One of the biggest fears I had in getting into all of this was the tremendous investment I feared would be required to actually develop the code. I came from the world of big enterprise software where development is slow and expensive.

Not that the developers weren’t fantastic – they were talented and opinionated, very opinionated It’s just that the paradigm was different. Big software releases happened every year or two, had tons of new features, had to run on multiple platforms and had to be bulletproof.

So when I first developed the concept on the app we’re developing, I assumed that it was going to cost a lot to build – originally I assumed at least $50k – $100k. What I soon discovered gave me the encouragement and cash to go ahead with the project…

Two key aspects of our project substantially reduced the development cost:

1. Software as a Service. We wanted to build this app as a service versus the old fashioned download-install-run model. That meant no multiple platform requirements, no installer, etc… All the stuff that adds tremendous cost without value for the customer.

2. Built in Product Manager. We were not looking for a full-service development house that had project managers and extra layers of overhead. I wanted the type of relationship I was used to: me as the product manager and our hired development guns as the development team. That eliminates a lot of overhead cost.

So I did up my specification (more on that in a later post) and went out to collect a couple of bids… And was blown away by how little this was going to cost!

I should note, that I didn’t go off-shore as I wanted to see the white’s of the team’s eyes. I wanted to sit down over a beer and make sure we all understood the requirements. I want to sit down over a coffee and make sure that the schedule is one I can count on. I was worried that remote development would add a bunch of barriers to communication that would counter-act any cost benefits.

In the end, I found a great team right here in Ottawa who gave me an aggressive but credible bid. And we’re off to the races.

Of course, this is software development so schedule and requirements churn is to be anticipated. But because I’ve got the right team and the right price – I know we’ll get there in the end.

In fact, this model is quite liberating. With the barrier to develop so low, the consequences of failure (from a sunk cost perspective) is also quite low. Which means that if one project doesn’t succeed for one reason or another, you can always try again with your next great idea…

Although that won’t be the case for us – this one’s a winner!

C.

The pro’s and con’s of incorporation are pretty well documented (liability, tax treatment) and as soon as your microbusiness becomes more of a going concern (employees, office, etc…) it really is mandatory.

What really surprised me is what my buddy was told by his lawyer – that it would cost thousands to incorporate. I was pretty shocked.

Now, I want to be very clear. I have nothing against lawyers per se. I view them as any other business professional who provide a service for money. Nothing evil, no malice. But they do exist to make money – like the rest of us.

So when my friend got his verbal quote for incorporation, it probably incorporated all sorts of good stuff (shareholders agreement, minute book, name search, etc…). But the real question is do you really need all. Especially, as a micro-business owner, this comes right out of your pocket. That’s right, we’re talking beer money!

I know all the lawyers in the audience will say that there are a million and one risks unless you do everything they recommend. The way I look at it is: 1. If you’re starting a micro-business, you’ve already accepted a bunch of risks much greater than this legal stuff, and 2. My doctor keeps telling me I’m only allowed one beer a day and I don’t listen to that either.

I contrast the role of a lawyer (make money) with that of the government department here in Canada that is responsible for incorporation: Industry Canada. Their goal is to make it as easy as possible to do business ’cause that’s good for the economy. I know that sounds oximoronic, but it’s true. Canada is the #2 country in the world for ease of starting a business (see all the gory stats here).

What did we did:

• Did a name search (you can do that through Industry Canada for $20 or your lawyer) – regardless, it’s cheap.
• Went to Industry Canada where you can incorporate on-line for $200. There are several forms but they are easy to download, complete and submit.
• That’s it…

We didn’t do things like shareholder agreements (there is only Colleen and I) and corporate minutes as they simply weren’t necessary for incorporation and for our simple structure.

Having said all this, two points:

• Do talk to your accountant. There is a myriad of financial stuff that needs to be considered (like picking the right fiscal year, initial funding of the corporation, etc…) which has an immediate and material impact to your money.
• At some point, some of the things you ignore are going to need to get done. For example, after five years, we did up a corporate minute book (a record of board of director meetings, etc…). It provides a record you’ll need if you ever want to sell the business or get additional investors – and it get’s more difficult to find all the paperwork with each year that passes. But you don’t need it to start.

So, I guess the moral is that when it comes to engaging your lawyer, think of him/her like any other professional – they provide a valuable service but you need to decide what is mandatory versus nice to have.

