The Single Founder http://www.singlefounder.com Musings on software and startups from a single founder Thu, 19 Nov 2009 15:58:05 +0000 http://wordpress.org/?v=2.8.4 en hourly 1 miketaberhttp://feedburner.google.com The Day the MicroISV Movement Died http://feedproxy.google.com/~r/miketaber/~3/GJaYsmWjZDI/ http://www.singlefounder.com/2009/11/17/the-day-the-microisv-movement-died/#comments Tue, 17 Nov 2009 22:34:51 +0000 Mike Taber http://www.singlefounder.com/?p=491

Rest In Peace #1

I remember the day very clearly, although it was not apparent to me at the time. It was the day that the Micro-ISV movement died.

A Brief History

For those of you who aren’t familiar with the history of the Micro-ISV, I’ll provide it for you here. Eric Sink is widely credited with the creation of the term “MicroISV”. As far back as May 8, 2003,  Eric was talking about what he referred to as “Small ISV’s“. The concept is rather simple in nature. An “ISV” is an independent software vendor, a phrase which is derived primarily from the Microsoft ecosystem and refers to software companies that are not Microsoft. As for the “Small” part, they’re small companies with anywhere from 3-100 employees. It’s a pretty simple definition, but definitive as well.

In September of 2004, Eric Sink published this article on his blog, which had appeared on MSDN a little bit earlier. His intent was to focus on what he called the “MicroISV”. It seems to have occurred to Eric that companies of only one or two employees were out there, producing software and doing rather well for themselves as single founder companies. This thought intrigued Eric. So much, in fact, that as part of his MSDN series of articles he decided to undertake the process of building a MicroISV himself to provide him additional content and experience to draw new articles from.

So it was, that Eric Sink, CEO of Source Gear and self-proclaimed .NET Redneck undertook a 16 month journey in which he built a product in his spare time and sold it online. Over the course of those 16 months, he chronicled his progress on both his blog and in his MSDN column titled “The Business of Software“. Developers and geeks around the world rallied to the battle cry raised by Eric. Large numbers of new MicroISV’s were founded, forums were started, and journalists latched on to write books about the topic and ride the wave of popularity to success.

He can show us the way!” some thought.

He has unfair advantages like his MSDN column and a massive blog following. This isn’t going to show us anything!” said others.

How much money would he make? How do I follow in his footsteps? The world of Geeks held its collective breath and watched as Eric raced down the path laid before him. Behind him followed a crowd of geeks, waving flags and pom-poms, watching intently to see which way the story turned. So for 16 months, we followed Eric to see the conclusion of the story.

And Then Eric Killed the MicroISV

Abruptly, one day Eric announced that his journey had ended. He sold his MicroISV to Dennis Cronin for an undisclosed 4 figure sum, which implies a maximum sale price of $9,999. With sales reaching a mere $215 over the course of 16 months (including September of 2004), we can surmise that the actual amount was probably a lot closer to $1,000 due to the multiples at which products are typically acquired. The “profits” were donated to charity.

What did this mean for the MicroISV movement? A giant kick to the crotch. That’s what it meant. And it accomplished virtually the same thing.

I’ve seen the statistics for one such website that marketed directly at MicroISV’s starting in 2004. Website traffic has approximately halved every single year since Eric’s announcement. Websites are supposed to grow. You add content, you build out the site, more  visitors come, and website traffic grows. That hasn’t happened. In fact, the reverse has happened. Traffic for this particular site shows that the current traffic levels are a mere 6.25% of what they were at the end of 2005. That’s not just bad. That’s appalling. I did some in-depth research and found that traffic started dropping quickly immediately after Eric’s announcement, after showing month over month growth the prior year. Other sites have disappeared from the internet entirely.

Therefore, I submit to you that it was on December 26th, 2005 with not much more than a keyboard and a blog entry, that Eric Sink effectively killed the MicroISV movement.

This Is NOT Eric’s Fault. It’s Ours.

I’m going to be blunt here. Eric was not trying to start a movement, nor was he out to kill it once it started. He started his MicroISV for two reasons, and only two reasons: He was curious about what it took to run a MicroISV and he wanted to help generate content for his Business of Software column on MSDN’s website. That’s it. He didn’t do it for you, he didn’t do it for me, and he certainly didn’t do it to build a new revenue stream for himself. I’m fairly certain that he is well compensated as the CEO of SourceGear.

Far too many people are under the impression that if Eric Sink couldn’t make it work, then what chance do they have to make it work? This is the wrong way to look at it. Instead, as I’ve said in the past: “If at first, you’re not successful, take a good hard look at what went wrong.” Unfortunately nobody seems to have done that and when the appointed figurehead of a movement falls, people lose interest.

Everyone has honed in on the fact that Eric failed. Thank you, but I beg to differ. Let’s get one thing straight. Eric accomplished what he set out to do. He never intended for it to turn his MicroISV into something bigger. In fact, Eric intentionally stacked the deck against himself.

Eric’s (Self-Admitted) Mistakes

Lack of Motivation- Eric was simply not committed to building his MicroISV into a solid revenue stream. He built the product to write articles and once that had run its course, he had little use for the product or the MicroISV that was built from it. To quote him directly:

But I must admit that my situation is unusual. Most people start a micro-ISV because they are attracted to the idea of being an entrepreneur. A sense of dissatisfaction with their current job is a source of motivation.

I’ve been there, but right now I don’t have that particular set of problems. I am already an entrepreneur, and I am quite happy with my situation. Here at SourceGear we actually like building developer tools, and we’re having some very nice success doing it.

So with Winnable Solitaire confined to my copious spare time, it may proceed slowly. But I do have some ideas for what I want to do next with this project. I will close with a few remarks about my next iteration through the cycle that Pavlina describes.

Choosing the Game Industry - Speaking from experience, I can tell you that the game industry is brutal. Either you have a hit or you don’t. And if you don’t, you need to dedicate significant resources to finding out how to make it more appealing. Selling games is different than selling business software because you’re not solving a pain point. You’re providing entertainment, which although it is technically a pain point for the consumer, there are millions of competitors.

If you’re selling source control products, you have maybe 20 competitors tops. When you sell games, you’re competing not only with other games, but all other types of entertainment mediums, such as tv, movies, newspapers, comic strips, not to mention all of the other computer games out there. I’m not saying this is impossible, just a lot harder than selling business software that solves a definitive need. Eric basically admits that he would likely be more successful in a different market, almost from day one in his First MicroISV report.

Competing with Free Products - Solitaire is included with every copy of Windows. I’m not sure I see the point in competing against Microsoft in what is arguably the smallest niche market I’ve ever seen. ie: Solitaire games that are guaranteed to be winnable. Thomas Warfield seems to do pretty well in the broader Solitaire niche.

Ignoring Common Sense – Eric openly admits in the Bottom Line of his initial blog entry that “Common sense would say that my product is doomed.” This is putting it lightly in my opinion, but is true nonetheless.

The bottom line is that if you know the mistakes that you’re making before you’ve even started, you’re going to wind up flat on your back like Charlie Brown. Letting Lucy hold the ball doesn’t excuse you from being the source of blame anymore than Charlie Brown’s faith that, just this once, Lucy will let him kick the ball.

Wait… How Is This Our Fault?iStock_000010207268XSmall

Eric killed the MicroISV movement because we let him. Eric never asked to be the poster child for the MicroISV movement. Neither did Joel Spolsky for that matter. But they have been for nearly a decade because we appointed them to those positions. The MicroISV concept struck a chord with a lot of developers and micropreneurs who wanted to start their own companies and quit their day jobs. The expectations that were placed on Eric to do well with Winnable Solitaire were unrealistic and quite frankly, not in line with what Eric was trying to do.

