• How Infinite Red Improved Remote Video Meetings With a Few Hand Gestures

• Virtual Meetings Have Types
• Link to tweet about Invision using the hand queue system developed at Infinite Red

Connect with the owners on Twitter!

• Todd Werth: @twerth

• Jamon Holmgren: @jamonholmgren

• Gant Laborde: @gantlaborde

Connect with the owners on Twitter!

• Todd Werth: @twerth

• Jamon Holmgren: @jamonholmgren

• Gant Laborde: @gantlaborde

Episode Links
• Startup Package blog post.

• Interested in learning more about our Startup Package? Head over here!

Connect with the owners on Twitter!

• Todd Werth: @twerth

• Jamon Holmgren: @jamonholmgren

• Gant Laborde: @gantlaborde

Connect with the owners on Twitter!

• Todd Werth: @twerth

• Jamon Holmgren: @jamonholmgren

• Gant Laborde: @gantlaborde

Connect with the owners on Twitter!

• Todd Werth: @twerth

• Jamon Holmgren: @jamonholmgren

• Gant Laborde: @gantlaborde

In this episode of Building Infinite Red, Jamon, Ken, and Todd touch on the exciting world of lawyers, accountants and bookkeepers, as well as a variety of finance-related topics such as cash flow and different types of accounting. Be sure to listen to the end of the episode as Jamon shares the vision for Season 2 of Building Infinite Red.

Show Links & Resources

• YNAB – You Need A Budget
• Saturday Night Live Highlight: First CityWide Change Bank

Episode Transcript

TODD WERTH: Hello, everyone. Today we were talking about which topic to talk about, and we had the idea, how can we come up with a topic that's extremely boring, that no one wants to talk about, but actually is super important? So, we're going to talk about lawyers, accountants, bookkeepers, finance, and other things. Basically, how to start a business and still feed your family.

Let's start off with you, Ken. If I were starting in business and you and I are sitting in the airport and I knew you had started one and I asked, "Hey, Ken. What should I worry about first off when I'm starting a business?" What would you say?

KEN MILLER: I would tell you to go find a good accountant and a good lawyer right away. You don't need to pay them to set up the business for you. You can do that yourself or you can use a service like LegalZoom or something like that. But you need to have somebody who is familiar with the kind of business that you're planning to do. We have a great lawyer who happens to specialize in digital agencies.

I've got an accountant that I've personally worked with for many, many years. It's not the cheapest, like you want your accountant to be good. A bookkeeper is sort of a different matter since your accountant is not doing your day to day books, and you don't necessarily need a bookkeeper right away because you're probably not going to have a lot of transactions right away. To be honest, I found it was helpful for me to just do it personally for a little period because then I understood what was going on better.

JAMON HOLMGREN: Ken, what's the difference for those who may not know between an accountant and a bookkeeper?

KEN: Well, I'm told bookkeeper is a little bit old fashioned, but it's still very descriptive. Your accountant, aka your CPA, your Certified Public Accountant, that is someone who will do your state and federal and maybe even international taxes for you. They may or may not have people who will keep your books and stuff. Now, bookkeepers, they're the ones who will record transactions coming in and going out basically, so that your books are an accurate reflection of what's happening in your business.

Todd, do you want to interject?

TODD: Yeah, just real quick. Sorry to be pedantic, but my wife's an accountant. Bookkeepers often are not accountants. Some of them are just people who started doing books at their company and continue to do it. When you get to accountants, you have two types of accountants: One is CPA, which is a tax accountant; and then there are other accountants who specialize in corporate stuff, like my wife. She went to college for it and is highly trained.

KEN: That's the kind I recommend you get, is the kind of who is trained in accounting practices.

JAMON: First of all, what's the more modern term for a bookkeeper? Is there?

KEN: I think Heather liked the term, what was it? Financial assistant, something like that?

JAMON: Okay.

TODD: I think that's what she said. Heather is my wife, by the way.

JAMON: And then secondly, what does an accountant give you that a financial assistant does not?

KEN: Well, A, They are literally certified by the state. And B, They have experience in tax law.

JAMON: CPA does, but they're more corporate accountant. They're going to bring more like ... It's my understanding that they can bring more strategic ...

KEN: Yeah, they can be more strategic help, they can help you design your practices for paying people, for collecting money, because there's just a lot of i's and t's that need to be dotted and crossed.

JAMON: Yeah, that makes sense.

TODD: Yeah, not to keep on interrupting about accounting. Sorry, my wife's an accountant.

JAMON: We're gonna play a little game. How many times will Todd mention that his wife is an accountant?

TODD: All CPAs are accountants. Not all accountants are CPAs. My wife has absolutely no interest in being a CPA, she never did, it had nothing to do with her job. However, if you need ... One of the things she specializes in is international accounting. So, a bookkeeper is someone who enters data, basically. They're gonna get bills in from the outside via mail, they're gonna enter those into the bookkeeping system, or the accounting system, they're gonna pay invoices, whatever. They're a clerk.

An accountant is more like a programmer. They investigate where things went wrong, they figure out the best ways to do things. If you have a half million dollars in pounds in the UK, and you need to transfer in the US as US dollars, how do you go about that? There's very different ways. Some are very expensive, some are not. So, that's ... An accountant spends a lot of time doing strategic-type accounting stuff, as opposed to data entry, which is more what your bookkeeper does.

JAMON: Yeah, so when I started ClearSight back in 2005, one of my early employees, his dad was a controller, which is like kind of an accountant, but it's specifically to a-

TODD: That's really interesting, Jamon. Did you know my wife was an accountant?

JAMON: I did not know that, Todd. I hope you remind me again. A controller is basically, it's a type of accountant that's kind of high up in a company and focused on ... Basically, in charge of the company's finances, and ... So, he was a controller and I went to lunch with him and I asked him for advice. And the first question he asked me, this was kind of interesting because I did not expect this, he said, "How's your accounts receivable?" And I was like, "Uh ... I know what that is, but what do you mean by 'how is it'?" And he kind of helped me think through my terms, like how long until the payment was due, and was I taking money upfront? Which I wasn't, weirdly, I wasn't taking money upfront. I was just doing the work and hoping I'd get paid.

TODD: Hoping is the key term.

JAMON: Hoping, yeah. And more than once I didn't get paid. And that sucked, especially when I wasn't getting paid very much.

KEN: That's definitely one of the harder things to learn when you start doing this, is if you've only ever worked at a company, you don't realize how much effort goes into just getting people to actually pay you, right? 99% of the time it isn't out of any malice, it's not people trying to mess with you, it's just their processes are also run by humans. Maybe they're a small company, maybe they're a big company and something got lost, or things didn't get signed off correctly, right? There's just a million little things that have to be kept track of. And so, whoever is doing your day to day accounting, be nice to them.

TODD: Yes.

KEN: Be nice to them because you really need to trust them to be on top of what they're doing.

TODD: You do not want to piss off an accountant if you value eating, for sure. Cause they won't do anything wrong, but they will sure drag their feet on your particular account. One other things I wanted to add, especially with larger companies or companies that have accounting departments, accounting is never personal, okay? And Ken said they probably don't want to mess with you. They may not want to mess with you, but they may actually have a policy not to pay their vendors, which seems absurd but it's true. So, in other words, if you're sitting in an executive meeting at a company that has 5,000 people, and your cash-flow ... you need some cash or whatever. The directive to the accounting department could be, "Only pay the vendors with the highest interest, the top 25% of them. Do not pay anyone else." And so, it's not ... they're not trying to get to you, it's just business.

KEN: I think it's also very tempting when you're ... If you're a creative person and you're getting into business and you wanna be able to be a partner to your clients, and that's all very laudable and we wanna do that and we strive to do that. But at the end of the day, when you're negotiating a contract, you have to take it seriously. You have to take what it says seriously because there may come a situation where it's no longer you and the friendly person you're talking to, it's just you and the contract and someone unfriendly.

Or you and the contract and someone not unfriendly, but as Todd says they're just ... implementing a policy. It's a lot harder to do something about it than possible which ... It really highlights how important the relationship is, as well. So, you need to have a good contract that actually reflects what you and your counter-party actually mean. And you have to keep that relationship good all the way through.

JAMON: Absolutely. We had a client a while back that wanted to use their own contract, which is not uncommon. I mean, we have our own kind of Master Services Agreement that we'll send over, but in this case they had their own, they wanted to send it over. And this sort of brings it back to having a good lawyer, because in this case, something fell through the cracks and we signed it without sending it over to our lawyer. And this was a big mistake because-

TODD: Big mistake.

KEN: Big mistake. Did we mention it was a very big mistake?

TODD: My wife, who's an accountant, by the way, said it was a huge mistake.

JAMON: Oh, she is? Oh, that's interesting. But what happened was the project started off really well, and it went very well through the first month. And then, abruptly, we don't know what happened because the whole way through the client was telling us we were doing good work. Even after things went weird, he was telling us that we were doing good work, which really didn't make sense. But he wanted out of this contract, or he wanted to hold our feet to the fire. And we realized, and we sent our contract over to our lawyer, and Ken ... Wasn't his response something like-

KEN: He said it was the most punitive contract he'd ever seen.

JAMON: And he said that it was designed to be used as a weapon.

TODD: Yes. That's what he said.

JAMON: Which was not a great place to be in after we had already signed this thing.

TODD: Against us, by the way. Not for us.

KEN: Yeah.

JAMON: So, luckily this particular client ended up taking a route ... It wasn't an easy route, but he took a route out of our contract that let us off the hook, essentially, with some work from Ken. So, thanks Ken. But we made it through that one, but not everybody would. That could be a really big problem. So, having a good attorney, which we did, and actually using him, which we did not, is really important when you're putting these contracts together that you're talking about. And then, of course, there's a certain amount of teeth to it, so they will pay you.

KEN: We designed our standard contract to be, we think, really, very fair.

JAMON: I think so, yeah.

KEN: And so, if a client wants to use their own contract, we now ... It always goes to the lawyer. It doesn't matter what it costs. And he's very reasonable with how he charges for that-

TODD: Sorry to interrupt. That's a good rule. If you don't feel that it's worth paying your lawyer the $300 an hour, or whatever your lawyer costs, it goes up from there, trust me, because this project isn't big enough, then don't take the project. And that sounds harsh, but if you can't pay your lawyer to look at the contract, then don't sign the contract. It's not worth it to you.

