Quite often sales is like dating. The no-no’s in the land of courtship are exactly the same cardinal sins of the land of sales. Talking about yourself through the whole meeting. Never asking any questions about your date’s situation and needs. Taking the time to ask those questions, and not listen to their answers. Thanking them repeatedly in a gushing and desperate manner for meeting with you. Forgetting to make a friend. If you were a gecko on the wall of a meeting where those occurred, you would probably wince, laugh or both. And yet we have all done them.

Peter and I often talk in detail about sales, and yesterday, the conversation fell upon one of the most detrimental sales bloopers: walking away without booking another meeting in your calendar. What is your goal if you go out on a date? Have fun, land another date.

We have been chasing a contract with a large server software company for some time now. Peter made a friend, demonstrated our technical capability with a savvy, professional demeanor. Heck, we even landed the sucker. We helped as much as we could to maneuver the maze that is AP. Then, a few weeks ago we got a call. Our sponsor was quitting the company.

Quitting?!?! Who is replacing you? We have a PO but no check yet! Is the project dead? and on and on … you get the idea. After a bunch of in house brainstorming, we concluded that our goal was to keep the communication going. Book a meeting from a meeting. As long as we have a meeting in the calendar, the sales cycle is not dead. To make a long story short, we got a meeting in the books (though tragically we got stood up by the new director of our ex-sponsor’s department last week), and now need to figure out how to get this company back on the calendar. Is the deal dead? Without another meeting, that is quite likely.

I was so afraid of being pushy, I didn’t even lead.

Most independent contractors I know hate sales. Why?

I don’t like conflict and don’t want to feel pushy. For a long time, I was too nice. I was so afraid of being pushy, I didn’t even lead. Quite often, the most important part of the sales process is to know the next step and guide the prospective client through each phase.

In a nutshell, we build software. We have successfully completed hundreds of projects. How many websites or applications has our potential client built? More often than not, the answer is zero. We know the routine down pat. If you take that into account, who would be better equipped to lead the process – a busy and often overwhelmed client – or an experienced software professional?

We know the next step. Rather than waiting for the client to magically divine what happens, why don’t you just tell them. Our sales success rate has gone way up since we started being direct and leading. Most of our clients genuinely appreciate being guided through what is going on and what to expect.

Setting Expectations

Have you ever watched a very close basketball game, where the score bounces back and forth. Your favorite team even drops a little behind. Adrenaline is pumping, your emotions roller coaster (and you aren’t even playing). If I walked up behind you and said, “Oh I saw that game earlier, CAL wins,” and you are anything like me, your entire roller coaster ride just ended. The drama of the game just doesn’t affect you if you know the outcome.

The sales process is quite similar. If you knew exactly how this whole process ends, then there is no reason to get all rilled up. Some of you may love being lion tamers and keeping everything a big mystery, but I prefer a calm and happy prospect. So I tell them, this is how the whole bidding and project will happen and how it ends. If they have their expectations set early and correctly, then your odds of winning go way up!

I have been thinking about sales during a recession and how it has to change just a little. You see, when opportunity abounds, you land projects and can afford to screw up just a little. If a client doesn’t become a repeat customer that is sad but not a killer. In a recession getting the gig is important, but keeping the customer with a solid win is the difference between staying in and going out of business.

The pivotal moment in setting up a long term win is in your initial sales process. SET THE RIGHT EXPECTATIONS. Often as contractors, especially software developers, we are perma-positive and wildly optimistic. Peter & I meet with the head of UI at SAP yesterday and were joking about managing software teams. “Oh, you want moon landing software – 2 weeks. Pace maker code – thats 2 weeks. From our engineers, everything takes 2 weeks.” When you are dealing with a client, the way you win is to exceed expectation and those expectation are set before you even win the project. So set them carefully.

Sales Checklist

I have a checklist that Tom made for me to review before and after each sales meet. It helped me walk into a meeting with a game plan and my own expectation in line. It was composed of five simple questions.

Did I:

Make a friend

Establish credibility

Listen and find a need

Book another meeting

Ask for a referral if they were not a fit

Simple, but in the heat of the moment, I still struggle to remember and act on each of those. Sometimes I get grumpy. Other times I am a total chatter box. A few weeks ago, I had such a great time making a friend, I forget to find a need. I can’ tell you how many times I forgot to book another meeting and as a result spend weeks trying to get back in touch.

So, from me to you – good luck with your next sales meeting. May you be a little better than you were in the one before!

A quick question to everyone. I have been wondering if you are altering your sales tactics as part of the changing business climate. What is working and what is not?

I often find myself people watching as I work in coffee shops. A parent trying to explain to their toddler why it is not okay to scream at the top of her voice. The owner showing his employee how the coffee has to be brewed in a certain manner. The teenage girl offering coy glances to the guy next to me all dressed in leather and tattoos. The man in a suit to my right, chatting on the phone with a potential client, answering their questions. The puppy at my feet staring at me patiently hoping I might drop some crumb.

Too often, as contractors, we associate sales with the slicked back hair, polyester suit of the hollywood 70’s car salesman, when in fact you and I sell each and every day of our lives. When my wife and I decide to go to a movie this evening, I really wanted to go see 10,000 bc. I spent 10 minutes carefully steering us towards the movie I was excited to see. Any time you have an interest in the outcome of a situation, sales comes into play.

I love watching the kindergardener in the grocery store trying to explain to his father how “cool” the super frosted chocolate sugar cakes are. Sales is an inherent part of basic communication. We have speech to communicate, in order to build consensus. How do you build consensus? You share the reasoning and value of your perceptions.

