Archive for the ‘Lifestyle Entrepreneur’ Category

Re-branding Products, Services and Companies

Posted by Mike Taber on November 9th, 2009

The past several weeks I’ve been giving a lot of thought to the work associated with and the consequences of re-branding something. In part, I’m talking about my Blog but also some of the products that I have developed and some of my services offerings through my consulting company. The process made me sit down, think about re-branding in general, and do some research. Here’s what I learned.

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Why Should You Re-brand?

There are a few different reasons to re-brand a product, offering, or company. The first is to shed a negative image. On May 11th, 1996 a DC-9 flown crashed in the Everglades killing 110 people. The airline that owned the plane was ValuJet. They were grounded by the government for three months following the incident. When they were given permission to begin flying again, they found it very difficult to attract customers because the public perception was that their low fares lead to shoddy maintenance and ultimately the crash. In 1997, ValuJet purchased a competitor that was one-third their size and re-branded the entire company to use the name of their newly acquired competitor. That company was AirTran.

The second reason for re-branding is to attract new customers. Sometimes even the name for a product doesn’t quite make sense. It’s unwieldy and doesn’t quite roll off the tongue. In early 2007, a company called SimulScribe was selling voicemail-to-text software and felt the company name was holding them back. They received a lot of their business from word of mouth referrals, but the name was difficult to spell and didn’t roll off the tongue.

They hired a re-branding consultant which ultimately didn’t work out. Eventually, the founder came up with the new name while on his own during a flight from LA to New York City. That name was PhoneTag. They had some challenges, but the new name seemed to work out really well. Their daily sign up rate is up 40% and the number of customer referrals has tripled. The only downside to the re-branding effort was not doing it sooner.

The third reason to re-brand is to focus your efforts, either because you didn’t have focus in the past, or because you’re trying to appeal to a sub-market. Many manufacturers re-brand their products to enter a lower end segment because they don’t want to dilute the value of their core brand or don’t want the new brand to be dragged down by the old one. For example Lexus is well known as a luxury car, but it is owned by Toyota. Dexxa is the name on low priced computer mice, but is manufactured by Logitech. There are a lot of other examples, but the key component here is making sure that the new brand doesn’t have a negative effect on the old brand or be influenced by the old brand.

Problems With Re-branding

Re-branding is a difficult thing to do correctly. It’s easy to change the name of something. It’s much harder to make it work to your advantage and in exactly the way that you intend. One of the difficulties with re-branding is striking a balance between attracting new customers, and alienating old ones. This applies whether you’re re-branding a product, a service or a blog. In a way, readers of your blog are customers. They have been attracted to your site for one or more articles that were written and subscribed for the same reasons. Re-branding can alienate some of them because you might not be focused on what originally attracted them, so some attrition is going to occur.

The same is true for products or services. A balance must be struck between going too far in the re-branding effort, and not far enough. How far you should go is dictated by your reasons for re-branding. If it is to shed a negative image, you will need to do a complete overhaul. If your intent is to attract new customers, then a mid-level change is required to strike a balance. And if you simply want to reinforce your brand with the existing customer base, then perhaps a fresh coat of paint will suffice.

No matter what, you need to have a plan moving forward. Without a plan, the re-branding process will not be as effective as it needs to be to make it work.

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So all of that re-branding mumbo-jumbo was a lead in to this. What follows are the efforts I’ve taken thus far, and will take in the future to re-brand my blog. I’ll post about some of my other re-branding efforts in the future, but one thing at a time.

Subscription Methods

In the past, I only offered RSS as a subscription method, but within the last month or so, I added the ability to subscribe via via email using Google Feedburner as the back end. It’s worked out well enough so far, and I’ve only had one person unsubscribe since I implemented it at the end of September. He or she might have switched to RSS, but I don’t know for sure. Other email subscribers have trickled in, but I suspect that people prefer to use RSS to manage their subscriptions instead of email. I’ve gathered a lot more RSS subscribers in the past 4 weeks than email subscribers. I’ve also started using and in only a week with absolutely zero marketing, I have a modest following of about 20 people already, none of whom I’ve ever met face to face.

The reality is that I have no good way of tracking whether I’m really getting the message out about being a single founder and running your own company from the comfort of your own home. I know others are making taking a similar journey and making it work, but I feel that the journey itself is just as important as the destination. I’d like to share that journey with as many people as possible and measuring subscribers is a much better indicator than unique website visitors.

Face Lift

Next, is obviously the face lift itself. I implemented a new theme, but the categories need to be changed up a bit because the new theme has them listed across the top of the menu bar and doesn’t display all of them. There’s a few cleanup items to do concerning the excerpts on the main page and adding a few descriptive pages to the site, but it looks a lot better than the previous SimpleX Wordpress theme I was using. I have a list of things that I’m working through right now.

