Ask HN: Creating a web development agency
Obviously this isn't the most novel idea in the world, but usually on HN it's either people breaking off to create some kind of product/startup or solo-freelancing, but I'm wondering how many people have had success creating a small web-dev company. I've discussed this lately with a developer friend of mine, and both seem to agree that it might be better to form a company and sell our expertise, perhaps target a certain niche. I'm curious how many people on HN eventually took this path, breaking off to form a small group company, as opposed to solo freelancing, startup, or big-co. Thanks.
11 comments
The biggest thing you'll want is Value-Based-Fees.
I've written about them here: http://shipsolid.com/blog/why-value-based-quotes
You'll run into a lot of people that just want a website for their business/family/dog whatever - 5 pages or so. You can do that, but you'll just end up selling your time for cheap and racing to the bottom.
Don't do that. Instead, develop skills that demand a premium, and meet real business needs by creating money and value for your clients.
I've written about them here: http://shipsolid.com/blog/why-value-based-quotes
You'll run into a lot of people that just want a website for their business/family/dog whatever - 5 pages or so. You can do that, but you'll just end up selling your time for cheap and racing to the bottom.
Don't do that. Instead, develop skills that demand a premium, and meet real business needs by creating money and value for your clients.
In my experience, it's very hard to making a living as an 'agency' unless the only value you're adding is to your developers - you leverage the arbitrage between the rate you can bill and the rate you can pay them, in return for a steady paycheck.
I've worked for and with ~20 agencies, including one as a founder and one as a co-owner. In each instance, those that were able to leverage their employees succeeded and those that relied on having talent did not.
It's a very sensible outcome. If you were working at Microsoft or Google, you would be earning ~10% of the value you created for the company. In service, that number is much closer to 50-75%, which is very dangerous unless you can guarantee you're going to make your sales numbers.
It's a great way to get some business experience, but I wouldn't recommend it as a long-term strategy.
It's also important to note that the major ad agencies are moving into the web world. Locally, the regional newspaper, three local radio station companies, and a billboard company are all getting into web development as an added service or for profit. It makes things difficult because they're capitalizing on the medium-to-large agency contracts (the ones that have a web site, TV ads, radio ads, newspaper ads, etc), which are usually the highest margin contracts (lowest ratio of account management to projects).
My advice to you would be to start a consulting company and build relationships with a network of web development agencies. Some of them will be able to afford your rates while others wont, but you wont have to do the hardest part of sales and AR will be much easier because you'll have much more established relationships with these companies. You can also do work for agencies all over your country (or the world) if you are a respectable consulting group.
I've worked for and with ~20 agencies, including one as a founder and one as a co-owner. In each instance, those that were able to leverage their employees succeeded and those that relied on having talent did not.
It's a very sensible outcome. If you were working at Microsoft or Google, you would be earning ~10% of the value you created for the company. In service, that number is much closer to 50-75%, which is very dangerous unless you can guarantee you're going to make your sales numbers.
It's a great way to get some business experience, but I wouldn't recommend it as a long-term strategy.
It's also important to note that the major ad agencies are moving into the web world. Locally, the regional newspaper, three local radio station companies, and a billboard company are all getting into web development as an added service or for profit. It makes things difficult because they're capitalizing on the medium-to-large agency contracts (the ones that have a web site, TV ads, radio ads, newspaper ads, etc), which are usually the highest margin contracts (lowest ratio of account management to projects).
My advice to you would be to start a consulting company and build relationships with a network of web development agencies. Some of them will be able to afford your rates while others wont, but you wont have to do the hardest part of sales and AR will be much easier because you'll have much more established relationships with these companies. You can also do work for agencies all over your country (or the world) if you are a respectable consulting group.
I think it can be done but have you thought about your competition? I see thousands of such companies driving the price down on a daily basis. Just type Web Development on Google and you will see how many companies pop up on the first page? I have seen international companies who put out ads on adwords for as low as $5/hrs rate. Granted, these companies may not be very reliable but unfortunately they do form a price ceiling. Ask how will you and your partner compete against such low prices?
