The Business of Being Creative

Commissions, Referral Fees and Markups

At Engage '09, during her speech Marcy Blum took the bull by the horns and said that she is a "reformed commission taker".  She said that she does not approve of the practice unless it is plainly available for the client to see.  There were a lot of nodding heads in the audience, but one person who argued the other way and said that those who refer business should receive compensation from the vendor receiving the referral.  I had to literally sit on my hands not to steal Marcy's thunder.

Commissions, referral fees and hidden markups (where your invoice is marked up by the planner or other vendor on their letterhead) are not in and of themselves evil.  They just have no place in today's market.  Without efficient access to information (i.e., without the Internet), customers are subject to the power of those who control the information.  So if a customer has no good way to find a reputable vendor and no way to discover what people really think about the vendor's work, the only real source of information is from a referral.  In this kind of market, a commission or referral fee is far more powerful and valuable to less-established players in the market.  However, with the Internet and the amount of information about ANY artist literally available at a potential client's fingertips, the closed system is now blown wide open.  Simply, there is virtually no value in a stand-alone referral from a vested source any more -- a potential client may take the recommendation but will research the creative business prior to choosing to do business with it.

I abhor the lack of transparency in any business, creative or not.  Unless you are willing to pay the commission or referral fee out of your own pocket, your client has the right to know what they are paying for.  I might be puritanical about things, but failure to disclose a commission to your client is this close to fraud.  It might not be illegal, but it certainly stinks to high heaven.

The biggest point though is not the ethics of the practice, but the impact it WILL have on your business.  The goal of your business is to deliver your art at a price point you consider to be fair value.  If what you are delivering is at an inflated price because you have to "bury" the commission, do less to be able to afford the commission or because someone else is marking up your invoice, your brand will suffer.  Clients know when they don't get what they pay for and they are not shy about saying so to you or everyone on the planet via the Internet.  And make no mistake, you are the one who will be singled out.  After all, it is your business that delivered an inferior product relative to price not the vendor receiving the commission.

Should you be grateful for a referral?  Of course.  But show your gratitude by going above and beyond for both your client and the vendor.  Overpromise and overdeliver.  In the medium and long run, the value generated by your actions will far outweigh any commission you might have to pay.

And to the person at Engage '09 who questioned why a florist shouldn't pay a vendor who sent her many, many referrals a referral fee, I respond with this:  why do you think the vendor was referring the florist in the first place?  Because she is a GREAT florist and she makes the vendor LOOK GOOD.  Your art needs to stand on its own.

Your Brand Can Stand On Its Own

I am all for strategic alliances and other marketing/co-branding efforts, if everybody brings something to the party.  Too often though, creative businesses sign up to "represent" or be a "preferred vendor" for a well known, large (maybe even huge) corporation without any real obligation on the part of the corporation to DO anything for the creative business.  The creative business does it on the hope that just being associated with the corporation will bring legitimacy to the brand (and more business).

Never works.  Why?  There is no such thing as a free lunch -- if your brand doesn't have a singular reputation and meaning on its own -- no business association is going to magically make that happen for you.  The likely result in such lopsided relationships is that you and your business will have to commit enormous resources (likely to the point of distraction) just to support the corporation and its brand.  In the end, you will be invisible and your art will be wholly commoditized.

If you know the value of your brand and your art, you know you bring something that will help the corporation achieve a goal it has set for its brand.  And, even if this is true, you still need real compensation -- whether it is in the form of financial guarantees, PR/Marketing/Advertising commitment or both.  Without risk, the corporation will literally not be invested in your success and it will be all too easy for them to ignore the Dip that is inevitable in any business relationship.

I know how enticing and even sexy it is to be courted by a corporate partner.  The fantasy of what it could all mean for you and your business is intoxicating.  Some of you in this position might feel that if you turn down this once-in-a-lifetime opportunity it will never come again.  You are wrong.  If you continue to do what you do, your brand will only get stronger and your value to the corporation, everything being equal, will only continue to grow.  From there, you will be able to make the deal that helps everybody.

The Value of Journaling

Every business, creative or not, needs direction -- a road map of where it is and where it wants to go.  And creating a business or strategic plan every six months or so is a great practice to get you to really think about the business as a whole.  What gets missed though is being mindful in between the plans.  Your business is alive and always evolving.  Too often the freneticism of your day to day makes it impossible for you to see the evolution of your business.  I would presume the same is true for your art.  How you check in with yourself as an artist is not for me to say, but I would highly suggest you create a daily journal to check in with yourself as a business owner.

I love the Artist's Way and got started journaling after taking Julia's seminar more than 10 years ago.  Julia's journal is about free form expression.  But that you will be writing about your business, I am arguing you do the same.  The journal is NOT there to solve any problems, develop any plan or do anything rational.  The purpose of the business journal is to give voice to your inner voice.