KEN: If it's a small project, we don't accept-

JAMON: Yeah, and that's why we have a standard contract, because the lawyer drafted it. And so, we can send it over and we don't have to pay him every time. Of course, it costs more to have him draft it, but then if they sign it then we know that we're good to go. But if they want their own contract, you need to have it reviewed by your attorney. And if you don't know of an attorney, you can ask around on social media and stuff, you can generally get some recommendations.

TODD: One thing I do wanna say, though. And this is often somewhat shocking to people who have never ran a business, who worked for other people or other corporations throughout their career. The world for you as a business owner, is very different than the world for you as an employee. If your employer doesn't pay you, you can go to the labor board, and the government will come in and they will sue that company and they'll get that money for you. Because of that, your employer's gonna pay you.

KEN: And your wages are legally privileged. So, if they're in bankruptcy, you get your money, not necessarily the very first, but it's a very high priority. It's a very high priority debt.

TODD: Correct. If you have a personal contract with ... between two people or between two companies, or between you and a company, there are no such protections whatsoever. You will get paid if the person who's paying you wants to pay you. If they don't pay you, there's no government agency you're going to go to who's gonna help you-

KEN: Well, there's the courts.

JAMON: The court, basically.

TODD: ... other than the courts. And if you're talking about a $10,000 bill that they owe you, you are not going to court for that. You can try to go small claims court, that kind of thing. But the reality is you're not going to go to court for that. And people know this. And there's a lot of people ... And you're like, "Well, you know, I did this contract with Bob, and Bob's wonderful. I mean, I love Bob. He spends his time saving orphan kittens on the weekends." That's great, but Bob's company was just bought by Joe, and Joe is a complete jerk. And Joe now has all your contracts. And Joe used to be a lawyer, bless his heart. And Joe knows that you're not gonna do anything when he doesn't pay your $10,000, so he just refuses to pay you.

JAMON: By the way, this is not a hypothetical, this happened to me.

TODD: And so, we changed the names, obviously. But Joe does that, and there's really nothing you're gonna do and you're just gonna lose that $10,000. You can try to do collections and irritate them into paying you. But here's the raw fact, if they need you for something they will pay you. Meaning if you still have work to do, they will pay you because they need you. Be very weary of the end of a working engagement when they no longer need you.

KEN: This is not to say that everybody is like this. There's plenty of extremely honorable-

TODD: Like Bob, Bob's one of them.

KEN: ... companies out there. Yes, there's many, many, many great, wonderful, honorable clients who pay what they owe, and they would never screw you.

TODD: Correct.

KEN: But there's more people out there who, like I said, not necessarily even out of malice, sometimes just out of laziness, kind of don't get around to it.

TODD: Another example is if you get a contract where you take liability for stuff that you really have no control over. So, you're like, "Well, Bob's not gonna sue me. Bob's a great guy. He has the same values as I do." But Bob gets successful and Google comes and buys Bob, trust me. Google's lawyers will sue you. If they can, they will. It's not personal, it's just business.

JAMON: Beyond accounts receivable, which is obviously a big topic ... And by the way, get as much money upfront as you can. That's a very straightforward way to fix some of this stuff. But beyond that, accountants can also give you a really great insight into the engine of your business. So, they're sort of like your oil pressure. They're your check engine light. And they will give you information that allows you to make decisions, business decisions, going forward.

So, an example of this is how much are we gonna pay our employees for bonuses? We need to know what we can afford and what's budgeted for that. Other examples are could we go out and maybe acquire a small business? Or can we invest a bunch of money into R&D? These are all things that we've actually looked at within Infinite Red over the past three years. And we needed to have good information from our bookkeepers and our accountants. And we haven't had always that. That has actually been one of the stumbling blocks that we've run into with Infinite Red, is that we've run into situations where we've been fed what turned out to be inaccurate information. And we've made decisions based on that, and it's caused the engine to run more roughly.

KEN: Suffice to say, you really need it to be accurate. So, one of the things that we've done to help make that be the case is that we have our CPA, our tax accountant, and our bookkeepers are totally different, so that we at least have two competent people looking at it periodically. It's not a perfect safeguard by any stretch of the imagination, but it does help a little bit.

JAMON: And it's tempting to have one company do both, right?

KEN: It is tempting. And I would argue you should not do that.

JAMON: Always keep them separate.

TODD: Yeah, I would say at the beginning, you do your bookkeeping and then let your CPA do the taxes. And we get to a point where ... For instance, this is the difference between a bookkeeper and an accountant. If you're setting up your books and you're setting up your own chart of accounts, and that kind of stuff, a bookkeeper will just do it. They'll do what you say. Put this in here. Do this, do that.

An accountant will say, "Okay. You see how you set up your accounts here? Later, when you get audited ..." And then you're like, "Why would we get audited, what does that even mean?" Well if you need a big loan, the banks are gonna require an audit your finances. Obviously that's the audit on the tax side, but that's your tax accountant. And so, what she'll do is she'll say, "Look, I've been through many audits, this is what they're going to look for. You should set it up this way so that that audit goes smoothly so that loan you need ... Say you get a big new client and you need $250,000 to service that client, and you're gonna make millions? Delaying that loan by a week or two could be disastrous." So, that's the difference between an accountant and a bookkeeper. They know what they know, and they know what's possibly gonna happen.

JAMON: Yeah. Banks are a whole other aspect about this that we could talk about. One of the things about banks is that they are generally very slow. You're just one file on their desk. They're not particularly invested in making sure you succeed. And it can really trip you up. Like if you need that loan ... We've been in a situation where we said, "Hey, we wanna borrow some money for a particular thing." And it took ... I think ... I don't remember the timeline, but it was months longer than I expected. Like it was a lot longer.

KEN: It took forever.

JAMON: Yes. And it felt like most of the issue was on the bank side. Now, being prepared for that, as Todd said, is really important.

KEN: In that particular case, there was something that didn't get filed correctly two years ago with the ... I mean, it's ...

JAMON: So, another aspect of this, and we can touch a little bit on another property of our business, and that is remote work, is the-

TODD: Oh God, banks and remote work.

JAMON: Banks, as well as government agencies ... Ken, you've had to set up I don't know how many states now for Infinite Red employees.

KEN: Seven, and I need to set up an eighth.

JAMON: Yeah. So, this is a whole aspect of kind of the boring ... We're talking about the boring parts of business. But if you're starting a remote work company and you're hiring people from all over, you need to keep this in mind that you're gonna have to set up, what's it called? Nexus? If you have nexus, you have to set up the state ...

KEN: Yeah. And having an employee-

TODD: What is nexus, by the way?

KEN: Nexus just means that you legally exist in a location. And typically the place where you have nexus or not have nexus, as a US company, is in individual states. So, if you have ordered something online and you live in a sales tax state, but they didn't charge you sales tax, the reason they didn't have to do that is because they don't have nexus in your state. So, famously Amazon, for a long time, didn't have nexus in California, or at least they argued that they didn't. And so, Californians didn't have to pay sales tax when they ... I mean, nominally they were supposed to be paying it to the state, but Amazon didn't have to collect it for them. So, that's nexus, and it applies to all kinds of tax, not just sales tax. So, for example, basically everywhere we have an employee, we have to pay taxes.

JAMON: Yeah.

KEN: This is one of the less glamorous, less wonderful parts about remote work, to be honest.

JAMON: There are PEOs or POEs ...

KEN: PEOs.

JAMON: PEOs, and those will ... They're basically companies that have all this stuff figured out already and you hire your employees through them.

KEN: Yes. I believe there's some issues with that. If I were doing this over again, I probably would go with a PEO to avoid a lot of that stuff.

JAMON: They're expensive, but they kind of ... They make it ... It's sort of like, in a software engineering world, using Heroku, which kind of spins it all up for you, versus setting up individual Amazon AWS servers.

TODD: The other problem with banking, especially with governments in general, is their complete ignorance of the laws about things like signatures. So, I think this is a funny story. So, Ken sent over something that needed to be signed. And I have a bunch of digital signatures of mine that I apply to PDFs. Which is my real signature, and it's perfectly legal, as my wife, who's an accountant, would say. She actually worked for a company that did digital signatures-

JAMON: You said your wife's an account?

TODD: Yeah, my wife Heather is an accountant. I don't know if I mentioned that. But the signature's legal. So, I legally signed the document Ken sent, and Jamon legally signed it. And they're like, "Well, we can't accept this. We can accept a fax." Okay, so a fax. So, I'm going to go back to 1995 where my fax machine is, and I'm gonna fax it over. "So, okay can't do a fax cause you don't live in that decade. But it can be digital, right? But it can't be digital, it can be a picture of my signature, right?"

So, you take the PDF you just signed digitally, you print it out, then you take your camera out and you take a picture of the digital signature you put on the PDF. And then you send them the picture, and then that's fine. It's this kind of ... In some cases we had to have things overnighted between the three of us to sign things. In some cases, we had to go in to the local Chase branch or Bank of America branch or wherever and sign it. And none of this is required by law, at all by the way-

JAMON: It's just their corporate policies.

TODD: They probably have pneumatic tubes in their offices where they send things to each other. It's crazy. I literally took a picture of ... I made it quite obvious I took a picture of it, too, just to be a jerk.

JAMON: So, another aspect of finances is budgeting. So, one of the things I did was I ran a budget with my business, was very happy to hand it off to Ken once we merged. That was one of my favorite parts in the merger. But it was really, really important. So, I did it on just a straight up cash basis. So, money would come in, and I would use a program called youneedabudget.com to enter these transactions, whether they were in-flow or out-flow. And then they have this zero-based budgeting system that lets you allocate money for this and that.

It's really good because then you know if you had a couple hundred thousand dollars in the bank, and you needed a certain amount of money for payroll, or you needed a certain amount of money to pay your SaaS products, like your GitHub bill, things like that, you know that you had the money or not in the bank. And it gave you really kind of granular data there. It's not quite the same as using QuickBooks. QuickBooks has a useless budgeting feature. I've looked at it. It's just not ... It's sort of like, "Hey, let's plan out the next year." Which you hardly even know what the next month is gonna be like. But having some sort of zero-based budgeting system is quite useful, I think, especially at first.

KEN: Can you explain what zero-based means?

