Six steps to turn your designing into a business

So you like to build stuff in 3D, maybe do a little scripting, a little animating, and you’d like to get paid for it?

And I’m not talking about selling stuff on the Second Life Marketplace. That’s a highly competitive field, with extremely low margins, high stress levels and high turnover. I’m talking about building custom projects, for real money, for real customers.

How do I know this is possible? Because I talk to potential clients all the time looking for skilled builders, who are having problems finding good freelancers.

My advice is based on 20 years of running freelance businesses, a Hong Kong corporation, and two privately-owned companies — in addition to covering global business for major technology and finance publications. It’s is not professional legal or tax advice. Think of it as more of a road map, or rules of thumb for solopreneurs.

1. Pick an identity

When a customer pays real money — think hundreds or thousands of dollars for a project — they expect to be paying a real person, who is capable of signing a real contract, and can be sued in a real court if things go wrong.

I know that many folks who work in Second Life due so under pseudonyms. Either they were forced to, because of Second Life’s avatar name policy, or they didn’t want their friends and relatives in real life knowing what they were doing online.

So now you have to make a choice. You can either continue using your avatar name, as the name of your company, or you can start fresh with a brand new identity.

Example one: “Hello, I’m John Smith, a professional 3D designer. I’m the president and founder of Mystic Princess Productions.”

Example two: “Hello, I’m John Smith, a professional 3D designer. I head up Smith & Partners Designs.”

Either one works.

If you’re worried about losing all the design credibility you’ve build up under your “Mystic Princess” avatar identity — well, first of all, your new corporate clients probably aren’t going to know about it, anyway. Second, you get to get away from all the not-so-credible history your avatar may have accumulated, such as that drama-filled love triangle with the vampire and the trans-gender furry that fueled a thousand blog posts.

Plus, whatever your identity, you still have all the skills you gained — and those skills are what’s going to sell your work.

2. Pick a specialty

It’s tempting to say that you’ll do anything for anyone. But, in fact, the more of a generalist you are, the harder it will be to sell your work.

Say a customer is looking for someone to create a new line of armor for their role playing grid. Would they rather hire someone who specializes in armor, or someone who does a little bit of everything?

In case you haven’t figured it out, they’re going to hire the specialist.

Now, after they’ve hired the specialist, and developed a good relationship with them, they may use them for other types of projects as well. So you should keep developing and broadening your building skills — or develop a referral network to send work to other builders who specialize in things you’d rather not do. But start out with a clear focus.

The ideal specialty is something that you enjoy enough that you would be willing to do for free — but not quite so enjoyable that everyone is willing to do it for free. For example, I am a freelance writer and enjoy both finance and kittens. But I know that there are a million people willing to write about kittens for free. In fact, they would pay to get a chance to write about kittens. So I focus my writing on finance and enterprise technology. That doesn’t mean you can’t make a living writing about kittens. Plenty of people do. It’s just that they have a lot more competition, and have to be much, much better writers, and have much, much better connections than someone who writes, say, about the latest Sarbanes-Oxley compliance trends.

Fortunately, you’re getting into the business early. There’s time for you to stake out your turf even in the most popular areas. If you wait a few years, there will be a lot of competition, and you’ll have to settle for, say, creating accounting simulation and collaboration platforms. Not that there’s anything wrong with that. And the pay is probably really, really good.

Green Phosphor specializes in 3D data visualizations.

3. Find referenceable clients

A referenceable client — also known as a “beta customer” in the technology field — is one who gets your work at a discount, or even for free, in return for agreeing to say nice things about you to future customers.

With over 200 public grids out there, there are plenty of people to approach to do work for free. And you don’t have to offer your services just to existing grid owners. These days, schools districts, manufacturing companies, non-profits, networking organizations and many other groups could use some help setting up virtual meeting space, training areas, or simulations.

Just ask.

Example: “Hi, I’m John Smith, I’m launching a new design company, Mystic Princess Productions. I’m looking for referenceable clients. That means that I will do a project for you, and do a great job, in return for a testimonial. If you don’t like my work, you still get to keep it, and you don’t have to do anything else. I want an opportunity to demonstrate that I work well, on time, and per customer instructions.”

