I’ve known Matt Adams for the better part of a decade – we’ve worked on some interesting projects together, which we’ll reminisce about as we dive into how he’s built an agency out of what started as a freelance career. We talk a lot about something that’s hard for a lot of freelancers to talk about: cashflow. Feast, Famine, and Client Relationships have been themes of this season and they all relate to the same thing: managing your money properly so you can survive as a business. Let’s hear how Matt does it.
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Matt Adams: That gave me the confidence to say, “Worst case scenario is that I just make the money from these two. I can do it.” I remember my very first month we billed $2,000 dollars. Which in freelance is cool, but when it’s $2,000, and that’s the only money you made, and you’ve got student loans and a house and car payments, it’s a little dicey.
Intro: I’ve known Matt Adams for the better part of a decade. We’ve worked on some interesting projects together, which we will reminisce about as we dive into how he’s built an agency out of what started as a freelance career. We talk a lot about something that’s hard for freelancers to talk about, and that’s cash flow. Feast, famine, and client relationships have all been themes of this season of How I Built It, and they are related to the same thing. Managing your money properly so that you can survive as a business. Let’s hear how Matt Adams does that.
Break: Before we get started, I want to tell you about my online membership and community, Creator Courses. I know that when you want to learn something new, the natural thing you probably do is go to Google or YouTube. I do the same thing, and that’s great for one-off projects. I used a YouTube video to learn how to change a light switch in my house, but I am not a big fan of YouTube for learning new skills. Because there are lots of videos on every topic, but “Which one is best and who do you trust? What order do you even watch the videos in, and will you get the support you need?” These are all things that YouTube or other potentially free videos can’t do for you. So, I started Creator Courses a few years ago with the idea of just putting online courses out there, and I decided to morph it into a membership last year. So stop wasting your time hunting and pecking for the right learning resources and tools, over at Creator Courses. You can become a member and take all of the courses that we have to offer included in that membership, and those courses focus on everything from just basic WordPress up to learning how to build websites without code, something you don’t necessarily need to do in this day and age. All of the courses are developed by me, and if you listen regularly that I’ve been a developer for decades at this point, and I have lots of experience building websites. I’m a teacher at heart, and I’ve created courses for LinkedIn Learning and things that. On top of the courses, we’re also a community, and members get access to forums and Slack and office hours with me, so I just wanted to let about that and encourage you to join if you haven’t already. Listeners of this show, exclusively for listeners of the show, you can save 15% on all memberships, including the lifetime membership. All you have to do is visit CreatorCourses.com/build. Thanks so much, now let’s get on with the show.
Joe Casabona: Hey, everybody. Welcome to another episode of How I Built It, the podcast that asks, “How did you build that?” Today my guest is Matt Adams, and he is the head of intergalactic operations at Factor 1. Matt, how are you today?
Matt: I’m great, Joe. How are you?
Joe: I am fantastic. For some background for the listeners, Matt and I have worked on and off together for several years at this point. I feel like it might be–
Matt: It might be 10.
Joe: I was going to say, I think we were connected around the same time I went to my first An Event Apart, and that was 2010 or 2011, something like that. But it was probably shortly before that. So, it’s a crazy thing to have a business relationship with somebody for a decade. To me, at least.
Matt: I’m with you. I don’t feel that old.
Joe: Yeah, exactly. I’m like, “I’m only 34 years old.” In my case, at least. But today I’m excited because we’re going to talk about how to stay sane, growing from freelance to agency owner. You’ve been running– I’ll let you introduce yourself, but I’ll just say you’ve been running your agency Factor 1 for the last 15 years. Is that right?
Matt: Yeah, it’s been a very wild ride. But it’s been 15 years, and it’s hard to think that it’s been that long because again, I don’t feel that old. But here are.
Joe: That’s wild. For the listeners, why don’t you tell us a little bit about who you are and what you do?
Matt: I have a pretty diverse background. I went to art school for traditional art, learned some digital design along the way, and thought that was pretty awesome. This is early 2000-2001 when the web was starting to take off, and I was like, “This coding thing looks pretty awesome. Let’s try that.” There was no courses, nothing like that, so I just got started. I got introduced to WordPress at one point in time, and I think it was 1.something, just before 2.0, and I was like, “All right. I’m going to start building a website for people I know.” I just dove in, to be honest. There wasn’t books, I looked. I think I have an HTML and a CSS book and just ran from there. I built a lot of Flash websites, I’ll admit it. I used Flash a lot. I also built one of the only Flash CMS’s using active script, and we were saving to a plain text file so my clients would hit some special key command, like CTRL+E, and it would bring out the editor. You’d put in a password, and it was all stored in plain text like it was all just prime for hacking, but no one figured it out. Yeah, Flash websites were “The thing,” and we built awesome ones, and we had clients that were like, “What about a blog? What about a podcast? What about, I want to stick an image in the middle of this text editor?” And it was always, “No. It’s Flash. You can’t do that.” That’s when I dove more head-first into WordPress, and I spent years in advanced WordPress, heavily since version 2 was released. To date, Factor 1 has created 300 fully custom WordPress sites in the last 15 years, and we still host about 200 of them. We have heavily maintained a lot of our clients over the years.