New Domain Name

Perhaps the most significant change I’m making is to focus the content of the site more on how to build a business consisting of a recurring revenue stream as a single founder company, which some refer to as a solopreneur. About 2 years ago, I blogged about trying to land the singlefounder.com domain, only to find that someone else registered it a few days before I had. It had been on my radar to snag the domain name for months, but I waited because I was an idiot. Actually, I felt that I didn’t have the time to go about doing something significant with it so wasn’t willing to shell out a mere $10 for a domain when I wasn’t ready to use it. That’s prudent for some things, but not domain names.

Anyway, I contacted Scott Preston, who had purchased the site immediately after he registered it. He is a fellow blogger based in Ohio, has written a book on programming robots using Java, and seems like my kind of techie. Unfortunately, he wasn’t terribly interested in selling the domain as he had some of the same ideas I did about building it out into a place where people could leverage it as a resource for building single founder companies. Fast forward two years and he still hadn’t done anything with it. In fact, it didn’t point to a server at all. I considered making him another offer, but decided against it. I don’t know what he would have sold it me for or whether he would have sold it at all. In the end, Scott didn’t bother to renew the domain and I ended up buying the domain name as it expired without forking over loads of cash.

I’ll give the story behind how to buy expiring domain names in the next couple of weeks, but I think you’ll find the process interesting. I also managed to snag miketaber.com using the same method. If you don’t want to miss that story, subscribe now using either RSS or email. *hint* *hint*

More Frequent Blog Posts

For those of you who have been following me for the past few years, you’ll have noticed that since 2007, I’ve been rather absent. I’ve had a lot going on. I’ve added two children to my family, expanded my company, contracted my company, ridden an economic boom, suffered through the economic slowdown, opened an office, closed an office, and finished a Masters degree, among other things. It’s a lot to deal with, but I think I’ve learned how to manage it all moving forward. This past month, I’ve started writing a lot more and you can expect more of the same as time goes on. If you’ve lost faith since 2007 that I would shed some light on running a business as a single founder company, my apologies. I aim to right that wrong ASAP.

On that note, leaving comments or questions helps keep me going. If you want to help keep this blog going and appreciate the advice, distraction from reality, and general edutainment that it gives you, just post to the comments. It’s virtually no effort on your part, but does a great deal for my motivation to continue.

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In any case, I intend to move forward with the singlefounder.com domain name to provide a real identity for my blog and to reflect my goals for the future. I’m still a tech geek at heart. I love writing software, I really like interfacing software and hardware; doing cool geeky things is fun, but doing fun stuff doesn’t provide the lifestyle that I want. At least not yet it hasn’t.

I’ve been self employed for more than 4 years now and I’m not quite where I want to be. I’ve come to realize that I know exactly why I’m not. It’s because I lost focus of my goals. I used to post my goals at the beginning of each year. I did it in 2006 and again in 2007. Somehow I got off track posting those goals in 2008 and 2009, but realistically I got off track long before then. You see, once the consulting business started to take off, I never reviewed the goals I had written to begin with. I just ran off into the weeds without looking at the map I laid out. Bad Single Founder, no donut! It’s time to change all that.

In a way, I feel like PC guy in the Mac commercials. “This time it will be different. Trust me.”

But this time it will be different and for one very important reason. My life has changed, and my new goals reflect that. Back in 2005 when I started my journey toward self employment, I had one goal in mind, which was to run my own company and not have to work for someone else. It’s been 4 years now and I’ve been largely successful with that. It hasn’t been quite as smooth as I would have liked, but it has worked out well enough so far. Now I have a new goal which simply builds on the previous one.

My Next Goal

To transition my situation from offering consulting services to offering software products.

Over the past several years, I’ve traveled a lot for work, averaging about 3 months of every year on the road. It was fun at first. I flew all over the US from Minneapolis to southern Texas. From Boston to Vegas. I even did work overseas, flying to Paris, Athens, San Juan and working with a client out of Australia. I’m married, but the money was great and the wife understood what I was doing. Then I had two kids.

It’s a lot harder to leave two kids at home when they’re so young, because they grow up so fast and I feel like I missed quite a few things; like rolling over for the first time, the first few steps, the first hand wave, the first high five, etc. I probably would have missed them anyway, regardless of how I was making ends meet. But at such a young age, they learn to do so much in a week that I felt like I missed a lot more than I should have due to my travels. Besides I really liked traveling at first. I loved it even. It’s very exciting to fly into a new city or country, explore it as much as you are able in the time that you have, and then go off to something new. It just doesn’t work for me anymore.

So my new focus is to run my business completely from home to spend more time with my family, while making what I hope will be a substantial living doing it. It’s going to take time to put all of the different pieces together, but this blog will serve as the place where I document the journey, my successes, my failures, and the tools I use to get there.

The nice part is that I have a much more substantial network of people to help me than I did several years ago. I have software and hardware infrastructures in place from my consulting company, and at this point, I understand what it takes to maintain a company and grow it.

I will post my concrete goals in a blog entry next week, so stay tuned for more detailed information. Just one other quick hint before I go. Subscribe to this blog. I promise that I’ll make it well worth your while as I describe in detail my successes and failures on this expanded journey.

