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Posts Tagged ‘Business’

Will The Financial Crisis Damage Small Technology Firms?

In Business on March 18, 2008 at 1:45 pm

The current crisis in the world’s banking industry is causing my quite a bit of concern right now.  Our web technology business is small but growing.  When businesses are doing well they’re more likely to spend money on items such as web design and web applications and we believe we’ve benefitted from that over the past year or so.

But what happens if our clients and potential clients start to suffer as a consequence of an economic downturn?

Problem 1 – Spending Cutbacks

During uncertain times, many businesses choose to be careful on spending outside of their company.  In particular they may look to what are perceived as cost centres (website updates, build and application development) as being something that can wait for a while.  If that’s the case, there’s going to be a slowdown in spending on technology unless it’s deemed as essential for the company to operate.

Problem 2 – Credit Freezes

Thankfully we’re based in the North of England – this is an area which is traditionally very conservative with money.  People don’t like to borrow money or use complex financial instruments and most SMEs in the North West still tend towards being self-financed.  However, this article’s aimed at everyone.  Business that rely on finance will face certain problems.  In particular, curiously, the ones that have a moderate but high risk position are the ones who face the biggest chance of foreclosure.

Why?  Well it’s time to think like a banker.

Example 1: This business has loans of £100,000, assets of only about £30,000, and sales have plummeted.  However, the business is still viable if it can renegotiate its loan terms.

If the bank decides to close this company it will definitely lose £70,000.  In renegotiating the loan the business will continue to  function, and the bank will get its money, albeit over a longer period.

Example 2: Another business has been far more careful with its money and has a £30,000 loan with assets of £100,000.  However, sales have died due to the downturn and income is poor.  They too need a renegotiation as their cashflow situation makes it impossible to meet the loan payments.

In this case the bank, needing to bring in money to improve its cash position, will be less inclined to renegotiate.  After all, if it closes the loan it will get everything back – the full £30k.  Their cash position is improved and everyone’s happy.  The business may struggle now because it’s now £30k down on cashflow.  In fact, it could even fold because suddenly there’s no cash left in the company to help pay its wages and bills.  Worse, it can’t even negotiate a loan against its assets because all the banks are being ultra-cautious, will take one look at the cashflow problems and decide to look for someone safer to lend to.

You also have to think very carefully about any secured loans.  In the event of a repossession it’s possible for the bank to get everything.  They may repossess your premises and resell them at a significant profit.  In many jurisdictions there’s no compulsion for them to share or give the profit to the original debtor.

Problem 3 – Price Inflation

Inflation is pretty steady in the UK still.  But we still have one massive problem – we’re starting to sell internationally.  Countries that trade internationally in dollars will have found their costs rising dramatically when dealing with EU based economies.  It’s not that long ago since a British pound was worth $1.5 – yet now it buys $2.  But thankfully there’s an upside – the more steady, more sensible and less loan happy mainland Europeans have found their Euro increasing dramatically in value.  It makes our holidays to Europe more pricey, but the upside is that our services look a lot cheaper to Europeans – so as one market declines, another has grown.

But it’s not all bad….

Opportunity 1 – Competitive Pressure

Businesses that are struggling will need to fight to compete.  No longer will money simply roll through the door as naturally as leaves through a courtyard.  Instead some firms which have experienced an easy ride lately with their easy finance, will need to get out there and find customers.  They’re going to need to invest in technologies that help push them up ahead of the competition.  This is where there could be some real growth in the web technology market – at least, for the companies that can give the best results.

Opportunity 2 – People With Time

If there is a downturn it’ll mean more people with less work to do – perhaps not needing to work so many hours, or even higher levels of unemployment.  For them the web will be one of the cheaper forms of entertainment available to them.  They’ll be getting into blogging, Web 2.0 applications such as Facebook, and even maybe dabbling a little and learning how to code themselves.  They’ll help the market to grow and will be enthusiasts for the business in the future.

Opportunity 3 – Weak Rivals Will Decline

One of the best things about a recession can be that the really weak rivals will suffer.  Web designers, for example, who churn out poorly thought out and over-priced websites will find themselves at a disadvantage to those with a reputation for positive results.  They’ll either have to reposition themselves more truthfully (at the economy market perhaps) or spend some time improving.  It’s also worth looking out for closing companies and seeing if you can pick up their past clients.  Filling a dead-man’s boots may not seem too ethical, but chances are it’ll be a relief for those clients to know there’s still someone around who they can rely on.

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The Danger of Unpaid Consulting, And One Answer…

In Uncategorized on February 12, 2008 at 12:46 pm

One thing that happens a lot in the web development and design sphere is the problem of unpaid consulting.

Actually, I’ll rephrase it a little… it happens all the time!

It’s rather tricky. Clients are interested in us because we offer them something that gives them better efficiency, sales and returns. But what we do is complex and sophisticated.

As it’s me that does all the sales work I find myself often giving over two hours of my time to a prospect in order to explain how the dynamic websites work. I’m educating them. For two hours.

How much would it actually cost to get an expert in any field to educate someone for that period of time on a one-to-one basis? £120? £240? Certainly it wouldn’t be cheap.

