If you’re like me, you have a burning desire to be awesome at Photoshop. It seems so easy, so within reach. Maybe you’ve learned a few tricks like making gradient backgrounds for website titles. Ooooh, it looks 3D! Look out Pixar!

But then you come to some bitter realizations:

• I’m spending way too much time on this.
• None of this is making my website truly awesome.
• Design doesn’t come from Photoshop filters; there’s color palette, page layout, consistency, compatibility with messaging, not to mention fonts other than Myriad Pro.

Making your website or blog or software gorgeous means finding a great designer. And since you probably don’t have enough work to hire an in-house designer, you need to find a freelancer.

Well, you’re in luck. Here’s how to get freelance design work and how to make sure you don’t spend more money than necessary.

1.  Bid out small jobs on-line

The first rule of hiring a consultant is: Maybe you don’t need to hire one!

If you’re in the market for small jobs, your best bet is a marketing auction site like 99designs or CrowdSpring, or a professional database like GraphicRiver, or a site with both like DesignBay.

To describe how it works, let’s assume you want a logo.  You start by describing the project: “Design a logo for Xyz.”  (That was easy.)

Next you give parameters and conditions.  Specify your company’s color scheme (two or three colors; if you suck at colors just steal borrow a nice set from Adobe’s on-line archive.  Logos need to look good both large (for T-shirts, posters, and tradeshow banners) and small (for business cards and corners of websites), even if that means having different but very similar logos for different sizes.  It’s often a good idea to require that the logo makes sense in black-and-white, or that it’s still legible even if the viewer is red-green color blind.

Finally you specify the amount of money you’re willing to spend. Often $150 for a logo is enough.  Why so low? Because a lot of designers are just getting started and need to win jobs to build a portfolio. Also because designers do this on the side for a little extra income, or are willing to take cheap jobs to get through the recession. Or because the designer lives in a country with a lower cost of living.

I know several people who have had great logos designed in three days for under $150. If you’re looking to develop your personal or corporate image, surely that investment of time and money is worth it!

But many jobs are too complex or too important for a one-off cheapo solution. Besides, there’s a good argument to be made that these design-on-spec sites are morally gray.

In that case you need to hire an expert.

2.  How to look for freelance designer

You couldn’t have picked a better time to hire a freelancer! The recession has created a buyer’s market for any sort of consultant. Take advantage of this time to find a terrific person at a bargain.

Start with your network (friends, Facebook, LinkedIn); recommendations are almost always better than nothing.

Be careful though — if the recommendation is for “a friend” or anyone with a familial relationship (”Oh yeah, my brother-in-law is looking for work), be very very cautious! First, this implies the recommendation is a favor rather than a vote of confidence for the work. Second, and more importantly, it will be hard to have a professional relationship. If you have to put your foot down or even fire them, suddenly it’s personal. Not worth it!

Your alternatives include Craig’s List, general Internet searches in your area, or web sites like Elance that connect you with freelancers; all these methods can create an avalanche of candidates you’ll have to sift through. That means you’ll have to be rigorous with your vetting process, described next.

3.  How to choose which designer to hire

So now you’ve amassed a few candidates.  (Yes “a few,” you’re not going to consider just one!)  How do you choose?

The most important qualification is whether you like their prior work. I cannot stress this enough: Designers don’t morph their style to match yours; they don’t deviate from their own style.

If they make slick, glossy, mocha-latte-modern-glassy stuff, you’d better like that. If they make crunchy, green, friendly, round-rectangle stuff, you’d better like that. Scan their portfolio and make sure you like what you see, as-is. If you run across something and think, “Ooh, this would be perrrrfect if they just copied this exactly for me,” that’s a great sign. If you go through fifteen pages of their portfolio and nothing makes your heart leap, it’s a “pass.”

I know, many designers will tell you otherwise, and I’m sure there’ll be thirty comments calmly and artfully ripping me a new one over this. (And please do! Our dear readers need to hear the other side of the story.) But in my experience a style mismatch is a non-starter.

The next thing you do is call their references. But don’t get excited when their references are positive. Of course they are — otherwise they wouldn’t be listed as references!

Instead, you’re looking for glowing, over-the-top recommendations. You’re looking for things like “Yeah we hired her once and we’ve been coming back for years.” Or “I actually hate to tell you how awesome she is because it might mean we get less time.”

A key question you should ask is: “Did the designer deliver on time and on budget?” These constraints are important and separates the artists from the artists-who-treat-this-as-a-business. You need the latter.  (Thanks to Kathy from Virtual Impax for this suggestion!)

