My Top 10 Design Business Failures

My Top 10 Design Business Failures David Sherwin, frog @changeorder / changeorderblog.com 06.30.12 CONTENT CONTENT CONTENT INVENTORY STRATEGY CREATION THING RESEARCH RESEARCH SITE MOOD UI DESIGN TEMPLATE CLIENTPROPOSAL BRIEF REPORT MAP BOARDS CONCEPTS DESIGNS WANTS BADLY WIRE- 1 FRAMES

D’oh. CONTENT CONTENT CONTENT INVENTORY STRATEGY CREATION THING RESEARCH RESEARCH SITE MOOD UI DESIGN TEMPLATE CLIENTPROPOSAL BRIEF REPORT MAP BOARDS CONCEPTS DESIGNS WANTS BADLY WIRE- My Top 10 Design Business Failures / David Sherwin 2 FRAMES

Double d’oh. CONTENT CONTENT CONTENT INVENTORY STRATEGY CREATION RESEARCH RESEARCH SITEPROPOSAL BRIEF REPORT MAP THING ONCEPTS I DESIGN BOARDS TE Failures LADavid CL Sherwin IENT MOOD WIRE- My Top 10 Design Business TEMP / S 3 FRAMES DESIGN WANTS BADLY

Talked to a lot INTERVIEWS: FEEDBACK & HELP: Derin Basden Christopher Butler Steve Baty Matt Conwayof designers, DAVID CONRAD Abby Godee Teaque Lenahan Tom Manningbusinesspeople ERICA GOLDSMITH Jenny Lam Timothy Morey Andrew Otwell& frogs… Ted Leonhardt Nathan Peretic Justin Maguire Andy Rutledge Matthew May Matt Schoenholz Nancy McClelland Lauren Serota Stefan Mumaw Sebastian Scholz Luke Mysee Gabriel Post FIONA ROBERTSON REMLEY Mary Paynter Sherwin Wendy Quesinberry 4

A lot of topicsfloated to thesurface…WORKING WITH CUSTOMERS MANAGING YOUR PROJECTS OPERATING YOUR STUDIO BRINGING IT ALL TOGETHERClient Service Project Management Money ProductBusiness Development Process Hourly Rates Market Need & CapabilitiesProposals Estimating Insurance Process & CultureContracts Budgets Sustainability Customers & StaffSpec Work Schedules Legal PhilosophyPolitics Risk ConfidentialityNegotiation Stakeholders CultureDiscounts Change Orders LeadershipExpectations Time Sheets AccountingDesign Briefs Proofreading HiringDeliverables Errors FreelanceMeetings Postmortems VacationPresentationsFeedbackNetworkingCompetitionStrategy 5

Realized all of ushad many of thesame businessscrewups. 6

1 2 3 4 5 6 7 8 9 10 No quality control My Top 10 Design Business Failures / David Sherwin 7

Misteakes happen.Read more about this: http://bit.ly/t2tdt My Top 10 Design Business Failures / David Sherwin 8

We fail in managing clientswhen errors slip through,and we can’t describehow they’ll be resolvedto the client’s benefit. “t’s okay, we’ll I fix it! Discount? Free logo? Agh!” “ OU Y WHAT!!!!!” My Top 10 Design Business Failures / David Sherwin 9

a { text-decoration: none; } a:link { color: #FFFFFFUC a:visited { color: #3c44901. etermine your role D a:hover { color: #5360D8; a:active { color: #3c4490 in the error’s genesis. /* layout */ body { margin: 0; color: #222222; background: #FFFFFF font-family: Helvetica, sans-serif; font-weight: normal; font-size: small; line-height: 150%; 10

2. auge the impact of G the error to your client and to your project team. MARCH 21 –$2,100 My Top 10 Design Business Failures / David Sherwin 11

3. rite a plan describing W how the error will be mitigated. Dearest clie nt, It is my duty to inform yo Also, the ser u that Tues ver room ca nothing left ught on fire but a burnt hulk of meta The backup l s all failed a not satisfied s well. Since , s Business ku is My Top 10 DesigneppuFailures / David Sherwin 12 w let me know an option. P i le

4. hare your plan with S the client, ensuring that conversation around the error is constructive. “ on’t JUST throw D YOURSELF under the bus!” 13