In my humble opinion, the web development model is highly outsourced model and while I agree that it is broken, you will have to be very careful about entering into it. You should first identify and validate a proper niche that will provide you a steady stream of revenue. The unfortunate and brutal truth is that as soon as you put out your value proposition in you niche to earn a steady stream of revenue, 10 other international companies will simply copy your value proposition and advertise right underneath your ad for much lower prices.
In my humble opinion, the web development model is highly outsourced model and while I agree that it is broken, you will have to be very careful about entering into it. You should first identify and validate a proper niche that will provide you a steady stream of revenue. The unfortunate and brutal truth is that as soon as you put out your value proposition in you niche to earn a steady stream of revenue, 10 other international companies will simply copy your value proposition and advertise right underneath your ad for much lower prices.
I run a small web development business to help fund my startup goals. One tip is to try to tapping the freelancing marketplaces such as oDesk. I have started on oDesk about 2 months ago and now I'm getting enough work to even turn a few potential clients away.
Service business can be grueling and your projects can quickly turn into nightmares if not planned well. The small businesses who want the websites from us can be very vague in what they want, and might not appreciate some of the great stuff that we do (like getting the Pagespeed score above 90) while appreciating lame stuff like those landing page flash intros.
In the initial phase (first 3 months) take more well defined tasks that can have less margins, but can help you appreciate the hardships in the business. As you mature, you can take up more complex projects that can give pretty fat margins.
Service business can be grueling and your projects can quickly turn into nightmares if not planned well. The small businesses who want the websites from us can be very vague in what they want, and might not appreciate some of the great stuff that we do (like getting the Pagespeed score above 90) while appreciating lame stuff like those landing page flash intros.
In the initial phase (first 3 months) take more well defined tasks that can have less margins, but can help you appreciate the hardships in the business. As you mature, you can take up more complex projects that can give pretty fat margins.
Aren't many of the freelancing marketplaces garbage? I don't want to work for $10 an hour with the risk of not getting paid.
Which marketplaces are better or worse than others? Is oDesk different from the crapfest that is eLance?
Which marketplaces are better or worse than others? Is oDesk different from the crapfest that is eLance?
Not necessarily. I had a few bad experiences with vWorker, freelancer and other market places. oDesk is slightly better than the lot. In oDesk the initial 30 days was working on low priced contracts and couple of times with clients who didn't pay. It was a little painful learning.
But, then I got a little better at identifying the right set of clients and now the I set rate at $33/hr and most of it in hourly contracts that are guaranteed payment. I also take fixed price contracts from clients with whom I have existing relationship. Many guys I know are charging $60/hr and having a good practice.
The thing in the initial phase you come across a lot of noise and as you find out the 1-2 good clients from the 10 shabby ones, you get repeat business from them.
The difference between freelance marketplaces and direct sales is that in the former the clients have a real need, while in the latter the we have to convince the potential leads of the need to have a good website with proper attention to typography, speed and ux.
But, then I got a little better at identifying the right set of clients and now the I set rate at $33/hr and most of it in hourly contracts that are guaranteed payment. I also take fixed price contracts from clients with whom I have existing relationship. Many guys I know are charging $60/hr and having a good practice.
The thing in the initial phase you come across a lot of noise and as you find out the 1-2 good clients from the 10 shabby ones, you get repeat business from them.
The difference between freelance marketplaces and direct sales is that in the former the clients have a real need, while in the latter the we have to convince the potential leads of the need to have a good website with proper attention to typography, speed and ux.
What kind of software are you writing? Is it mostly web oriented? What languages are you using?
I typically use PHP and many of my sites are built on Wordpress. I have previously done Web programming before realizing that it can get pretty expensive in terms of maintenance. With quality, premium plugins and themes, you can get a quality site out in about 6 hours and charge $300. I tweak the CSS and PHP of the existing themes to get close to the customer needs and have built a KB and a process internally to reduce the full site development 6 hours what it used to take 25 hours or more.