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Outsourcing for Entrepreneurs

Posted by Mike Taber on October 13th, 2009

If you’re an entrepreneur, you should try to outsource as much as you can possibly get away with.

In the tech industry, ‘outsourcing’ is a dirty word. Outsourcing. The very word invokes thoughts of high technology jobs being sent overseas from the US to be fulfilled by people in India or China. This is seen to be unfortunate for tech workers in the US. It’s a widely accepted misconception that if you don’t speak English well, then you’re somehow less intelligent. If you don’t speak English at all, you’re somehow better off than if you spoke it poorly. No English means you never learned and it’s not your fault. Poor English translates to idiocy. This is obviously wrong, but I digress.

What many people don’t realize is that outsourcing is an entrepreneur’s best friend. Now, before you track me down and smash my car headlights with a baseball bat, let me explain what I mean.

Most businesses outsource various functions and it’s widely accepted as standard practice. Don’t believe me? Go look up the definition of “outsource“. I’ll wait.

Done yet? I didn’t think so. Seriously. Go read the definition, it’ll take you 10 seconds and prove the point I’m about to make.

Basically, the definition of outsource is to subcontract work, to contract work out, or to obtain goods or services from an outside supplier or source. While in the paragraph above, I mentioned outsourcing from the US to China, that’s not in the official definition at all. The idea of outsourcing to China or India are connotations of the word that we have become accustomed to. To help out the every day entrepreneur, I’ve put together a list of five things you should always outsource which illustrates the areas for outsourcing that you can clearly benefit from as an entrepreneur.

1) Payroll – You can do your own payroll, but it takes time and effort. You can also be on the hook for any mistakes that you make. Is it worth it to do it yourself? In my experience, it isn’t. Payroll services from either ADP or Paychex will only cost you around $25 per pay period. If you assume it would take you an hour to do the work, then $25/hour isn’t a bad price. If it would take you 2 hours, then this is an absolute bargain. Unfortunately, as companies expand beyond one employee, the cost increases for each employee and it can add up quickly. Most companies still outsource this function, if for no other reason than to shift liability and to get the benefits of direct deposit.

2) Tax preparation & Accounting – I still do my own accounting, mainly because I feel like I need to have a solid handle on my business finances. On the other hand, I haven’t done my own taxes in ten years. I remember the first year I owned a business and tried to do my taxes on my own. Ten hours later, I wasn’t even half way done. I cut my losses and paid H&R Block to do them from scratch. It took them two hours and about $350.

3) Health/Dental care – I’m not going to bother buttering you up with this one. I know some doctors self diagnose and all, but I’m hardly a qualified physician, and even if I was, I can’t write myself a prescription for Vicodin, as nice as that might be sometimes.

4) Website/Email hosting – Website and email hosting is one of those situations where if you know enough about running your own server to be dangerous, you can easily make the wrong choice. There are a lot of things you need to think about if you’re going to host your own website and mail servers. I’m not referring to colocation or dedicated hosting. I’m referring to running a server out of your basement/office that is publicly accessible and hosts critical business services. There are so many things that you need to worry about. Sure, it’s cheap enough to take an old computer that’s lying around and slap a Linux distro on it, but what about a static IP address? It costs a lot more for that. How about UPS backup systems? Tack on a few hundred for a good one. And what happens when the power goes out for two full days? Your measly UPS isn’t going to cut it. I actually considered doing this for a while to save myself an extra $50/month and eventually decided against it. When your business depends on things like this, it needs to be reliable. There are plenty of low-cost alternatives out there.

5) Legal services - This is basically the same as health/dental care. You’re just not qualified to do it. If you know what to look for, you can certainly cut down on the amount of work that your attorney has to do by pointing out your concerns, but don’t think that you can completely replace him. There are nuances to the law that you’re just not familiar with.

There are certainly many other things that companies outsource, but this list clearly illustrates a number of areas where most companies outsource services and don’t think twice about it and you should too. These forms of outsourcing are perfectly acceptable because for most companies, it is not the core business to provide health or dental care for anyone, let alone company employees. The same goes for payroll services or utilities. Last I checked, I wasn’t aware of any company that had a giant hamster wheel in the back of the factory where workers could run to turn a generator so the lights would stay on in the warehouse. For the record, if the “employee hamster wheel” ends up in a Dilbert cartoon, I want the credit.

There are two fundamental reasons why a company chooses to outsource a particular task or job.

1) It is not your core competency.
2) It is not cost effective to perform the task in-house.

Obviously, if you don’t know how to do something, then you should outsource it. But number two is a lot trickier. Most entrepreneurs know how to do a great many things. That’s why they’re entrepreneurs. The trick is being able to differentiate between what you need to do yourself, and what you could do but makes more sense to outsource from the standpoint of either time or money. I’ve been giving a lot of thought to what time really means to an entrepreneur. Time is far more valuable than money. Once spent, you can’t get it back. I read that somewhere once, so I won’t be taking credit for it. But it’s so very true. If you know where that came from, please leave a comment and I’ll give credit where credit is due.