Then, once you’ve got your first couple of referenceable clients, you can up your prices a bit.

Example: “Hi, I’m John Smith, head of Mystic Princess Productions. I just finished a couple of projects for the the Lil’ Miss Princess Grid and for Virtual Fairy Land and for the local school district. I can give you a tour of what I did there, and you can talk to the owners about what I’m like to work with. I’m looking for more referenceable customers, and would be willing to work for you at a 50 percent discount compared to my regular rates. You get full rights to the work, and, of course, you don’t have to provide a testimonial if you’re not completely satisfied.  I want an opportunity to demonstrate that I work well, on time, and per customer instructions.”

Remember to go back to your customers and find out what you could have done better. Are there any areas where you could have improved your communications, or your work process? And don’t forget to ask them how much they would have been willing to pay for this work, to help you set your prices later on.

Now write up a nice testimonial for yourself and have the customer sign it. Better yet, have them write it themselves, if they have the time and inclination. Or, even better, have them do a video testimonial. Film the finished build, as well. and double-check that your contract allows you to reuse all of that material for marketing purposes.

If you want to sell parts of the build to future customers, make absolutely certain that this is okay with the first guys. Sure, they got your work for free, but they paid for it with their testimonials. Don’t ruin the relationship by copying their builds elsewhere without their express permission.

Remember — these guys know you and like your work. They’re likely to become some of your best customers in the future. Even if they don’t have the budgets for your rates today, they might tomorrow. Treat them well.

4. Start marketing

As a general rule of thumb, as a freelance designer or solopreneur, you should expect to spend a quarter to a third of your time on sales and marketing. And no, you can’t delegate it out — when you first start out, you’re your best salesman. If you can’t sell yourself, nobody will be able to do it for you.

If you must use an avatar for your corporate identity, stay away from this one.

When selling, play to your strengths. If you’re a sociable person, socialize. If you’re a numbers guy, play up the numbers. But whatever marketing strategy you pick, allocate a certain amount of time each day, or each week, to furthering that strategy and improving it.

But first, some basics.

