Building a Productive Creative Business: The How & Why of Scaling | Nick Sambrato | Skillshare

Building a Productive Creative Business: The How & Why of Scaling

Nick Sambrato, Founder & CEO of Mama's Sauce

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10 Lessons (48m)
    • 1. Introduction

      1:48
    • 2. Class Project

      1:28
    • 3. How I Left the Garage

      2:49
    • 4. Business Practices

      5:48
    • 5. Why Leave the Garage?

      3:19
    • 6. What Kind of Businesses are on the Other Side?

      5:25
    • 7. The Golden Triangle of Business (Development, Delivery & Operations)

      6:00
    • 8. The Basics of Business Planning (Part I)

      11:29
    • 9. The Basics of Business Planning (Part II)

      9:19
    • 10. Final Thoughts

      1:04

About This Class

Do you have the hopes of growing your freelance operation from your garage or bedroom into a something more? Well, understanding the options and their implications are the first steps. Nick Sambrato, the founder of Mama’s Sauce, will cook you up a high-level overview of scaling your creative business. Whether you’re an individual freelancer, a mom-and-pop design shop or a small business owner, Nick will help guide you through the decisions and implications around healthy growth.

Diving into three crucial pillars — development, delivery and operations — this course is an exploration of how to grow from the “garage” on sound principles in a way that’s right for you.

By the end of this 35-minute class, you’ll have an understanding of the basic components of a business plan, how they apply to your vision, and most importantly be able to decide if what’s on the other side of leaving the garage is right for you.