Stop Talking and Listen

I meet too many independent contractors who turn sales into the gigantic boogie man. Sales is nothing but a conversation. A place where you listen, and if you happen to be lucky, you have he opportunity to be of service. I always genuinely appreciate someone who has the ability to solve a problem I am facing. So quit trying to talk. Just keep asking yourself, can I help this person?

Service is Sales

Yesterday Peter had lunch with a new client who in the course of dialog, enthusiastically recommended her mortgage broker. Karen shared that the broker actually connected her directly with a lender because he knew she would get a better deal. Now she swears by her broker and trusts him with literally millions of dollars. Often I’ve found that by placing someone’s interest before your own, by truly helping them if it is in your power, you build a bridge of trust that lasts a lifetime. You achieve a sale the same way you make a friend. You earn their trust.

Life Sales

Perhaps it is time that we stop separating sales from life. That we accept that every conversation is one of listening and of sharing. That earning a new client, picking a home with your spouse, getting your children to brush their teeth, convincing your surf buddy to go a noon instead of two. That life is sales.

A lot of lessons I learn come from personal tragedies. I am incredibly grateful that this is not one of those. I got lucky. Quinn sat me down when I was starting and told me:

Make sure you put a certain amount of your earnings aside each and every time you get paid. It is not your money, it is Uncle Sam’s.

I’m not going to write a big old post on taxes. I’m just not that cruel. The tragic tax yo-yo is quite simple and easy to avoid. I see too many business owners in that position. You make money, you spend it. Make more, spend that too. April 15 comes and BAAM … you owe Sr. Sam $25,000 in taxes. Problem is, you don’t have it because you already spent it.

A lot of first time business owners fall into that trap. So, you file an extension and work hard, saving up the money to pay the tax bill. You have a great six month, squeak by and come September, you manage to eek out an addition 25k. Taxes get paid. Thank god that is solved. You forget all about it, until February when you meet with your new accountant who looks at your projected tax basis and your bank account and … oh damn not again. This game of yo-yo is a tough one to get out of. There are two ways to deal with it: never fall into it in the first place (Thanks Quinn) or be frugal and figure out how to save up enough to get out of the trap. It is never too early to start preparing for taxes.

So how much should you save? Look at your projected income for the year, figure out what tax bracket it lands you in, tack on self employment taxes and park it. Depending on my earning at the time, I set aside 25-45%. That money gets transfered into a separate high interest savings account (ING Direct for us) and is not touched until tax time. I have always over saved, which usually makes for a very nice April bonus!

Oh – and check you get all your 1099s. You should be getting them any day now (deadline in the US is Feb 1). Make sure they have the same numbers as you do on your books, entered your name and your Tax ID correctly. I have had a dozen or so be incorrect over the years.

We had one of those epiphanys on Sunday while walking down the street to surf Sharks (inspiring name huh). Peter & I were discussing the value of attending TED in 2008 and whether it is worth the $12,000 it costs if we manage to get tickets. For a 12k entry cost, he wanted to make sure that beyond learning, we drove some business from that investment. As we walked along, Peter wondered out loud how we could find an opening to give our elevator speech when we met people. After all, it isn’t your standard technical business conference but more of an orgy of learning.

I thought about it and bit and realized, we don’t. We go there to make friends. We meet cool people who are as passionate about learning, people and technology as we are. People who can afford a $6,000 ticket and a week in Monterey, Ca. If you made a good enough connection, you follow up later. That is when you talk business.

The epiphany: All sales is nothing more than making friends. Giving your elevator speech, using the word which, all that crap, does you no good if you didn’t make a friend. As my wife told me not too long ago, stop thinking so much about your business and just try to have fun for goodness sakes.

I was all alone…

Very few people who know me today believe this, but I was very, very shy growing up. I went through this phase my freshman year in college where I quite lonely. I didn’t know how to talk to people. I had just broken up with my girlfriend, who was my best and only friend at the time. The weird part was that there were 20,000 students at UC San Diego and I never felt more alone in my life. People walked by me in the thousands and I couldn’t seem to connect with any of them.

I’d grab my longboard and skate down to Blacks to surf through the sunset into the night. Once I couldn’t paddle anymore, usually in the dark, I would climb back up the cliffs and sit in the that dip in the ridge where the warm wind blows up through the canyons. Staring at Orion, I would wonder what this life was all about and why I was so bummed out. After a few months of this, I made this resolute commitment to myself that I may not know how to talk to people and make friends, but by god I would figure it out, one way or another.

This was a conscious and determined process that lasted about 4 months and completely changed my life. I consider it the foundation to all of my current success, in my friendships, in business, in sales and in my marriage.

Weeks 1-2: Look People in the Eye

I started by watching people. I immediately noticed that the happy confident students looked people direct in the eye. I’d always felt uncomfortable doing that, like it was confrontational. Maybe I was just afraid of what someone might say or how they would react. So I set a goal for myself. On the walk between each and every class, I would look one person in the eyes. I have to say right now that it wasn’t exactly the miracle I was looking for. People usually looked at me funny, either with a curious or awkward look. I finally asked Becky, an acquaintance who eventually became a great friend, for some insight.

Weeks 3-4: Smile

“You just always look sad or focused.” she explained. I thought about that. I was actually feeling much better than I had in a long time and was pretty darn happy. I told her that I was in fact quite happy. She laughed and the poked me, “Then you might want to notify your face.” It was then I realized that looking into someones eyes while grimacing in discomfort, probably wasn’t going to make anyone my friend.

Most babies spend a good part of their day smiling. So, why do so many adults need to learn how? It still blows my mind that I had TO LEARN how to smile.

