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The Best Worst Time to Launch a Design Studio

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First Published: Mass High Tech: The Journal of New England Technology – January 12, 2007.

There are really no good business reasons to start a web design studio. Competition is stiffer than ever, the hours are long, the pay is generally mediocre and, as web commentator Robin Miller’s ‘Build Profits Online’ upcoming book points out, clients can be a real pain in the neck. A design team in India or Croatia or South Africa can design a website in half the time and a quarter of the cost, so why even bother? Offshore competition isn’t the only thing new studios have to worry about. Designers can be their own worst enemies. Most of the new shops will never evolve beyond doing websites for their cousin’s single-shingle legal practice and the local church fund-raiser because they will be so badly managed. Internal problems will still be the biggest enemy of success for any new studio.

So why is it that everywhere I turn there are new studios opening shop? Because web design is necessary and important and fun. Whether you are a hardcore CSS junkie or just believe that Web 2.0 is the Second Coming, you cannot help yourself from booting up and marking up. The truth is there has never been a better time to be a web designer. With the latest stats from N.Y. research firm eMarketer Inc. showing that e-commerce was up by more than 25 percent in 2006 it’s evident that every business in the developed world needs a website. At the very least they need a long-overdue redesign or help promoting some new fad on the web. It’s a veritable design feast out there.

Even in these times of plenty, many studios won’t succeed because we can’t make the leap from designer to business owner. Trying too hard to be a good designer is exactly the thing that kills the designer inside. Don’t get me wrong, being a good designer is what it’s all about but there comes a time when you have to swap hats and take the role of manager and entrepreneur. In the process we all end up making the same mistakes. Having discussed this issue with a dozen web entrepreneurs and web studios I came up with some clear indicators for success. This week, we’ll take a look at the money issues. Next week, we’ll focus on how to get that money in the door: sales and marketing.

Money
Let’s start the money conversation right up-front. I don’t care if you think you’re an artist and the money is just a distraction, money matters — big time. I can tell you from experience that there is no fun designing amazing websites if you’re eating toast for dinner night after night. The romanticized image of the starving artist is great fodder for movies, but it sucks to live that reality.

If a studio is going to design something, get something up front. This is a rule that cannot be broken. If a client can’t afford to (or worse, is not willing to) pay you a deposit up front you need to walk away. Failure to commit to you financially is a red flag. Until you are established and have adequate cash flow, don’t work for equity either. You are not a bank. On the other end of the job you need to invoice quickly and accurately. Don’t let mistakes in the invoice become a reason for the client to delay payment. Make sure payment terms are clear in the agreement. This includes the basic payment terms, interest on late payments, change order fees, and out of scope expenses.

For designers just starting out there is a tendency to only charge for actual design work. Your time and your knowledge are your only assets at this stage so care for them carefully. Time spent in meetings, driving around to clients, sourcing stock art or icons, and general project management are all billable expenses.

Hourly vs. Project Fees
There is no easy answer to the debate whether to charge by the hour or based on project value. It depends on the client but personally I have found project fees and retainers to be a great deal more profitable if managed correctly. If you settle on hourly rates ensure you do a top-down estimate to counter your hourly aggregate estimate. For example, a project that might take 20 hours at a blended rate of $100 per hour will collect only $2,000. However, if you ask the right questions up front you might find out that the project you are about to deliver will result in a significant increase your client’s margins. This allows you to establish a true value of the work. Landing on a number between the hourly rate and the value rate will give you something you can both feel good about.

Hold strongly to these ideas and principles, and you will able to get your studio on to what is the topic next week — bringing in more of those dollars with proper sales and marketing.

Author Richard Banfield

As CEO, Richard leads Fresh Tilled Soil’s strategic vision. He’s a mentor at TechStars and BluePrintHealth, an advisor and lecturer at the Boston Startup School, and serves on the executive committees of TEDxBoston, the AdClub’s Edge Conference, and Boston Regional Entrepreneurship Week.

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