Joe: For sure. That’s awesome. So you’ve been making websites for about 15 years, and you started off freelancing, when did you make the jump to the agency world?
Matt: That was 2004, I think I was working at a print agency, and I just loved the web. I also really hated my boss, which is always an excellent reason to quit and start your own company. My advice to people is always, “Don’t do it for these reasons because you’ll pay for it later.” But I just on a whim decided, “I am going to do this.” I had one or two freelance clients that were pretty consistent, and then a few projects here and there. It was those consistent ones that gave me the confidence to say, “Worst case scenario is that I just make the money from these two. I can do it.” I remember my very first month we billed $2,000 dollars. Which in freelance is cool, but when it’s $2,000, and that’s the only money you made, and you’ve got student loans and a house and car payments, it’s a little dicey. My wife didn’t have a job at the time either because she had just gotten laid off, so I look back, and I’m like, “God, I was an idiot.” But it worked out, and what better time to take a risk than when you’re young and dumb?
Joe: Absolutely. I went out full on my own after my daughter was born. “New kid, wife on maternity leave? Now is a great time.”
Matt: The perfect time. I look back on it, and I do appreciate it because my back was up against the wall. I don’t have rich family, parents, anything like that. I had nothing to fall back on, so it was one of those just hustle and grind and get it done because there’s not a plan B. There is no option, there is no backup plan. I didn’t even see the idea of going back and getting a job somewhere else as– It wasn’t even an idea, like “That is dumb. Why would I do that? This is what I’m doing.” It forced me to be all in, which I do appreciate and still would stand by today. Be all in or don’t do it. Contingencies are just– They give you a reason to hesitate, I think.
Joe: Yeah, right. Absolutely. They talked about that in a Friends episode. They told Rachel to quit so that she had the fear to pursue a job she wanted to.
Joe: It’s the same. When you have real stakes, you got to make real decisions. I think that’s part of the conversation we’re having today, is that at least for me when I was just freelancing, I was like, “I’ll charge this, I’ll make some money, I can support myself.” Now I’m like, “I need an actual income plan. Because I have a house and a kid and another kid on the way as we record this.”
Matt: Right, I heard. Congratulations.
Joe: Thank you very much, we are super excited. I can’t just be like, “I’ll just charge $2,000 dollars for this website, and it’ll be great. I’ll keep most of it and then pay a little bit for taxes.”
Matt: I’m not a big fan of hourly rate pricing. I probably haven’t done hourly rate pricing here at Factor 1 in probably 14 years. We started that way maybe initially but quickly moved on to more of a project rate. But even then, so many freelancers don’t even know what their hourly rate should be. They just pick, they’ll ask around and see what their friends are charging, and they’ll use some sort of justification of like, “I’m better than them” or “They’re better than me,” or “They’ve been doing it longer so they can charge a little more, so I’ll just be a little less than them.” Or it’s a competitive thing of, “I want to be a little less than the guy next door so that I can win the job.” We end up with an entire ecosystem of freelancers who have just made up baseless dollar rates, and it’s anywhere from $50 dollars an hour to $100-something an hour, and most of them have no real foundation for where they came up with that number. I do a little bit of workshops here and there, here in the Phoenix area for AIGA, which is the professional design association. There’s chapters in every city, but here in Arizona, I pioneered the business of design model of “Let’s teach freelancers how to do this.” I ended up creating a calculator because so many of them had no clue. So I just worked backwards, like “How much do you need to pay yourself to live? How much does it cost for your software, your Adobe, your hosting fees? What do you pay every single month?” I built out an entire worksheet, and I can share it in the show notes, Joe. But it’s great to work backwards, and then even pick “What do I want my profit to be? I want to make this dollar amount this year, but I also want to have a bonus. I want to say, ‘If I get this number, I want it to be a $10-20,000 dollar bonus in the year.’ I’d call that my profit.” So really treating yourself as an employee, it’s a cost of goods sold, and then you have your owner bonus on top of that. Even as a freelancer, you can think with that mindset, and it works backwards. The other real key thing is knowing your actual hours that you are available in the week. Everyone’s like, “I’ll work 40 hours a week.” When are you going to do invoicing, when are you going to follow up, when are you going to work on your sales and your marketing, and go to that event and meet with that client? Is that all billable? No, it’s not.” You’ve got to think through 20-30 hours a week of true billable time. We are an agency, and we have a staff of five, and we’re sitting here– I know that my production staff is only truly billable 25 hours a week. We’re not here 40, and we run a little bit of a different work model here where we only work about thirty-five hours a week. We just take half-day Fridays and get out of here early, and then Fridays, in general, are learning days. We use them as in-house time developing new projects, new tools, new resources and reading, sharing, teaching. Just growth days, so I only have four working days, and then you’ve still got to account for meetings and stuff. I’m saying a full-time production employee is only available twenty-five billable hours a week, and I find that shockingly accurate for freelancers too. You only have twenty-five hours of actual production time unless you’re burning the candle at both ends, so you’ve got to work backwards off the twenty-five, not forty, and not fifty. Fifty billable hours a week is unsustainable, so you got to work backwards off that twenty-five or thirty number. That’s all you’re available, that’s it. What’s your number? Once I built a calculator and used it myself, I was shocked. We had to raise– Like I said, we’re not hourly, but I had to raise my baseline. Like, “We need to pad our numbers a little bit more. I’m not accounting at the right number.”
Joe: That’s super interesting, and you raise a lot of really good points there. The first being figure out what you need to make to live. That’s like if you go into a full-time job, you probably have an idea of how much you should make in a year. You’re not just going to be like, “It seems like I should make this much.” You need to take the job that will pay you what you can to live. The same thing, as you said, should go with freelancing. You need to figure out how much money you need to make, or if you are leaving your job, can you replace your income, or are you getting more than you needed to get paid? What can you live on up until that point? And pay yourself accordingly.
Joe: I read a fantastic book a couple of years ago, and I immediately implemented the system, but Profit First.
Matt: Absolutely, that’s where I got some of the model from. Love that book.
Joe: Yeah, it’s so good. Because it makes sure that you are paying yourself, and you’re putting a little bit of money aside for a bonus. My first bonus of the quarter for 2020 is going to go partially to our “Babymoon” of sorts. We’re going to Disneyworld.
Joe: Yeah, we’re going to go. I’m a huge Star Wars fan, so I’m going to build a lightsaber at Galaxy’s Edge. It cost $200 dollars, which seems like an outrageous amount for me to build a lightsaber, but I love Star Wars, so don’t @ me. But this is money that my family’s never going to see, my business is not reliant on it, it’s legit just money for me to have fun with and I will have a lot of fun doing that.
Matt: Absolutely. That’s the way to think of it, too. That Profit First mindset, we don’t run hourly, but I still try and calculate the work we do loosely in hours. We need to know that I’m not wrong. We try to bill, actually, not even project-based. We’ve moved a little bit past that to a little bit more valuation-based. Like, what’s this worth in terms of an investment? If I can provide you millions of dollars worth of revenue with the work that I’m doing, isn’t that worth 5 or 10% of that million dollars? Not $20,000, because that’s what the hours come up to? We still want to double-check all our hours, and I want to make sure that I’m not wrong in some of that space. So we will still run our hourly calculations, like “This project is 250 hours, and it’s going to take this many weeks to produce that 250 hours.” Then I know that my minimum billing on that is at least my hourly rate, plus 25%. So I can say, “This $10,000 project does need to be closer to $12,000.” Then I still want to look at the client like, “This thing’s worth $30,000 because I’m taking the risk and I’m doing it right, and I’m doing it these ways. Nobody else in the market can do it this way, so it’s worth $30,000.” But I still started with my baseline hourly rate, and I still started with profit in mind. Those are line items on an Excel sheet for every product we take in. And then the profit is the first line, “What profit is here?” I think as a freelancer, and I wish I would have thought that way. It was usually just like, “What’s the minimum I can bill for this?” I undervalued myself a lot. I would say, “This takes me 10 hours, but I should have gone faster, so I’m only going to bill for 5.” I shortchanged myself a lot, just from a poor mindset. I wasn’t a negative person, I was positive, but for some reason or another, I had like a devaluation of my own self. It took me years to get past that.