The first week my cheeks and the back of my head hurt from smiling so much. My muscles just weren’t used to it. I went around and smiled at everyone. Frankly, I would probably have scared you during those first few days if you had walked past me. This tall, skinny, barefoot (yup), long haired white kid would suddenly look up from the ground, stare you in the eyes, go from a grimace to a half grimace, to a 1/4 awkward smile, then sigh it relief as he looked back down. Kind of like a being slimed by the stupid green blob from ghostbusters. It got easier though, and people started to smile back. In fact, a lot of people did.

Weeks 4-8: Say “Hi”

The smile was rocking it. But, I wasn’t being swamped by a million new friends. I realized that most people would not start talking to me, I was going to have to take the initiative. So after many, many hours debating the best opening line to use when I was out and about, I decided to go with the absolute suavest, surest win. Hi. Then run. At least that was how it started. I took the look in the eyes, slipped in the smile, then said hi. And walked on. Did it over and over. People said hi back to me. Some added a few more words. Conversations came to life. By the end of winter quarter, I had a few people I was starting to hang out with. I made friends that took me all through my four years of college.

Weeks 8-now: Shut Up and Listen

Once I realized that people liked me (or seemed to), 18 years of word burst forth in a massive tidal wave. Gratifying for me, amusing for some, annoying to most. I’ve always believed most people have a natural number of words that need to be shared in a particular period of time. Most quiet people are great listeners. I was not. Lost some friends.

Back to basics. Look in their eyes, smile, say hi, shut up. I practiced listening and being interested in what people had to say. I realized I wasn’t that different, most people love talking about themselves, and the greatest show of appreciation is to listen with interest. In fact, I can usually spend 20 minutes listening attentively to someone talk about themselves and their life, say virtually nothing at all, and they will walk away thinking: “my gosh what a nice guy. We had the most interesting conversation.”

Sales is making friends

Most of our gigs don’t land on the initial contact, nor the second, not even the third. They come from having built a relationship with someone and being top of mind. What do I mean by that? When they think of us, they have an instant positive emotional reaction: “Gosh that guy is nice. I’d love to talk to him some more.” and maybe “It really would be fun and productive to work with him!” The goal of my initial contact is so that when I email them a few days after we initially meet, they are willing to make time out of their busy schedule to chat and talk business.

Next time you go to a mixer, ask yourself, “Did I Make a Friend?” If I call in two weeks, will they remember me?

As someone mentioned to me just a few days ago in a few comments on Christine’s post on sales at self-made, the core principles of sales and dating are pretty much the same thing. You want to make a friend.

So let me ask you all, what are some of the tips you have for making a lasting impression? How do you make it from small talk to long talk to friend?

Will you be my friend? I promise to listen to you and respond to all you comments. With feedburner’s help, I have put together a friendship subscription form if you would like to hang out with us regularly in the future. Oh, and if you liked it, help us out and digg it and Reddit it!

We just finished our business retreat and I am pontificating our one year goals. Last year was a huge year for us as we transitioned from two professional technicians to budding entrepreneurs. A little time in the woods, some long walks on the coast and we come out of seclusion with a strong vision and some big goals. All right, let’s do this:

In 2008, we are going to gross a million dollars and still have a life.

Now, if I laid that statement at the feet of most contractors, some might say “that’s cool” and offer a generic smile while others would certainly laugh at me. After all, we are a pretty long (long, long) way from making a million this year.

I can hear the voice now. I knew that guy in high school. There is nooo waaaaay he can make a million dollars. And the voice is right. There is no way that we could pull that off. But what they don’t know, and maybe you don’t know, is that we are not afraid to change. We will change and grow and become the leaders and team it takes to achieve the goals we are setting.

The first step, as esteemed personal growth and change expert Steve Pavlina would coach you to do, is to clearly define the intention and announce it off the top of the hills (mountains, if you got ‘em).

Using Fear to Pick your Goal

The fact is that most of us are filled with fear every time we approach something new. There is nothing wrong with that. It is the normal, healthy response of a sane human being. Personally, it has been a great companion in the adventure that is my life. Like a road map.

I’ve found my fear to be pretty useful in a weird business context. Peter hates this, but the way I pick goals for our company (being the CEO I get the prerogative) is to keep pushing the bar mentally until I feel myself getting unconformable, then nervous then afraid. That when I stop and mark the goal. I’ve always felt that a goal that does not make you stretch is not a goal at all, it’s a task. Should all goals make you stretch? Yes, I personally think so. What are you just a little afraid of? We are afraid of a million. So we decided to demystify it.

I’ve been afraid of a lot of things. I was afraid of going independent and crashing and burning. I was afraid of owning a home and having a $3400/month mortgage. I was afraid of living with Julie. I was afraid to travel through the Middle East. I was afraid of college. I was afraid to surf 15-foot waves. I’m afraid to speak in public. I’m totally scared about being a good father. And yet, all of these are the highlights of my life.

Announce the Goal

To a Million and Beyond.

I start by announcing it to myself. Since I became independent, I’ve been saying that some day I will gross a million, then earn a million. And from a financial perspective, our crew has not missed a goal by more than a few thousand dollars in five years. We have a habit of setting financial goals that scare us and then achieving success. That habit and our history gives me confidence. We are ready for this challenge.

If we are going to pull this off, we are going to need a bunch of positive affirmations. To be clear though, making a million for me isn’t about the actual dollars, it’s about the lives we touch. Peter & I believe we can gross a million, because we believe we can build a team that can gross a million. Today, we support 6 families with our business and provide periodic money for a few others. That fact makes me feel completely alive. The idea that we could support 15 families fills me with fire. I don’t know about the details of how we will gross that million, but I do know how we will build the team to do it.