  • Register your domain name and put up a simple website. Your home page should make it absolutely clear what you specialize in, have some photographs or videos of your work, quotes from happy customers, and a way to contact you. You should also have an additional contact page with real-world contact information — set up a Google telephone number and PO Box if you don’t want folks to contact you at home. Also put up an “about us” page with your real name and a short bio, and photos and bios of other team members if you work with others. Set up professional email addresses for everyone involved —, for example, instead of Gmail or Hotmail accounts. I use Dreamhost for my hosting, and Google Apps for my email, calendar, and shared docs. Dreamhost automatically integrates with Google Apps, and I recommend them both highly. I use WordPress for the site itself. There are a number of great free templates out there, or you can spend a little cash and get them customized for your company. I recommend “magazine-style” themes for company use. Pick one with a white background if possible, and especially for corporate and education clients. Use a dark background only if you’re specializing in gloomy role playing builds — white text on a dark background is hard to read and has very narrow appeal.
  • Create Twitter, LinkedIn, and Facebook accounts. Use them to provide value to your potential customers. That doesn’t mean spamming your services — I’m talking about real value. Links to articles about good building techniques. Pictures of great builds by other builders — they’ll appreciate it, and return the favor. Links to your own posts about good and bad design practices. Links promoting what your customers are doing — it will put you top-of-mind when they’re thinking of the next builder they want to hire, or recommend to others. Engage in discussions with other builders, designers, thought leaders and potential customers — post on their blogs, react to their Tweets, answer their LinkedIn questions. And add a widget to your website that shows this activity, to demonstrate to customers that you are still in business, still active, still engaged.
  • Improve yourself. Yes, learning can be a marketing tool. Learn how to do something new, post about it online — either a full how-to article, or even just a photo or short video. Your potential customers may learn something but, most important, they’ll learn that you’re still learning, that you’re someone who keeps upgrading their skills, that you’re on the cutting edge. Don’t worry about giving away your techniques. Once people see how hard it is to do something, they’ll be more than happy to hire someone to do it for them. Even if you think it’s easy, trust me, it will be hard for ordinary people. Plus, your customers have other things they’d rather be doing — otherwise, they’d have gone into the design business themselves. And don’t worry too much about giving away your secrets to your competition. Who would a customer rather hire — someone who’s a public expert on a particular technique, or someone’s who’s just read about it somewhere? And if you do happen to learn a cool technique from a competitor, give them public credit. Not only will your name now be associated with theirs, getting some of the reflected glory, but the other guy might feel charitable and pass some work your way when they’re too busy, or the project isn’t in their area of interest.
  • Focus on your niche. Whether you’re planning to design armor for role playing grids, or data visualization platforms for accounting firms, find out where your customers hang out and join them. These might be Twitter lists or LinkedIn groups or discussion forums or professional associations that meet off-line. Find them, and participate in events or discussions on a regular basis. If your chosen niche doesn’t have anything like that, start your own. Again, good citizenship rules apply — don’t spam people. Don’t show up at event once a year to hand out business cards. Help people. Offer advice. Join committees. Bring the muffins. Give presentations that are 99 percent useful advice and 1 percent promotional — the “contact us” slide at the end. Do nice things for your potential customers and it will add up. When they need someone, they’ll think of you first.
  • Once you have a budget. Don’t stop your own marketing just because you can hire someone to do it for you! Keep doing all the things that have worked for you before, but hire someone to expand on your efforts. For example, if you’re a bad writer, you can hire a ghost writer to write guest editorials for other blogs (here at Hypergrid Business, we love running advice columns from experts) or to produce press releases. If you’re bad at schmoozing, you can hire someone to coordinate educational seminars where you’re the presenter, or get you speaking engagements at virtual or off-line events, or interview you on-camera for videos you post on your website. A good interviewer can pull material out of even the shyest person.
(Image courtesy Gerard Stolk via flickr.)

5. Get your books in order

By this time, you should have a couple of customers in place, and some potential customers on the line. You need to get organized.

You will need, at a minimum, ways to track the following:

  • work-related expenses
  • customer names and full contact information
  • ongoing projects
  • invoices and income
  • potential new customers
  • contracts and other key documents

You can do it by setting up spreadsheets and files in folders on your computer. The problem with this approach is that it gets cluttered very quickly, and you can’t easily search across all the work-related documents.

I, personally, use Filemaker. I was a database designer in a previous life, and my solution to everything is to create a new relational database. Filemaker happens to be the one I love. I use it for everything. For example, I have a table for all my articles. Associated with each article record is a separate table with full interview transcripts. That’s linked to a table of sources. That, in turn, is linked to a table of companies. So with a click, I can see who I know at IBM, what stories I interviewed them for and when, and what they said. And I can search across all the thousands of transcripts on file. Similarly, I track all invoices, all freelancers, all expenses, and Filemaker also lets me add in attachments — invoices, contracts, photographs, story documents, research reports and anything else that comes in electronic form. If you have database design expertise, you can design a system that works the way you work, and automate all your most common tasks for you.

Another popular approach, especially if you’re already using Google Apps for email, calendars and document sharing, is to use one of the many invoicing, customer relationship management and project management systems that are designed to work with Google Apps. Many start out with free plans for small-scale uses. Just go to the Google Apps Marketplace and check out what they’ve got. New stuff is constantly being added, so if you don’t find what you need today, check back tomorrow. For example, myERP, free for up to two users, is a complete business management suite, allowing you to track your customers, income and expenses, and is integrated with your Google contacts and calendar. It’s cloud based, so as you add staff, they can access the same system. They also have a lot of project management tools, such as Mavenlink, which is particularly useful if you work on projects with many team members or have to coordinate a lot of different pieces.