Transcripts

1. Introduction: Hey there, I'm Nick Sambrato, I'm the founder of Mama's Sauce, a spot color print shop from Orlando, Florida, that works with some of the best designers, agencies, stationers, and so many other great artists around the world. Like so many other businesses, we started in the garage and have grown to become a full-scale manufacturer of printed goods, fully departmentalized, that's a word full on scale, a real full on business. We've been successful in our growth, partly because I've said yes to things that probably shouldn't have and over-committed us, but mostly because we've been able to implement structure, and systems, that people needed to leave the garage and service clients with excellence on every front, just not in the end product. So, I'm calling this class "Leaving the garage," the how and whys of scaling your creative business. In this class, we're going to find lessons that I've learned over those 20 years of running my own business in varied forms, but mostly learn from the mistakes that we were lucky enough to recover from, crawl through mile of shit and come out clean on the other side. So, the top three things I'd like you to come away with from this class would be, one, gaining an understanding of what it looks like to leave the garage and comfort of your bedroom, coffee shop garage or wherever you're operating your freelancer part-time enterprise, and should you think that's appealing, be able to make decisions in line with growing the kind of business that you want. The second part will be, just giving you a little bit of the nuts and bolts from high level to say, well, here's some of what it's going to take as far as business planning, teams and structures, and everything else. Owning your own business is just an obsession, not just with the service or product that you're providing, but with the whole business as a whole. We're not going to get to every moving part in this class, but I'm going to do my best to give you at least an understanding, an idea of what it takes to be successful, should you want to leave the garage. 2. Class Project: So, project for this class is going to be to share your elevator pitch for your business coming out of the garage. This could be a few sentences or maybe some images or even a quick YouTube video of you presenting your case. Show me show me what you got and then share with the rest of the Skillshare community. I'd love to see where you're at with your business, both in the garage and where you want to be, and what your goals are after you leave the garage. My goal is to help you decide if leaving the garage is right for you, arm you with the tools to help you execute on it and then shed some light as to what's on the other side. The project should only take you about 30 minutes to complete. The trickiest part of this project is it's probably going to be figuring out if scaling is truly right for you and how far you want to take it. Do you want to leave the garage and just be a mom and pop or just a small business. Do you have an exit plan to where you want to scale too and then exit and sell or you perfectly happy with just staying at your current size as a freelancer. Maybe you'll get through this content and say, you know what, I'm happy working at a coffee shop. I just don't want to take on all that burden. This is what we're hoping to all figure out by the end of the class. Upload your elevator pitch in the project gallery, ask questions, and get feedback from fellow students who have probably been there through the ringer or myself, and we can all share what we've learned from leaving the other side of the garage, or share some of our fears on doing it, or share why we want to stay there. So, let's get started. 3. How I Left the Garage: So, tales from leaving the garage. Hey there. I'm Nick Sambrato, founder of Mama's Sauce, a spot color print shop in Orlando, Florida that prints letterpress, silkscreen, hot foil stamping for some of the best designers and agencies in the world. At this point, we started in a garage just like so many businesses, the American kind of thing. Like working at a coffee shops, working under your bedroom, and now we've grown to produce more than 10,000, 12,000 jobs all made by hand for some of the best designers and agencies and creatives in the world. I wanted to give you a little bit of insight, not to scare you away, but just let you know what you're getting into to start preparing your mind from a high-level to see what it is that will be coming your way. So, I'm calling this class leaving the garage, the how and whys of scaling your creative business. So, the first part of this is going to be like that the gut check, here's what to expect. The second part will be just giving you a little bit of the nuts and bolts from the high-level to say, "Well, here's some of what it's going to take as far as business planning teams and structures and everything else." So, the story of Mama's Sauce really comes out of just a history of having small businesses that were in the garage. Working at a coffee shops, working out of my bedroom, my first business, I would say it in air quote, started in my bedroom. In eighth grade, I had a bulletin board system where people would dial up. I had two modems or you could stop there and leave email for somebody or electronic messages, and I was just hooked from the first time someone sent me a subscription check. That was just something I did. Got to college, and eBay became big in 1998 and I found my niche and doing toys, and I was able to sell toys online and start doing wholesale and create an online toy store, which paved my way through undergrad. When I got to grad school, we launched a business out of my house, in my buddy's house, that was a record label. We're able to do great things, get distribution and funding through universal, sell artists in Motown, and right around that time in 2006, the music industry was looking like I don't know. So, I sold my half of the business and was able to get a great exit. Through that, I had acquired a digital print shop at service or artists that I managed, and the artists that were on our label. That was really the beginning of Mama's Sauce. I mean, starting to figure out what it would take to leave the garage because now I got into manufacturing. In that time, I've made every mistake. In the first two years of the business, we moved six times, and had there been properly planning, we probably would have done next. It's a huge cost to moving both in logistics operations and cost, especially when there's heavy equipment involved. All the lessons that I've learned in growing the business just the wrong way. That's why I hope to share with you here today the struggles and trials of leaving the garage. 