Does your business scale? Can you make more money without having to spend more time working? If not, can you find a way to make your business scale?
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The last couple of weeks I’ve talked about what I think is changing and shrinking market for my services and possibly yours. I looked at the smiling curve as a way to explain what’s going on and more important as a guide for how we can add value to our businesses.
Even if you don’t believe in a shrinking market, it still makes sense to add value to your business. At one end (right on the smiling curve) you add value through scale. At the other end (left on the smiling curve) you add value through differentiation, uniqueness, and scarcity.
Today I want to talk about the right side of the smiling curve. I’ll talk about how to add scale to your business. Next week we’ll look at the other side of the curve and adding scarcity to add value.
The Difficulty in Scaling Services
To grow a service based freelance business there are a few things you can do.
- Work more hours
- Raise your rates/prices
- Cut your costs
In a service based business your revenue is directly tied to how many hours you can work. If you want to bring in more money you can work more hours. There are only so many hours in a day, week, month, or year in which you can realistically work, though. Your billable hours will be even less.
Another way to increase revenue is to raise your rates. Charge more per project and you’ll make more money. Again, there’s a limit on how much you can charge. While there are always exceptions, you’ll find your market will only bear a certain maximum price. Once you’re charging that maximum rate, it’s hard to increase it any further without finding a different market to serve.
You can also reduce your costs. Most of the cost involved in offering web design services comes from your time. Sure, there are some expenses per project and some for your business as a whole, but the majority is still your time. There are things you can do to work smarter and more efficiently, but again you’re going to bump up against the limits pretty soon.
Adding Scale to Services
To scale your hours you really need to work with other people to add their hours to yours. Together you have more combined hours than you have on your own. Ideally everyone’s skills would complement each other so the whole company is more than the sum of the people within it.
You still run into same problem, though. There are limits on everyone’s time. The scale is coming from having more hours from which to draw. You can help through specialization and increasing your productivity.
Better is to be the owner and either hire others to work for you or outsource some of the work. You keep some of the value of the time of others in exchange for providing steady work and a paycheck. Your scale comes from taking a piece of the productive power of other people. It can be a win-win exchange as you offer a paycheck in exchange for some of that productive power.
Price isn’t really something you scale. It’ll come into play on the other end of the curve and it’s something I’ll talk more about next week.
You can add some scale through cost cutting to a degree by working as efficiently as you’re able. You can work more modularly and reuse as much as possible. Take advantage of the existing scale in a theme or plugin for example or set up patterns you can reuse across sites.
You can cut costs and add scale through automation. You can automate as much as you want, but that will only help one person so much. A larger organization can likely find more ways to automate and have that automation touch more people and a larger part of the company.
Adding Scale to Products
Unless you want to hire people or outsource, a better way to scale your business is to transition from selling services to selling products. Products scale better because revenue isn’t directly tied to the hours you can work.
With services you have to put in the time on the next site to make more money. With products your time becomes less relevant. Time goes into making the first product (first few more likely). That time is probably similar to the time it takes for a custom job. Subsequent products take much less time to have something for sale.
The creation of more products beyond the first few can be automated. Your goal is to reduce this time so it’s effectively 0. There will always be some cost associated with each new product, but you can effectively approach 0 time spent.
You likely have to charge less per product than you would charge for providing similar custom services. A theme typically costs less money than a custom site. Of course, you can only sell the custom site once. The theme you can sell as many times as you can.
Your goal is to sell more products than what you could have earned doing custom work. You become less concerned with absolute prices and more concerned with things like margins.
What Kind of Products
There’s really no end to the kinds of products you can create, but if you’re starting from a place of being a freelance web designer or developer there are some products already related to what you do that come to mind.
- Digital products
- Informational products
- Piggyback on someone else’s scale
By digital products I mean something you code and sell like a theme or template. The more developer among us might build plugins, extensions, and add ons. You might start with your content management system of choice and figure out what you can build on top of it that people will buy.
You are piggybacking to some degree on your CMS of choice so you want to pick a CMS you feel confident will be around awhile and be prepared to move to another content management system if need be.
Instead of starting with the content management system, you might also think first of specific industries and build turnkey solutions for them.
For example a real estate site has specific needs that are different from other industries. As another example I have several clients who are photographers. Their sites naturally need a lot of functionality around displaying images.
The idea is to find out what a specific industry needs in a site and then build all those things into something you can sell to that industry.
Perhaps you should aim higher and build the next CMS. There are plenty beyond the usual suspects. Perch and Ghost come to mind.
Another approach to digital products might be software as a service. Think Freshbooks and Harvest offering time tracking and invoicing to small businesses. The service based approach would be to hire an accountant or bookkeeper.
