Dec 22 2010

Digital Analog – 2010 Year End Review

Ben

I’ve been making a living as a Flex consultant for a number of years, but in 2010 I made it official by starting a company called Digital Analog, LLC. In honor of that achievement and in the spirit of being open with the development community, I’m “open-sourcing” my revenue numbers for 2010. I can’t give you the full line-by-line details of course (client confidentiality), but I am posting summaries of a few key areas below. If you find this post useful, educational or at least entertaining please consider recommending Digital Analog for any projects that pass your way in 2011.

$109,959 Dollars Later

This isn’t a very big number for a company, but rest assured I enjoy putting six figures on my tax forms each year. To my friends and family who might now expect better gifts, see the 2010 costs below. To the fellow consultants and business owners who expected me to be making more, see the Hours series in the 2010 Revenue by Week graph in the next section.

In this chart Taxes include both personal and business (SE) taxes (as I don’t file the business separately yet). Travel costs are split almost evenly between conferences and client travel (which is reimbursed). Operational costs include office rent of about $600 per month, test hardware/device purchases, software, and service costs for hosting, version control and bug tracking. It’s also worth noting that since I file as a sole proprietorship I didn’t list salary as a cost. The full net income can be considered my take-home income (with no benefits), but to compare it with salary expectations you need to add about half of the taxes back in and take away any benefits I had to pay for personally (~$5,000). In other words my income is probably on par with a ~$75,000 salary, but if I see you at a reunion or something let’s just go with the first number.

20 Hour Work Weeks with 2 Months Off

It turns out there are a lot of tasks that are required to run a company that just aren’t billable – including emails, calls, quotes, estimates, invoices, software/IT issues, open-source development, product development, conferences, travel and general decompression time. I did try to take it easy on billable hours this year, but it’s hard to say how much non-billable time I “worked”. My best guess is that I put in an average of 30 to 40 hours a week at the office, but I did take two months off this year (which is a great advantage of owning your own business).

An interesting part of this chart is that it clearly shows the delay between billable hours and money in the bank. If you’re going to start a service based business, you need to have three or four months worth of income in the bank to float this gap.

$100 to $150 per Hour

I’ve had discussions with a number of other Flex developers about rates, how to set them, and why they are what they are. To the best of my knowledge Digital Analog is the first company to disclose rates directly, and I do plan to continue this practice in 2011. That’s because, in truth, developers don’t set rates. The market does. In my opinion these are mid to high level Flex development rates. These rates may go down when I have unused availability or they may go up as demand for work increases.

4 Clients Down, 1 to Go

I had 5 clients this year with projects ranging from 10 hours to more than 300 hours. The average project length was around 165 hours with an average cost of around $21,000. Out of those 5 clients I’m still actively working with only 1. All of my clients were found through third party (mostly developer) recommendations. This means that going to conferences and creating open-source projects doesn’t introduce me to many new clients, but it does introduce me to developers who are then willing to recommend me for projects. It’s clear to me that without this, I wouldn’t have the advertising or sales ability to land steady work on my own. Some effort will need to be given to improve my reach if I want to grow the business in 2011.

In my talks with other consultants I’ve also found the most diversity to be in clientele. Some developers have only a few large clients who exclusively send them work making/skinning video players, others work with dozens of clients each year making sites for advertising campaigns or media companies, and still others work exclusively with start-ups that need to create enterprise apps. In order to increase demand for services and grow my company in 2011, I’ll have to find a way to break into multiple verticals.

Summary

2010 was an average year in terms of the services business for Digital Analog. I succeeded at prioritizing my own time (something that was lacking in previous years), but failed to convert enough of that extra time into viable products or R&D. I did, however, have a few successful trial runs at managing sub-contractors which resulted in some of the best client relationships. Focusing on development goals and client relationships in the same breath is hard. Some separation in thought processes has to be given to do both well.

Along those lines I’ve come to realize that my ability to effect a client relationship is directly related to my control over a project. In projects where I have little control over the project as a whole, my focus is purely on development and I have little opportunity to build a strong client relationship. Although hourly work is probably a safer bet, taking control of whole projects (on estimate) may improve satisfaction on both sides. Adding developers in-house may also be required in 2011, although both would be done against the best advice of my peers. 2011 should make for an interesting year.


Dec 26 2008

What should a startup focus on: profits or expansion?

admin

This post is in response to a recent article on Businessweek, entitled “A Wrench in Silicon Valley’s Wealth Machine“.  It’s our first panel style post where we ask our startup contributors to give their views on a certain topic.  Let’s hope it works out. :)

-=-=-

John’s Thoughts:

VC’s seem to be largely morons and most startups seem to be the perfect match.