A trick is to request a reference for a particular portfolio piece that you like. Don’t ask for the references they want to give — surprise them.  Expect that they need to ask permission before giving out contact information.

4.  What to ask for in the contract

You have to get a few things in writing so there’s no mistake when it comes time to trade final product for a check.

• You are the sole owner of all works made for hire. The consultant retains no copyright. You need this to ensure uniqueness — that the designer cannot just duplicate work done for you and use it elsewhere. You also need it for control; when I sold my company we had to get special releases from all our freelance designers explicitly stating that we owned the intellectual property.

  It is appropriate (and recommended) to allow the designer to use all materials in their own portfolio; just make it clear that this isn’t joint copyright, but rather a free license you grant them for the purpose of promoting themselves.

• You get the electronic source files of all works, both finals and drafts. This is essential so that you can make small changes yourself or switch to a different designer.
• Expenses besides the hourly rate must be approved first. I’ve been bitten by designers who run off and order products we don’t need or make expensive color glossy print-outs of things we’d rather see on a computer screen.

A final note on contracts, though — don’t sweat all the little details. Contracts only matter if there’s a dispute so severe and irresolvable that it comes down to lawyers. In that case it will be far cheaper to just walk away from the situation, even if that means paying the full amount.

5.  How to approach and structure the new relationship

So you’ve selected a designer and you’re ready to start. You don’t know each other yet, so neither one of you knows how to work together.

You’re going to want things like estimates and clear statements of work but the designer doesn’t know how many times you’re going to change your mind, how many iterations it will take, or whether you’re going to blow up her cell-phone at 9pm on a Saturday night.

The designer will want things like a clear direction and approvals for color palettes and design concepts, but you’ll be unsure of yourself, unsure how much to trust the designer’s instinct when it conflicts with your own, and unable to find the words to express your muddy vision.

Addressing these unknowns is easy — just be honest about them from the start and make it clear that you appreciate the designer’s dilemma as well. Talk! Notice when you’re hitting a barrier that might be your own fault.

Take a “baby-steps” approach to the design work. Instead of making a grand plan for redesigning everything, start with the basics. For example, try just the color scheme and logo as described above. This gives both of you a chance to learn how to work together.

Besides, getting the basics totally finished and approved makes it much easier to see how the rest falls into place. Once your colors, attitude, and style are embodied in something as iconic as a logo, the path to websites, white papers, blogs, and tradeshow banners becomes an extension of an idea rather than a new project.

Finally, “baby-steps” means you can spend just as much as you want. If you end up not liking each other or it’s too expensive, you can stop and still have something to show for it. And since you have originals, maybe you can take a crack at the rest yourself.

6.  It’s worth it

Yes, it really is worth all the effort. Your image matters. First impressions matter. Colors and layout and fonts set the tone before a person reads a single word.

In this ever more cluttered Internet, it’s even more important to stand out.

Plus, looking good just feels good. Now I know how Brad Pitt feels. (Yeah right!)

Jason Cohen wrote this post and allowed us to syndicate it. He is the founder of Smart Bear Software, maker of Code Collaborator, the world’s most popular tool for peer code review and recent winner of the Jolt Award.

Do you ever feel like you’re going insane? Do you do the same things over and over again expecting a different result? Is your business becoming more and more like Groundhog’s day? That’s the real definition of insanity. How do you avoid going insane? Here are some of my free-wheeling thoughts.

1. Understand your motivation. What is driving you to do what you do each and every day? Are you someone who always seeks comfort and predictability? Do you value work/life balance? If you don’t know why you are going to work each day, you’ll be doing the same things over and over again with the same results. By understanding your motivation, you’ll have a clear idea of what you need to change in order to generate real results. For example, I’m motivated by competition and playing the game right, I enjoy winning which drives me to constantly evaluate strategy and execution. At times though, I’ll get in a rut and realize that I’m not driven by winning, rather I’m driven by “playing not to lose” - which in my mind is the dumbest way to play. For me, understanding which way I’m playing helps me stay focused on results.

2. Challenge yourself everyday with something uncomfortable. Now, not for the sake of doing so, but because you are doing something valuable for your company. For example, if you don’t write well, write a blog post for your company today. If you don’t know how to cold call, do it - call three potential clients today. If you don’t enjoy networking, invite a potential mentor to lunch today. The more you are challenged with new things each day, the more you’ll be able to see opportunities that will open doors for you.