Joe: I had a conversation with Nathan Ingram, his episode is airing last week as this episode comes out. But we talked about how we like to help people, and how do we reconcile that with charging. Because we want to help people get their website up and running, how much do we tell them or help them with versus what do we bill them for? It’s the same kind of thing, especially when you like what you do. Those are all things that you need to think about.
Matt: It’s tough because I’m there too. I was raised with a “Helping others” mindset. I get a lot of personal value out of helping people, so what I’ve had to do is I’ve had to separate business from personal missions. Business exists to create revenue for the owners, to create payroll for the team, and to create a product for the customer. It doesn’t exist to give you personal self-worth. It doesn’t exist to give you the pat on the back that you didn’t get as a child. It just can’t. Because at the end of the day these customers, as lovely and as amazing as most of them are, and I love my customers– I’ve had customers for 10 years that if I am in town, I will make plans to see them. I will fly just to have lunch with one of them. I was in Chicago two weeks ago, right before Christmas, and it was just one of those clients like, “We’d love to just chat before the holidays and plan out some stuff. Let’s just have lunch.” I flew to Chicago, had lunch, met with a client for an hour, flew home. Worth it. But at the end of the day, these people are still in it for their business, they’re here for them and their mission and their objectives. They’re not technically your friends. You need to keep that at bay because while you are friendly and can be close, there needs to be the ability to sever that relationship at any point in time. That’s not the way you think of friends or family, but in business, that’s the way it is. Someone will just, “I’m going to hire somebody else.” We’ve lost a huge project once because the client, the client’s little brother, opened a web dev studio and took all the business to them. I cannot fault them at all for that. I totally get it. Do I have opinions on whether it was the right move or not? Of course, I do. But at the end of the day, it didn’t matter how close of a business friendship we had, and it was gone like that. If I hadn’t intentionally sought out my own profit and protecting my own bottom line, that was all gone. The rug got pulled out from underneath me from no fault of my own. No matter how wonderful and helpful we were, and how much value we provided a client, how much value they provided us, it was gone in an instant. You’ve just got to remember, and we’re here to help them. We’re here to do good work, and we’re here to honor our own process and honor our own bank account. It’s not that it needs to be greedy, but at the end of the day, you have to still look out for yourself. I go to the Peter F. Drucker model of the purpose of business is to create a customer and create a profit.
Joe: I think that’s great because you’re right. For me, it’s my job to make sure I’m providing for my family. No other business owner is going to be closer to me than my wife and daughter, just like there’s no way that anybody who is not that guy’s brother would be closer to him than his brother.
Joe: You do have to think about that stuff and realize that you offer a good service, and you should charge what you’re worth. Help when you can, you mentioned value-based pricing. I might, if a legit nonprofit organization, not like the NFL– I guess that’s a little bit dated because they went to profit model or whatever.
Matt: They did. They didn’t want transparency on their books anymore. That’s exactly what it was.
Joe: They wanted to hide all that concussion hush money, I guess. This podcast just got more political than it’s ever gotten. But a legit nonprofit, if I can do something for 20% less than what I would normally charge because they need it, then yeah, I’ll do that. But like you said–
Matt: Be careful with that, though. There’s a lot of nonprofits that make a lot of money.
Joe: Yes. That’s a really good point. I’ve explicitly said that to some of my own students, where I’m like, “Nonprofit doesn’t mean ‘Make no money,’ and they will all try to make you think that.” But I have a couple of specific examples in mind where they legit were not making any money, but they still needed at least a donation form.
Matt: One of the things– Right, exactly. One of the things for me was I had a mentor tell me this, “Stop getting the value and your personal self-worth out of helping people that you’re billing and find other channels for that.” I started volunteering more in my design and creative community. I joined the board, so I’m on the board of AIG: Arizona. I find value in that, and I’m helping others in different ways. I’m getting that self-worth bucket fulfilled outside of work. I’m making sure that I nurture personal friendships just as much as I nurture a business relationship, so putting in the same kind of effort. This sounds super analytical, and luckily none of my personal friends are developers or creatives in this space, and they won’t hear this, but I put them on a calendar. They’re on a drip. I get a reminder that “Has it been six weeks since I followed up with John? I should send him a quick e-mail.” It’s just because my head is so full that I do that for sales, I do that for current customer relationships, why can’t I do it for friends?
Joe: For sure.
Matt: I’ll put them on a nurture campaign. It sounds so formal, but we’re all busy, and you see each other on social media, so you forget to stop and say, “Let’s get coffee. How are you? Let’s slow down, not just ‘Like’ each other’s posts on social.” I have to give myself those nudges, otherwise, I might forget because all of my other nudges and pushes on my CRM are for business relationships.
