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Pricing

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All creative businesses should price from the top down.  Decide what you want (need) to make and then figure out what it is going to take to get there.   Pricing from the bottom up (i.e., “marking things up”) almost never captures the true value of your art.  Where you can, charge a fee and leave the cost of production out of your profit equation.

Even if moving to a complete fee-based business is not possible, a real goal is to include some combination in your pricing.  And, even if your creative business has to be a “mark-up” model, try to focus on maximizing the less risky aspects of your business.  For instance, if you are a florist, perhaps you can incorporate a design fee into your work.  If you are a graphic designer, where appropriate, you can assume the risk of delivery and charge a full mark-up on some of your deliverables.  One caveat, though, if you are not in the business of delivering perishables or managing skilled labor (i.e., a florist, caterer, draper, lighting designer, set or furniture fabricator, etc.) do not assume the risk of delivery.  It is hard enough to make money in these creative businesses if it is all that you do, nearly impossible if it is not.

Regardless of your pricing structure or strategy, the goal is to maximize value.  Today’s reality is that, most likely, you will have to negotiate with your clients.  It might sound counter-intuitive, but your flexibility should be on the lower margin items/services you offer, not on your fees or high margin (and/or less risky) items/services.  Even though you might have more “room” in the higher margin business, it is what is most valuable to you and your creative business.  Don’t give it away.

Change

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Scott Bourne wrote a great post today about protecting the integrity of wedding photography.  He rails against those photographers who would massively under price their work.  It is a terrific post and I could not have broken it down better:  massively undercutting on price cheats the client, the industry and, most of all, the photographer.  However, like it or not, what Scott describes as the state of the market is not going away:

Everyone who owns a camera – and that seems to be everyone period – thinks they could be a professional photographer. How many times have you heard “You must have a nice camera” after showing off a portfolio-quality image? We’re already battling a severely under-educated clientele. The client thinks ANYONE can do our job. We’re fighting mass competition and a public that doesn’t know better.

And, even more to the point: even if the market DOES know that quality costs, it won’t cost what it did yesterday and certainly not what it did three years ago.

I aspire, with Scott, to have everyone in the business of being creative properly value their art.  However, I also do not believe that the way most creative businesses operate will be sustainable for much longer.  It is just too hard to rely on the next project and constantly chase after new clients along with your ever-growing competition.  Your lumpy cash flow will probably get lumpier and your profit margins squeezed ever tighter.

To survive, you are going to have to evolve your business model.  You are going to have to figure out how to extend the life cycle of your customers and create an annuity business for yourselves. By annuity, I mean a sustainable, consistent revenue stream based on the core strengths of your creative business.  It can be some sort of membership, consulting/advisory service or other ongoing stream.  The annuity business can be to the trade or for consumers.  The point is that the annuity will be the base revenue stream that will support the fluctuations in your core creative business.  The annuity will also help you redefine how you price your core projects.  For instance, if you create a membership, you can price your core project (i.e., wedding, large commercial project, corporate event, etc.) into that membership.  By doing so, you might be able to shoot that wedding for $500, if you can assure yourself of a guaranteed stream from the client that far exceeds the $500 each year for many years to come.

In the end, you get to the same place – extracting proper value for your art.  Creating your new business model to extract that value is going to take time, require you to take calculated risks and rethink everything you “know” about your business.  As Seth Godin said recently: to affect change, you are going to have faith beyond any facts you are presented with.  Just please remember: change is hard, progress a process and determination a necessity.

Integrity

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For me, your creative business can be one step from the grave, the biggest and baddest one on the block or somewhere in between, it does not matter.  So long as you have integrity, you are a success in my book.  Integrity in all that you do:  treating people fairly, being true to yourself and your art, being original, being straightforward even if the news isn’t good, and, most of all, being honest with yourself, your employees and your clients.

Giving up integrity is easy, because there is always a justification.  Getting it back, incredibly difficult.  Personal experience has taught me this exquisitely painful lesson.  When I ran my food delivery/catering business, I borrowed money I knew in my heart of hearts I couldn’t pay back.  Hired employees I knew I really could not afford.  Bought inventory from vendors on credit I did not deserve.  In the end, I found myself bankrupt (literally) and very much alone.  There is always grace in redemption and I will be forever grateful to those that allowed me to return to myself, Preston being the first on that very long list.  Now that I have myself and my integrity back, I can absolutely say my integrity was the one thing I am most ashamed of ever having lost.