Only a startup would exist and not have a plan to make money. Only a VC would give money (large, large sums of money) to a startup that would “Make money in the future”, if everything goes according to plan.

That’s not to say startups have to be profitable or even bringing in money when they start, but Digg is what? 2? 3 years old? And not making money still.

From Businessweek

Jay Adelson, Digg’s chief executive, says it’s clear the environment has changed for all startups. With venture money harder to come by, entrepreneurs have to concentrate on building their businesses. He says Digg is dialing back some expansion plans and trying to reach profitability as soon as possible. “All I care about is making sure the business foundation is solid,” Adelson says.

Really? Now the focus is on profitability? Now that they’re being seen for what they are? Just another over hyped startup with no clue how to make a dime, hoping that profitability will find them on its own.

What really amazes me is that all the Digg fanboys and gamers of the system singing Digg’s praise etc. are simply filling Digg’s DB with data that they [Digg] intends to sell. Sell for a retardedly over valuated price of 300m! Holy crap! Smooth move guys, give your meta data and attention to Digg so they can hope to sell it. NICE!

One reason may be that Digg’s public profile is much larger than its financial might. Last year the company lost $2.8 million on $4.8 million in revenue, according to Digg financial statements reviewed by BusinessWeek. In the first three quarters of 2008, Digg lost $4 million on $6.4 million in revenue. Adelson declined to comment on the figures.

Those better be some damn good Christmas parties, and some 70 and 80’s style whoring and coke snorting, I’m talking Studio 54 here. Lost 4 million? On what? It’s a site that people give content too, they don’t pay for it! Oh wait, Diggnation probably isn’t cheap to produce, that explains it.

As some one who runs a business completely in boot strap mode, it’s insane to imagine how some of these businesses can exist. Tom and I started ’08 owing 15k on our line of credit and were contemplating closing up shop rather than continue moving into debt. Startups seem to have mastered the art of spending money that isn’t theirs in exchange for retarded amounts of their company and probably a sizable chunk of soul.

Is it worth it guys? You couldn’t have done with out millions of someone else’s money?

-=-=-

Tom’s Thoughts:

I wouldn’t say all VCs are morons, just the dumb ones.  :)  Perhaps that should read the greedy ones.  I understand VCs provide more than just capital.  Take a look at eBay.  It was successful, but Pierre realized that he didn’t have the knowledge needed to take the company to the next level.  VC investment helped him get Meg.  Then there are visionairies that have expensive visions but the visions have profits in mind ala Bezos.  Amazon took what, 4 years to reach profitability?  But Bezos had the system worked out in his head to reach profitability.  Heck, at least it was a goal for those 4 years.

Article Snippet 1: With venture money harder to come by, entrepreneurs have to concentrate on building their businesses.

Now, that could just be poor writing on the author vs something dumb Jay Adelson said, but that line just blows me away.  What the heck kind of statement is that?  What entrepreneur doesn’t concentrate on building a business?  And what kind of people give that entrepreneur millions of dollars?

I’ll be honest.  I thought about approaching investors to help us grow 360|Conferences in the early days.  However, I realized we had no street cred. We had never ran a conference before, much less a conference business.  Even now, John and I are contemplating approaching angel investors, but I still tell John, “We’re profitable, but I don’t think anyone will care.  We’re not trying to take on the world and we’re definitely not sexy.”  John and I have spent a lot of time making our business what it is.  Sure it’s been tough, but we went from no money investment on either of our parts to making some money in less than 2 years, part-time.  People think we put on the best conference they’ve ever been to and are shocked to find out it’s just John and I doing the biz, part time.

The reason I think we make money and why people love our events is because from day one, we’ve always concentrated on building our business.  John asked during year 1 of our biz,  “Why didn’t you quit this idea like you did many others in the past?”  My answer came swift and still rings true to this day, “Someone trusted me with their hard earned money and it is my duty to live up to that trust by providing them the very best service.”  The only way you can provide a great service is by building your business.

Article Snippet 2: [Adelson] says Digg is dialing back some expansion plans and trying to reach profitability as soon as possible. “All I care about is making sure the business foundation is solid.”

Here’s where millions of someone else’s dollars makes you delusional.  Whereas Digg is now gonna focus on profitability vs expansion, John and I have been focused on profitabilty and are now looking at expansion.  I didn’t go to business school, so maybe that’s why I’m lost.  But don’t you usually test an idea out first to make sure it makes money?  Then once you’re profitable, you move on to expansion?  Like I’ve always told John, “Our profit model depends on x number of attendees per show.  If we don’t get those numbers, that means people don’t like our show.  We either need to change to get those numbers or leave the biz as our ideas obviously are all wrong.”  Now x is not in the millions or billions, we’re talkin roughly a few hundred.  But if there is no profit in sight, then you may have a good idea, but you surely don’t have a good business.

