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Archive for the ‘business’ tag

Consulting Budget – Estimate Overruns – Fixed Price Game

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I was reading this article

ERP Cost: Getting Real

A lot of what is said applies to freelance web software development.  Key points are:

1. There is a direct correlation between the cost of consulting services and the ability of the client to take more project responsibility. This goes beyond just cost; it is also about increasing the probability of success.

2. Many clients naively believe fixed price agreements (as opposed to hourly billing) are “risk free”. The false premise is “if we can just get the consultants to own all the project risk, it becomes their problem not ours”. Unfortunately for the client, dumb people do not run consulting firms. Therefore, the devil is in the fine print. If it is not, chances are the consultants are desperate for business and there are probably reasons why. Let the buyer beware.

3. No project has ever failed because of over budgeting during the project justification phase. In fact, clients should be conservative with the ROI.  On the other hand, plenty of goods projects have “failed”  as a result of unrealistic cost estimates right out of the gate (not because of execution).

Written by John Lai

July 17th, 2010 at 10:11 pm

Guts to start a business

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I explained to a friend why I find it easy to takes risks in life and business.   Here it is:

This reminds me of a story you told me about entrepreneurs being fearless risk takers.  Here’s why I fit the bill.

Growing up in chinatown in a low income family, constantly in debt to friends and landlords, we’ve all learnt to not be afraid of surviving with little or no money (only exiled to Mississauga 4 years ago when my parents couldn’t work in a restaurant anymore, so we needed a place to live).  It’s easy to take risks when your back is against the wall with nothing to lose.  My parents never had the privilege of education because of Japanese occupation, WW2 and the cultural revolution.  My dad especially lost everything during that time.  He tells me stories of pan handling on the streets and being chased away by japanese soldiers.

So as an entrepreneur, I think if there are people like my parents pan handling on the streets in war torn countries, having the guts to start a business in a first world nation is child’s play.  I’ve got nothing to lose and everything to gain, so I might as well take a shot at proving to people with enough hard work and luck, you can actually claw your way out of poverty (after 2 or 3 generations).

Written by John Lai

July 15th, 2010 at 2:12 pm

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Client Levels – How to get high-end clients

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A question that many freelancers asks is, “how do I move away from low budget clients to high end clients?”  This is a difficult question to answer, but it’s generally along the lines of being good at what you do, being a nice person to work with, being patient and marketing yourself well.  The last point, marketing yourself well, can be a difficult thing for programmers to do.  It normally includes targeting the right audience.

The purpose of this post is to introduce the concept of “client levels” which should help freelance programmers target the right audience.  Here we go

I generally assign a “level” to a client to indicate his profitability for my business.   They are:

Level 0 to 10 – These clients are friends or family members who have no appreciation and/or no understanding of what it is you do.  As such, you volunteer your time to help them.   These client projects are good if you need to assemble a portfolio from scratch.

Level 10 to 20 – These clients are friends or small businesses with a small budget who have no appreciation and/or no understanding of what it is you do.  They pay you anywhere between nothing and less than minimum wage for your work. These client projects are good if you need to assemble a portfolio from scratch and if you need a couple of dollars for Tooney Tuesdays at KFC to ward off starvation.

Level 20 to 30 – These clients are small to medium size “established” businesses that do not appreciate the value of your work.  So although they are capable of paying for your work at market value, it is hard to convince them to actually do so because they compare you to high school students or some IT guys in India.  With enough haggling, these client projects can sustain your business.  Hooray!  You have enough money for a Quarter Pounder Meal at McDonalds!

Level 30 to 40 – These clients are small to medium size established businesses that appreciate the value of your work.  They do not hesitate to pay you the market value for your work because they consider you a valuable resource.  They know that they need your help to “take their business to the next level”, but they lack a clear strategy on how to do it and they are mired by disorganization.  These clients are great if, additional to your advertised primary skill sets, you are able to clarify their business strategies and help them execute it.

Level 40 and up – I haven’t gotten these clients yet, so they are all one amorphous blob.  But I presume they all have clear business strategies, great organization, significant cashflows and a history of great execution.

IMPORTANT NOTE: You can expect clients in each level to refer other clients within the same vicinity level.  So for example,  a level 10 client may refer clients between level 5 and level 15.   So if you’re starting with clients at level 0, it may take you 3 years of 24/7 work to obtain level 40 clients.