So I started by IMing a few people around midnight. I think Tea’s answer was my favorite:

Shane: so we are going to make a million next year
Shane: just letting you know
Tea: lol thanks
Tea: i can sleep now aha

She then shared her goals (she can share them herself, ahem – ahem, i she wants). I can’t wait to be part of helping them come true. She’s got the two cutest kids (Jules just turned 2) and I honestly believe Perth will give her the key to their city some day.

You got to tell everyone, especially your team. Anyone who thinks they will make a million all by themselves is in for a tough ride. After all, if we gross a million, who do you think will get most of it (hint: not Shane and Peter).

I’ve been reading Robert’s book ‘Flying Solo‘ and though I’m half way through it and am pretty jazzed on the book, the title turns me off. No one truly flies solo. It is thanks to the support of our friends, family, mentors, business team, industry compatriots and more that we succeed.

Why do you announce?

I proclaim our goal for two reason.

First, I keep noticing that whatever I really focus on and mention out loud over and over and over tends to eventually come true. I think it has something to do with our level of awareness of opportunities. I remember when I first bought Deucer, my Ford Focus (aren’t you all impressed?). The next day I was driving around thinking, “Jeez, how many people went out yesterday and bought a red Focus? This is ridiculous, I’ve never seen so many of them in my life.”

Between you and me, do you really think the number of red Ford Focuses on the road actually changed? Or did my awareness level change?

It’s the same thing with opportunities. I remember impulsively looking for a wedding ring for Julie (it started impulsively) for a full 9 months and getting frustrated that everything I found in my price range ($400) looked really chintzy. I wanted something really special. We had been living together almost 5 years and we were engaged to be engaged. So I started to tell everyone who would listen about it, asking for ideas. One evening, Mom was teasing me about the eternal hunt and I sarcastically asked if she had any 1 carat diamonds lying around which she could use to just put me out of my misery.

[long pause]

Turns our she did. So Julie got great, great, great grandma’s old diamond (pretty neat). Guess sometimes you just got to ask. But if I hadn’t been so focused on it, I would never have ended up with one of the most beautiful wedding rings to give my wife. We designed the setting ourselves. Now I doubt someone will just hand our crew a million, but you bet your ass I’ll be out there asking anyone and everyone if they want our cookie.

The second reason. When things get tough, it’s easy to compromise with yourself. I don’t really feel like making that sales call (my personal demon), I’ll just do it tomorrow. Or perhaps come August we’ll have only grossed $370k, and the urge to ease up and just shoot for $600k rears it’s ugly head. That would still be a world class year for us. I find it’s a lot harder to look into people’s eyes and tell them you gave up. There is no dishonor in failure. It’s how you learn.

But if you are going to stand in front of the people you lead and trust, and build their hopes, then you have to keep going until the last minute. Thats why I am telling everyone. Accountability.

And so next February, when the whole crew gets together for the annual retreat (looking like El Salvador this year), we will put our heads together and figure out as a team, how we can come together to gross a million and still have a life.

Scare Yourself: Big Goals with Small Steps

I hear way too often, set something realistic. In some ways that is correct. After all, both success and failure are learned habits. Your small goals should always be realistic. But, if you don’t have a big goal that drives you to your knees and forces you to grow and change, then you are stealing from yourself and the world. People follow leaders and leaders are those who are willing to leave their comfort zone to achieve something greater than themselves. We are looking for leaders. I will follow a man on his knees fighting to make a difference any day. Pick a huge goal, something that scares you (like a million gross scares us) and then fill the vacuum with small steps. Each of those steps should be finite and attainable. Have tons of them, because checking things off your list feels good.

Our steps:

Back to school for S&P: on December 3rd we’re signing up through Berkeley for a Software Project Management course which should hopefully provide us some insights into the issues we face as we move our core team into the double digits.

Fill the Gaps: We turn away about 50% of the projects that come to us. Some because they’re not good projects. Other because we just don’t have the resources (it absolutely killed me to tell GM we couldn’t work on their prototype for their new onboard computer, just because we didn’t have the availability). So, if you are killer at design, flash, flex, php, witango, click the join us link and send a link to your portfolio along with a bit about yourself and why we will love you. We may have a project with your name on it.

PM system: Continue to tune our current PM system while searching for an ideal fit for our business style or building one ourselves to satisfy our need for flexibility.

So What is it Going to be?

I’m throwing you all a bit of a challenge.

Join us and scare yourself just a little. Take a leap of faith. Pick a goal you think might be possible, just maybe, but not necessarily probable. Write it down. Put it up on your fridge. On your computer screen saver. And on a comment below. Then start working on how you will personally need to change for that improbability to become likely.

We want to cheer you on. While scary is good, the right group of people make it possible.

I’m going to start off by actively apologizing to Eric. I was a doubting mustafa and I was wrong.

In my 10 steps to generating new business, I stated the number one key to success was to get out of your house. What ensued was a calm debate between Eric and I on whether or not you can network and build a viable client base without leaving your house through the medium of communities on the web.

My (old) stance: All REAL project deals happen offline.

Eric’s stance: Online networks are a viable source of projects.

Fast forward a few months. One of the goals of our blog was to create a place where people (including ourselves) could learn about the journey from independent contractor to entrepreneur and meet other peers in our industry. I’m surprised by how successful it’s been so far. I mean, there are 400 hundred subscribers who actually read what we have to say (thanks for coming – it means a lot to us). To top it all off, we’ve found three great contractors from our blog in the last few months.

Being the single minded dope that I am, it never occurred to me that if we are finding good people we’ve never met before through comments on our own blog, then for Tea, Eric & Naomi, the fact of the matter is that you can network online and find clients. Heck, we turn away a fair bit of projects, so maybe getting to know our crew is not a bad connection to score.

