Responses to Sundry Questions

I’m always looking for excuses to use the word “sundry” and this time it came as a result of an email from Kenny who asked me some questions regarding my previous posts on why SEO is a better business model than web development, why doing web hosting in-house was a nightmare, raising capital, and going to a virtual office. This one’s for you Kenny. If you still want to take me to lunch after this post to discuss this more I guess I’ll let you.

Allow me to preface everything by saying these are my own experiences and somebody else’s might be quite different, especially if they’re smarter than I am, which is highly likely.

SEO vs. Web Development. I’m racking my brain and I can’t think of one way in which running a web dev business is better than doing SEO. SEO’s got recurring revenue, smaller ticket price making it easier to sell, and no emergencies. Web dev involves fighting for new projects every month, fluctuating revenues, almost zero predictability, and clients calling you in the middle of the night because their site is down even though that’s generally a hosting issue and you don’t manage their hosting but they expect you to be in control of everything related to their website.

Not that people haven’t overcome these issues, but everyone I knew who overcame these issues got one thing right that I’ve never fully succeeded at–developing a reliable sales machine. In the web dev business if you can’t generate consistent sales you wont’ be able to do anything else consistently, including making payroll. SEO is more consistent by nature and doesn’t depend so much on a well-oiled salesman.

Hosting Nightmares. The problem with my hosting arrangement was that it was all managed manually. There was no scalability, no control panel for clients to manage their own accounts, etc. If the client wanted something changed, we had to make the change. The most we ever gave them was FTP access. The problem was we didn’t have a big enough hosting operation to justify buying control panel software. We never had more than 5-6 servers. Add to that the fact that half of those servers were junk and kept going down, requiring me to stay in the data center for up to 18 hours at a time fixing them, and the fact that the money we collected from hosting never exceeded how much we were paying for data center space and bandwidth and I think you start to see why it was a nightmare and why we got out of it. We never seriously made moves to get into the hosting business and we would have been much better off had we just referred clients to other hosting companies from the beginning, or if we had set up their accounts ourselves and “managed” their accounts for them. The nightmare was that we owned the servers and managed them ourselves.

Oh, and the one time we had a client rack up $14,000 in bandwidth charges and then not pay a dime? Yeah, that was a nightmare too. I’m still paying that $14K off.

Raising Capital. I probably know more about venture capital and raising capital in Utah than anyone else who has never raised capital. That’s right, I’ve never raised a dime. Not that I never tried, but I never tried very hard. It was too easy to go to a bank, friends, or family and get a loan. Despite my lack of experience, here’s my advice–think very, very carefully before taking anyone’s money, whether it’s invested or loaned. Debt is a horrible, horrible thing, which I’ll talk more about in a future post. And investment money isn’t much better, from what I can see.

Of course sometimes you have to raise capital, and if you do, I’ll tell you what I’ve been told and which rings true to me–every good deal gets funded. If you’ve got a deal and nobody wants to invest in it, more likely than not your deal is not a good deal. In fact, it’s probably a horrible deal because a lot of bad deals also get funded by foolish investors.

Virtual Office. The question I ask myself these days is why I went so long having an office anyway. It cost me $5K per month, or roughly 10% of our revenues. That’s a healthy chunk and I’m not sure we made $60K per year in profits as a result of having an office. Granted, I don’t have kids, which would complicate working from home, and my wife and I are able to balance things in such a way that we don’t get on each others’ nerves, and those things might differ from somebody else’s situation.

Have I lost any work as a result of being virtual? Yeah, I’ve lost one or two, but neither one of them would have paid me a guaranteed $5K per month over the next year.

I suspect I will have an office again someday, perhaps sooner rather than later, but when I do it will be because we really need one because we’ve got 15 employees, are growing like mad, and have money coming out our ears, not just because I’m using it as a form of marketing to make the company look bigger than it really is.