5. xecute on the plan E as swiftly as you can— without introducing more errors. “ e’re on it W LIKE PB on J.” “HUSTLE!” My Top 10 Design Business Failures / David Sherwin 14

6. Record the error in a public manner that’ll help you assess future risk and educate your peers. RIP missing RIP HOME TYPO PAGE 2009 2007 15

1 2 3 4 5 6 7 8 Working without a deposit9 Working without a contract10 16

“ ccounts payable is getting your A information into our system… Can’t we just start work?” 17

“ ccounts payable is getting your A information into our system… Can’t we just start work?” 18

“ ccounts payable is getting your A information into our system… Can’t we just start work?” UNTIL the contract is signed and we have a deposit 19

“The trick is to turn down work butto have the client remember you asa positive person that they want towork with in the future.”— iona Robertson Remley F Director of PM, Wunderman “It can be advantageous to offer a conditional ‘no’ rather than a direct refusal… It’s easy to see a project as a poor fit because one or more variables aren’t right. The temptation in that case is to decline the project outright. However it can be worthwhile to offer a different solution that is more favorable to you…” — athan Peretic N Co-founder, Full Stop Interactive 20

1 2 3 4 5 6 7 Taking on spec work8 9 10 21

If you do spec work, you’regambling away future profit. PROJECT PROJECT 22 LOSS LOSS LOSS LOSS

50 %bid/win ratio™ 23

Spec work will distract you fromwinning paid work, and reduce thevalue of every designer’s effort. “ e do not do W “ s a condition to A design work hiring you, may we on spec.” see some advance design work?” 24

1 2 3 4 5 6 No client approval on milestones7 8 9 10 25

Did you leave wiggle room? 26

Did 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 everything in writing.• Get formal approvals in writing. 27

Shape deliverables for SHOW ME WHAT’S IMPORTANT—WHOOPS, GOTTA RUN!your audience.Creating an executive presentation CEOfor the CEO can be a differentdeliverable than what yousend to your regular contact. OTHER VP VP OF EVP OF YOU DON’T STUFF OTHER JUNKPlan and bill for it. KNOW MANAGER MANAGER MANAGER MANAGER YOU WANT TWO MEETINGS? (ULP.) WORKER WORKER WORKER WORKER DETAILS, WORKER DETAILS, WORKER DETAILS… 28

HAVE YOU TRIED RED FOR THE LOGO COLOR?Make your deliverables CEO’S HUSBANDself-contained.Keep asking, “If I’m not here CEOto defend the work, will itstill make sense to anotherpotential stakeholder?” OTHER VP VP OF EVP OF YOU DON’T STUFF OTHER JUNK KNOW MANAGER MANAGER MANAGER MANAGER OH BOY. WORKER WORKER WORKER WORKER UH, WE HAVE HEY ARTIE, WORKER A FEW CHANGES WORKER COME LOOK FOR YOU… AT THIS… 29

Always point back GOOD, WE’RE ALL SAYING THE SAME THINGto the strategy.Clearly express how the CEOdeliverables map back tothe stated client and userneeds, brief, etc. OTHER VP VP OF EVP OF YOU DON’T STUFF OTHER JUNK KNOW MANAGER MANAGER MANAGER MANAGER GOOD, WE’RE ALL SAYING THE SAME THING WORKER WORKER WORKER WORKER GOOD, WE’RE WORKER ALL SAYING THE WORKER SAME THING 30

1 2 3 4 5 Improper estimating6 7 8 9 10 My Top 10 Design Business Failures / David Sherwin 31

Estimating Process:1. roject the number of hours P the project will require2. et a schedule that S accommodates those hours3. enerate costs for resources, G based on hourly rates4. elect a pricing model to match S your current business context5. ranslate your detailed estimate T into a cost estimate for your clientHere’s common mistakes thatcause estimates to deviate.My Top 10 Design Business Failures / David Sherwin 32

Run numbers by teammates.The surest way to piss off a designer, writer, coder,and so forth: give them no control of the estimateyou provide to a client, then ding them for notmeeting the estimate.Solicit their feedback on an estimatebefore the client signs it. “ OGO in two LBe aware, however, that many hours #fail.”creative people (myself included)sometimes struggle to estimate theirtime. Hence the “breathing room”spoken about earlier when workingwith self-reported time estimates. My Top 10 Design Business Failures / David Sherwin 33