Just like if some high-tech guy came to your office and told you that you need a double-redundant T1 line to ensure business continuity: sure it’s a nice to have and there is a risk without, but it’s money that can be more directly invested to generate revenue. ‘Cause without that, there is no business.

C.

P. S. I am not a lawyer, this is all my opinion, take all advice at own risk, always consult an attorney (huh? didn’t you just say not to?), etc…

But it’s not all work – last week we got to have some fun. I say fun in that I think we all occasionally enjoy catching someone doing something bad and then exposing the act for all the world to see.

In our case, it was some who had been stealing articles and letters from other sales trainers and posting it as their own material. In fact, in some cases, they had even been selling them as white papers – again all based on ripped off material.

We found out from someone who had googled an excerpt from one of Colleen’s article and found it on another trainer’s site. Then the fun began…

We did the right thing – attempting to contact the person involved to get some explanation. But none was forthcoming. In fact, in the interim, more people came forward to point out other works that this same individual had been stealing.

So this begs the question – what do you actually do? It’s pretty easy to get frothy, exclaiming that you’re going to drag this person’s ass into court and take their home, their car, their first born, etc… But it’s always important to think about how much you’re actually willing to spend (dollars and time) versus the damage being done.

Lawyers are expensive, legal action is time consuming.  You really need to think about what outcome you’re willing to pay for. For us, the biggest issue was to ensure that we’re getting credit for our own IP. We could achieve that without going directly to court. Instead, we sent of the following letter – ensuring the guilty party knew he was caught.

And it achieved exactly what we had hoped. The site that had the offending articles was taken down and I suspect Bob won’t be stealing from others any time soon.

The other benefit, it terms of getting that warm and fuzzy from making life hell for those that transgress against you, was that in the process the guy’s reputation has been trashed. As the expression goes (a la MasterCard): Suing someone in court, $1,000,000. Ruining their reputation and destroying their way of life, priceless.

Now, one problem that can occur is if someone rips you off and they aren’t held accountable. It can be seen as a dangerous precedent – showing others that they can do the same. So, you may be faced with the situation that unless you “invest” in taking legal action, you will lose more in the long run from repeat transgressions against you. In the patent world, it’s not uncommon to set a precedent by suing someone who infringes on one of your patents – just to show the world that you don’t tolerate the behaviour. Then, hopefully, you don’t have to do it again (patent lawsuits can be very expensive – $2M+).

So, keep you eyes open for people taking liberty with your intellectual property and copyright material. Once in a while, Google a common term or expression you use. If you find someone stealing from you – do something. It doesn’t have involve a trip to the courthouse but you must set the precedent.

C.

There is one operation in our business that I’ve recently become an outsourcing convert to, though.

The other day, our book-keeper came to us and said that ADP (the payroll giant) was making a big drive into the small business market and had a good deal. I was skeptical – we were managing payroll in a largely manual fashion which was time consuming, but cheap.

It was painful though – cutting cheques, tracking payroll tax, etc. And the only other service we’d looked at for payroll was through Quickbooks – which was not cheap and still required a lot of manual gyrations.

But ADP made us an offer we couldn’t refuse: for $12 an employee per month, they’d do it all. Calculate all the right deductions, calculate the payroll taxes, withdraw the money from our corporate bank account, make the direct deposits to employees, pay our tax with-holdings and payroll taxes and generate pay statements. The whole 9 yards. Here are the details…

In fact, I was originally quite skeptical – how could they make money from us? Well it turns out they have an interesting business model. They withdraw the money from our corporate account three business days before pay-day. Aggregate that over all the businesses, and that’s a lot of cash. Cash that can be leveraged. So, even if they don’t make money on us, they make money on our float.

So, chalk this one up to an outsourcing win. Doesn’t happen very often…

C.

P. S. Unfortunately the T4s aren’t free. There is a small charge for those ones… Still cheap though!

I was feeling great, purusing our Quickbooks-generated income statement showing some profit and a healthy increase in sales year-over-year. The one last thing to do to wrap a bow on things was to figure out how much we owed in taxes.

Now, I’m sure our tax regime is different in many ways from other places, but there are some constants. We pay business income tax and do so in installments throughout the year. So at the end of the year, you’ve being paying income taxes all along so everything will be OK. Right?

Well, it turns out that you are paying your tax installments based on your previous year’s results. So at the end of a given fiscal year, you look at what you paid in installments and compare that to your final tax bill based on your actual results.