3. Take responsibility. Honestly, I’m sick and tired of hearing entrepreneurs complain about the economy instead of taking responsibility for the decisions they are making. Everyone is in the same boat, the great entrepreneurs are the ones that are able to adapt, make decisions given incomplete information, and take responsibility for their own decisions. Blaming the economy is an easy way to continue doing the same things and avoiding the tough decisions that need to be made in this environment. Another thing that drives me absolutely nuts are companies that survive by leeching off of others, in other words, building a business around suing other businesses and people instead of building real businesses or competing. Build value, take responsibility, and stop the nonsense of detracting value.

The past Bush administration post 9/11 asked all Americans to step it up and spend to keep our economy growing. The biggest insanity in the US is that we think spending and debt will bring about a sustainable economy. Time and time again, it’s been proven that spending and debt both personally and as a country is unsustainable. We tend to spend on assets that decline in value, automobiles, Ipods, Iphones, TV’s, overpriced homes, etc. What we need is to have a healthy mix of saving and investing in assets that provide a return. It means that we must do things differently, we must live below our means (both personally and collectively), we must invest wisely, and we must save more. It’ll mean more short-term pain, but in the long-term it’s sustainable and bubbles of the past may be minimized in the future.

This post was written by Andy Liu, a serial entrepreneur and angel investor. Andy currently runs BuddyTV, sits on several boards, and blogs at InspiredStartup about staring and growing successful businesses.

Zappos COO Alfred Lin enlightens us on how to become 37 times more productive in only one year! Can it be? Let’s hear him out:

Make at least one improvement [every day] that makes Zappos better. It sounds daunting, but remember improvements don’t have to be dramatic. Think about what it means to improve just 1% per day and build upon that every single day. Doing so has a dramatic effect and will make us 37x better, not 365% (3.65x) better at the end of the year. Wake up every day and ask yourself not only what is the 1% improvement I can change to make Zappos better, but also what is the 1% improvement I can change to make myself better personally and professionally — because we, Zappos, can’t grow unless we as individual people grow too.

Imagine yourself making 1% changes every day that compounds and will make you and Zappos 37x better by the end of the year. Imagine if every employee at Zappos was doing the same. Imagine how much better you, Zappos and the world will be next year.

At first glance it’s inspiring.  At second glace it’s poppycock. At third glance you wonder how it’s possible for someone to use the word “Zappos” so frequently.

Being 37x more productive is impossible, and I’ll show you why. But along the way it will become clear how becoming 2-3x more productive might be within reach.

His math isn’t the problem per se. It’s true that if you improve 1% each day over the previous day, that’s a 1% compounding rate. My question is: Is it possible to increase your daily productivity by an entire percent every day?

To answer that, I want to give you a fun math puzzle. Yeah, I know, “fun” is relative… Okay look if you don’t like word problems just take a random guess at the answer. If you’re up for the challenge, try to solve it without pen and paper. You know, just to prove your MIT education wasn’t for nothing.

Here’s the puzzle: You get in your car at home and head out towards your mother’s house 60 miles away. (Your mom likes this word problem, I can already tell.) You hit traffic during the first half of the trip, so after 30 miles you’ve averaged only 30 miles per hour.

Now the traffic opens up and you can go as fast as you want. The question is: How fast do you have to go during the second half of the trip such that you’ve averaged 60 mph over the entire trip?

If you’re not using pen and paper, maybe you guessed 90? 120?

Actually it’s impossible! To average 60 mph you need to travel the whole 60 miles in a single hour. But it’s already been an hour!  Even if you went 1000 mph during the second half, it would have taken just over an hour to complete the 60 miles, therefore your average is still less than 60 mph.

It’s amazing how periods of low velocity wash away gains of high velocity. In the puzzle, if you doubled your speed in the second half it would increase your trip average from 30 to 40 mph. If you quadrupled your speed in the second half, your trip average would still be only 48 mph.

Once you’re behind, you can’t make up ground no matter how fast you go.

This puzzle illustrates the weird math of velocities, and what applies to “miles” per hour also applies to emails per hour or writing code or writing prose or any other “gettin’ stuff done” per hour.

The problem with improving your productivity is that so much of your day is occupied by low-velocity activity — dealing with emails you didn’t really need to see, dawdling in a meeting that hasn’t started yet, or spending too much time reading blogs. (Present company excepted.)

When half your day moves at 30 mph, it’s impossible to make up the time during the other half.

This is the problem with Lin’s 1% idea — the low-velocity stuff makes it too difficult to improve even 1% overall, at least not every day of the year. Even with 37x improvement in some areas, you still might not be 2x more productive overall.

There’s good news here, however! Once you realize that the low-velocity stuff is responsible for most of the drag on your productivity, you realize that the thing to do is eliminate the low-velocity stuff. Yes it’s good to learn to type faster, but cutting down on the time it takes to process useless email might help even more.

