28 Feb 2007
As I mentioned in my last post, the business is growing and there are more things that I'd like to do without time to do them. I've been using a couple people part-time for a while now, but their time is limited since they each have full-time jobs and we're somewhat limited on what tasks we can work on together because of it.
This has led me to think a lot in the past couple months about hiring my first full-time employee. Here are some of the questions I've tried to answer before deciding whether or not to take that step:
Do I want to grow?
My answer to this is not an immediate "yes". There are a lot of things that I like about being a one-person business, and there are a lot of headaches that come with having even one employee. I've had a number of recent conversations about this with a web designer and consultant here in town, and it's something that (at least for now) they've both answered "no" to. (You can read some of Ian's answer here).
The alternative to not growing is of course to deliberately hinder growth by not accepting new clients and/or tabling new initiatives. There's a lot of sense to that option, but I feel like that could be more detrimental in the long term — hindering growth could keep the business from being able to withstand troubled times, even though expanding too quickly could certainly cause problems of its own.
Do I want the additional expense?
From a financial standpoint, hiring an employee is a huge risk. Along with having to pay someone's salary (every two weeks on schedule), I'll have to pay benefits, buy them new equipment, and get a place for them to work. Roughly speaking, this means that my expenses are going to double. And if I can afford that, I naturally have to ask myself if I can just take that amount as additional income.
But really, the financial considerations are moot since if growth continues I'll have more work than I can physically and mentally handle. It's not an option for me to plan to work every night and weekend so that I can pocket the additional money.
Do I want to manage employees?
Something else to consider, which in some ways is more important than anything else, is whether or not I have an interest in managing employees. Skills that enable me to work well with customers and develop applications apply very little towards managing employees.
I know a lot of people who would feel completely out of their element if they had to write a review or talk to someone about poor performance. My worst managers have been those who didn't like their jobs, and I wouldn't consider hiring someone for a second if I felt like it would cause me to stop loving my job.
How many employees?
At Bottled Software, my first company, we started with five people and enough business to pay the salary of one. This is a gross over-simplification, but basically our thinking was that we couldn't land the type of projects that paid five people unless we had that many on staff. The strategy failed since we essentially increased staff before the business grew.
I've learned my lesson, and don't plan on repeating the mistake. These first few years are critical, and I'd rather err on the side of growing too slowly than growing too quickly. The only thing that makes sense to me at this stage is to hire only when revenue can support the additional expense.
I read about a small web design business in Nashville the other day and it sounds like we share the same strategy:
A challenge they faced as they grew was the expense hit that each of his early hires created had on the income statement. Expenses never grew in a straight line, but in significant steps as each new programmer was added. This created a major cash flow challenge. He met this by being very conservative in cash management. He never hired until he had the money already coming in to pay for the new employee. Also, he always keeps 90 days of cash reserves to cushion any unexpected downturn. During growth keeping this reserve took careful planning. Both of these tactics restricted his growth to some degree, but they also helped him to grow at a pace that he could afford to pay for.
I've decided to post a job opening for a web developer in the next week or so. If you know someone who would be a good fit and wants to work on some exciting projects let me know.
I'm also curious to know what you think — would you hire in my situation? How do you want your business to grow?
26 Feb 2007
Recursive Function is a year old now, and it's exciting to think about how far it's come in the last year. I think now is as good a time as any to provide an overview of the business, and reveal a little bit about what's working and what's not.
Developing custom web-based applications for clients has accounted for about 90% of revenue and most of my time so far. I've been very blessed in that this side of the business is healthy and growing. Even though I didn't put together any hard projections a year ago, I think it's fair to say that where I am right now has exceeded my expectations. I was pessimistic about my ability to find and acquire new clients, especially since the company is new and started as just one guy working out of his home office. It's not that I thought it'd be impossible, but I assumed that I'd still be struggling to find good clients and that more of my income would come from other sources, such as subscriptions from my web applications.
I've done work for a little over a dozen clients so far, and one of the surprising things is that only a few of them are businesses that I had any kind of relationship with before I started. I've worked on web development in the area for about 10 years, so I have a number of former clients and contacts at other firms that I expected I would be getting the majority of business from. However, most work has come from people I've met within the last year and a couple bigger clients are ones who weren't even a degree or two of separation away from pre-existing contacts.