When Eric’s product failed to produce anything remotely close to a full-time income, scores of developers abandoned their MicroISV’s and started looking for another way out of their 9-5’s. They found what they were looking for in Paul Graham’s Y Combinator program. Paul launched Y Combinator with in early 2005 and quickly produced success with companies like Reddit and Loopt. The dynamic quickly shifted and as the MicroISV movement slowly withered away, the future for micropreneur hopefuls shifted to startup companies which leverage Angel and VC funding.

Let me be honest for a minute. In no way, shape or form would I claim that starting your own software company is for everyone. But the Angel and VC funding route is a lot harder to swing for most of us and living in the geographically blessed startup hubs is merely one of those reasons. Back in 2006, I wrote an article called “Startups for the Rest Of Us” and posed the question: What about me?

At the time, I had mixed feelings about Eric’s “failed” experiment. On one hand, I felt like he didn’t really follow through with it the way he could have. On the other, I had recently left the fold of Pedestal Software which was acquired for $65 million and the lure of doing a startup and cashing out after two or three years for millions was pretty high. I knew I could build products, but didn’t feel like I had any ideas at the time which were worthy of millions of dollars of investment. I had been offered $50k as an initial investment, but ultimately turned it down. Instead,  I decided to take it slow and build my own company.

The Landscape Today

Amazingly enough, the landscape of building an internet business today is not much different than it was five years ago. All you need is a computer, an internet connection, and knowledge of how to develop software and you can crank out a product. There are thousands of resources available to help you get started. There are countless blogs, startup schools, online academies, free or reduced cost software packages for startups, and a host of other advantages that didn’t exist several years ago.

It doesn’t matter how old you are today, where you live, or what you do for your full time job. If you have a computer, an internet connection, know how to write software, and most importantly, the drive to succeed, then you can sell products on the internet and make money from them.

Eric didn’t make a lot of money with his MicroISV. Big deal. Does one failed attempt from an internet legend define a movement? I think not.

Besides, just because you start out small, doesn’t mean you have to stay small.

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How to Make Developer Certifications That Matter http://feedproxy.google.com/~r/miketaber/~3/Np36yNjbp98/ http://www.singlefounder.com/2009/11/12/how-to-make-developer-certifications-that-matter/#comments Thu, 12 Nov 2009 13:34:23 +0000 Mike Taber http://www.singlefounder.com/?p=468

Breakthrough! Jumping of happiness

Last week, I was asked by a potential business partner what I thought of certifications. I immediately clapped my hands like a giddy 3 year old at Christmas and screamed out “It depends, it depends!!!”. Ok, so maybe I didn’t really get giddy, clap my hands or scream, but in standard consultant fashion, I did say that it depends. Then I launched into a spiel about the customers we were specifically talking about who might or might not actually care about certifications and why. This made me think about certifications for developers.

Unfortunately, certifications for developers don’t mean much to other developers. If you have just one certification, people will probably look past it. But if you have a laundry list of developer certifications, other developers are going to start asking what it is that you really know. In general, I’ve found that the number of certifications a developer has is usually inversely proportional to their actual skill. Most people I talk to would agree. But why is this? There’s one simple answer.

The certification system for developers is fundamentally broken.

Certification Is Intended to Signify a Minimum Level of Skill

In some industries, it’s perfectly valid to ask that people go through a certification process. What kind of people you ask? Oh, I don’t know… maybe the guys who run the wiring in your house for example. Need to ground a wire? “Oh, just hook it to a pipe that drains outdoors somewhere. Hey, there’s the pipe from the bathtub. Perfect!”

Meanwhile, he crosses hot and ground, thus giving your wife a good jolt when you turn on the lights in the bathroom because for some inexplicable reason, she showers with the lights off every morning. Don’t ask me how this happened. It’s your wife, not mine. I just write the facts. Anyway…

The intent of a certification program is for an independent party to somehow measure your skill or ability and declare that you are reasonably competent with whatever it is you have been certified for. In the case of an electrician, a board has certified that you aren’t a complete moron and you would probably know the safety and state code violations associated with connecting a hot wire to the pipes instead of the ground. I would probably also want the EMT’s who show up in the ambulance to be certified at what they do, as well as the guys working the nuclear power plant down on the Cape. I’m sure you can think of other places where certifications are probably warranted, but remember, we’re talking about software development certifications here.

Skeptics such as Tom DeMarco argue vehemently against certification of any kind for Software Engineers. Tom makes many good points during his argument about the potential for abuse, de-certification processes and that the people who argue that certifications are for the greater good are the ones who stand to benefit from implementing the system itself.

Touché Tom.

But all of this is beside the point. Tom wrote those words more than a decade ago and our resident “hire the smart guys who get stuff done” leader Joel Spolsky didn’t have much to say about it back in 2000, instead pointing to Tom DeMarco’s original post. Today there are dozens of development certifications out there, many of which either didn’t exist at the time (MCSD) or were still in their infancy (SJCP).

So why do they exist today and what purpose are they supposed to serve?

The Problem of Hiring

Over the years, the IT industry in general has pushed for certifications because managers know how to manage, but not how to identify talent. Most people lack a fundamental understanding of how to interview new programmers and even the ones who do understand it aren’t perfect. Many are constrained by a corporate culture which forces them into accepting one of the 15 people who were brought in for an interview rather than going back to the pool of candidates to keep looking.

So the tech industry giants plodded on, in part at the behest of giant corporations seeking new and “innovative ways” of evaluating developer applicants. An entire ecosystem of software development training was born and guess what?

It sucks.

What’s worse is that everybody knows it sucks.

Certified vs. Competent

Being certified doesn’t mean you are competent. And being competent doesn’t require certification. The original intent of these certifications was to test for competence but thus far, they have failed to do so. Essentially we’re left with a truth table which reads something like this:

Certified Competent Reasonable Hire
True True True
True False False
False True True
False False False

The only influencing factor in whether the person is a reasonably decent hire is that the person was competent to begin with and certification has done nothing to improve identification of this. In fact, it has arguably made it worse because developers tend to look down on other developers who hold a lot of certifications.

Co-Worker/Colleague Opinions

I’ve never spoken with a developer who had good things to say about any of the major software development certifications. It’s not outright hatred of certifications that I’ve seen; merely indifference. The problem is that a certification doesn’t actually prove anything beyond the fact that you can take an exam and pass it. Big deal.

But what about the money? Isn’t your salary higher if you are certified? Not necessarily. Unless I’m misreading the statistics here, the most recent survey from MCP Magazine shows that the mean salary for an MCP is $77,244 and the mean salary for someone without any Microsoft certifications is $84,839. That’s a $7,595 difference advantage for not being certified. So what gives?

It’s important to note that these statistics don’t give all of the details about how they were put together, so we have to infer some of our data points. First we go back to the reasons to get certified. If the primary drivers behind getting certified are to fast track your career or lend credibility to your abilities because you don’t have a proven track record, then it stands to reason that you are an entry to mid-level programmer.

If the number of certifications is weighted towards those with less experience, they’re going to make less money than those with more years under their belts. This doesn’t mean they make less money. Just less than people with more experience, which tends to make sense. I have yet to see statistics that directly pit the salaries of certified developers against non-certified developers. I’m sure they exist, but I couldn’t find them anywhere for less than a few thousand dollars. I like my readers and all, but it just wasn’t worth the money to find out the details.