Ready for more good news? There are free tools that help you identify what the low-velocity stuff is. I use one called RescueTime. To show you how useful this is, consider this example of my stats for one week:

Whoa — almost eight hours of email.  That’s a solid, uninterrupted, full day of nothing but email I’m blowing through every week. Is that really the way I should be spending the majority of my time?

Even the long tail can be instructive. Notice the 45 minutes of “Calendars.” A drill-down bears out the awful conclusion — yes I spent almost an hour in Google Calendar.  It’s true this week was completely packed with events, but still.

Another realization: I had an averaged 5.5 hours of activity per day.  I was in the office for over 8 hours every one of those days — the rest is sopped up with meetings, office chatter, and lunch.  Here’s the mythical eight-hour workday quantified — I’m starting with 5-6 and even then I spent much of it fielding email.

Once you see the numbers it’s easy to correct. I now notice more when I’m in an office conversation that’s past the point of being productive. There’s millions of tips for how to process email more efficiently.

So if you’re serious about wanting to increase productivity by, say, 2x, you can. Identify the biggest perpetrators of low-velocity activity and eliminate them, then do a little surgery on your high-value tasks.

The best part is, none of this means working late or working harder. Just stop averaging down!

Jason Cohen wrote this post and allowed us to syndicate it. He is the founder of Smart Bear Software, maker of Code Collaborator, the world’s most popular tool for peer code review and recent winner of the Jolt Award.

I play poker occasionally and the achilles heel of many poker players is that they think they are better than they really are. They’ll play in tough games where they’ll lose in the long run. The players that honestly assess how poorly they play will avoid situations where they are bound to lose and play games that their skill level will excel at. I’m not a great poker player, but generally I can assess pretty darn quickly if I’m the sucker at the table and admit it. (Stop playing those A9s, it’ll kill your bankroll

The same applies to your personal review.

If you aren’t accurately assessing your core strengths and weaknesses with a very critical eye, you’ll get beat. You’ll be overmatched and worse yet, set the company off on the wrong course. Do the tough thing and ask your staff to be critical of you and rate you without repercussions. If you don’t have staff, ask your advisers, your customers, or anyone you think can give you a real 360 degree view of you. Do your own self assessment of what you did well, what you did poorly in the past year and give yourself a rating. Do it in writing. Do it honestly and be hard on yourself. Would you fire yourself? File it like you would for any other employee to review every month or quarter.

It doesn’t do any good to stop after doing your review. You need to also come up with an action plan. Never stop learning or growing every day. What are you going to do to improve on your strengths? What are you going to do to cover/improve your weaknesses? Should you hire someone better than you or offload the responsibilities to current staff?

Once you have your action plan, who is going to keep you accountable? Meet with them once a month or even more often. Don’t do it yourself, it’s just too hard.

If you’re like me, life is much more interesting and fun when we’re honest with ourselves and we’re constantly improving.

This post was written by Andy Liu, a serial entrepreneur and angel investor. Andy currently runs BuddyTV, sits on several boards, and blogs at InspiredStartup about staring and growing successful businesses.

Big picture folks - we are in a bad, vicious, negative economic cycle with no end in sight. I hate to repeat bad news, but we’re in for a much longer recessionary period than we can imagine. Even though I’m not an economist, I’ll try to highlight in this post why we’re in for a long dark period and how we’re going to get out of it (hint: it’s not the government).

We’ve gone through a tremendous period of leverage where everyone was able to get credit, this led to assets to being way overvalued (stocks, homes, businesses). This took a while and it will take a while to get out of this. The US government is also highly leveraged, the stimulus bill and new bills to be passed will add trillions to our debt. The credit markets are still badly frozen. All this on top of a recession where people are losing jobs and unable to pay mortgages, education which leads to more freezing of the credit markets. What does this mean?

Brace yourself for massive de-leveraging around the globe. It’s already happening. Less leverage and reducing leverage means asset prices come down significantly (housing, stocks, etc) and at worse, deflation starts happening. This benefits savers whose cash now reigns supreme and it goes further than ever before. However, savers are not spenders and they can’t leverage their cash either - so it stifles the economy even more. You’re already seeing the US saving more and spending less, good in principle, bad for stimulus. It’s going to be a long time before we emerge. A good baseball analogy is that we’re probably in the bottom of the 2nd inning.

So the solution is the government, right? NOT! As you already saw with the TARP (which I incorrectly supported), the money didn’t loosen up the credit markets at all. The stimulus package while nice, isn’t going to be enough to stimulate the economy. We’ve got commercial assets that are very toxic, stocks that are still overvalued, earnings that are still taking a beating. The government doesn’t have a great track record for producing great results, no disrespect to Obama. Anyone who is betting on the government to solve their problems will be sorely disappointed.