JAMON: So, essentially, a zero-based budget is where you start with the amount of money that you have, generally, in the bank, and you take that money and you start moving down the line of categories, allocating bits and pieces, subtracting it from that total until you get to zero. So, such and such for payroll, and such and such for your credit card payment, and such and such for your SaaS products. And maybe you need some for team dinners and travel. And you're just moving down. And eventually, the money runs out, right? You hit zero. Or you run out of categories, and you're like, "Okay, I've got money left over and I'm gonna put this into a kind of slush fund or something that just kind of like keeps it for a rainy day."

TODD: Isn't slush funds illegal? We should probably just use a different term.

JAMON: Okay, maybe I used the wrong word there. Did I use the wrong word? Sorry. A rainy day fund.

TODD: Ken would know.

JAMON: An emergency fund. And then eventually, you could even bring that money home if you're the owner. But that's what zero-based is. You always get to zero, and you don't go any further than zero because there's no more money. If you don't get to zero, then that means there's money just kind of hanging out not-

KEN: Yeah. So, the amount of cash you have determines how far into the future you can budget, basically.

JAMON: Exactly. Yes, that's right. So, when you're starting up, it's really important because you don't actually know what kind of expenses are gonna be coming in. You just can't really predict that. So, doing budgeting gives you that insight into where is your money going. You have to allocate for it, and then you enter it into the system. Once you've got a pretty good rhythm going, it's less necessary because you know where the money's going and you can keep an eye on sort of more macro numbers that will give you ideas of health. I would definitely recommend it for probably the first ... I would say, probably the first three years.

KEN: And to be clear, it's not a substitute for real books. But I did find it very helpful in just thinking about how money moves around.

JAMON: It's also a little bit inadequate in that it is cash basis. And while cash flow is king, and we need to talk about that, Ken, there's also accounts receivable and accounts payable that will affect the money going in and out.

TODD: Yeah, there's something called cash basis accounting.

KEN: Yeah. Talk about it just a little bit, which is if you're starting up a business you should be cash basis. Like almost full stop, unless you're doing a hardware startup, right? If you're doing something which has a ton of physical inventory, then you might not want to, but frankly if that's true, I mean you need to be talking to a professional, already.

JAMON: Yeah.

TODD: The other one's called accrual basis.

KEN: Accrual, yeah. So, cash basically is very simple. It's like money coming in, money going out. Period.

TODD: It's what you would do at home.

KEN: Exactly. It's what you would do at home. It's what you probably think accounting is already like. Accrual is like as soon as we have agreed to pay something, then it immediately goes out-

JAMON: And as soon as someone agrees to pay us, then it immediately comes in.

KEN: Fancy ways of accounting for inventory, and I personally don't actually understand it very well, so that's about all I can say about it.

JAMON: It's useful because it gives a more accurate model of where your business actually is, versus cash which can lag or be ahead of itself. But cash is so much simpler that it's definitely worth doing for a while.

TODD: Not to turn this podcast into a company meeting, but Heather actually said we probably should consider going to accrual.

KEN: Yeah, well we're large enough now that-

JAMON: Wait, Todd. How would Heather know to do that?

TODD: Oh, Heather, my wife, she's actually an accountant.

JAMON: Oh, okay. Okay. That's helpful.

KEN: She's been helping us with our books lately. Anyway. So-

TODD: Joke never gets old. Never gets old.

JAMON: We gotta liven this up somehow. I mean, it's about accounting and lawyers.

TODD: And she's gonna listen to this podcast and today's our anniversary, so this is a special "I love you" to my wife.

JAMON: Oh, yeah. Well, happy anniversary Todd and Heather, the accountant.

TODD: Twelve years.

KEN: Of accounting.

TODD: Of marriage.

KEN: Oh, I see. Okay. I know this has been a very dry podcast, and I apologize but I tell you what. If you guys are thinking about doing this, if maybe you're already doing this and you're feeling the pain already, this stuff is absolutely vitally important-

JAMON: It really is.

KEN: ... to what you're taking on.

JAMON: If you have a solid basis, if you've got some professionals working with you, it gives you so much more confidence and the ability to sleep at night if you know where things stand and what you need to do.

KEN: Yeah.

TODD: And here's the truth. Many of you are just gonna ignore us. Cause I heard this, too.

KEN: Yeah, I know what you mean.

JAMON: I did, too.

TODD: It's like, "Okay, yeah. Sure. That sounds like the right thing to do. I should do that, but I'm not going to because ... " for whatever reason. And then you learn and suffer like we have, and you eventually do a podcast where you tell others about it, and they ignore you.

KEN: You whistle into the wind.

TODD: And the perpetual cycle of business stupidity continues.

KEN: So, I'm gonna talk about cash flow last.

JAMON: Oh yeah, please.

TODD: Make it impassioned, Ken. We want some fire here.

KEN: So, I remember my very first job that the controller ... So, the controller is sort of the chief internal accountant. Not the CFO, but the kind of hands on-

JAMON: Sometimes it's called the comptroller for some reason.

KEN: I think that's a British thing.

JAMON: That's a British thing?

TODD: In government call them comptrollers.

KEN: So, they're the ones who would be doing this at a typical company. So, I remember he had a little sign on his desk that said, "Happiness is positive cash flow." And I remember a client saying, "Cash is king." And I remember hearing these things, but I didn't have anywhere to file them. I didn't understand what that meant, right? And I really understand it now. I really understand it now.

Where it's basically, cash flow, it's very simple. It's literally the flow of actual money in and out of your business. So, the money you pay out to payroll, the money that your clients actually pay you, not that they have on contract, but they have actually paid you. And what we found is what you think of a business is trying to do is create a profit. And that is true in the long-term. What you want to do is create the largest profit you can. However, to get there you have to keep operating as an entity. And the lifeblood of a company is cash. The lifeblood of that company is that cash, it's the food. So, if you don't get the food in time, it doesn't matter how much you were gonna get. If you run out of money and don't make payroll, something like that, that company will cease.

JAMON: I think that's actually a good analogy. If you're playing Minecraft or any other game where you have a health or a hunger bar, and if you're planting fields and fields of wheat and you're waiting for it grow and you wanna go harvest it but you die of hunger before you get there, that's a problem. That's a cash flow problem. It's the ability for you to pay your bills on a day to day basis. So, yes, cash is extremely king.

KEN: Well, yeah, imagine your business is collecting Beanie Babies. And you're like, "I'm gonna buy a bunch of Beanie Babies and I'm gonna wait for them to become valuable." That's not a business. Maybe it's an investment, maybe, right? But because you don't have this cycle of things coming in on a routine basis that lets you continue to operate, you just spend a bunch of money and then you wait 20 years. Right? So, it may be profitable in the long run, but it's not really business.

JAMON: So, Ken, how does that look in practical terms for Infinite Red? How do you apply that principal of cash is king?

KEN: So, yeah, for example, I was very resistant for a long time to take credit cards. This is another thing you learn once you're on the business, you're like, "Holy crap, the credit cards, they take a lot of money out."

JAMON: Yeah they do.

TODD: Three percent.

KEN: Three percent.

TODD: Which is a lot on $100,000.

KEN: Yeah, exactly. On a $100,000 project, that's actually a lot of money. I think I'm a little more nuanced about it now, because what they do is they make it easier to pay. They make it easier for someone mid-level in a company to pay. They reduce that friction, and it means you get paid sooner. Getting paid a month early is worth actual-

TODD: Money.

KEN: It's actual money to you. It is worthwhile getting paid early. And so, we're a little bit more lax about how we accept that.

TODD: Why is that, Ken? Why is it when you get paid sometimes more important than any profit you made from that money?

KEN: Well, for us our biggest expense is payroll. And that happens twice a month no matter what, right? And so, having that money in hand now-

TODD: Knock on wood.

KEN: That's right. Having that money in hand now makes a real tangible difference. It's not that you don't wanna pay attention to profit at all. It's like there is this ... I remember back in the original dot com boom, there was a Saturday Night Live spoof where they were like, this business was like, "We make change." Right? They're like, "We make all kinds of change. How do we make up for it? Volume." You can, in fact, cash flow yourself into the dirt if you're not paying attention.

JAMON: It is interesting to see in situations where we're really monitoring our cash flow very closely, and we do some things that we know maybe they're not going to pay us for a few months and you're maybe struggling through. And then boom, it does come through. And you see that profit actually hit the books, and that is actually a cool feeling, as well. So, you do need to obviously pay attention to your profitability-

TODD: Profit matters long-term. Cash flow matters to stay in business.

JAMON: That's right.

TODD: Cash flow's also power. And this is something that not everyone groks, to be honest. There's a reason that congresspeople like their job. And it's not because they may not personally be getting rich, and the reason they want to get on committees, especially the finance committee and that kind of stuff, is because what really gives you power is not wealth. Cause wealth sitting in a bank account gives no power, cause you're not transferring it. But control of cash flow gives you power. Now, in the case of Congress, congresspeople or senators, most of that's just evil. But in the case of your business, what I call power isn't necessarily a negative thing. Power means you can buy services. Power means you can give that bonus to your employees and that sort of thing. And really how much cash flow you have flowing through is how much you can do, more so than the profit.

JAMON: And this is one of the things that if we can point to anything that is sort of a mission for Infinite Red, a lot of it, I think, centers around enabling remote work and the lifestyle that we all want from Infinite Red. And having the ability to pay for that and enable that through our cash flow is what you're talking about, Todd.

TODD: Yeah. So, a lot of lawyers and accountants, to be honest, suck. And that's true of all professions, whether it's doctors, programmers, or whatever. So, I know it's not like you can just Google it and find a good one of them a price that you can afford. So, I know we went through a variety of stuff, a variety of people and/or companies, and I was just curious your experience in how you find a good lawyer, a good bookkeeper, a good accountant. That sort of thing.

JAMON: I needed an attorney ... I forget when it was. It was during the ClearSight days. And an employee that worked for me at the time, he was my creative director, Mike [Wozezak 00:37:49], really great guy, he knew an attorney that specialized in creative agencies. And I went and met with him, and talked with him, and I really liked him. He was a former CPA, so he knew kind of the nuts and bolts of accounting, which was helpful. And he also specialized in companies like mine. I kind of brought him along to Infinite Red afterward, and we sort of just adopted him as our corporate attorney. And that was really helpful. So, it was a word of mouth thing, for sure.

