Category Archives: Business

How to lose a customer, How to gain a customer

In today’s world people’s need for instant gratification is stronger than ever. We don’t have to go to the video store any more, we can just play movies instantly on Netflix. So Blockbuster loses customers after all the years of pissing people off by charging ridiculous late fees and having an inferior product. Why would I pay crazy rental fees at Blockbuster, when I can pay $9.99 a month to watch as much as I want? Now they are going out of business. Same thing with Borders books. Why would I go to the bookstore and spend $3.45 a gallon on gas, when I can just download the book to my iPad from wherever I am in the world with an Internet connection? Why would I pay $30 for a book when I could have it instantly for $9.99, or for $4 if I bought it used from Amazon? These are just two examples that immediately come to mind as I am watching what used to be two powerhouse companies shut their doors in Tampa and around the country.

This is not a trend that’s going away. It will only get worse as technology improves, and as the younger generations who are used to it get older, making up a greater part of our population. If you don’t think this affects your business, or the business that you work for you should stop being naive. It affects all businesses and organizations. How much software do you still get on CD? Heck how much software do you still install on your computer? It seems like a new SAAS (Software as a Service) provider pops up every two minutes, with great products most of the time.  Why would I want to install software on one computer, or many of them for that matter, when I can access my software through any device that has Internet access and a web browser?

Today Zephyrhills lost me as a customer to a smaller, cheaper, more agile competitor. After receiving my $71.00 water delivery bill from them, I gave them a call to see why I was being charged $7.00 a bottle for water. They informed me that it was because the price automatically goes up after a year. I’ve had service with them for 2 years, so I’m not sure I buy that. The person on the other end also had a very hard time speaking English. On a side note, if you really want to lose customers, hire workers lacking this most important skill set to answer your phones. You might as well stop offering phone support all together. You probably wouldn’t aggravate as many people.  After getting frustrated with the rep and the answers I was getting, I was transferred to speak to someone about changing my service. At my old office I had a water filtration system instead of the water bottles and it was considerably more cost effective. It was also nice not to lug and store 40lb water bottles that needed to be replaced every two days. I was interested in getting this installed again. The new rep, who could speak English, informed me that she needed to contact the installer to answer some of my questions and that he would be giving me a call back. After two days of not receiving a call back, I decided to call the a competitor, Arctic Spring. They were friendly, answered all of my questions competently, spoke English, had the product I wanted, and could install the next day. One more thing, they were $25 per month, with a $20 install fee! So I get similar water, my bill is cut into a third, they have good customer service, they are local, I have a person I can call instead of a company, and they came out to install the next day. Zephyrhills couldn’t even give me a call back the next day.

Folks this type of stuff is going on all around us. This is a real life example of how companies are changing the game to put a beat down on their competition. The old way, just doesn’t work anymore. The important question to ask is this; is your company Zephyrhills or Arctic Spring?

Do you rely solely upon Google Analytics? You are probably missing out.

Every SEO I have ever spoken to thinks that Google Analytics is the bee’s knees. Most of the time stuff from Google is. I love gmail and Google Apps. Google Docs has kept me from the nasty presence of MS Office rotting on my desktop. Google itself is an amazing search engine. I can’t remember how I ever used the Interweb without it. I mean I’m no Al Gore. I didn’t invent the thing. Then there is Google Maps. Google Earth. Google Talk. All of their cool code libraries and APIs. I can’t wait for the upcoming release of Google Farts, their venture into what we used to call “Smell-a-vision.” That’s going to be big. They are the most fascinating company in the world. For the most part, everything Google does is great, just not their Analytics product.

Before I get going too much here, I must admit, I am a dumb user of Analytics at best. With that said I have yet to meet a smart one. Perhaps I am jaded by the so-called experts who have tried to sell me on it in the past.  The funny thing is when you ask these experts to explain what all the numbers mean, and how it is affecting you, they start spinning in circles of confusion. Is it because they have no idea what they are doing? Perhaps for some, but I think the real problem is in the tool. It really lacks clarity in some areas. The absence of  instant feedback disconnects you from experiments you are running and the traffic that results from them. If you are happy with your data being a day late and a dollar short, feel free to continue using this tool and stop reading here.