A Personal Challenge

That makes me wonder, how many of you out there have gotten good paying gigs from leaving comments on someone’s blog?

Has anyone tried that as a specific strategy? Like finding the blog for the head of user interface for Coca Cola and making friends? I’m going to think about this and give it a shot. I will report back in a few months with my experience and some tips on how I made it work, if it did. I though I was being all innovative until my Dad mentioned that people have been joining country clubs and the like for generations to meet specific people and close a sale. New space, old paradigm.

I decided to start with a bit of research and saw that Darren over at Problogger had a great post on getting your comments noticed on a popular blog. First, I need to identify my key prospects. Target for 2008, we want a gig with Adobe & a gig with Apple. I’m off to search. BTW – if you work for either of these, drop me a note and suggest some good blogs.

So, what do you all think? Is it a legitimate strategy? Success stories? What is the most you have made this way? Anyone made any significant dough – like landing a project or relationship worth over $50k?

Julie and I sat down to figure out what mortgage payment we really thought we could afford. I was trying to stabilize my business at the time, as it was often feast or famine. Some months I could pull in $15,000, other months I would see $1,500. This discussion ran for weeks and continued into our family vacation.

Enter the parents. My father listened quietly as Julie and I ran through past numbers and possibilities for hours on end. One evening at dinner he asked me: “How much do you think you will make in the next six months?” A long pause ensued. The fleas began to leap for saftey as my craneum began to heat. I guess he couldn’t take the pathetic, confounded look on my face. “How much do you have in your sales pipeline?” he tried. I really didn’t know. Most of my gigs are word of mouth. Even the bids I was writing, or discussing with potential clients, could go on for months and fizzle. How was I supposed to know? After I suggested getting my tarot cards, dad laughed, put on his Australian leather cowboy mentor’s hat and asked me to pull out my trusty business notebook.

Count Your Current Contracts

He began by having me write down a list of all the projects I had contracts for. We added the estimated profit and completion date for each project, then totaled it all up. I’m trying to pull from memory, so it won’t be dead on. My sheet looked looked something like:

Current contracts between July 2004 – Dec 2004

Counting my existing contracts was the first step. This is what I could depend on. Money in the bank as long as I didn’t screw it up and they didn’t renege. Taking the notebook from my hand, he then looked at me and stated, “Now let’s figure out what else you have in your pipeline.”

Evaluate your Pipeline

He began by writing a formula under the previous list.

value of project * % likelihood you win = projected $$$

It was rather simple and I frankly still have a hard time believing it works. He told that this is how some of the largest companies in the world project income. Three years later, I can now confirm that it is eerily accurate.

We took each of the potential gigs that I was aware of and picked a dollar value. It’s all guess work from here, so don’t get paralyzed by indecision. Next, he had me work out my odds of successfully landing a contract for the project. For some, the negotiations were well under way, for others, I had just sent the first email introducing myself.

Possible contracts between July 2004 – Dec 2004

Quick Calculations

I pulled out a calculator and went to town. Since we were buying a house and I needed my true take home amount, I subtracted my expenses and pulled out taxes.

This “back of the napkin” number was remarkably close to what really happened that year. I begin to suspect my dad might just know more than I do. Nah, what am I saying.

As you become a professional at running your business, I find that your interest and passion for understanding the numbers always increase. It’s the difference between the technician and the entrepreneur. Want to focus further on your deal flow? Here are a few good articles I read this week:

The Better Closer Blog shared 10 Ways to Improve the Performance of your Sales Pipeline.

Web Worker daily has just posted a good article on Open source CRM tools, which will help you track the process.

Focuses Minded provided a nice overview of the client cycle, giving some detail on each of the steps of the sales process.

We bought the house

Mortgage rates were working in our favor and we found that we could afford up to about 400k worth of apartment. With my wife’s combined income we could pay the $2400/month of piti+hoa. We started the hunt, and eventually, with significant elbow grease and the loving patience of Paul Cuccia, Realtor extraordinaire, we found a home. Of course, marketing and sales skills from my business actually paid off – we ended up sending a personal letter to each and every unit in our chosen complex asking if they might be willing to sell directly to a young couple and save on 1/2 of their Realtor fees. We found our match, everyone got a deal, and 30 days later we moved in.

Today, we are under escrow and our townhouse should sell in a few weeks. We are buying a duplex. Live in one side, rent the other. In November, we start a new adventure and become landlords. Put that contracting money to work. It is part of the retirement plan, baby.

Not all freelancers are content to provide services to their clients until the day they willfully leap into the grave. You’ve all heard Leo talk about multiple income streams. The most popular strategy these days? Make the next killer app, widget or plug-in. So, how do you turn your tiny startup idea into a full-fledged, well funded, revenue-generating business? Widget company, RockYou, discovered an answer early this summer, as did many other now-successful entrepreneurs. The answer was Facebook.

Alrighty then, you have made a decision and you’re ready to muscle down and “face” (snicker) the challenges head on. You’re gonna make an app! But, how do you get it to catch on?

Rule #1: Create an application that people will want to use multiple times each and every day.

This may sound almost ignorant in its simplicity, but it’s amazing how often people ignore this concept. Hundreds of early applications were released (and are still being released) with a simple, silly idea that manages to capture your attention for about 3 minutes, but that you’ll never care to use again. It turns out that 3 minutes is long enough to convince some users to ‘invite’ their friends to use the app, and thus many of these applications have flourished. Facebook has recently decided to remove control of the ‘invite friends’ functionality from apps, and have also started to rank applications based on how much users actually use them, as opposed to how many people installed (and probably immediately forgot) them. This is great news for everyone that adheres to Rule #1.