The bottom line is that if you have the ability to outsource a job or task, you should seriously consider it if doing so is going to save you time or money. What are your thoughts?

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The Lifestyle Entrepreneur

Posted by Mike Taber on February 15th, 2007

Some 20 years ago, I knew I wanted to own my own company. At the time I couldn’t differentiate between being the CEO of a company and owning the company. As the years went on I began to realize the differences, but it never changed what I wanted. Throughout college, I watched as many of the people I knew seemed to be doing just about anything they wanted after starting their own businesses. They had nice houses and drove nice cars. A $200 bar tab on a Thursday night was no big deal, even on a regular basis. They did what they wanted, when they wanted, and didn’t let the little things stand in their way. It seemed like quite a nice life to lead, but how to get it was always the question. I mean, knocking one of them off, taking over the business, and snuggling up to their lady friend wasn’t exactly an option. At least not a reasonable one.

As I graduated college, the sad realization eventually crept into the dark recesses of my mind that I’d have to do somehow manage to put together a successful business myself. But where to start? Do I really want to do all that work? Wouldn’t it just be easier to stash my money away and invest it over time, gradually dragging myself out of the lower class of society? The short answer was no. The longer answer was that money was not the problem. I had a well paying job in Rochester, NY where I made more than twice the median household income. My rent was a mere $250/month and I regularly spent between $2,000 – $3,000 every month on miscellaneous ‘crap’ ranging from new computer equipment, to very nice dinners at 2 Vine down by the Little Theater, new DVD’s for my collection, several road trips, an interesting vacation to Trinidad, and frequent outings to the bars.

But I wasn’t particularly happy. I made more money than most of the people I hung out with on a regular basis. I never had a problem getting a date, whether it was the weekend or not. I generally did whatever I wanted and whenever I wanted. So what was the problem? Very simple. My 20 year old dream lay unfulfilled.

On the surface, this idea seems to be a bit foolish. Why break your back starting a new business if you already have the financial freedom to do pretty much anything you want? Why indeed? The bottom line is that money doesn’t equal happiness. There are a lot of things we developers want more than money. That’s not to say that we don’t want money at all. It just means that money isn’t everything. Somewhere out there, someone has an uncontrollable urge to email me to tell me how wrong I am or call me and scream like a madman “Forget happiness, show me the money!”. That person is probably living paycheck to paycheck and just barely getting by. Sooner or later, your circumstances will change. Then you’ll understand that when you have enough money to live comfortably, other things become more important.

As I was saying, my dream lay unfulfilled. I wanted something different, but I still didn’t know what. I just knew that making more money than most of the people around me wasn’t making me happy. I moved to Boston where I worked at a venture capital funded startup company. After a year and a half, it was bought out. The company founders cashed out a short time later and retired. To many developers, this is a dream come true. You work hard for a few years, your company sells for millions, and you can retire to do anything you want.

From a strictly financial point of view, this is a great way to become financially independent if you can pull it off. I think that if given the option, most people would sacrifice two or three years of working very hard for an amount of money that was from five to ten thousand times more than they would make in their entire live at a typical job. Alas, not every startup company is successful. The truth of the matter is that very few company founders are really that lucky and many walk away from the experience with not much more than their paycheck and battle scars.

This process appears to be more about luck than anything else. If it were indeed based on skill, there would be groups of people who did nothing but churn out successful companies every 2-5 years. The few people who have several successes to their credit seem to be an aberration in the statistics rather than in possession of an abundance of business savvy not found elsewhere. You would be hard pressed to find anyone who thinks that government run lotteries are skill based, yet people have won large prizes multiple times. Are they more ’skillful’ than other lottery players?

The answer is no. Admittedly, this is a somewhat poor example, as venture capital funded businesses (VCFB’s) have the ‘collective wisdom’ of all of the investors who must think something is a reasonably good idea. And they’ve seen other business plans than yours, so there must be some experience that they’re drawing on to make that determination. The people executing the business plan also have some degree of experience. On the other hand, playing the lottery is just blind luck. The point would be better made if it were compared to a card game such as poker, where elements of both skill and luck are present. You can be well acclaimed as the best poker player in the world but if you bet it all and your rookie opponent has a straight flush, you’re probably going to lose and it doesn’t matter how good you are.

An example of how bad luck can play a part of the process is available from just a short time ago. Kiko was a web based calendar funded by a Boston based Venture Capital group called Y Combinator. Obviously, people thought that a web based calendar was a good idea. Then Google released their own calendar. In short order, Kiko closed up shop, sold the source code and moved on to something else. Paul Graham, one of the VCs behind Y Combinator, stated “This is not an expensive, acrimonious flameout like used to happen during the Bubble. They tried hard; they made something good; they just happened to get hit by a stray bullet.” Getting hit by a stray bullet is what I would call bad luck, which merely emphasizes the role that luck can play.