Ok, I’m being a little harsh. To be fair Google does give analytics away for “free.” Additionally I think there is some integration into “Adwords” for when you are spending big money with them.

When I started this blog, I had a desire to see my traffic in real time. I wanted to know if I was wasting my time with things I was trying, or if my efforts were bearing fruit. I was never able to really gauge this using Google Analytics for the reasons I stated above. Because this blog is built on WordPress, you can all to easily hop over to the plugins section and search for anything you want. I found Hit Sniffer when I was searching for stats. It’s very simple to install and I’m very happy with it. It gives you information in a more understandable and useful fashion that Google Analytics, and more importantly it’s real time. Sure it’s requires a large investment of $4.99 per month, but I really feel like it’s worth it. I have to be honest, I’m not an expert in the field of website analytics and stat tracking. I’m sure there are better tools out there. This post isn’t about that though. This is about me not finding Google Analytics helpful. Most people like it because it is free. Isn’t there a saying that you can’t argue free? Most think free is good, but generally there is a trade-off. In this case I wasn’t willing to settle for the inferior product, just because I didn’t have to pay for it.

As a matter of fact I would say costs me money to use Google Analytics. Why? Not knowing the immediate effects of time spent posting links, comments, tweets, and status updates makes it feel different when you look at the numbers the next day. If you post something on Twitter, using a certain wording or hashtag and it was very successful, you know it immediately. With Analytics, you have a harder time feeling this. You lose the affirmation of success or failure. You miss out on learning something. Being that marketing experts have always told me that what they do is an experiment, I would think that learning is the most important thing you can take away from your efforts. If I’m wasting time, I’m wasting money. Will Hit Sniffer keep me from wasting time? No it won’t. I just think it will keep me from wasting as much time as I did when I just used Google Analytics.

To give you a great example of what Hit Sniffer can do, I can see that right now there is a visitor on my site. They are from Norway and found the site from a link on the Basecamp website. It’s their first visit to the site, they use a Mac, Chrome 8 is their browser, and they have Flash 10 installed. They have been on my site for 5 minutes. Within the next month I will be able to know how many kids they have, their SSN (only if they are a US resident) and what their blood type is. Ok I’m just kidding about the blood type part. But you get the point, the tool is very effective if you want real time feedback. You can see the current online summary below:

Screen shot of HitSniffer

By the way, I was kidding about the number of kids and SSN part for those of you stalkers out there who were getting excited. Settle down now.

Take the road less travelled and admit you’re wrong

I’m not one for New Years Resolutions, because I don’t think the clock striking midnight, marking the passing of one year into the next is a good reason to do anything. You will most likely fail on your endeavor whatever it might be. While choosing to do something because a specific day has passed on the calendar could be considered a reason, it isn’t the right one. One of the key aspects in setting and achieving goals is that they have to be for you. This is the right reason. You will have the proper motivation required to accomplish your mission. So what does this have to do with admitting you’re wrong?

One good thing about the end of the year is that it’s good for reflection. The proverbial clean slate that you have on January 1st, prepares your mind to sit back and look at the year in review. A year is a measurable unit, so it allows us to contain that reflection into something that is quantifiable. We can look back on the year and see where we started, and how we’re ending. We can take a good look at our progression and if we are closer towards fulfilling whatever it is that we consider our mission in life to be.

One of the realizations that came out of this end of year period for me, was that I need to be better at admitting I’m wrong. I have a real bad tendency of becoming an ostrich when things don’t go the way I intended. Gladly I can say that I’m not big on carrying out malicious acts, but I do make mistakes. Sadly I’m not always ready to admit it.