Your daily business journal should be for a set amount of time every day (Julia does pages, I like time and would suggest 20 minutes) where you write to yourself about your likes, dislikes and vision for a particular part of your business.  Optimally, you should journal at the same time every day.  For instance, topic of the day (or week or month) could be customer service.  What do you like about how you treat your clients?  What could be done better?  What do you wish you could communicate that you aren't?

The journal will keep you in touch with what is confronting you and your business today.  When you read your entries back you will SEE what has to be done -- you will have told it to yourself without even knowing that you did.  You can then set about solving the issue as YOU have identified it (as opposed to how it has been defined for you).  Whether that manifests in a strategic plan or something more immediate is a function of the severity of the issue, time and desire.  And, yes, your journal will show that to you too.  If you can write something once and forget about it, can't be that big of a deal.  But if it shows up every day, time to get moving.

All sound too out there for you?  Try it for a week.  My guess is that you will be able to identify and act on issues affecting your business far better than you did the week before.  If not, then you will certainly be no worse for trying.

How Are You Going To Change The World?

In the beginning, all you wanted to do was practice your art.  You probably started in your bedroom, garage, tiny studio, etc.  You earned enough to go on to the next project and then to the next.  Somewhere along the way you became a business -- with employees, office space, and maybe even a 401(k) plan.  The bigger you got, the more and more the business subsumed (as opposed to consumed) the art, so much so that each became largely unrecognizable without the other.

So you are there.  You have a real business with real clients that is self-sustaining.  Now how are you going to change the world?

When I ask the question, most often the response is a blank stare or an indignant -- I just want to plan weddings, be a florist, photograph life events, etc.  Almost no one answers the question.

My answer is that the world is how you define it and the people you want to reach in that definition.  An over-simplification of all creative businesses is that they are megaphones for your art and you as an artist.  The business gives you the platform to reach many more people than any single piece of art you might produce.  If your intention as an artist is to move your audience, then why should your business be any different?

I am a firm believer that intangibles like passion, emotion, connection and relatedness can be structured into the fabric of your business.  The best organizations are those that become living organisms in their own right.  Think about Zappos', Apple, and even Microsoft.  And don't forget about David Rockwell, Frank Gehry or Alberto Alessi.  If you think "going corporate" will kill your creativity and what your business is all about, then you're just scared of what could be or, more likely, unable to think of your business as alive.  Either way, what a disservice to you, your art, and all those people who will never get to experience what you have to give.

Art IS what changes the world.  Your business should just make your world bigger every day.

Dare To Be First

Thanks to the power of Twitter, I recently came across a wedding planning company in Massachussetts, It's About Time Events, focused almost exclusively on Gay/Lesbian Weddings.  Bernadette Smith and her partner, Lisette Garcia, say on their site that they are the only planners devoted to the Gay/Lesbian Wedding market in Massachusetts.  They say with no equivocation that they are the experts.  I love it.  Talk about seeing the potential in a market and staking a claim.

A wedding is, aside from an expression of a couple's love and commitment to each other, a larger cultural, religous and political reflection of the society where it occurs.  Legalizing Gay/Lesbian Marriage is a wonderful statement of acceptance, tolerance and progress.  I am hugely supportive of the movement and very pleased to see its adoption spreading, despite some notable setbacks.

From a business perspective though, what an amazing opportunity.  Legalizing Gay/Lesbian marriage is only the beginning.  Defining what a Gay/Lesbian wedding is, and can be, is wide open.  How to mix traditional elements of a wedding with something unique to the couple is the goal of all planners.  That it is being applied to a whole new market is what makes it so fresh.

I will not comment on It's About Time's business model other than to say that its brand extension beyond just planning is enormous.  As they say, they are the experts and everyone from couples, venues, vendors, and the media are in need of their expertise.  Monetizing that expertise, to me, is right there for them and demand is only going to grow.

However, whether or not It's About Time can sustain its first leader advantage remains to be seen.  What you can be sure of is that, as Gay/Lesbian marriage becomes more accepted and Gay/Lesbian Weddings continue to grow, they will not be alone.  You do not need to be gay to plan or create a Gay/Lesbian Wedding.  Many will enter the market to serve the demand.  Expertise is fleeting if there is not something tangible that the market can accept as unique to the first mover.  Instances of first movers losing their lead abound, just look at technology companies: Atari, Commodore Computer, Palm, AOL, Yahoo, My Space, etc.

The beauty of daring to be first is that you are in the position of helping define the market, thereby securing your place in it.  As a business owner, that should be what you strive to achieve.  Once you own your niche, everything can follow from there.

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?

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.