Episode 71 | Premature Optimization of Your Business

Show Notes

Transcript 

[00:00] Mike: This is startups for the rest of us episode 71.

[00:02] [Music]

[00:11] Mike: Welcome to startups for the rest of us the podcast that helps developers, designers and entrepreneurs be awesome at launching software products, whether you’ve built your first product or just thinking about it. I’m Mike.

[00:18] Rob: And I’m Rob.

[00:20] Mike: And we are here to share our experiences to help you avoid the same mistakes we have made. What’s going on this week Rob?

[00:25] Rob: I am back from LessConf. I went there late last week and that is quite an event. Its less of a conference and more of like a two or three day festival, it’s really a trip. The first thing he says when he gets up on stage, Steve one of the hosts, he says we are not doing LessConf anymore this is the last one. And he said we are renaming it to probably like Less Fast or Less something. Talking about maybe doing it a little longer and having workshops and stuff so it was unique honestly, it was very ruckus. And they had competitions, instead of their—like you know how we at MicroConf would give away Kindles and iPads, they give stuff away but they have like competitions forums.

[01:02] So they had like a hugging competition, seriously I have a slide, maybe I will try to find the image but it’s basically of me doing my talk. And there are like 10 people on stage next to me hugging and they had been hugging for hours. So it was the last people hugging got the thing yeah. So like six hours later they were like, you know people like stopped hugging and they are just sweaty I mean it’s just gross. There was little bit, there was like a little reality TV element to it like one of the them was a habanero eating contest, so a dude ate five habaneros yeah.

[01:32] Mike: Wow.

[01:32] Rob: It came out of his eyes or just you know just like crying because it was so hot, and there was a limbo competition. So it’s a lot of fun, you know it’s like fun high energy stuff and that’s kind of how the whole two and a half days go, it’s so exhausting. It was good, it was fewer founders than I thought there would be, I thought that it was more of like a founders conference. But it was—I ran into I’d say a half of the people I talked to were more designers and developers like consultants. So and then another maybe 20% were like salaried employees who came with sponsors or convinced their boss to let them go.

[02:02] Since it doesn’t say it’s a conference for founders I think employers will actually send their people there you know. Because they are basically, you can kind of tell that it was like a designer conference, anyways.

[02:11] Mike:  That’s interesting, you know the contrast between MicroConf and that, I wish I could have gone but you know my schedule just, it did not permit me to go this year.

[02:20] Rob: Sure.

[02:20] Mike:  But I will definitely try and hit that next year, but that’s interesting at least the makeup of the people that were there. I think at MicroConf I mean virtually every single person there was a founder.

[02:31] Rob: I know, that’s why I have yet to—I mean even like Businesses Software the demographic I feel is different. A few years ago it was more founders and now like I met a lot of C level like chief marketing officers and CTOs and stuff like that. It seems to be you know some bigger businesses there.

[02:48] Mike:  Right yeah and I got that impression as well, it’s more of the executives and VPs and people like that who go to learn more about the software industry and what other people are doing.

[02:57] Rob: Right. How about you what’s been going on the last week or so?

[03:01] Mike: I don’t know I have been trying to catch up on some of the podcasts I have been sort of neglecting lately. So one of them that you had mentioned was AdSense Flipper so I started listening to that a little bit and I have listened to probably three or four episodes so far. And it’s pretty interesting what they do but it’s not something I am interested in trying, I am interested in hearing about it but not necessarily in trying it mainly because I think the margins of what they are doing seem a little bit low for what I would be interested in. And it also seems like a lot of their business models essentially building the sites and then just selling them off and their profit margins seem like they are really packed into the sale of the site versus building up a product.

[03:41] Rob: Yeah. No I’d agree, I mean I think again they are obviously, you know they are making money in there. It’s cool they are setting up the big process to kind of churn out stuff. I do have to ask myself the question of like, is what I’m doing making the internet a better place? Everyone does not have to answer that. It’s to each person they need to answer that for themselves but for me it’s like I want to do stuff that actually improves the internet as a whole and improves people’s lives and such. And I’m not sure, I mean I have these, like I said I have these ten AdSense websites that I bought a while back.

[04:08] I mean I am not sure that they really improve people’s lives. They definitely are better than some of the other junk that’s on the internet but I certainly don’t feel like I am helping people with that as much as with this podcast or as much as with HitTail or my book or Dot Net invoice. It’s like those actually you know solve real problems. And I feel like I am more interested personally in doing those kinds of things, you know having actual customers that you interact with. And I mean the AdSense site is weird because you kind of throw it up there and you don’t have customers per se right?