The problem with operating without integrity is that the result (positive or negative) is never really yours.  If you blindly take another’s collateral – her pricing information, packages, marketing materials, blog posts, images, ideas, etc. – you can never really be sure that it is you your clients are really hiring.  While you might be able to live with it in the short run, the lie will get you in the end.  The spirit of creation and individualism behind any artist and their creative business simply will not permit being derivative forever.  And to go down the path of being dishonest can do nothing but destroy your own sense of self.  Hard to produce great work when the confidence in having faith in who you are and what you are about is gone.

Although we seem to be recovering from the trauma of last year’s economic events, the air of uncertainty remains.  In that air, the temptation to copy (i.e., steal) from someone else, do business that is not right for you or lower your standards (i.e., prices, product quality, clientele) for the sake of the business is remarkably alluring.  It IS harder to stay true to yourself and your art and work to see what opportunities will present themselves during this time of transition.  However, if you can know, really know, that losing your integrity will make you myopic, the choice might not be that difficult.

Do Less and Do More

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2009 was the year everything changed:  How you did business, what your clients came to value about you and your art, and what they did not.  While the core of your creative business did not (and should not) have changed, its presentation almost surely did.

The New Year is here.  As this is a (relatively) slower time for most of your businesses, I am sure many of you are very busy planning, selling, designing, addressing issues and all around getting ready for what 2010 will bring.  However, if you are not paying attention to how your business and your market has changed, and what your clients value most about you and your art TODAY, your work will likely be in vain.

If you hold yourself out as a planner, but your clients now come to you for your design eye, then you have to develop this strength.  If you are a photographer, but your clients come to you for your layouts more than the actual image, then perhaps you should consider growing that part of your business.  If you are an interior designer and your clients now just want your style advice as much as they want your design, cultivate that.  As much as you would like to control how people view and value you, your art and your creative business, you can’t.  All you can control is the integrity of the work and ensure its presentation reflects this integrity.

It does not matter that in 2009 a problem employee, website, blog, system or customer service issue screamed far louder than the success of a new product, process or design.  The squeaky wheel cannot get the grease.  Focus now on developing and growing what you have done well, on what the market has responded to best, and leave the problems for later.

The art your clients value most is what is most valuable to you.  Your understanding and acceptance of what your clients value most should inform what your first moves should be in 2010: anything that makes that value clearer, more readily available and the highlight of your business.  If that means a new website, blog, customer service protocol, production process, then that should be what you do first.  If you have to do all of the above, choose the one that will have the most impact on the market seeing the new “you” and do that first.

Happy New Year

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Someone shared this quote from R.M. Rilke with me today.  Wishing everyone a very happy and fulfilling 2010:

Be patient toward all that is unsolved in your heart and try to love the questions themselves like locked rooms and like books that are written in a very foreign tongue. Do not now seek the answers, which cannot be given you because you would not be able to live them. And the point is, to live everything. Live the questions now. Perhaps you will find them gradually, without noticing it, and live along some distant day into the answer.

Herbie And A Beginner’s Mind

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Change never happens in a moment of crisis.  Crisis is only a reflection of a system’s flaws.  As with treating the symptoms and not the underlying disease, effective change almost never happens as a reaction to a crisis.  The goal is to create a system that manages crisis much better than it avoids it.

Most creative businesses are seasonal, with varying degrees of lead-time to complete their art.  There is no right answer how to best manage seasonality or lead-time.  However, if you can figure out your “Herbies”, you will go a long way to finding the solution that will work best for you.

“Herbie” comes from Dr. Eliyahu M. Goldratt’s The Goal – a novel about systems management.  The Goal is 25 years old and still one of the best business books I have ever read.  Written as a novel, The Goal breaks down systems management and “throughput” into something digestible and interesting.  As a way of understanding production, we are told the story of Herbie.  Herbie is the slowest kid on a hike with his boy scout troop.  The troop must stay close enough together for adult supervision of all hikers but get to the campground before dark.  The speed of the hike is wholly dependent on how fast Herbie moves.  So how to get Herbie to move as fast as he can? Distribute his load to the faster hikers.

