Elie Kochman on Business and Networking

You never know where your next lead will come from.

In any business, there is always the dream client or customer. While the precise details of what constitutes such a customer depend on the exact business, there are a few common factors:

• The profit margin is high
• The value of the contract or purchase is large
• The risk is low (i.e. the customer will pay promptly and the work itself is low-risk)
• The visibility of the work is high  (i.e. you’ll get good PR from it)
• The customer is easy to deal with

Often, such a customer can stimulate the growth of a business. These are the customers you want. The only questions you have are:

• Who will the customer be?
• When will the customer first show up?

Unfortunately for you, there’s no way to know the answer to these questions in advance. That means that any customer or client you work with could be or become your dream client. Or, any of your existing customers could refer your dream client to you.

However, while you might consider a particular customer to be the most important, the truth is, it’s your dream customer that’s the most important to your business. Therefore, you need to treat all of your current customers as though they were the path to your dream customer, because any one of them might be.

Even when you think you’ve determined who your dream customer is, you still need to treat the rest of your customers the same as your perceived dream client. When your dream client has moved on, or you’re ready to expand and grow your business again, you will once more need to rely on the relationships you established by how you treated your clients to facilitate that growth, and to find your next dream client.

Make sure you treat all your customers like gold. It’s possible that one of them is holding the pot at the end of the rainbow.

Look at a typical business, and you will see that they have multiple clients active at any point in time. This is nothing unusual – few jobs allow you the dedication to focus completely on a single client or project for any length of time. When you’re working for yourself, though, you need to be careful that all your clients are getting your attention, while at the same time, ensuring that none of your clients feel they are not getting your undivided attention when you work on another project.

The reality is that if you have 10 clients running simultaneously, (and we’ll assume that the amount of work for each is equal,) then you’ll be spending about 8% of your time on each client. (The balance of 20% is for your overhead of administrative work and locating new clients.) You can’t give any one client more than that percentage.

To handle that, I suggest you adopt some of the following strategies. If you have other ideas, please share in the comments.

1. Keep a list of what needs doing for each client, so that the time you spend on that client isn’t wasted figuring out what to do next. Just select something from that list and do that. This will help you be better organized with your time, which may end up freeing up more of your time.
2. Don’t answer the phone if you can’t give it 100% of your attention. Let the client leave a message, and use that to determine if you should call back immediately, or if it can wait a bit. Book some time in your daily calendar to make that call, when you don’t have something else to keep you busy.
3. With e-mails, split your incoming messages into 2 groups (if you feel it necessary to constantly watch your mail) – one that can be answered in a sentence or two, and the other to be dealt with later. Sending off an e-mail that doesn’t address the questions the client was asking properly can generate negative feedback, which you can easily avoid by taking the time to read the questions slowly.
4. Publish your calendar online so your clients can see when it’s best to get in touch with you. Sure, emergencies crop up, but if you allocate specific times each day for phone calls, you should see the number of calls at other times go down significantly. (I didn’t say your calendar has to be accurate, or even fully published – just a list of times that you have booked for meetings/phone calls and a list of available times would suffice.
5. Block off time to work on each client’s projects to the exclusion of all others. Treat that time as if you were in a meeting, that is, only be disrupted if it really is urgent.

Do you have other suggestions for balancing multiple clients and projects? Please let me know of your ideas in the comments below.

There is  a story which I recall from when I was in day school on the subject of leaders:

There was a rabbi who traveled between towns, staying a few days at each to speak, and then moving on. One town was particularly poor, but they treated him well, offering what they could, and acting respectfully. As he was leaving, he blessed them saying:

“One of you will become a great leader.”

Shortly thereafter, he was visiting a town with many wealthy inhabitants, and yet he was treated like a beggar. As he was leaving, he gave the town a blessing as follows:

Many of you will become great leaders.”

His assistant, who traveled with him, asked for an explanation. The rabbi explained – a small town can only support one leader. Blessing a town with a great leader means that they will be led well. Blessing a town with many leaders means that the town will be subject to political fighting between the various leaders, disrupting the ability of the town to be led at all.

I don’t know if the story is true or not, but it illustrates a key point in running an organization of any kind.

First, the chain of command must be clear to everyone. There must be a known leader, the one who makes decisions.

Second, there can, ultimately, only be one leader. While many people can help arrive at conclusions, only one person can be responsible for making those decisions. Introducing a second leader reduces the ability for the organization to make decisions, and often, decisions that are made are split, trying to appease everyone, instead of consistently presenting clear vision and direction.