So here are a few ways I plan to address it:

  1. Respond Quickly – If something bad has happened, you need to own it quickly. By letting things linger only allows for the ostrich tendency to grow stronger. The sooner you address something, the faster it can be resolved. It also doesn’t have the chance to become a mountain, when initially it’s only a molehill. When you avoid things, they usually seem to get worse. Let’s take a backyard as an example. If you don’t mow for a while, the issue becomes more then just cutting the grass. Now not only do you have to mow, you also need to rid it of the pests, weeds and whatever else has made itself a new home. The scary thing is when the same thing happens with relationships.
  2. Understand where you are going wrong consistently – We all have our weaknesses. Mine tends to be making promises I can’t keep. I have a really bad habit of over extending myself. My biggest issue with this is on project due dates. In the web consulting business, your clients typically want the work done as soon as inhumanly possible. For some reason I always agree that the unattainable target can be hit. Just before I agree to it, I get that uneasy feeling in my stomach. But for some reason I think I can just put on a cape and play super hero, simply because I have done it before. Guess what? That leads to burnout. You begin to resent whatever it is you promised rather than carrying out your work joyfully. Everything we do in life should be done with joy in our hearts, even if it is the hard stuff. The hard stuff makes us grow. With that said, you shouldn’t put yourself in a hard situation when you know better. That’s not called growth. That’s called stupid. Whenever I write a check for a promise I can’t keep, I start to get real sketchy as I realize I won’t be able to cash it out. This goes along with number 1. The sooner you admit to something, the sooner you can correct it. If you can prevent it however, that’s better than any cure. Figure out what it is that you should be apologizing for, and then stop doing it.
  3. Consider the worst case scenario – So you aren’t going to be done with a project on time. Part of what would keep me from admitting this to a client is the fear of how they might respond. That’s because I’m not considering the worst case scenario. Are they going to take my family from me? No. Are they going to cut my head off? No. Are they going to take everything I own? No. Are the going to fire me? Most likely no, especially if I admit that I’m wrong as soon as I realize it. People understand that other people will make mistakes. If they don’t they are jerks and you’re better off not to deal with them anymore. What people don’t understand is when people make mistakes and then fail to admit their wrong doing. That makes the scenario go from how do we fix it to you’re fired. The point here is, there can be some pretty bad outcomes this is true. However when the worst case scenario is taken into consideration, these outcomes are rarely as bad as we think they are. They also tend to be a little less bad when you address them sooner. Remember problems cannot be given time to grow if you can help it. Sorry to beat a dead horse here.
  4. Be candid - No play on words intended here, but I do feel like a hypocrite. When the name Candid was chosen for my company I wanted it to be because we shot straight and never sugar coated things. When you have to admit you’re wrong, give the whole truth and nothing, but the truth. Admitting you are wrong, but leaving out details is lying. You are immediately causing another problem when you are working on fixing another. When you are wrong, just admit what has transpired, don’t try to cover it, and take it from there. In the past instead of saying I’m going to be late with something, I have chosen to beat around the bush. If you need more time, ask for it. If lost data, admit to it, then outline what you have done to make sure it won’t happen again.

So this is great. I’m resolving to make a change. I came up with some ways to address my problem so I can be successful with it.  So how can I make sure that this change actually takes place? Well besides knowing what the status quo is like from being myself for the past 30 years, I also ask my clients. I recently sent out a survey asking how we did in 2010. I will go more into detail about how to do this in another post, but briefly all I did was ask them to rate our performance as Great, OK, or Not Good. The next thing I asked was for them to explain their rating in whatever level of detail they wanted, including not at all. Gladly most results were Great, but a few were OK. All of the OKs had a lot to do with what I outlined above. This did not come as a surprise whatsoever because I’m well aware of this problem. So to answer the question, I plan to turn all the OKs to Greats. I also don’t want to see this come up as an issue in the 2011 survey. This will be hit or miss. I will have succeeded if it is absent, otherwise I will still need to work on it. To make sure that I learn about my progress throughout the year, I plan to send the survey out at the conclusion of each project, no matter how big or small. A year is too long to wait to see if you are doing the right thing. You need to stop along the way and make sure you are still headed down the right path.

At the end of the day, when we have done something wrong, we will feel guilty as a result. The only way to release that guilt and get things back to where we need to be is to admit what we have done wrong.

QuickFire for Basecamp is in the App Store!