Estimates 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. My Top 10 Design Business Failures / David Sherwin 34

Include a project markup.This is usually between 10–20% of the total estimate.This mark up is to cover the following:• ossible increases in scope P• hifts in schedule: all delays always cost the S agency money!• egotiation over price: to secure a contract N without hurting your bottom lineProject markups are shared with the client. My Top 10 Design Business Failures / David Sherwin 35

Use 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. ? My Top 10 Design Business Failures / David Sherwin 36

Price 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• Custom photography or illustration• Printing• Design research honorariaSuch services should be listed in your contractas outside the scope of the project and to beinvoiced at an additional cost. My Top 10 Design Business Failures / David Sherwin 37

Be 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: Printing a stationery system = 16 hours• Soliciting three bids• Negotiating a fee and print schedule• Setting up a PO for the costs• Re/submitting files via FTP and/or courier• Review of ink drawdowns• Review of color proofs• Rounds of new proofs• Multiple press checks, plus travel to/from the printer My Top 10 Design Business Failures / David Sherwin 38

Know 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?”• “ ou are far too expensive. Can you do me Y a 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. My Top 10 Design Business Failures / David Sherwin 39

When 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• in back a client’s trust if it has been lost through W poor 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. My Top 10 Design Business Failures / David Sherwin 40

They want it for less?Then deliver less.If the client keeps trying for a discount, reducewhat you are fulfilling for them:• educed deliverables R• educed scope inside deliverables R• irect-to-bill vendors D• evised schedules R My Top 10 Design Business Failures / David Sherwin 41

1 2 3 4 No cashflow5 6 7 8 9 10 My Top 10 Design Business Failures / David Sherwin 42

Do you have enough money in the bank?You need at least 2–3 monthsfor operating 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. My Top 10 Design Business Failures / David Sherwin 43

Do you track your project pipeline? Client Name Projected Revenue New Project for MegaCo $2,000 Updates to last year’s LittleCo project $800 Total $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. My Top 10 Design Business Failures / David Sherwin 44

Do 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. My Top 10 Design Business Failures / David Sherwin 45

Do you extend credit too far? Client Name 0–30 Days 31–60 Days 61–90 Days Over 90 Days MegaCo $100 $500 $1,000 LittleCo, LLC $50 $50 Mom-n-Pop $25 $25 $500 Total $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? My Top 10 Design Business Failures / David Sherwin 46

Do you chase accounts past due?Dear MegaCo,For your records, below you will find a current account statement. Current Account Balance Invoice Project Due Date Amt Due 31–60 Days Past Due Invoice Website Due: January 1, 2009 $100 724 Design January 31, 2009 61–90 Days Past Due Invoice Website Due: December 1, 2008 $100 721 Design December 31, 2008 Outstanding Balance $200 My Top 10 Design Business Failures / David Sherwin 47

Do 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… My Top 10 Design Business Failures / David Sherwin 48

1 2 3 Inaccurate hourly rates4 5 6 7 8 9 10 My Top 10 Design Business Failures / David Sherwin 49

Do you know your real billing 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 year you can actually charge your clients My Top 10 Design Business Failures / David Sherwin 50

Do you know your real billing rate? 52 Weeks per year YOU CAN’T bill – 2 weeks sick-leave 100% oF YOUR TIME! – 5 weeks of holiday (!) 80% Creative direction = 45 Weeks per year 80% Design x 40 hours a week 80% Production = 1,800 hrs/year 80% Project Management / 60% Utilization Rate 30% Marketing & Self-Promotion 10% Administration 1 ,080 hours per year you can actually 60% Blended rate charge your clients My Top 10 Design Business Failures / David Sherwin 51

Do you know your real billing rate?Estimate labor costs like you are hiring an outside employee. Labor cost $50,000 per yearFixed overhead + $14,400 ($1,200 / MONTH STUDIO EXPENSES) Debt + $10,000 ($100,000 DUE PAID BACK IN 10 years) Taxes + $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 employeeBut… Where does profit fit in?What if I can’t find enough work to fill 1,080 hours? My Top 10 Design Business Failures / David Sherwin 52