Thus far, we’ve determined very little more than the idea that having money doesn’t mean you’re going to be happy and that a VCFB can make you filthy rich. But if you are filthy rich and you’re still not happy, then it doesn’t make any difference how much money you made. So if all that money isn’t going to make you happy, why should you bust your ass for anywhere from 2-5 years, working 60-80 hours/week only to end up unhappy at the end, or worse: unhappy and without all that money you tried so hard to make. Until you decide what is truly important to you, you should wait before starting your business. That is true whether you plan to self fund your business or whether you want to pursue venture capital funding and shoot for making gobs of cash.

Scene from Office Space:
Peter Gibbons: Our high school guidance counselor used to ask us what you’d do if you had a million dollars and you didn’t have to work. And invariably what you’d say was supposed to be your career. So, if you wanted to fix old cars then you’re supposed to be an auto mechanic.
Samir: So what did you say?
Peter Gibbons: I never had an answer. I guess that’s why I’m working at Initech.

If you’re anything like me, you’ve realized that money isn’t everything. There are other things that are far more important and money is a means to an end, not the end itself. The reasons for starting your own business vary widely from one person to another and while some people choose to start their own business solely for financial reasons, a much larger percentage of people choose to start a business for lifestyle reasons.

What is a Lifestyle Entrepreneur
A Lifestyle Entrepreneur is someone who has decided to build a business to make a living and satisfy his own personal motivations. Personal motivations will vary from one LE to another. One LE might start his own business to cut down on the travel that he must endure to spend time with his family, while another LE might start his own business to increase the amount of travel she must do in order to see the world. Still others might decide that working in the corporate world has essentially sucked their will to work there any longer and set out to build a company where they want to work instead. A Lifestyle Entrepreneur doesn’t start a business to work less. It’s a lot of hard work, especially in the beginning. But assuming you’re reasonably successful and good at what you do, you can eventually set things on cruise control and coast along, living the life you want while not reporting to people whom you probably never liked much anyway.

I started Moon River Software out of a burning desire to be in control of my own destiny. Recently, I had a consultant on site who was amazed that we worked from 8am-5pm. Currently, he works from around 6:30am to 6pm five days a week. He also works at least every third Saturday, sometimes every other Saturday. Thanks, but no thanks. I’m not going to work ghastly hours for someone else’s benefit when I’m not getting anything in return other than gratitude. I wouldn’t expect my employees to submit to that either.

In the past, I’ve watched as corporate projects stretched for days, weeks, or even months in just the design phases while people decided what they wanted to do. Meanwhile, I sat idly twiddling my thumbs waiting for someone to make a decision so I could get some work done. I’ve done this so many times I could be captain of the U.S. Olympic Thumb Twiddling team without a problem. It goes without saying that the ability to make a decision and just run with it is also what drives me as a Lifestyle Entrepreneur.

Something that many people overlook is the money aspect of being an entrepreneur. Just because I’m a Lifestyle Entrepreneur, that doesn’t mean that I don’t want to make money. Far from it. I want to be financially successful just as much as the next guy, but I also want to be in control of my future. In Massachusetts, employer rule comes first and all employees are at-will. Which means the company can fire you at any time, for any reason, or for no reason. The current unemployment rate in the US is hovering around 5%. It’s safe to say that the vast majority of people lose their job at some point in their lifetime. Whether you get lucky and are laid off from your high school job and that’s it, or are laid off after working for Kodak, Xerox, and Paychex in three consecutive years is a matter of luck. My little brother was seven when he ‘lost’ his first job. He used to take the trash out for a nice lady in town who was a friend of our grandmother. Eventually, the woman died, and he wound up ‘unemployed’. Don’t think it can’t happen to you.

As the business owner, the company could fold and I’d be out looking for a new job, so owning the business doesn’t make me untouchable. This way, I’m at least in control of the situation and wouldn’t be blindsided by a corporate cutback or a corporate buyout that I didn’t see coming. For many people, being laid off is what helps nudge their entrepreneurial spirit out the door. The cold steel door of the corporate office slamming behind them is a reminder of what can happen when they aren’t in control. With the average American family having only about $3,800 in the bank as of a year ago, losing your job can be terrifying on many levels. If you have time to plan for it, at least you could make ends meet. But to lose your job without warning is going to be a bit stressful.

Something that’s really nice about being a Lifestyle Entrepreneur is that the only person you need to work hard enough to please is yourself. You don’t have investors peering over your shoulder, questioning every action, or every business deal you make. So long as you’re making ends meet for the business week in and week out, the pressures of being the business owner are minimal. You aren’t bound to impress others, or make shareholders happy. Your quest lies with making ends meet such that it fits your lifestyle requirements. Anything beyond that is considered to be profit.

How do I know if being a Lifestyle Entrepreneur is for me?
If you’re asking this question, then you’re on the right track. The best way to find out is to ask yourself just one simple question. Am I happy? If the answer is a definitive no, or “I’m not sure”, then you should write down what’s making you unhappy and figure out whether owning your own business would solve those problems. If owning your own business won’t solve those problems, then don’t start a business. Over the course of my career, I could have made the following list of things that was making me unhappy, and most of them were associated with my job or my career.