This post is quite a few days late. Normally a company with their act together would have this post written in advance, with a finger on the trigger just waiting to push the publish button. Marketing isn’t my strong suit and whoever said I had my act together?   I am pleased to announce that on Thursday, December 16th, 2010 a dream came true for me. I got real. QuickFire for Basecamp, my first iPhone App was approved and started selling in the App Store.

I built this app to scratch my own itch. I wasn’t really interested in managing my Basecamp projects in full from my iPhone, I just wanted a way to create To-Dos. While the iPhone is a great device, I’m not sure it’s ideal for Project Management. I think that is done best while sitting in front of a computer. Creating reminders for myself to get a certain task accomplished by a certain date, or assigning it to someone else seemed like a great way to interact with Basecamp while on the go. Sure it is simple, and not nearly as comprehensive as competing Basecamp apps, but I think this is a good thing. It does what I want it to do, and it does it very well. If you have an iPhone and you use Basecamp, you really should check it out. I’m convinced it’s worth the 99 cent price tag.

Beyond the app, I really look forward to everything there is to learn from this experience. It will help mold my next one, the one after that and so forth. I have a feeling that I will be receiving a baptism by fire (no pun intended) like education on marketing.

QuickFire for Basecamp Screen Shot

Don’t just say NO, scream it!

This is a topic that seems like a dead horse that just keeps receiving a beat-down, but for some reason budding small business owners rarely seem to listen. As a matter of fact, those in the service industry seem to listen the least. It’s one of those things that most need to try before they buy. But I will tell you right now, there is no reason to put yourself through this kind of pain.

Here’s the scenario. You are just starting out, or perhaps you’ve been around and business is a little bit slow. Then this deal comes around. It has an odor to it. Sometimes the stink is so unbearable that your eyes start to water and your stomach starts to turn. A good example of this would be someone who wants to pay a thousand or two for $10k worth of your services. It’s a bad idea to take this business, and you know it from the word go. Most of the time these types of deals will anger you enough that you will just walk away and spare yourself the pain.

The second smell is a little more subtle and a lot more dangerous. It’s the guy that wants what seem to be little compromises. Certain wording in a contract. A 10% price break. A smaller security deposit. Much like the carrot salesmen, these guys have more angles than I can think of. What will happen with them, is they will feel you out, and see where you will bend. Once they understand your vulnerabilities, they will capitalize on them every chance they get. Along the way, you get the feeling that you are probably not a good fit, but what can you do? You need the money. When all is said and done, you made the stupid decision to do business with them and you ended up losing money. In the meantime, the rest of your business suffers because these guys tend to be time vampires. They want to meet all the time, but they don’t want to pay for it. You can never keep them happy. They have designed it this way. If you feel like they are constantly unhappy with you, you will do more to try and get back in their good graces. They don’t value what you bring to the table, they proved that during negotiations. They are not concerned about the welfare of your company. If they put you out of business, they will just pick up the pieces and go somewhere else.

I have made this mistake on a number of occasions. I don’t want you to make it too. I implore you to be careful of these types of situations. Never, ever accept business out of desperation. As much as you may start to believe there is nothing else out there for you and you have to take the deal, I have rarely found that to be the case. Run away from bad deals and turn up your hustle meter. Get out and network some more. Call up a few of your current clients, see if there is anything you can help them with. Look at your expense sheet and see where you can cut some things. Just always keep this in mind. If you say yes to the bad deals, it makes it hard to say yes to the good ones.

Why your small business, your client, and their carrots are like Eve, the snake and the apple

A bad carrot

As a small business, at one point or another, you inevitably will be offered a carrot. Whether you are starting out or have been established for a little while, there are people out there who can smell you desire to go to the next level with your business, so they offer to “help” you get there. Here’s a quoted example from an email where one such carrot was offered to me just recently:

Basically, I am developing a social media website and have tons of people that are waiting for me to launch.

Are you willing to help create aspx pages for me calling webservices controlled by my data architecture team?

Due to the potential growth, most of the individuals that are working this deal are working for stock..  Are you up for that kind of arrangement?   You wont have to quit your day job, but this will definitely lead to WAY MORE WORK…

Who knows, when I replied to him this way I may have walked away from a chance to make millions. I will keep you posted.