Looking back at an earlier article I wrote, regarding the optimal number of founders for a company, I realize that I missed this point. In addition to bringing the various skills required to the business, one of the founders must also be clearly defined as the leader. This is not a question of equity, but of ability to make decisions.

How many people make decisions in your business?

One of the main focuses of my company, Optimal Upgrade Consulting, is to look at the core problem our clients are trying to solve. This may or may not be the same problem as the one the client thinks they have, simply because they are often unaware of available solutions to the real problem they have.

This is not to say that I argue with my clients about what they really want. Quite the opposite – I want my clients to be happy, so I give them what they ask for. However, by understanding the problem I’m being asked to solve, I can ensure that I provide the best service possible.

There’s another benefit as well. If I am asked to do some work for a client, and I understand the nature of their business, then I can possibly find other opportunities to help them. This in turn helps me – it’s what drives my business.

If you're not a part of the solution, there's good money to be made in prolonging the problem.

There’s an expression I liked the first time I saw it, and I’ve seen it come up several times since. It’s best expressed in the poster on the right – If you aren’t part of the solution, there’s good money to be made in prolonging the problem.

Naturally, this is poking fun at consultants, who can often charge exorbitant fees and produce no real results at the end of the day. But there’s truth here as well. As a consultant, you can either solve a problem, or further complicate a problem. One solves the need of the client, the other solves the need of the consultant.

As a business, you want to be solving the problem of the client. I prefer to be known as someone who solves problems, not as someone who makes a killing developing complicated solutions to problems that didn’t exist before I first showed up.

How about you? Whose problems are you solving?

When working on a large project, there are generally two ways to bill for the project – by the hour, or by the project. In an earlier article, I discussed the system I use to determine a price for a project. My hourly rate is determined based on how much I want to earn, and how much I can charge and still get a sufficient quantity of work.

Ideally, as a contractor, I would prefer to work by the hour. While I need to keep track of exactly how much time I spend on the project, I can also earn significantly more at the end of the project, since all time spent working on the project is billable.

On the other hand, billing by the project allows me to budget going forward – I know that I will be paid $1,000 per month by a given client for each of the next 6 months.

From the perspective of a client, there are pros and cons to each system as well. When billed by the project, the price tends to be inflated because the contractor is absorbing the risk of overruns, so the project could end up costing more than it needs to. On the other hand, when billing by the hour, it’s close to impossible to budget accurately for the cost of the project.

The other factor to consider is changes to scope, and how that’s handled. With hourly billing, it’s not relevant to the contractor, and the client saves times discussing whether a change request is required and if the price is going to change. The contractor simply bills for another hour (or 10, or 100). With project based billing, this can be an endless source of frustration as various items are declared to be out of scope (and therefore not covered by the original quote).

As a small business owner, I am in general willing to absorb more risk  on each project in terms of scope and price. Giving a larger bid for a project helps alleviate the risk, and with changes to scope, I can choose if it’s worth negotiating the point or not. I suspect, however, that as the size of the projects I work on grows, I will become less willing to bill a flat rate, since it will become harder to estimate the real cost of the project.

Perhaps not, though, and that can help other businesses save their money to grow their business instead of their IT bill.

In businesses of all size, keeping your customers happy is important, but measuring that can be quite difficult for some businesses. In past articles, I’ve discussed the handling of negative image incidents, such as how the Toronto Transit Commission handled the picture of a sleeping collector agent, and how Toyota handled the safety flaw in the design of the accelerator on some of their cars. In both cases, however, the companies are responding, while in truth, they need to be proactive.

Enter Adele Berenstein, a Customer Satisfaction Executive with almost 20 years of experience with IBM. Now she’s the author of Satisfaction Secrets, a blog which discusses ways in which you can keep your customers happy. She brings her experience and insight to current problems facing companies looking to keep their customers happy. Additionally, she discusses changes that are happening in this field, for example, looking at the same TTC incident I mentioned above.

Customer satisfaction has been increasing in importance over the last few years, as consumers have found it easier to get and share information. Considering that such information may or may not be accurate, it is incredibly important to ensure that your consumers have accurate information, and you don’t give them reason to be unhappy with your company.

But how do you know when a customer isn’t happy, if they aren’t telling you, or don’t realize it yet?

You need someone like Adele to look at your business, and help you figure out how to get feedback from your customers. You need to be listening, and you need to know what you’re listening for. And when your customers start talking, you need to be ready to answer.