[04:36] You just have visitors and you don’t ever get the thought that like people are visiting your site. I mean you really can just think in numbers. Whereas anytime you have a real software company you actually do have to think about your customers as people so.

[04:49] Mike:  Interesting, I can see how that would come across. I think I fall in the same boat as you do where it’s more product based, more services based as opposed to something where it seems like it’s a lot more advertising than anything else.

[05:02] Rob: Right that’s kind if the sweet spot for us and that’s kind of the direction we want to head. I think as most startup founders do you know, I think they want to build something they are excited about and kind of try to build something bigger than themselves.

[05:14] Mike: Yup, cool.

[05:15] Rob: Well I have a request for you listening; if you have read my book I would love an Amazon review. If you just go to Amazon and type in Start Small Stay Small and give me a review I would really appreciate it. For the number of copies I have sold which is almost 7000 I only have about, looks like between the Kindle and the paperback version it’s only twenty something reviews.  You know it’d just be cool to hear from more folks here their thought on it. It was all positive reviews until maybe a week or two ago when I got my first negative review which is fine right, it’s like I want to hear that side of it too. You know definitely appreciate getting a little more traffic on there because it almost seems less.

[05:48] The book seems like it sold less copies because it doesn’t have you know a huge amount of Amazon reviews and I think part of that is because I sell a lot through my own website, people don’t necessarily come back to Amazon to review it.

[05:59] Mike:  And speaking of reviews we are up to 120 reviews for the podcast so the podcast is doing significantly better than your book in terms of reviews.

[06:07] Rob: Are those reviews or are those ratings?

[06:09] Mike: Oh you know what those are ratings I’m sorry.

[06:12] Rob: Right, but yeah wow 120 that’s, oh that’s not just US we are doing worldwide now.

[06:16] Mike: Yes.

[06:17] Rob: Okay.

[06:19] Mike I think it’s 88 in the US, sorry 91.

[06:20] Rob: 91, nice.

[06:23] Mike:  I saw a couple come in this past week and you know is don’t have them in front of me  but I just wanted to say thanks to everybody who has gone in there and actually posted a review. I took a look at the TechZing stats and they are 82. So they have gone up a little bit, I mean both of us have gone up a little bit but I think it’s too early to say whether or not we are pulling away or not, the sample size just seems to be, it’s just to small there is no good way to tell.

[06:45] Rob: Right its slow going yeah. I had a little SEO debacle this week; Hit Tail I have been working on getting it ranked for you know kind of a heavy traffic keyword, its keyword tool is the keyword. I had gotten it up to nine and it just plummeted to 35 this week. And I was like what happened because I wasn’t even, I mean I am not even actively building links but you know I’m pretty sure what it is DreamHost has gone down and I have links from a couple of sites on DreamHost to it.

[07:12] Mike:  Oh.

[07:13] Rob: And I think that when Google swept through, yes I am putting like higher end sites, I think when Google swept through it sees this site is not there I lose the links and it just drops away down. So my hope is that when Google comes back through again that it’s going to re-index everything and get me back up because I have put in some work to get it up to the first page of Google. And it just goes to show that you know all of this stuff sometimes it’s out of your hands.

[07:38] Mike:  You know it’s funny you mentioned that because I have been using a keyword tracking tool to just kind of figure out where I rank in the search engines for certain keywords. And I watch my rankings shift by like 200 in some cases. I mean I am ranked pretty well in some cases and then it just drops like a stone for a couple of days or a week. And then it comes back. And it’s very, not regular or predictable but the numbers are consistent. Like it consistently drops by almost the same amount and then it always recovers by the same amount. And I wonder if it’s because of some of the outages.

[08:16] Rob:  Right.

[08:17] Mike:  I have never thought about that.

[08:18] Rob:  I do, I mean obviously Google is tweaking with their algorithm all the time and the re-indexing stuff so yeah it does seem like something is going on on a recurring basis.

[08:26] Mike:  Yeah I’ll have to think about that a little bit more and maybe track it a little bit better see if that’s really it. The other thing you mentioned Shoe Box last week for tracking receipts and stuff.

[08:37] Rob: Yeah.