I think one piece of advice that I would give to people is treat it sorta like you would a doctor. It's okay to go someone, have them do something, see if you like the way they operate, and move onto the next one. If you have to do 10 different lawyers before you find one, do it. Don't settle. Do not settle for a bad one. Keep moving until you find a good one, because I can tell you, I think our lawyer is so great that he is absolutely worth every penny that we pay him. And he's helped save us from bad situations, he's helped us get out of some scrapes, and it's totally been worth it. So, definitely treat it more like you would a doctor.

TODD: His name is Josh, and he is wonderful. I've had other lawyers at other companies and I wish I had Josh back then.

KEN: Do some networking. Talk to other people in similar positions to you. See if they have someone they can recommend. I would also say, for both, having someone who is always willing to take the time to actually explain to you what they're doing in language that you can understand. That is vital. If you feel like you're being snowed, if you feel like you don't understand what's going on, keep looking.

JAMON: Yes. And there are professionals that will do that.

KEN: They do exist. They're doing a very important service for you, you want someone that you can trust implicitly, they're gonna be interested in earning that trust.

JAMON: There are also specialists. So, we had looked into some legal implications surrounding some blockchain work that we were doing. And we talked to Josh, and he said, "I can't provide the insight that you're looking for. This isn't something that I have training on." And so, I did find another attorney. We didn't end up using her, because we went another direction with the service we were looking at. But she was a former FCC attorney who really understood the blockchain legal ramifications. That was helpful.

KEN: Once you start getting into specialized stuff it's a little different. But that's where having that primary counsel-

JAMON: Exactly.

KEN: ... is very helpful, because they can help translate.

JAMON: Now one of the things that attorneys do is they ... A good attorney will do, is they will inform you of the risks, but they will also let you make the decision. They won't try to control the process. So, one of the things that Josh will do is say, "There is a risk. I think it's a fairly small one, but here's the risk that I see. And if you feel that it's worth it from a business standpoint, then go ahead and pull the trigger." But he'll let you make the decision, and he'll give you the information to do that.

KEN: Yeah. And a not as good lawyer, will be like, "Oh, no, no. Don't do this because there's this horrible risk." Right? Guess what. Every single deal you do has risk. Every single one. And the truth of the matter is, people will sue you, not usually because they have a case, but because they're pissed, right? A lawyer who understands the limits of the legal process is also really important.

TODD: I'd like to add that some previous companies that didn't have a Josh or a good lawyer, and a couple things. And it's true of accountants, by the way. Both are true in what I'm gonna say here. So, Ken said the worst ones are ones that think everything you're doing is horrible and you shouldn't do it. I mean, they only care about risk reduction. Of course, you can reduce your risk by simply not being in business. That is horrible, for sure.

But there's another one that I think is even worse. One that's doing that on their side, and they won't even tell you to begin with. So, anything that's risky that they don't wanna ... I mean, they basically just cover their ass at all times, they don't tell you anything. They only do what you tell them to do. I'm not sure how you're supposed to know what to tell them to do because you're not a lawyer, you're not an accountant. I deal with that a lot. They're just an assistant, they just do what you tell them. Well, I don't ... If I could do that, I wouldn't need you. And it's actually something that ... With our clients, we're really trying not to do. We don't expect our clients to know anything. That's our job, to guide them through, give them good, coherent options. Tell them the risk and reward of each option, and let them choose.

JAMON: Exactly.

TODD: That's our job as professionals, and sadly it's kind of rare, unfortunately.

JAMON: Yeah. I'm glad we're taking on this topic. Obviously, it is sort of more of a dry topic, but we can only go so far with the series. And this is our last episode of the series.

TODD: Of this first season.

JAMON: The first season of the series. We are gonna do more seasons.

TODD: Unless you're in the UK, and then in which case it is the first series. They call a season a series.

JAMON: Oh, funny.

TODD: A little factoid.

JAMON: Yeah, I'm sure that our UK listeners will appreciate that.

TODD: That sounded snarky. We have people in the UK who love us.

JAMON: Do we? Awesome?

TODD: Why you so mean, Jamon?

JAMON: I didn't mean it to sound snarky.

TODD: That's why my wife, who's an accountant, doesn't like you. No, she loves you.

JAMON: I like Heather. Even if she is an accountant.

No, it is good. It's ... This is what ... Well, we took on two topics at once and we were able to kind of lump them in, but it's something that everybody who's starting a business ... And I know, cause we get feedback that there are some people who are listening to our podcast and using some of our advice as a guide as they start their businesses, this is something they need to pay attention to. And when I started my business, it took me many years to get a lawyer and many years to get a good accountant.

I did have a bookkeeper, or financial assistant, I guess, for some of those years because once I started payroll, I started getting out of my depth. I had no idea how to do that. And she was great, I could ask her for advice. She was actually trained as an accountant, as a CPA, actually. But she was, at the time, sort of semi-retired and just kind of doing her thing. Now, with Infinite Red, I feel like we have a really great attorney. We have good accountants. We're still working on figuring everything out, but having Heather help us has been really helpful, as well. It's nice to have professionals that know what they're doing.

TODD: Thanks so much. Maybe a little dry, but I think super interesting to people out there, especially when you're starting. I've actually found-

KEN: Bookmark this, like when you're actually starting this, bookmark and go listen to it again.

JAMON: Yeah, it's a good reference.

KEN: If your eyes glazed over, I totally understand, but trust me.

TODD: I actually found it pretty interesting. I'm surprised how that flew by. And a podcast that flies by when you're recording it, it usually comes out pretty good. So, I would like Jamon in the close to explain what our plans are for this podcast going forward, since this is the last episode of this series/season.

JAMON: Yeah, absolutely. Well, I'm really pleased with how season/series one went. And it was a ton of fun to do with you, Todd, Ken, Chris. We do plan to do more. We probably won't take a really long break. I'm hoping to maybe take a month, or at the most two, and then hit another season. This season we really wanted to kind of get our voice out there as a founder team. So, Todd, Ken and myself, as the founders of Infinite Red, we wanted to talk from our perspective on building Infinite Red.

But as Todd mentioned, I think in one of the early episodes, it wasn't just us that built Infinite Red. It was definitely a team effort. It was, in a lot of ways, our vision, but there's so much impact that our team has on what Infinite Red is. So, for season two, the intention is to bring in key team members, and have them sit around the round table, so to speak, with us. They're not gonna be interviewed. We're not gonna be talking at them. They're gonna be just involved in the conversation as we go forward. And we'll be talking about more things that are, I think, a little more specific, a little more even maybe situational, or things like that. I think it'll be interesting, from a standpoint of getting to know some of our team members. They're really great. We-

TODD: They are, they're awesome.

JAMON: They're so awesome, and I'm really excited to give the world a glimpse into who else is here at Infinite Red. But it will probably be one, maybe two guests on, and just co-hosting with us. They're not going to be an interviewee. I also wanna say thank you to everybody who has listened and promoted our podcast, who submitted questions to us. It's an incredible honor to actually to be in your podcast rotation. We don't take that for granted. I know there are a ton of really good podcasts out there.

I had one person, actually, I went to lunch with Bruce Williams, a really great guy here in Portland. And he said, "Jamon, there a lot of good podcasts out there, but I think one of the things about Building Infinite Red is that you are doing an important podcast. The message needs to get out there about our remote work and the way that we do work." Which was a huge compliment. Bruce isn't the type to just hand out compliments lightly. He's a great guy.

We take it seriously. This isn't something that we're just doing as a marketing stunt, or anything like that. We really do believe in the message that we're putting out there. So, thank you all for listening.

TODD: Yes, thank you.

In this episode of Building Infinite Red, Jamon, Ken, and Todd answer a question from the podcast channel in the Infinite Red Slack Community about what they have learned and observed from businesses over the years who have succeeded or failed.

Episode Transcript

CHRIS MARTIN: We had someone reach out on the podcast channel with an idea for an episode. He said: "You three must have watched a lot of businesses starting up/establishing themselves and subsequently succeeding or failing. What have you learned or observed from those businesses? In your view, what made them successful or otherwise?"

KEN MILLER: That is a great question. The first thing I would say is no one, literally no one can predict which company is going to succeed, especially like in a big way. The startups that we have been part of in our careers or, have worked for as clients, the ones that are trying to hit it big, there's no one who can predict that.

That said, we do see mistakes, we do see things that will hinder success or prevent it. One of the big ones I would say is having the wrong amount of money. That doesn't necessarily mean having to little although, that's by far the most common version, but sometimes having too much. I've seen startups that had so much money that they just wasted it and never had any discipline, and they crashed and burned.

So, having too much money surprisingly, can be a problem. Having too little is much more common, you don't hear about it as much, because they tend to fizzle in a very quiet way. There's a fairly frequent thing that we will encounter which is the self-funded entrepreneur who comes to us and says, "Hey, can you do this for $50,000?" The answer is almost always no. Any interesting app is likely to be more than $50,000. But more than that, if your only source of funding is your own life savings, or yours and your parents' life savings, that's a big red flag. Because it means that you have no room to move or develop or anything. If all you have is $50,000 to spend, and it's your life savings, and you want to build the business. I'm not saying don't do it. But what I am saying is you need to use that $50,000 to validate your idea more than you need to build an app or a website or whatever it is that you're looking for.

That can take a lot of forms, right? But take that $50,000, quit your job if you have a job, go interview customers, go do things that don't cost money that let you validate your idea. And then you can go find people who can help you. We are famously bootstrapped here, and the reason that we're able to do that is because consulting is a very easy thing to do the first one. Because it's just you, and you go out and get a contract and you grow from there.

A lot of businesses, that's not true. And if you need investors, because your idea has enough going on that you have to build something, then use the money you have to start that process rather than blow it all on an app that then can't grow because you've run out of money, Todd.

TODD WERTH: If the kind of business you want to build is $10,000 to actually build it, and then $50,000 is a great amount of money because then you can build it and iterate on it and have extra funds. The problem is something like an app that typically costs $100,000 or more is not only do you need the initial cost of it, you need all the capital to run that business and modifying and really adapt it to what you find the market actually wants.

That being said, there's nothing wrong with starting out bootstrapping. However, it is a little bit of a red flag if you haven't convinced anyone other than your mother to give you money for your idea, because if you can't convince one person, it's going to be hard to convince all the users to give you money to use for said business.

