The Business of Being Creative

What Is The Market Telling You?

I read a wonderful article yesterday by Chris Boulton from ThinkLikeABride.com.  Chris focuses on the bridal market and her article was about planners understanding who their actual clients were, not who they hope them to be.

Understanding what you believe is your business' core and communicating it to the market is, no question, of the utmost importance.  But just as important is to listen to what the market is telling you about your business.  Why? Because understanding what clients, vendors, employees and associates value about your art and your business lets you (re)focus on providing that value.

Human nature is to see ourselves as we want to be seen, not necessarily as we are.  So it might be difficult to hear what people have to say, but, as a business owner, you have to.  The reason is simple:  the market will pay the most for what it values the most and vice-versa. 

After you understand what is most valuable about your business, you can decide if that is the business you want to be in.  If it is, then jettison everything else and be known for that which is most valuable.  So, for instance, if you are a planner, but the market loves your design skills -- time to stop planning.  If you are a graphic designer, but the market loves your invitation and wedding designs, time to be in the invitation business.  Jettison? Pretty radical I know, but such the right move.  Focusing exclusively on what the market thinks you do well (which, hopefully, is what you think you do well) will lead to better pricing for your product and/or service, a broader market and a better foundation for the growth/evolution of that product or service.  Continuing to do what the market does not value will only drag you down and distract you from the opportunities right in front of you.

If you can not reconcile what the market values and what you believe your and your business' core is, I am by no means telling you to close up shop.  Just know you will face incredible challenges from your competition who is valued for what you are not.  One suggestion though: separate the "valuable" part of your business as much as you can from the rest.  It deserves a chance to see how far it can go on its own.  Even something so simple as renaming that part of your business.

The Accidental Business Owner

As my followers on Twitter know, I had the distinct pleasure of having 2 teeth removed last night.  Let's just say, I don't do pain.  I tell my wife, Cate, who had both of our children naturally -- the second one at home -- that, if it were me giving birth, we would be talking about why I couldn't have drugs in the 33rd week.

However, as the oral surgeon waited for my mouth to numb, he and the dentist who owned the center started talking in the hall (loudly) about how incompetent the office manager was and how the dentist owner always felt like she had to check up on her.  The dentist owner said, "She is the office manager, after all, isn't supposed to be her JOB to know how to manage the office?".

All I have to say is that God works in mysterious ways, because other than the Ipod blasting, I thought (and thought) about what the dentist owner complained about and the procedure was done before I knew it.

Why write about it here?  Because there is a huge lesson to be learned.  Sort of another take on my last post -- whether you are in a vocation or running a business.  When I asked the owner dentist if she thought she was running a business, she said no, this was just her running her own practice.  Wrong answer.  

She created a beautiful space with 5 treatment rooms (big rent for sure), a slate of dentists, and all of the headaches that come with a business -- operating procedures, payroll, cash management, etc.  It wasn't just her and a rented chair with a common receptionist.  Her office manager was actually a very nice lady, but there was no operating protocol in place.  So every potential patient that called or came in (me included) was like starting from scratch.  Because there was no process, I was left wondering what was next all the time.  If it wasn't an emergency, I probably would have considered not coming back.  

My dentist will have to learn (hopefully, not painfully) that hiring managers does not relieve her of her duty to structure her business how SHE wants it to run -- from the moment a patient calls or comes in, until the work is done (btw, there was no follow up call today to see how I was doing).  Her office manager can then design the flow that she thinks will work and take it from there.  And my dentist can focus on what she definitely does best -- being a dentist.

There's no greater thrill than watching your vocation expand to the point that it can become a business. But, before you leap, know you will have to expand your skill set to go with it.  The business that you and maybe one or two people ran in your home office or tiny studio, will now need customer service protocol, and operating manual, cash flow management, branding/marketing strategy, etc.  You can hire all the staff you want, but if you do not have a grasp on how it should all go when you make the leap -- neither will they.  You have to write the outline, they get to fill in the blanks and then work off the script.  Otherwise, you will waste energy everywhere, be exhausted and exasperated, with not nearly enough at the end of the day to show for all of your efforts.  Just like my dentist.