0:08:37] Mike:  I signed up for the trial, got that all squared away and started using it to track some of my receipts and stuff. And in the first three receipts, since then it’s been okay but in the first three receipts one of them they got the date completely wrong. They put in something like January 3rd the year 2000 or something like that, it was something weird. The month was wrong, the day was wrong, the year was wrong, I don’t know. It was…

[09:01] Rob: Yeah did you complain and let them know or?

[09:02] Mike: No, I didn’t bother I just fixed it.

[09:04] Rob:  But since then they have worked out?

[09:05] Mike:  Since then it seems, yeah since then it seems to be okay. So I will be pressing forward with it and you know it seems like it will save me enough time and effort. And even if I end up with mistakes like that and I plan on building kind of a process around it to basically hand off to somebody else to do that, you know maybe a VA or something like that so that I don’t have to do it. And because the image of the receipts they are right there, I mean part of that process can just be double check these receipts.

[09:27] Rob: Totally. And in addition it’s like there is nothing to say that if you hand down 100 receipts you are not going to get one or two wrong you know?

[09:35] Mike:  Oh that’s true. The things is that it not—like this isn’t all done through OCR or anything I mean there is a person sitting there and actually doing everything for Shoe Box. So it’s not like they are relying on computers to kind of guess where you know the numbers and everything are, I mean there is a person who keys it all in and they got this one wrong. Okay I’m not going to lose a whole lot of sleep over it but at the same time I mean dependent on the receipt, that could have been a huge mistake you know, it was only seven or eight dollars or something like that so no big deal. But what if it was a $1500 receipts and it came out as 150?

[10:06] Rob: Right, pretty big deal.

[10:09] Mike:  So I do have a request for the listeners, we are actively looking for podcast episode topics so if you have something you want to hear about definitely let us know, just send it into questions@startupsfortherestofus.com.

[10:18] [Music]

[10:21] Mike: This week we are talking about things you shouldn’t pay for early on in your business. And  paying is something of a—I don’t really like the word pay for this particular topic just because you know there is a couple of different ways to pay for something you can pay for it with money or your time. So it’s more or less things you shouldn’t either pay money for or spend time on early on in your business.

[10:40] So the basic idea for this podcast is that when you are first starting up your business and you are trying to get revenue, trying to build the products and do marketing and figure out what it is that you want to build or what people want you to build. There are places that you are going to want to spend your time and there’s places where you don’t want to. And the same goes with your money, time and money are kind of interchangeable here.

[11:02] And the first one is upfront automation, I have made this mistake in the past as well but too many people seem to spend time and money automating things way way before its time to actually automate them. Most of the time you can get away without this automation, when it becomes a problem that’s when you automate it. Or when it becomes something that is actually costing you money, that’s the time to look into automating. And one of the things that you can think about for automation is automation doesn’t have to be programmatically doing something; you could actually pay somebody to do it.

[11:32] Like if it’s something that involves picking words out a paragraph or doing something that actually requires a little bit of human thought, you can automate that by outsourcing it to a virtual assistant or somebody who can do that on your behalf. So there’s a lot of different ways to think about this but essentially you don’t want to spend a lot of time doing upfront automation on something that’s not going to essentially benefit you or reap the rewards for that. You know spending that time too early and spending the money too early to do those things is just not worth it.

[12:01] Rob: Right there is this phrase in programming and its “premature optimization” and it’s when you write some code and then you go back and you just spend all this time like refactoring and making a super fast super performer. And frankly it probably doesn’t need that yet like, A, you don’t have any users and B, you have no idea if this code is going to run once a day or once a second. And until you actually get an app out there and have people start using it you really don’t know what you should optimize.

[12:27] And I see this as the same thing it’s I think programmers specifically tend – and I say this because I am a programmer like we tend to want to optimize things to the end degree so that no human will ever have to touch or think about it. And I know when I build you know software for enterprises as a consultant that is how they had it done because they would say, well we’re going to have you know 100,000 of our customers using this. And so if someone even has to do something you know once per 5000 customers like it’s still too much. We would automate just incredibly complex tasks that took a ton of time to automate that a person themselves could have done in you know in a lot less time.

[13:04] However we are enterprises, you know and I and probably most of the folks listening here are small companies, people just getting started. And so you really have to learn to do things that don’t scale I think that the phrase it’s like do things that don’t scale. And that includes like both in marketing like you know early on especially when you’re trying to get your first 100 or 500 customers going out and going on podcasts and doing guest posts, doing things like that that are not scalable in long term are totally needed. Because you have to just get some people using your app and just so you can learn more about it.