1) I don’t feel like I make many meaningful decisions at work.
2) The hours of this job interfere with what my life is really like.
3) I’m not empowered at my job. I spend most of my time waiting for other people to make decisions before I can get any real work done.
4) This company is making tons of money and they’re too cheap to buy me a decent chair or a decent computer.
5) I have no idea where the future of this product/company is going. No one else seems to know either.
6) That lazy, good for nothing $&*#$*#. Am I the only one who sees this?
7) I don’t get paid enough to deal with this garbage.

If your list of gripes looks anything like this and you want the power to get these things fixed, then being a Lifestyle Entrepreneur could be for you. I left out a lot of personal things that were goals rather than gripes. For example, several years ago I wanted to own my own house. But when your rent is only $250/month, it’s hard to justify a $1,250+ mortgage. I wanted the house, but not the mortgage and that just wasn’t going to happen. Don’t be afraid to put personal items on your list. It’s not as if you’re publishing them like I am here. But don’t think for a minute that personal things don’t affect your happiness. If you’re in the middle of a divorce, it could get ugly, and a job change isn’t going to make a difference. On the other hand if you don’t see your kids enough, then starting your own business could be the change that you’re looking for.

What do I need to be a Lifestyle Entrepreneur?
I’m not going to lie to you, becoming a Lifestyle Entrepreneur is hard work. Making ends meet isn’t the easiest thing in the world to do. There are a lot of naysayers who try to bash the Lifestyle Entrepreneur, while misunderstanding what it means to even be a Lifestyle Entrepreneur and attempting to further their self interests. My favorites are the people who say that a single founder business can never work. But I know a lot of people who are doing it quite well. I can name a half dozen off the top of my head and know at least a dozen others whose names I’d have to check my email to remember.

The most common factor among all the Lifestyle Entrepreneurs I know are passion, drive, and common sense. Even when things don’t seem to be going well, the ability to buckle down and do what needs to be done has kept these people going and has kept their businesses afloat. The ability to persist in the face of failure is essential. There will always be someone out there who will tell you that it can’t be done, or that your way isn’t going to work. Who are they to tell you that? I bet nobody ever thought it was possible to build a multi-billion dollar business starting in a college dorm room, but Michael Dell did it. Nobody ever thought you could build a computer business in your garage but Steve Jobs and Steve Wozniak did it. I read time and time again how I’m going to end up failing because I’m running a single founder company.

Whenever someone tells you that something isn’t possible or isn’t a good idea, try to look at it from their point of view so you can understand why they might think or say that, knowing that they’re not necessarily the same reason. Just this past week, I announced Moon River Software’s Goals for 2007. Within 24 hours, I received an email from a friend warning me of some of the pitfalls of my future plans, specifically in reference to Goal #2 of Moon River Software no longer accepting or doing contract work. While I certainly appreciate that he was willing to share his own experiences, there was no cause for alarm. A quick email to him privately explaining the circumstances and he quickly understood what I was doing and that it made sense.

The bottom line is that you know your business better than anyone else. For someone else to look at your business without knowing everything and tell you that it’s not going to work is somewhat ludicrous. When you look at it from their point of view, ask why they think that. Are there things you know that they don’t? Are you willing to share those things? And while you should take their warnings with a grain of salt, you should never disregard them entirely. It’s quite possible that they’re right. You could be so tied to your business plan that you just don’t see how people wouldn’t want an Oompa Loompa doing their dishes, nevermind the fact that every Tuesday, the kid with a marble up his nose disappears for a week. After all… the dishes are clean and the house is quiet. What’s not to like?

Where to now?
If you’re considering starting your own business, my advice to you is to stop waffling and get started. Mike’s first law of business applies here. A business not doing anything will continue not doing anything until you get off your duff and start pushing. Once you’ve started, you will find that over time it becomes easier and easier to keep your business going day in and day out. Just make sure you remember that getting it rolling will seem impossibly difficult. Every day, make an incremental improvement in your business. Eventually, instead of pushing your business forward, you can guide it from the sides as it rolls down the hill. The avalanche of success will eventually follow.

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How to bootstrap a consulting business

Posted by Mike Taber on October 2nd, 2006

In my previous article, I received a question in response to “Myth #1: I need to get VC funding to make my company successful.” I was asked to explain what it really takes to get a consulting company off the ground. How much money does it take to start a consulting company? How much constitutes a “little bit of money“? This is a great question, so let’s start at the beginning.

The Beginning
Starting a consulting business is no different than starting any other software company until you get past the paperwork stages. You file with the state, open a bank account, get a domain name, and do all of the typical software startup things. In fact, on paper a software company and a consulting business are exactly the same. You’re going to need hardware, software, developers, time, and a little bit of money. There’s that phrase again. How much!