Rule #2: Make an application that incorporates a user’s friends.

I cannot stress this one enough. There’s a reason why the top ranked application is called Top Friends. If your idea doesn’t directly relate to the user’s friends, it needs to allow friends to see what the user has recently done on the app via a box on the profile or some other mechanism. Almost always something that people want to do daily (rule #1 !!) on Facebook somehow involves their friends. This is why they log into Facebook to begin with! Applications can then spread virally through notifications based on user action within the application, because these actions invariably involve user’s friends. People don’t care if their friends changed their religious views on their profile nearly as much as they care that they’ve been tagged in a photo that their friends have uploaded. You’re bound to be a lot more interested in photos with you in them than without. There is nothing greater than one’s self. Always keep that in mind! Develop your application so that a user’s friends want to try it.

Rule #3: Don’t require friend interaction.

“Oh, isn’t that the opposite of Rule #2?? How delightfully clever!” Wrong. I do not mean that the app should not incorporate a user’s friends. I mean that the app should not require that friends participate for it to be successful. Imagine an app that requires a user to receive some event from a friend to be useful. This app, let’s call it the ‘invitation to my party’ app. “This sounds like a Great Idea! We’ll create an app that lets people post their parties they’re gonna have, and their friends can read about it!”

Unfortunately it’s not so simple. The problem with this idea (and many others like it) is that it requires everyone that cares to have the app. So, if the app requires that the user’s friends do something for it to be a useful app (like check out party times and date), it wont grow or even be useful until a certain number of users have the app. If it requires that your friends use it along with you for it to work, and they don’t have it, then why would you?

Rule #4: Promote your application in a variety of ways.

Let’s push this ‘viral’ analogy to the extreme. Common sense tells us that a virus that spreads through the consumption of an infected person’s toenail clippings isn’t going to get a lot of traction beyond perhaps some fringe fetish community. The fastest spreading epidemics are invariably the ones that can be spread in a variety of ways. Applying the same ideas to your application will achieve the same results. The more ways you can get your application out there, the better chance you have of creating a household name on Facebook. Spreading through friends is obviously the best target, but there are other avenues that will result in user adoption as well; these include blogging, discussion boards, even (gasp) advertising…on Facebook!

Rule #5: Improve it constantly.

This is pretty basic stuff for any web application – “Release Early, Release Often” – but is especially applicable within Facebook’s fast-paced user patterns. The truth is, there’s a lot of functionality already provided by Facebook – so much that most casual users have a hard enough time even keeping up with it themselves. A successful app changes and matures with user feedback. There’s a section in the app about page where users can write bugs and suggestions about your app. Use it. Check it daily. Facebook is constantly changing its API, its FBML, and the features it provides for its developers. Staying on top of these changes and additions can mean the difference between a working facebook app and a broken one. If your app catches on, don’t just let it stagnate – iterate!

Now Get to It.

Unfortunately, just following these rules will not guarantee a successful Facebook app. The most successful apps, like successful anythings, are the ones that are built on a useful or interesting idea. Without that, you’re toast. Make sure you’ve got one, and go with it. Facebook’s already fought half the battle; they’ve brought the user base to you! By giving any developer access to the social graph, Facebook has opened up a world of opportunity for anyone that knows a little about web technologies. There may be a lot of competition, but you can be sure that following the rules above will help you create an app that stands out from the crowd.

Unlike most of the freelancers I meet, I started my freelance career charging by the hour. The CTO of the company, now one of my best friends, carefully watched my deliverables and my bills to make sure they matched his expectations. Knowing this was my first gig, he explained to me that the company was buying my expertise.

He encouraged me to charge, and charge well, when I knew what I was doing and was kicking butt. He also insisted that I learn on my own dollar and not penalize my client for any lack of productivity. Basically, even though we had agreed upon an hourly rate, he made it very clear he was paying for the end product, not all the time I may have been spending.

There are fundamentally two payment structures used by freelancers in today’s market:

Hourly is the exchange of a productive hour of expert work for an hourly rate. For $xx per hour, I will provide you the technical expertise you need to develop the API for this prototype.

Fixed price is the exchange of a pre-defined amount of work for a specific total dollar value. For $xx,xxx I will provide your company a new brand including colors, typeface, logo, business cards, store sign and letterhead.

Both approaches are common and each has their appropriate place and time. What fascinates me is the intense emotion that we often see (even among ourselves) regarding which to choose. So what are the pro’s and cons, how do you choose and how do you price yourself once you do?

Hourly

You are charging a specific dollar amount for each hour of solid progress towards a deliverable. Your client knows you are an expert on the subject. They have agreed to pay your rate for support on their endeavor.

Misconceptions

Before we get any further, let me address some of the misconceptions I commonly hear.

Charging by the hour means there is no accountability on the freelancer’s part, nor planning or a general budget. A good project manager always has a target budget and the goal to keep within it. If you expect any repeat business, you are just as liable for the end budget as the project manager. You need to be in constant communication working with them to manage expectations so that they can do their job well.

Honestly, if you were to pick only one goal, it should be to help make your client’s project manager a hero. The better they look, the happier they are with you and the more they will use your services and refer you in the future.

Charging by the hour means you expense each and every minute you work. The client is paying for progress on a solution to their problem. They are not paying for you. You do not bill the time it takes you to invoice them. You do not bill time you spent researching the web for ideas. You do not bill for each and every meeting. Often, you do not bill for the egregious direction you took which lost 4 hours of progress on the new module.

These are the costs of being in business. You need to make sure that you build the cost of doing business into your rate. Be careful or you can end up working for pennies on the dollar.