How To Fix Developer Certifications

iStock_000001171305XSmallThe fundamental problem with developer certifications is that traditionally, they don’t actually prove anything. Microsoft, Sun and all of the other major software vendors have a financial interest in making sure that their technologies are used pervasively in the world. One of the ways to do that is to expand the number of people who are qualified to implement solutions based on that technology. So they lower the bar by producing easier tests and lowering the required test scores, thus allowing thousands of people become certified in an effort to expand their reach, while at the same time ignoring the implications of diluting the meaning of those certifications.

Can this be fixed?

I believe that it can and all it would take is one relatively simple change to make these developer certification exams a lot more meaningful.

Make applicants write code and grade them on two things:

  1. how long it takes to complete a moderately complex problem relative to other applicants
  2. the number of bugs that are encountered in the final product

That’s it.

You see, the fundamental problem with these exams is that they don’t actually test what developers are supposed to know how to do, which is how to write code. All through college, you take free-form exams for subjects such as Calculus, Differential Equations, Physics, Computer Science, Software Engineering, Senior Projects and others. It’s very rare to find multiple choice exams here and the ones that do exist are so difficult that if you didn’t know what you were doing, you would get the answers wrong anyway.

Some professional exams do this well. For example the Professional Engineer Exam is a two exam certification process. The exam part contains both free form and multiple choice questions. After several months you get your results. Assuming you pass, you must continue to work in the field, provide proof of that field experience and take a much more difficult exam which consists of advanced engineering topics.

There are certain types of financial accounting exams which are notoriously difficult because they use a ladder system where at each stage up the ladder, only a limited number of people are allowed to pass. You must beat the scores of your fellow test takers, rather than beat a predetermined test score. As you progress up the ladder, the competition makes the exams more and more challenging, thus allowing only the best of the best to advance.

Using a developer certification exam with the above criteria would easily accomplish the goal of separating the mediocre programmers from the rock stars. In addition, the higher up the ladder you go, the easier it is to quantify how you relate to the rest of the developers who took the exams.

There are of course some logistical problems that would need to be dealt with. For example, most developers search the internet for code examples pretty extensively. You would need to allow searches, yet disallow chats with other people who might help someone cheat. Doing this for tech savvy developers is going to be difficult, at best. Also, developers would be much more comfortable with a configuration and software setup that mimics their own development environment. These and other problems would need to be addressed.

But where there’s a will, there’s a way and I have no doubt that if a major software vendor were so inclined to do this, it would work. This would put solid metrics on the certification exams and provide meaningful, quantitative measures in place for measuring the development ability of a candidate.

Do you agree or disagree? Please post your comments below.

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Domain Name Change http://feedproxy.google.com/~r/miketaber/~3/3stNLxjwmf8/ http://www.singlefounder.com/2009/11/11/domain-name-change/#comments Wed, 11 Nov 2009 20:35:28 +0000 Mike Taber http://www.singlefounder.com/?p=464

This morning, I made several changes to the server that runs my blog and will continue to make tweaks over the next week or two. Essentially I’m transitioning everything to slowly use the singlefounder.com domain instead of miketaber.net, which is probably what you are used to seeing. Interestingly enough, my Google Page Rank is going to be a 3 either way.

I would make all of the changes all at once, but I need to be sure that things like my RSS feed and my FeedBurner stats are still working properly. If I change too many things at once, it will take me longer to figure out exactly what caused the issue. With things like my RSS feed at FeedBurner, I won’t find out anything is wrong for a full day and I’d rather avoid that if possible.

Unfortunately, one byproduct of the most recent change is that the Tweet counters for all of my posts have been reset. An apparent casualty of war, which is fitting I suppose on Veterans day. There are a few other byproducts of the domain change, such as image links which still point to the old domain which might break in the future, should I ever neglect to redirect those URL’s properly. I’m hoping that the main artifacts of change are not noticeable for the most part, but if you happen to see something, please let me know.

Thus far, as I’m sure you gathered from my last post, the domain name change and facelift to the site are largely complete. Next comes more frequent blog posts. It’s not the writing that’s difficult. It’s deciding what order to publish them in and whether they’re good enough for “prime time”.

Stay tuned.

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Re-branding Products, Services and Companies http://feedproxy.google.com/~r/miketaber/~3/mwnZGurR4qs/ http://www.singlefounder.com/2009/11/09/rebranding-products-services-companies/#comments Mon, 09 Nov 2009 13:26:36 +0000 Mike Taber http://www.miketaber.net/?p=412

The past several weeks I’ve been giving a lot of thought to the work associated with and the consequences of re-branding something. In part, I’m talking about my Blog but also some of the products that I have developed and some of my services offerings through my consulting company. The process made me sit down, think about re-branding in general, and do some research. Here’s what I learned.

iStock_000009820211XSmall

Why Should You Re-brand?

There are a few different reasons to re-brand a product, offering, or company. The first is to shed a negative image. On May 11th, 1996 a DC-9 flown crashed in the Everglades killing 110 people. The airline that owned the plane was ValuJet. They were grounded by the government for three months following the incident. When they were given permission to begin flying again, they found it very difficult to attract customers because the public perception was that their low fares lead to shoddy maintenance and ultimately the crash. In 1997, ValuJet purchased a competitor that was one-third their size and re-branded the entire company to use the name of their newly acquired competitor. That company was AirTran.

The second reason for re-branding is to attract new customers. Sometimes even the name for a product doesn’t quite make sense. It’s unwieldy and doesn’t quite roll off the tongue. In early 2007, a company called SimulScribe was selling voicemail-to-text software and felt the company name was holding them back. They received a lot of their business from word of mouth referrals, but the name was difficult to spell and didn’t roll off the tongue.

They hired a re-branding consultant which ultimately didn’t work out. Eventually, the founder came up with the new name while on his own during a flight from LA to New York City. That name was PhoneTag. They had some challenges, but the new name seemed to work out really well. Their daily sign up rate is up 40% and the number of customer referrals has tripled. The only downside to the re-branding effort was not doing it sooner.

The third reason to re-brand is to focus your efforts, either because you didn’t have focus in the past, or because you’re trying to appeal to a sub-market. Many manufacturers re-brand their products to enter a lower end segment because they don’t want to dilute the value of their core brand or don’t want the new brand to be dragged down by the old one. For example Lexus is well known as a luxury car, but it is owned by Toyota. Dexxa is the name on low priced computer mice, but is manufactured by Logitech. There are a lot of other examples, but the key component here is making sure that the new brand doesn’t have a negative effect on the old brand or be influenced by the old brand.

Problems With Re-branding

Re-branding is a difficult thing to do correctly. It’s easy to change the name of something. It’s much harder to make it work to your advantage and in exactly the way that you intend. One of the difficulties with re-branding is striking a balance between attracting new customers, and alienating old ones. This applies whether you’re re-branding a product, a service or a blog. In a way, readers of your blog are customers. They have been attracted to your site for one or more articles that were written and subscribed for the same reasons. Re-branding can alienate some of them because you might not be focused on what originally attracted them, so some attrition is going to occur.

The same is true for products or services. A balance must be struck between going too far in the re-branding effort, and not far enough. How far you should go is dictated by your reasons for re-branding. If it is to shed a negative image, you will need to do a complete overhaul. If your intent is to attract new customers, then a mid-level change is required to strike a balance. And if you simply want to reinforce your brand with the existing customer base, then perhaps a fresh coat of paint will suffice.

No matter what, you need to have a plan moving forward. Without a plan, the re-branding process will not be as effective as it needs to be to make it work.

Re-branding The Single Founder BlogiStock_000001742051XSmall

So all of that re-branding mumbo-jumbo was a lead in to this. What follows are the efforts I’ve taken thus far, and will take in the future to re-brand my blog. I’ll post about some of my other re-branding efforts in the future, but one thing at a time.