[13:37] Later on you will learn about marketing approaches that can scale whether that’s you know a viral loop, whether it’s a paid at customer acquisition like advertising early on you absolutely need to be willing to do it. And the same thing goes with your internal process. You know I acquired HitTail five , six months and I did the support for about the first three and half, four months the email support. And all that time I was putting together the snippets, the responses, I had them in the text file and then I moved them into my Gmail you know Gmail has canned responses. I don’t know if everyone does or you just have to enable it but I have had it for a long time and you can just put a bunch of canned responses in there and so you reply with them.

[14:14] And then you know it was about five, six weeks ago I finally you know hired a VA and had him do it but it was all set up, I already knew the process. You know it was automated for me to do it and then just to hand it off to him save me other several hours a week. I think he is spending between five and ten hours on it now and he is doing you know a solid job. But that’s not truly automated at this point right it’s still you know has some manual intervention and there are some month end processes as well that are– that probably could be automated with code. But I don’t know if I will ever do that because he is taking care of them for me and I have things that are way more important to do that will actually make a lot more money for the business than to go back and try to you know write some code to automate something that takes him one hour a month to do.

[14:58] Mike: The other side of that is that even if you do spend time enough for automating something if it changes it’s a lot easier to provide instructions to a person than it is to rewrite the code or have the code rewritten to account for those changes which could be small or they could be drastic.

[15:16] Rob: Yeah that’s true I have had probably ten times in the past three months where I have gone into a Google doc and just changed the process. You know and all you have to do is update a bullet point to say oops yeah I was wrong that screen changed or whatever. And you write if you’re doing it in code you would have to change parts of the process and you would have to test it and get it out again.

[15:37] Mike:  The second thing on the list is infrastructure equipment. Don’t buy servers and I have done this in the past I’m completely…

[15:44] Rob: We have talked about this yeah.

[15:46] Mike:  I’m completely guilty of this I have a whole rack of servers and I use very few of them at this point I mean there was a time when I really didn’t need them. But it may have been more cost effective to just rent them instead so that that way they are not taking up space. I mean I still have like…

[16:00] Rob: They have been?

[16:02] Mike: Yeah I used them on and off quite a bit. The real value that I kind of got out of them was that I could shut them down and come back to them like a month or two later as opposed to something where I probably would have had to keep paying for it every single month in order to keep all the configurations settings. So all the setup time and stuff it wasn’t something like I could just fire everything up do what I needed to do and then get out. It was something it was stuff that I was working on over the course of like you know six, seven, eight months.

[16:28] But regardless the fact is that these types of things when you lease them or you rent them it’s a recurring expense but buy then when you can actually afford them not before. One of the things that I have heard about people doing is switching from one lease to another because it’s a lot less costly than buying a new computer and spending all that massive upfront capital expense and then trying to figure out what to do with the old one. When you’re leasing new servers you can essentially just turn in the old server and you get a brand new one that’s got all the latest hardware in it and your price doesn’t change. Renting is very similar in that regard.

[17:04] Rob: Right, and to be clear you’re obviously not talking about like a desktop computer or a laptop that you’re going to work on. You’re talking about like server equipment hosting something in a co-lo or something like that.

[17:12] Mike: Right, right.

[17:14] Rob:  Is that right a co-location facility yeah. Yeah no I agree you’re preaching to the choir here I mean I think you and I killed the whole episode one time just discussing this because I’m like Mr. you know SaaS apps where I don’t want to own any hardware and I want to be like mobile and not really have to maintain anything. I think that’s another piece right there right it’s not just money of buying a  server but it’s like then you have to keep it patched, then you have to make sure it has power all the time if it needs to be online you have to make sure it has a high speed internet.

0:17:40]  I mean there is just so much that goes along with that maintaining the software and if memory goes out and it’s an important server you try to get stuff over nighted there is just a lot of responsibility that comes with it even beyond the cost of it. And I think that actually leads us to the next point you had which is you shouldn’t pay for server co-location or get a dedicated server early on.

