Business Plan 001

Business plans are supposed to explain how our specific actions today will result in measurable profits tomorrow. They state a set of assumptions about how the world works, and establishes a time period during which those  assumptions will be constant. This creates a window of time and circumstance, in which we shall attempt to convert effort into reward.

At the bare minimum, we need to make enough money to sustain the operation. Normal operation, however, should produce more money than we spend; this is profit that can then be invested in strengthening the company position and capabilities.

At the end of the window, we modify the business plan accordingly to maximize our efforts in the next phase, based on what we’ve learned in the previous phase.

My current goals are quite modest, and I am considering these separate from Agenceum:

  • In the near term, create income of $2000 a month. This will go toward paying my living expenses and taxes.
  • Sell very small, very simple websites and print collateral to the individual who needs to get on the web.

The business strategy is more indirect, but still relatively straightforward in that it identifies future content and consulting sources of income as a result of building up my reputation:

  • Create small, simple websites as packages that build upon each other. This gets me back into coding and designing for the Internet. It takes the pressure off, too, because I am starting from scratch.
  • Blog it all on Agenceum, because I want to share this information AND it may help attract like-minded people because it’s crazy enough to be interesting. Designers, developers, educators…all may benefit from my work, and I will benefit from meeting them.
  • Being a web site developer is not my end goal. Writing, creating, and selling original products based on my ideas is the goal. Making money through the Agenceum work will sustain me, not define me. For example, the things I write about on this blog could be gathered someday into a book.
  • Another goal is to meet and work with interesting people who are doing interesting things. If I can have an inexpensive website solution ready to go, then
  • By writing about the process of building Agenceum, I will be demonstrating the way I think about business, design, marketing, and best practices. This could help build attention for a consulting line of business later, given that what I write is well received by a handful of people who see value in how I think.
  • I need to brush up on my design/development skills anyway, so I can get contract work. Making a bunch of tiny websites that build in complexity is one way to produce examples of my work and keep busy.

So here’s my thinking behind this…

The Typical Website Sales and Production Costs

The idea of selling small websites to individuals is a tough market, and it’s a tough proposition for a web agency because with the amounts involved, a small agency is almost guaranteed to lose money. Here’s my train of reasoning:

  • A small 3-person agency is spending between US$10,000-$15,000 a month even with modest salaries; business taxes, cost of employee benefits, and other costs add a bit more.  So call it about US$120,000 to $180,000 for just payroll every year. Yow!
  • A typical project may involve 1-2 weeks of work for a small 5-10 page website from design concept to deployment, at 30-50% utilization of employee resources, which means that every month you can do 4-6 projects.
  • To just break even, it’s between US$1700-$3750 per project, and that’s if all your resources are booked. The average price then is US$2725, which becomes your baseline figure assuming you’re 100% booked. Which is a big, big assumption.
  • Even a simple website takes about the same amount of time as a complex one. The design phase takes at least a week of back-and-forth, if the client is given the choice. Then creating a custom HTML framework even with a talented HTML integrator is going to take about a day of content slicing and coding. Then, content population from the client has to happen, not to mention at least minimal cross-browser testing.
  • We haven’t even talked about content creation for the client, who often needs assistance. We haven’t talked about corporate identity work, or getting the existing corporate identity to work into the new design. These both add time and effort, and sometimes web companies are tempted to throw it in for free. It lengthens the cycle and creates additional pressure on margins and morale. The price must go up if you do this, otherwise you bleed money.

A solo entrepreneur (essentially, a 1-person company) at first glance just needs to carry their own expenses and benefits. If you’re working out of your house on your own computer, you can probably divide all the numbers by for fixed monthly burn rate from US$10,000-$15,000 to $3000-$5000. So then your per-project average goes from US$2750 to about US$1000. There are, however, hidden costs:

  • You’re wearing more hats, and the cost of switching hats increases the amount of time it takes to do a project, if you’re doing it the same way you did at your agency.
  • You may not have all the abilities that you could drawn on at the agency. You’re now responsible for sales, computer maintenance, any programming, HTML integration, Photoshop work, and so on. And you have to keep track of your expenses for tax time. So, you now have to either learn all that stuff yourself, or provide only a subset of those services. If you farm yourself out to another company, you’re a contractor. If you’re flying solo and selling websites to individuals, you’re going to either have to team up with other freelancers or outsource, which takes more money out of your pocket and puts it into theirs. On top of that, your schedule is now partially dictated by your outsourced resources and their ability to deliver quality on time. So maybe you can theoretically cut your prices to 1/3rd of the agency rate, but you’re also keeping less of it. And the additional complexity drains you of energy and time spent doing what you like doing. That is, if you’re able to book enough work at all.

So that looks pretty grim. Let’s look at it from the client’s perspective. For non-internet based businesses, the website is treated as a marketing or public image expense, and therefore you have to consider the size of their budget.