Subscription Methods

In the past, I only offered RSS as a subscription method, but within the last month or so, I added the ability to subscribe via via email using Google Feedburner as the back end. It’s worked out well enough so far, and I’ve only had one person unsubscribe since I implemented it at the end of September. He or she might have switched to RSS, but I don’t know for sure. Other email subscribers have trickled in, but I suspect that people prefer to use RSS to manage their subscriptions instead of email. I’ve gathered a lot more RSS subscribers in the past 4 weeks than email subscribers. I’ve also started using and in only a week with absolutely zero marketing, I have a modest following of about 20 people already, none of whom I’ve ever met face to face.

The reality is that I have no good way of tracking whether I’m really getting the message out about being a single founder and running your own company from the comfort of your own home. I know others are making taking a similar journey and making it work, but I feel that the journey itself is just as important as the destination. I’d like to share that journey with as many people as possible and measuring subscribers is a much better indicator than unique website visitors.

Face Lift

Next, is obviously the face lift itself. I implemented a new theme, but the categories need to be changed up a bit because the new theme has them listed across the top of the menu bar and doesn’t display all of them. There’s a few cleanup items to do concerning the excerpts on the main page and adding a few descriptive pages to the site, but it looks a lot better than the previous SimpleX Wordpress theme I was using. I have a list of things that I’m working through right now.

New Domain Name

Perhaps the most significant change I’m making is to focus the content of the site more on how to build a business consisting of a recurring revenue stream as a single founder company, which some refer to as a solopreneur. About 2 years ago, I blogged about trying to land the singlefounder.com domain, only to find that someone else registered it a few days before I had. It had been on my radar to snag the domain name for months, but I waited because I was an idiot. Actually, I felt that I didn’t have the time to go about doing something significant with it so wasn’t willing to shell out a mere $10 for a domain when I wasn’t ready to use it. That’s prudent for some things, but not domain names.

Anyway, I contacted Scott Preston, who had purchased the site immediately after he registered it. He is a fellow blogger based in Ohio, has written a book on programming robots using Java, and seems like my kind of techie. Unfortunately, he wasn’t terribly interested in selling the domain as he had some of the same ideas I did about building it out into a place where people could leverage it as a resource for building single founder companies. Fast forward two years and he still hadn’t done anything with it. In fact, it didn’t point to a server at all. I considered making him another offer, but decided against it. I don’t know what he would have sold it me for or whether he would have sold it at all. In the end, Scott didn’t bother to renew the domain and I ended up buying the domain name as it expired without forking over loads of cash.

I’ll give the story behind how to buy expiring domain names in the next couple of weeks, but I think you’ll find the process interesting. I also managed to snag miketaber.com using the same method. If you don’t want to miss that story, subscribe now using either RSS or email. *hint* *hint*

More Frequent Blog Posts

For those of you who have been following me for the past few years, you’ll have noticed that since 2007, I’ve been rather absent. I’ve had a lot going on. I’ve added two children to my family, expanded my company, contracted my company, ridden an economic boom, suffered through the economic slowdown, opened an office, closed an office, and finished a Masters degree, among other things. It’s a lot to deal with, but I think I’ve learned how to manage it all moving forward. This past month, I’ve started writing a lot more and you can expect more of the same as time goes on. If you’ve lost faith since 2007 that I would shed some light on running a business as a single founder company, my apologies. I aim to right that wrong ASAP.

On that note, leaving comments or questions helps keep me going. If you want to help keep this blog going and appreciate the advice, distraction from reality, and general edutainment that it gives you, just post to the comments. It’s virtually no effort on your part, but does a great deal for my motivation to continue.

iStock_000009333422XSmallThis Time It Will Be Different

In any case, I intend to move forward with the singlefounder.com domain name to provide a real identity for my blog and to reflect my goals for the future. I’m still a tech geek at heart. I love writing software, I really like interfacing software and hardware; doing cool geeky things is fun, but doing fun stuff doesn’t provide the lifestyle that I want. At least not yet it hasn’t.

I’ve been self employed for more than 4 years now and I’m not quite where I want to be. I’ve come to realize that I know exactly why I’m not. It’s because I lost focus of my goals. I used to post my goals at the beginning of each year. I did it in 2006 and again in 2007. Somehow I got off track posting those goals in 2008 and 2009, but realistically I got off track long before then. You see, once the consulting business started to take off, I never reviewed the goals I had written to begin with. I just ran off into the weeds without looking at the map I laid out. Bad Single Founder, no donut! It’s time to change all that.

In a way, I feel like PC guy in the Mac commercials. “This time it will be different. Trust me.”

But this time it will be different and for one very important reason. My life has changed, and my new goals reflect that. Back in 2005 when I started my journey toward self employment, I had one goal in mind, which was to run my own company and not have to work for someone else. It’s been 4 years now and I’ve been largely successful with that. It hasn’t been quite as smooth as I would have liked, but it has worked out well enough so far. Now I have a new goal which simply builds on the previous one.

My Next Goal

To transition my situation from offering consulting services to offering software products.

Over the past several years, I’ve traveled a lot for work, averaging about 3 months of every year on the road. It was fun at first. I flew all over the US from Minneapolis to southern Texas. From Boston to Vegas. I even did work overseas, flying to Paris, Athens, San Juan and working with a client out of Australia. I’m married, but the money was great and the wife understood what I was doing. Then I had two kids.

It’s a lot harder to leave two kids at home when they’re so young, because they grow up so fast and I feel like I missed quite a few things; like rolling over for the first time, the first few steps, the first hand wave, the first high five, etc. I probably would have missed them anyway, regardless of how I was making ends meet. But at such a young age, they learn to do so much in a week that I felt like I missed a lot more than I should have due to my travels. Besides I really liked traveling at first. I loved it even. It’s very exciting to fly into a new city or country, explore it as much as you are able in the time that you have, and then go off to something new. It just doesn’t work for me anymore.

So my new focus is to run my business completely from home to spend more time with my family, while making what I hope will be a substantial living doing it. It’s going to take time to put all of the different pieces together, but this blog will serve as the place where I document the journey, my successes, my failures, and the tools I use to get there.

The nice part is that I have a much more substantial network of people to help me than I did several years ago. I have software and hardware infrastructures in place from my consulting company, and at this point, I understand what it takes to maintain a company and grow it.

I will post my concrete goals in a blog entry next week, so stay tuned for more detailed information. Just one other quick hint before I go. Subscribe to this blog. I promise that I’ll make it well worth your while as I describe in detail my successes and failures on this expanded journey.

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Blog overhaul http://feedproxy.google.com/~r/miketaber/~3/oerJr8Pv3rE/ http://www.singlefounder.com/2009/11/03/blog-overhaul/#comments Tue, 03 Nov 2009 20:42:23 +0000 Mike Taber http://www.miketaber.net/?p=409

Today I did of an overhaul on my blog, giving it a facelift and a new theme. I’ll continue working on it over the next week or so. I’ve got a lot of other changes to make before I’m done, but should be finished by the end of the weekend. I expect to fix some UI elements here and there, but if you see anything that is blatantly broken, please let me know.

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Startup Success Podcast Appearance http://feedproxy.google.com/~r/miketaber/~3/kyLQ4zszWhM/ http://www.singlefounder.com/2009/10/29/startup-success-podcast-appearance/#comments Fri, 30 Oct 2009 03:11:57 +0000 Mike Taber http://www.miketaber.net/?p=404

For anyone out there who is a Podcast fan, I was featured on a recent episode of the Startup Success Podcast with Rob Walling talking about the Micropreneur Academy. It’s one of several Podcasts I’ve been featured on with Rob over the past several weeks. I’ll highlight this and all of my other appearances on a separate page soon, but I thought I’d share this once since it’s the most recent and not everyone listens to or subscribes to the Podcasts I might be appearing on.