JAMON HOLMGREN: To play off of what Ken said earlier, I think that a lot of it is you want enough money that you're not making decisions based on fear, basing it on desperation. But you also don't want to be in a position where you just don't care. Where who cares if you blow this money because it's not your money and whatever. You need to have some level of skin in the game, so to speak.

KEN: Yeah, I would say that the ideal that we look for is whatever budget we think we need to build the most focused version of your app, we would love to see that you have two, three times that total somewhere. Not because we want to spend it for you, but because you're going to need it for something. And it's a measure of your health as a startup.

Even more ideal than that is, you have that much in hand, and you know what you're going to do to get more when you need it.

JAMON: Moving beyond the financial side of it. Another thing that I've observed in my 13 years of doing consulting work is when the stakeholder, generally speaking, the founder CEO, but not always, feels that they have all of the answers already. And they just need to build this thing. Just get someone to build it, get someone to design it, build it, put it out there and the money will flow. That's extremely rare. Very, very rare.

TODD: I bet it doesn't exist at all.

JAMON: I would tend to agree. One of the things that we say, as we're going through the sales process with a particular new client is, if your app does not change during the process, if what you conceive of as being this app at the very beginning does not change, then that's probably a failure. You're probably not listening to your clients, you're probably not ... Or your customers, or your users. You're probably not listening to the experts you're surrounding yourself with, which would hopefully include us.

We've been through this quite a few times, and if you're not willing to say, "Hey, I don't know everything. I need to learn some of these things. Then that's a problem. Of course, conversely, we do expect people to bring some level of expertise in the domain that we're talking about. So, you should have some ... I'm not going to go and just start a business making farming equipment or something. I've never run a farm, I don't have any clue what it would take.

So, having no experience whatsoever in the domain can be an issue as well, and you're not going to be able to just rely on other people to fill in all of those gaps. But, I think that there has to be a happy medium where you do have some domain expertise, you have some things in mind, you have a framework to make these decisions. We also understand that you don't know everything, and that you're going to need to gather information and evolve your view of what the app is going to be during the process.

TODD: Another one that's very common, you see it right up front with people. Either they're telling you their story about their business, or I've worked with them, or whatever, is they don't really care that much. They act like they do, but they don't really. Meaning, they put a few hours in a week or a month or something, and they show up every once in a while.

You get this a lot with people who are extremely wealthy maybe. It's a side thing for them, they're playing around and they just don't really care. It's pretty true that the person who cares about your business the most is you. There will be no one who cares about it more than you. So, if that's not true, there's a big problem. That being said, a lot of successful people don't have a lot of funding, maybe they bootstrap it at the beginning. They don't take for granted they know everything. They asked for help. They try to learn. They accept the fact that they're going to have to be salespeople and finance people, and operations people and everything.

Even if something applies to a particular person that we've already mentioned or are going to mention more, they may have other features that totally overwhelm that meaning. If you're particularly a good salesperson, you can be pretty bad at business and still be successful. That's just a fact. If your idea's so compelling that even though you're a horrible salesperson, when people hear it, they're like, "I want to give you money for this, because it sounds amazing." Then that person knows enough to hire someone who can execute well like us, Infinite Red. I'm not good like Jamon is with the plugs ... those people can be very successful as well.

KEN: To flip this around to a more positive script. To some degree, we approach the clients that we take like an investor would to some degree. An investor is going to do more due diligence than we would obviously, but we're looking for: Do they have adequate access to capital? Do they have a high degree of commitment? Do the founders get along? Are people in agreement about what the vision is if there's more than one person involved?

By the way, we have plenty of projects projects with established companies and it's totally different. Because then, a budget is a budget, et cetera, et cetera. This is talking startups. These are all things basically like, if you have all of those pieces, and a deep understanding of, and relationship with their target customer. If you have all of those, then it's between you and the market. That's ... you have all of the tools that you need at that point to succeed or fail on the merits of the idea.

It is very hard to predict what's going to happen with the market. And that's the part that no matter how good you are, you might still fail. The commitment helps. You hear the word pivot applied to startups because what happens is, they have all the other pieces; they have access to capital, they have a committed founding team, they are working very hard. What the market tells them is that their idea is wrong basically. The thing that they thought that they wanted to build, turns out, they misunderstood the market, the market changed, something happened, and then they're like, "But as we were deep in the muck of figuring that out, we saw this other thing and we're going to run at that now."

TODD: You'll find your subconscious as very creative and very strong and very secretive. What I mean by that is, if subconsciously, a person knows that their business model and their revenue model doesn't actually work or they fear it doesn't work. They haven't actually looked into it, they'll come up with super creative ways to get away from or not do those plans. When you ask them for it, they can either avoid it, sometimes become hostile.

Whatever secret fears you have, sometimes just sabotage yourself by avoiding those particular things. If you find that you're just very anxious about doing a business plan, you don't know why. It may be because your subconscious thinks that if you did it, you're going to realize that even best case scenario, this business does not make money.

JAMON: That's why one of the questions we ask during the sales process is, what are your biggest fears with this process? Because it tends to let them come up with the answers to that without us being hostile about it, or anything like that. We're on their side, we're trying to solve those problems as much as we can.

I had a client back in the ClearSight days. We did a bunch of work for him, and he was this incredible engineer. Came up with just some amazing stuff. But he loved to invent. He wasn't super big on running the business. He didn't really enjoy a lot of the parts of running a business. He brought onboard a series of CEOs to run the business over a period of many years. At one point, it just became obvious to me that that this was really hurting his business. Because all he wanted to do was work on the product, and he didn't want to necessarily work on the business itself.

The stuff he was building was amazing. It was awesome. I really loved it. And he was a very good person. He always paid his bills to us, always appreciated us, but that blind spot, I think it really hurt him.

TODD: Yeah, that gentlemen, I don't know who you're referring to, but that gentleman needs to accept the fact that a business person is super important, and they need to find theirs to be a co-founder with them.

JAMON: I think a big part of that is just seeing it as a business and not just the product itself, which actually is a big failing of a lot of people that think of building apps, they think of the app. They think of the product, they don't think about the business itself. It's hard because business, there's a lot to it. We're doing a whole podcast series on it right now. There's a lot to talk about, and there's a lot to learn, and there's stuff we're still learning.

It's definitely having a characteristic of thinking more holistically about the whole business and being willing to just dive in and learn things that you haven't done before. All of those types of things, but that's a positive characteristic. There are a few other negative characteristics that I've seen over the years. One actually is, over-confidence and over-optimism. Now, I tend to be a very optimistic person. I'm very confident.

TODD: Are you talking about me Jamon?

JAMON: Sometimes.

TODD: I'm very optimistic that you're insulting me right now.

JAMON: But then again, sometimes it's me, and Todd has to ground me. Now, Ken's always grounding both of us at the same time like an anchor in some ways.

TODD: That was mean. That was very mean.

JAMON: We're dragging this thing ... No, I'm joking. There's one gentleman that we worked for a long time ago, and he was very optimistic that the funding was going to come through. So, he had us do a whole lot of work. The funding didn't come through, and that put us in a tough position. That was a lesson that we had to learn, but it certainly put him in an even worse position, because now he owes his vendors money, and it's not ready to go yet.

So, the Elon Musk sort of thing. Although he seems to have access to bottomless levels of cash.

KEN: Elon Musk has easily inherited the reality distortion field from Steve Jobs.

JAMON: Yes, exactly.

KEN: And put it to shame to be honest.

JAMON: Right. That sort of thing can kill you if you're not Steve Jobs or Elon Musk.

KEN: Yeah, and actually, anybody who comes in acting like Steve Jobs or Elon Musk, which usually means being an asshole and playing fast and loose with the facts, which is not what I'm saying that Jobs and Musk are doing. I'm saying that that's what the people who think that they're right tend to do. That is a massive red flag.

TODD: They're pale clones of the original, and probably only cloning the worst parts. A couple of quick hits here. One is, if you don't like your customers, or worse, you hate your customers, huge problem. Your business provides value to customers. If you hate your customers, or loathe them or don't want to interact with them, and you'd be like well, "Todd, that's ridiculous, who would do that?" You would be surprised how many businesses hate their customers. That's a problem, you really should look for customers that you enjoy servicing, you enjoy providing value to, it gives you a lot of personal, and the company and a lot of gratification for sure.

The second one is, when you describe your product or your business to someone, if they think it's awesome, and it's really good, and when can they get their hands on it, that's, that's a good sign. Anything below that from mild praise to praise means they really think your product sucks. Especially, if you know those people. So, take mild praise as this is horrible. So, really find something that where, when you're leaving the discussion, they're very interested in how they can get their hands on this thing and when.

KEN: Related to that. I would say, if you're a startup ... Well, okay two things. Back up. One, what kind of business are you? Are you a startup? By startup, that means you think there's a large opportunity, and you've got to get to it fast before somebody else does. Maybe it's winner take all. You're aiming to be a big thing. It doesn't necessarily have to be like unicorn big, but it's big. In which case, you need to optimize for hitting that and failing relatively quickly if you're not going to. Versus a lifestyle company, where you want to make a long term sustainable thing, you probably want to bootstrap.

TODD: Like us.

KEN: If your ultimate idea is not subject to bootstrapping. It's not something that you have to get to in the next year or two, or you're going to miss it. Then find the idea you can bootstrap that's more practical. Do that first, and then work on the big thing. But those two strategies are different. They require very different mindsets. They require different ways of capitalizing. The worst thing that can happen to a startup by the way, is not failure. Outright failure in a startup is not the outcome anybody wants, but once it's gone, you're free, and you can do the next one or something else.

The worst outcome is kind of success. Where it makes just enough to keep going, and you never know whether to pull the plug. I've seen a couple of those. That is the worst outcome for a startup in my opinion.

JAMON: I worked with a startup many years ago that it was actually a success. I'd like to talk about that one a little bit. The founder, I think he had a lot of the characteristics that an ideal founder would have. He was a very nice guy, but also very driven. He was really great to work with. Everybody that worked on this project really loved it, which was good because you'd get their best work and they would really go out of their way to try to make his product a success.

It was very much a niche market. It had to do with transportation, and he was really, really great at identifying the problem that people had, these transportation companies, and solving one very specific but very painful problem that was hard to solve. You couldn't just do it in house. If you did it in house, you would inevitably fail, and you would have a real problem on your hands. Almost everybody has this issue.