Article Snippet 3: In the first three quarters of 2008, Digg lost $4 million on $6.4 million in revenue.

Now, I won’t make accusations about what Digg did with that money.   John could be right, but I’m sure there’s some costs we’re just not seeing.  Some people accused us of throwing an “orgy” when we spent $90K on food, but after you realize a 6 oz soda costs $4.  You can see how fast things add up.  One thing companies should do is be more transparent.

I’m not saying throw your quickbooks file on the net. (Yes, I know they don’t use Quickboooks, just work with me will ya.)  But lay out what gets spent where.  Show people what you’re doing with the money.  If nothing else, your customers will tell you what your spending too much on.  Though I’m not sure that would work for Digg.  They have users and not customers, i.e. no one pays them to do a service.  Maybe that’s the problem then.

Can you be defined as a business if you don’t have customers?  Or more importantly can you be called a business if you don’t focus on profits?

-=-=-

Andrew’s Thoughts:

My preference in starting a new business would be the conservative approach.  Save up money from a standard W2 job until you have a nice emergency fund before going for it.  Focus on those projects that get you to profitability the quickest.  Anytime you take money that you haven’t earned whether from a bank or from a VC, you’re giving up some control of how your business runs.  Unless the idea is truly revolutionary and needs to explode quickly, I’d stay away from taking VC or bank funds and doing it the old-fashioned way.  Having excess VC funds around is just plain distracting and a false sense of security.  It doesn’t make sense to have all those parties if you haven’t earned a dime.  Having a tight budget early on also forces you to find unique and cheaper ways of doing things.  One example would be a VC-funded startup throwing servers at a scalability problem whereas a self-funded startup would be forced to re-factor and optimize their code for maximum scalability.

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Jeffry’s Thoughts:

Are VCs Morons?  I don’t think so, but I do get the impression they only expect 1 in 10 of their ventures to be succesful; kind of like the traditional record company model.  That 1 success makes up for the 9 failures many times over.  With that in mind, I may consider factors other than the business plan when investing in companies such as enthusiasm and adaptability of the owners.

Cash flow is king, especially in a down economy.  Generating profit should always be a much higher focus than expansion.  Build your profit model right into the business from the start.  Think it through before you start coding or building the service.  Controlled growth is the best way to build.

-=-=-

Ben’s Thoughts:

I have to say, I think this is a trick question. Let’s look at it this way, “What should a baby focus on: feeding itself or growing up?”. I guess the answer would be “yes”. Startups, like babies, require further growth by definition; otherwise you’re just running a business. So if a startup focuses solely on profit, it may never take the risks that are required to grow. By the same token if a startup focuses only on expansion fueled by VC money, it may not have legs to stand on when it needs to back up those extravagant claims it made (a la Digg). I’m not saying that VC is invalid or that projects with big ambitions (like mine) are dead, but I do think that inflated egos, hot-air pitches, and over-valued stocks are being market-corrected in short order. Hopefully that’s a good thing.


Dec 19 2008

Ben Stucki – The Inventor

Ben

Hello. My name’s Ben Stucki, and I’m building audiospike.com. It’s awesome.

First, I’m not an entrepreneur. I’m a developer, plain and simple. I’ll pass up perfectly good business opportunities because the work seems boring, and I’ll take others for free because it’s new. You see, I didn’t learn development because I was good at math (I’m horrible actually) or because the job market was promising. I learned how to develop web applications because I wanted to be an inventor when I grew up. I want to create something new. If I could, I would give it away. I think this precludes me from being an entrepreneur. I just want people to use it.

Here in the real world though, startups require planning, risk, and *gasp* revenue models, or else I don’t get to work on it long enough. For me, that meant letting the ideas settle for a year to see if they were still as exciting later and made sense as a business. Luckily for me, I also felt like I had some time before the market and technology was really ready. I wasn’t waiting idly though. To buy time for building a demo, I saved some money to float my personal expenses for 3 or 4 months. My family and I even moved into a smaller house so that it would be easier to withstand changes in income. Soon (and sooner than I expected), everything seemed ready for this startup to happen – except for me. It’s easy to focus on learning your market and planning for all that you can, but at some point you just have to jump in.

That’s where I am. I’ve done all the planning and research that you can do at home: browsing the internet and testing ideas. I’ve gained all the skills required to develop killer applications. I’ve gotten to the point where you just have to throw yourself at it and learn the hard way. I hope that through this blog you will see my wrong turns, stumbles, and falls, and learn from them.  – and if it all comes crashing down in the end, you can offer me a job. please? :-)