123 days ago
6 Reflections After 3 Years of Business

After a few years of dabbling on the side, I finally started my business in earnest in 2009. My timing was questionable, given the Great Recession was in full swing, but I knew it was then or never and if I didn’t pull the ripcord at that moment I likely never would.

All of the intervening time since then has been one great rush of doing. I put my head down, started forward, and focused exclusively on what to do next, what to do next, what to do next. When I looked back, I looked back to learn and correct, not really to reflect.

So it was a pleasure at the end of December to finally take a deep breath. 2012 in particular had been a non-stop year going from one project to the next to the next, often three or more in parallel. In December, I had time and space to really reflect on what I’ve learned in the last three years and thought I’d share my thoughts with the wider Internet. Read them with this caveat: they are mine, based on my experience and the particulars of my business (boutique software consulting) and my goals. Yours may be different in any number of ways.

Results

But first, so you know if you should take me seriously or not, the results. I’m inspired by Patrick McKenzie’s year end reviews with full revenue numbers, but as he seems to have learned in his 2012 review, you can’t really give out numbers as a consultant without aggravating your clients. So, instead, below is a graph of profit and loss with numbers removed, just so you can see magnitudes and get a feeling:

There are a few things to take away from this graph:

1. Consulting has wild revenue swings. This is partially a consequence of the billing cycle, where I bill at the beginning of the month and invoices are due after 30 days. Sometimes clients are a few days late so what should really be in one month ends up being recognized in another. But it’s also a reflection of reality. Business just has a lot of ups and downs.
2. On a yearly basis, we have at least doubled revenue and profit each year
3. There’s a big dip the last three months of 2012. That’s mostly due to a change in focus I initiated in October that we’re only gaining traction on now. Plus, when we were super-busy in August-September, I completely neglected business development and marketing. I’ll get to that below

2012 was our busiest year yet. All told, we completed twelve significant-sized projects in eleven months, added 2 full-time employees, and kept 4-6 people busy at any given time.

So, now, on to the learning.

Always Be Selling

Consulting has a 3-4 month sales cycle from the time you have a promising conversation with someone (“yeah, we really need you guys, let’s get this started right away!”) until the time you sign an actual contract. This caught me by surprise in 2009, but eventually I got used to it. Practically speaking, what that means is you have to start looking for the next project way before you’ve finished the current one and you can never stop prospecting. I made one big mistake in 2012 and that was neglecting this constant business development when I got too busy in August and September. You can see the results of that neglect in my revenue chart. I made that mistake on purpose, with my eyes open, because I was just too exhausted. But I wish I’d figured out a way around it.

Goal for 2013: Never drop the ball on business development again.

Have Courage

Above anything else, running a business requires courage. We throw around terms like “courage” haphazardly so let me be precise about what I mean: courage, in business, means doing everything you can to plan, still having serious (but vague) lingering questions about your ability to pull it off, and continuing anyway without holding back. Having courage doesn’t mean doing things you know will fail (“we’ve tried this twice before, it failed both times, and this time looks exactly the same”). That’s just being stubborn and careless and failing to learn from your mistakes. What I mean is something more like “My projections say I have enough cash in the bank if A, B and C happen. I know A will happen, I think B will happen, and I don’t know how C will happen but 1) nothing will obviously prevent it, 2) I’ve done everything I can to facilitate it and 3) I haven’t thought of an alternative. So I just have to hope C will happen, somehow.”

I take (or fail to take) these leaps all the time. And they never get any easier. You may see people you admire and think they are fearless, but I can tell you they are not fearless, but they are courageous.

Goal for 2013: Grow the company enough to feel just a little scared all the time.

Back Yourself Into a Corner

Nothing is better for focusing the mind than “having to” get something done. It snaps you immediately out of analysis paralysis. My original plan in 2008, when preparing to launch, was to gradually increase my side work until I had enough in the pipeline to quit my job without any interruption in income.

That was a complete fantasy.

Finally, I realized two things: 1) prospecting for new business is a full-time effort, and 2) I really hate hitting people up for work and probably won’t do it unless the alternative is telling my wife we’ve got to sell the kids to the circus. And I was right; the second I was unemployed (without a single gig in the pipeline) then sending that prospecting email to a friend of a friend’s acquaintance became 50x easier. In fact, while I was terrified of prospecting when fully employed (“That’s so embarrassing! What if they say no? They’ll laugh at me. I’m such a jerk.”), my attitude took a 180 turn the next day. It became no more uncomfortable than eating, because I had to do it to survive.

Goal for 2013: See goal for “Have Courage”.

Know Yourself

I can’t function in a low-margin business. It requires an attention to detail and adherence to a formula that I just can’t muster. I need big, messy, uncertain (aka. high-margin) problems that haven’t been solved before and have no formula. In college, I was always at the very top of the curve in classes where the average test score was 33% and always in the lower middle of the curve when the average score was 85%. I just get bored and sloppy when I know there’s a formula to follow.

For example, if I ran a McDonalds it would be a complete failure. Buying into a McDonalds is an almost sure-thing money maker but it requires sticking to a formula to cross that thin line from red to black. And I am constitutionally incapable of doing that.

Luckily, I knew this about myself before I started or I would have made some really poor decisions early on. Admitting to these personality quirks wasn’t easy for me but it was a lifesaver.

Goal for 2013: Figure out what else I’m fooling myself about.

Watch Out For Chasing the “Idea” of Something

There’s a very fine line between wanting the “idea of” something and actually wanting that something. This is especially a problem when starting a business. You have to ask yourself honestly if you are more in love with the idea of having a business or if you genuinely just want the world to have what your business provides. Here’s a good test for yourself: which gets you more excited, seeing your sharp new business cards with the title “Founder” or actually solving your client’s business problems? Be honest with yourself, you’ve more human than you want to think.

Fighting the love of an idea rather than its execution requires constant vigilance. I have to fight it constantly. If I hadn’t fought it, here’s a list of things I would have done too soon in the cycle of my business:

• Leased an office (though we do have one now and, yes, having one is quite an ego boost)
• Hired people (though we have done that now)
• Bought cool-looking, logo-branded swag to give away
• Taken out lots of AdWords
• Sponsored things I couldn’t afford just to see my name there
• Deep-dived on any number of cool, but irrelevant, technology stacks
• Spent way too much on business software, computers and other stuff. (That first “Dell Small Business” catalog was a ridiculous ego boost)

Goal for 2013: Find a solid customer problem to solve and get deep enough into it to forget I’m running a business at all.

You Must Have Solid Contracts

I did a side gig in 2008 that should have netted me $14,000. I’m still waiting for that $14,000 today mostly because I put together a foolish contract. Since then, I have done a much better job and never start work without a signed, solid contract. Clients may ask you, “ok, can we just get a little head start while I clear the paperwork through legal? There’s no way it won’t go through.” I’m here to tell you that there are plenty of ways it might not go through. If you can get a purchase order number, that’s even better because it proves the financial machinery has been kicked and prodded into motion.

As a close corollary to this rule, you should know that a surprising number of businesses won’t pay you on time unless you nag them. Nag them politely, but nag them firmly. And the larger the company, the worse they are about paying on time.

Goal for 2013: Just keep it up.