I don’t think many people realize how easy it is to start a software consulting business. I started Moon River Software with about $5,000 and a couple of credit cards which I barely used. The plan was to start out consulting while writing software products on the side. When software sales exceed consulting revenue, it’s time to switch from consulting to full-time product development. That hasn’t happened just yet, and it will not happen for quite a while, but the software sales are slowly growing. The money that I had saved up didn’t go to software, hardware, or many of the other things that you might think. It went into my pocket. So, I put $5,000 into the company and promptly started giving myself paychecks.

Does that seem strange? Of course it does. That money should have gone toward resources that the company needs. Something important. Not back into my pocket. Right? Not so fast. For a consulting business, the lifeblood of the company is the incoming business, measured by the hourly rate times the number of billable hours. Guess what? You don’t get paid until the work is done. So, just like switching jobs, you need to have some money in the bank to help you get through what I call the paycheck gap. What schedule did your old company pay on, and what schedule does your new business pay on? Some companies withhold one full paycheck, which depending on the schedule could be 2-3 weeks. If the company pays on a monthly basis (and some of them do!), you might not see a paycheck for quite a while. Even if you want to pay yourself every week, chances are that you can’t because the business hasn’t made any money yet.

The Paycheck Gap
The Paycheck Gap is the time period when you must perform a careful balancing act between cashing incoming checks, writing checks for your own payroll, and sending money to pay business credit cards or other debts. The biggest problem with a consulting business is that there is a net terms payable agreement. That means that after you bill the company you do the work for, there’s still a lag between when you’ve done the work and when you get paid. Let’s say you start a job on June 1. On June 14th, you’ve done two weeks of work and you bill them. If the net terms are 2 weeks, you might expect a check around June 30th. That means an entire month has gone by and your company has had no income until you get that check. That’s hard.

To make matters worse, net terms of 15 days are not very common. Most companies use net 30, net 45, or even net 60. That means that even after you’ve done 2 weeks of work, it could be an additional 4, 6, or even 8 weeks before you see a check. That puts you into late July or even early August! The larger the company, the longer the net terms tend to be. This means that from the time you leave your old job to start consulting, it will likely be 6-8 weeks before you see a check. I’ve done work for companies that only allow you to bill them the last 3 days of the month. I did a two day job for a company the second week of last December. In addition to not being allowed to bill them for another 3 weeks, I had to wait another 4 weeks on top of that to receive my check. Total time from work complete to receiving a check: 7 weeks.

Let me make one thing perfectly clear before we go on: Do not expect your clients to pay early. Period.

You might get paid a day or two early. If there are quarterly or yearly accounting audits going on, you might expect a more timely payment. But there is only one situation I know of in which they will pay significantly early, and that’s if you start giving them discounts for doing so. In that case, you’re offering them an incentive, and are cutting their costs. If you’re desperate for the money, offer a 1%-2% discount for paying early and 9 times out of 10, you’ll be paid quickly. Otherwise, you’re going to have to wait.

Why does a 2% make a difference? Say you’re charging them $2,000/week. A 2% discount will save them $40. And for what? Writing a check a little earlier than it needs to be written. Accountants are penny pinchers for a reason. That’s what they’re paid for. Cash on hand is great, but if they can save $40 by writing a check a week early, they’ll do it. Because over the course of a year, saving 2% each week on your invoices alone could save the company more than $2,000 total. Arthur Anderson, eat your heart out.

Back to my example of not being paid for 7 weeks. That’s almost two months before you see any money for your business! Not only is that timeline typical, but who is to say that you’re going to be paid on time? What will happen to your business (and you) if you aren’t paid on time? What happens if you aren’t paid at all? Don’t think this will never happen to you. It happens to a lot of people and it very nearly happened to me, so be on your guard.

The Paycheck Gap ends when you are receiving checks from your clients on a regular basis.

Catch Up Mode
Once you have cleared the Paycheck Gap you are on your way to being successful. What happens is that your business will turn from being forced to survive on peanuts in the short term to what I will call ‘Catch Up Mode’. This is the time during which your business must issue back paychecks to you on a regular basis, typically for work done anywhere from three to nine weeks ago. Moon River Software’s Catch up mode period was six weeks of back paychecks.

Many people will be tempted to start paying off any business credit cards they have accumulated balances on, just to prove that their business has no debt. Take my advice. Don’t. Give yourself a paycheck and try to catch up on your back paychecks. Not paying yourself first is seriously demotivating. It seems like everyone is getting paid except you. Forget about the fact that you’re going to be paying interest on some purchases. Forget about the fact that your balance sheet could be closer to zero liabilities. Your salary is a big liability, and receiving paychecks is a huge morale booster. You start seeing the profits of your labor, and the fact that your efforts are actually paying off. Pay yourself first is typically a strategy used for retirement savings, but it works extremely well when growing your business. If you are constantly paying everyone else first, there will be very little or nothing left for you.

During this time period for Moon River Software, I had more than enough money in my bank account to pay the credit card bills for the equipment I was buying, but instead let the bills linger while the cash sat in my account and instead went to my payroll. Why? Well, my business credit card gave me a 0% interest rate on all purchases for one year, starting in October. Guess what? I had no incentive to pay them off early. Instead, the money went to me in the form of paying off the money I loaned the company to get off the ground and in terms of my payroll. In fact, I just paid off a $10,000 balance that I’ve accumulated over the last year because in October, interest would have started to accumulate. Had they offered me a discount to pay it off early, I would have.