Google not your thing? is a great alternative, though it will cost you a whopping $5 a month to start. Salesforce is the go-to leader for customer relationship management, and also comes with Google Apps integration. It is a powerful, powerful system and a great way to go if your plan to grow your business into a great big enterprise. They’re also cloud-based, so as you bring in team members, they can work on the same platform from anywhere in the world. It can be harder to learn, but they have some great training videos. Trust me on this. Put in some quality learning time. What you will pick up about sales and marketing techniques from their materials is priceless.

Another popular option is the Zoho suite of products. They’ve got everything you need to run your business — invoicing, accounting, customer relationship management, project planning, document sharing, relational databases, email, and more. The prices are a bit higher than the Google App alternatives, and I personally don’t like their interface style. I’ve tried out their database system — Zoho Creator, starting at $15 — but didn’t think much of it. It was too hard for me and my staff to use, and I didn’t like the look-and-feel. But it might work for you — a lot of small companies are very happy with it. It’s a great fit for someone who wants to get as far away form Google Apps as possible, though, of course, they also have Google integration. (Really, who doesn’t?)

I recommend staying away from traditional software like QuickBooks. In the old days, it made sense when companies would buy packaged software and install them on their single office computer. Nowadays, though, you want something that works in the cloud, integrates easily with all your other applications, is accessible from any device, and can be used by your employees without you having to buy additional software licenses.

Yes, I know, I am violating this rule with Filemaker. But I know the system inside and out, so it’s faster for me to do something with Filemaker than with almost any other platform. Second, I run it in the cloud, via WorldCloud, where Filemaker pricing starts at just $10 a month. My whole system lives on their servers — though I can make local backups at any time — and my staff and freelancers can access it from wherever they are.

I strongly recommend that, when starting out, you do your bookkeeping yourself. It’s not that hard to keep track of your expenses and your invoices. Learning how to use customer relationship management software will pay you huge — huge! — dividends in increased income.  And, when you’re ready to hire someone to do your books, you’ll know enough to manage them effectively. And not get ripped off.

Plan to spend a quarter to a third of your time managing your books when you first start out. In the beginning, most of time will be spent learning the systems. Later on, you’ll be spending your time adding in your income and tracking ongoing projects.

And, if you’re based in the United States, here is some tax advice.

If you decide not to use your own name as your company name and, instead, go with Mystic Princess Productions or something like it, then you will need to register it as a DBA — doing business as — with you local town clerk. It cost me around $20. If you have other companies you’re running — or plan to hire employees — you will need an Employee Identification Number from the IRS. It just takes a few minutes to get one. Print out the result and take that to the bank, along with your DBA form, to open your business bank account. You might also want to set up a company PayPal account at this time, linked to your company bank account. If you use your own name as the company name, you can save both steps.

Even having a separate bank account for your business is not necessary — if you’re a single proprietor, the IRS isn’t going to care. But it makes bookkeeping a lot easier — you can just download the entire bank report at the end of the year as a spreadsheet and import it into your expenses database, for example.

The next thing you want to do to prepare yourself for tax season is to categorize your expenses. If you look at IRS Schedule C, you will see about 20 different expense categories. If you’re a freelance 3D designer just starting out, you’ll probably just have “advertising” and “office expenses” as main categories. If you travel to customer sites, you will have to track mileage and other travel-related expenses as well. Computers and peripherals are cheap enough these days that I just pile them in as office expenses.

At the end of the year, total up all expenses for each category, and write them into the appropriate slot on Schedule C. Also, add up all your income. Subtract one from the other — that’s your business profit. If you’ve kept good books all along, it should take you no more than a few minutes to do your business taxes.

Enter your business profit on the appropriate line of your 1040 form.

If you have a home office — and, as a starting-out freelance designer, you probably do — also fill out Schedule 8829, for the business use of your home. You will need to calculate the square footage of your office, and divide it by the total square feet of your home.

Then, you will need to calculate your self-employment taxes, which is on Schedule SE.