That is working good so far. It is also easy to maintain, I have WP_MU setup and can update a large number of sites in parallel.
That is working good so far. It is also easy to maintain, I have WP_MU setup and can update a large number of sites in parallel.
Unless you develop very high-valued specialized services (hard), hit a niche market that pays well, or find a way to grow stupidly fast and attract clients in droves, you'll end up wanting to build some kind of scalable product.
Standard services offer diminishing returns. I still believe a healthy business can flourish on it, but it requires a few ingredients:
A product-focused endeavor has higher potential, is more fun an less stressful, although it's also more risky. A service business will almost certainly fly, but going up high is way harder. So, I guess it depends on your personal goals.
(my POV from past few years experience. I might be wrong)
Standard services offer diminishing returns. I still believe a healthy business can flourish on it, but it requires a few ingredients:
- a great team
- vision (more important than you may think)
- timing/market demand
- great sales/marketing
- will to endure lots of crap
A product-focused endeavor has higher potential, is more fun an less stressful, although it's also more risky. A service business will almost certainly fly, but going up high is way harder. So, I guess it depends on your personal goals.
(my POV from past few years experience. I might be wrong)
a web dev agency is really about selling hours while providing the value add of hand holding and managing projects -- the great thing is that you can mark up the services of freelancers, but the bad side is that you're on the hook if anything goes south (in addition to paying for added overhead). so for example if the client goes under and doesn't pay you, you still need to pay your freelancers. unlike a product driven business the nice thing is that you don't need any overhead to get started, however the down side is that the name of the game needs to be pleasing clients rather than yourself more often than not.
dont do it! service businesses are a hamster wheel. find a flexible day job and invest your wages into products with long-term payback
Yeah, providing services can often feel a bit fruitless, mostly because scaling services are a lot harder than scaling a simple product. I'd advise you to at least focus in on a niche/market when providing your services. That way, you'll eventually have domain expertise that you can roll into a scalable product.
I am also curious to know about this.
I'm a founder of GroupTalent, so we've seen a lot on this specific topic...
I'd say the two biggest challenges for hackers who want to take projects is lead-generation and sales. They sound simple, but they aren't and you'll waste a lot of time talking to a lot of tire-kickers.
For lead-gen, that just means finding work. Where do you start? There's a few ways to go, you can network with friends, college alumni, startup circles. You could contact incubator companies and ask if they need any extra help, etc. I have to mention GroupTalent too because this is one of the biggest problems we solve.
When it comes to sales, you don't land projects just because you've got "software developer" in your job title. It still comes down to convincing them that you're not going to botch the project, and that's based on what you've done before. They want to see examples of your work, including anything at hackathons (those are good examples of how quickly you can crank out prototypes). The closer it is to what they've done the better because buyers don't buy you, they buy the thing you'd be building them. It's easier to visualize success with you if they see something close.
On the question of whether to work by yourself or as a team, I'd say go as a team. I've seen first hand that not only will you be happier working with a friend, but the idea of getting a package is a big perk for clients. Speed is often a big deal for them, and 2 is faster than one.
Also, clients gravitate towards hackers who can build web apps, not as much static sites. Anybody can code up css/html, but can you build functioning prototypes? Push that as your core skill-set and you'll have a better chance at finding gigs.
Most developers and designers hate spending half their time shmoozing, networking, meeting and dealing with people who just want to meet for the free advice. It just sort of comes with the territory. In the end, success will come from getting access to the right clients, and traditionally that has meant knowing the right people. This is one of the reasons we're building what we are.
Lastly, don't take projects you aren't interested in. When you're building your own product, and working on the side, it needs to be interesting enough that you can power through the finish and earn the paycheck regardless of what's happening with your company.
