessesDavid Sherwin, frog@changeorder / davidsherwin.com06.24.13PROPOSALRESEARCHBRIEFRESEARCHREPORTSITEMAPCONTENTINVENTORYCONTENTSTRATEGYCONTENTCREATIONMOODBOARDSUI DESIGNCONCEPTSTEMPLATEDESIGNSTHINGCLIENTWANTSBADLYWIRE-FRAMES
65My Top 10 Design Business
Failures / David SherwinMy formula for business experimentationHYPOTHESISIf I take an action for my business,planned results will happen for specific reasons.THEORYWhen I take that action, I will confirmwhat results happened and why they happened.PRACTICEAfter I’ve had the same result happen multiple timesfor similar reasons, I can operationalize it.
66My Top 10 Design Business
Failures / David SherwinWORKING WITH CUSTOMERSCLIENT SERVICEBUSINESS DEVELOPMENTPROPOSALSCONTRACTSSPEC WORKPOLITICSNEGOTIATIONDISCOUNTSEXPECTATIONSDESIGN BRIEFSDELIVERABLESMEETINGSPRESENTATIONSFEEDBACKNETWORKINGCOMPETITIONSTRATEGYMANAGING YOUR PROJECTSPROJECT MANAGEMENTPROCESSESTIMATINGBUDGETSSCHEDULESRISKSTAKEHOLDERSCHANGE ORDERSTIME SHEETSPROOFREADINGERRORSPOSTMORTEMSOPERATING YOUR STUDIOMONEYHOURLY RATESINSURANCESUSTAINABILITYLEGALCONFIDENTIALITYCULTURELEADERSHIPACCOUNTINGHIRINGFREELANCEVACATIONBRINGING IT ALL TOGETHERPRODUCTMARKET NEED CAPABILITIESPROCESS CULTURECUSTOMERS STAFFPHILOSOPHYThere’s morewhere thiscame from…