Do You Have a Business or a Vocation?

I was an economics major in college and took a lot of business courses too.  One was a class in entrepreneurship.  The professor asked how much each of our new ventures would generate in its second year.  Even though it was the go-go 80's, no one said more than $500,000.  The professor asked why we would even want to start the business if it could not do more than $1,000,000 in the second year.  We thought he was crazy.  He told us that starting a business is HARD.  You won't have a life, you will risk everything and you will experience the extreme of every human emotion possible.  And, in the end, 80% of us would fail.  So why do it unless you can earn a proper return for all of your incredible efforts?

What I took away from my professor's lesson is that, if your business is not scalable and leveragable, it is not a business it is a vocation.  Nothing wrong with a vocation -- many people make great livings with a vocation and are happy as clams -- most doctors, dentists and lawyers to name a few.  But if what you are trying to do is create a business with a brand identity that does not need you to operate (and makes money while you sleep), then your focus should be on scale and leverage.

Scale is the potential size of your business:  The realistic size of the market for your goods and/or services, how much of the market you can own, the level of existing competition and what barriers to entry exist.  For most of you, your core businesses are not scalable:  they are intensely person, heavily dependent on your local market and very competitive.

Leverage is your business' ability to operate without your direct supervision.  For most of you, this is not a possibility.  Leverage is also about your brand's ability to extend itself into other related arenas using the strength of its core to gain legitimacy in the new market.

 

So how to find scale and leverage when your core business isn't?  Think about what you know and what clients other than your core market might value your knowledge.  For instance, an event planner, event designer, floral designer, lighting designer consulting with new/unexpected venues in their area to help them improve their space to make it more "event friendly".  An interior designer starting an online retail shop.  A Cake Maker starting a series of master classes and/or selling how-to kits online as shower gifts.  A photographer doing a session for brides and grooms on taking great honeymoon shots.  You get the idea. 

 

Let your art be about the art.  Just let the business be all that stems from the art, not the art itself.

 

Nothing Ever Goes According To Plan... But You Still Have to Have One

For many of you, just getting through all you have to do in a day is challenging enough.  You don't have time for lunch, let alone time to just think about your business and its direction.  And spend time writing it all down?  Forget about it. 

But not taking the time to think about your business and hone your strategic plan, in today's world, is a VERY big mistake.  Probably the surest way to find yourself in trouble much sooner than later.

If I asked the question: who are you and what do you do? how many of you would be able to answer?  If you can't, uh oh.  If you can, would I be able to see who you are and what you do in your marketing materials?  Your customer service?  The clients you get? Your pricing? In the composition of your employees' skills? In how you structure your day? Would I be able to see new business possibilties?  Would I know what market you were in?

By forcing yourself to think about who you are and what you do, you will discover for yourself where you are going -- right and wrong.  You will see the strengths of your business and markets you are reaching that you didn't know you were (or could).  Writing it all down is the best way to pass the smell test.  If your not feeling it when you write it or after you read it back, then you know you have to change it until you are there.

Doing start-of-the-year and/or mid-year strategic plans is wonderful and necessary.  What I am advocating here though is a daily (ok, weekly) practice.  After all, your business is alive, always changing, whether you see it or not.  You are constantly flooded with information -- from your clients, your vendors, your employees and the media.  It is too much to sort through every day, let alone once or twice a year.  What you are doing in January may literally be irrelevant in September.  Without dedicating time in your day to examine all that your business is and how it operates, you are letting the market tell you how your business will run.  For you to succeed long-term, it has to be the other way around. 

So who are you and what do you do?

You Are Your Brand

I would never profess to be a marketing expert.  In the wedding arena, there is none better than Rebecca Grinnals at Engaging Concepts.  She spends her days (and nights) knowing all there is to know about the state of the wedding business, its trends and what are the most powerful ways to market your wedding business.  For general marketing, I am definitely a Seth Godin fanatic.  The man just gets it and I learn from him every day.  I am a sponge though.  I read a lot of blogs, look at a ton of sites and generally try to stay up on what is happening in the world of creative business.  More importantly, I think I understand branding and what makes a brand stand out in a crowd.