What we need is a big dose of HOPE for everyone.

Hope

Imagine if everyone lived a life full of Hope and Inspiration instead of negativity. How fast do you think we can recover as a nation, as a world? I know some of you think I’m pretty negative in this post, honestly, I’m not. My personal belief is that we’re in a cycle of negativity which is keeping everyone down and totally blind to seeing opportunities. I got to hang out with some folks at a retreat last week and everyone was seeing opportunities and going for it. Imagine if everyone was doing that, imagine if we had entrepreneurs around the world seeing opportunities and taking risks, having hope for a better future. They’d employ people, they’d focus on solving problems, they’d seek to build sustaining operations with profitable enterprises. What about social entrepreneurship?

Imagine if you could build a successful business in this environment, what your business would like when we emerge from the recession. It’s time we stop expecting the government to get out of this mess, we must have more hope and inspiration and set an example for other entrepreneurs to work hard, innovate, create, lead, and pull others up.

Isn’t it time that we lifted our eyes out of the darkness of negativity and start seeing hope and pursuing dreams today?

This post was written by Andy Liu, a serial entrepreneur and angel investor. Andy currently runs BuddyTV, sits on several boards, and blogs at InspiredStartup about staring and growing successful businesses.

What if tomorrow I forced you to double your price?

If you sell software, your prices just doubled. If you’re an hourly consultant, your rate just doubled. If you’re a salaried employee, you’re now demanding double your salary.

Ignoring the (understandable) backlash from your existing customers/employer, what would you have to do to justify the new price tag?

• If you’re selling software, would it be best to add new features, or would people perceive more value if it were beautifully designed? Does it need more functionality or fewer bugs? If a customer emails tech support, what response would impress the customer? If a customer comes to you with twenty feature requests, do they get lost in the shuffle or do you proactively contact them quarterly with updates?
• If you’re a consultant, could you command a higher rate if you got certified in some technology, or would you earn more authority writing a quality blog? Should you charge for every email or provide some advice gratis? Should you charge a low rate but milk projects for extra hours or should you be expensive but brutally honest with your time reporting? To maintain contact with your past customers, is it enough to send automated holiday e-cards or should you write a quarterly newsletter with useful tips and ideas?
• If you’re an employee, how could you make yourself indispensable? Is there a project lying around that no one else is taking the initiative on? Is there a way to save money? Is there something you could do above and beyond your job description that would undeniably improve the company?
• If you’re looking for work, should your résumé list as many technologies as possible or should you boast about your deep expertise in one area? Should you dwell on formatting or on making an impression? Should you copy the ten recommendations you have on LinkedIn or is it best to attach one passionate, glowing recommendation? Is it more impressive to list your club memberships or your Stackoverflow reputation?

Assuming this thought experiment has provoked some ideas for how you’d change your approach to business or your professional behavior…

What would happen if you acted like that without raising your price?

You’d crush your competition.  Maybe it’s the edge you need to make sales during a recession.  Or maybe you could justify raising your price!

Hold on though, isn’t it more difficult, expensive, and time-consuming to behave as if your time is twice as valuable?

Yes.

But then, behaving that way does make you twice as valuable!

Jason Cohen wrote this post and allowed us to syndicate it. He is the founder of Smart Bear Software, maker of Code Collaborator, the world’s most popular tool for peer code review and recent winner of the Jolt Award.

Great results never come easy, right?  Losing weight, running a marathon, building a successful business, having a great family life.  It takes hard work, perserverance, resiliency, focus, and a rock solid attitude.  As I’m working long hours on executing our ‘09 strategy, I always try to keep in mind that it is a marathon that we are running and not a sprint.  Building long-term value isn’t easy and it requires hard work.  I’d like to share five myths about startups that I’ve learned only after hard blood, sweat, and tears.

Myth #1: Starting a business is hard, Exiting is easy. Nothing could be further from the truth.  Starting a business is very easy.  Once you’ve started it, getting to profitability and your first $1M/year in revenue is very difficult.  I’d consider that you’ve “exited” the business if you’re capable of building a profitable business primarily because you have options - people will want to buy you, you can expand organically, and your options for raising financing is much easier.  Expect that the road is tough, give yourself at least 2 years, be realistic and give it 110%.