Joe: Yeah, that’s really. I think I am going to steal that.
Matt: One weird trick you learned on this podcast.
Joe: Yeah, right? Because that’s a perfect example. My friend Kat, one of my best friends from college, texted me after I posted online that my wife is pregnant again. She congratulated me, and she asked how I was doing. For the life of me, could not remember if she was pregnant with her third, and I wanted to ask how it was going, but then I didn’t see anything on Facebook about it. I was right, but if I had jotted that down somewhere or had a little nudge to “Ask Kat how she’s doing,” I wouldn’t have had this crisis of conscience where I’m like, “I’m such a bad friend. I can’t even remember if she’s pregnant.” So, I think that’s cool. I’ve also told my wife that “If something is not on the Google calendar, it does not exist in my world.”
Matt: That’s same. Another pro tip only have one calendar. I used to try the work calendar and the home calendar, then my own personal calendar. If I’m off to the dentist, I’m off to the dentist. I shouldn’t be available on my work calendar because I’m personally doing something in the middle of a day. I know, Joe, you use Calendly, and Calendly can only sync to one calendar. I live out of one calendar, and I just color code things. Purple things are home, the green things are personal, and the blue things are work, and that’s the end of it.
Joe: Yeah, absolutely. If something is taking up my time, it is on my one calendar. My wife has her own that is synced with mine, but if it’s like something like we’re going to a concert or something that goes on both of our calendars. Hers is mostly used for her work schedule.
Matt: I’m just talking about freelancers and calendars, like calendar out your sales time and your marketing time and your networking time and your internal production time. That was something that I just constantly would backburner and forget for the sake of production because production is billable. “If I can get this project done, I can bill the client, and it’s money in the bank.” But I would do that at a cost of skipping a networking event and not going to this seminar or this workshop that I wanted to go to. I’d skip out early on a WordCamp maybe and go to work because that was important. Don’t confuse these short term gains for long term goals, because if I skip-networking and marketing events while I’m busy now, that means I might have a lull in three to six weeks or three to six months that these projects take to get in. I’ve got to be diligent on my calendar to book out sales and marketing time, so I try to review it every two weeks to know what’s going on. I look every two weeks to make sure that I have the right networking and the right events on my calendar. If I don’t, I will still block time to do my own networking. If there’s not a networking event next Wednesday when I normally have one, I’m going to block that time off still, and I’m going to go through my CRM and touch anybody who I haven’t reached out to in a while.
Joe: Yeah, that’s great.
Matt: Plan for that time, because again, you can only work 25 hours a week– Or you should only work 25 to 30 hours a week, so fill the rest of time with your accounting time and your personal time and your time to work out and rest and go to the movies. But also, that’s sales time, that’s nurture client time.
Joe: There are a couple of things where we can totally bring it right back, and one is “Calendar out your time” and the other is, I want to ask you about time tracking and maybe the tools you use. But let’s talk about calendaring out your time because I very recently just started aggressively time boxing. It’s not that “For this one hour, I’m going to do this one thing.” But it’s more like, you saw my Calendly, right? I only record podcast episodes on a specific day, and that day is dedicated to podcasting, so I don’t have to context switch or anything like that. If I have business meetings, I’m going to try hard. I’m not inflexible about it because I know that other people have other schedules, but I’m going to try very hard to make those Mondays because traditionally Mondays are my least productive days anyway. Tuesdays and Fridays are my most productive days, so those are my deep work days. Do you do something similar? Or is it more based on your production schedule over the next weeks, and you just add specific time boxes where you can?