You can download an MP3 of the podcast for free right here.

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How to Sell Enterprise Software http://feedproxy.google.com/~r/miketaber/~3/kNvI_dNE4zU/ http://www.singlefounder.com/2009/10/29/how-to-sell-enterprise-software/#comments Thu, 29 Oct 2009 11:39:37 +0000 Mike Taber http://www.miketaber.net/?p=320

iStock_000005223179XSmallOne of the biggest differences between selling software to small businesses versus selling into the Enterprise space is the price. Most people think that it has to do with how well the software scales and it’s ability to do its job on an “Enterprise” level, whatever that it supposed to mean. Others will say it has to do with the feature sets and whether you bought the Micro-ISV edition or the Enterprise Edition. Simply not true.

The one and only difference is the total price on the bottom of the bill. And it is this total price that dictates whether or not you need sales reps to sell your software.

First, let me quantify roughly what I consider to be the different market segments. This is mostly based on my experience as a Symantec partner, so your definitions may vary but I want to give you an idea of what I’m talking about. In my world, up to 1,000 client computers is considered small to medium business(SMB), up to 5,000 is the Enterprise, and above that is Large Enterprise.

The Problem

At any given company, managers and directors have a certain level of purchasing authority. Below a certain dollar amount, they have free reign and can buy whatever they feel is appropriate and within their yearly budget without getting a signature from their manager for approval. So $50 isn’t a problem. Spending $50,000 isn’t quite as easy.

The problem of selling “Enterprise” software comes about because of the size of the company making the purchase. If I’m selling widgets for $50 each, I can sell just one to an Enterprise level company and they won’t even think twice. But what if they want one for every employee?

Suddenly the price tag for your widgets went from $50 to $50,000 for a 1,000 employee company, and to $250,000 for a 5,000 employee company. These companies make millions, or even billions but they’re not stupid. They put spending controls in place to ensure that people aren’t wasting money on frivolous things. It’s just common sense.

Unfortunately for the vendor, this prolongs the sales process from what might have been a few minutes on the vendors’ website, to one that takes several weeks or even months to complete. This is why sales reps are hired to sell into Enterprise accounts. The sales process needs to be managed from beginning to end.

What does the sales rep do?

Well, they buy dinner, they buy drinks. They make sure you get drunk and have a good time at whatever event they happened to convince you to come to. Eventually, you like them enough, or are drunk enough to blow thousands of dollars of money that isn’t yours and everyone is happy.

I’ve seen that happen, but most companies don’t really work that way. Mainly, it is the job of the sales rep to manage the sale and try to close the deal. That means determining if there’s an opportunity for a sale, and then driving that sale to its Natural End. Note that I don’t say to completion. The Natural End of a sale can be one of four things.

  1. You won the deal
  2. A competitor won the deal
  3. The sale got pushed into the future
  4. The sale died somewhere along the way

Winning the deal or losing it to the competition are self-explanatory. Sales get pushed to the future for a variety of reasons. Some are budget related, some are concerns over the product or vendor, etc. We’re going to focus on the last outcome,  which is that the sale died.

When a sale dies, it typically happens because you weren’t paying attention to something important. This tends to be the most painful outcome. If you are head to head with a competitor, at least you had a shot at it. When deals get pushed, you still have a shot, but you won’t receive a PO anytime soon.

The biggest problem with deals that die is that you wasted your time, money and effort chasing something that you never had a chance at winning. Everything you did was for something that wasn’t ever going to happen. Unfortunately, we’re all too human and think that because the customer is talking to us, we have a chance at winning.

Let me break you of that habit right now. Just because a customer is talking to you and likes you doesn’t mean they’re going to buy anything from you. In fact, it might be your best friend in the whole world on the other end of the phone who completely trusts you and it still might not happen.

Sales reps are typically compensated by the volume of sales they make, not the relationships they have with the customers they talk to. To be successful making sales at the Enterprise level, you need to spend  your time working on deals that have a good chance of landing, and avoid talking to customers who are either unwilling, or unable to make a purchase. So how do you tell the difference? Enter the sales methodology BANT.

BANT

BANT is an acronym which stands for Budget, Authority, Need, and Timeline. Without all four of these things, any deal you’re working on is going to die before you get a PO. This methodology technically is applicable to any sale, regardless of the price. But it becomes a lot more important at the Enterprise level where you are spending human resources chasing a small handful of customers. A sales rep can only talk to so many customers in a day, but a single website can “talk” to millions of customers all at the same time. So what do these terms mean and why are they important?

Budget – Make sure that whomever you’re talking to has a budget for whatever you’re selling or that they can get one. And remember that just because someone says they can get the money, doesn’t mean that they can. You can have all the ROI justifications you want in your back pocket, and if they don’t have the cash to spend, it’s just not going to happen. Spending $1 million now to save $10 million sounds great, but if they don’t have $1 million, it doesn’t matter.

Authority - Is the person you’re talking to the guy or gal who makes the final decision? Does he put his name on the PO? If not, you need to find out who does make the decision and talk to them instead. It’s ok to ask to talk to this other person. If you’re afraid of offending the person, then you’re in the wrong business. Always try to talk to the person in charge. You can convince every single one of his minions that what you’re selling will really help them out, but at the end of the day, they’re not the ones who have the authority to make the decision. Without speaking to him or her, you won’t know if there are other projects that take precedence.

Need - Is there a genuine need for what you’re selling? At the personal level, luxury items like chocolate and nice cars are not absolutely necessary. A Honda gets you to the same place as a Ferrari. It might be slower, but it gets the job done. Find out if what you’re selling is a necessity, or if they can get by with the way things are today.

Timeline - How long can things go on the way they are without addressing the issues that your product or service would address? If you sell RFID tags which help companies do inventory, ask how long they can do their inventory manually. If they can go forever, move on to the next lead. Remember that you can’t push a rope.

Summary

It’s important to make sure that the people you’re talking to have the ability to move forward and make a purchase. If they don’t have the ability to move forward, it doesn’t matter how badly they want what you have to offer. It’s a little unnatural to avoid calling people whom you’ve started to develop a relationship with, but it’s necessary if you want to make the best use of your time.

The fact of the matter is that this methodology applies whether you’re selling Enterprise software or dish detergent. Understanding the methodology behind the sales process is the key to being successful, no matter what it is that you’re actually selling or who you’re selling it to.

Do you have a favorite sales methodology that works for you? Leave a comment and let us know.

Sales reps are typically compensated by the volume of sales they make, not the “quality” of the customers they sell to.
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A lesson in economics for the CFO of Microsoft http://feedproxy.google.com/~r/miketaber/~3/tRNCjSwuJ-I/ http://www.singlefounder.com/2009/10/27/a-lesson-in-economics-for-the-cfo-of-microsoft/#comments Tue, 27 Oct 2009 13:16:20 +0000 Mike Taber http://www.miketaber.net/?p=302

I happened across this little tidbit a few days ago and was a little surprised that someone as high up as the CFO of Microsoft might actually think this way.

Microsoft CFO Chris Liddle had this to say on a conference call after their Q3 earnings report.

Businesses’ reluctance to upgrade PCs, he said, has to fade eventually. “This can’t continue forever,” Liddell said. “Eventually those PCs wear out and have to be replaced. We hope and expect (the refresh cycle) to be next year.”

I realize that picking on Microsoft is like trying to hit the broad side of a barn with a rock, but this is just so easy I can’t help myself. Really Chris? Are you kidding me? I’m sure that as the CFO of Microsoft, you probably think that computers break every three years like magic. The warranty on the hardware expires and *POOF*, the computer dies and is thrown in the recycling bin, along with all the Microsoft software that was installed. Naturally, this happens in every company around the world, and naturally they all rush out and buy a brand new computer and brand new software for every employee as soon as the first one breaks.