4. Business Practices: Not enough focus is really put on the business side of things. A lot of people really just think creativity and the creative solution, and the problem solving that we do as creatives, is the ultimate solution. So, what I really hope to do within this section, is define the problem of that mentality, shifting your mindset to put business practices on an equal playing field with your creativity. So, I really want to shift the mindset to understand that systems and operations and logistics, that we're going to get into some more, are so important. Another thing to note when you're thinking about leaving the garage, is that we know what it's like to be burnt out as employee. I'd love for you to know that it's exponentially higher when you're a business owner, especially, when you're a great creative in this digital age, where we have these great tools and social platforms. If you're a great creative putting your work out there, it's really easy to grow very quickly, successfully, and get your word out there, from your bedroom to have this huge audience, and that could really create an opportunity to drown an opportunity, and these systems that we're going to get into a really going to be the solution to the problem of drowning into an opportunity. We really want to figure out how to deliver that great creative that's gotten you this opportunity with excellence. You don't have to be in a business, you can be in a bedroom and understand what it's like to be on either side of the email pile up, and understand the guilt that comes with that, or on the other side as the client, understand the frustration that comes with the email pile up, and the systems that we're going to talk about, hopefully will alleviate us from that, and we will start shifting our minds to understand that operations and systems are really important. No matter where you are though in the process, it's just never too early to recognize clearly that lacking systems support your creative process, customer service, account services, shipping and fulfillment all that, every part of your process will make or break your brand. If your logistics operation suffer, your profit suffer, your sustainability suffers, just about every aspect of your businesses suffer. It's important to look at your operations as a whole, communication time, setting up and delivering on expectation, the quality of service around your product or service is crucially important, and I think that it's really easy to go off the rails when you're coming out of the bedroom, and just growing wildly from the success of your great creative, to not think about these things, it's all part of your brand. As an illustration, I once emailed these amazing creative that prides themselves on being very independent and on their own, and they're great at it, but I emailed them with some amazing dream opportunity, and three months later, they got back to me and said "Yes, I would love to be part of it," but it was three months later, and I said "I'm sorry, but I had to go to this other really amazing creative." You don't want to be in that position. It's amazing if you're on the "got to call list", but you don't want to be on that "I would love to call list," and the kind of things that will get you on the "I love to call list" are the kind of things that are very systemic, because maybe you start to get a name when you can't rise to the occasion. They're great creatives, but they just can't fulfill our needs, and the people who need great fulfillment are the people with the money that look at things very systematically, and go "Can that person deliver with excellence on the promise that they made?" First, I want to give you some pro tips. Okay. First, make commitments that you'll be able to happily deliver on with excellence. Beyond that, have a good idea of where you can stretch, that's crucial in growing your services both deeper and wider. By deeper, I mean growing the support to increase the volume that can field your capacity, capacity is your volume that's the meat of what we're going to get into, and by wider, diversification, taking on new services outside of your core. And having an understanding of what you're focusing core and what your capacity is something we're going to get into next. More pro tips is all about expectations, so know that if you don't set expectations, you're going be operating on assumptions. We all know the meme, the customer's always right, and that really is true, and you can rule that when you set great expectations. If you don't set great expectations by understanding your capacity, and your volume, and your core services, then you're going to be ruled by a nebulous client who is always right. Also know, even though you set clear expectations, things are going to go wrong, and if they do go wrong, always make them right. Then, also understand that the decisions that you make today, weigh them against the fact that things move slow, and that the decisions you make today will affect your brand in the days and years to come. I know we've all heard that small businesses are nimble, but once you become a business, things move way slower than you think, and the decisions you make today, if they need to be made and done take a longer time to undo than you even think, because you have systems in place and they have to be reworked, and on top of that stands everything you do. I'll leave you with this as a creative. It's easy to think that your competitive advantage is your creativity, and that is true, but I think we put too much emphasis on that, because the process that you package your creativity into, that will be the determining factor in clients returning, and or recommending you. So, the systems that you package your creativity in, I would submit, are as important as the creativity, and the creative product that you deliver itself. But before we get to that, I want to talk a little bit more about why you'd want to leave the garage, because it's a big commitment to getting into being a business. So, let's talk about why, and what's on the other side, and should you decide to go further, we'll start talking about the systems that your creativity will rest on, that will be part of the competitive advantage, that will put you out there as a legitimate business. For now, let's go ahead and move into, why you would want to leave the garage, and some of the pros and cons. 5. Why Leave the Garage?: So, I wanted to take a minute to talk about why you'd want to leave the garage. First, let's start with the pro tip here. Know that once you leave the garage, there's a chance that the distance between you and your craft is going to become greater, it's inevitable. As a business leader, you're going to start creating structure that puts something between you and the end product due to staffing and teams you're placing yourself with people that you need to. If you have the chance read the book, I Was. So, Steve Wozniak invented the personal computer, the Apple, also invented a lot of other things like the universal remote. But anyways, it's a really interesting