Written by John Lai

July 15th, 2010 at 4:04 am

Engineers work with nature. Businessmen control nature.

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I posted this just now on redflagdeals, but will repost here:

I graduated from electrical engineering at U of T in 2004 and now I own and run my own business.

If I had to do it all over again, I would have chosen a business program (with a couple of elective software dev courses) over an engineering program. The reason for this hind-sight decision is also the answer to a question I’m frequently asked, “Why did I start my own IT business”. The answer is as follows:

Imagine you’re an engineeer and this month, you have to design a house in Canada. You’d design it with a good heating system, good insulation, carpeted floors because it gets cold in Canada. Next month, you have to design a house in Iran. You’d design it with a good air-conditioning system, less insulation, stone floors because it gets hot in Iran. Each time you have to build a house in a new location, you have to re-evaluate your existing tools and technology to see if they are applicable.

A well trained engineer will eventually ask, “Isn’t there a way to design a one-size-fits all solution?” Regardless of whether it’s possible or not, a good engineer will ask the question in hopes of devising an efficient and re-useable solution. But of course, within the realm of engineering, a one-house-fits all for all geographies, terrains, seasons and weathers is impossible.

The solution to a one-size-fits all problem requires a business/finance/economic solution. That is, this engineering problem can only be solved with a non-engineering solution.

Through economics, you can drive up the property value in Canada so that no one wants to build there. You can also destroy the economy in Iran so that the builders can’t afford to build houses. Businesses can control the price of raw materials, making certain types of buildings feasible and others not feasible. With capital, you can eliminate all the competing variables that engineers need to deal with such that the word “all” in the phrase “one-size-fits all”  becomes “one”. Hence, making it possible for engineers to realize a one-size-fits all solution.

The reason I left working as an engineer for an engineering company is because I realized I can’t develop a one-size-fits all solution if the business people managing me don’t know what the hell they are doing. Everyday, I would create something, then the execs, sales, marketers change their mind, and back to the drawing board I go. I realized the only way to do things properly is to run my own show. So I started my own business, defined and simplified “problems” properly so that my engineers can have a better time.

Engineers build products. Businessmen control nature. Engineers can only build the products business people tell them to build.

So in the end, I went into business because engineering did not give me the skills to build what I want to build. If I had to do it all over again, I would have went straight into business.

Written by John Lai

March 16th, 2010 at 6:49 pm

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Business is not about money

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I’ve been self-employed for a year now.   Last year, I left my 9-5 job with a big company to pursue my own web projects.   Along the way, I learned more about business than any four-year-$40k university program could teach me.   Although I’m still new to business, I’m compelled to share some of my ideas on the subject – ideas that seasoned entrepreneurs may ridicule as naïve.  But hey, here goes…

Business is not about money.  It most definitely is not.

I grew up a Trekkie.  I dreamed of living in a laissez-faire communist society where humanity’s only wish was to better itself through compassion and understanding.  Money was the root of all evil and was abolished in the 21st century shortly after First Contact.  So for much of my life, I resented capitalism.  I wanted to work for free because it would be for the good of man kind.  Naturally, overtime, I realized that my philosophy was naive and misguided because people would always take advantage of free.  I needed a compromise between charity and exploitation, and hence, my new found appreciation for business.  Business, by my definition, is about making people happy without killing myself to do it.

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Written by John Lai

October 18th, 2009 at 12:16 pm

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How to Grow a Web Business

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I’m sure every developer who’s ever wanted to start a business had trouble coming up with that one really awesome idea to make him millions. Personally, I feel that approach is too overrated. Here are two other approaches to consider:

Approach 1: Build for Niche Market

David from 37signals explains this one:

Watch live video from HackerTV on Justin.tv

Basically, don’t obsess over coming up with that one big application to change the world.  You have a better chance at winning the lottery. Instead, take an already existing idea and just make it [slightly] better. Then rely on marketing power to take it the rest of the way. Have several of these apps, and you will do quite well.

Approach 2: Focus on Creating Assets

Instead of focusing on which business idea has the most potential for profit, I focus on which business idea allows me to build multi-purpose/re-useable technology. The advantage here is that regardless of whether the immediate business succeeds or fails, I will have created an asset of value that I can re-sale or re-use in the future. There will always be at least one other person who will find my technology useful, and will pay me to use it. This is what I call the “no-loss” scenario.

Written by John Lai

March 7th, 2009 at 12:40 pm