  • The assessment of the website’s value in their eyes is different from your assessment, which is based on the cost of production. If the client’s business is dependent on attracting the most eyeballs (which a lot of businesses assume is the point), then the cost of your website is measured against the potential value of those additional eyeballs that are enticed to linger.
  • Attractiveness and “professional appearance” is the most obvious characteristic that’s judged by a company that doesn’t really understand the power of image and marketing, and these will be hard sells. If you as a designer don’t understand how eyeballs translate into revenue, then you will have an even harder time selling to successful companies, and will be left to play the “we look professional enough” market. You are essentially competing with the budget for the new conference room table and other public-facing collateral and furniture.
  • If you do understand eyeballs, the client’s business, and how visual design can be manipulated to create deeper impressions on people, you are starting to play with the strategic budget. There tends to be more money there; this is the realm of creating new engines of commerce, with the website being part of that initiative, but you need to prove your way into this space by demonstrating what you can do with the existing eyeballs you have.

And now you have to consider the client’s perception of you:

  • A web agency can make a credible play for the strategic web business if they can talk a good game. If they are an established web agency, have some sizable number of people, and have the means of production, this makes them all the more credible. Also, a web agency is also  another company, and therefore have some basic shared context with their client. The bigger and more complex the client company, the more they understand the complexity of production and know they have to pay for it.
  • A freelancer or solo shop has less of a chance to land that juicy strategic website because it’s risky. They are more likely to go with a consultant with some reputation and credibility. Or they might go with the freelancer to implement some very specific, high-value, and specialized to their needs. Or, they treat the freelancer as a commodity and pay minimum hourly rate. This is not what YOU signed up for, but it’s work right?

The consulting / specialized work is something I may do more of in 2010, but for now I am more interested in looking at the non-company individual as client. These are people who are not companies that manufacture things or sell to mass markets. They are tradespeople, lawyers, shop keepers, coffee shops, musicians, artists, and writers.

Deconstructing the Individual as Potential Client

In my experience, the individual artisan/entrepreneur tends to split into three strata of success:

  • Just getting started – money is tight, but getting eyeballs pointed at them is of tantamount importance. These clients really need the quality work, but they can’t pay for it with cash. They also need the strategic package, but they can’t afford to pay market rates either, so they just do the best they can with what’s free. They may follow someone else’s strategy, in hopes that it works for them, but this is one of those situations where doing what everyone else is doing probably doesn’t help you with the right kind of eyeballs. The right kind of eyeballs are the ones that remember you and seek you out; if you are doing what everyone else is doing, you tend to blend in. Still, being there in the first place is a fundamental requirement; increasingly, having that website is part of the package.
  • Established, with some money to invest in the future – The established law firm, the musician who has established a fan base and is starting to derive living revenue, the artist who is selling more of her pieces. They’ve tasted success, and are no longer wondering if they can make a living doing what they love. They’re doing it! But still, there’s the sense that if they don’t keep growing, or seek new audiences, they are at risk of again sinking into obscurity. So, they are willing to make an investment in a new website that shows their expanded offerings with some flash, demonstrating how they have risen above the baseline and are a “premium” kind of offering.
  • Successful, and willing to experiment – With several successful lines of business, powerful allies and friends, and a secure base of customers, they can relax a bit and indulge in some speculative projects. Perhaps it’s time to give back to the community with a public arts project. Or perhaps it’s a new personal project that’s just getting started to just see what happens. In a way, these individuals are more like companies, actually.

These three strata actually apply to companies too, but the assessment criteria are a little different at the individual level. For one thing, individuals who are just getting started tend to not have the same kind of continuity of attention that a multi-person company has. They’re pulled in all sorts of directions, and they sometimes will disappear for weeks at a time. They also change their mind quickly based on new information, which means one week they will be HOT on having you do their new website, and ICE COLD the week after. Also, individuals have a LOT less money. They value it more too.

This business plan targets the “just getting started” crowd. It is compatible with my own stated mission, which is to help people get started. That is the essence of what I do. So let’s figure out how that may work:

STEP 1. I’m saying I need a minimum of $2000/month, and the amount of hours I have available for booking are theoretically 40 hours / week. I’m assuming that there are around 48 workable weeks a year, so that gives me a total hour count of 1920 available hours. The calculated minimum hourly rate is $24,000 divided by 1920 hours, which gives an effective hourly rate (assuming I’m working all 1920 hours) of US$12.50/hour. That’s pretty crappy, but it’s my starting baseline. So that makes my website package price, assuming about 40 man-hours of production (50% utilization over 2 weeks, as discussed above), about US$500.00 for a website.  Oops, that’s actually still too high for the individual.