Hourly is unfair to the client. This is completely false. Take the following three points into consideration:

1) Over 90% of our projects are completed well under budget.

2) If the ultimate liability for the cost of the project is not in our court, we do not have to pad our rate to cover for the unexpected.

3) Managing feature creep in a fixed rate project makes us guard the sanctity of the spec and resist change. If they are getting a better rate, more flexibility and perhaps even a lower price, then it is often to the client’s advantage to have us charge hourly. Virtually all of our hourly projects have been a win for our clients.

Many contractors fear that with an hourly budget, they will be fighting the urge to bill more. Many clients are afraid to get gouged. The risk is certainly there. Let me ask you – are you in business to rip someone off? If you intend to make this a career and run a successful company, you need to remember that all that matters is your reputation. Success = happy client. If you keep that in mind when you write your invoice and balance both sets of expectations, then everyone tends to be happy.

Pro’s of Charging Hourly

• Get paid for most of the work you do / Lower financial risk on your part
• Client is more aware of the correlation between their requests / changes and the cost
• Less resistance on both sides to technical and direction changes
• Less resistance from you on timeline changes
• Less likely you get burned

Con’s of Charging Hourly

• Income level is unclear
• Tougher to plan forward
• Increased possibility for budget miscommunications
• Leverage of past work has less impact on your profitability

Selecting a Rate

Your hourly rate should be based upon the quality of your work, the industry you are in, and your cost of living. Make sure you take into account the fact that you will never bill all your time. Freelance Switch has a great rate calculator to help you determine what your rate should be based upon industry, environmental and personal factors. For more on pricing yourself, check out are you working for free?

When to Charge Hourly

• Developing a clear spec is not possible: vague deliverables such as prototypes
• Working in a volatile environment, such as developing on Facebook whose API is in constant flux
• Retainers for clients that want to lock down your availability
• Clients that have a history of making a lot of changes and need flexibility

Fixed Bid

You are charging a set amount of money for a clearly defined set of services. The key to a successful fixed bid is the clarity and accuracy of the specifications document, called a spec in the industry. The more clear you are with a spec, the higher the odds that you’ll make a profit.

Misconceptions

You don’t need to track your time on a fixed bid. A fixed bid is built upon an hourly rate applied to your spec sheet. You write out an exact list of deliverables: this piece of code, that piece of design. Then you make a guestimate on how long each piece will take. Once that’s done, many contractors go along their merry way and complete the project without ever asking themselves one critical question: how well did I guess? Or even worse, they don’t know their hourly rate at all.

The only way to know your level of success or failure is if you track your time and compare it to your estimates. With that information you can learn, grow and improve towards a more profitable business. Our first few fixed bids ended with us working a $12/hr in one case and paying the client $15,000 to build their application in another. I am serious when I keep repeating that tracking your time is not optional.

A fixed bid makes for easier client relationships. Clients want their problems solved as efficiently and economically as possible. If you bid accurately and the client actually knows what they want (and doesn’t change anything), then fixed bids go very smoothly. Often that is not the case, and nothing generates more frustration than feeling like you are being taken advantage of.

With a bid gone wrong, both you and the customer feel that sense of apprehension. Freelancers need to be more than technicians. They need to understand how to work with people and get the spec that actually solves the issue. Frankly, most of us should be spending 2 – 3 times longer on our bids than we do.

Be extremely careful with technologies you are not totally familiar with – we’ve been burned to the tune of $10k+ a few times when exploring new terrain. Our fault, but it hurts. If you are using subcontractors to fill some holes, make sure they are part of the bidding process and you are not guessing. Just like you are being held accountable to your estimate, they should be as well. Guessing is bad. The more data you have, hence tracking you time, the more accurately you can estimate the true cost of a bid. The more accurate your bid, the less conflict you will need to work through during the project.

Fixed is fixed. After getting the fixed bid as accurate as possible, you then need to control for feature creep. Feature creep is the never ending series of requests for one little idea after another to get added in. A few minor changes are acceptable, but many clients will keep pushing until you push back.

That act of having to constantly push back can be quite stressful on the relationship and needs to be handled early and artfully. The key here is the power of the word “Which,” a word deserving of its own blog post.

“Which way would you prefer: to have the new feature you just explained or this feature that was in the spec? Your budget only allows for one.” If they say both, ask for more money. If they refuse, put on your biggest smile and while gently chuckling say, “Are you asking me to work for free?”

The art of negotiation continues through the entire project. While many contractors don’t mind working for free while trying to build their reputation, this cannot last forever. Once you get to the point where you are rejecting work, the idea of working for free for anyone leaves a sour taste in your mouth and can ruin a relationship. We are talking from experience.

Pro’s Of Charging a Fixed Price

• Income clearly defined
• Working from a highly detailed spec
• Easier to manage your resources
• Simpler to ask for money up front
• Increase profitability through the use of assets (code libraries etc…)

Con’s Of Charging a Fixed Price

• You take on all financial risk
• Timeline and technical changes are not usually in your favor
• More likely you get burned

Setting your Price

Get the following together: 1) your spec, 2) your estimated time to completion, 3) the list of assets you plan to capitalize upon and if you work with subcontractors, 4) your team’s cost and availability. All these will need to be taken into account. Don’t forget to include project management, meetings, quality assurance and testing, deployment, customer service and any other services that you may be responsible for, but have not detailed out in your spec and time to completion.

Once you have a true number of hours, figure out your reserve or buffer. The purpose of this is to cover you in the case of the inevitable changes and surprises that happen during projects. Sometimes things take longer than planned. A brilliant solution turns out to be wrong. You know how it goes. I tend to add a buffer around 30% of the project time, higher for extremely complex projects, to the total hours. Take your total and multiple it by your hourly billable rate. Check the number over and ask yourself if it seems reasonable.