If things don’t change that much, then life is good. You may have to pay a bit or get a bit back. But if things change – especially for the better – you are in for a rude surprise.

So I popped off a preliminary view of our results to our accountant and asked him what our tax bill was going to be. He wrote a very nice note back, congratulating us on our results and indicating that our tax bill had risen by 1000% from last year. Yes, dear reader, my finger did not get stuck on the “0″ key.

Turns out we had gone from breaking even to making some profit. And of course, I had failed to consider that when the cash was coming in. So, here we are at the end of the year with a big tax bill that we hadn’t been saving for.

Now, luckily, our tax bill doesn’t have to be paid for another couple of months so we have some time to scrape together the cash so we’ll be fine.

And we also have a great accountant, Nick. He’s helped us with strategies to deal with our lack of planning. Things like how to defer revenue – that is to not count sales you make in one year when you’re delivering the product or service until the next. And how to increase your expenses in one fiscal year by paying yourself a bonus in the next. Note: every one’s situation is different – speak to your accountant.

The real lesson learned is that you need to look at your financial progress along the way, at least once a quarter, and do an ongoing assessment of your tax situation. If sales and profits are up, stash away cash for your tax liability so you don’t get surprised by a big bill.

C.

For the last couple of weeks, we couldn’t figure out why no one was opting to join the coaching program. After all, it’s a tremedous value that delivers a host of resources to make an immediate and lasting impact to your sales. Just click here to… Sorry – I got carried away…

We were confronted with the ugly prospect that we are marketing losers, unable to do a basic upsell. Faced with this, I took the next logical step: find someone else to blame. Luckily I did!

As it turns out, our marketing software had broken. They had released a new version and done a crappy job of testing. So for two weeks, when our prospects finished their run of sales tips, they were not getting their upsell pitch. They weren’t getting as much as a Thank you and come again…

So I called my friends at Infusion (the software company) and asked Wat Up?!?!?  The response: Yeah, we know about that. I was dumb-founded. I was losing money and they didn’t let me know? The excuse: We weren’t sure how many users were impacted.

I can forgive software bugs. I have been around the industry long enough to know that s**t happens. What I can’t forgive is not being notified. If I had been notified I could have done manual follow. I would have been grumpy but I would still have business continuity.

When companies hold back this information, it is because they are being huge wimps. They don’t want to get beat up and deal with complaints. It’s tough – I’ve been there. I’ve been physically threatened by customers not happy with the fact there is a bug and the resolution time frame. But that is life in software. Deal with it.

You want to make customers really mad – hide the truth from them. Then when they find out (they always do) and realize the damage done, it is medieval time.

Here was my response to Infusion:

…You have to remember that most of us rely on this for our livelihood. I can tell you first hand when there is a bug in Infusion where a marketing campaign doesn’t run or a credit card doesn’t get processed, my pay goes down. Nothing ignites passions like one’s wallet.

And to be frank, most business-to-business software companies do a far better job at transparency with known issues. I cannot count the number of times that I’ve called Infusion support with an critical issue and been told that, “oh yeah – we know about that.” Yet at the same time on this forum, there is no mention of the bug under “known issues.”

Top this up with the frustration of a new application that has broken many, many things. While I question the prioritization of a new interface versus stability and features, regardless the new app appears to have been released prematurely.

What I expect from Infusion is a table, updated daily, with the following:

1. A list of every open Pri 1 and 2 issue. No filtering just because the number of users impacted isn’t known.
   
2. A statement about who is impacted by situation. For example: “users who perform this type of operation…”
   
3. Any known workaround. Even if all that can be done is check that one has the problem and do some painfully manual workaround.

I have been around the software business for a long time. Let me assure you, you will lose more customers by hiding serious issues than by coming clean.

Chris Voice

How about you? Are you honest with your customers? Even when you look bad?

C.

Why? Well, basically it’s a heck of a lot cheaper and faster to sell to a current customer than a new customer. That improves profits. And if you keep customers for multiple transactions, then you can afford to lose money on the first. That means you can out-spend the competition to get that first customer and then keep them to turn it into a profitable relationship.

In many industries, it’s all about who can spend more to win the customer.

And that reminded me that on the flip side – in our business – I need to fire a few more suppliers for whom I am a repeat customer.