story because this guy was just really connected to his passion of his craft. And eventually when Apple started to take off, he decided just to take a job permanently, just working in Apple, doing the things he loved, where Steve Jobs, business pioneer, and in creating the vision and just overtime got so much distance between him and the product, Wozniack decided to stay connected to the product. On a much, much more micro scale, I can relate much more micro-scale. I used to, just me and Joe, who's the General Manager Obama SaaS now, used to print everything, do all the operations, all the logistics, all the marketing. It's been a few years since I printed my last job commercially. The distance between me and the printed project has become greater, but we've been able to execute on the vision of the company because of that. Part of that has to do with bandwidth and part of that has to do with putting people in the right place to really exercise their greatness. The company required me no longer to be the printer, but to have better greater printers in that place. So, if you're okay with that, let's shatter another expectation. So many people think that running your own businesses so glamorous, or so freeing, is so rewarding, financially, time-wise, or other, but the fact is simply put, its so all consuming. In living the garage, you may be looking for something like financial freedom or like a high salary. If you're not getting capital investment, you're probably not getting a high salary. You'll be sharing what would be your salary with a budding infrastructure. But shoot, even if you do get capital investment, you'll probably end up doing the same. You might be looking to have the panache to exercise, your creative opinion with clients. That just ain't true. Or you might be looking for more free time, absolutely not true. You might be looking for a future payday, like an exit, selling your company. More times than not, know that you are for sale as much as your company. But anyways, these are all achievable, but it's going to take an extraordinary amount of work in order to accomplish them because building a business is building a system, whether larger scale without a system you're more at the whim of chaos. We're gonna get more into systems, but first, I want to talk about some broad stroke business types that you will be embarking on building should you decide to leave the garage. So, let's talk about what your perspective first steps are should you decide to leave the garage and become small business mom-and-pop shop or other. 6. What Kind of Businesses are on the Other Side?: Let's talk about what some of the business type options are on the other side of leaving the garage. Yeah, there many types of businesses, so many ways to run a business, but let's keep it simple and we'll focus on two broad strokes between which and around, which lie a wide spectrum of business types. But since we talking about leaving the garage, I'd like to talk about what businesses you can expect to build in the early years after leaving the garage. I want to do that because you have to be mindful of what your goals are and what you're building towards. So, the first type of business that you could expect possibly to build leaving the garage I call mom and pop. Characterization of that would be it's a small operation. You stick to your core services and your own in-house skills primarily. You have a strong understanding of the dollars that you can earn with your own two hands, if you planned well. In your business plan, because you should have one still if you are mom and pop, is all about finding the max pricing for all of these things you could do with your two hands. The best efficiencies in-house and the max volume you can handle in order to have you max out your trend line and then stay with those sales. If you want to get above that you scale with a vendor 1099 or not at all. A pro-tip to stay mom and pop is to know when to say no because it's tempting to grow more out of that. But if you want peace and stability, I would say mom and pop. Possible exits would be to roll your company into a larger firm that just wants your sales and your client base to roll into their infrastructure. Keep in mind the closer you are to the service, the more you are for sale with the business. So, putting a little distance between you and that with a mom and pop is hard. So, you're going have to find businesses rolling to that share your exact same business and services. Another you could do is leverage your experience to move into a shop by that does a similar thing and say, "I've run a business before." Another thing you can possibly do is grow a mom pop shop into what I call the next which is a small business. Let's end with real quick on mom and pop with Nick's vacation test. If you go away on vacation and the business has to shut down, you might have a mom and pop shop. You could also possibly have a poorly structured small business or lifestyle business, which is the next business. So, a small business is one that grows and is meant to grow from day one and you don't want to sit there max out, you actually want to keep your trend growing. A small business is, it could be the path to enterprise, a path at getting investment or an exit strategy. Small business you're in this to grow from day one. What do I mean by that? Well, the second you leave the comfort of your own needs of a mom and pop shop, once you leave that, everyone is looking to you for leadership and to provide growth strategy. Yeah, there are two players to do their part like great employees, but know that once you get employees involved landlords, capital partners, anyone with an interest in your company, it just gets more complicated. Welcome to small business world. That is to say once you leave mom and pop, you're either growing or dying. Everyone and everything always wants and needs more in a small business. Mom and pop, it's up to you and what you want and need if that makes sense, less dependence. A small business is always prepared to meet opportunity that will help it grow i.e., you have it mapped out in your business plan how to replicate your production as demand increases and maybe even plan to utilize vendors to scale until it becomes cost effective to make your hard cost footprint larger by bringing scale operations in-house, bunch of jargon, but all applicable. So, some of your possible exits are growing into an enterprise, right? Welcome to CEO hood. In this case, you're always growing always looking for profitability. You operate trying to get data enough in order to justify another expansion, another expansion to create maximum profit, right? Pro-tip warning in the early years it might be easier to not show great data. It might be tempting to put cash in your pocket, create a great paper trail and great data because you'll be able to leverage whatever is next. So, much better as a small business as