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My Top 10 Design Business Failures

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My Top 10 Design Business Failures

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.

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.

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My Top 10 Design Business Failures

  1. 1 My Top 10 Design Business Failures David Sherwin, frog @changeorder / davidsherwin.com 06.24.13 PROPOSAL RESEARCH BRIEF RESEARCH REPORT SITE MAP CONTENT INVENTORY CONTENT STRATEGY CONTENT CREATION MOOD BOARDS UI DESIGN CONCEPTS TEMPLATE DESIGNS THING CLIENT WANTS BADLY WIRE- FRAMES
  2. 2 D’oh. PROPOSAL RESEARCH BRIEF RESEARCH REPORT SITE MAP CONTENT INVENTORY CONTENT STRATEGY CONTENT CREATION MOOD BOARDS UI DESIGN CONCEPTS TEMPLATE DESIGNS THING CLIENT WANTS BADLY WIRE- FRAMES
  3. 3 Double d’oh. PROPOSAL RESEARCH BRIEF RESEARCH REPORT SITE MAP CONTENT INVENTORY CONTENT STRATEGY CONTENT CREATION MOOD BOARDS IDESIGN ONCEPTS TEMPLATE DESIGNS THING CLIENT WANTS BADLY WIRE- FRAMES
  4. 4 Talked to a lot of designers, businesspeople & frogs… INTERVIEWS: DERIN BASDEN STEVE BATY DAVID CONRAD ABBY GODEE ERICA GOLDSMITH JENNY LAM TED LEONHARDT JUSTIN MAGUIRE MATTHEW MAY NANCY MCCLELLAND STEFAN MUMAW LUKE MYSEE GABRIEL POST FIONAROBERTSONREMLEY MARY PAYNTER SHERWIN WENDY QUESINBERRY FEEDBACK & HELP: CHRISTOPHER BUTLER MATT CONWAY TEAQUE LENAHAN TOM MANNING TIMOTHY MOREY ANDREW OTWELL NATHAN PERETIC ANDY RUTLEDGE MATT SCHOENHOLZ LAUREN SEROTA SEBASTIAN SCHOLZ
  5. 5My Top 10 Design Business Failures / David Sherwin Client Service Accounting Estimating Studio Capabilities Business Development Studio Culture ProjectManagement DesignLeadership
  6. 6 Realized all of us had the same business failures.
  7. 7My Top 10 Design Business Failures / David Sherwin 1 2 3 4 5 6 7 8 9 10 No quality control
  8. 8My Top 10 Design Business Failures / David Sherwin Misteakes happen.
  9. 9My Top 10 Design Business Failures / David Sherwin We fail in managing clients when errors slip through, and we can’t describe how they’ll be resolved to the client’s benefit. “IT’S OKAY, WE’LL FIX IT! DISCOUNT? FREE SITE? AGH!” “YOU WHAT!!!!!”
  10. 10 1. Determine your role in the error’s genesis. a { text-decoration: none; } a:link { color: #FFFFFFUC a:visited { color: #3c4490 a:hover { color: #5360D8; a:active { color: #3c4490 /* layout */ body { margin: 0; color: #222222; background: #FFFFFF font-family: Helvetica, sans-serif; font-weight: normal; font-size: small; line-height: 150%;
  11. 11My Top 10 Design Business Failures / David Sherwin 2. Gauge the impact of the error to your client and to your project team. MARCH 21 –$2,100
  12. 12My Top 10 Design Business Failures / David Sherwin 3. Write a plan describing how the error will be 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
  13. 13 4. Share your plan with the client, ensuring that conversation around the error is constructive. “DON’T JUST THROW YOURSELF UNDER THE BUS!”
  14. 14My Top 10 Design Business Failures / David Sherwin 5. Execute on the plan as swiftly as you can— without introducing more errors. “WE’RE ON IT LIKE PB ON J.” “HUSTLE!”
  15. 15 6. Record the error in a public manner that’ll help you assess future risk and educate your peers. RIP WRONG PHONE NUMBER 2009 RIP MISSING HOME PAGE 2007
  16. 16 1 2 3 4 5 6 7 8 Working without a deposit 9 Working without a contract 10
  17. 17 “Accounts payable is getting your information into our system… Can’t we just start work?”
  18. 18 “Accounts payable is getting your information into our system… Can’t we just start work?”
  19. 19 UNTIL THE CONTRACT IS SIGNED AND WE HAVE A DEPOSIT “Accounts payable is getting your information into our system… Can’t we just start work?”