The reality is that it just doesn’t work that way.

Skeptics who read my blog are going to point out that he said “eventually”. I’ll concede the point that “eventually” everything is going to wear out, but he “expects” that to be next year. Computers tend to be different than most other physical goods and if this recession has shown people anything, it’s that doing a full hardware refresh for the entire company every three years is no longer necessary. In fact, I would argue that it hasn’t really been necessary for the last three years. So what makes the next three any different?

The answer is absolutely nothing.

Companies across the world said loud and clear “We’re not going to upgrade our operating systems to that piece of garbage you call Vista.” And you know the kicker?

NOTHING BAD HAPPENED!

Amazing. Just absolutely amazing. People still bought new hardware though. So, lets talk about why.

Corporate Hardware Refreshes

Companies have a tendency to replace PC’s every 3 years because they want to, not necessarily because they need to. From around 1995 – 2007, companies were conditioned to buy new computers for every employee every 3 – 5 years because the hardware was so dramatically improved in the course of 3 years that they could see instant productivity gains. At the time, buying newer hardware was a relatively inexpensive way to get great productivity increases out of workers for relatively low cost. Moore’s law essentially held true and every 18 months, processing power would double. This loosely translated to doubling the speed of computers every 18 months.

Then the speed of silicon hit a brick wall and it wasn’t cost effective to get faster processors. But Moore’s Law persevered for a bit longer and on May 25, 2005 Intel released the Pentium D. With that release, multi-core processors started to take over the market. Instead of faster processors, you have more of them in a single chip. And the business world was content with the Pentium D, Core Duo, Core 2 Duo, Athlon MP, Athlon XP, and all the other multi-core processors that came out.

Suddenly,  it’s 2007 and Microsoft releases Vista and it bombs hard core. People still refresh their PC’s because they think they need to, but they choose not to upgrade to Vista, instead choosing a 5 year old operating system for their brand spanking new hardware. Now here’s the problem.

All these companies bought dual processor computers with beefed up hardware specs because that’s what it would have taken to run Vista. Compliments of Wikipedia, below are the minimum hardware requirements to run Vista.

Windows Vista system requirements[51]
Vista Capable Vista Premium Ready
Processor 800 MHz[60] 1 GHz
Memory 512 MB 1 GB
Graphics card DirectX 9.0 capable DirectX 9.0 capable and WDDM 1.0 driver support
Graphics memory 32 MB 128 MB
HDD capacity 20 GB 40 GB
HDD free space 15 GB
Other drives DVD-ROM

And here are the specs for Windows 7:

Minimum hardware requirements for Windows 7[94]
Architecture 32-bit 64-bit
Processor 1 GHz 32-bit processor 1 GHz 64-bit processor
Memory (RAM) 1 GB of RAM 2 GB of RAM
Graphics Card DirectX 9 graphics processor with WDDM driver model 1.0 (For Aero)
HDD free space 16 GB of available disk space 20 GB of available disk space
Optical drive DVD drive (only to install from DVD/CD Media)

You’ll notice that the hardware requirements to run Windows 7 are basically the same as they were for Vista.

No business in their right mind bought a computer in 2007 that had a 1GHz processor. Not even notebooks were that lame and netbooks didn’t exist yet. At a minimum, they were at least 2GHz and had dual-core processors because that’s what it took to sell computers in 2007. Computers today are not significantly better than what was available in 2007, as much as Intel, AMD, Dell, HP and all the other computer manufacturers would like to have you believe. All of this means that the hardware refresh rate can be extended for those PC’s bought in 2007 with virtually no ill effects.

Some pretty smart companies over the past few years figured out that if you can extend a hardware refresh from every 3 years to every 4 years, the company will achieve a substantial 25% yearly savings. If you extend it from 3 years to 5 years, it becomes a 40% yearly savings. That means that a company with 1,000 employees using computers with an average cost of $1,500 are going to spend $500,000 on hardware alone every year if they do a complete hardware refresh every 3 years. If they are able to extend it to four years, they’ll save $125,000 each year and extending the hardware refresh to 5 years, saves $200k every year.

When the guy in charge of the IT budget is being forced to do more with less each year, he’s going to quickly realize that buying new hardware for every drone in the company isn’t going to help him do his job. He’s going to find places to cut the budget which doesn’t involve the lost of his employees. The hardware refresh cycle is the perfect place because there’s very little downside and a huge upside.

Why Companies Refresh Hardware

There’s a short list of reasons why companies use a 3 year hardware refresh rate.

  1. They have money to burn
  2. They’ve always done it that way
  3. The hardware today is so much better than it was 3 years ago
  4. The warranty on the hardware has expired

That’s about it. Until a few years go, the first three were true. They’re not anymore. As for the fourth, it’s called a warranty. Most major computer vendors offer 3 year warranties on computers for their corporate customers. Depending on your vendor, you may be able to swing a 4 or even a 5 year warranty for just a fraction of the cost. Replacing parts is a heck of a lot cheaper than replacing entire computers, so they’ll save buckets of cash by extending the hardware refresh, whether they get extended warranties or not.

Back to Microsoft

The latest hardware refresh has obviously been delayed for quite some time and it is impacting both Microsoft and the major computer vendors. As the economy improves, we’re going to see a lot of companies that initially pushed out their hardware refresh commit to it and spend the money. Microsoft will probably still sell millions of copies of Windows 7 and Bill Lumbergh’s stock will go up 1/4 of a point.

Unfortunately, many of these companies are going to realize that the latest hardware refresh didn’t do them a bit of good beyond renewing their hardware warranties. The next hardware refresh will get pushed out even longer as companies realize that it just isn’t necessary. When that happens, Microsoft is going to be in real trouble, as are the PC manufacturers whose major revenue source is selling hardware.

Earlier this year, Dell bought Perot Systems in an effort to boost their lucrative services arm and compete better with HP and IBM. Smart move. I think they see this coming and realize that the virtualization trend isn’t the only thing working against them. Moore’s law has been undergone a transition such that it now applies to overall computing power, not just raw speed. Past a certain point, 99% of corporate employees just don’t need more computing power. It’s going to waste. So why should you upgrade those PC’s?

The smart answer is: You don’t.

Microsoft needs to start looking ahead beyond Windows because it’s not going to be a cash cow for much longer. The fact that people are still using an operating system that is bearing down on 7 years old is telling, especially when it’s in preference to a more recent release. It means that customers don’t see a compelling reason to upgrade. This is part of the reason that Apple is doing so well with the Mac.

Without a compelling reason to upgrade, customers aren’t buying new licenses or upgrading old ones and Microsoft isn’t making nearly as much money. Microsoft uses the money they make from Windows to fund other business lines, so if the margin on Windows starts to falter 5 years out, they’re going to have to make some hard choices. It makes me wonder if I’ll even care in five years. Will you? Let me know your thoughts by commenting below.

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Outsourcing for Entrepreneurs http://feedproxy.google.com/~r/miketaber/~3/YTt9q_udRLI/ http://www.singlefounder.com/2009/10/13/outsourcing-for-entrepreneurs/#comments Tue, 13 Oct 2009 13:43:09 +0000 Mike Taber http://www.miketaber.net/?p=291

If you’re an entrepreneur, you should try to outsource as much as you can possibly get away with.