He had us build a web application that mimicked a spreadsheet that he'd been solving this problem with. He'd already gone through the manual labor of figuring out a lot of the issues and doing this almost on a notepad in a way, as a consultant for these transportation companies. He had figured out his business model, and then he had us build a web app. He wasn't afraid to spend money if we said, "Hey, we need to beef up this section of the web app." He would he would totally be cool with it. He wouldn't spend money willy nilly, but if we said it was important, then he would budget the money for it and he would do it.

He was also very good at networking and getting out there and talking to his customers. He would come back and say, "Hey, I've got this customer, it's a big, huge company you've heard of, and they're having a problem with this part of the application, and this is how I think we should fix it." He actually spent the time to figure out how we worked and the language that we needed from him to solve these problems. He would also very much listen to that feedback that we would give him.

He now works for a big company. They hired him specifically for this expertise. They have a lot of trucks on the road, and a lot of different jurisdictions that they're rolling through, and they need to have their ducks in a row. The application itself is, I believe, he's either sold it, or is in process of selling it, exiting. That was a very good experience. It was something that I learned a lot from. One thing that's for sure, is that founder put in a ton of work, learning from his customers, learning all of the domain expertise that he needed in order to be the expert in this particular field. That was very instructive. He was not lazy, he was very much a go getter, but also willing to listen to us.

TODD: Yeah, I think developing partnerships with either your partners, your team your vendors is hugely important. And what I mean by partnership, it sounds like corporate speak or whatever, but what it means is not adversarial. Meaning, one of the things was working with lawyers, bless their heart, as clients, in my experience is they're trained to always start everything adversarial. That can work to a point. But really, if you work as a partner, meaning, you're looking out for your partner's best interest, and they're looking out for your best interest, and then you're looking out for your own best interest, and vice versa.

Then you tend to get the best results. If you're trying to compete with them, or one-up them or nickel and dime or whatever, it's not going to do that.

KEN: If you want to start a business, don't be discouraged by anything what we're saying. Because you can go into it the wrong way, and end up someplace fine, if you're committed. When Todd and I started, we were going to build an app. I had a little money in the bank so I could quit my job. It didn't work.

Let's be perfectly honest. We built a really nice app that 300 people in the world really, really loved. They still occasionally email us.

TODD: We did get a number six in the Apple Health and Fitness category above Nike by the way.

KEN: Yeah, that was-

TODD: For whatever that's worth.

KEN: That was a little bit of a fluke.

TODD: Which is nothing.

KEN: But in any case, it didn't work. We started to take on clients, but we were out of money, and we were looking at, what's going to happen next. I realized that I was like, I will break IRAs. I'll break my 401Ks, I will sell my stock in order to keep this going. That was the point where I knew I was committed for real. It's like until you have a moment like that, you and everyone around you can have some doubts legitimately about whether you're actually committed.

But once you're like, I will put everything on the line if I have to. Not that I wanted to, unfortunately, I didn't have to. But when you make that transition in your head, that you're willing to do whatever it takes to make it succeed, then your odds go way up. Because if you are smart enough to be able to manage things so that you can keep trying, and you have the drive to keep trying even after a failure, then you're doing pretty well at that point.

JAMON: I'm kind of scanning through a list of old clients and I think that of the ones that failed ... I had a lot of existing businesses. They already had business models that were working and things like that. I did a lot of work for existing businesses. But the startups that failed, I think the commonality from what I'm seeing in this list that I'm scrolling through, is that they didn't really have a business model that worked. They didn't really have something that they could point to and say, "Yeah, this is what people need, and this is what they're willing to pay for it, and yes, that will sustain not only paying for this app, but also, my salary and salary of the staff, everything."

That was actually I think one of the biggest issues. The ones that did succeed had a fairly compelling and simple and straightforward business model. There are a few that they would have 14 different ways that they would make money on this, shave a little percentage off of this, and a little bit off of that, and we're going to make a little bit here, or they'd have astronomical user numbers that we're going to be impossible to hit in order to make these numbers work. That was a fairly common thing. And that's something that I think that if you're moving into a business, you need to be able to sit down and look up, and do a realistic projection of how am I going to appeal to these people? How am I going to get sale number one for one thing?

Then, what kind of dollars are we looking at? Is this going to sustain us?

TODD: I have a positive story. None of this is a secret. I wasn't under NDA or anything. I actually, this is circa 2008. I don't know 2007, 2008 something like that. I interviewed at Airbnb. At that time, they were in their apartment in San Francisco. There was the two founders, and a couple other people working there. They had one engineer working on their system, but he was going to school, and he wasn't full-time. They were interviewing me for basically one of the first full-time engineering positions. I did not take that job. I actually took a job with Ken instead. So, thank you for that Ken.

But what was cool about it is a couple things, I knew they were going to be extremely successful for multiple reasons. One, the two young gentlemen in there, they were like 24 at the time, I was quite a bit older then. Were very impressive people. They were trained industrial designers.

They had actually started their business by actually doing it. They did the Airbnb model with their own apartment, and they had some success. But more than that, when they showed me their pitch deck, it was good and compelling. But they had a great customer acquisition plan. Their plan was very specific. The DNC, the Democratic National Convention was happening in Denver that year. It's very common to know that if you have to get housing early, and they completely run out of housing, because the size of the event, and the size of Denver ... I believe it was Denver.

Their whole thing was okay, we know that this periodic thing happens. We know for a fact that they run out of tons of housing, and we know for a fact that there's a lot of young people who go to the political conventions because they're more idealistic in the parties. They were going to do their huge push, and they're planning on putting all their wood behind that arrow to get Airbnb set up and operating and making money at that venue.

As we all know, because we've probably all used Airbnb, or least know about it, they were very successful in their company. Now, they did some more nefarious marketing things later, but just sitting down ... And by the way, when you interview at a very small startup like that as an engineer in the Bay Area, they tend to pitch to you because it's hard to get engineers, and they want to convince you that their startup's going to make it. I did walk away feeling like yeah, although I didn't particularly want to join their company because at the time, I didn't want to be on a tiny team. I wanted to be on a bigger team, and it would have just been a team of me and this one gentleman who was working part-time from the East Coast.

But I did walk away knowing for sure that these people were going to make it because they had all their ducks in a row.

JAMON: Existing businesses tend to have maybe a little better success with startups. They may not blow the lid off of things, but they're going to have a little better sense for some of the pitfalls that can come along. I worked for a company, I was doing their website. This is way early when I was first started. They were selling, I think they were auto parts or something. Something along those lines, it has been a long time.

But they decided they were going to get into re-manufactured parts, and they wanted to sell those online, not just new parts. They did a lot of things really well. That was one of our more successful projects. I think it's still running to this day. What we had to do was make sure that mechanics who were, and still are fairly non-technical, not super computer savvy clientele, that they can jump on to this website, find what they needed, order it very quickly, and be done with it.

We also optimized for SEO and things like that. But this company was owned by an older couple. They worked together, husband and wife. They were really great to work with, they really had a keen eye for business, how they were going to make money with this, how they're going to reach their customers. They just didn't know the online part of it. And that's where they brought us in, and they were very good about listening to what we had to offer.

We also built a back office system for them so that they could monitor all of the orders coming in, provide customized quotes where they needed to, and fill the orders. When we started this project, they said, we see the writing on the wall for our current business, which was aging as far as how they were ... Like anything retail, or online orders is going to get sucked up by Amazon and these other big companies, right? So, they needed to provide something that Amazon wasn't going to be able to do as easily.

After the project, and after it had been going for a while, the owner called me up and he said, "Hey, I think this saved our business. I think this really helped." It was bringing in tens of thousands of dollars per month in revenue, and probably approaching hundreds of thousands. They just had this idea they were willing to explore a little bit into a territory that they weren't very used to. But they also were very much thinking in terms of dollars and cents, business model, marketing, all those other aspects of the business.

That was good for me to see, because I could see that yeah, you can create something out of nothing, essentially. As long as you're willing to put the work in, and have a complete business from start to finish, you don't skip any other steps.

TODD: I would like to ask Ken. Ken worked for a photo which later was bought by Kodak. And then Kodak destroyed it through pure stupidity, but I would love to hear least from your perspective if you feel that's a good story Ken about your experiences at Ofoto?

KEN: I wasn't around at Ofoto when it started by the way. It had already been bought when I joined them. Anything I know about the early stages is lore, it's second hand. But they were always a very sensible company, and I liked that. That was one of the things that I liked when I joined them, which is that you know at the end of the day, they sold photos.

TODD: Could you tell our younger audience who Ofoto was?

KEN: Ofoto was one of the first generation of online photo sharing sites.

JAMON: That's O-F-O-T-O.

KEN: O-F-O-T-O. It was a great name, by the way. It was an amazing name that Kodak just threw away.

TODD: What did Kodak call it by the way once they bought it?

KEN: Kodak Easy Share Gallery.

TODD: That rolls off the tongue. Ofoto was so hard to remember.

KEN: Yeah.

TODD: Kodak Easy Share Gallery. It's just amazing.

KEN: I heard a lot of stories about that. There was a lot of amazing people there. But boy, were they a case study in how to throw away a century of legacy. Anyway, but they were very sensible, right? So, A, they could offer all the photo sharing stuff for free because they sold prints, and that was when people still cared about prints.

Eventually, people stopped caring very much about prints, but their primary competitor who for a long time was never bought by anybody was Shutterfly, and they're still around. I think they bought the assets of Kodak Easy Share Gallery when Kodak quit. That's what I liked about it at the time when I joined them was like, their business model was extremely straightforward. They sold prints at a healthy markup, they had a great operation, there was two teams. There was the site team, which was the user facing, the sharing and all that, and there was the lab team. Which is this elaborate system that controlled the printers and the workflow for the people who operated them.

It was great. I loved Ofoto.

TODD: Ken, you also worked for the company Yammer, who later got bought by Microsoft? Can you tell us a little bit more about that?

KEN: Yeah. Yammer is actually a great example of a pivot. It was a spinoff of an internal project at, I think it was called Geni.com. So David Sacks, one of the PayPal mafia, along with Elon Musk, and Peter Thiel, and all those kind of people. He was the primary founder and CEO. It was a spinoff of Geni that made this internal Twitter-like tool just for internal communication. And we're like, "Hey, this is actually a pretty good idea. It's got some legs." So, it turned into Yammer.