  20. 20 “The trick is to turn down work but to have the client remember you as a positive person that they want to work with in the future.” —Fiona Robertson Remley Director of PM, Wunderman
  21. 21 “The trick is to turn down work but to have the client remember you as a positive person that they want to work with in the future.” —Fiona Robertson Remley 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…” —Nathan Peretic Co-founder, Full Stop Interactive
  22. 22 1 2 3 4 5 6 7 Taking on spec work 8 9 10
  23. 23 DAMMIT IT’S YET ANOTHER PERSON THAT’S TELLING ME NEVER EVER TO DO SPEC WORK SO THEY CAN WIN THE PROJECTS I WANT TO BE WORKING ON TODAY SO I’M GOING TO DO SPEC WORK SO I CAN WIN THAT PROJECT WE ARE ALL BIDDING ON AT THIS VERY MOMENT RIGHT? RIGHT?
  24. 24 123 456 789 101112 131415 161718 192021 222324 252627 282930 313233 If you do spec work, you’re gambling away future profit.
  25. 25 50% bid/win ratio™
  26. 26 Spec work will distract you from paid work, and reduce the value of every designer’s effort. Even if you are an in-house group! “WE DO NOT DO DESIGN WORK ON SPEC.” “AS A CONDITION TO HIRING YOU, MAY WE SEE SOME ADVANCE DESIGN WORK?”
  27. 27 Make smarter bets. Mature your business from dealing in spec work: 1. Network yourself to clients that align with your values 2. Move upstream in the client’s process 3. Use time under contention for work you can gain from (money, project leads)
  28. 28 1 2 3 4 5 6 No client approval on milestones 7 8 9 10
  29. 29 Did you leave wiggle room?
  30. 30 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 every major decision in writing. • Get formal approvals in writing.
  31. 31 Shape deliverables for your audience. Creating an executive presentation for the CEO can be a different deliverable than what you send to your regular contact. Plan and bill time for it. CEO VP OF STUFF EVP OF OTHER JUNK OTHER VP YOU DON’T KNOW MANAGERMANAGER MANAGERMANAGER WORKERWORKER WORKER WORKERWORKER WORKER SHOW ME WHAT’S IMPORTANT—WHOOPS, GOTTA RUN! DETAILS, DETAILS, DETAILS… YOU WANT TWO MEETINGS? (ULP.)
  32. 32 Make your deliverables self-contained. Keep asking, “If I’m not here to defend the work, will it still make sense to another potential stakeholder?” VP OF STUFF EVP OF OTHER JUNK OTHER VP YOU DON’T KNOW MANAGERMANAGER MANAGERMANAGER WORKERWORKER WORKER WORKERWORKER WORKER HAVE YOU TRIED RED FOR THE LOGO COLOR? UH, WE HAVE A FEW CHANGES FOR YOU… CEO’S HUSBAND CEO OH BOY. HEY ARTIE, COME LOOK AT THIS…
  33. 33 Always point back to the strategy. Clearly express how the deliverables map back to the stated client and user needs, brief, etc. CEO VP OF STUFF EVP OF OTHER JUNK OTHER VP YOU DON’T KNOW MANAGERMANAGER MANAGERMANAGER WORKERWORKER WORKER WORKERWORKER WORKER GOOD, WE’RE ALL SAYING THE SAME THING GOOD, WE’RE ALL SAYING THE SAME THING GOOD, WE’RE ALL SAYING THE SAME THING
  34. 34My Top 10 Design Business Failures / David Sherwin 1 2 3 4 5 Improper estimating 6 7 8 9 10
  35. 35My Top 10 Design Business Failures / David Sherwin Estimating Process: 1. Project the number of hours the project will require 2. Set a schedule that accommodates those hours 3. Generate costs for resources, based on hourly rates 4. Select a pricing model to match your current business context 5. Translate your detailed estimate into a cost estimate for your client Here’s common mistakes that cause estimates to deviate.
  36. 36My Top 10 Design Business Failures / David Sherwin Estimates need breathing room. All project estimates should include padding. It allows space for the creative process. This padding should 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 OFF BY AS MUCH AS 50%–100% ON A NEW TASK.
  37. 37My Top 10 Design Business Failures / David Sherwin Run numbers by teammates. The surest way to piss off a designer or developer: give them no control of the estimate you provide to a client, then ding them for not meeting the estimate. Solicit their feedback on an estimate before you submit it. “WIRES IN TWO HOURS #FAIL.”