I came to a realization last night that my various commitments will eventually cause time to run out if I’m not careful, and I suspect that I am not alone in this situation. In fact, anyone who is working a full-time job alongside some moon-lighting, factor in a family, and some time for friends, not to mention some relaxation time, and your day becomes filled up pretty quickly.

This is nothing new, and in truth, I’ve discussed this issue in the past several times. However, last night some parts of my personal schedule slipped, and in hindsight, there was no reason for it.

When relaxation takes priority over responsibility, trouble is in the making.

If you find yourself spending time relaxing when you could be completing a chore, and find this habit repeating, you need to take a step back and evaluate your behavior. When you find yourself spending time that could be spent with family with your nose stuck in a book, or eyes glued to a screen, you need to stop and think about what you’re doing, about what opportunities are being wasted.

Success is more than just making money. Success is when you achieve happiness in your life as a whole (and yes, money might be  a part of that). The best way to be happy is to be around happy people, and to interact with them. If that means that other aspects of your day need to be compromised, then so be it.

The sooner you come to this realization, the sooner you can re-evaluate your days. How much time do you spend doing each of your daily tasks? Is your time being used as effectively as possible? Could you possibly save some time by being better organized?

For this reason, no matter how simple your day is, try to keep an agenda of what you need to do. Include tasks such as spend time with your family, or spend time relaxing by watching TV or reading a book. But try to stick to your schedule, or you may find that it’s those things which are most valuable in the long run which suffer the most in the short term.

As I’ve mentioned a few times in the past, I spend a significant amount of time on various Q & A sites, mostly on either LinkedIn, or on Answers on Startups. Recently, I’ve noticed a few questions come up where the answers all came down to a very simple point – what is the ideal balance of skills in a set of founders?

Before I can even get into the answer to that, however, there is another question that needs to be answered – what is the ideal number of founders for a company?

Unfortunately, the answer is not simple, and depends heavily on the nature of the business.

As an example, if you make custom jewelery and sell it online, then the ideal number might be one. As an example, my friend Rachel does this, and, as far as I am aware, she is truly a sole proprietor. The limiting factor in her business would be the amount of jewelery she can personally produce or maintain, so adding a second person would only be useful if she had more demand for her jewelery than she could keep up with.

On the other hand, if you’re looking to build a complex piece of electronic equipment, you might need a wide variety of distinct skills just to produce the product. You would also need someone to help you market it, and so your minimum number might be 10.

However, looking at a variety of businesses which have grown to be well-known companies, many of them started off with just 2 or 3 people, and that worked really well for them. Here’s how to determine what those people need to bring into the room:

• A thinker – someone needs to be thinking about what the product is, what it should do, who might use it.
• An implementer – someone who can turn the idea into a real product or service, something that actually works.
• A seller – someone who can take the constructed product or service and find people who will pay for it.

That’s it. There are only three basic components to starting a business – thinking of an idea, converting it to something that can be sold, and selling it. Everything else can wait until you have sales and revenue.

When looking for co-founders, make sure that each one is bringing one of those skills into the company. At the same time, make sure that each person is bringing a skill that you don’t already have. If you think of an idea, and know how to sell it, then the next co-founder needs to be able to implement the idea. Until you have someone who can implement, there’s no need for another salesman.

A common topic in the programming business is how to avoid doing work for free, or close to it. There are various permutations of this:

• Job postings offering $50 and “lots more work from my friends” to build a custom built eCommerce site with its own payment processing system
• Friends asking you to spend an evening fixing their virus infected computer
• People you meet in the community asking you to donate your time to their favorite program

In all these cases, what is being ignored is the fact that the skills they are requesting took years of training to acquire, and that those same skills are what we use to pay our bills. This is similar to asking a doctor to dispense medical advice for free, or a lawyer to prepare a lengthly hiring contract for $50 when it will take him 3 hours to draft it properly.

At the same time, one must stay aware of maintaining a positive relationship with family and friends. The question is, how and where do you draw the line?

For me, the lines are pretty simple.

First, I have two hourly rates – the rate I want to earn, and the rate I need to earn. The rate I want to earn is the rate that I charge paying clients. This covers my expenses, some contingency billing for any additional time I might have to spend on the project that I cannot bill for, and a bit of profit. The rate I need to earn covers my costs exactly. If I have to pay someone to do the work, it’s the amount I’m paying them. There’s no profit in it for me.

Okay, now what? How do I apply those rates?