That’s it. All you need is those three forms at the end of the year for your business taxes. The United States is a great, great, great country in which to start a business. The first year I did this, though, I went to an accountant, to make sure I was doing everything right. The only change they made was to add in a depreciation form, and spread out the costs of my new office computer over five years. That was back when computers cost real money.

Now, you might be wondering — what about incorporation, limited liability companies, and double-entry bookkeeping? Don’t I have to know about that, and hire a team of accountants to manage all that?

Yes, you do. Put a note on your calendar, for when you pass $100,000 in annual revenues. Then you can consider incorporating, switching to double-entry bookkeeping, and all that other good stuff. If you make enough money, it will save you on taxes. But if you’re making less than $100,000 — or so — you’ll be spending more on attorneys and accountants than you’ll be saving on your tax bills. And your taxes go to pay for roads, schools and libraries, and your attorneys will just blow them on boats and golf club memberships. In fact, about 70 percent of all US businesses are sole proprietorships, so don’t let your lawyer talk you into incorporating unless your really need to.

If you really really want to minimize your taxes — no matter what it costs — then incorporate. Incorporation is also important if you want to minimize your personal liability, so, say, if your company goes bankrupt, you get to keep your house. But as a freelance designer, you’re not going to be borrowing large sums of money to start your business anyway. The plan I outlined above costs nothing except your time. It’s not like you’re running a construction company and have to spend millions on heavy equipment up front.

The same principle applies to accounting. If your company is small enough, the cash-based accounting system I outlined above works just fine. That’s where you add up your income, subtract your expenses, and you are done. If you don’t keep inventory on hand, and make less than $5 million a year, then cash accounting is great, and simple.

Accrued accounting is the method large corporations use. That’s where you have accounts payable and accounts receivable and double-entry bookkeeping. When I had my Hong Kong-based corporation, I had to use accrued accounting, and send my business manager to get accounting classes, and had to hire an outside firm to do our books at the end of each year.

It’s a big pain. There is an advantage to accrued accounting, though. Say you work really really hard in January. But you get paid in June. All your expenses are in January, and all your income is in June. If you’re using cash accounting, January looks like a really bad month, and June looks really good — even though, work-wise, January was when you really put in the hours. With the accrued system, you claim your income when you send out your invoices — so if you’re invoicing your clients in January, then the income is counted in January, no matter when the cash actually arrives in your greedy little hands.  The same goes for expenses. Say you decided not to pay your bills on time, but instead put them off until later. Now January looks better — you didn’t spend any money at all. But when the collectors finally shake the money out of you, your books start looking really bad. Accrued accounting makes your spending and income line up more closely with when the work actually gets done, so you get a more accurate picture of your company’s health. And if you’re running a giant company, this is very useful. If you’re running a small company, then you already know how hard you worked in January, that your clients are late paying you, and that you’re hiding from your bill collectors. You don’t need your accounting system to tell you all that.

Part of IBM’s cash flow statement from 2008.

Finally, a word about contracts and invoices. I’ve got a sample contract posted here. Just delete the parts that don’t apply to you — and remember that this is not legal advice. Run it past your own lawyers first, especially if large sums of money are involved. If you and your client decide to do something differently, don’t just talk about it — add it to the contract. Otherwise, you’ll remember the conversation one way, and they’ll remember it another way, there will be a big fight, you’ll never do business with them again, and they’ll bad-mouth you to everyone they know. It only takes a few minutes to make a change to a contract and email it out, and you’re covered.

Invoice promptly, as agreed in the contract. Usually, this will be either on completion — and acceptance — of the final work, or in stages for a long project. If you use myERP or Zoho or a similar system, there will be an invoicing function built in. PayPal also has a nice invoice generator. Or you can create an invoice in Google Docs or OpenOffice, insert your scanned signature, save it as a PDF file, and email it out.