Thank you for the offer. Unfortunately I have been a part of a number of arrangements like the one you are proposing (stock for services) and none of them have worked out too well for me. So after the last one I decided that if I am going to work without getting paid it would be  on something I have a controlling interest in, or for charity.

Carrots can come in all forms. The promise to send you “Way more work” or “buy more product” . Stock offerings in a startup. A promise to refer lots of business to you if you do a good job. I could go on all day. Some carrot salesmen are better than others, and they package them in all sorts of ways. What they have in common is they are all after the same thing. They want to take advantage of you. They want you to work for free, or for a lot less than what you would normally charge. They want you to take a loss on selling something to them. Sometimes they want you to finish in half the time it should take to do the job properly. They basically always want you to go outside of  your business model. You setup your schedule and pricing based upon the time you need to spend and the profit margins you need, to achieve in order to stay in business and be successful. The minute someone compromises this, they aren’t helping take you to build your business, they are planting the explosives that will help it to implode. If you want to spend extra hours working on something, build something for yourself, not someone else.

Carrots are poisonous. They aren’t good for you. If you see one, run faraway and do so as quickly as you can. Eve thought she needed to move away from the plan too. When the snake offered her the apple, she ate. I think it’s fair to say she regretted that decision.

Buying stuff for your business

When you start a business, if it is like most, you will need stuff to operate. Whether it be computers, desks, chairs, phones, coffee makers, you get the picture. If you want to increase your chances for success here are a few things you can do:

  1. Use what you already have – Chances are you already have a computer, you have a desk, you have a chair, you have a phone, and you have a coffee maker. Use what you can from what you already have to keep your expenses down. It might be inconvenient to share some of these items, but if you really believe in the business you are starting these sacrifices will be worth it.
  2. Buy used – This is a really a good rule for buying stuff in general personal or business. New loses its value, and often times is not any better than what you can find used. New becomes used the minute you start using it, so it’s really only New until you buy it. You can save a tremendous amount of money by being patient and finding the right deals. With that said you should always use discretion.  If it seems like the deal is too good to be true, and has a certain smell to it, trust your intuition and move on. In this economy, businesses and individuals alike are looking to dump their assets for pennies on the dollar so there are some unbelievable deals out there that are for real. This past weekend I purchased a 1 year old Steelcase Leap chair for $220. The guy I bought it from payed $650 for it new a year ago and he treated it very well. He needed to move it quickly so I paid about $200 less than I should have. I could put it on eBay today for $400. The other nice thing about buying used is that items have already lost most of their value, so if you want to upgrade something you have purchased used, you can get most of what you paid for it back out. Craigslist and eBay are two great places to look, but don’t stop there. You can get good discounts at major retailers by purchasing open box items. They won’t be the very best deals, but still good nonetheless.
  3. Stay simple – Many of the things you think you will need, you don’t. For instance, you may thing you need big expensive filing cabinets, but you might be able to get a good document scanner instead. That would limit the space you need and is more scalable. If you need to keep the paper, get cardboard storage boxes to keep old paperwork in. Sure they might not be as attractive, but attractive isn’t important in this case, conserving cash and not being wasteful should be your priority. You don’t need polished and fancy to start out. Truthfully you never will. Focus on addressing the problem you need to solve instead of looking at the solution for what you think the problem is. Focusing on the solution is a wasteful approach. I speak from experience. The more simplified you make things, the easier it will be to go in different directions as your business matures.
  4. Always negotiate – The asking price is never the price. This even applies to retail stores. If where you arrive in the deal isn’t a win for you, then walk away. When negotiating, always try to focus on creating a win for both sides. You can do this by collecting information and understanding what the other party is trying to accomplish.
  5. Pay Cash – You can get better deals when you have cash in hand, and you won’t go into debt buying this stuff.
  6. Keep your finances separate – You don’t necessarily have to have a “business checking account.” If you are trying to see if your concept will work, there is no reason to incorporate and spend all the money to become a business, but you do need to keep good records. The easiest way to do this is to keep your “business” money in a different bank account. Buy all your stuff from this account.