I’ve often found our estimates to be pretty accurate. If the client freaks out, carefully explain it to them. There are good reasons to lower your price, but understand that almost every time we’ve done that, we’ve ended up losing money.

Good reasons to lower your price might include gaining a high profile client, market exposure, or gaining a new asset you can reuse. I often ask myself: Is this client and project going to help us get closer to the goals in our business plan (you have a business plan, right?)? If the answer is a resounding “yes”, then I am more willing to negotiate.

When to Charge Fixed Price

• The project is easily defined and a clear spec is available
• The project requirements are stable and not subject to much change
• When you have a lot of assets (code library etc) that can be applied to increase profitability
• When you are highly confident you can drive a good profit based upon your spec

Picking the right one for your project

The one true difference between a fixed price and an hourly project is which party accepts ultimate liability for the budget. It all boils down to that. There is one question I ask every time we approach a new project: how confident am I that we can drive a good profit? If I am not confident, I will insist on hourly and that the client take on the risk. If I am confident, then I will work with a fixed price.

Whether it is an hourly or a fixed price gig, we have a spec we are working from. We track our time. We warn the clients about changes and how they will affect budget. We keep a careful eye on the problem we are trying to solve. The fact is, the difference between the two when run by a seasoned business owner is minimal.

I’d love to hear in the comments what criteria you use when you decide which way to go!

I’d like to thank Brandon, Tea, Eric, and D.L. for their discussion on the topic.

The other day I heard business described as a leaky bucket. Simply put, your customers and their projects slowly leak out of your bucket and into someone else’s bucket unless you take steps to actively keep it full. As the owners, it is our job to keep the bucket full of water.

The only way to fill the bucket is through marketing and the sales. Marketing is the process of doing simple things repeatably over time to make people aware of your business. Coming from a programming background, I had no idea what I should do to fill my empty bucket. I did some homework (thank you Amazon) and ended up reading a book “Get Clients Now!” by C. J. Hayden.

I decided to do their program for 28 days and see if I get more customers. Looking back, I can say that the program worked great. I went from a wet behind the ears freelancer with one customer to a newly minted businessman juggling 6 customers in 28 days. What follows is a brief outline so you can see the process I went through.

1. Setting goals

In order to see what you want, you need somewhere to focus. To do this you will need to set your goal for this month. First, evaluate where you are and where you want to be in your business. In my case, I was billing under 8 hours a week and I really wanted to bill 25 hours a week. Why wasn’t I billing enough? Not enough customers. Frankly, I had to acknowledge I just didn’t know enough people to ask for work. So I made the goal of getting 40 new contacts before the month was over. Make sure your goal is measurable; counting contacts is easy, figuring out if you did “better” is vague and you will have trouble motivating yourself.

2. Rewards

Every goal needs a reward. Sometimes the goal is the reward in itself, but other times you need the helpful nudge of a prize to move you along. In my program, I choose a night on the town complete with dinner at a fine restaurant and a movie. To help motivate myself, I even printed out a picture of a great dinner and hung it on my wall. By focusing on the reward, I was able to pull myself through some rough spots and complete the process.

3. Picking your strategies

Now that you know what you are working towards, you can start to figure out how you will reach it. “Get Clients Now!” recommends you decide what strategies you will use. The strategies outline the overall theme of your marketing campaign. There were six different strategies:

● Direct contact and follow-up
● Networking and referral building
● Public speaking
● Writing and publicity
● Promotional events
● Advertising

The book recommended to only pick two or three. In order to do your best, you will want to pick the strategies which support your strengths. I am good at writing and helping people one-on-one, so I chose “Direct contact and follow-up”, “Networking and referral building”, and “Writing and publicity”.

4. Actions

Now that you know what you are working towards and when it needs to be complete, you need to figure out how to get there. The process calls for making a list of 10 actions you can do regularly to reach your goal. These actions work best if you tie them with the strategies from earlier. Some of the actions I picked were:

● Send emails to 10 new people every week
● Make two message board posts every week
● Post to my blog twice a week
● Ask for a referral once a week

5. Working the process

Now that you have picked out your tasks, all you need to do is to work on them every day and you will start to move towards your goals. The author supplies some worksheets that you can use to track your progress.

One thing you should keep in mind is that you shouldn’t punish yourself if you are not producing the results you want. I am naturally an introvert and shy, so getting 40 contacts was too huge a stretch for me. During the last week I saw I was really short of my goal, with only 6 contacts. Instead of feeling sorry for myself, I swallowed my pride and lowered my goal to 10 contacts. The best thing about lowering my goal is that my energy and motivation came back and I was about to overshoot it by getting 11 contacts that final week.

Conclusion

The results last month were so great that I decided to try the process again this month. Since I was now meeting new people, I decided to focus on closing more sales this month. My goal for September became to bill 60 hours of work. I used most of the same actions from last month and added in steps to write more, including starting a free newsletter for my customers. So far, I am behind on my goal again, but I see the potential work almost at my doorstep (or is that the email inbox for us web workers). I just have to remember to keep marketing and I will reach the goals I set.

This was a very quick overview of the program “Get Clients Now!”. If you are interested at all, I would pick up a copy of the book and try it out for yourself. It is a very quick read, with about a third of the book serving as reference for other parts. When you start the program, post a comment about what you are planning to accomplish and I will try to lend a hand.

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Eric Davis runs Little Stream Software, which helps small businesses create easy-to-use web software. He publishes a free newsletter that contains tips, techniques, and strategies about web development.