At this point, if you’re running your consulting business properly, then you’re making a profit every week, and will slowly catch up with your payroll. In the case of MRS, every two weeks that went by I caught up by another week or so. Once you’ve caught up and are writing checks for payroll every Friday for work completed the week before, you will start logging a legitimate profit. Now you can put money away for those times when you will not be working, be it because you have taken a vacation, or are between clients.

Just to be clear, the billing cycle between you and your business is different than the billing cycle between your clients and your business.

Profit
It should go without saying that being profitable is a bare minimum requirement for running your business. If you’re not profitable, you’re going to go out of business, plain and simple. At the end of every quarter, you read about companies who log tens of millions of dollars in losses every quarter. The first quarter of this year, GM posted a $323 million dollar loss. That’s a lot of money, by any standard. How do they keep going you ask? How could they possibly stay in business while losing $323 million in a single quarter. That doesn’t even count the previous five quarters where they also logged losses of more than $1.3 billion the year before. Yes. Billion with a ‘B’.

Let’s switch gears and talk about the profit stage of a company. I think here is where a lot of people get confused about the long term goals of a company. As soon as a company is profitable, the owners start thinking about all kinds of things that they can do. Buy more equipment, hire more people, get a bigger office space, increase corporate benefits, buy gadgets and gizmos for employees as rewards, etc. These people have lost sight of the true goal of the company, and there is really only one.

Your primary goal is to stay in business.

Now repeat those words with me. “My primary goal is to stay in business”. The single best way of ensuring this is setting up a rainy day fund. Financial planners the world over recommend that individuals should have no less than a 3 month safety net. This is money in the bank for you to pay your bills, your mortgage, car payment, meet your monthly expenses, live a little bit, and still be able to make ends meet for at least three months with no income. You need to do this for your business. And not just for the founders. For every employee in the company, founder or not.

Rainy Day Fund
Moon River Software recently crossed the six month Rainy Day Fund threshold. Right now, in the business bank account I have enough money to cover all corporate expenses, including the office lease, payroll, internet access, colocation server costs, phone bills, and several thousand dollars in additional ’surprise’ expenses for six months with zero additional income. The business has zero debt beyond this months’ credit card bill and upcoming payroll expenses. It’s been said that running your own business is one of the most stressful things in the world. With this Rainy Day Fund behind me, running my business is one of the least stressful things in my life. I know that I can screw up all kinds of things and still be in business. Here’s why.

Let’s go back to the example of GM and figure out how they’re still in business. Their loss of $323 million in the first quarter of 2006 was on revenues of $52.2 billion dollars. Let’s assume they did the same thing that I did, and could theoretically operate for 6 months with no income. That would mean they had over $100 billion in the bank. Losing $323 million is a mere 0.3% of that. For arguments sake, lets triple that loss and say they instead averaged a $1 billion loss every quarter for the next X years.

With a $100 billion Rainy Day Fund, even losing $1 billion every quarter, they would still be in business for the next 25 years. Yes, that’s correct. 25 years! Isn’t that impressive? Between you, me and the engine block, GM doesn’t have that kind of money to spare. They’re in pretty poor shape. I think that untrained monkeys could do better by flinging poo against a ‘Corporate Strategies’ mat on the wall, but that’s why I work for myself instead of GM.

The point I’m trying to make is that once you get a 6 month Rainy Day Fund under your belt, you’re in good shape. Now is the time that you should start looking to expand your business, hire more employees, buy more equipment, and do all those other things with your money. While large corporations measure success on a quarterly basis, I would recommend measuring it every other week. Every day or every week is too often, and once per month is probably not often enough. Here’s why every week is too short.

If I bought a new laptop this week because my old one died on me, it would set me back about $3,000. By spreading out this expense over multiple weeks, my profit margin will be much lower for those weeks, but longer term, the profit is still there. If I were measuring my corporate progress on a weekly basis, adding $3,000 worth of expenses in a single week could kill my profitability curve. Depending on how much my consulting income is, it could put me into the red that week. Measuring every other week tends to smooth out the wrinkles in the curve. When you start hitting millions of dollars in revenue every year, that’s when you can measure every month or every quarter. Until then, stick to every other week.

Summary
No matter what niche market you’re trying to serve with your consulting business, you don’t need a lot of money to get started. All you need is enough income to get you through the next six weeks or so, and the willpower to not melt down into a steaming pile of mental ward biomatter. If you make your situation clear to your first couple clients that you need a reasonably fast turnaround on the first couple of invoices, most of them will be willing to help out a little bit. Push for 10 or 15 day net terms. If you negotiate well, this won’t be a problem.

The hardest part about the process is having the willpower to make the leap into being self employed. After that, it’s really not that hard.

Special thanks to Rob Walling for reviewing drafts of this article.

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