you grow, if you have a great track record to show always making smart decisions, right? Pro-tip, If you hope to have sustainability, develop an exit, attract capital, you need to be as far away from chaos and as profitable as possible. Those two both would be awesome. Far away from chaos means structure, profitable profitability. No that the more structure you have, the more value you have or else again it's you for sale, which could leave you in bondage to a company you're trying to exit or leave you taking far less money than you were hoping to make. The more of a system that you can build, the greater the chance you have the freedoms that you desire. In other words, if you're building for an exit, build your company with a nice big bow around it. So, whichever you're gunning for, mom and pop, a small business, whether you want a trend line that maxes out with less moving parts where you know something sustainable or you want something that's going to grow wildly that you can have a good exit with, they both have the same basic tenets of business underneath them supporting them. But before we describe those and check them out, let's do a quick gut check, just so you know who you are a little bit more deeply in what you're getting into and you can weigh that against which course to take. 7. The Golden Triangle of Business (Development, Delivery & Operations): To thine own self be true, and if your creative, that's probably very much a strong desire in your heart. So, here's a little bit on how to identify yourself within the spectrum of the type of businesses that we describe and see which one is the ones you'd want to create. I'm sorry, I know it's hard enough to find your creative voice but if you're looking to make it in business, knowing and being okay with a framework on which you want to build your business is another thing you should make an effort to discover. If you're out to build a business, you need to know your strengths, your weaknesses, and place them in your decision-making along the way. There're some many, many years where I held on to things I was weak at, and it just was to our detriment. So, let's take a quick self-inventory, first, when we think about mom and pop versus small business, how risk averse are you? Mom and pop, less risk, less reward. Small business and a trajectory into all the things that might lead to more risk, potentially more reward also much more responsibility and complications, right? Also, small business that's meant to have a trajectory that goes up tends to want to respond to opportunity more which makes things more complicated, introduces all kinds of different has to be won that had to split apart into pieces should you want to grow, right? So, maybe you've heard about the golden triangle of design, right? Let's make a little triangle here, and remember I'm not a designer or doodler, or Illustrator, others, so forgive me here. So, you got good, fast, and cheap, right? You've probably heard about that, the golden triangle of design, good, fast and cheap. You can only have two, that's the rule, right? So, good and fast, right? Does your client wanted good and fast? Well, it's not going to be cheap. Good and cheap, listen buddy, is not going to be fast enough to fit that in my spare time, right? Fast and cheap, well, guess what? It's not going to be good, okay? So, when we apply that to the idea of scaling a business, right? To spread apart and have a business, it breaks into pieces and grows and accounts for scaling, you really want to try to eliminate that as much as possible, and you want to ideally beginning for good. But also not fast, right? We're all trying to shoot for good. Let's talk about some pillars of the infrastructure on which your creative business will stand. So, we'll redraw a triangle real quick here and, just like there's a golden triangle of design which you heard of, which you haven't heard of yet, is Nick's golden triangle of creative business, okay? So, in the Golden Triangle of creative business, these are the three basic fundamental pillars on which I've learned, for me, our creative businesses stand, right? You have development, delivery, all right? Operations. So, development would be business development, underneath that we would put things like marketing, social media; and as it gets wider and wider, you break it apart, but it's mere, mere function, I call development, business development, okay? Delivery, that is the actual product. Who's delivering the product? What are you making? What's the design? What's the solution? What's your creative? Right? Not the creative that wins you the job but the creative the product you're selling, what is the delivery? Right? Then operations, I put an S on their. Operations really, if I was going to turn this on this side, would be the pillar at which these two things stand, right? Operations is absolutely the fundamental part that makes a business go around and have the ability to scale. Within this, it's everything from Account Services to front of house to production management, you name it. If it needs a system, this is the team that will build it, maintain it or ensure that it rise on the rails if it needs to. These things all need to be addressed, right? It's just like the golden triangle of design, you can only have two, right? So, you're good at the delivery and odds are if you're creative, you're probably a little better at business development. Even if you're the kind of creative, it's a little bit more introverted and shy, your work speaks for itself. You have the fodder there, and because of some existing tools, you might have the ability to create opportunity or that you otherwise wouldn't need to be. Most creatives I find live in this zone, very few people will you ever find on the creative front containing all three of these, and I certainly I'm not one, never was and it took a lot of learning for me to understand where my shortfalls were. So, in the Golden Triangle of creative business, you really need to focus when you leave in the garage, on what the two you are great at, right? Or maybe it's just one the goal is to eventually funnel everything out as a small business grows to get to a point where you're just living. If we put this all out to its pinnacles and where it all spreads out, like art directors, creative directors and everything. All your support staff, your business developing folk in social, marketing and advertising. The point is to really get to the point if the business is growing, where everyone can be a specialist. That's where you really firing on all cylinders, that's also where it takes the most cash to operate, right? The idea is to replace yourself as quickly as possible in the areas where you are weakest. So you can focus on what makes you great as an individual, while also as a company focusing on what makes you great as a company. So, in their most condensed form, these are the three pillars at which