Oh – and one more thing, payment can be a huge hassle. Make sure to establish payment terms before starting or you might get burned. I know folks who just don't get paid. We make project owners pay up front for teams, we hold it in escrow, and pay out on a per sprint basis. If you want to do something similar on your own without an escrow-like service, you might do half up front before a sprint starts, and then half after each sprint. But seriously, break it down into sprints that deliver functionality costing no more than $5k. More sprints at lower cost is better, it's easier to get them to pay for $3k + $4k +$5k know what I mean? It's progressive cost increase for progressive emotional commitment. Otherwise things have a tendency to go unchecked, and then people change their minds, and it's wasted work, and oh should we pay for that or not, etc etc.
If you have any questions, tweet me @superkinz
I'd say the two biggest challenges for hackers who want to take projects is lead-generation and sales. They sound simple, but they aren't and you'll waste a lot of time talking to a lot of tire-kickers.
For lead-gen, that just means finding work. Where do you start? There's a few ways to go, you can network with friends, college alumni, startup circles. You could contact incubator companies and ask if they need any extra help, etc. I have to mention GroupTalent too because this is one of the biggest problems we solve.
When it comes to sales, you don't land projects just because you've got "software developer" in your job title. It still comes down to convincing them that you're not going to botch the project, and that's based on what you've done before. They want to see examples of your work, including anything at hackathons (those are good examples of how quickly you can crank out prototypes). The closer it is to what they've done the better because buyers don't buy you, they buy the thing you'd be building them. It's easier to visualize success with you if they see something close.
On the question of whether to work by yourself or as a team, I'd say go as a team. I've seen first hand that not only will you be happier working with a friend, but the idea of getting a package is a big perk for clients. Speed is often a big deal for them, and 2 is faster than one.
Also, clients gravitate towards hackers who can build web apps, not as much static sites. Anybody can code up css/html, but can you build functioning prototypes? Push that as your core skill-set and you'll have a better chance at finding gigs.
Most developers and designers hate spending half their time shmoozing, networking, meeting and dealing with people who just want to meet for the free advice. It just sort of comes with the territory. In the end, success will come from getting access to the right clients, and traditionally that has meant knowing the right people. This is one of the reasons we're building what we are.
Lastly, don't take projects you aren't interested in. When you're building your own product, and working on the side, it needs to be interesting enough that you can power through the finish and earn the paycheck regardless of what's happening with your company.
Oh – and one more thing, payment can be a huge hassle. Make sure to establish payment terms before starting or you might get burned. I know folks who just don't get paid. We make project owners pay up front for teams, we hold it in escrow, and pay out on a per sprint basis. If you want to do something similar on your own without an escrow-like service, you might do half up front before a sprint starts, and then half after each sprint. But seriously, break it down into sprints that deliver functionality costing no more than $5k. More sprints at lower cost is better, it's easier to get them to pay for $3k + $4k +$5k know what I mean? It's progressive cost increase for progressive emotional commitment. Otherwise things have a tendency to go unchecked, and then people change their minds, and it's wasted work, and oh should we pay for that or not, etc etc.
If you have any questions, tweet me @superkinz
here's some tips, based on having a couple of agencies. sounds like you don't have existing leads that you can immediately convert into contracts.
1. it's a sales job. get leads, and call them. important part of sales: pricing. $1k/page is a good heuristic
2. it's an account management job. be prepared to spend time being available, and talking to people at your customer
3. figure out a quick way to get people to a price; develop general ability to get a feel for 1k, 5k, 10k, 20k, and 50k projects
4. develop a production method that maps to how customers want to see their product develop. screen list -> wireframes -> visual design -> development works pretty well.
good luck!
1. it's a sales job. get leads, and call them. important part of sales: pricing. $1k/page is a good heuristic
2. it's an account management job. be prepared to spend time being available, and talking to people at your customer
3. figure out a quick way to get people to a price; develop general ability to get a feel for 1k, 5k, 10k, 20k, and 50k projects
4. develop a production method that maps to how customers want to see their product develop. screen list -> wireframes -> visual design -> development works pretty well.
good luck!