Ok, not fire per se, but check to make sure that we continue to get the best deal possible. Once you start to do business with a supplier there is a fair bit of impedance to switching. You may have a personal relationship and as long as you’re getting good service, you don’t question their prices. It’s convenient to go back to someone you know – they understand your business and give you what you.

And there in lies the rub – they’ve won your business and don’t need to be aggressive with pricing going forward. And in a micro business, cash is king – it’s your salary.

Our process is that every year or so we look at alternative suppliers for everything we do. I’ve written before about how changes in technology providers’ business models really help micro businesses. It applies to all your suppliers.

For each supplier, we typically look at two or three alternative – getting quotes for what we need. As long as we’re happy with our current service, we give the current supplier the opportunity to match the pricing. They usually do. And if they won’t – you need to switch.

Just last week, we cut our CD reproduction costs in half, just by giving a couple of other shops a quick call and getting a quote.

Sometimes it’s a tough conversation with your supplier and people can even be offended. But remember – if they aren’t giving you their best price, they are taking salary out of your pocket. Are you so concerned about their feelings that you’d take money out of your own pocket and give it to them? That’s called charity and has no place in a business relationship.

Make it a point each year to get a couple of competitive quotes for every supplier in your business. They are making their profit on your repeat business. Make sure they deserve it.

C.

I always get a bit frustrated when talking to people about marketing as most assume it’s pretty much the same as advertising. The image many have is a bunch of people in a conference room engaging in random right-brain exercises. It almost sounds like a party. In fact, back in my former job, we actually used icons of stick men with martinis (shown here for your enjoyment) as a representation of marketing.

The reality, of course, is much different. Marketing is a discipline and the objective of my first class this week is to ensure that the myth is put to rest.

One of the simplest ways of doing that is to ask: What is the most important tool a marketeer must master?

My answer is the spreadsheet. Especially in a micro business, you cannot effectively market if you can’t master Excel. You simply can’t manage what you can’t measure.

And what is one of the most important things you need to manage: your Return on Investment (ROI). In other words, your job is to maximize the revenue you get from your marketing investment.

A real life example from our business is Google AdWords. We use AdWords to advertise on a bunch of sales-related key words. What we do is we advertise a free ten day eCourse with ten of Colleen’s best sales tips. Then we offer folks that take the eCourse, a membership in Colleen’s monthly sales coaching program (where we start making money).

So we need to determine our investment:

     = Click throughs  x  click through cost

And we need to determine our return, first with the number of customers we get:

     = Number that click through  x  % who sign up for the eCourse  x  % who purchase the coaching program

And multiply that by how much revenue each customer is worth. In our case:

     = Average number of months a customer stays in the coaching program  x  per month charge.

That is a fair bit of math, but it’s critical to determining if the investment in AdWords is worth the return.

First of all, it’s critical to ensure you’re getting more revenue back than you are investing. I took us literally months to determine the best strategy for our use of AdWords. For example, originally, we tried to get people to purchase the coaching program right from the ads but the conversion rate was too low – we were losing money. We then moved to the multi-stage conversion with the eCourse and voila – we made money.

There is definitely a right-brain part to marketing and that makes this measurement stuff even more critical. In our example, prospects will respond differently to different Adword ad wordings. So we have a couple of ad variations and we measure to see who each one performs. So now we’re doing the math above twice.

And we have different landing pages from the Ad with different text for the eCourse sign-up. So now that’s 2 x 2 = 4 different sets of numbers.

In other words, we continually test and refine our marketing to discover what works best, implement it, and do another test. You can only figure this out by running the numbers.

This applies to all your marketing. Every marketing effort needs to be likewise tracked. Every article and ad we use has a unique tracking code so that we can determine how many people click and if they ever buy something. Otherwise, we’d literally be guessing if we were making or losing money (aka gambling).

Are you measuring your marketing? If not, then you’re not managing it. Write down a list of all your marketing investments in descending level of investment. Start at the top, fire up Excel and start measuring. I bet you’ll be surprised at the results.

C.

One of the reasons why I’m glad is I was completely frustrated last week just as we were winding up before leaving to drive to P.E.I. As I’ve mentioned before, I am always loathe to outsource activities that we can do ourselves. With the exception of where we clearly don’t have the skills. Things like accounting, large volume printing, etc…

Well, I found another one. I’d like to think that I’m not a completely useless as contract negotiation. I’ve been fortunate to work on deals big and small in the high tech community. Folks in these negotiations run the range from reasonable to out-right snakes. But at least I could always figure out a way to make a deal happen.