your business operates on, as a creative business, development, delivery, and operations, right? Now, what's the plan to either be a mom and pop and grow into a legitimate business out of the garage? Or was it looked like to put together a plan for a small business with the trajectory to understand how these things break apart as revenue comes in and opportunity comes in? So, let's talk about that plan a little more. 8. The Basics of Business Planning (Part I): Okay. So, we've set up what it looks like to leave the garage, what are some of the opportunities you have when you're coming out of the garage to be either with mom and pop or a small business. We've also talked about the beginnings of the solution to shift our creative minds to be a little more open to include the thought of business. Now, I want to map it out in a very basic sense what it looks like to put pen to paper and start to understand what it's like to monetize that. So, we're just going to go through some basic, basic exercises. This kind of stuff is typically done in Excel. Excel is your best friend, you definitely want to learn it, and use it. But, let's go and start with some just sound principles when it comes to monetizing your business, right? So, monetize your business primarily is a function of three things; Volume, efficiency, and pricing, right? So, volume, how much of your service or product do you have to sell, how much can you facilitate and fill? Efficiency, how cheaply can you do that or efficiently can you do that while still delivering on excellence? Then pricing, how much can you charge for it? What will the market bear? Then you start to get into economic theory and market pricing and all of that. So, when you start to see your business on paper or in Excel spreadsheet, you're thinking always in terms of those three things. How much can I produce as efficiently as I can for what maximum price? For me, I want to build a company that people see the system, and the packaging, and the logistics, and the whole experience as part of the product. This way they look at it as a elevated experience. To do that, you have to be charging the maximum pricing per the volume that you can handle in the most efficient way. So, we'll do a really, really basic run-through of what it would look like if you start getting to Excel and start plugging in to understand your hard costs, your client-related costs, and then how to see what your assets are in capacity, and how to effectively charge for those for a predetermined margin that you hope to get to on an annual net. So, let's go ahead and come up with a scenario real quick. So, we're just going to start with just a real basic scenario, just to give you an idea of the way we think about it when we put it on paper or in Excel; Excel is your best friend. To the spreadsheets, I am in Apple numbers, you can also use Microsoft Excel, OpenOffice spreadsheets, anything that'll do a spreadsheet, Google Docs, and so on and so forth. About three different sheets setup which is your available billing hours sample of an operating budget and then forecast to predict how much you're going to make and then track that. We're assuming that we have a three-person shop here. We might play with that a little bit as we move on. For now, three people, one person in every department, which is development, delivery, and operations. Development being business development, everything that falls under that, we've simplified to condense marketing, social media, anything that does business development, they're in one department. Delivery being your service that you charge for, and then operations being the people who support that, logistics and operations and everything else. We've got available hours for each, and then the hourly rate that will charge, and then what your max capacity is. I'm going to sum up by the mass capacity and the dollars you can make, that's a billable hours. So, business development, we don't charge for any business development, so we have zero there. Delivery being, let's just assume we have a designer where transport and they work 40 hours a week four weeks a month, so that's going to be 160 hours. Then, operations, we're not doing anything that we're charging for there. Now, there does lie between these two kinds of an overlap in account services where you're doing operations for a client or account management where you're charging for that. But to keep things simple right now, we're not charging the client for any kind of operations or client services at this moment. So, let's just put a symbol round number of $100 an hour here for our design rate or whatever our delivery rate is, which gives you a gross potential of $16,000 a month if you hit your max capacity, which is 160 hours, right? So, that's potentially what's on the table. You may look at that and say "Wow, there's $16,000 I can make as a designer at $100 an hour, $16,000 a month, that's a lot of money." Remember, in this scenario, we either have three people doing this at the office, [inaudible] that. Minus our hard and soft costs plus, none of that, but we actually have to sell 160 hours, which is something in of itself. So, let's just go and see our budget sample here. So, I've got some notes in here. We've got our account and then our projected monthly expenses and then some notes. We're going to start off with our soft costs here and then move into hard costs there. Soft costs are client-related expenses, depending what industry you are in, they could vary, but the idea is to get enough data to understand what your typical percentage is going to be on your sales. So, if you're manufacturing, it's going to skew higher because everything you make has a cost, you have to buy materials for it. If you're services like design, it's going to be much lower and typical things in services instead of consumables it might be labor, like 1099 labor or contractors that you bring on. So, let's just say we've been running this business for several months or we've forecasted well, we understand that we're going to have an average soft costs or client-related expense of 20 percent, wherever we're spending that within. If it's designed, probably 20 percent of our gross revenue is going to be counted on spending on vendors. Let's say and maybe other couple consumables that are related to the job, that's our soft cost. So, 20 percent out of that $16,000 there is $3,200 a month that we know we're spending on average. Again, we've made data to find that in your instance. In this case, we're making assumptions but could be 20-25 percent, and manufacturing can be as high as 45, 55 percent of every dollar you bring in being spent on client-related expenses, but for now, we've got 20 percent there. Let's move into hard costs. This is a little more direct and low less ambiguous because it's a little more applicable across the board whether you're in service or in manufacturing. So, hard costs, these