You are all so unique, yet, I find it so ironic that, when it comes to marketing, so many of you do what the crowd is doing in order to stand out.  Your sites, blogs and marketing materials generally cover the same topics.  The images you use are lovely, but so often are just permutations on a theme. 

I do so understand the need to tell the world about your business and give those that find you what they need to see what you do.  The only thing is -- you are not selling widgets, you are selling you and your art.  This is as personal as it gets.  I might be proven wrong here, but technology can only communicate your brand to the world, it will never make the sale for you.

You have to be able to communicate the core of your brand in a sentence.  Everything else that you show should just reinforce that message.  You can not and should not want to be all things to all people, nor offer them every array of service under the Sun.  You need clients that fit with whatever you are about.  All of the ancillary stuff will come with the right client.  Putting it out there in such an obvious way will DEFINITELY turn some people off, but hopefully it will also turn the right people on.  If you want an example of someone who I think is doing it really right take a look at Lara Casey and what she is doing with Southern Weddings.

All of this begs the question: you spend so much time and money doing your sites, blogs, FB, Twitter,etc., why are you doing it?  If it is only to tell people that you are out there, I am not sure this will yield you what you need.  Why not put a stake in the ground and let everyone see the essence of who you and your art are?  Then invest your time and money figuring out new and fresh applications to help spread your message.

Outsource -- Can You Afford Not To?

Almost every creative business I can think of has a common problem -- lumpy cash flow.  You have to deal with seasonality and uncertainty as to the number, size and timing of your projects.  When times are good, it is (relatively) easy to overlook the size of your overhead.  The reason is simple: the bigger your business gets, the smaller your overhead looks in relation to sales.  However, leverage being the cruel mistress that she is, makes overhead oh so painful when sales slow.

This is my biggest argument for outsourcing all but the most key components of your business:  you just can not afford not to.  There are a host of other reasons, ability to focus, expand and change direction, to name a few, but they really pale when you look at the cost of carrying too much overhead. 

 

In all of your pricing models you are guessing at what your optimal percentage of overhead is relative to sales in order to yield your desired profit.  If you miss your sales targets, by definition, your pricing model will be off because overhead will become bigger than you assumed.  And if you are missing your targets, odds are you will be facing pressure to LOWER your prices not raise them.  Worse, since many of your projects are long-term, your pricing on these projects will reflect an old assumption on sales.  So, even if you could raise your prices going forward, the business you already priced will still hurt.  Ouch.

 

Cost of Goods Sold are just that, the cost of what it is that you sell (labor, materials, etc.).  If sales are zero, so is Cost of Goods Sold.  By moving as many items as you can into COGS, you do not incur the expense unless there is a sale, and, more importantly, your pricing becomes more certain.  And since pricing is always a function of risk, reducing the risk associated with your pricing will help you remain competitive in today's marketplace.

 

Notwithstanding all of the above, the one person I would not outsource is your Controller -- the person that understands what things really cost -- overhead and COGS.  This is the ONLY person I would trust to price my projects appropriately to the profit margin I target.  The Controller should NEVER be in sales or in any way beholden to them.  She should have a direct link to operations, especially those in charge of purchasing. 

 

Your Controller is also probably the only person that can manage your cash through the natural seasonality of your business and during the tough times we are in.  I mean, how many of us can understand that the money we have in our accounts exists only in relation to what the future will (as opposed to might) bring? Not me -- my entreprenneurial brain just doesn't work that way.

 

 

Customer Service -- You'll Call Them

Once you land your client, how do you go about serving them?  How often do you speak to them?  Who speaks to them?  How do questions, complaints, etc. get handled?