In the tech industry, ‘outsourcing’ is a dirty word. Outsourcing. The very word invokes thoughts of high technology jobs being sent overseas from the US to be fulfilled by people in India or China. This is seen to be unfortunate for tech workers in the US. It’s a widely accepted misconception that if you don’t speak English well, then you’re somehow less intelligent. If you don’t speak English at all, you’re somehow better off than if you spoke it poorly. No English means you never learned and it’s not your fault. Poor English translates to idiocy. This is obviously wrong, but I digress.

What many people don’t realize is that outsourcing is an entrepreneur’s best friend. Now, before you track me down and smash my car headlights with a baseball bat, let me explain what I mean.

Most businesses outsource various functions and it’s widely accepted as standard practice. Don’t believe me? Go look up the definition of “outsource“. I’ll wait.

Done yet? I didn’t think so. Seriously. Go read the definition, it’ll take you 10 seconds and prove the point I’m about to make.

Basically, the definition of outsource is to subcontract work, to contract work out, or to obtain goods or services from an outside supplier or source. While in the paragraph above, I mentioned outsourcing from the US to China, that’s not in the official definition at all. The idea of outsourcing to China or India are connotations of the word that we have become accustomed to. To help out the every day entrepreneur, I’ve put together a list of five things you should always outsource which illustrates the areas for outsourcing that you can clearly benefit from as an entrepreneur.

1) Payroll – You can do your own payroll, but it takes time and effort. You can also be on the hook for any mistakes that you make. Is it worth it to do it yourself? In my experience, it isn’t. Payroll services from either ADP or Paychex will only cost you around $25 per pay period. If you assume it would take you an hour to do the work, then $25/hour isn’t a bad price. If it would take you 2 hours, then this is an absolute bargain. Unfortunately, as companies expand beyond one employee, the cost increases for each employee and it can add up quickly. Most companies still outsource this function, if for no other reason than to shift liability and to get the benefits of direct deposit.

2) Tax preparation & Accounting – I still do my own accounting, mainly because I feel like I need to have a solid handle on my business finances. On the other hand, I haven’t done my own taxes in ten years. I remember the first year I owned a business and tried to do my taxes on my own. Ten hours later, I wasn’t even half way done. I cut my losses and paid H&R Block to do them from scratch. It took them two hours and about $350.

3) Health/Dental care – I’m not going to bother buttering you up with this one. I know some doctors self diagnose and all, but I’m hardly a qualified physician, and even if I was, I can’t write myself a prescription for Vicodin, as nice as that might be sometimes.

4) Website/Email hosting – Website and email hosting is one of those situations where if you know enough about running your own server to be dangerous, you can easily make the wrong choice. There are a lot of things you need to think about if you’re going to host your own website and mail servers. I’m not referring to colocation or dedicated hosting. I’m referring to running a server out of your basement/office that is publicly accessible and hosts critical business services. There are so many things that you need to worry about. Sure, it’s cheap enough to take an old computer that’s lying around and slap a Linux distro on it, but what about a static IP address? It costs a lot more for that. How about UPS backup systems? Tack on a few hundred for a good one. And what happens when the power goes out for two full days? Your measly UPS isn’t going to cut it. I actually considered doing this for a while to save myself an extra $50/month and eventually decided against it. When your business depends on things like this, it needs to be reliable. There are plenty of low-cost alternatives out there.

5) Legal services - This is basically the same as health/dental care. You’re just not qualified to do it. If you know what to look for, you can certainly cut down on the amount of work that your attorney has to do by pointing out your concerns, but don’t think that you can completely replace him. There are nuances to the law that you’re just not familiar with.

There are certainly many other things that companies outsource, but this list clearly illustrates a number of areas where most companies outsource services and don’t think twice about it and you should too. These forms of outsourcing are perfectly acceptable because for most companies, it is not the core business to provide health or dental care for anyone, let alone company employees. The same goes for payroll services or utilities. Last I checked, I wasn’t aware of any company that had a giant hamster wheel in the back of the factory where workers could run to turn a generator so the lights would stay on in the warehouse. For the record, if the “employee hamster wheel” ends up in a Dilbert cartoon, I want the credit.

There are two fundamental reasons why a company chooses to outsource a particular task or job.

1) It is not your core competency.
2) It is not cost effective to perform the task in-house.

Obviously, if you don’t know how to do something, then you should outsource it. But number two is a lot trickier. Most entrepreneurs know how to do a great many things. That’s why they’re entrepreneurs. The trick is being able to differentiate between what you need to do yourself, and what you could do but makes more sense to outsource from the standpoint of either time or money. I’ve been giving a lot of thought to what time really means to an entrepreneur. Time is far more valuable than money. Once spent, you can’t get it back. I read that somewhere once, so I won’t be taking credit for it. But it’s so very true. If you know where that came from, please leave a comment and I’ll give credit where credit is due.

The bottom line is that if you have the ability to outsource a job or task, you should seriously consider it if doing so is going to save you time or money. What are your thoughts?

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Tips on negotiating a great consulting rate http://feedproxy.google.com/~r/miketaber/~3/f8T648l5jqg/ http://www.singlefounder.com/2009/10/12/tips-on-negotiating-a-great-consulting-rate/#comments Mon, 12 Oct 2009 13:32:34 +0000 Mike Taber http://www.miketaber.net/?p=283

One of the more difficult parts of being a consultant is determining and negotiating your rate with a customer. Consulting is a lot different than product based sales because you can generally charge whatever you think you can get away with. The first few months of my consulting career, I was charging $67.50/hour. It took several iterations for me to find out what my time and expertise was worth, but eventually I did. My rate increased to $70 for my second client, $90 for the third, $120 for the fourth, and eventually peaked at $275/hour.

The key to making good money as a consultant is to know how to negotiate your rates. This is not a skill you generally learn in college. It takes time, practice, and even if you’re good at it, you don’t always get what you want.

A Recent Experience

Recently, I had the distinct “pleasure” of competing against another company for a relatively short contract. The initial engagement was only intended to be a week, but the potential for more work existed. How much more work had yet to be determined, and it was by no means guaranteed.

My competitor bidding for the same work was another consulting company based out of the Midwest. This particular customer is in downtown Boston and given that I’m only a short 45 minutes away (with no traffic, which NEVER happens), I figured that given the standard rates, I should have won hands down due to travel expenses for my competitor. It didn’t quite turn out that way.

My competitor lowballed the deal by nearly 1/3 and went so far as to include travel expenses. I knew for a fact that they were in trouble. They had been cutting employees left and right and earlier this year they let a consultant go just two weeks into an eight week engagement for a client. I understand the customer was pissed, but that’s not my business. The point is that I knew my competitor was desperate, but I couldn’t fathom how far they’d go to win a single week of work.

Making cash with nothing but your computerI was notified by the customer that I would need to match their low-ball rate via a 2 minute phone call in order to be selected to perform the work. I knew the customer had a preference for a local resource and that aside from my company (Moon River Consulting), there aren’t any other options in New England. Before I finish this story, let’s get into a few rules of negotiating.

Tip #1: Never be the first to mention a price

Standard practice for negotiating anything is to let the other person state a price point first. This establishes the minimum or maximum price. It also tells you whether or not you are in the right ballpark for whatever it is that you are negotiating over. For example, if you are going for a job interview and they ask you what the salary is that you are looking for, then you’re in a difficult position to be able to play this game. If you state a number that is too high, you’ll be disqualified. If your desired salary is too low, then again you’ll be disqualified because they will think you don’t have the required skills, regardless of whether you do or not.

Your goal is to land somewhere in the middle, and preferably at the high end of their price range. Unfortunately, they’re simply not going to tell you what that is unless you ask. If they were willing to pay $70k-$90k for the position and you only asked for $70k, chances are that you’ll end up with less because you set the maximum price by saying $70k.