[17:59] Mike:  Its very tempting to think that you need a dedicated server when you’re starting on especially if you’ve had webhost in the past where you know they go down on occasion or they seem a little bit slow. The fact is you probably don’t need that because if you don’t have a product that you’re selling then you technically don’t have customers and you don’t have a revenue stream. So what you’re really trying to do is minimize your expenses and you know going for server co-location or dedicated servers is not a lot different than getting into merchant account where you have to pay this minimum fee every month and you’re getting very very little out of it because you’re not making any sales yet. So you’ve got a merchant account but no sales coming in to offset those costs every month.

[18:37] If you really feel that it’s necessary then you can go with a virtual private service or a VPS or something like that. But you really should start with shared hosting until you really feel like you’re outgrowing it or that shared hosting is impacting your business to the point where it’s actually hurting you in terms of your money making ability. If customers are complaining about downtime or it seems like it’s down more often than not and you’re getting bad reviews or bad rep for not being able to keep the service up and running that’s the time to upgrade. Not before you even have a revenue stream though.

[19:08] Rob: Right and lest someone wrote in and say, hey Rob and Mike the academy has been down you know three times in the last month. It has we’ve actually being having quite a few problems with DreamHost our webhost. I have been with these guys for seven years and they typically have one to two outages a year and then I have been down now three maybe four times in the past month. They are just having all kinds of crazy problems and the problem is that I am an old server because I have been there for so long. And so the parts are starting to fail and you know I’m like, dude you guys got to replace this and they are waiting till the thing totally fails which is obviously it’s because they are cheaper host right.

[19:44] So it’s a great place to get started but then you’re going to outgrow it eventually.  And we’re outgrowing we hired a consultant and is a listener of the podcast and he has started the move of the Micropreneur academy from DreamHost over to WordPress Engine which is a WordPress focused hosting company. I am actually an investor in the company for full disclosure they are like just super high end and super top notch. They actually, my blog is hosted there since I became an investor they moved it there.

[20:11] And there was a vulnerability in WordPress and typically with DreamHost you just get notified, oh you have a vulnerability but WordPress Engine they email me and they are like you had a vulnerability and we patched it and I was like,  and we cleaned up the you know like the thing that it did to your htaccess file. And I was like, now we’re talking. But of course this comes at a price right, it’s like its substantial and more expensive to run sites on WordPress Engine but you need to know that you know once you have revenue and you have a lot of customers like that uptime really is worth it.

[20:39] But as I said I have been with DreamHost and I have five or six different shared hosting plants across different platforms for different sites that I have. And in general they tend to work out pretty darn well and they tend to be eight to fifteen bucks a month compared to the guy who owned the Wedding Toolbox before I did I bought that site, boy it was probably two years ago now. He had signed a deal with some host and it was $400 a month for a dedicated server and that site was doing very, very little volume at the time. And I moved it from $400 a month plan to an $8 shared hosting plan and its every bit as performant as it was.

[21:17] So it’s just its really crazy that if you don’t know about these stuff it’s easy to come and get bamboozled and you will end up thinking, wow I’m going to need this dedicated server for whatever reason because this kind of grow so fast or because I’m going to need control, when in actuality this is another you know instance of premature optimizations.

[21:32] Mike: So next on our list is letterhead and associated “stuff”.  Don’t get fancy business cards unless you actually need them. At one point when I was doing a heck of a lot more consulting what I actually did was I went out and I got plastic business cards made and they weren’t cheap. They were I think 350 or $400 for 500 of them so they were definitely expensive. But at the same time I was going and talking to customers and trying to convince them to spend 30, 50, $100,000 with me. So I think that particular case it was worth it to spend the extra money on business cards.

[22:08] But at the same time how many of these business cards are you actually going to hand out? Do you actually need business cards? Is a corporate logo something you really need or do you just want it because it feels like it offers some sort of legitimacy to your company? Now having a good logo or your sales website is one thing you know as getting good logos for your products and all the different things to go with it. But as if your product’s name is different than your company name, getting a logo for your corporate website just to be able to put it on a business card is more nice to have its not strictly necessary.

[22:38] It seems like it’s more down the road when you’ve actually got revenue, you’ve got paying customers. And it’s something that you know you can use to kind of further legitimize the company as opposed to something that you spend a lot of time and effort upfront and I guess if I had the ballpark I would say you probably spend 10 or 15 hours figuring out how to get a logo, you know finding someone to design it for you, getting all the different things associated with that logo onto your website and on business cards and everything else. And that’s 10 or 15 hours that you could have spend building a product or talking to customers or doing all these things that actually generate money for you whereas this business card is never going to do any of those things for you.