Do you know your real billing rate?Estimate labor costs like you are hiring an outside employee. Labor cost $50,000 per yearFixed overhead + $14,400 ($1,200 / MONTH STUDIO EXPENSES) Debt + $10,000 ($100,000 DUE PAID BACK IN 10 years) Taxes + $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 Contingency x 1.5 of base rate = $115 PER hour “REAL” Base RateWhat happens when you run the numbers? My Top 10 Design Business Failures / David Sherwin 53

What activities are you really billing?Accurate billing is also about future activities you might fulfill. Agency says: Creative Direction $200/hr User Experience $120/hr Visual Design $120/hr Development $180/hr THESE ARE NOT ALL OF YOUR ACTIVITIES, ESP. IF YOU HIRE CONTRACT HELP. My Top 10 Design Business Failures / David Sherwin 54

What activities are you really billing?Know the activities required to fulfill your client’s stated outcomes—and how much you need to bill for them.Running Your User Experience Development Photo, Video, Project ClosureBusiness Film & Motion User Research Technical Graphics FulfillmentBusiness DiscoveryDevelopment Information Scripting Press Checks Architecture TechnicalAccount Architecture Storyboarding Project ClosureManagement Usability Testing Back-End Pre-Production ArchivingAccount Development (Backup +Coordination Production Portfolio) Content Creation Front-EndProject and Management Styling Follow Up… DevelopmentManagement Copywriting Videography Bug TestingProject Content Writing Video EditingCoordination Quality Copyediting Assurance Sound DesignAdministration Proofreading Motion GraphicsLogistics Content Curation Computer GraphicsAccounting + Animation Social Media Content Creation Mastering and Upkeep My Top 10 Design Business Failures / David Sherwin 55

1 2 Not trusting your gut3 4 5 6 7 8 9 10 My Top 10 Design Business Failures / David Sherwin 56

1 Faking it2 3 4 5 6 7 8 9 10 My Top 10 Design Business Failures / David Sherwin 57

Now, for something completely different… CONTENT CONTENT CONTENT INVENTORY STRATEGY CREATION THING RESEARCH RESEARCH SITE MOOD UI DESIGN TEMPLATE CLIENTPROPOSAL BRIEF REPORT MAP BOARDS CONCEPTS DESIGNS WANTS BADLY WIRE- My Top 10 Design Business Failures / David Sherwin 58 FRAMES

My Top 10 Design Business Successes David Sherwin, frog design @changeorder / changeorderblog.com 06.30.12 CONTENT CONTENT CONTENT INVENTORY STRATEGY CREATION THING RESEARCH RESEARCH SITE WIRE- MOOD UI DESIGN TEMPLATE CLIENTPROPOSAL BRIEF REPORT MAP FRAMES BOARDS CONCEPTS DESIGNS WANTS BADLY My Top 10 Design Business Failures / David Sherwin 59

1 Learning from failure 2 3 4 5 6 7 8 9 10 My Top 10 Design Business Failures / David Sherwin 60

There’s morewhere thiscame from…WORKING WITH CUSTOMERS MANAGING YOUR PROJECTS OPERATING YOUR STUDIO BRINGING IT ALL TOGETHERClient Service Project Management Money ProductBusiness Development Process Hourly Rates Market Need & CapabilitiesProposals Estimating Insurance Process & CultureContracts Budgets Sustainability Customers & StaffSpec Work Schedules Legal PhilosophyPolitics Risk ConfidentialityNegotiation Stakeholders CultureDiscounts Change Orders LeadershipExpectations Time Sheets AccountingDesign Briefs Proofreading HiringDeliverables Errors FreelanceMeetings Postmortems VacationPresentationsFeedbackNetworkingCompetitionStrategy My Top 10 Design Business Failures / David Sherwin 61

Thanks!David Sherwindavid@changeorderblog.com@changeorderMore about business + process of design:changeorderblog.com©2012 David Sherwin. All rights reserved. No duplication without writtenpermission of the author. Examples shown are for illustrative purposesonly, and should not be substituted for hiring professionals forthings likeaccounting, bookkeeping, and other critical stuff. Be well and let meknow how it goes. 62

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My Top 10 Design Business Failures

by David Sherwin on Feb 19, 2011

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My Top 10 Design Business Failures — Presentation Transcript