You can turn themes and plugins into a SaaS business by becoming a hosting company. The themes and plugins serve as a value add to attract people to your hosting business.
You can likely sell service around your products too. If someone is having trouble with a theme or plugin, their first stop for a fix is probably the developer. You might charge for services per project or you might charge a monthly or annual subscription for direct support or access to support forums. You can even add some scale by hiring others to handle the services.
True, these are digital too, but I needed something to distinguish them from each other. With information products I’m talking about books, audio, and video. I’m talking about content creation and the more formats the better.
Online courses through a membership site is another option. Your focus should be on teaching. Some already do this, but probably aim the teaching at fellow designers and developers. I’m thinking it’s time to expand that to site owners, non-designers and non-developers.
Any training you offer could reach beyond design and development too. If the focus is on our “former” clients we can offer training and information products about any aspect of running their website or business. Why stop at design and development? Toss marketing and content creation into the mix.
Think Lynda.com or Treehouse as a model for online courses. A list Apart created A Book Apart to sell books. Five Simple Steps is another book selling business originally started by a web designer.
The idea, as with digital products, is to build once and sell many times.
Piggybacking on Someone Else’s Scale
I think you’re better off being the one to create products and add scale, but you can also take advantage of someone else’s scale. You already do this if you work with anything open source.
You may not want to create digital or informational products, but understand someone else will. If enough people are willing to pay for something then someone will create that something and sell it to them. This has happened for centuries, is happening now, and will continue to happen in the future.
If you don’t want to create the products, you might want to get better at identifying which products will have staying power and work with them. Offer services around someone else’s scale.
For example if more people are signing up for Squarespace instead of hiring you, then learn how to work with Squarespace and capture the part of that market that doesn’t want to get its hands dirty working on their site.
Figure out ways to manage Squarespace sites for clients. It will no doubt lead to less money per client, but it should be easier and quicker work once you learn the system. And if I’m right about the way the market is changing, there will be more clients for these kind of services.
You can also create information products to help people use the systems you didn’t create. If people are signing up for Squarespace, write the guide to setting up a site on Squarespace. Maybe Squarespace doesn’t need such a guide, but there will be a need for information around these products and services in general.
Keep in mind it’s someone else’s scale you’re benefitting from and that benefit can be removed at any time without your consent. You might sooner look to an open source project to build on or offer informational products about. You could fork the project if it’s direction doesn’t align with your plans for your business.
I think you’ll do better to create your own products though you can add value through someone else’s scale.
One last thought is to put your design and development skills to use in a business in a different industry. Why should you always be working on someone else’s website? Utilize your skills to service your own business in whatever industry interests you.
Design and development work done right is a significant cost and a significant opportunity cost if you don’t do it right.
You know how to design and develop effective sites so use those skills to run another business that scales more easily than offering freelance services.
You’ve Already Started
Some of what I’m suggesting is less difficult than it might sound. The world of web design has been getting more and more modular the last few years. Think Brad Frost and Atomic Design.
As an industry we’re building modular and reusable systems, which is a way to add scale through cost cutting.
Work on a site and pull out an abstraction for later reuse. For example the navigation you design might look and work differently on different sites, but it probably starts from the same ordered or unordered list. Pull the repetition out and begin your own pattern library.
If you’re following best practices for the industry you should already be doing this to some degree. The more that can be abstracted and modularized, the easier it becomes to combine everything back together as some kind of products. It’s where I think this inevitably goes.
I’ve been saying for a few weeks now that I think the market for my services and probably yours is changing. Unfortunately that change is a shrinking market wanting to pay our price for our services.
A smiling curve can help explain some of what’s going on and it points the way to adding value in our business. On the right side of the curve we add value by building more scale into our businesses. On the left we add scarcity.
If you choose to add value through scale you can create digital products like themes and plugins or you can create informational products like books and membership sites.
If you prefer to continue with services, you could join forces with other freelancers and form a larger organization. Where the individual finds difficulty, the organization can more easily scale.
You can put your skills to use running a business in a different industry that scales or has a growing market or you can piggyback on the scale someone else has introduced into their business or industry.
The main thing is to break free from the direct relationship between revenue and money. Anything that reduces the time it takes to build one more product adds scale. Think modular. Think reusable. Think products before services.
Next week I’ll take a look at the opposite end of the smiling curve. I’ll talk about adding value by differentiating yourself and your business, by being more unique, and by adding scarcity to what you offer.
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Effect of scale – one of the most important economics principals. But how can I scale my working hours when I do not like to work with the others? 😛
“Work more hours” is the sure shot way to adding more value or earning more with our work. If only one could automate the work (at least partially), it would be feasible. Otherwise nope.
Unfortunately “work more hours” only scales so much without adding more people. There’s only so much time in a day or week and sadly no one yet knows how to create more time.