How about a little return on the Unemployment investment?

Possibly the single greatest sign of our weak economy is the vast number of people who are unemployed. You hear about it when you turn on the news, people are talking about it everywhere you go, heck you may even know someone. I personally have two immediate family members. This number has actually improved significantly over the last month, as it used to be 3. All of them live in the same household, and prior to the third getting a job, they were all living off a combination of Unemployment Benefits and Food Stamps. While I don’t claim to be an expert on the system, I have seen it place as a payer and with my family being a recipient. The only side I have missed is that of the administrator.

I’m going to cut to the chase here. I have an idea for unemployment reform that seems painfully obvious. I’m not quite sure if the idea is just plain stupid, impossible to administer, or if there is some kind of legal implication for putting it in place. Perhaps it really is as brilliant as I think it is, as most simple ideas are. From what I understand, and what the program actually requires to receive benefits, is that those who receive them really want to get back to work, i.e they are looking for a job. The reason they are not working is because nobody is hiring. I have seen a few instances where people actually stay on unemployment because it pays them more than some of the available jobs would. Strangely enough these same people say they want to get back to work. Over the past 2.5 years there have been many instances where I have wanted to hire someone, but it just didn’t make financial sense to do so. Ironically a big part of this was due to the high amount of taxes that need to be paid by the employer for employing someone rather than contracting with them. I’m sure I’m not alone here. Many businesses always seem to have that project that isn’t getting done, or busy work that needs to get taken care of. Heck the government probably has a few projects they could use some help with, some red tape that needs applying or some paperwork that needs filing.

So that leads me to my proposal. Let’s put Americans who are receiving unemployment benefits back to work, by having them fill these jobs that need to be done and can’t afford to be funded. These people are getting paid to sit around and do nothing productive, so let’s make them produce. They are saying they want to work, so let’s put them to work. The government could enlist these individuals and actually get some production for those unemployment checks. They could allow small businesses to get some extra needed help.  The checks are going out anyway, there is work that needs to be done, and these people want to work.

If the private sector were to become the benefactor from this I’m certain jobs would get created. Let’s be practical for a moment and see how this would work in my business. I have some extra work that I could use the help with right now, but I can’t afford to pay for it. I also have many projects that I have deferred until I have some time to work on them. Give me a developer and designer who are looking for jobs and we could have a product spun up before the end of the year. If the product even remotely works out, I take those individuals off the government’s hands and give them jobs. I know, most people would just work the system and keep using the free help. It doesn’t matter though. There are a few reasons. First, it’s not costing anyone anymore than it is today. These people would be working, filling a void in their work history, and if they did a good job would be gaining a reference. Plus they really want to work. Another reason, is I don’t believe that any smart employer would work the system like this. If they see a good employee that can help them in their quest for profit, they will hire them. I think the group who would take advantage is only a small subset. Furthermore, a smart government mathematician somewhere could come up with a ratio that only allows an employer to continue to use this program if they have made a certain number of hires from this program during a certain period of time. We also wouldn’t want these jobs to be full-time, as these individuals would still need to look for permanent employment.

There is also a real nice byproduct here. People could get on the job training to learn new skills. Normally this training comes in form of useless government funded training programs for the unemployed. Many times employers will avoid hiring people to train them on the job, because they don’t want to pay money out to train someone, only to have them leave and have to go out and do it again. So the guy who can’t get a job because his only experience is flipping hamburgers, could go work for a A/C repair company as a helper and leave with real qualifications. The government could also cut spending on their useless programs. This could obviously work for many different industries where long term training is not needed to be qualified, and on the job training is feasible.

This concept if very similar to Microsoft’s Bizspark program. This program allows software startups to get all the Microsoft product they want free of charge for three years while they are building their company. Once the three years are up, if they were successful, they exit the program and they start paying Microsoft lots of money for this software. Obviously the timeframe for my proposal would have to be shorter, but you get the idea.