are the fixed cost. Always exist. It's the cost to open your doors every single month and put them into a couple different categories just for ease, typically I do this for just who, when you're reading this and broken up into categories makes it easier. This is a very simple version of it. You are going to go through and I'd encourage you to update this Excel, there's going to be one here. Your project folder there where you can download this and utilize this however you want and make it your own. But, for right now, we've already done our estimated client-related expenses at 20 percent and this will fluctuate based on what our capacity is and how much we actually sell. Then we come into here, and we see our hard costs they do not fluctuate. So, let's just assume some round numbers, $1,000 a month for rent. Let's just say we're spending, make it low $100 a month in utilities, or telephone, Internet, $200 a month, and then general office supplies, we're spending $150 a month. Now, we were assuming three people, right? So, assuming three people for now, and let's just make a quick assumption, again, we're making round numbers from math. Let's just assume that everybody there is making $36,000 a year gross or whatever it is. Let's just say each person's making $3,000 a month and 369, so that's $9,000 a month in wages and salaries. Then you have working in a company, which is something you got to pay the government and the man. And then speaking of that payroll taxes, which can be, let's just say, $900 a month, we'll just do 10 percent. Then, if you're paying insurance for everybody, 150 bucks a head, so that is going to be $450. Then, your employee bonuses, something we want to count for. Now, everything we've seen so far is you can count on every single month, right? Employee bonus might be something that's annual or quarterly, you can amortize that into every single month or you can assign it to a specific month on the next page. Right now, I'm going to make it easy and I'm going to amortize it and let's just say that everybody gets a bonus of $1,200 every year. So that's pretty easy number to come up with $1,200 is $3,600 annually divide that by 12. So, come in here and you have 3,600 divided by 12 months, so that comes up to $300 a month that were amortizing through employee bonuses in every month. Then, let's say you're outsourcing your payroll to your bank and you're charging $30 a month there. The point of this stuff here, payroll service fee, to let you know that there's little things you have to remember, it's not as simple as just your rent and utilities. There's all kinds of little fees that pop up like dues and subscriptions, right? You might subscribe to the Adobe Suite all three of you, and let's just assume that is $50 a month each, $150 plus any other dues and subscriptions that you have, but we'll keep that very simple. Any legal fees that you have, right now I'm just kind of omit that, then your business development and marketing budget, right? And let's just say we're giving your marketing and business development team a round number, very simple a $1,000 a month. Meals and entertainment, maybe once a week you're buying everybody in the office lunch and you're spending 20 bucks ahead once a week, 24 to 60, 60 or 120, 240. There you go. Then, are you paying for bookkeeping or accounting? Maybe you have a bookkeeper every month for doing your books and doing your accounting for you. Let's just put a round number on there of $200. Software expenses, well, I already put that dues and subscriptions here. Adobe, 150, and let's just assume here we had another dues in subscription. Postage and delivery, I'll leave that out for now. Any travel that might be associated with your business development or other, we'll save that. Let's say, you accept credit card fees. If you're doing an average of $16,000 like we said before you can get up 16,000 you're collecting and you are collecting it over credit card. Remember, you're going to be paying 2.5-3 percent plus transaction fees and that, so you don't want to account for that. I'm going to go ahead and just admit that for now, and let's say we're taking only checks, but point is to let me know. Remember, there's always things you need to budget for. Then, bank service charges. We're going to keep it simple and just leave it where it's at. So, we have projected operating budget of about $17,170 a month right there alone, and then you have an annual projection of costing keep your doors open $206,000, and this does include your soft costs. So when I say keeping your doors open, this number does fluctuate with money coming in, okay? So, actually if you take this number 17,170 and take 3,600 that's your hard costs. 9. The Basics of Business Planning (Part II): Okay. So, let's come in and see how that looks just off the bat, and we're on Forecast now. You see you our months January, February, March, April, and all the way on down the line. The way I've set up your document is that, it's pulling in what your gross sales. Goals are your forecasted goals. Your monthly operating expense, and then a client-related expenses. Like we're on the whole right now every single month by $4,370, which means we have a forecast of a net loss of $52,400. So, as you can see, something's got to give here, right? Are we overpaying? Well, that's not a terribly large amount of money for salary. Probably, it's the median average salary for many markets, and maybe not major markets. So, we have to come back and look and say, "Okay. Remember, making money is a function of what?" It is a function of pricing, volume, and efficiency. So, if you're looking at this and saying we are in the hole, how do we make more money? Well, how do we here increase our price, increase our volume, or increase our efficiency. Increase in efficiency, you're going to start here and your budget, and go through and see where and what you can trim, or what can be automated, and really question efficiency. Then, you have pricing and volume, which is going to happen right here, right? So, right now, this is a tall order, just try to say we're going to sell and support this person with 160 hours, and we have to fill all of those just to make a loss. So, what happens if we take this down, and we'll bring it to two people in the shop? One person in delivery, and one person in development and operations.Now, I'm putting development and operations in the same one and not delivery in the same bucket. Because odds are, if you're creative, you're probably really good at delivery. You might actually be good at development, too. So, maybe one person actually in delivery and development, right? You're good at design, and you're also good at self-promotion, and let's say one person in operations. As you are a head and good at supporting somebody. So, now, how does this affect things? So, odds are, this person now is doing your marketing. Whatever your marketing plan