Eat me!
LDF and LFW giveaway ~ beyond the valley tickets
Beyond the Valley invites you to a lunchtime talk at the V&A as part of London Design Festival and London Fashion Week. Monday 2oth September at 1pm.
Enjoy an hour of probing loveliness, including a exploratory experience of their SS11 collection. Don’t forget to bring your iPhone to this interactive adventure
MyCake has two pairs of tickets to giveaway, just leave a comment below telling us what design loveliness you are experiencing at the moment. Two winners will be drawn at random after midday on Thursday 16th September.
You can also book tickets here.
Welcome to our flashy new results interface. Part 2 – the What If? tool
In the first installment of the welcome to the new benchmarking results interface we looked at the graphs in the Annual Report cluster. In this post we’re going to look at how you can use the data from the last 12 months to help you make plans for the future.
It is not unusual for entrepreneurs to wake up sweating at 3am with questions of ‘what would happen if we lost a key client and therefore 30% of our turnover?’ but don’t have the tools to hand to look at the implications.
Success can be equally stressful as it tends to overstretch your resources. Having an idea of how much extra business you need to win in order to be able to invest the profits in new staff, R&D etc would also be a way not only to put your mind at rest but to set quantitative targets for growth as the year progresses.
So, wouldn’t it be useful if you could easily and quickly use last year’s figures as the basis for exploring scenarios for your future without having to struggle with excel spreadsheets on a Sunday evening? Here’s how you can:
Stage 1 – last year’s data is entered and approved and now you can view it in the results section:
Stage 2 – play with the sliders to see how the figures change:
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version 1: a 30% growth in sales… see the extra net profit and consider whether you’d need more staff, higher production costs, more marketing etc in order to reach it:
Having adjusted some of your costs, see whether this 30% growth would really fund them all? By way of example we’ve increased raw materials by 20% and labour by 20% in the above example. This means that the profit would actually drop from £45k to £39k! So clearly if you were to increase sales by 30% you’d still need to be careful on the allocation of resources to ensure that what was coming in wasn’t just going out immediately!
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version 2: a 30% drop in sales … perhaps losing a key client.
How long can you continue with your current overheads and staffing costs? What would you cut first – people, production costs or overheads? Evidence demonstrates that companies never cut costs soon enough … this is in part because when you’re faced with the need to make painful cuts people tend to put off decisions which, unless they win new business very swiftly, tends to make the situation worse not better. Evidence also demonstrates that those companies who have thought about this sort of thing in advance, worked out what the key points are for making such decisions tend to make them sooner and more confidently than those who do not plan for this sort of thing.
So, in summary the What If? tool allows you to test out scenarios quickly and consider what you would do if these became reality. This makes for useful discussions with senior management and is helpful in planning your next 6-12 months.
have you got a handle on social media?
email marketing company Constant Contact has produced an overview of getting started with social media for small businesses. It has some good tips, even for those of us already networking and email marketing. Download your guide here.
Welcome to our flashy new results interface. Part 1 – the annual report
We’ve been working with Nothingrinder for the past couple of months to bring you a much improved benchmark results interface within MyCake. Here’s a preview of what’s now possible.
The annual report
The annual report set of graphs shows you your Profit & Loss sheet as a bar chart. It starts with the top level of information … income, cost of sales, profit, indirect costs and profit.
From this page you can either benchmark your company at this level or you can drill down to more detail on each of these key areas.
Benchmark top level – net profit
… in this example you can see that the top quartile (best 25%) have a net profit of some 54.5%. In this example you can see that the users’ net profit of 31.2% is at least above the average of 22.8% … so in the top half but not the top 25% asks the question of whether they could do better?
Benchmark detail – income
If the questions are “how am I doing and how can I do better?” then we probably need to drill down to more detail. In this example we’ve picked the income line to look at and see how it splits out into the main sales income, any grants received and ‘other’ income (typically expenses charged to clients, non-core products, interest on bank deposits etc).
Some sections of the P&L have more drill down levels than others so at each stage you’re asked if you want to benchmark at this level or drill down further. You know you’ve reached the deepest darkest level when you’re only given a benchmark!
We thought this ability to benchmark at a top level as well as in great detail would be useful for the times when you just need a rough answer to the question of what do others do and how do you stack up? Of course if you’re looking at ways of making cost savings for example you may well want to drill down into just one line of indirect costs … to see what others spend as a proportion of income on an area like travel.