Here are the minimum elements you need to have in your invoice:

  • Your letterhead. It should be immediately clear who the invoice is from.
  • A unique number. Never ever send out two invoices with the same number — your customer will only pay one of them.
  • The date of the invoice.
  • An itemized list of products and services, and the cost for each.
  • The total amount you want them to pay.
  • Taxes, if applicable. If you’re providing a service to a company, you don’t need to collect sales taxes.
  • Date you want the invoice to be paid, for example, “To be paid on receipt” or “Due on or before September 10, 2012.”
  • Where to send the money. This is key! If you get paid by check, include your company name and full address. If you get paid by PayPal, include your PayPal billing email address. If you get paid by wire transfer, include the name and address on your account, your bank account number, the name and address of your bank branch, and your bank’s routing number or SWIFT code.
  • Your contact information, so that if they have any questions about the invoice, they know who to call. Otherwise, they’ll put the invoice aside while they track you down, and lose it, and never pay you at all.

When you send out an invoice, add it to your record keeping system, along with a calendar reminder to follow up in a certain number of days if the invoice isn’t paid.

I once had a client with a habit of losing invoices on his desk. It wasn’t deliberate — he was just messy. I finally had to send copies of all the invoices to the accounting department, and an accountant went to his office, and stood over him while he signed off on all of them. So don’t assume that a lack of prompt payment is due to ill will — it’s more likely due to a messy desk in someone’s office.

When I send out a reminder, I include a copy of the invoice as an attachment, just in case they lost the first one. I also ask if they need any additional documentation to go with the invoices, and whether that’s what’s holding up the payment. It helps if you write up a nice, friendly, reminder note ahead of time, and use it in the future. If you write it on the fly, when you’re mad about the payment being late, you won’t come off very well — and may add additional delays or even lose the client altogether.

6. Decide how big you want to be

This is not a trivial question. You might think that everyone wants to get rich, but many people want a lifestyle business, or to be their own boss. Basically, it means that they create a business that’s really just a job for themselves.

They might have no employees, or just a couple of employees, or use freelances and contractors when necessary, but they do the bulk of the work themselves. If they go on vacation, the business shuts down.

The advantage of this approach is that half the time, you get to do what you love. The other half of the time, you’re doing marketing and bookkeeping, but that’s the price you pay for doing what you love, at your own pace, at your own hours, without a boss hanging over you.

But there’s a limit to how big you can get, because there are only so many hours in the day.

(Image courtesy via Flickr.)

If you decide to get bigger, then you will no longer be spending half your time doing the actual work. Instead, you’ll be spending half your time on marketing, half your time on bookkeeping, and the rest on recruiting, training, and managing employees. And if you step in and do the actual work instead of the employees, you’ll be the kind of bad micromanager that everyone hates.

You’ll have to learn to step back and delegate.

There’s a great book on how to do this, called The E-Myth Revisited, and I recommend it highly. It’s a classic that every entrepreneur should read if they ever want to be able to take vacations. You also need it if you want to sell your company. After all, who’s going to buy a company from you if it doesn’t exist unless you personally are there, working every day?

If you want to eventually head up a company that requires incorporation, lawyers, double-entry bookkeeping, boards of advisers, and investors, then you need to read this book and take its principles to heart.

If those words scare you, if your initial reaction is that you just want to do your designing and don’t want to spend all your time running a business, ask yourself if your problem is fear. Fear of the unknown, fear of success, fear of your friends and family thinking you’re full of yourself.

Fear of the unknown is easy to fix — take some evening business classes, read some books, join business networking groups and you’ll quickly learn that running a business is no scarier than anything else, and that there are plenty of idiots doing it — and if they can do it, so can you.

If you fear damaging relationships with your friends and family members, promise yourself that you’ll become one of those nice successful people — one who helps people out, donates to charities, pitches in with kids’ college tuitions, and lets everyone use their vacation home. Don’t become a douche who acts like just because they have money, they’re now better than everybody.

Fear of success is the hard one, and may require therapy. I can’t help you with that one.

However, you might simply prefer to have a lifestyle business where you get to do what you enjoy doing most of the time. Not dependent on anyone. Setting your own hours. Making a reasonable income for a reasonable amount of work. If that makes you happy, then that’s the best outcome of all.

Maria Korolov