STEP 2. Thinking as an individual taking a chance on a dream, I have several levels of budget for type typical piece of software, gear, or media…let’s call these budget buckets:

  • The impulse budget is about $50
  • The think it over budget is $100
  • The this hurts but after I slept on it overnight I think it’s worth it budget is $250
  • The I better be damn sure about this budget is $500 and up.

The further down the list I go, the more effort it takes to sell a website. On top of that, making a website for $12.50/hour is perhaps one of the most demotivating things I can think of. So, it is necessary to deemphasize hourly rate and emphasize opportunity to even consider continuing down this line of reasoning.

Let’s consider pricing first. One of the unwritten rules of consumer buying is that the more money you spend, the more you get. The “more” is usually comprised of quality, prestige, capability, or quantity. Marketers know this, and spend a lot of time coming up with confusing tiers of features to maximize revenue. The consumer dream, of course, is to get everything you possibly could need for one “reasonable price”, but we’ll also jump at a bargain that fits the “I’m getting something for this price that is in the next higher price bucket. For example, I paid $50 for something that has the capability of the $100 bucket. The more the disparity between price and the bounty of what is received, the better the deal, and the impulse to buy shoots increasingly higher.  All those MacHeist value bundles, for example fall into that category. If I could sell a $500 website for $50 or even $100 dollars, that would seem like a good deal to the buyer.

But there’s a danger: by selling the website for less than it’s worth on the market, prices are devalued across the board. My friend Sid talks about this all the time with the photographer market; everyone has a cheap digital camera and can afford to shoot for free. The market for “professional photographers” gets priced below the point where they can sustain themselves.

There’s gotta be a way around this, and perhaps it’s by specifically creating a website segment similar to what Henry Ford did with his Model T. He created the first assembly line, mass produced, and sold cheap to the masses. Websites today are still largely custom jobs, hand-coded from scratch or hand-customized. That’s why they’re expensive. Perhaps the closest thing to a mass-produced website is buying a template from one of the many template shops online. You could use something like iWeb to create a website with a few button clicks. You could also just use a hosted service like SquareSpace, Tumblr, WordPress.com, Yahoo Stores, Shopify, or Google Sites. The problem, however, is that these are not the equivalent of a Model T you can buy, jump into, and drive home. They are at best kits, requiring some assembly at home. So, I have to create a package that you can buy on the spot, assembles in minutes, and sells for a low price.

Step 4. Defining the $50 – $100 website package boils down to controlling expectations and standing firm on them. To paraphrase Henry Ford once again, “you can have the website in any style and color, so long as it’s white, has one page, and has one rectangle that is filled with content”. I am thinking if the quality is there, the value is a deal, and it’s ready to go at a moment’s notice, the individual will be willing to accept these limitations so long as it does what it’s supposed to do and make them look good on the Internet. It’s the starter website.

Step 5. It’s one thing to have a good package, but it’s also just as important to bundle in customer service. For this case, I think it comes down to making the Internet a less confusing and scary place by being a guide.  It’s easy for me to put a website on the Internet now, but when I first was trying to figure it out I didn’t know the difference between a name server and a host. All this stuff is second nature now, but it’s not to a lot of people. My clients need guidance. This means bundling hosting, and walking them through the initial process.

Step 6. If I’m selling websites for $50 – $100, they can’t be custom jobs. They need to be rock-solid copy-and-paste websites that can, with some cleverness, be made to look unique without a lot of reworking of the underlying framework. Once this framework is built, though, the incremental cost of popping out a copy is practically nil.

Step 7. This approach can be spread, I think to all sorts of web-based media. I can develop a growing base of easy web elements that are easy for me to resell. They won’t win any awards for design or originality, but the clients will be on the Internet and they’ll be happy to be there. With a base of easy web elements, more complex sites become possible as well.

The Business Proposition, Restated

There are two parts:

  • Make simple website templates that look good and are easy to sell. Sell them at a price between $50 and $250, instantly, with very limited customization beyond photography, colors, and text. This should be very doable with CSS.
  • Work the local network and find people who need a website. I know of a handful of people. If I have the product ready and can get the word out, I might be able to get a few landed. I’ll need to sell 40 simple websites at $50 apiece, 20 at $100 apiece, or  10 at $200 apiece. These are kind of daunting numbers, and I can’t imagine the local supply producing that many sites. My guess that I will be lucky to find 10 local clients between now and January 1st.

My immediate action items:

  • Talk to my local network and spread the word on the website offerings.
  • Build and upload the current website templates to the Agenceum website.
  • Figure out what the local website market looks like, at the sub $500 level, and how to reach those people.
  • Develop more templates. There are dozens and dozens that can be built.
  • Develop a “shrinkwrap web deployment package” that I can brand and sell to non-local people. I have some ideas on this one.

So that’s my thinking at the moment.