The cool thing about all of this is that it shouldn’t have to cost the government an extra dollar to implement it. Take a group of these talented unemployed people, put them to work for a custom software development company, and have them build a system which automates the process. When the program is in place, and additional administration is needed, bring on some of the unemployed administrators to take care of it.  Get the word out using the media (heck Obama could tweet it and millions would hear), and include an announcement in the unemployment paperwork that already goes out to employers and the check recipients. If there are enough jobs to go around, then the government can make filling these positions a requirement if you want your unemployment check. That shouldn’t be a problem though.These people want to work.

That is a great segue into what perhaps the best thing about this idea is. The government doesn’t have to implement it in order for it to work. If you are unemployed and want to work, nothing is stopping you from targeting a company you would like to work for and proposing that you come on board to do some volunteer work or an internship. Make a list of 2-5, and I’m sure you will get picked up by one. If you don’t, make a list of 2-5 more. If you are a talented out of work software developer or web designer, you can apply here. Most likely after a few months you will have a full time paid gig.

I would really love to hear your opinion on what you like about this idea, what you don’t like and why you think it would or wouldn’t work.

Want to live the dream? Drive a piece of crap car

Being in debt is the first step you can take towards living the life you don’t want to live rather than what you dream of. The first step you can take towards being successful in a business venture is being debt free. It won’t guaranty your success, nor do you have to be debt free to start a business, you are just stacking the deck in your favor if you are. One of the biggest challenges you will face when starting up a small business is cash flow. The less debt you have, or if you are fortunate enough to not have any, the less cash you need to keep your business going. It also means that you have to be profitable, to keep it running. If you have to borrow money to start your business, or for its upkeep, chances are you shouldn’t be playing the game.

I’m not saying this from a holier than thou perspective either. I have spent the last two quarters paying back creditors for mistakes I made last year. The biggest mistake perhaps was not driving the piece of crap car. In the first year of my company’s existence, things were going really well. Things were moving fast. So fast in fact I decided it would be prudent to go out and buy a sports car that could keep pace; with borrowed money. To go with that sports car, my ego decided the company needed to grow, so I hired two full time people making a combined $120k per year, one earning a healthy commission, and the other getting fully reimbursed for health insurance. Along with the personnel expenses, my personal expenses were high, the company needed a bigger office, and I signed up for the we will approve anyone Dell computer lease. After a few months of slow sales, money started getting tight, so we brought on a marketing person to try and drum up more business, after all we now had a massive expense sheet to support. Then we started getting the occasional customer who wouldn’t pay on time, or at all, so I started to borrow money just to cover payroll. Things were getting worse but I wasn’t willing to wake up from my dream turned nightmare yet. Sadly, I wasn’t having fun anymore, the 90 hour work weeks were piling up, and we were taking whatever business we could get our hands on. By the end of 2009, projects started to go south because we took on too much work for not enough money, and we were ticking off all of our clients. The quality of our work went down the tubes. Our environment had a feeling of desperation to it as well. We didn’t really discuss things directly; instead  we choose to have endless hours of wasteful conversation regarding how we needed to change things in order to be the best web design and development shop around. Had we not been wasting this time, we could have been getting our work done and wouldn’t have lost as many projects.

As 2010 started off, I knew that things weren’t going to get better. There was no evidence to support it. I was selling off personal and company assets to survive, as I hadn’t taken a paycheck in months. Sales had halted because I fired the sales guy, and didn’t have time to sell anything myself as I was too busy slaving away with project work. Clients were growing impatient. Rather than filling the hole up, I dug it deeper and hung on to my last two expensive employees for 3 months more than I should have. Finally by the middle of March, I informed them that their last paycheck would be in two weeks. From there I feverishly started eliminating unnecessary expenses. No more office space. Subscriptions that were going unused were cancelled. When money started rolling in again, I kept my personal expenses down and started paying the debt off.  I contracted with my ex-employees to get overflow work done, paying them when I got paid and only for the billable work, instead of having the constant stream of salaries flowing out the door. When our car lease expired in June, my wife and I decided to stick with one car. Once we could afford to do so, I dropped $2k on a piece of crap for running errands and getting around town. It has faithfully taken us everywhere we needed to go. Instead of being in the red every month, my business was finally profitable again with a decent surplus.

