Creative Destruction

It has been several months now since we started to inform our clients that we would be changing to a business owner type relationship and employing staff to do the day to day work. As you may have read in previous posts, most of our clients could not deal with either the increase in costs to market rate instead of the cheaper rate we were charging, or they could not deal with the change in trust situation and teething problems that come about with employing new people and creating a business.

However, we still had one very large client who seemed happy. However, yesterday we had a very good chat about progress and our client detailed very clearly that the trust relationship is with us as individuals and not as a company. They will be very interested in working with us once we have got our offering solid, but until then they will not be using our services other than offering us as much consultancy as we liked.

They did ask me to work for them full time which I politely declined.

They were very happy with our work, very happy with the work our employees have done, but as we have not got the full time client managers in place yet and don’t have the full company service yet in place, they will wait until we are ready.

We have not been able to fully implement the company as a solid entity mainly because we have still been finishing off consultancy work on a daily rate for this big client. There is therefore a gap in what we can offer as we switch from self employed to owners. I am not available for them at all hours as I previously was, and they now have to book my time rather than expecting it. We definitely need to employ someone who is available during business hours dedicated to a specific client.

This is the last big client that we have and it is a shame we will not be working with them for awhile.

(There is still some work for me to complete as a consultant and some from my hired contractors to finish but that should be complete in about 6 weeks).

This is an important realisation for me. I have built this business up from nothing for five years as a business where we work in the business. I have had to completely lose all of our clients in our efforts to move to a business ownership type relationship.

This is obviously worrying on one level, but refreshing on another. We will be able to completely start over again with our new plans. It is not for the feint hearted.

We are very nearly there now with finishing our business plans and have almost completed our new website and sales materials. We have a few more items to iron out, such as how we will employ a full time client manager, whether we look for a partner in the business or funding to cover his wages.

We should be ready to launch into the world in about 2 months. This will be after my son is born and we have had some time to be at home together.

This process of creative destruction is what Alan Greenspan talks about as being at the core of capitalism. It is what drives business forward and creates wealth. It also creates stress and anxiety and it is a balance of these two forces that either grow or stagnate countries and individuals. Winston Churchill said that an entrepreneur is defined as someone who goes from one failure to another without losing enthusiasm.

I don’t count our business as a failure in anyway, as it was exactly what is was designed to be, but if you apply this to creative destruction, I think Churchill’s observation  applies. An entrepreneur is someone who can consistently perform creative destruction and never lose enthusiasm.

The saga continues…  

 

 

Update on the business asset

Update on the business

I have been focusing on writing posts for spread betting a lot lately, so I thought it was time to update on my progress with turning my self employed business into an asset, and me into a business owner.

You may remember that I had decided to reduce the number of clients we had, in order to remove those that were not be financially viable when employing other people. These clients tended to pay us under the market rate and we were really working for them for historical reasons. We gave all our clients notification of our price increase (about 1.5 times our old rate). This is still not full market rate, and is less than we would charge new clients.

Only the very largest of our clients could deal with the increase to our new rate. We tried to help our clients wishing to find alternative providers to find someone new. However on all occasions everyone else in the market place is charging as much as our new price or more.
This has left our old clients in a bit of a quandary and they are trying to find other self employed  people who will work for much less than market rates as we were doing, but is a great confidence builder for us as we now know we are well priced in the market and not under priced.

This has left us free to focus on our much larger clients who understand the need to charge competitive rates, can afford to pay us and who value our service regardless of the increase in cost.

Our remaining clients have at times been very helpful but as I detailed in an earlier post have had problems changing their perspectives of us as a freelance company to a proper business. It has taken time, but we have proved that we can manage bigger projects well (better in some cases) with contract staff instead of us doing all the work. They are still not completely confident and some big projects that they have had, they have given to less able companies, but more established, so I know we have a long way to go to convince them.

An example is where one of our clients asked us to scope a big project for them, we put together the plans for the project and got excited about the new challenge. They then took our plans and gave it to a less able company and gave them all the work! I asked why they had done this and they said they feel the other company is more established and if something goes wrong more liable. I felt this was extremely rude to us, and I declined to work on the project at all as a paid consultant as they had asked. They wanted my skills to guide the other company as they were not as able and pay me my day rate. Basically they could accept we were a viable company and only wanted me as a freelancer still, this was very frustrating in the short term.