Myth #2: People care about your business. Sorry, folks - people couldn’t care less about your new business.  You need to earn that attention.  I’ve learned a tough lesson with this the first time I launched my web business, we may have had 6 visitors on our first day - and those were our employees and families.  The next day, everyone forgot about us.  People don’t care.  There are very few businesses that can launch with a launch party and call it a day.  You need to give them a great reason to care.  Make sure you go in with a good plan.

Myth #3: Being threatened is a bad thing. This is similar to myth #2.  If you don’t have anyone who feels threatened by your business or if you haven’t ever faced a lawsuit - I’m sorry but you don’t have the influence that people care about.  I don’t wish it on anyone, but if you haven’t ever faced a lawsuit or been threatened with a lawsuit, you probably don’t matter.  You need to keep growing and consider that your company has grown to the next level when you are threatened - you should celebrate when it first happens, it’s like riding a bike for the first time

Myth #4: Assuming you are the boss. I don’t care if you are a sole proprietor or a CEO that runs a Fortune 50 company, you are not the boss.  And, if you assume you are and act accordingly, you will not be successful.  Your boss should be your customers, your employees, your investors, your family, and your board.  I’m a big believer in servant-leadership, are you enabling your employees to succeed in their position?  Are you delighting your customers (your boss)?  Since you have the title of leader, are you running the company as the enabler/servant?  You will be much happier you did and your results will far surpass the contrary.

Myth #5: Startups are dependent on your passion. I’ve heard this advice so many times and it’s tiring.  Be passionate about what you do.  It sounds great, but I’d argue it takes much more than your passion to succeed - it takes commitment.  Rugged, almost stubborn, commitment!  Personally, I’m passionate about music and especially playing the keyboard.  At one point, I wanted to do music full-time, but I never had the commitment it took to succeed.  I was part of a rock band that kept searching for a label deal that never came.  I gave up.  It wasn’t for lack of passion, I still play these days, but I’m just not committed.  Not only do you need to be committed, you need to hire people who are committed.  It takes a committed team to build a successful business.  Like I mentioned at the beginning of this post - the startup road is very hard - if you aren’t committed, you’ll never make it.

There’s a reason a lot of folks are just dreamers and not entrepreneurs, it’s just plain hard and risky.  I think that’s what makes entrepreneurs special and why the journey is so fun.  It’s a truly unique and very rewarding experience (even if not monetarily).  Live it up!

This post was written by Andy Liu, a serial entrepreneur and angel investor. Andy currently runs BuddyTV, sits on several boards, and blogs at InspiredStartup about staring and growing successful businesses.

Tiny startups will always have shortcomings compared to the big boys.

Three people can’t run 24/7 tech support. A single consultant cannot always answer the phone. Software might have more bugs and fewer features than the competition.

Your customers know it, and you get to hear about it.

“I’m not comfortable buying from a small company; what if six months from now you go out of business?”

“What if I have a problem on Saturday?”

“I tried calling you but got an answering machine — on a Thursday!”

Do you try to hide these shortcomings, or do you turn it into an advantage?

In my experience you can’t hide. Oh you can try, and boy have I gone down that road, carefully selecting my words so that I’m not lying per se but still hiding the fact that I was a one-man software shop.

“We have hundreds of users.”  Well, hundreds of human users, but not hundreds of customers. And who is this “we?”

“I’m going to personally handle this issue.”  Well yeah, I don’t see anyone else here.

“Yup, I always answer the phone.”  Does voicemail count as an employee?

The fact is, after a few interactions — whether by phone or email — they realize it’s just you. I know you think your website looks impressively big-company considering you designed it yourself, but they’re rarely fooled. I know you’re proud of v1.0 of your software — and congrats on that by the way — but your customers are still putting up with all sorts of issues.

What I discovered at Smart Bear is that shortcomings can be converted into competitive advantages.

Here’s some examples:

Problem:  You’re a one-woman consulting company. What happens if you’re not available? A big firm has extra people in case of emergency.

Advantage:  With my company, you always get me; at a big firm, you get whomever isn’t busy, and the good people are always busy. If you wanted someone like me at a big firm, you’d pay double (firm overhead!) and you still wouldn’t get my undivided attention.

Problem:  You don’t have 24/7 tech support.

Advantage:  Because we’re small, “tech support” means “talking directly to the developers who make the software.” No “level 1″ layer whose true purpose is to block you. You get deep answers from the creators. Bug reports and even your feature requests go straight to the ears of those who can do something about it. Now that’s customer service!

Problem:  This software is obviously new. It has bugs and it doesn’t have all the features we want.

Advantage:  All software has bugs, but we’re small enough that bug fixes are often turned around in under 24 hours. Also we can afford to implement little pet features you have — in fact you can even help us design the next version. Good luck getting this kind of responsiveness with a six-year-old product at a big company. (And don’t tell me those other products have no bugs!)