[23:12] Rob: Yep I was guilty of these years ago; probably ten years ago I had business cards and no one to give them to.

[23:18] Mike: I think we’ve all done this though I mean.

[23:20] Rob: Yeah because you think that for some reason you think that you see business people with business cards and you think that that’s what you need to be legitimate. The last time I printed business cards was actually a couple of years ago and you know what I did? I went to moo.com and you can print like 50 business cards. It’s not cheap but they are like super high quality and they have these pre-done designs you just type your stuff in and crank it out. And all I have on there is like my URL and I only hand to people when they ask me when I go to speak and they will say,  oh do you have a card with how I can contact you and I will just hand it to them and say go there go to my ‘about’ page.

[23:52] So I haven’t had like professional business cards in a long time even when I was consulting, never found a need for them. I think the logo thing is a big deal I have never had a logo for my company ever, I just never had the need for it. The only thing I have ever had logos designed for is products and only because we you know I wanted it to look nice on the sales website, on the marketing website. And even then I typically don’t I wasn’t going to have a logo done for HitTail and the designer said we should have something. I just, I just told him just put HitTail in like a certain font you know and he is like well we should design something and so he did. He just said let me take a crack at it.

[24:26] So I think yes like branding an identity these are all important things but it’s like if you really are your boots are on the ground and you are talking to customers and you’re selling and you’re getting people interested in your product what your logo looks like has so, so much less to do with how successful you’re going to be than how much hustle you have you know than had. Then how much time and energy you actually put to that product and how many people you’re bringing to that website and how many of them you’re converting into customers.

[24:50] Mike: Definitely I totally agree and that kind of leads a little bit into the last thing that we were going to talk about which is formal incorporation. I mean do you need to go out and formally incorporate your business before you start building the products and try to market it?

[25:05] Rob: I mean obviously Mike and I are not lawyers we can’t give legal advice we would never give someone legal advice because there are so many different ramifications of where you live and kind of what your situation is. But I will put it this way; I started doing client work in 2002 I had been a consultant for other companies you know on a W2 basis up until then. And in 2002 I was a sole proprietor and I was a sole proprietor for seven or eight years after that. And so I did not have an LLC, I didn’t have a corporate structure, I didn’t have payroll my income just went in straight onto my Schedule C I mean that’s what it is.

[25:38] Mike:  Schedule C I think yeah.

[25:39] Rob: Schedule C yeah on my income tax you know it’s all very simple, simple and easy. And it was only once I talked to my accountant and my lawyer and the lawyer was like, well you know it kind of makes sense at this point you have some liabilities and the accountant said you can actually save quite a bit of money, several a thousand bucks for me once it’s been 10 to 12 grand a year on payroll taxes and that kind of stuff if you actually do more of an S Corp thing. So that was when I decided, oh I will do an LLC and then you know file under as an S Corp and then I have official payroll and stuff.

[26:12] But by that time there was enough money to make it worthwhile and I had enough money to be able to pay a lawyer to do it for me, I didn’t have to try to do it myself I had the money to pay a CPA in order to help me every year with taxes because taxes now are more complex for me. And they are more expensive to get done but of course when you’re saving that much money it actually makes it worthwhile. Now I do get this question pretty frequently via email and I always tell people I can’t really advise you because I’m not a lawyer. But really think about this you know here is what I did and obviously you know yes I didn’t get sued and that would have sucked if I had because people could come after your personal assets.

[26:46] So it’s something you need to think about you need to think about your individual risk tolerance but realistically it’s pretty easy to prematurely optimize and say I want a corporation you know on day one. And I mean Mike I think you can attest to the amount of time and paperwork that you’ve to do because you have a corporation. If you’re slowly building up over several years and you’re really not making any ton of money do you, I mean do you think it’s a poor waste of time to do all that the corporation paperwork every year you know if you’re only making five grand a year from your corporation?

[27:14] Mike: I don’t think so but I think that when you start getting to the point where at least 20% of your income is coming in from you know whatever side business is it that you’re running that’s probably the time to start looking at that. And 20% is just something I have had in my head where my personal risk tolerance would be. It also depends on how much money you make as well. I mean I think if you made $20,000 a year and I mean 10% of that would be or 20% would be $4000. So it’s not quite the same thing I mean incorporation it can cost a couple of grand I mean it depends with the type of incorporation you use as well, LLCs have different costs and S Corporations and they all have different filing fees. And depending on where you live the cost of those can be different.