Matt: I’m a little unique, where my company is just large enough where I don’t do a lot of production, if any, at all. I have handed over all of the keys to development and creative to others at this point that are smarter than me, and they are. There are times where I dive in to help, like one of our developers was on her honeymoon. She came back, and I was like, “I did this, this and this. I had to fix this, so you might want to look at it. I definitely duct taped it. There’s a Band-Aid and duct tape and some string holding this together because the development is so much further advanced than I ever got that I duct-taped it to get it back up and running or to fix what the client needed. But like, you might want to touch that later and fix that for me.” I’m definitely unique where I don’t have as much production as I used to, but I still have production in the business development that I have to do. I do box that time out. It’s not so much day-oriented, as I do in the day or week-oriented like the day of the week. But I do have times in the day that I know are my sweet spots. There’s a book called When by Daniel Pink, and it’s really that there’s three or four different types of people with circadian rhythms. I’m an early morning person, and I get up at like 5 o’clock religiously since I was like 10 without an alarm, rain or shine. If I’m not feeling well, I might sleep in, but I just don’t sleep in. Sleeping until six is an anomaly, and it’s weird, so I’m an early morning person, and I get some of my best work done first thing in the day. I schedule that. I take that mindset, like “This is when I’m the most productive, and I’m most productive in these ways,” and so I try and find the work that fits that productivity pattern for me. Then I obviously have to deal with the fact that not everyone else is up at 6:00 AM ready to chat on a phone call like I am, so I find other things to do or I have clients all around the world so I will make 6:00 AM phone calls to clients on the East Coast because they’re two or three hours off from me. So, I have no problem with that, and it works out well. But then I also know that after lunch is a low spot for me, but social interaction gives me energy so I will regularly schedule meetings at 1 and 2 o’clock in the afternoon because that’s when I have a circadian rhythm low, but I can offset it with a social extrovert high. It all works out well, so I find times that either compliment my natural circadian rhythms or offset them but try not to work against it, so to speak. That’s the reason I don’t want to do– I wouldn’t do creative or development work after lunch because I want to take a nap.
Joe: Yeah, we sound very similar. I wake up around 5:30 every morning, and last year I took an approach that was like, “I’m not going to go to the office for like the first hour of the day,” or whatever. But once I have my coffee, I get into it. I get in about an hour’s worth of work before my daughter wakes up, and then I like what you said about maybe scheduling meetings for right after lunch because I’m the same way. I feel like I got shot with a tranquilizer dart right after lunch, and those social interactions also help me. I’m going to link that book in the show notes.
Matt: Everyone’s different. There’s people who are just the most productive in the evenings and at night, and that’s awesome. That’s when you get your production work done, that’s when you get your invoicing and your accounting taken care of. You’ve still got to find that time for meetings and such but schedule a nap. I believe Winston Churchill was big on naps, and even the biography of Benjamin Franklin was like “Work till three, take a nap, take a nice long bath and then wake up and do more work.” That’s what worked for them, and they didn’t have a 9 to 5 dictatorship of a job schedule. As freelancers, if you’re moonlighting to a regular day job, you can use some of that to your advantage. You can say that “I’m productive from 10:00 PM to 1:00 AM” and just work around that and embrace it. Stop trying to fight it so much because of social norms as much as you can. There are still some things that– Like, Target is still only open regular business hours, so there’s some things you’ve got to work through. But I have a friend who’s an insomniac and just has just terrible sleeping patterns, and she’s working at 2:00 and 3:00 AM all the time. As a freelancer it works out well for her because she’s able to get a ton of work done. In her case, she found that partnering with agencies solves a lot of that problem. She became an outsource just for overflow work for a couple different agencies in town so that they’re doing the meetings during the day, and they’re talking to the clients during the day when she’s sleeping and able to knock these things out in the middle of the night. So she found partners to help her in that space so that she doesn’t have to go to a meeting at 2:00 PM because she worked so late. It works out well for whatever works for you and find ways to complement that as much as you can.
Joe: That’s brilliant. It’s like one of the things that’s afforded to freelancers or small business owners. So we’ve been talking for a bit about a bunch of things, but maybe we can– As we come to the end of our general interview here, what was it–? Let me start here. If somebody is a freelancer thinking of making the jump to agency owner or even bringing on a single employee, what do you think are the main two things they need to do?
Matt: You cut out for just a second, but you were asking for the main two things they need to know about or need to plan for when they’re jumping from freelance to full-time freelance or freelance with an employee?
Joe: Yeah. So if they want to start an agency, or even just bring on another employee, what’s maybe the first two things the freelancer should think about?