Problem:  You’re just a small company. How do I know you’re going to be here in 12 months?

Advantage:  How do you know big companies will be supporting their products in 12 months? Big companies are cutting products all the time. They have to, if the product line isn’t profitable. With us, all we do is work on this product. It’s our life. Every waking hour is spent improving it and making you happy. Which of these strategies sounds more likely to survive?

The trick in each case is two-fold:

1. Dispel the notion that “big companies” don’t have similar problems.
2. Trump up the advantages you have because you’re a small business.

Sometimes you can’t win on #1. For example, if they have 24/7 tech support while you have 8/5, you’re not going to win on hours alone. But for every disadvantage there’s a counterpart advantage; here you would point out that talking to the company’s CEO on Monday is far more valuable than getting canned responses from “level-1 support” on Sunday.

Part #2 is easy. Embrace what you have rather than compete with the big guys on their own turf. Small businesses always have advantages over big companies — passion, responsiveness, expertise, transparency, inclusiveness, and personality.

One final note, though: These explanations have to be honest. If you don’t have 24/7 tech support, your 8/5 support must be stellar.

It’s not “spin” if it’s the truth.

Jason Cohen wrote this post and allowed us to syndicate it. He is the founder of Smart Bear Software, maker of Code Collaborator, the world’s most popular tool for peer code review and recent winner of the Jolt Award.

Who is more likely to produce long-term shareholder value — the entrepreneur who raises too much investment capital, or the entrepreneur who funds growth through profits alone?

First time entrepreneurs often have skewed visions of “how it all works”. Their perceptions are often shaped by the numerous successes that get touted about the media, rather than by the 1000-fold number of failures. It makes the “accidental success” of YouTube appear reachable, or at least “just as likely” as any other startup.

One of the things that entrepreneurs usually believe is that once they have an idea, they need investment — that’s just how it works, right? Once they start to talk to investors though, as well as advisors and other folks in the startup community, the questions usually come up … is this a lifestyle business or a “swing for the fences” big market opportunity? A “lifestyle business” is one which you intend to keep running for a decade or two — like my Dad’s optometry practice, for instance, or my brother’s event audio/visual recording business — typically an owner-managed business in which the profits are used solely to support the ongoing lifestyle of the proprietor.

Then there are the “swing for the fences” big market opportunities. These are the startups with big goals, where the entrepreneurs focus on a market opportunity >$100M. To get there, most companies on this track sell ownership in their company at some stage of their business to raise the capital necessary to build their company. Some companies even raise huge amounts of venture capital, at a hefty dilution mind you, before they even arguably HAVE a business. (Twitter comes to mind …) Investors are compelled by visions of a healthy return on their investment, and in the latter case also by extremely savvy entrepreneurs.

For whatever reason, I’m NOT a “lifestyle business” kinda guy. I’m only interested in building a company with a compelling market value and resulting shareholder ROI, but as a founder I’m ALSO uninterested in immediate dilution down to single digit % ownership. I want as much equity in the company as possible.

I learned long ago that the best way to build personal wealth and shareholder value is through “bootstrapping”. Bootstrapping is the art of building companies with very little outside capital/investment. I’m proud of my bootstrapping skills actually, which I’ve developed over four startups now, yet I’ve also realized that outside capital is also essential to developing/realizing a substantial market opportunity.

The reality is that there is a middle ground. Bootstrapping your way 100% to IPO, while honorable, is very difficult and uncommon. If the market opportunity is truly there, being under-capitalized will usually result in missing the market window of opportunity. Conversely, raising too much capital too early rarely results in long-term shareholder value. In other words, given a large market opportunity — a startup that raises too much investment capital is just as likely to fail (to generate shareholder value) as a startup that doesn’t take any investment capital.

I’ve been building Others Online based on what I thought to be an appropriate balance of equity financing and bootstrapping (”sweat equity” financing). Unfortunately we’re still not profitable and thus reliant on investment capital at a time when the market opportunity is large and we’re landing large customers, but market conditions are unstable and investment capital has dried up. And the other day I was talking to one of my investors, who literally wrote the book on bootstrapping, about our status as a company. He insisted that there “has to be a way” to generate more cash from our pipeline immediately. The only way I can see to do that is to shift our business model in the short-term, and I worry that doing so may negatively impact our ability to achieve the “big market opportunity”.