I suspect most of you do not have a customer service and/or a sales department to manage all of your clients.  It's probably you or a trusted employee.  Doesn't really matter, the goal should be the same -- manage your client's expectations by doing what you say your going to do, when you say you will do it and always with the idea of under-promising and over-delivering.  Tell them who they will be talking to and why, but never more than 2 people from your business.  The credo should be the cliche: "the customer is ALWAYS right."  If there is a conflict or complaint it should be addressed immediately, directly and professionally and, with rare exception, in your client's favor.

Your business process will probably not be linear, things might take less or more time than you think, they might cost more or less, and some things you thought might be possible turn out not to be and vice-versa.  The art is to keep your client apprised of all things that are happening with regard to your work for them without going too far or not far enough.  My rule of thumb is that if you think a client might have to make an assumption about what you are up to, then time to communicate where you are directly.  And, by directly, I mean, in the way that they want to hear from you.  Me, I'm old school. I like the telephone, and face-to-face is even better.  But, for many people (President Obama included), texting is it.

In the end, the implied covenant that you made when you took on your client is what is most important -- that you will serve them well and do good work for them.  If you let communication slip, you break your word because now they are left wondering where they stand with you.  Personal touches are lovely -- notes, gifts, etc., but they will not rescue you if you fail to keep the lines of communication open.

So Happy To Be Working With You...Now What?

Most of you are very good salespeople.  Your sites are wonderful, your work is terrific and clients that choose to go with you, I am sure, are totally excited to see what it is you are going to create for them.  Then, of course, comes the question -- "So how do you work"? 

Often, the response is to hand the client a form contract with a bunch of legalese that even the most seasoned lawyer would have a hard time following.  Or you say, let us get started and we will take it from there -- then radio silence until THEY call you to see what is going on.

I know I am going to sound patronizing, controlling, etc., but your client should never be able to have their own opinion about how you work.  You should be able to walk them through your entire business process in 5 minutes and give them a clear idea of what it is they should expect from you and when.  It should be in writing, be warm and completely user-friendly.  One of my favorite event planners literally writes a four page, single spaced letter to all of her potential clients.  It goes through, in plain English, all that she is going to do for them, what she won't and the general timeline.  Terrific.  How you follow through is the subject of another post, but it is so important to set the stage first. 

If you don't explain your process, two things will happen: 1) your client will have a voice in how you run your business and 2) your business will appear smaller than it is.  Both are going to impede your ability to grow.  If your clients don't know your process, they will set the boundaries and expectations, not you.  Inevitably, they will set them further than you will feel comfortable and you will wind up feeling taken advantage of in some way.  Next, if clients don't feel like there is a business structure behind you, they will have their doubts on your ability to deliver.  They might excuse your lack of business skill because of the power of your art, but is that really what you want them going away with?  What you want them telling other potential clients?

I am not saying that you need to be rigid in your structure, just that you need to have one.  In the end, noone wants to be told, "just trust me", we want to be able to see why it is that we should trust you.

Maybe It's Not Just The Economy That Has Changed...

The worse the economy gets, the easier it is to point to it as the root of everything that might be going wrong with your business.  It isn't.

In 1999, a partner and I started a business called Red Wine With Fish?.  We delivered price fixed gourmet three course dinners to professionals on Wall Street who worked late.  For a time, we really thought we had something.  The economy was booming, everyone was working crazy hours and companies were happy to pay for their employees' $25 dinners.  We decided to expand our space and (over) build a kitchen to support all of the new business that would continue to come our way.  With the new kitchen we thought it would be a snap to get into the lunch delivery and corporate catering business serving all of our dinner customers.  So we raised money from family and friends, borrowed more and shut down the business while we built our kitchen.  Needless to say, construction took longer than we thought and was twice as much as we expected.  We had almost no working capital when we reopened.  Customers still loved our dinner business, but lunches and catering not so much.  The tech bubble popped in early 2001 and the economy really started to slow down.  Companies weren't so happy to pay for their employees' $25 dinners any more.  We had to lower our prices to what the companies would spend, face competition from restaurants that figured out what we were doing AND we had huge overhead to pay for.  Then 9/11 happened and, in an instant, everything changed.  The kitchen was 2 blocks from the Trade Center and suffered no damage at all, save for some spoiled food.  Most of our customers left for Midtown and those that stayed weren't exactly happy to be working late.  We closed a year and a half later. (The blunders I made during that time and the painfule life-lessons learned are the subject of another post).