I've not only been blessed with finding new clients, but with finding clients that I enjoy working for. My biggest clients so far have been startups, and they're working on some pretty interesting ideas with technology that I work with every day. I couldn't ask for more.
Generally speaking, I see that businesses are struggling right now to find good independent developers. And there are a lot of web-based startups stuck in the idea stage because they can't find any skilled, cost-effective developers to help them get running. As businesses' web development needs continue to grow and new startups are formed, I only expect this will provide more opportunities for the business in the future.
I don't mean to make it sound like everything has been rosy, or that it will be forever. It took about 4-6 months for me to hit my stride and find steady custom development work. And there's no guarantee that we're not at the edge of another bubble burst. But I'm happy with how things have grown so far, and am excited for things to come.
I launched Formstack a year ago to some decent buzz, but it took a while to see any significant revenue. It grew slowly but steadily for the first 8 months, yet the last few months have seen a sharp jump in new subscriptions. I can go into this in more detail in another post, but I feel like that recent growth is the result of a site redesign, small marketing tweaks, and the introduction of a number of key features.
While revenues are slightly below what I hope for, the growth hasn't been very far off from my expectations. I had always suspected that growth would be slow in the beginning and would take some time before taking off. I've written before about the myth of the overnight success story — it's easy to look at a few popular web sites who seemingly sprouted up overnight, and think that's the norm. Yet it's all but a lucky few that find success that way. The rest of us need to keep working at it one customer at a time while constantly building and tweaking.
To illustrate further, here's a graph showing the number of paid subscribers over the last 9 months. Each dot represents the number of paid subscribers at a 2 week interval:
Continued growth won't be easy though. There's certainly a lot of competition as new form builder solutions are sprouting up and older ones improve their offerings. I'm also at somewhat of a disadvantage since I don't spend most of my time on this side of the business.
However, all things signal that there's a lot of potential and the site is still very much in the early stages of it's growth. I'm encouraged by the fact that I frequently get notes from customers who are thrilled to sign up, many who love how much it's simplified their work. I also have a lot of great ideas for growing the site, and certainly haven't lost any enthusiasm for continuing to work on it.
This site has generated the most buzz of anything I've built, and made a handful of blogger's "top Web 2.0" lists. However, subscription revenue barely covers the cost of running the site. I'm not surprised by this — I don't think that a monthly subscription model is right for this service. The greatest evidence of this is that I'm pretty sure that I wouldn't pay for a subscription, and I'm in the site's target demographic. Furthermore, I've purposefully made it easy for people to use the site without paying or even signing up for an account.
I had higher hopes for the site from a financial standpoint, but I never built it because I thought it'd be a big revenue generator. I built it because I was desperately longing to use the service — everything else I'd tried beforehand had terrible success rates or was incredibly difficult to use. I saw that I could create the basic service for minimal effort, and it had a number of technical challenges that would be fun to tackle. So because of that I don't see it as a failure. After all, I get a free subscription :)
I haven't put a lot of development into it over the last few months, but continue to support it and plan to run it for a long time to come. But to be honest I'm not sure what's in store for the site over the next year. There are a number of key features that I'd really like to introduce, and some other business models I want to experiment with, but all that's contingent on my available time.
This first year has been a very exciting one, and I haven't for one second regretted starting Recursive Function. It's certainly had it's share of challenges though, but I love what I'm doing and plan to do it for a long time.
As I've mentioned, I feel like I'm emerging from a bootstrapping mode where I built a business from scratch out of minimal resources. I'm entering a new phase where the business has a growing reputation and customer base, with resources at a point that I at least don't have to worry as much about where the next paycheck is coming from.
I'm confident that this next year will be even more exciting. I'm working on some interesting projects with clients, and have some new ones coming soon. I also have a lot of ideas that are clawing to get implemented, and I can't wait until they get out.
This all leads me to the question of how to manage the growth. I'll talk more about that in a couple days....
[Updated references to Formstack to prevent confusion about the name change]
06 Feb 2007
I read an article today (by way of the Freakonomics blog) about a coffee shop that doesn't put prices on any of their food or drinks — payment is strictly voluntary.
I can usually form a firm opinion about a business model within a few minutes (and there are a lot of times when I'm wrong), but I just can't make up my mind about this one. I think this could either be a doomed experiment from someone who has money to burn, or a genius idea (no in between).
Here's why I think it's genius:
- The shop gets a ton of publicity, especially compared to the amount of publicity that any old locally owned coffee shop opening up across the street would get (zero).