There is no one Herbie and finding one will create others.  The point is not to find him, but always look for him.  No matter if your creative business actually produces physical art (i.e., a florist, cabinetmaker, set fabricator, etc.) or mostly intellectual property (i.e., any designer (graphic, interior or event), event planner, etc.), Herbie applies to you.  If you are spending time on bookkeeping instead of designing, promoting your brand or meeting with clients, you are the Herbie.

The best way to identify the Herbies in your creative business is to bring yourself back to a Beginner’s Mind – the concept from Zen Buddhism (Shoshin) of approaching everything as if you have never done it before.  If you give yourself the freedom to look at all that you are doing without the constraints of your knowledge and experience, you will probably have one of those doh! moments and set yourself on a wholly other path.

An example: as it has for the last 15 or so years, an event production company creates amazing Christmas decorations for its clients along with producing large Christmas parties and other social events during the season.  The Christmas season represents 50-60% of the total business.  It just so happens that the vast majority of the Christmas decorations do not use anything perishable.  Every year, the business strains to produce everything on time, something always slips and the profit is never close to what was hoped for.  Every year the business has tried to staff for it, plan better, etc., but still comes up short.  What would you do?  What are the Herbies?  The big events or the Christmas decorations?  The design process or the production process?  Does everything have to be done “just in time”?  What would happen if production could be spread out beyond the Christmas season (i.e., when business is slower)?  What could be moved?  Solution: most Christmas decorations will be produced in August and September next year.

A big goal for 2010: clear your mind, find your Herbies and make them faster.

Mentors

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My first class on my first day at Penn Law School in 1989 was Contracts taught by Professor Elizabeth Warren.  Yes, THE Elizabeth Warren who questioned Tim Geithner yesterday during his quarterly appearance before the Congressional Oversight Panel, which she chairs.

We all had to be ready with Peevyhouse v. Garland Coal and Mining Co. – a case about whether parties have to adhere to the contract no matter the cost or only be responsible for the result of what happens if part of the contract is not performed.  The court in Peevyhouse chose the latter.

A very confident student decided that he would take on Professor Warren and argue why the court got it right.  Poor poor boy.  Professor Warren is beyond sharp and faster on her feet than anyone I have ever seen.  She didn’t destroy his logic as much as she made him see just how many ways there were to look at the issue.  His answer wasn’t right or wrong, it was just one way to see the world.

I was hooked.  I went on to take every class Professor Warren taught during my time at Penn.  All these years later, I still look back at my notes from her classes not so much for what was taught, but for how Professor Warren taught me to think about the issue at hand.  A few Professor Warrenisms: there is no right answer, just the one that is most appropriate given the circumstances. You have to be able to see all points of view before you can know which works best for you.  I never lose the irony that these lessons came to me from a law professor.

As you plan your course for 2010, talk to your mentor(s).  Mentors can be teachers, colleagues, clients, counselors, celebrities or spouses/partners.  Mentors inspire the best versions of you, your art and your creative business.  They are who you trust to tell you when you are off and who refuse to let you quit when you are not but think you are.  No matter the plan you come up with, there is always room for constructive criticism.  Turning a deaf ear to those who will never get it is a requirement, but to those that do is just foolish.  Going down the right road the wrong way is so much better than going down the wrong road the right way.  Your mentor(s) will know the difference.

Stillness

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This time of year, most creative businesses begin to make plans for next year.  For the wedding industry, Michelle Loretta from Sage Wedding Pros is writing a series of posts about setting realistic goals and the terrific Lara Casey is offering an intensive workshop on moving your business forward.  The work is necessary and will yield great fruits if done well.  However, I would also like to remind you to be still, to release yourself from trying to find THE answer or any answer for that matter.  Whether you do it for an hour, a day or a week this season, permit yourself to let it all be BEFORE you dive into your business.

No matter how large or small your creative business, you are its leader.  What will be is as important as what is.  Your job is to decide what will be.  You simply cannot do that if you are mired in or overwhelmed by what is.  The best ideas come when we permit ourselves to be untethered by our own version of reality.  If you can step away from your reality, you can create a new one.  Stepping away can mean a version of Vicente Wolf’s annual year-end two month trip to the far reaches of the globe (this year it is Mali and Timbuktu).  But it can also be a series of yoga classes, bike rides, car trips, walks in nature or even around the City.