  38. 38My Top 10 Design Business Failures / David Sherwin Include 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 the agency money! • Negotiation over price: to secure a contract without hurting your bottom line You can’t do interactive work without doing this. Project markups are shared with the client. Never cut them out.
  39. 39My Top 10 Design Business Failures / David Sherwin Use actuals as a reference point. If you’re bidding a project that is similar to ones that you’ve designed in the past, always refer to the actual time and money spent fulfilling those earlier projects as a reference point in your estimation process. Ideally, you’ll be able to review your final budget for that project, itemized by task. ?
  40. 40My Top 10 Design Business Failures / David Sherwin Price vendors with the appropriate markup. Depending on how much time you have to pull together an estimate, you may not be able to incorporate hard costs: • Stock photography • Front- or back-end development • QA/testing • Custom photography or illustration • User research honoraria Such services should be listed in your contract as outside the scope of the project and to be invoiced at an additional cost.
  41. 41My Top 10 Design Business Failures / David Sherwin Be paid for managing vendors. Fully consider costs that you will incur, on an hourly basis, 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
  42. 42My Top 10 Design Business Failures / David Sherwin Know the value of a discount. Clients will ask for discounts. The conversation begins 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 me a favor and reduce the cost?” • “Can you throw in a brochure for free?” Clients ask for discounts all the time. Don’t be offended by these requests—just know how to handle them. This is how you learn to negotiate money.
  43. 43My Top 10 Design Business Failures / David Sherwin When should I give a discount? Rarely, and only once with any client as part of a negotiation. Giving discounts can dilute the perceived value of your services, and should never be standard operating 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 through poor prior performance (a slippery slope) However, a discount can only be yielded when you are sure that you can still deliver a strong product that will be successful, on time, and on budget and at profit.
  44. 44My Top 10 Design Business Failures / David Sherwin They want it for less? Then deliver less. If the client keeps trying for a discount, reduce what you are fulfilling for them: • Reduced deliverables • Reduced scope inside deliverables • Direct-to-bill vendors • Revised schedules
  45. 45My Top 10 Design Business Failures / David Sherwin 1 2 3 4 No cashflow 5 6 7 8 9 10
  46. 46My Top 10 Design Business Failures / David Sherwin Do you have enough money in the bank? You need at least 3 months of income banked for operating expenses. Running a business off credit instead of cash is a recipe for disaster. You should save as much money as possible before starting any business venture. Nothing that you do as a business owner will give you more peace of mind than a large savings account.
  47. 47My Top 10 Design Business Failures / David Sherwin Client Name Projected Revenue New Project for MegaCo $2,000 Updates to last year’s LittleCo project $800 Total $2,800 You need to know where potential future revenue will impact your backlog and billings. Remember that this is theoretical! You won’t close every opportunity that’s presented to you. Do you track your project pipeline?
  48. 48My Top 10 Design Business Failures / David Sherwin Do you keep a backlog of work? Try to maintain a 3 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’s schedule to pursue future business and manage a consistent pipeline.
  49. 49My Top 10 Design Business Failures / David Sherwin 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 $500 Why 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?
  50. 50My Top 10 Design Business Failures / David Sherwin 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 January 1, 2009 Invoice 724 Website Design Due: January 31, 2009 $100 61–90 DAYS PAST DUE December 1, 2008 Invoice 721 Website Design Due: December 31, 2008 $100 Outstanding Balance $200 Do you chase accounts past due?
  51. 51My Top 10 Design Business Failures / David Sherwin Do you depend on just one client? No single client should account for more than 25% of a studio’s business. When it happens—and it will!—immediately draw up a list of new potential clients to call…
  52. 52My Top 10 Design Business Failures / David Sherwin 1 2 3 Inaccurate rates 4 5 6 7 8 9 10
  53. 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 YEAR YOU CAN ACTUALLY CHARGE YOUR CLIENTS Do you know your real billing rate?
  54. 54My Top 10 Design Business Failures / David Sherwin YOU CAN’T BILL 100% OF YOUR TIME! Do you know your real billing rate? 80% Creative direction 80% Design 80% Production 80% Project Management 30% Marketing Self-Promotion 10% Administration 60% 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 YEAR YOU CAN ACTUALLY CHARGE YOUR CLIENTS
  55. 55My Top 10 Design Business Failures / David Sherwin Labor cost Fixed overhead Debt Taxes $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 EMPLOYEE Estimate 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?
