© 2010–2011 Rex Jaeschke. All rights reserved.
[If you have not already done so, I strongly suggest that before reading this essay, you read, "Talk is Cheap. Write it Down" (February 2011), and then, "Planning for Success" (May 2011).]
I started my own computer consulting business in July 1984, and it's been successful ever since. As far back as I can remember, I've wanted to be self-employed, and once I got permanent residency here in the US, I put my plan into action. I started my business, bought a townhouse, and my son was born, all within a couple of months. There's nothing like a little pressure to get the adrenaline flowing!
In recent years, I've been mentoring students at an alternative high school. For one or more of a number of reasons, the students there don't quite fit into mainstream schools, which is why they are at that school. The good news is that they all want to be at that school. More than a few of them think of themselves as mavericks, and they dream about running their own business. Whenever I get a chance to talk to them about that possibility, I cover many of the points in this essay.
Following the main sections below, are short notes in list form. I leave it as a reader exercise to research each one in the context of the business being planned.
The Dream vs. the Reality
Yes, you can get all the rewards, but you get to take all the risks and responsibilities as well. There really is no such thing as a free lunch! So, while the idea of driving around in a souped-up convertible company car and flying Business Class might seem wonderful, sooner or later you have to have a defensible plan to make a profit (well at least to not lose money). Assuming that you want to enjoy your work, will people actually pay you to do what you enjoy?
Goals – What is it you really want to do?
To be sure, I didn't have a detailed written plan when I went into business. However, I put in a lot of time and effort thinking about it in the year before. I planned to be a computer consultant, but I recognized early on that I really needed to distinguish myself from the thousands of other people having that same title on their business cards. The big question was, "Why would someone engage me over someone else? Just what was my angle?" In truth, I was prepared to do whatever it took to pay the rent, and I certainly had a lot of skills. What I really needed was a specialty I could claim that would make me attractive. After identifying a short list of candidate topics, I selected one and rode that wave to the top.
Right from the start, I had two very important rules:
- Never ever ever hire anyone – From my short, but very hectic, corporate career I learned that I simply didn't like to manage people. I can work with people, but that's a whole different scenario.
- Take as much time off as I could afford – You can't buy time. So rather than work fulltime and retire at 65 (hopefully) with some money, but not necessarily with great health and any urge to travel, I wanted more than the usual time off as I went. [I came to the US from a culture that provided everyone with 4–6 weeks of vacation per year, and where people worked a 37.5-hour week with flexible working hours.]
I have never regretted either rule, and, in fact, I've re-endorsed them both many times over. If I got a contract that was more than I could handle, I gave it to a larger player and subcontracted back a manageable part. And with regard to time off, I started with three months off in my first year, spread out over the year. [Except for three years in recent times—when I deliberately took on fulltime projects—I've taken off between three and six months each year.]
As far as I can remember, I've never heard an American say that they wanted to remain a 1-person company forever. The all-American goal seems to be that one is only a 1-person company until one figures out how to be a mega-corporation. But the evidence is well documented: Most small businesses fail in their first five years, and the kind of person who can run a small business is not at all like the one needed to run a medium-sized or large one.
A couple of years after I started my business, I took a break during which I analyzed my success. That's when I moved from being a brute-force success to a smart success. That is, by figuring out what made my business successful, I got smarter about planning. Either I could make more money for the same effort, or I could work less time for the same money. And I did some of each.
Many people have a narrow focus; they see only one path to their goal(s). They often place a lot of constraints on themselves. Are they able to travel out of town overnight? Are they willing and able to work long hours, weekends, or public holidays? Are they really prepared to "do whatever it takes within reason"? In my case, I figured that it would be hard enough to get potential customers to my door, so I didn't want to turn any away unnecessarily. As a result, I was prepared to be—and I remain today—very flexible.
Although I started out actually designing software systems and writing the programs to implement them, to help start my business, I began writing for publication with first one, and then a second magazine. Not only did this generate some cash flow, I got to keep all the rights to the intellectual property, I had a reason to learn and keep up with evolving technologies, and I had something to add to my resume. I was also getting directly to those who might want my services, and I could give potential clients copies of my published work. That led to my developing seminars using my published materials (some of which became books) and to the lucrative training business. With seminars, instead of charging per hour of work, you charge per person attending. The next step was starting the first of two publications, which led to editing and publishing. Now it's very rare that a client will hire one to learn on the job, so I had to find a way to do that myself. My solution was to get involved in national and international standards groups for my profession.
Twenty-seven years later, my business card still says "Computer Consultant", but my focus has evolved considerably, primarily because of my flexibility and the fact that about every three months I review my situation. Where am I now and where do I want to be in six, 12, or 24 months?
In reality, my consulting led to learning about topics on which I got paid to write. For topics I researched for writing, those skills could be sold as a consultant, as could those I learned when teaching seminars in a variety of environments. And my standards involvement overlapped and reinforced all the other parts of my business.
In truth, how could I know with certainty 27 years ago where I wanted to end up? Most of the technologies I work on now didn't exist back then.
And while having goals is important, so too are having non-goals. In my case, I had no interest in building an empire. Now that doesn't mean that I couldn't run one; it just means that that doing so is not one of my goals.