I attribute this mostly to the fact that I didn’t have to take bad projects anymore to survive. I cut my client base down significantly, and resolved to only do business with companies I like to do business with. Additionally, and maybe more importantly, this has allowed me to take a little time off of client work and focus on my true passion of software development. In the next few days I will be submitting my first app for the iPhone, QuickFire, to the App Store. Even though I’m not quite debt free yet, the goal is to be there by this time next year. Being profitable is the element that has allowed me to position things where they need to be. The amount of stress that lifts off your shoulders is incredible and your focus shifts dramatically.

To give further credibility to what I’m saying take a look at the list below. According to CNBC these companies have no debt:

  • Google
  • Apple
  • eBay
  • Electronic Arts, also known as EA or EA Sports
  • Bed Bath and Beyond
  • Gap
  • Texas Instruments

It’s amazing what you can do when you don’t have the debt monkey on your back. Sadly, most businesses offer the monkey a ride before they have made their first dollar. Many people think you need a business loan to get started. Consider this, you can’t go bankrupt if you haven’t borrowed money. Most businesses go through rough patches. By not having debt, it means you should have savings, which will help you during these times. It also means that you don’t have money going out the door that isn’t producing profit for your company. Anything that doesn’t produce profit in a business is unnecessary and it should be cut. This includes office space, 3rd party services, vehicles or even employees.  This last one is hard, and I have personally had to do it, but a business cannot survive if it is losing money. The one exception I would note is charitable activities. While I believe all financial contributions should be made personally, if you build a small company with employees I would encourage you to participate in charitable activities, on and off company time. Being in business for yourself includes making tough decisions, perhaps more than you ever had to deal with in your life. If you start and stay debt free, chances are you will never have to deal with layoffs, and as long as you understand your customer base (that’s another article), and you will never have to shut it down either.

37signals has been writing a series called “Bootstrapped, profitable and proud.” It highlights the stories from tech companies who have $1M in revenue, didn’t go into debt to get started, and are profitable. The first article in the series is about Campaign Monitor, a software company that has doubled their revenues and profits for the last six years. If you are someone who finds it easy to learn by example, be sure to check out the rest of the articles in that series.

Finally, this wouldn’t be a complete article about debt without mentioning Dave Ramsey. Whenever you are dealing with debt, the first thing Dave tells you to do is to sell the car, and buy a piece of crap that will take you where you need to go. I recently had the pleasure of attending an all day seminar put on by Dave. One of the things he mentioned, is that companies should shoot for having 50% of annual expenses socked away in savings. This is tough to do, especially if your company starts growing very quickly. Rapid growth can come with elevated expenses, and if you are not careful money can leave your bank account more quickly than it goes in. Of course with more employees, that 50% becomes a larger number exponentially. Dave’s company isn’t even there yet, although they are close. This goal is much more attainable though when you are shooting for it from day one, have zero debt, and low operating expenses. If you are currently in debt, I strongly suggest that you take his Financial Peace University class. This is a great class that is geared towards personal finance, however many of the principals apply to business as well. For more business specific material, you can check out EntreLeadership also by Dave Ramsey. The one day course I took would have had a tremendous impact on how I would have run my business had I taken it before I started my company.

The irony here is the piece of crap car won’t get you where you want to go in style. It won’t always get you there quickly. The point A to point B trip can be somewhat of a challenge at times. The car with a payment will help you to impress people you don’t know or even care about. For a short time, it will quickly take you back and forth to your destinations, in comfort, with lots of cool gadgets. However the newness wears off, the value depreciates and the payment sticks around. The piece of crap will will teach you a thing or two about humility and contentment. The piece of crap car will also allow you to do just what you need to do. It might be slow, but it will ultimately get you to the road less travelled, where dreams happen. The one with the payment might be shiny, and it might go fast, but it’s ultimate destination is rush hour traffic. If you’re not into cars, just think tortoise and the hare.

Old Faithful

1999 Hyundai Sonata