In every case, someone has to mention the price first or everyone goes home. Companies will generally tell you what their expected range is up front in order to save time, but if they’re looking to save money, a lot of times they’ll simply say something like “salary commensurate with experience”. It’s garbage, but you have to live with it.

When negotiating a consulting rate, you will probably be asked flat out to name your price and there’s no way around it. When this happens, you are setting the maximum bar at which you will get paid and need to negotiate down from there. You might want to pad your number a bit to give you some room to negotiate. Don’t be afraid to pad this number if you’re sitting at the table doing a negotiation. If the negotiation is taking place via email, dodge the question and push for a time to talk. “It depends” is a classic consulting answer and it never ceases to amaze me how well this phrase applies to any given situation.

Tip #2: Never negotiate against yourself

If you’re the first to name a price, never let the other person tell you that the price is too high and ask you offer a lower price. This is known as bidding against yourself. There are two problems here. First, you are giving up ground in the negotiation without the other party doing the same. I’ve seen this happen and I’m sure I’ve been guilty of it myself. Second, you will unintentionally give up more ground than you intended to.

For instance, if you are negotiating a consulting rate, most companies will ask you flat out “What is your hourly/weekly rate?” and the expectation is that you have to tell them. Again, you can’t always avoid naming the price first, so this is pretty common. Just make sure you are in the same ballpark as others who offer similar services. But when they tell you that your rate is too high, ask them what they would be willing to pay or what they see as reasonable. If you say $100/hour, and then drop it to $90/hour, you’ve just given away $400/week and received nothing in return. You haven’t even established the bottom yet, so you have no idea if they’re willing to pay $50/hour or $10/hour.

The point is, don’t immediately counter a resistance to your rate with a lower rate, even if you’re desperate for work. In fact, especially if you’re desperate for work. People like a consultant who is confident in their rates, but able to justify them with a list of happy customers who paid that much. Just don’t cross the line into cocky. Prospective customers will walk you out the door and eventually, out of business.

Tip #3: Don’t negotiate your price until you are ready to

Through a long-time friend, I met a guy in Philadelphia several years ago who was interested in having some programming work done for his business. He didn’t want much more than 10-15 hours per week and was looking for what I thought was pretty basic PHP and mySQL work. My thinking was that it was just a meet-and-greet to establish a relationship and then we’d go from there to discuss the work that needed to be done and the rates for that work.

Maybe 5 minutes into the conversation, he asked me flat out what my rate was. Now, in keeping with Tip #1, I tried to dodge the question and was a bit vague, saying that it depended on what he needed done. He pushed hard telling me exactly what programming languages were to be used and how many hours of work each week he was willing to pay for, so I had little choice but to name a number and it was pretty close to our standard consulting rates in the small enterprise space. Immediately he jumped all over it and said it was too high and waited for my response. I certainly wasn’t going to negotiate against myself, so I asked him what he felt was reasonable. Of course he low-balled it at $25/hour, which we both knew was way too low.

I never knew what hit me. It couldn’t have been more than 5 minutes later when we “agreed” on $50/hour and he ended the meeting quickly, saying he had to get going. As I walked away with my friend, I shook my head wondering what the heck just happened. We hadn’t even reached the bar when I realized that $50/hour didn’t even cover my costs, let alone make me any money. In fact, in all my years of consulting I’d never charged as low as $50/hour. What was I thinking?

This is a nice lead in to the next tip, but I haven’t finished with this one so here’s the lesson. If you’re not ready to negotiate a price, don’t. This is really hard to do when someone jumps into negotiating your rate or calls on the phone unexpectedly because you get excited about landing more work and new business. Play it cool. You need to tell them that it’s not a good time and that you will need to reschedule the conversation. Sit down and give it some serious thought, then reschedule. Otherwise, you’re just not prepared or in the right state of mind to negotiate properly.

Tip #4: Establish the lowest rate you can accept and don’t budge

From the previous paragraph, I obviously made two mistakes at the same time. First, I wasn’t ready to negotiate. I had intended to feel out his personality and find his hot buttons, but when he immediately launched into negotiating, I got too jumpy and played the game. Bad idea. Second, I had given absolutely no thought to the minimum rate at which my developers could work for to break even. It didn’t even occur to me until after we’d concluded negotiations. By then, it was too late.

Decide for yourself what the lowest rate you can work for is, and don’t accept a penny less. Losing money is no way to stay in business.

Tip #5: Be ready to walk away if it’s not going to work out

Too many consultants make the mistake of reducing their rate further and further until their prospective customer accepts. You’ll never get ahead this way. If you do good work, people will hire you. You want your rate to increase over time, not decrease. If a customer only has a budget of $2,000 and can’t get a penny more for a week of work, you’d better be willing to work for just $50/hour. If not, you need to walk away and find another customer.

Any retailer will tell you that when you sell at a loss, you can’t make it up on volume. At least not without cross selling other items. It’s “Ok” to do something very short term to lose less money on a particular week or to land a longer term arrangement for more money, but don’t make a habit of it. If a job isn’t going to make ends meet for you, then you need to walk away and find one that does.

In the previous case of my abysmal Philadelphia negotiation, I eventually ended up walking away. There was no reasonable way to renegotiate the rate. For the money and anticipated length of the engagement, it just wasn’t worth the effort.

Back to my story…

After receiving my unexpected phone call regarding dropping my rate, I decided to delay things a bit. I could have agreed to the rate decrease immediately, as it was simply an offer to “match this one, and you win”. However, I wanted to think it over. The last thing I wanted to do was commit to the lower rate, only to end up in a bidding war and have my competitor cut his rate again, forcing me to match him at another lower rate.Make the deal

I also thought about whether or not the customer was bluffing. After all, I had no proof that my competitor had indeed slashed his rates to the bone. Most retail stores operate with a policy of “guaranteed lowest price” by asking the consumer to show them a competitive advertisement listing a lower price for any product. A store will virtually never sell a product at a significant loss, for fear that customers will take them up on it. But the onus is on the customer to provide the proof that the competitor is offering a lower price.

This brings me to the last tip.

Tip #6: Take what a customer says about your competitors’ rates at face value

Was my customer bluffing about the rate of my competitor or no? Maybe, but I’ll never know. I basically had two options. I could either accept/deny the rate decrease, or I could ask for proof, trying to call his bluff.

Had I called his bluff, there were only two possible outcomes and neither was going to be good.

1) If he was unable to produce proof of the competitive rate, then I could probably have maintained the same rate. However, I would have also been calling him a liar. I somehow doubt that calling a customer a liar is going to encourage them to hire me.

2) If he was able to produce proof, then I still called him a liar because I didn’t believe what he originally told me.

This was a lose-lose situation if I were to attempt to call the bluff and I think he’d have gone with my competitor in either case. Ultimately, I accepted the lower rate because I wasn’t going to lose money on it and I knew it would hurt my competitor a lot more than it would hurt me.

Summary

Before you start any negotiation, make sure you know what you want, know what the minimum is that you’re going to accept, and be ready to walk away if you need to. If you’re not ready to negotiate, don’t. Ask for more time or to reschedule, citing a need to do some research or give some thought. Simply saying that you’re not prepared to discuss it is an honest way to handle the scenario. It tells the customer that you’re not brash and are willing to think things through. They may not want to wait, but this does a lot for your credibility as someone who understands how businesses operate.

Last of all, remember that negotiating your rate isn’t about you winning or losing. You need to ensure that you and your customer both get what you need. The key is to establish a long term relationship with your customers so they keep coming back for more consulting services when they need them. If you nail them to the wall during every negotiation, eventually they’re going to walk away and find someone else to work with

Good luck, and happy negotiating.

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