is, we have to see how many hours you're attributing towards that. You have to subtract that actually from your billable hours, or that person has to work those hours overtime outside there's billable hours. Let's just say that you are in this era where you are fortunate to be able to get all your business [inaudible] just from your social media strategy, and you're going to be spending two to three hours a day on your social media, both gain your content and putting it out there. That's how you're able to do your business development, and you can spend the rest of your time doing delivery. So, let's just go ahead and put our, we're just going to subtract out 40 hours to three hours a day, be 50 hours a week. Forty minus 15 is going be 25, so you have 25 billable hours a month of that rate times four and 100 hours. Now, you just lost 60 hours right there, so you're down at $10,000. I'm going to double-check my math, and make sure I did right. [inaudible] five is 15, 40 minus 15 is 25 times four. Yeah, that's right. We come into here, and we're actually going to lower salary down to two people. That's $3,000 a month. Okay, $12,970 annual. You can also see that our client-related expenses went down. Speaking of that, let's question efficiency. Now, let's just say we've been spending too much, and now we don't want to outsource the vendors, and we're able to curb and become more efficient here. Let's say we get this down to 10 percent in design. That actually might be more realistic. So, now we've addressed efficiency, and then we brought down volume. You've brushed your efficiency here, and maybe we actually start off in a smaller space than we wanted to originally, and maybe we're in a shared workspace where we are getting our internet and telephone included. In our office supplies, we count efficiencies there. Moving down, actually our payroll taxes come down, and I'm quite sure it's comes down as well. So, our payroll taxes, expenses, let's just say come down to $600, and our employment insurance $150 each comes to $300, and then our bonuses come down in a third. So, these are now going to be $200 a month parameterizing, and come back to our forecast, and we've cut our losses substantially, but they haven't quite turned that corner. You see how this is all math game now, pricing, volume, and efficiency. So, now maybe we add those three hours that we're at social media onto overtime, and we get back up to 160 hours. Maybe we raised our rate to $125 an hour. See, we're just doing this as an exercise to show you how the math done the works. You come in, and now you have a forecasted net of $72,916. That is if you're able to hit your gross target every single month of 160 hours at $125 an hour. Realistically, you're probably not going to sell all of that, but again, this is just an exercise to show you how all of the math works. These two people are working there for two days off to cover these three things in order to do that. Is it possible? Absolutely, but "is it actually happening" is the question. So, let's look at what happens when you start to look at, is it actually happening or not? Forecast, we came out, you see are estimated, and then our actual here in January will come out. January, I just put this here for reference to show what our goals end up in. So, let's just say we actually end up getting a 50 percent goal here, which is $10,000, and a monthly operating costs comes in right at Budget. Let's just say. So, now we're dead on budget, implying [inaudible] expenses come in on budget. That's a $4,000 loss. Month two, let's just say we came in at the 75 percent of our goal market for selling our delivery through our business development, and that is $15,000 in actual sales, and maybe we were on budget again that month, and then we're on budget there. So, now you have a small profit. Can it be beyond your actual pay salary that you're paying out? Maybe you're able to replicate that. In another month, $11,920, and then $2,000, and so it goes on and on. Let's say you're hitting 75 percent of your goal throughout the whole year, and you had that one month up front when you learned a hard lesson, and we made some adjustments, and you fixed it. Let's just say maybe December actually comes down to $10,000. Client-related expenses actually is going to be $11,920, since this 10 percent is where we landed. In your 2,000, what you want to spend if you hit this goal on your 10 percent there. Right. So, actually there's going to be $1,920. So, December's a dead month for you. These are all assumptions, and we're in a make-believe world. Let me adjust that to 10 percent. We're hitting our mark. [inaudible] So, you had to bum months, and you hit your 75 percent of your target every single month. In order to do this, through various things, and then you're forecasted gross, your actual gross. I'll show you here. We'll take this down, the forecasted net and actual net. So, if you hit 75 percent of your goal, 10 months out of the 12, and you hit your 50 percent goal, two months out of the 12. You still have an actual net of $3,848 for that year. You actually ended up doing okay because [inaudible] salary, and you have a small bonus there. So, this is very basic forecasting and budget sampling. You can go through it and make your own. These are all huge assumptions. So, these aren't real numbers for what your business looks like, but it's just the fundamentals of how it would work. You can see pretty quickly how through these three sheets, you can start to adjust things both in pricing, volume, and efficiency in order to adjust your plan to create more opportunity. 10. Final Thoughts: Well, there you go. That was leaving the garage, the how and why of scaling a creative business, a high-level overlook of just some of the thoughts that you might have as to if you want to leave the freelancing working at your garage, bedroom, coffee shop space, and what's on the other side of that and some of it even your options, and then a little deeper just the beginnings of what it might look like to start putting together the thoughts around a business plan. I hope you enjoyed it. I encourage you to share your project. I would love to see your elevator pitches. I can't wait to see the kind of businesses that you're thinking about or if you're even thinking about, "You know what? It's starting to look like, on the other side, that's just too much for me. I'm really good with sticking it out in the garage.", which is also totally awesome and fine by me. So, share your projects. I would love to read them. I would love to engage with you. I'd love to watch them if that's what you're doing, making a video. Whatever it is, share them with the Skillshare community. Let's have some fun talking about raising the bar when it comes to thinking about business that engulfs our creative and how to do best practices together to make our industry the best it can possibly be. Thank you so much.