  56. 56My Top 10 Design Business Failures / David Sherwin Labor cost Fixed overhead Debt Taxes Contingency $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 x 1.5 OF BASE RATE = $115 PER HOUR “REAL” BASE RATE Estimate labor costs like you are hiring an outside employee. Do you know your real billing rate? What happens when you run the numbers?
  57. 57My Top 10 Design Business Failures / David Sherwin Yr biz says: Creative Direction $200/hr User Experience $120/hr Visual Design $120/hr Development $180/hr THESE ARE NOT ALL OF YOUR CAPABILITIES, ESP. IF YOU HIRE CONTRACT HELP. What capabilities are you really billing? Accurate billing is also about future capabilities you might fulfill.
  58. 58My Top 10 Design Business Failures / David Sherwin What 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 you want to grow into. Map them by project lifecycle. Project Commission Resource Allocation VIsual Design Coding Scripting Compat- ability Testing Launch Accessibility Content Population Database Design Functional Specification Copywriting + Editing Concept Development Business Analysis Content Strategy Information Architecture Asset Preparation Technical Specification Usability Testing Code Debugging Search Engine Optimization Acceptance Testing Accounting Maintenance +Improvement SWEET SPOT GROWTH AREA NOT A JOB FUNCTION START FINISH
  59. 59My Top 10 Design Business Failures / David Sherwin 1 2 Not trusting your gut 3 4 5 6 7 8 9 10
  60. 60My Top 10 Design Business Failures / David Sherwin 1 Faking it 2 3 4 5 6 7 8 9 10
  61. 61My Top 10 Design Business Failures / David Sherwin Now, for something completely different… PROPOSAL RESEARCH BRIEF RESEARCH REPORT SITE MAP CONTENT INVENTORY CONTENT STRATEGY CONTENT CREATION MOOD BOARDS UI DESIGN CONCEPTS TEMPLATE DESIGNS THING CLIENT WANTS BADLY WIRE- FRAMES
  62. 62My Top 10 Design Business Failures / David Sherwin My Top 10 Design Business Successes David Sherwin, frog @changeorder / davidsherwin.com 06.24.13 PROPOSAL RESEARCH BRIEF RESEARCH REPORT SITE MAP CONTENT INVENTORY CONTENT STRATEGY CONTENT CREATION MOOD BOARDS UI DESIGN CONCEPTS TEMPLATE DESIGNS THING CLIENT WANTS BADLY WIRE- FRAMES
  63. 63My Top 10 Design Business Failures / David Sherwin 1 Learning from failure + success 2 3 4 5 6 7 8 9 10
  64. 64My Top 10 Design Business Failures / David Sherwin “live your life as an experiment.” —Chögyam Trungpa Rinpoche
  65. 65My Top 10 Design Business Failures / David Sherwin My formula for business experimentation HYPOTHESIS If I take an action for my business, planned results will happen for specific reasons. THEORY When I take that action, I will confirm what results happened and why they happened. PRACTICE After I’ve had the same result happen multiple times for similar reasons, I can operationalize it.
  66. 66My Top 10 Design Business Failures / David Sherwin WORKING WITH CUSTOMERS CLIENT SERVICE BUSINESS DEVELOPMENT PROPOSALS CONTRACTS SPEC WORK POLITICS NEGOTIATION DISCOUNTS EXPECTATIONS DESIGN BRIEFS DELIVERABLES MEETINGS PRESENTATIONS FEEDBACK NETWORKING COMPETITION STRATEGY MANAGING YOUR PROJECTS PROJECT MANAGEMENT PROCESS ESTIMATING BUDGETS SCHEDULES RISK STAKEHOLDERS CHANGE ORDERS TIME SHEETS PROOFREADING ERRORS POSTMORTEMS OPERATING YOUR STUDIO MONEY HOURLY RATES INSURANCE SUSTAINABILITY LEGAL CONFIDENTIALITY CULTURE LEADERSHIP ACCOUNTING HIRING FREELANCE VACATION BRINGING IT ALL TOGETHER PRODUCT MARKET NEED CAPABILITIES PROCESS CULTURE CUSTOMERS STAFF PHILOSOPHY There’s more where this came from…
  67. 67 David Sherwin david@changeorderblog.com @changeorder More about Success by Design: davidsherwin.com/success amzn.to/successbydesign More about business + process of design: changeorderblog.com ©2013 David Sherwin. All rights reserved. No duplication without written permission of the author. Examples shown are for illustrative purposes only, and should not be substituted for hiring professionals forthings like accounting, bookkeeping, and other critical stuff. Be well and let me know how it goes. Thanks!

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