They cared a lot about culture and productivity and how to make a team work and they thought about it constantly, which I always admired. But one of the interesting things that I would say is that, the things that you as a programmer, all the good habits you have as a programmer, if you become an entrepreneur and you're building something new, I'm not saying throw them out. But I am saying your first problem isn't having a scaling problem. Your first problem is to find your market fit, and clean codes, scalability. All that stuff doesn't matter if it doesn't work. It doesn't matter if you don't get there.

The code base when I got to it, and I'm sure all the people here will agree to this, was challenging, shall we say, right? But at that point, it didn't matter as much, because they had the further investment, then they got bought by Microsoft. They had the resources to fix that problem, now that they had a product market fit.

Until they had that product market fit, they just worked like hell. They just blasted that thing out. Honestly, I think for that kind of startup, for a big a startup, that's probably the right way to do it. Blast the thing out, go as fast as you can, and then when you've got success and money, then you bring people on who can come in, be code grownups and figure it out.

The lesson from that one is focus. It's very tempting when programmers become entrepreneurs to be like, now that I get to like make this Greenfield app, I'm going to make sure that it's just really beautiful and wonderful. You know what, that doesn't matter. If you're being so aggressive that you're constantly fixing your own mistakes, and that kind of thing. Then you need to slow down a little bit. But the lesson is, be laser focused on the one thing that is the most important to you right now.

That was a hard lesson for me to learn, but I think it was a good one to learn. Anyway, go ahead.

JAMON: I was just going to say, we've had to apply that to our own business for sure. It's easy to get distracted by all the other things that are possible out there. But making sure that we're laser focused and have all of our ducks in a row, and have a business model, and marketing, and are talking to our clients. One of the things that we did when we actually hired a consultant to go out and talk to a bunch of our clients and ask a bunch of questions, was why haven't we done this before? We tell our clients to do this, but we hadn't done it up to that point. It was a no brainer, face palm moment. Like, oh man, we really should have been doing this.

TODD: Yeah, that highlights a point, you can make mistakes, you can do exactly opposite what we said you can. If you just keep on keeping on, it'll be okay. It is hard to keep on keeping on. The less mistakes you make, the easier it is to keep on keeping on, but that is really the only secret.

KEN: The takeaway from some of these negative stories, by the way, is that you'll see statistics like, nine out of 10 businesses fail, or 19 out of 20 are ... I don't know about the statistics are. But it's something like. Some large number of businesses will fail within the first couple of years.

If you have the things that we talked about—commitment, knowledge of your market, access to capital—your odds are way, way better. Because all of those statistics include all these weird cases that we've seen in our careers. Don't be discouraged. If you're the type who really, really believes that you need to be an entrepreneur, keep at it. Because these are all solvable issues.

JAMON: I think one of the things that I've seen from a lot of companies that don't have much of a chance of making it, is they're just looking for a formula that works. Rather than doing the difficult work of identifying what it is that you have a unique perspective and advantage on and then building a business around that.

In this episode of Building Infinite Red, we talk about the importance of education and experience when starting out in software development and how things change when you move from making your products to running your business. From books and online resources to bootcamps and higher education programs, Jamon, Ken, and Todd share their stories, insights, and opinions for every level of professional.

Show Links & Resources

• Lambda School
• Austin Allred on Twitter
• Epicodus
• Airtable

Episode Transcript

TODD WERTH: Today's topic is education. I actually don't recall what this topic's about. Ken, do you recall?

KEN MILLER: Yeah. Well, it's this question that kind of comes up periodically about developers and CS degrees and that kind of thing. I think there was a Twitter thread a little while back in Jamon's feed, because Jamon's feed is the only feed that matters.

TODD: That's a fact. Yeah.

KEN: Yeah, do you remember who that was, Jamon?

JAMON HOLMGREN: Yeah. The question was, "I have 10 years experience developing sites, but I have no formal education. What are your thoughts on experience versus education? Been thinking of getting a front end development tech degree from Treehouse, but I'm not sure if it's worth the time and money." Yeah. That is a question that does come up fairy regularly.

KEN: For that specific question, I think the answer is no, it's probably not worth it, right? If you have 10 years of experience, and you're going to go take basically a practical degree, don't bother.

JAMON: Right.

KEN: But there are definitely nice things about getting a real CS degree, but getting a job is not necessarily the best reason to do it.

JAMON: Right.

KEN: If that make sense.

TODD: I would totally agree with that. Well, just to start out, the three of us, Jamon nor I have finished college, nor do we have any CS degrees. I learned to program on my own when I was a child, probably started when I was 12. And then I started programming professionally when I was about 24, and then I learned basically on the job.

Ken went to Harvard and got a CS degree there. Jamon, you are similar to me, right?

JAMON: I was pretty similar to you, yeah.

TODD: Yeah. So what I usually tell people, A, now, when I'm hiring people and I'm not representative of everyone, so it's quite a bit different, I do a cursory glance of their resume, maybe. That's less relevant to me than what they can do.

In my opinion, developers is a portfolio job, which means the work you've done is hugely more important than any kind of education.

Now, obviously if you do have a CS degree, I do find people want CS degrees, they understand some concepts that you maybe don't use day-to-day, and when they do come up, they have a much better understanding of that. Sometimes it's easier to teach them new ideas, because they have the analogy in their mind already. So it's definitely worth it.

I would say, my short answer and I'd love to expand on this further in this podcast, but my short answer is you need to learn what you need to learn in order to produce work product, which means develop software, develop websites, develop apps. And everyone has a different way of learning. For some people, school is the best way. For me, school always bored the hell out of me to be honest, and it wasn't the best way for me, but there's no exact right way for everyone. It's just however it works best for you.

JAMON: Yeah. And I think that part of this is how much access and opportunity you have, because certainly college is one fairly proven path toward gaining an opportunity to access the job market, to get enough skills that you're hireable out of the gate, and then to access the job market and actually get a little bit of exposure, whether it's through an internship or something like that.

So that plays into this as well, if your dad was a software engineer or something, and he has contacts that you can talk to and maybe get some opportunities, then maybe you don't need that, maybe you don't need to go down that road.

But there are few other factors here as well. Some of them are personal goals, like what type of programming, like Todd was saying, what type of programming you want to do, how much debt you're willing to take on, how much you can take on. And then also, in some cases, very specific cases, the prestige of the university can be a factor because it certainly opens doors for Ken that Todd and I don't have.

TODD: I do want to interject real quick before you jump in, Ken. Going to university has many, many benefits that have nothing to do with getting a job, and those are a super valuable if you have the opportunity. They're worth it. But specifically about a job is what I was talking about.

KEN: As a life experience, college is great. If you have the opportunity, you should probably do it. Getting a job as a programmer per se is not a good reason to go to college in my opinion.

Now, if what you want to do is get a job at Google, or one of the places that is well-known for preferring CS graduates, especially from elite schools, then you should do that, you absolutely should do that. You're going to have a much, much, much harder time doing that.

But also, more to the point, Google has I think fairly reasonable case for it in certain ways, because they are actually dealing with the high level intense CS concepts more than your typical programmer job.

TODD: Correct.

KEN: Now, I think where the problem comes in the market is that if Goggle does it, then we should do the same thing and then we'll be successful like Google. And the vast majority of companies out there do not need that.

And I can also definitely tell you, from my own experience, from the people that I've watched, is that getting a CS degree, they're teaching you the fundamentals of how computers work. In Harvard's case especially. They're very much on the theory stuff. But even a more typical CS degree is very much about the background, the hopefully unchanging fundamentals, and not so much how do you design a build system. Todd?

TODD: Yeah. I want to rant a little about a CS degree. CS, I'm sure all of you know is computer science. It is really that, it's computer science. Scientists don't make things. They discover things, and they ponder about things.

For example, a physicist and a chemist may work together to make some sort of new alloy, but they're not going to design an airplane. That's what engineers do. If you get a computer science degree, you learn the science of computers. You could actually get a computer science degree, and correct me if I'm wrong Ken, and not learn to program at all.

KEN: That would be pretty rare. You do have to know some programming in order to do a lot of the things that they teach you-

TODD: But you could do like abstract programming that doesn't actually work. Like, say you're developing an algorithm. It's not-

KEN: Yeah. I would say that would be pretty atypical, but there's definitely classes that don't require a lot of coding.

TODD: I'm exaggerating to make a point.

KEN: Some of it is straight up math. Yeah.

TODD: Right, which is different than engineering.

KEN: Well, and a good engineer should understand the science obviously. Yeah.

JAMON: And I think one of the things to know is that, in my career certainly, and I'd like to hear from both you, Todd and Ken, I haven't noticed a huge market difference between the software engineers that I work with that have degrees, versus those that do not. I often don't know which of them have degrees and which do not. It's not always a strong correlation between their ... or it hasn't been a strong correlation in my career with performance.

I think there's some characteristics that are positives for people that come from a CS degree background versus others who maybe come from a bootcamp background, or Todd and myself maybe learned out of a book basically and experience, but in my experience it's not something that is ... there may be differences, but they're not significant.

TODD: I think it depends on the situation. When you teach people you notice it more. For experienced people, people who have a decade under their belt, no, there's no different. For new people, someone who comes out of school with a CS degree will understand concepts, and I think it's easier to teach them to be honest, in that way.

Real quick, I personally started ... well, I started programming privately, but that was just me programming games and that kind of stuff, stuff I enjoyed personally. But professionally, I started building software. So I started out as a builder, a maker, over the years formed myself into an engineer, and then during that, got interested in the CS stuff and learned that stuff too. So I got to the same result, just in a different path.

KEN: That's totally true. You can absolutely learn all this stuff on your own later if you're that kind of person. I think what the reliance on CS degrees doesn't really take into account, is that 90% of programming out there is essentially business automation, for a loose definition of business, but it's basically business automation.

I mean, yes, okay, there's sort of a sector on high performance computing, or scientific simulations. Honestly, the one that in some ways benefits the most from formal education, believe it or not, is games, because there you need the linear algebra and the harder math, and your performance constraint in ways that mean you're more likely to be coming up with novel algorithms than you are in your typical business program. Jamon?