However, not one to complain or make a scene, I quickly realised that the way forward is to find new clients who meet us for the first time as a business.

By freeing ourselves of all clients who have not been able to adapt either financially or psychologically has left us in the situation where we are earning less then we were for ourselves but have freed up an enormous amount of time for strategy, growth and winning new clients.
(I have made sure we are earning just enough to cover our basic outgoings to ensure we do not reduce our net worth or asset buying capabilities)

For the past month or so, we have been working on a brand new business plan and structure for our new web site. The site is nearly finished, but the textual content still needs writing as this will come in part from our business plan when it is finished.

The plan now is to finish the planning, update the new website, get our promotional items together, and possibly recruit a new business / sales director.

We will look to start getting our new clients after my first child is born in September.

As soon as the next phase is complete or if there are any more interesting steps along the way, I’ll write about them here.

 

An extremely hectic week

Its been a hectic week and there is a lot to write about. I attended the Trader’s University course at the weekend, went to see our business mentor and our accountant to discuss long term financial plans and also made some fundamental decisions about our business.

I will write about the trading course in a separate post. It’s half written already, and I will post that here when it’s done.

Our business mentor, gave us some good clarity on the ‘glass ceiling’ we have been bumping against. We are battling with ourselves trying to convince our clients to treat us more like a company but it seems that once they think of as a self employed person, it is very hard for them to change their perspective. The trust is built upon the person, not the company. It might be we have to start again, get some completely new clients and start afresh.

I have been talking to my brother about him doing some work to get our website finished so we can start pointing people to it without having to apologise for it!

Our accountant cum financial planner was very helpful in outlining some of the advantages of pensions, especially tax advantages. I am still not completely convinced about a pension, but the idea of having a flexible tax efficient and disciplined way of investing our money does appeal to me. I will write a post about this as I learn more.

We have also decided to overhaul our insurances as we are both under insured and now we have a baby on the way, it is becoming more important.

So all in all a productive, slightly stressful but sunny week.

Oh yes, I placed my first spread bets yesterday. I’ll let you know how it goes.

 

The journey continues

I have been very busy for last week so have nto had a chance to keep the blog updated. We took on a contractor in our business in our efforts to change the self employed business into an asset. (See earlier post)

Although one contractor has been excellent and done a great job, the other was not up to the standard required. As a result both my wife and I have been putting in 12 hours days or more to complete the project on time.

It is extremely difficult to change the attitude of wanting to do it all ourselves, especially when the client is very demanding.

The project is nearly there now and we have learnt quite a bit.

We are going to do a lot more technical testing when we take on a new developer. We will also test more for communication skills as this was a big problem.

Also, next time we will require some contingency in the project plan for at least one developer to leave for some reason and for us to get another developer in, without jeopardising the plan.

We also need to charge more per developer to the client, so that the risk and cost of having to recruit another person is covered by the increased charge.

There may still be some more work to do for us, as there is not enough to get someone in now, but hopefully the bulk of it is done. We can then go back to planning our strategy and not working in the day to day.

We have also booked a meeting with a financial planner on Thursday next week. Hopefully they can also give some good advice.

I’ll let you know how that goes.

 

Changing a self employed business to an asset

I started the process of changing my self employed business into an asset today. Having worked out the amount of expenses, the cost of replacing myself with a contractor and the risk involved in cash flow, I worked out how much of an increase in the daily rate I would need to charge my clients to make a profit.

I have started making contacts with recruitment agencies to see what they can offer me and how fast I can find the right staff.

I have looked at all the extra things I would be able to offer my clients if I wasn’t snowed under all the time doing the day to day work. Some things could be included within the service and some could be added extras.
I have begun work on putting together a contract and initial offering of what these might be and have discussed the idea with my largest client.
The idea has gone down well and although there is still much to work out, the transition hopefully will go smoother than I thought.

More work and projects may well be put my way, now that the clients know I will have more capability by taking on additional staff.

I need three staff to cover my expenses; there is enough work for at least one possibly two people, so I will need to win another client to make up the rest.

I will continue to write here with my progress.