My Top 10 Design Business Failures

1
My Top 10 Design Business Failures
David Sherwin, frog
@changeorder / davidsherwin.com
06.24.13
PROPOSAL
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CONCEPTS
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THING
CLIENT
WANTS
BADLY
WIRE-
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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
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
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

5My Top 10 Design Business Failures / David Sherwin
Client
Service
Accounting
Estimating
Studio
Capabilities
Business
Development
Studio
Culture
ProjectManagement
DesignLeadership

6
Realized
all of us had
the same
business
failures.

1
2
3
4
5
6
7
8
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10 No quality control

Misteakes happen.

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
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%;

2. Gauge the impact of
the error to your client
and to your project team.
MARCH
21 –$2,100

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
4. Share your plan with
the client, ensuring that
conversation around
the error is constructive.
“DON’T JUST THROW
YOURSELF UNDER
THE BUS!”

5. Execute on the plan
as swiftly as you can—
without introducing
more errors.
“WE’RE ON IT
LIKE PB ON J.”
“HUSTLE!”

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
1
2
3
4
5
6
7
8 Working without a deposit
9 Working without a contract
10

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

18

19
UNTIL THE
CONTRACT
IS SIGNED AND
WE HAVE A
DEPOSIT

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
“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

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

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
123
456
789
101112
131415
161718
192021
222324
252627
282930
313233
If you do spec work, you’re
gambling away future profit.

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
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
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2
3
4
5
6 No client approval on milestones
7
8
9
10

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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
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
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
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
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
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

1
2
3
4
5 Improper estimating
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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.

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.

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.”

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.

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.
?

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.

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

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.

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.

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

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4 No cashflow
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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.

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?

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.

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?

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?

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…

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2
3 Inaccurate rates
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10

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?

YOU CAN’T BILL
100% OF YOUR TIME!
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

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.
But… Where does profit fit in?
What if I can’t find enough work to fill 1,080 hours?

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.
What happens when you run the numbers?

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.

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

1
2 Not trusting your gut
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4
5
6
7
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10

1 Faking it
2
3
4
5
6
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9
10

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

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

1 Learning from failure + success
2
3
4
5
6
7
8
9
10

“live your
life as an
experiment.”
—Chögyam Trungpa Rinpoche

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.

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
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!

My Top 10 Design Business Failures

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