The goal is perspective – an understanding that there is and will be a better way for you to honor your art.  Hopefully, you will also discover what it is you don’t know, but need to.  One thing we can all be sure of:  the world next year will look nothing like what it does today.  The skills you will need to be successful as your world evolves will be what they have always been, yes, but so much more about what you never thought they would be.  How many of you thought three years ago that you would have to be competent in Social Media to be relevant?

A few examples of skill sets I think certain creative business owners will need to have (or hire) to stay competitive: A florist will have to understand how commodity markets work.  An event designer will have to know how an interior designer delivers her work for a commercial project.  A photographer, stationer and planner will have to know how a subscription business works.  A production company and rental businesses will need to know how the music business works.

Above everything else, the point of your creative business is to change the world, your world.  Give yourself the permission to be still.  Your perspective will tell you what will be for you, your art and your creative business.  From there, you can take advantage of all the resources available to you to make it happen.

16 C.F.R. Part 255

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16 C.F.R. Part 255 refers to the new FTC Regulations that go into effect tomorrow , December 1, 2009.  The regulations concern the obligation of bloggers and celebrities to disclose if they are being compensated when they talk about someone or something.  This interview with a senior official at the FTC, particularly the examples, provides a terrific overview of the scope and intent of 16 C.F.R. Part 255.  In general, the new regulations are common sense – if a reasonable consumer would not know that you are being compensated for your post or endorsement (either with money or free goods), you have to disclose the relationship.  How you disclose it is up to you.  While the fines for not disclosing can be as high as $11,000, if you are not trying to intentionally deceive the public (like saying Acai Berries cure cancer), most likely you will be warned by the FTC and given the opportunity to change your disclosure.

For creative businesses seeking validation through third party sites/blogs, the new regulations and the transparency they will require hopefully marks a big shift in the way these businesses currently operate.

Being on a “Best Of” list just because you are willing to pay the fee says nothing about the strength of your business.  Being on a “Best Of” list because you ARE the best is what matters, regardless of whether you have to pay to be on the list or not.  Gaining admission to Harvard Business School or to Augusta National or most social clubs for that matter is no small feat.  In all instances, you have to pay for the privilege of belonging.  What is important is the reputation and expertise of those with whom you seek validation and the legitimacy of your place in their organization.

What the new FTC regulations will do over time is eliminate those that are not “experts” as validators and those creative businesses that try to buy instead of earn their way in.   More pressure will be on the validators to say why it is that they are experts and what they offer the reader to support their position.  The requirements a creative business will have to meet to be validated by the expert will be equally important.  If either falls short, I cannot see how the business will survive in the long run as a validator.

No matter how far social media or the Internet revolution takes us, content will always be king.  16 C.F.R. Part 255 makes sure that that content is transparent to the reader.  For those validators who already embrace transparency as a matter of integrity, the new regulations offer an incredible opportunity to reinforce the essence of your brand and the value you offer to both your readers and the creative businesses you validate. For those validators that do not embrace transparency, time is definitely not on your side.

Your Brand Is Everything

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How many of you have seen creative businesses describe themselves as some permutation of the following:

“At XYZ Interior Design we pride ourselves on our attention to detail and our personal relationship with you, our customer.  Service is the key to our business. Custom, inspired, elegant design the hallmark of our work. “

“Inspired”, “Flawless”, “Custom”, “Detailed”, “Elegant”, and “Personal” are wonderful adjectives that mean nothing when it comes to making a statement about your creative business.  Would a customer ever do business with you if you billed yourself as uninspired, flawed, impersonal and déclassé?  Of course not.  So my rule of thumb is that if how you describe your business can’t be (intentionally) true about another creative business, it can’t be your brand statement.  “Detail oriented” will not work, but “modern and clean” does.  “Custom” no “Americana” yes.

Hiding behind descriptions that may describe you as a person or how you hope your business is perceived without putting the essence of your and your creative business’ art out there is a crutch that is incredibly self-limiting.  Creative businesses can serve a wide audience, but cannot be all things to all people.  The essence of what you and your art represent is the foundation of your business.  Without a terrific statement of that essence it will be virtually impossible to create the model that will best serve both your clients and your business.  However, with it, you can go anywhere.  Ralph Lauren and Polo — the definition of Americana – a long way from Ralph Lifshitz from the Bronx selling ties.

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