Then I went up against the hotel industry. And I was ill prepared.

As I hope you know (and our encouraged to attend), we hold an annual event in Ottawa. It’s been growing every year so we now need to plan quite a few months in advance. So off I went down the list of of hotels that we were targeting.

One by one I called and one by one, my attempts to do business with them were thrarted. Not because we didn’t agree on terms. Because I was told no dates were available, my event wasn’t big enough or they simply couldn’t be bothered to return my phone calls. It was like they didn’t want to do business with me at all.

Finally, I started to deal with one hotel who suggested a date and told me that our budget would fit. Awesome.

Then came the delays: I’d turn around contract comments in one day, they’d take one week. We’d agree on something verbally, then it wouldn’t appear in the contract. The final straw came when after one month of back and forth, the hotel announced that in that month they had had a lot of bookings and to secure my dates, my price had gone up, by 75%. All happening the day before our vacation.

In other words, after slow-rolling me for a month, they jacked up the price because of the delay from their slow-rolling. I walked away.

So, I now realize that I do not have the time, patience or Machiavellian acumen to deal with the hotel industry. I contacted a great event management company Colleen had met and asked them to make the problem go away.

Some things I did learn:

• Room count is king. When booking an event far out, the hotel will be looking for a large room commit.
• Without a big room count, they’ll be looking for a very big food and beverage commit.
• Booking something just a couple of months out can be done, but it’s relying on the hotel not having moved all their meeting space and looking to fill it.

And, consider an event planner when looking at conducting a good size meeting – even if just for contract negotiations. As they say, never bring a knife to a gun fight.

C.

So the other day I was going through my amorphous pile of photos from the past ten years, thinking that I really should do a purge. I have to admit I did a quick calculation of the value of my time versus just buying a bigger hard drive. The latter won.

One thing I did do is take note of our trip in ’05 to Hawaii when we went to Kauai and saw the spectacular Waimea Canyon. But it was the sudden flashback of panic that really got my attention. As some may know, I am deathly afraid of heights.

In the Waimea Canyon, one hikes for 10K along very, very, very steep cliffs. In fact, I still remember following a particularly narrow path with 3,000 foot drops on either side (see photo). My panic was peaked to a near “Sir Robin” level when Colleen, who was following me, stepped on the back of my shoe, tripping me (when I got home, I did check for any unusually insurance purchases). Never has the expression, walking a fine line, been so viscerally real.

Often in our business, I feel like I’m walking a fine line between revenue and expenses. That’s not that dramatic, but what I always forget in that process is actually there is a third factor that is even more critical to manage related and seems much less deterministic – cash!

I’m definitely spoiled from my big corporate experience. While the CFO and his team constantly worried about cash, the business decisions were largely made on generating the right return on investment in the right time frame.

In our micro business, even if revenues equal expenses – they are lumpy. Which means cash can float negative and positive throughout the course of affairs, even if the business is breaking even. And some expenses can’t be dodged or delayed – like employee payroll or taxes.

The tool that I’ve seem most often used to address this is the line of credit. We had one in the business that could be tapped in case of those negative cash swings. Interest rates are quite low so the borrowing costs from interest weren’t that bad. What ticked me off, though, was the non-interest fees.

I dug into our banking charges one day, only to find that we were paying something like $30 a month just to have the line of credit and another $200 a year for an annual credit reassessment. So, even in the last year when we didn’t use the line of credit at all, we paid over $500 in fees. Screw that.

We were very fortunate over the last year and Colleen, our selling machine, managed to generate a very healthy revenue flow. Rather than ramp up expenses, we put the extra cash into our own contingency fund and eventually built up the equivalent of three months of operating expenses.

That way, pretty much anything short of a full disaster could befall us and we’d be OK for cash. And we don’t need that expensive line of credit any more. Even our banker couldn’t argue with the strategy (our banker from RBC, by the way, is fantastic).

So, do a couple of things regularly:

• Review your bank records to see exactly what fees you are paying and for what.
• When you do your revenue and expense planning (you do that already, right?), plot your cash impact.
• If your revenue is healthy, think about managing expenses so you can throw off some profit and build your own war chest over time.

By doing those things, we’ve been able to get our cash situation under control. Except for the meeting we just had with our accountant who pointed out our huge tax liability because of the profit that allowed us to build our contingency fund. Now – where do we get the cash for that. D’Oh!

C.