Matt: Definitely think about overall cash flow and forecasting. When you take on all the extra expense of another employee or even just yourself going full time where this is your only source of income, you need to make sure you have 30 to 60 days pipeline in front of you. It doesn’t have to be cash on hand, but it needs to be committed, and there needs to be a contract, there needs to be an invoice that is net 30. Something somewhere along the lines where you can look and say, “It’s January. What money do I have in February, and where is there a gap?” That’s where so many people get in trouble, is they just don’t have enough of a runway, so to speak. If you think about startup space, having a runway is the most important thing. The bigger the team, the bigger the runway is necessary. We’ve had a couple of ups and downs throughout the years, and I went through– I had staff through the 2008 recession. 2017 and 2018 were hard years for us as well, and we transitioned and pivoted a little bit. Same thing, I had to watch that runway like a hawk. I knew exactly when invoices were due and when payments on things were due. That cash flow forecasting was the most important thing that I had to deal with, and I would find and leverage projects that “If you pay me in fifteen days or we get started now, I’ll give you a couple hundred dollar discount, or $1,000 dollar discount on this project,” because I was betting against cash flow. So because I knew that, I wouldn’t be a stickler for that dollar. Like, “It’s a $20,000 project. The end.” Where I would say, “We can get started a little earlier for you, or if you’re willing to maybe make it instead of 2 50% deposits, let’s do thirds or let’s do quarters, but you’ve got to do it now.” I would leverage those kind of accounting tools to help mitigate any of my cash flow issues. If I knew that I’ve got payroll in a week and a half and I’m $1,000 dollars short, what can I do between now and then to get $1,000 in the door, cash on hand? That was one of the biggest things, just always being aware of that because you’re now in a business owner seat. You aren’t just production, especially when you’re just getting started. You’re easy to be production and then hire somebody else to also be production, but you have to watch cash flow even more because now you just doubled your overhead most likely. And in all of the most creative agencies, development shops were so staff heavy. Our biggest expenses are people. The office is cheap, and the internet is cheap, Adobe licensing isn’t that big of a– I guess it is an arm and a leg.
Joe: It’s relative to buying a storefront, though.
Matt: Exactly, like having inventory. We don’t have inventory. Huge props to anyone who starts at a restaurant, you have inventory that literally expires in two days. So here it’s like, people is the most expensive thing, and so you need to make sure you watch that. One big thing for us that’s been super helpful in that financial space is we are working off of last month’s income. We are recording this here in January, and my January payrolls and my rent, my everything else here, is built on being paid with money I earned in December. The money I’m earning now in January is money for February, and that’s from an invoice standpoint, not just actual cash on hand. So that’s one of those things that is just super helpful to maintain on my end, is to always watch that cash flow and always knowing where the money’s coming from so that I’m not essentially check to check and waiting for that next invoice to pay the next payroll. That’s where things get dangerous, so that’s been big. The other thing is just the right paperwork and just the right communication along the way. We document everything. I will not take verbal approvals, if they approve something on the phone, “Great. I’m going to shoot you an e-mail, I want to ask you for X Y and Z approval, and I need you to respond back.” We’ve even gone a step further, and we have contract level sign-offs for design and development approval, so we deliver design, and someone says, “Yes. It’s approved.” Great, we’re going to take all of these jpegs from our project manager system and stick them in a document that says, “I’m approving this for design, for layout, for function, and for content flow images. The actual copy can be changed in the CMS, but everything else is approved. Changing this will affect my cost and my timeline.” It’s funny how slow people pause on that one. They will approve something like that, and I’ll upload a new design. “Great, approved, go ahead, and start development.” “Great. Here, sign off on this.” All of a sudden, three days go by. We use Panda Doc for our documents for that, our contracts, and legal things, and you’ll see that Susan opened this Panda Doc 13 times in the last two days. “Susan is getting real picky and making sure that we dotted the I’s and crossed the T’s. Excellent.” That cut down revisions like you wouldn’t believe, versus just the verbal approval or the quick email approval. So, we tried to just document everything and try to make sure everything is as clear as possible because the rule on that is that if it can be misunderstood, it will be misunderstood in the wrongest way possible. Work backwards from there, right? If they hear your tone wrong, it’s in the worst way possible. If the design is wrong and they approve it, it’s in the worst way possible. When you document as much as you can, it’s hopefully as clear as possible on the way.
Joe: That is great advice. When I do videos, I require a signature on the script because the script is the final sign off before I start producing the video. So we have the script, and we have the screen actions, and the client has to sign off on that because revisions after that are costly. I think that’s–
Matt: Exactly. It’s time and money. It might be a 10-minute minute change, but it’s a 10-minute change that turns into a 20, then it turns into two more changes. The next thing you know, you’re like, “We’ve lost track of all the changes.” For me, it’s not about the ten minutes, and it’s about the snowball that it creates. Then the time, because all of a sudden, we’re talking about a design change that was approved. It gives you an easy backbone, and you just call it policy. “It’s our policy to do this.” Like, you make “The policy” the bad guy. “It’s not me, and it’s our policy. It doesn’t matter if I’m a person of one, it’s my policy to not start work until I have a deposit. The end. Nothing against you, you’re an excellent client, and I’m sure you’re going to pay. But we just have a policy.”
Joe: And you explain the benefit of that too like I say “I require a signature on the script because in the past I didn’t, and then the script had to get changed and then that ended up costing the client an extra $1,000 dollars on this video. I don’t want you to pay another $1,000 dollars because you didn’t like the wording somewhere, or someone didn’t like the wording somewhere.” I think that’s great.