So what might you do as a result of reading this … try this:
- pick a completed year of data (say 2008 or 2009)
- look at what your split of income was across sales:grants:other
- see how these ratios compare to the best, worst, average and top quartile for the whole of the MyCake user base
- sit down with a cup of tea and have a think about what ratio would be good for you to aim for in the rest of the year and 3-5 things that you’ll do differently to help you make this shift (perhaps charging more expenses to clients, finding ways to add some new products into people’s standard orders etc).
In the next instalment we’ll walk you through the What If? calculator to show you how you can use past information to help you plan for the future.
Investor Series – what is your productivity like and what you should aim for
One of the criticisms levelled against the Creative Industries is that productivity levels are too low.
Let’s be clear about this, I’m not talking about how hard you work, the hours you put in or even the daily rates charged. There is no doubt that the inputs are there. However, in more mature sectors companies become expert not only in creating intellectual property but also in developing multiple income streams using the same property.
What do we mean by this?
A good example of multiple income streams would be the way that an agent no longer just sorts out a book publishing deal but separately sells film rights, merchandising rights etc etc. So the £billions that have resulted from the Harry Potter franchise could not have been achieved if the only income stream was from book sales. In the same way TV companies sell their productions not just to the first organisation that commissioned it but also to other TV channels elsewhere in the world. Furthermore channel owners such as The Guardian and Channel 4 use their route to audiences to cross sell products … all those Guardian book shop special offers or products for sale on Channel 4 related websites. By comparison small product design firms often struggle to leverage the IP inherent in a product into other areas and their growth is limited by the funds they have available to produce and sell the product themselves.
So, a successful example of multiple income streams from a single idea or concept would be Matthias Megyeri’s Sweet Dream Security which apart from being a product range which has been licensed internationally it has another life as a set of exhibition installations (seen in the Design Museum and MOMA to name but two) and has resulted in residencies and other developmental opportunities. These are still fairly labour intensive income streams so they won’t massively improve the net profit overall but they do make sure that maximum return on the idea is achieved. Contrast this to the Wattson which whilst achieving international distribution has not yet moved into other areas and you’ll start to see what we mean by the difference between single and multiple income streams from the same piece of intellectual property.
Why do investors care?
Put bluntly this is about maximum return from each £ invested. Creatively driven folk, on the other hand, tend to want to move on to the next idea fairly quickly as they tend to be creators not managers; they are less interested in the cash cows of a business than they are in the rising stars. So where an investor would be pleased to see a whole herd of cash cows but relatively few rising stars a creative will want to see the heavens full of stars but might as well be vegetarian for all their interest in the cattle!
What difference will it make to the company’s profitability?
Well frankly, without multiple income streams there is a strong risk that the profitability of the company will go down as the income goes up!
MyCake data shows that the 1-2 person firms where the individuals are still working in the business rather than on the business will be doing very well if they achieve profits of about 50% for serviced based and 30% for product based businesses (lets ignore for the moment the totally lifestyle one person outfits, these are simply not investable as there won’t be an exit strategy for an investor). The challenge is that the ratio of people to income tends to remain the same as the company grows. So a 10-20 person design firm could see a drop in it’s profits to say 15-30% as more of the income is being spent on things like rent, insurance, servers, marketing etc and the company is no longer as lean as it was when it was two people in a garage working on their laptops. If it feels like you’re running to stand still and that for every project or order you win there’s still the same amount of work to do then you’re probably in this situation. Take a look at your profit % not just the £ to find out.
What can you do about it if you’re looking for investment?
Well you should expect that one of the things any investor will do when they work with you is to look at your range of products or services and look for ways to increase the income from them (ie with little to no additional investment in the product/service but by upping sales, reducing production costs etc).
If you haven’t started developing multiple income streams then clearly you’re not about to magic them up overnight just because it would make you more attractive to investors. However you certainly could sit down and cook up some ideas for new markets for the existing range, opportunities to leverage the IP through other channels, versions of IP that could be licensed to other companies etc so that you can show the potential to increase income and thus productivity without substantially increasing your cost base. Looking at it from the other side: a one trick pony is unlikely to be an appealing investment … too much risk, too few chances for success. The ideal message here is a focussed area of expertise (a tight creative core, unique capabilities and broad exploitation). You may not have General Purpose Technology (like the combustion engine or the internet) but a unicycle is probably not going to take you far and wide.
If you can develop these ideas far enough to have a decent stab at what they might be worth to you in income over the next 3-5 years and can therefore build this into your mid to long term forecasts then you’ll be starting to get into interesting territory for VC’s. You could also consider hiring someone whose sole focus is to exploit existing properties whether that’s through licensing deals … if you do this make sure that they don’t get sucked into existing client management! Such a person might also be brought in to new projects not to contribute to the main development of the product or service but to consider early on what the additional revenue streams might be so that these are built in at the start not retro-fitted afterwards.