For family and friends, or people I run into around the community, if I can answer the question on the spot, I don’t charge. It’s not worth it, trying to charge makes me look like a jerk, and there’s usually no liability issue associated with the advice I dispense (if there is, then I won’t give the advice, and I’ll tell the questioner to give me a call at the office). It’s also a good way to spread my name around, gain some positive reputation, and benefit from word-of-mouth referrals, which are the best kind of referrals.

If the work will take me some time (that is, more than a couple minutes), then a decision must be made. For some members of my family, I really will get quality referrals, and so, I take that into consideration. Others are merely trying to get a free ride – and my taxi doesn’t drive that way. In that case, I charge the rate I need to earn, and explain politely that this is covering my out of pocket expenses, and that if I didn’t charge it, I would actively lose money by doing the work for them.

For anyone else, or if it’s a larger project, the explanation for why I can’t just do them a favor is really simple:

I earn a living by doing exactly the kind of work you asked me to do. In particular, this project you want me to do for you will take me 40 hours to complete. That’s a week. I wouldn’t ask you to work for free for a week, and you shouldn’t ask me to do that either.

If you look up what the going rate is for this type of work, it runs about $1500 to $2000 and that’s what I typically charge. If you cannot afford it, then you cannot have it. I can’t afford to vacation in Aruba all year around, much as I would like to, and so I can’t have that either.

It’s really not up for debate, so any explanation longer than that is not warranted. Just as I cannot spend time building your website for free, I also cannot spend time explaining that to you either.

In regard to the people posting on job boards asking for cheap labor for their complicated project? I don’t need them or their project. Offering pennies for the work is just insulting. Either be ready to pay the going rate, or just ask for the favor. Getting me your 10 closest friends to give me their pet projects isn’t a favor, because if you can’t pay, what makes you think they’ll pay either?

I was having lunch the other day with an old friend discussing the consulting that I do. He asked me how I come up with prices to quote potential clients, specifically when the work is being done on a project basis, not hourly. After explaining my system to him, I realized that other people likely have the same question, so here’s the basics of what I do.

Before I get into that, however, there are three things you should know.

First, I’m in the IT consulting business, so some of the sections here won’t apply to you if you’re in a different field. However, the method itself is extensible to other fields with the details of each segment being modified to suit the project.

Second, the method was inspired by a comment from Joel Spolsky regarding evidence-based scheduling:

You have to break your schedule into very small tasks that can be measured in hours.

Third, despite knowing the method, it is still easy to make mistakes, and experience alone can reduce the cost of those errors. As an example, there was one project where my quote was off by so much, I ended up earning less than $10 per hour for my work. That project taught me many things, including how to price certain types of projects better. The method can help you develop your intuition, but at the end of the day, if you don’t have any intuition, the method will only get you so far.

The Process

I try not to spend too much time coming up with a quote, as I’m not paid to do that. Typically, I can produce a quote for a project within a couple hours for larger projects, and in minutes for small projects.

1. Agree on scope: This can take about an hour for a tiny project to weeks for a project with several months of development anticipated.
2. Draft requirements and design: Sometimes, this is done as part of the first step, especially for the smaller projects. For larger projects, this could mean as much as 6 months of work (a.k.a. 1000 hours). Experience will help you narrow that range down fairly well.
3. Development: For this, I try to break down the tasks I need to do into the smallest pieces possible, each one no longer than a week, and preferably less than 10 hours, although for large projects, getting it down to 50 hour pieces can be difficult enough.
4. Testing: Usually 20-30% of the development time will be spent on testing.
5. Deployment and Training: This can be anywhere from a few minutes to copy some files and e-mail a document, to a couple days of presentations and creating complex support documentation and procedures.

Now, you add up all the hours you counted in each step. Add 20% to that number. Multiply by the rate you want to get paid for the work. That’s your quote. You can fiddle with the number a bit, but the more you deviate from this, the more risk you take in either quoting too high and losing the project, or quoting too low and not being compensated appropriately.

If you’re worried about the unexpected, realize that you’ve actually already covered it.

The first step will prevent scope creep to some extent, and the better you are at drafting a Statement of Work, the more control you will have over what’s included in each project.

The extra 20% you added at the end is in case something unexpected, but covered by the Statement of Work, comes up during the project. In most projects, this happens, you just don’t know what it will be until it’s too late. If nothing comes up, then your margin on the project is larger.

Last, to determine your hourly rate, I use about two-thirds of my maintenance rate. Since I can dedicate time to the project, and I can schedule it, I don’t mind earning less per hour for that work. In other words, my maintenance rate is 150% of my normal hourly rate because I can’t schedule it and it’s generally for small amounts of work at a time.