Well it's here, the day has come. Karman is officially two years old as of last month and like a toddler babbling their first words, here I am writing what I hope to be an annual practice in reflection and transparency.
To be honest, I actually started writing this post last December in order to get it out in time for New Years but I just wasn't ready to start drawing conclusions from some of our experiences. There are a lot of parallels to be drawn between a two year-old child and our business. In a moment we can be both overconfident and reserved, sporadic yet stable and discovering new things every day.
On that note, I'd like to say that the lessons we've learned and conclusions we've drawn are not hard and fast rules. In fact, I expect some of them to be totally wrong. We by no means have everything figured out and I'm sure we've gotten some things completely wrong. What kind of challenge would it be if we'd figured everything out in two years?!
What we do know is that we're still passionate about what we're doing, we're in it for the long haul, and we're ready to start sharing our experiences with the greater community. One of our founding principles is to be as transparent as possible and this post is a natural result of that. Part of why we're putting our thoughts out there is to open up our challenges to a greater audience to solicit feedback. If you like these posts, find them helpful, or want a specific topic covered, let us know! Leave a comment or email us. It will only motivate us to post and share more!
Our first year can be summarized by two words; ramp up. From incorporating to finding our first client, everything was new. Having come of age in a studio delivering countless branded digital experiences for ad agencies and big brands, the only thing we were well-versed in was pitching and delivering quality work . We had many questions and so much to learn. How do you get the chance to pitch to begin with? What did accounting and bookkeeping actually involve? What does setting up a business actually entail? What should you look for when hiring a lawyer?
The first four months of that first year were a blur of planning, legal documents, and administration. We chose a name, found lawyers, incorporated, built a website, found accountants, setup email, wrote a business plan, applied for funding, created a logo and talked to A LOT of people. It was exciting, exhausting and terrifying all at once.
After those first four months the rest of year one had a single important goal; find business. We poured through our LinkedIn connections and industry websites, eventually amassing a huge list of people and companies to reach out to. Most days were spent sending out emails and meeting with anyone who was willing to give us ten minutes of their attention. The rest of our time was spent completing whatever small time work we could come across. Slowly, we were able to win very small jobs to start building our portfolio and more importantly client’s trust.
Year Two, while still challenging had a fairly simple direction. We started winning substantial contracts (at least for a two person shop), so we just had to dig in and deliver the great experiences we knew we were capable of. Any free moment we could spare was spent trying to keep up with secondary tasks like bookkeeping, subcontracting, internal IT and blog posts!
Today, we're just starting to get into the fun decisions: finding more clients, managing contractors, taking part and contributing back to the interactive community and using our experiences to plan further into the future. The obvious decisions are out of the way, now to start playing with the way things are done!
When you read about startups these days, particularly in tech, there is a lot of focus on venture capital funding and winning outside investment to help build a product. From day one we knew this wasn't a direction we wanted to take. With outside investment comes outside voices and expectations of a return within some timeframe. We had seen in the past how the voices of an investment board had crippled the decision making of a business and were weary of a similar scenario. Our core principles of building a business on stability, employee satisfaction, and employee freedom don't really mesh with an exit strategy or large return on investment. Don't get me wrong, we would love to make piles of money as much as the next person but we would be completely satisfied to retire running Karman, having made a reasonable living and accomplishing our vision. There are certainly businesses which are well suited or require outside investment to work but we just didn't see how it fit with our plans. That said, we're by no means business investment experts. We may be missing out on a whole category of investors but with such low operational overhead the immediate need wasn't apparent. Our limited time was better spent elsewhere.
On the topic of operational overhead, we are extremely fortunate to be founding a business with very low overhead costs. With most big software packages offering subscription model pricing we were able to purchase licenses only when they were needed and pay smaller amounts over time. It’s a lot easier to stomach paying $40/month instead of $1,500 at once when you’re making no money. This eliminated the need to purchase thousands of dollars in software just to complete our first banner ad. There were also a number of free software packages and services for small businesses.
Note: Our software suit is fairly specialized but if people are interested I can put together a comprehensive list of all the deals we took advantage of (*cough* BizSpark, Google Business).
Aside from software, there were other expenses involved but compared to opening a typical brick and mortar business (restaurant, retail store, etc...) we don't have inventory or rent to worry about. It's pretty incredible.
While we weren't looking for outside investment we weren’t completely on our own either. Jon and I each put $5,000 into the business. This covered the initial startup costs of laptops, incorporation, legal fees, accounting, and various other expenses. We were also approved for a loan from the CYBF (now Futurpreneur Canada) who provided $15k of financing in the form of a five year prime rate loan to young entrepreneurs. The CYBF had some pretty thorough requirements, one of which was a formal business plan. There's some debate out there on how useful a formal business plan really is. To be honest, we haven't used ours much since presenting to the CYBF. However, writing the initial plan really pushed us to think through all aspects of the business. It's also worth mentioning that in the grand scheme of things $15k isn't much for a business. For us, the time we spent on the application probably wasn't worth the value of the loan. In fact, we didn't end up touching the money at all. Instead, the funds acted as a safety net in case a client didn't pay on time or some other unforeseen circumstance occurred. After about a year we had built up our own safety net and as a result repaid our CYBF loan in order to avoid accruing more interest. If you haven't figured it out by now we're pretty debt adverse.
We've been very fortunate to have a number of individuals play a mentorship role in our business. One of the conditions of the CYBF loan is that it requires a mentor to be assigned to the business to lend their experience and provide feedback. Both founders and mentor are also required to jointly file a formal report every quarter. While we do have a few qualms with the CYBF’s mentorship selection process, our mentor has been helpful in our development. Our mentor has been great at pushing us toward higher and higher goals, being a sounding board for our issues and ideas, and providing introductions to some valuable contacts. I'll go over the specifics of our mentorship experience in part 2.
Aside from our CYBF mentor we've had a number of informal mentors provide intermittent advice. If you're starting a business I can't recommend seeking these people out enough, they’re easy to find if you look in the right places. Owning a business can be an isolating experience and I haven't met many established business owners who aren't excited to grab a drink, hear our stories and share some tricks of the trade. Even if your mentor is in a completely different industry there are always common pain points and strategies that you will share. If anything, our out-of-industry mentors have provided us different insight into our own industry, allowing us to pursue work where our competitors aren't.
A Note About the CYBF
Between the mentorship and the loan I don't mean to bash the CYBF by any means. They have an incredible amount of information to help new entrepreneurs get up and running. Even if you aren't looking for funding I highly recommend you check out their documents and presentations. While their program didn't end up being a great fit for our needs, it could work for you.