Selling Services vs. Building/Selling Products
It takes time and expense to provide a service. To provide the same service to more clients, you need to extend your hours and/or hire others to help you.
It also takes time and expense to build a product, and unless you are in a lucrative custom-made situation, you'll need to hire others to help you. (They need not necessarily be employees, however; they could be subcontractors.) Then there are the inventory-related issues of storage, insurance, cost, shipping, and tracking, and excess and out-dated inventory, along with sales tax collection.
In my case, I figured out a way to reuse some of my deliverables, namely, my intellectual property. I got paid to write it for publication. I re-used it as seminar materials, and I published it in book form. None of these activities required help or a physical inventory, which is worth keeping in mind as many economies move from manufacturing to service-based models.
There are a number of options for your business classification, including sole proprietorship, partnership, and various kinds of corporation. Each has its pros and cons. In my case, I decided to trade under my own name and to make that name my brand. After all, I was selling myself, not a product.
I've never been swayed by the argument that for a 1-person business like mine incorporating provides more legal protection. In these litigious United States, a determined plaintiff is just as likely to come after the individual owner(s) as he is to come after the company.
Are You in Business or Just Pretending?
If you don't have a business card, you won't convince me that you are in business, and you might not convince anyone else either.
Your business name should be important to you as a brand and you will want to promote it. As such, chose it carefully, protect it legally, and register it as an internet domain. Then put your website at that domain (of course, you'll have a website!), as in www.YourBusinessName.com, with your email address as YourName@YourBusinessName.com.
If you claim to be in business, then why not look like you are in business!
Each of us comes to a business with a set of skills and we'd like to think that we're at or near the top of the heap in our particular field. And maybe we are. However, to run any business successfully, especially one that has employees, you should be prepared to be a little bit of each of the following: a lawyer, a salesman, an accountant, a bookkeeper, a tax expert, an office manager, a negotiator, a promoter, a crisis manager, a psychologist, a psychiatrist, a marriage counselor, a motivator, and a sage. And when you've finished all those tasks, you might even get time to do the things you liked and were really good at to begin with!
From a book of quotes I once read, comes the following: "No matter what your circumstance you should always believe that you work for yourself". It is highly unlikely that anyone cares about you as much as you should care about yourself. And, frankly, why should they?
A Summary of Things to Consider
The Dream vs. the Reality
- You get all the rewards
- You get to take all the risks and responsibilities
- Will people actually pay you to do what you enjoy?
Goals – What is it you really want to do?
- Consulting, writing, speaking, making a product (multiple paths to some goals)
- General guidelines are good, but don't be too rigid
What are your constraints?
- Are you able to travel overnight away from home
- Parenting duties
- Hours on working days
- Availability on weekends and public holidays
Services vs. Product
- Time and expenses
- More services requires more people
- Manufacture requires more people (employees vs. subcontractors)
- Inventory (storage, insurance, cost, shipping, tracking), excess, out-dated
- Sales tax
- Sole proprietorship
- Subchapter S corporation
- Other corporation
- Woman/Minority-owned or small business certification
- Who is your backup person?
- State/county business license (maybe need from multiple states)
- Errors and Omissions
- Both employer and employee social security contributions
- State income (quarterly estimated)
- Federal income (quarterly estimated)
- State sales tax
- Email address
- Business cards
- Stationery (real and/or for Fax cover pages)
Marketing and Promotion
- Advertising (print, web, direct mail, cold calls, …)
- Joining trade groups, associations
- Speaking at events, free mini-seminars
- Writing articles in target-audience publications
- Giving away time/products and getting publicity
- Going after government contracts
Setting up an Office
- Space – in-home office vs. professional office space (Do you really have the discipline to work at home?)
- Hi-speed internet connection with reliable up-time
- Desktop, laptop, both?
- Wifi capability
- Printer (color vs. black and white)
- Computer file backup (frequency, on-site vs. off-site copies)
- Fire safe (documents and on-site backup media)
Billing, Payments, and Cash Flow
- Accepting payment by cash, check, credit card, electronic transfer
- Issuing invoices
- Issuing receipts
- Sales tax collection
- How many days to pay?
- Penalty for late payment
- Travel time (local vs. out-of-area)
- Need cash flow to cover 30–90-day net payments
- Accounts receivable
- Accounts payable
- Tax preparation
- Expense tracking
- Contact list/lead manager
- Electronic calendar with alarms
- Charging by the hour, day, or job
- Are expenses included?
Things to factor in
- No paid vacation
- No paid public holidays
- No paid sick leave
- No employer-provided health insurance
- No employer-provided contributions to a retirement plan
- Administration, banking, record keeping, backup, marketing and so on all take non-billable time
- What does your competition charge?
- Are you a generalist or a specialist?
- Pro-bono vs. full rate; should you ever discount your time?
- Safe-deposit box at a bank
Agreements and Contracts
- Written vs. unwritten expectations
- Explicit vs. implicit guarantees
Keeping Current: Clients don't hire contractors to learn
- Books and videos
- Training (in-person and self-paced)