The Business of Being Creative

Blackberry Shmackberry

The Internet and all the wonders of the digital age have made staying in constant communication a no-brainer.  You stay in touch with your friends, clients, employees, vendors, etc. with just a few thumb strokes.  So often though, creative business owners use technology as their primary tool for management. They use their PDAs to solve every problem, answer any question and generally be incredibly responsive to the issues that arise in their business.

The problem for me is that managing this way without firmly establishing good old face-to-face communication techniques and protocols paves the way for fragmentation and disfunction.  If you have set up your structure properly, you will have natural tension existing between departments.  This is a good thing as it will breed the best result.  For instance, sales wants to close the deal, production wants to make sure it can produce what is sold.  Technology can depersonalize the process as to actually prevent problem-solving.  Just too easy to hit the send button without being present to the response.

I loathe organizational meetings for meetings sake as they tend to go nowhere.  But, given a specific agenda, parameter (every manager has an equal voice) and time limit (no more than 30 minutes), they can set the stage for a well-oiled machine.  From there, technology can help implement all that was set in motion at the organizational meeting.

Apart from having to look each other in the eye and respond to each other, organizational meetings also force managers to think.  Think about what is happening in their world -- what can be done better and what is working well.  Reflection creates action as opposed to reaction and, if not action, then at least a reasoned response.

Managing Cash Flow

For the first several years of its corporate life, Amazon lost money -- a lot of it.  Yet, it didn't have to constantly raise money to stay alive.  In fact, Amazon really didn't have to raise much money at all.  How did Jeff Bezos do it?  Slight of hand? With a secret money tree? No -- with huge positive carry.  Amazon gets paid up front but doesn't have to pay most of its vendors for up to 90 days (probably longer now).  Its only current expenses were overhead and current cost of borrowing which were negligible relative to incoming cash flow.  Of course, this was not a long term strategy and was predicated on the company actually becoming profitable, but the positive carry gave Amazon time to grow into itself.  In effect, Amazon borrowed from its vendors (mostly book publishers) to finance its business.

In a perfect world, creative businesses would be able to operate without need of carry and each project would sustain the business on its own until the next project.  Problem is most creative businesses have lumpy cash flow that is seasonal to boot -- you get infrequent big payments concentrated in a specific time of the year.  And most of you either don't have positive carry or don't take advantage of it if you could.  You find yourself with large expenses against months when you have little or no cash flow.  When the cash finally does come, some (or most) of it goes to paying for past expenses.  So begins borrowing from the future -- a place you NEVER want to be.

Obviously, survival is survival and if you need to use future cash to pay for past expenses -- ok.  This is a limited strategy, though, especially if sales stay flat or, worse, decline.

If your business is a profitable one at the end of the year, a main goal of yours should be to smooth your cash flow.  Instead of big slugs being paid by clients, try to get more frequent smaller payments, front loaded as much as possible.  A small incentive by way of discount is often worth it.  Work with vendors to delay payment until the time of the event and, in special cases, after the event is finished. 

Just know that managing cash flow is its own art.  You need to (or better yet, hire the right person to) allocate the cash you receive to your payables and overhead to the right bucket with an obligation to not mix the two.  Depending on the time of year, which bucket gets filled will be based on priority of payment.  However, not having the money to produce your art when you need to is indeed a real problem.  The art is maximizing your positive carry without ever putting the organization in jeopardy.

Know What You Don't Know

So back again from the dentist.  Thankfully, only a cavity and not a root canal.  If only my dentist were so lucky.  We, again, got to talking about her practice.  Turns out she borrowed money from her family to build out her space, doesn't have a bookkeeper, marketing strategy or operating manual.  She hasn't taken a dime from the business in 7 months and has yet to fully finish construction (for her pediatric practice downstairs).  Her eyes are glazed over and, as she says, she feels like everyone is on her back.

How many of you have been there?  How many of you are there?  The parallel all businesses have, creative or not, is that they demand you run them as businesses.  That means taking each piece, creating structure and putting a team in place that will guide you away from the abysses awaiting you if you try to do it on your own.  The name of the game is to minimize the impact of your missteps and focus on the inherent value in your art.

In a perfect world, you would assemble your team from the ground up -- marketing and sales, operations, accounting and customer service.  However, in the real world, all of these people might be wrapped up in 1 or 2 people who are in it with you and who probably do not have near the skill set a professional in each of these areas does. And so begins trial (or baptism) by fire.  Much energy wasted, a lot of painful mistakes and glazed eyes.  Success in the end ... maybe.

One of the fantastic side benefits of today's economy are the number of amazing people DYING to tell you what they know.  Some might do it for free, others for a small fee, just to exercise their skills.  A great place to find these folks is on social media and networking sites, but also at your local business school or college recruiting office.  Be the case study and get the professor's insights.  Form your own board of advisors if you will and let these advisors teach you about each area of your business.  Make time for you and your employees to take a few hours each week to meet with one or more of your advisors.  Create an action plan with each advisor and go down the road of implementing it.  The effort (and expense) will more than pay for itself with the first sale you get or the major pitfall you able to avoid.  You don't need a guru, you just need smart people who have done it before.

The easy part of any business is your passion for what you are doing.  The hardest part is stepping out of yourself to know that you don't know.  Realizing how much help can come your way when you ask -- that's the best part.

The Importance of Traction and Leverage

Change is upon us.  We all have to rethink our businesses given the economic climate we live in today.  This much is a broken record. 

The smartest of you are trying to figure out a new way of servicing your customers that provides value to them and, at the same time, is profitable for you.  Sometimes it means creating an entirely new offering, but, most often, it means focusing on one component of your business.  Regardless, what you need to make sure of is that the new new thing has traction and leverage.

If the more a product or service gets used, the stronger it will get just because more people are using it, then it has traction.  Social media is a fantastic example.  The more people that use Facebook, Twitter, Linked-In, etc., the more valuable they become.  For creative businesses, if your new offering can become the industry standard then you can create traction.  If you are a lighting designer and you come up with a cool series of "off the shelf" gobos, the more people use them, the more you can become known as the standard bearer for gobos.  Traction helps you establish your position in the marketplace and reinforces your position the more people use the service and/or product.  If you don't have traction, then you invite powerful competition should you be successful.  An example would be an event planner focusing on day-of services to help the busy bride.  The more popular the service gets, the more other planners will do it too.  Instead, if the planner came up with an interesting software/virtual planning service to go along with day-of services, then there is a unique package that could become the industry standard and, therefore, have traction.

Every component of a creative business should reinforce the rest of the business.  This is leverage.  So taking the day-of planner example further, if the planner gets a high-profile full service event, it won't necessarily help the day-of offering.  It might, however, help the software/virtual planning/day-of service.  Without leverage, best case is that your new endeavor will do nothing to your existing business.  Worst case, it will hurt it.  For instance, if a high-end photographer or designer (graphic, interior, lighting) comes out with an "affordable" offering without really differentiating the new business from the existing one other than it being affordable, there is a large risk that potential clients will be confused.  Confusion means alienation equals bye-bye clients.

Taking the time to analyze whether your new endeavor has BOTH traction and leverage is a great way to determine if you should pursue it or not.  If you think it does, then probably worth a shot.  Isaac and Target, Martha and K-Mart proved good design translates in all ends of the market.  If you don't think your new venture has traction AND leverage, then try to think of what you can do to make it so.  I am guessing that if you do the work, you will probably be the one with the better mousetrap.

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.

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?

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.