 

So why tell the story?  Because, for a long time, I said that 9/11 was THE reason for RWWF's demise.  It was a huge game changer, no doubt.  But it wasn't THE reason.  Our growth ideas were based on expansion into hugely competitive areas where we had no advantage over existing well-established players.  Our own market was pretty limited in terms of growth potential.  Competition grew and the economy went south.  Add onto all of it the incredible risks associated with running a business based on perishables.  This with no money.  Would we have survived with no 9/11 -- who knows, but likely not.

 

The recession is horrible and a game changer, but it is not THE reason your business is suffering (if it is).  Advancements in technology, the Internet and Social Media over the last 5-10 years have removed almost all barriers to entry for most of your businesses.  Competition is fierce and the ability for customers to differentiate among you is now so much easier than even say 5 years ago.  And your markets haven't exactly exploded during the same time, save for maybe interior and graphic designers.  Like 9/11, all the recession is doing is exposing latent fundamental shifts that are only going to grow.  Don't tell yourself that you will be ok when the economy improves.  You won't.  Instead, look at your market and your business relative to that market and ask what changes you can make now.  Focus on lowering fixed expenses.  Outsource as much as you can -- let people do what they do best so you can focus on what you do best.  Then think about how what you do is unique to your market and how it might apply to other markets.  As Rebecca said in her tweets yesterday, there is now a huge flight to quality with brands that represent authentic value.  Be one of those brands and be ready to evolve.

More on Pricing -- Nuts and Bolts

I often have to figure out what to charge for any particular good, service, license, sponsorship, etc.

My general approach to pricing is to start from the top down as opposed to cost plus markup.  This is really spelled out in Blue Ocean Strategy -- one of my absolute fave business books.  Basically, it is the difference between what do you want to make (top down) vs. what can you make (cost plus).  

Creative businesses either 1) provide goods (florists, stationers, lighting professionals, rental companies, bakers, etc.), 2) services (event planners, musicians, makeup artists, hairdressers, etc.) or 3) both (event designers, interior designers, graphic designers, photographers, etc.).  

Those that provide goods typically command the lion share of the budget for any particular project, BUT they also have the most risk associated with them (ask any florist whose flowers died the day before the event) and the highest fixed overhead (need a workspace, machines and staff).  Those that provide services don't usually have a lot of fixed overhead (most only need a phone and a computer), BUT have to manage their and their staff's time effectively to earn a proper return.

So my rule of thumb is that those providing goods need to have net margins of between 15% and 25% depending on the size of the business.  Those providing services between 45% and 65%.  If your business has been around a while and you are not achieving these numbers, time to take a look at your pricing.  Practically, if you are a florist and you are doing $500,000/yr. in business, you should be profiting at least $75,000 after all is said and done (including your salary).  An event planner doing $200,000/yr. should be making at least $90,000.  For those with goods and services, the rule is the same and the percentages should shift based on the composition of goods and services in your business (hopefully, you are working to make more of your business about services).

I love multiple revenue streams and vertical integration of a business (an event planner owning a rental business) and it should be the goal of every business, creative or not.  The more diverse your revenue streams the easier it is make it through the tough times we are in.  If you don't have multiple streams yet, no time like now.  However, I would only be looking to add a service business to any existing creative business.  The reason is simple -- if it works, it will be very helpful to your bottom line and, if not, it won't hurt the existing business that much.  I don't like adding a goods business unless it can IMMEDIATELY be profitable to you.  The drag on cash flow will often overwhelm your core business before it gets a chance to help your bottom line.

Lastly, in today's economy, the temptation to find volume through referral agreements, set rate contracts and the like is enormous.  Please resist.  You will only wind up adding to your fixed overhead and will probably not make any more money.  More important, these deals will also divert your focus from your core business (and brand) and the new (and far more profitable) opportunities that await you.  Start a new service instead.