Yet there I am, explaining various elements of design, hosting and development… all for free.

Not only that, but many clients expect proposals, complete with mockups. For free too, of course. After all, we’re only selling.

And it’s a trap I think that all IT types need to be wary of. We’re natural born ‘pleasers’. We want to write cool stuff, but more importantly, we want people to acknowledge that coolness. It’s interesting that the concept of Open Source is so strong in IT. There aren’t nearly so many top photographers offering any of their materials with a right to free duplication as there are developers.

But here’s the thing… free doesn’t put food in the table. Each prospect may be the result of two hours of work before we even get to visit. On top of that is the two hours of free consultancy they end up receiving when we go and see them. Then there’s the proposal – that can be four hours for something simple, but easily a 16hr job. So we have up to 20hrs per prospect, before a sale is even agreed.

If we then assume a one-in-three conversion (because they’ll probably talk to three potential clients) that means up to 60hrs of work for each client won. I’ve actually estimated that by and large we manage on about 40hrs per client win.

Now here’s the funny thing – many of the websites we produce take less than 40hrs to build. Let’s say each is 30hrs of work to build – what with all the toing and froing of ideas, images and copy.

That makes 70hrs per website. If you’re going to make a modest, middle class income, and cover costs, then chargeable rates have to be around the £30 an hour mark. That’s about what most backstreet mechanics are charged at. So the very base price for a website built according to expectations above, has to be £2,100.

Read that figure.

£2,100!

For a basic, simple, custom website.

We’re working on developing techniques to get web developers away from this problem. Expectations are far higher than can be fulfilled economically. Check back to the blog regularly to see our up and coming announcements…

Does the web industry suck?

In Business, Web Design, Web Development on January 17, 2008 at 9:22 am

I’m not going to rant here about all the great clients, who understand that time is expensive, who listen, pay attention, and do their own research.

But what I do think is that there’s a significant chunk of people out there, with no clue as to the Web, what it’s for, and how it works, who currently seem to be desperate to jump onto the bandwagon. They sometimes actually have some pretty sound business ideas.

Thing is, they turn up at our office with these huge plans. And a budget of £250.

There then follows an awkward silence as we have to explain that £250, like in dentistry, doesn’t really buy you a great deal of cosmetic awe. Even if the underlying software is free, you still need someone with the ability and understanding to implement it correctly. And they’re in demand.

But then that brings up another issue – the one of the wannabe web designer. Very little understanding of the technology or business, but does have a copy of Frontpage, Dreamweaver, or worst of all – Flash and only Flash. And thinks they can design for the web because they’ve done some ok print jobs in their time. They over promise, often raising expectations, under-quote (causing pricing pressure) and under-deliver.

Not all are actually that bad in overall design terms either, but they have a habit of disappearing when things get difficult. If one of their sites is hacked they have absolutely no idea why, and can’t do much about it. They don’t understand what the difference between CHMOD 777 or 766 can mean to the security of their site. In fact, to make their life easier, they simply switch everything to 777. And they’ve got so little money from their £300 job that they most definitely can’t afford to pay a TruePro (my TM, maybe. Perhaps) to come in and get digging, and to configure their site correctly.

And clients sometimes need to accept that they can’t just say “gimme a website!” to a designer/developer and expect them to magically mind-read their true desires. For free, of course.

Thing is – how’s a client to know the difference between a good or bad web company? It’s no easier than knowing the difference between a good or bad engine design in a car. The only way people learn is by watching what or who gets the most reliable, dependable and economical cars out there. And if there are none, then eventually someone will come along and do just that. Like the Japanese did to the British motorbike industry, so, surely, will the good web companies overtake and close down the bad ones.

So to answer my own question – I actually think the web industry does suck right now. But it’ll get better – slowly, top web brands will move to the fore, and the rubbish ones will fade away. And it won’t be from expected sources either. For example, WordPress.com is likely to become a major force for many small business websites, with many moving to self-hosted WordPress sites once they need more control or uniqueness. Why does any startup in a non-tech field need to commission a custom site when there’s plenty of great, free or cheap designs available?

And that’s where the future website designing and hosting brands will come from. The small one man web companies need to adapt to this market and consider that the direct one-to-one model of web design & development is approaching its death knell. Instead, these small companies will become facilitators – finding the best solutions for the non-techie clients, setting them up, and then briskly moving on to the next client. The technical knowhow, fixing up and hacking will be concentrated in key points. They’ll set up or review systems like SugarCRM, Plone, WordPress, and more.

Bigger clients will of course still need their own web applications built to suit any unique business models they operate, and they’ll be able to afford the fact that few of these can ever cost less than five figures. So that business model will continue, and should pay more too as the solutions become critical to firms.

I know I’ve just had something of a ramble there – it’s purely a stream of consciousness thing. I think the web industry is on the verge of maturing. That doesn’t mean the days are over for specialists. Just that the mass market will move to commodity systems, while the specialised stuff will actually start to pay the kind of rewards that should be available to people who work with a difficult and challenging technology.