[27:59] So for example in Massachusetts I think it’s around $450 a year but you know dependent on what city you live in it can be radically different.  So you’ve to start being able to justify those costs and say, am I going to save that much money by incorporating? Am I comfortable taking this money and putting it directly onto my taxes with a possibility that somebody could sue me? And again it just depends on what you’re doing I mean I incorporated right out of the gate I did things quite the opposite of what Rob did. But on the other hand I was dealing directly with large companies that were paying lots of money for consulting services and I was working with them directly.

[28:36] And I had just bought a houses my house is on the line, my car is on the line I mean there is all these different things that could go wrong and I’m working with multi thousand dollar systems, I mean in some of the cases multi dollar systems. If something goes wrong I’m liable for it and I didn’t want to take those risks. So out of the gate I incorporated and you know it’s worked out well for me but at this point because I have three different corporations I’m trying to reduce the amount of paperwork and you know just kind of build processes around that and one of those thing is going to involve shutting down one of the business.

[29:07] Rob: Yeah I think we actually probably show a pretty good contrast here because it’s, I wasn’t working with large enterprises I was working with tiny little you know 5, 10, 20 person startups that I was consulting for, writing code for. And so the odds of a large provider a large enterprise provider having a downtime blaming you and saying you they are a hell of a lot higher than one of my clients having done–doing the same thing. As we said it’s you know it all has to do with risk tolerance and the likelihood of the people you’re working with taking you to court frankly.

[29:35] Mike: Yeah and I think that the contrast between us just shows that I mean I would think that most people, most listeners are probably going to fall somewhere in between us. And again you just have to figure out where your risk tolerances are and what you’re comfortable with putting on the line.

[29:50] [Music]

[29:53] Mike: So I guess to kind of wrap up this podcast one of the fundamental things that we’re talking about is deciding whether or not to pay for something. And it’s really a series of quick questions that you can just ask yourself and it’s really important to decide on what your answers to those questions are quickly and the simple way to decide whether or not to pay money for something or spend your time on something is just as these four basic questions. And the first one is, is this going to help me makes money or make me more productive? And the second question is, what’s my ROI for this purchase, you know how much time is it going to take before you get your investment back on that whether that investment was your time or the money that you spent on it?

[30:31] The third one is searching for a better price worth my time. And I put this one on here because I specifically remember getting an email about two or three weeks ago where Symantec sent me an email saying we’re going to automatically renew your antivirus  software and its going to cost you $69  plus tax. And I know that I can get for cheaper, I know I can get it for 35 or 40 but I have to look around for it. And how much time am I going to have to spend looking around for that and then I have to create a new account because I went through this last year and the cost of– in terms of time and effort to go through that and you know one you have to find somebody new to buy it from, two you have to install it, three you have to create a new account with Symantec because you just can’t take a new license and apply it in as a renewal license. You basically have to uninstall the software and reinstall it.

[31:16] And at the end of the day it was not worth my time to spend that half hour or an hour to go out and save me you know the $25 or $35. You really have to justify it to yourself is searching for a better price going to be worth my time if it is something that you have to pay money for. And the forth one is does it make sense to do it now or is this something that you can come back to at a later time? And nine times out of ten it’s usually something that you can come back to later when it is more appropriate to do that.

[31:44] [Music]

[31:47] Rob: If you have a question or comment we would love to hear from you. You can call in into our voicemail number its 888-801-9690 or you can email it to us at questions@startupsfortherestofus.com. Our theme music is an excerpt from “We’re outta Control” by MoOt and it’s used under Creative Commons. A full transcript of this podcast is available at our website startupsfortherestofus.com. You can subscribe to it in iTunes or via RSS. Thanks for listening see you next time.

 

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4 Responses to “Episode 71 | Premature Optimization of Your Business”

  1. Talking about what sites or services to build, I also have the same feeling. I think pure adsense based site is not a long term business. But short term wise it might keep the site funded.

    What do you guys think about niche search engine sites? Will that be solid enough compared to just doing software products? Say, niche search engine in some particular industry for example.

  2. Hey guys,
    What tools do you use to monitor where your site is ranking for certain keywords?
    Love the podcast!
    Thanks
    -Shane

  3. Shane, I use a combination of WhooshTraffic and SEOMoz.

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