- They will attract a lot of new visitors who want to use the experience as a psychology experiment: "would I feel too guilty if I stiffed the shop on payment?" This woman felt so guilt for not paying, she drove back and paid double what she would have.
- Their overhead involved in coffee sales is very low, and there's a lot of potential for high ticket, high margin ways to make money of customers sitting around in your store drinking inexpensive coffee.
Here's how it could fail:
- When the publicity and novelty wears off, only the customers who are attracted by the possibility of low/free prices would remain. The customers who would gladly pay $5 for a cup of coffee would do so because of the quality of the product or the setting, which might not necessarily be at Terra Bite Lounge.
- Owning a coffee shop sounds a lot more glamorous than it really is. Even if the experiment is initially successful, the owners are still left with a coffee shop to run.
- They're battling Starbucks, who has 11 stores in Kirkland, WA (population 45,000). Starbucks is already winning their battles against local coffee shops, and they're doing so in spite of having higher prices.
Of course, if the owners do have the money to burn, then there's no fault in running the experiment. And they're pledging to donate profits to charities, so that would be a win-win if successful.
What do you think? Doomed experiment or genius business model?
21 Jan 2007
I couldn't help but feel bad for Peyton Manning today when I saw the front page of today's Indianapolis Star. What kind of pressure does he feel when he sees the "The Biggest Game of His Life" fill the front of his hometown's Sunday paper?
Contrast that to the front page from the Lowell Massachusetts Sun exclaiming, "In Brady We Trust."
When I've found myself at critical intersections it hasn't done me any good to focus on the "make or break" nature of my goal. On the other hand, it makes a lot of difference if I know there are people in my life that trust me to see it through.
It's a good thing Peyton didn't let the pressure get to him today. :)
05 Jan 2007
I found a post by way of Doug, challenging bloggers to write about 50 things they learned in 2006. It sounded like fun, so I decided to give it a try:
- Speaking objectively, my son is the cutest baby in the world.
- Anything left on the floor will be licked or eaten.
- He will not be content to just sit on my lap and watch me type.
- Being a dad is a lot more fulfilling than I had imagined.
- Moose and Zee are funny.
- Starting a business is a lot easier than it seems — the most challenging parts are psychological.
- Having a supportive wife is one of my greatest assets.
- I'll spend a lot of time on things that I didn't anticipate.
- I won't spend my time on the important things unless I force myself.
- It's not easy to figure out what the important things are.
- I can make a decent living on my own.
- Doing what I love is reward enough.
- What used to look comfortable can look risky after taking the leap.
- Diggs are fun, but they don't bring the people who are ready to buy.
- Most people have never used Digg, del.icio.us or Flickr.
- YouTube can be addictive.
- Customers don't care that what I'm using is called Ajax.
- It doesn't get easier to deal with the vulnerability that comes with publishing a blog post or releasing software for the public.
- It's important for me to write regularly.
- It's important for me to consistently read books.
- Sometimes I can be more productive in the long run if I just walk away from the keyboard and watch an episode of The Office.
- Efficiency starts with a 3200x1200 pixel display resolution.
- Working barefoot increases brain power.
- Patience is key to success, despite what hype I hear otherwise.
- Daniel Negreanu is one of the best poker players in the world.
- Deep stack tournament poker is way more fun than any structure I've ever played.
- 10 days is too long to vacation in Las Vegas.
- I will always want to return to Las Vegas.
- 2-7 Triple Draw is fun.
- Our elected representatives just don't understand.
- RSS feeds are an essential tool for professional development.
- I shouldn't take on projects just because times are slow.
- I shouldn't turn away projects just because times are busy.
- In a lot more cases than I'd thought, it's better to spend a lot of money than a lot of time.
- Custom software can save me a lot of time and money.
- Fry's really isn't all that much better than Best Buy.
- Providing great customer service is worth it, no matter how hard it is.
- Great help desk software makes a lot of difference.
- Marketing is a lot harder than it seems.
- It's almost impossible to find great contractors.
- There are a lot of customers who have been looking for a long time.
- A lot of things are tax deductible.
- It stings a little less if I don't wait until April 15th.
- ING is the best place to have a savings account.
- I can't compete against Brock when it comes to LinkedIn.
- Maintaining a good network is important.
- A lot can be learned from a great small business forum.
- Blogging can be a rewarding experience.