I keep thinking about this. Is it possible to “swing for the fences” (big market opportunity) at the same time as focusing on 1st base (getting to cash flow breakeven)? Or are the two incompatible? I suppose it depends on the market opportunity, but I’d argue most high-value windows of opportunity in the market are open for a limited period of time. Rarely do you not have competition eyeballing the same opportunity, and sufficient funding is generally a prerequisite to nailing these windows of opportunity.

Market leadership positions are always attained as a result of execution. Financing is not execution. However, financing provides the means to develop the necessary components to execution: team, timing, marketing, and product development. Since paths to success are rarely a straight line, financing also helps recovery from bad decisions (on any of the above). Under-capitalized companies are therefore at greater risk. That said, bootstrapping is also essential. It teaches you to make your mistakes quickly and therefore least costly. Bootstrapping is good execution.

2009 is going to be a difficult time for companies who are “swinging for the fences” but aren’t financed for the next 12-18 months.  If you’re one of them, like we are, it seems you can only either change your game plan and just focus on 1st base, or merge your team with a team in a far better position to hit the home run.

Jordan Mitchell, the author of this post, blogs regularly and is the CEO/Founder of Others Online (his 4th Internet startup), which provides ad networks with behavioral profiling and targeting solutions.

If there was a near-perfect analogy for all businesses, it would be the lemonade stand. Did you ever play the computer game growing up or did you ever operate a lemonade stand? It was pretty easy to get, right? Buy cups, buy lemonade, build a stand, advertise, and sell for more than it cost - make money. Shouldn’t all businesses be intuitive and easy to understand? What is your business like? A lemonade stand or Enron? I still don’t get Enron. Get back to the basics.

Let’s start with an almost-true Lemonade Stand story. Sara, a budding entrepreneur at the age of 9, started a lemonade stand just over a year ago. Each month, she runs the stand on the weekends asking everyone who was nearby to buy. It happens to be a very profitable business, making almost $40 month and going up every month.
She was able to buy herself a bike and any toy she wanted on her own. In fact, business was so strong, she decides that she wants to buy more cups and more lemonade for the month of January. However, her Dad being a wise and experienced businessman warns her daughter that the country is in recession and that less people will be buying lemonade in this environment - perhaps, she should save her money and wait to grow the business later in the year. The daughter listens, pulls the signs and lowers her inventory, sure enough her sales slow. She responds to her Dad with pride - “you were right, thanks for letting me know there was a recession!”

I love this story for a few reasons - I love the fact that she was an entrepreneur, she was able to build a profitable business when so many big businesses are unable to, and that she was ambitious. What do you think would have happened had Sara ignored her Dad’s advice and went ahead and invested more into the business? What if instead of pulling back, she built more signs and spoke louder on her corner to anyone who was within shouting distance? I don’t think there is a wrong answer, but I would have pushed her to be more aggressive with signs and pounding the pavement and speaking with potential customers farther away. I’m sure other lemonade stands were facing the same issues. She just may have seen her business grow instead of contract.

I took away some key learnings and great reminders:

1) Resist Knee-Jerk Reactions. Sure, we are in recession. That doesn’t mean you should pull back everything. Think strategically, you just might want to increase inventory if your competitors are going out of business. You might want to advertise, you might want to increase your hours and get in front of more customers.

2) Make your Business Simple. The lemonade stand business is great - it’s an easy to understand business. Take complexity out of your business - collect cash upfront, advertise, sell, make sure there is profit, optimize. Get back to the basics. Revenues minus expenses equals profit. Which part of the equation are you working on today?

3) What are you spending time on? How much time do you think Sara spent on the phone and responding to email? None. She knew what she had to accomplish and she did it. Stay focused, set specific times to answer voicemail and email - stick to it. Get back to work on the basics.

4) Start. I’ve mentioned this on my blog before, start the business, get in the game. If a 9-year old can do it, you can too. Not only that, she’s profitable. If you’ve already started a business, start getting profitable immediately, if you’re profitable, start getting more profitable. Pretty basic stuff.

5) Consistency. Sara built her business over months and stayed consistent. Entrepreneurs are generally impatient (including me), and often quit too soon. We can all learn a lesson from her to stay consistent and build a long-lasting sustainable business.

Our businesses would be so much easier to run and we would be less stressed if we would just get back to the basics and focus on those things that directly impact profit. Sure, there are times to be creative and do biz dev deals, but be judicious especially in these times. If it doesn’t directly impact profit immediately, should there be something else you could be working on that would?

What would your advice be to Sara? How would you take Dad’s advice? How are you getting back to the basics?

This post was written by Andy Liu, a serial entrepreneur and angel investor. Andy currently runs BuddyTV, sits on several boards, and blogs at InspiredStartup about staring and growing successful businesses.