Other reading on this topic:
Will Hutton has quite a bit to say on the subject of general purpose technologies and The Work Foundation has a short piece worth reading on productivity in the Creative Industries called Innovative by Nature final.
Guide: Creative Co-operatives
Are you interested in collaborating and co operating with other people?
Co-operatives UK has launched a guide for creative practitioners, including artists and makers, interested in setting up co-ops, including case studies and arguments about the benefits.
Find out about what it’s like to work in a creative co-operative, hear from industry leaders about their view on co operation, network and find out how you can start a co operative business.
Download the free pratical guide to setting up a co-operative in the creative industries here.
the journey to getting published
by poet Austin Kleon:
…flowchart that compares my own publishing journey with what I was taught in college was the traditional route of becoming a published author. Looking at the chart, it strikes me that no matter what route you take, everything always comes back to the simplest beginning:
Write something good.
It’s easy to get caught up in the madness of the machine, and not get any time to do the thing you love.
The Creative Pathfinder – Your FREE Guide to Success as a Creative Professional
Lateral Action has a new course for professional creatives: The Creative Pathfinder, a practical education in the artistic and professional skills you need to thrive in the real world of the creative industries.
It’s completely free and packed full of great advice, worksheets and resources.
If you’re an artist, designer, writer, actor, musician, filmmaker, or working in another creative field — artistic or commercial – this professional development course has something for you.
take a look at the overview and sign up here.
Drive: The surprising truth about what motivates us
fantastically illustrated ~ understand how to motivate different skills
talk by Dan Pink, illustration by RSA Animate
Cockpit Arts: The Pricing Decision 2: Price and the Market
Ahead of this week’s Cockpit Arts Finance workshop with MyCake on Wedensday, 11th August 2010: Financial Planning for Growth we have some more Top Tips by Ellen O’Hara, Head of Business Development at Cockpit Arts.
There’s no doubt that getting your pricing right is a crucial part of your marketing and business strategy as a designer-maker.
As part of the Pricing Decision series I am looking at three key areas: Cost, Market and Value, as well as how different pricing strategies fit with the overall goals, for your practice and business.
My last post looked at the relationship between price and cost with cost-plus pricing. This week I will explain how the market affects the pricing decision.
Price and The Market
Market based pricing methods depend on having an accurate picture of what’s going on in your marketplace. For example: Are you selling to craft collectors? The mainstream gift market? Or high end fashion? And what are the current trends in these market sub-sections?
In the larger, mainstream markets, prices will tend to be dervied from two key factors:
- What competitors are charging
- What customers are willing to pay
Who are your compeitiors and what are they charging?
If you don’t feel there are any direct competitors out there, try and pick out a few other makers or brands that:
- Are making similar work
- Are aiming at a similar customer base
- Who are at a similar stage in their career and have a similar profile
How do your prices compare? Are you competitive, or potentially over or under pricing yourself?
What are customers willing to pay?
- Research other companies’ prices online, in stores and in galleries. Pick a broad range of products so that you can compare the going rate for different types of products in your field. For instance as a designer-maker jeweller, you could look at a combination of mass produced high-street designer jewellery and high end fashion jewellery, as well as other makers.
- Look at the overall price range that other companies offer (minimum and maximum), how different work is priced differently, whether discounts are offered etc.
Use all of this information together to inform your own pricing decisions.
The Advantages
The advantages of following a market-based approach are that it tends to keep you price competitive in the eyes of your customers, so it’s important to consider who you’d like to be compared with and sit alongside in terms of price.
The Disadvantages
The disadvantages of this method are that the market price may not provide you with the profit margin that you want (and need!). You may actually have a very different business model to the people you are comparing yourself with, who may be able to produce and sell work at very different costs.
New and Unique Work
Your work may be so new and unique that there is no solid market-based price to compare with. So you have be the price setter yourself. If this is the case, it’s likely that your operating at the niche end of your market, where the percieved value of your work bears more influence on price than what others might be producing and charging. We’ll explore this in more detail next week with The Pricing Decision # 3: Price and Perceived value.
Let us know how you get on by leaving a comment on your experiences in making your own pricing decisions.
See more top-tips on finance from Ellen and other industry experts.
Or check our resources section for a worksheet on Calculating Your Costs and Budgeting.
And if your doing some financial planning this summer, come along to our workshop: Financial Planning for Growth on 11 August.
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