Matt: Just clarity always, and then watch that money. That’s the hardest thing.
Joe: It is. Watching the money, especially, I’m going to– From experience, if you are a freelancer who is just starting out, it’s really easy to just deposit all that money in your personal account and then worry about it later. But I would encourage you to read Profit First and have a separate account for your bank account. Don’t use PayPal as your business money, and I know a lot of people do that. When I get–
Matt: That’s a dangerous one anyway because PayPal isn’t FDIC insured. PayPal can yank your money for no reason at all and then say, “You violated our terms and conditions.”
Joe: Right. As soon as I get a notification that I have money in PayPal, it gets added, and it gets transferred out.
Joe: Think about that. Put aside money for taxes, that’s important, and that’s something that could bite new freelancers. And that runway, like “Runway,” was something I was very cognizant of, especially when I went out on my own. I explained to my wife, “We’ve got six months runway. If I make absolutely no money, I will find a job before our runway runs out.”
Matt: There’s another factor there on runways, like “I have six months of money. But when do I need to start looking at the job site? Is it a two-month job window? OK, great. So you’ve got four months of true runway than two months of the overflow runway or the emergency runway.” Right?
Joe: Yeah, exactly. Awesome. This has been a really helpful conversation. We talked about managing your time, watching that cash flow, and some important staples that you should do when you take this from maybe a hobby to a business or just a side gig to a business. I do need to ask you my favorite question, though, which is, do you have any trade secrets for us?
Matt: Trade secrets is a tough one. I get asked on a regular basis, and we’ve been doing this for 15 years. So, “What’s your secret?” My secret is to show up and do honest work. It sounds ridiculous, but in the web space and creative space, we are full of flaky people who will just disappear. I rescue clients so often from bad designers, bad developers who just disappear, who just stopped wanting to do the work for whatever reason. We win work, and we keep work because we do exactly what we say we’re going to do on time and on budget every single time. It’s really hard to beat, but the bar is so low. It sounds like a terrible secret, but trust me, if you start being the only one in your neck of the woods that’s doing this, you will rise above everybody else. I’m not a better designer or better developer than anybody else, and I’m a hack at best on most of these things. I’m self-taught PHP, but I had more web developer clients and more web design clients than most of my friends because I just showed up. I was honest, “I don’t know how to do this. I’m stuck. Give me a couple more days.” So we would just constantly win new clients, and then we got referrals that way. “They’re just super honest, and they’re able to help us no matter what we did.” So, a super little secret, but just be there, show up, do what you say you’re going to do and deliver. You’ll go far, and that’s where most people– That’s what separates most people from winning and failing.
Joe: Yeah, I agree wholeheartedly. We’ve both probably had people where they’ve come to us, and they said, “The last guy just disappeared.”
Matt: Right. Like, he left money on the table. Why? What’s wrong with him?
Joe: I don’t know where all these people are going. But I tell my clients, “If you hire me, I’m here till the end.” I think that’s good, “Show up and do honest work.” Matt, I appreciate your time today. Where can people find you?
Matt: A number of places. I’m on Twitter and Instagram @MattADA, and Factor1Studios.com is my company’s site. So, that’s probably the couple best places for me.
Joe: Awesome. I will link to those and everything we talked about in the show notes over at HowIBuilt.it. Matt, thanks again for coming on the show. I appreciate it.
Matt: Absolutely. Thanks, Joe.
Outro: Thanks so much to Matt for joining me today, talking about cash flow, managing your money, and figuring out how much you need to make to survive as a business. I will definitely link to the calculator he mentioned over in the show notes, all of the show notes, you can find them at HowIBuilt.it/161. I also love how he talks about the importance of contracts. Last week we spoke to Nathan Ingram, who just launched his own contract over at MonsterContracts.com. I love that Matt is reinforcing that, and of course, his trade secret “Show up and do honest work. Do exactly what you say you’re going to do.” I think that is so important because good marketing is fine, but reputation is finer. Now, if you liked this episode, be sure to subscribe to it in your podcast player of choice. Leave a rating and review over at Apple podcasts, and it helps people discover the show. If you want to learn a little bit more about what I’m doing these days with my courses and my memberships over at the show notes page at HowIBuilt.it/161, you can get a free PDF on 5 tools to help you build websites faster. Who doesn’t want to do that? Definitely check that out, again the link is HowIBuilt.it/161. Thank you so much for listening. Until next time, get out there and build something.