JAMON: It's surprising how rare it is to encounter those types of situations in typical applications, like mobile applications and web. You just don't really run into it.

KEN: Right. So, the kind of people who are going to excel at your, like I said, very typical business automation, style programming, user interface design, et cetera, et cetera, are actually going to be people who sometimes were not computer people before, because they're going to have more connection and empathy with the target users. And that ends up making more of a difference to the success of software projects in many cases than your facility with the computer itself.

TODD: Yeah. Let me give you a real example from myself, because I started out very practical, and then later got interested in the CS concepts and stuff. Just purely for my own interest and stuff, and that did help to a point in my engineering career, but I did a project circa 2001 or something like that, and we would display, as a website, and we would display a map for the user, and they click somewhere else on the map and we had to calculate, based on the pixel difference between where we knew they were and where they clicked, the difference in direction and distance from the original spot.

Now, this required spherical geometry, and the earth actually is not a sphere. It's a little bit like a football actually, to a slight extent. In this case, someone who had a more CS background may have jumped into this easier. I actually had books on my shelf, like college algebra, and college geometry and stuff like that, and I would review these things.

And I learned how to do it. It was a successful project and it was very fun, but that's an example because I came from a practical place I had to look that up. Now, on the flip side, I've worked with people with PhDs in computer science, and no offense, bless their hearts, but they would work for two weeks and accomplish literally nothing. And then you'd ask them, "Was that done?" They were like, "I didn't know it was urgent." Well, it was an hour task. That's two weeks ago.

And I think they're on a different academic time, because they spent so many years in school, it's just a difference.

KEN: Which is, again, not to denigrate the usefulness of them. They're just useful in very specific circumstances and not as general programmers. Jamon?

JAMON: I kind of see it as, to use an analogy, like when you're lifting weights, if you lift weights in a way that is very functional, they call it functional, where it's almost like you're lifting a box or ... yes, Todd?

TODD: Jamon, for our listeners who may not be familiar with this concept, can you explain what lifting weights is?

JAMON: It is this theoretical thing that supposedly some people do.

TODD: Can you do it inside of your own home?

JAMON: I do now. I built a gym actually. But yes, you lift weights for health. And one of the ideas is that you do this sort of functional strength, where it's something that actually builds up the muscles for lifting boxes, and carrying children, and moving things. So it's very much like you're doing those types of movements, but just with heavier weights. It just makes you stronger in those ways.

And then there's other things where you're isolating specific muscles in a way that you would never really do in a day-to-day basis. And university can sometimes be more like that, where you are exercising those muscles, you are making them stronger, but you're not doing it in a way that necessarily replicates what you do in real life. And I think both are necessary.

If you just do functional strength training, it will get you so far, but you won't ever hit certain muscles because, like we talked about intense performance or whatever, you might not actually be using those aspects of your brain in a day-to-day basis. But they are good to have for when you need them. So I think that's a decent analogy of what we're talking about here.

I think that one of the criticisms that I've had of some of the higher education programs, is that they don't do particularly great job of replicating the real world of what people will actually be doing once they actually get into the job market. You can create a binary tree algorithm, but can you move this button over four pixels to the right? Which is often your first task when you get to work.

TODD: Yeah. And I would say that it really depends on the person. In an idea world, if money is no constraint, time is no constraint, yeah, of course I would love to go to university and stuff. But on the flip side, I'm a very practical person and I like to build things, I like to make things. So maybe I went for a few years, but maybe if I would have went that route I wouldn't liked it as much. I would have preferred to just jump in and start getting things done.

I think for me ideally was 18, I started doing it, actually doing it for three or four years, and then go to university for maybe two years, and enjoy learning all the concepts I didn't learn. That would have probably been pretty cool for me.

JAMON: I realized we're kind of leaning more heavily on the criticism side of this, but one of the criticisms of universities is that they optimize for rewards, like extrinsic rewards. Like, I got this degree, I got this piece of paper, or I did what was necessary to get an A. Where learning to accomplish something to actually expand your mind is a little bit of a different thing.

When I started my business I needed to build a website, I had a website to build, and I didn't know how to do it. For me, when I was learning from a book, it was very, very applicable. Like, okay, in order to make a menu, I need to know how to do these things, and it was very, very applicable. Very, very directly applicable.

KEN: Well, I'm going to make the positive case ...

TODD: Please.

KEN: ... for going in and doing it. One is, fair or not, it does open doors.

TODD: Correct.

KEN: Especially if you're in a good program, but even if you're not, it is used as a hiring filter in a lot of places. I think it's wrong but it's true. That's the very practical sort of level. But to be honest, there's definitely things that I learned there that can save you trouble.

I mean, I think they said that what makes a 10x programmer is that they know what not to program. So for example, even the theory class. The theory, computability theory, computational complexity, these sorts of things are more valuable than you might think in certain ways.

For example, you're at your start-up. Your boss says, "I want the optimal route to plan on this map. I want to be 100% guaranteed the best route." And you can say, "That's the traveling salesman problem, and it's actually a known hard problem," for example. And it's the kind of thing where it can steer you away from harder problems and towards easier problems. And in engineering frequently what you want to do, you're like, "Let's find a good heuristic instead of trying to solve this optimally."

JAMON: It may not give you the answer, but it will give you a framework around the problems that are out there, and the classes of problems that are out there.

KEN: Yeah.

TODD: Yeah. And I really appreciate that from people who have a higher education than myself.

While people were talking, I was thinking of this story. I interviewed for this job, and this guy was asking me technical questions, as they do, and he was a young guy at the time. I was probably 34, he was probably 10 years younger than that or more. And he asked me a question. I don't remember what it was the exact question, but basically he wanted me to accomplish a task, and what he was looking for is how I would technically approach this problem.

But I've been an engineer for a long time, and I know what's really important, and I know it makes a 10 times engineer, which is often not actually programing that. So I started off by challenging the fact that he even needed this at all. And logically, he didn't, and he couldn't really explain why he would, so I gave him additional other options that would make this application or this software work much better.

Not the answer that he was looking for. But it was the real answer. I used to say a saying all the time. I don't say it much anymore, which is, "There is no code as fast as no code." So in this case, I was just removing his entire problem from him.

KEN: I would say it can help you avoid reinventing certain wheels, which might mean that you don't get some amazing solution, because you weren't ignorant enough to know that it couldn't be done. Everyone loves those stories, but 99% of the time that's not how the story goes.

And in fact, to the point, I don't know if we're ready to segue into the business conversation we probably we will in a minute, but none of us have any business education. And I'm starting to wonder if it would be worth it to go get like an EMBA or something, so that we're not reinventing so many wheels.

I don't know if we're ready for that conversation yet. Jamon, you wanted to say one more thing?

JAMON: I have a bunch of other things to say, but I'll intersperse them here. I think that one of the things ... well, Todd actually alluded to this earlier, but the network that you get from going to university for four years with often some of the same people throughout, you get to know them, you do projects together, they have opportunities. A lot of them go on to be quite successful. And being connected to those people in that way is something that lasts for a lifetime. And that's definitely something that should not be undervalued. That's a big advantage, that's something that I did not have.

In fact, the only way for me to access a network like that was through ... well, I shouldn't say the only way, but the way that I accessed a network like that was through open source later.

TODD: It's true. There's a lot of overeducated crappy engineers doing very well out there. It's true.

KEN: It is true.

TODD: I mean, it is really true.

CHRIS: I was just going to add too, it's fascinating when we have this conversation today. It seems like it's been increasingly becoming more popular to question whether to go to school, or rely upon the tool. So what is it about today that allows us to even question the path forward, that maybe we weren't able to in the past?

KEN: We're going to queue that clip from Silicon Valley now.

TODD: Yeah. I think it has nothing to do with our particular industry, or development, or any of that stuff. I think it's just because the cost of university education is so extreme right now, that you naturally have to question if it's worth such a huge burden.

It wasn't that way for me in the early '90s. I could work and pay for my own college at that time, which I did. That's not possible these days.

JAMON: I'm going to agree and disagree with Todd there. I think the cost is definitely a factor, but I also think that this industry is a big factor in that we don't have ... my brother-in-law is a mechanical engineer. He couldn't just go and start mechanical engineering. He can't go out there and just do that.

TODD: He could. It's just governed by law.

JAMON: Yeah. You have to be a licensed engineer. It's a very-

TODD: But there's no reason he couldn't do that if it wasn't for laws.

JAMON: There may be a path to becoming a mechanical engineer that doesn't involve university, but it's very hard. I at least know of an architect that did it without going to university and getting a degree.

But that is something ... we have a lot of these professional, professions actually have degrees that sort of ... they're barriers to entry. And in order to get through that, the accepted path is to go through universities. Ours does not have that. We can start building websites, or building whatever, just by convincing someone to pay us to do that.

KEN: I think there's two points actually. One is part of the disconnect between mechanical engineers and software engineers is that when mechanical engineers fail, people die.

JAMON: That's true.

KEN: In many cases. That's sometimes true for software engineers too, but it's more true with mechanical engineers. And as a result-

JAMON: My brother-in-law works at a plant where if he screws up, there will be hydrogen peroxide blowing miles high in the air.

KEN: Yeah. So the stakes are often higher.

JAMON: Yes.

KEN: But also, if you want to be a serious chemical engineer, there's a lot of capital requirements for any of the things that you're doing, apart from the safety concerns, and that's very real. You're not just going to work on your own because you can't get them, whereas the capital requirements for being a software engineer are extraordinarily low. The access to education materials is extraordinarily high. And you can just try in almost literally anything that you can find out there for education material, you can try with a $500 computer.

So there's so many things about the technology world that are in many ways unprecedented, and that's why you're seeing this massive sea change in the economy as it starts to take over more and more of it.

And one of our missions here is to help more people in more places be part of that. So getting the message out that although CS degrees are helpful if you have the opportunity, go ahead and do it if it interests you, but it's not necessary if you just want to be part of this.

JAMON: Yeah. And one of the things that is very apparent, is that there's a lot more resources available now online for learning. You don't have to go to college to get the education because it's often on YouTube, or you can look through GitHub. There's all these resources, there's online courses. These are things that are very valuable, and they're self-driven.

When I first started wanting to learn Objective-C and building iOS apps, I bought an iPad 2 and I went to iTunes U and started watching the Stanford courses on there, and following along with those. So I was able to basically watch Stanford lectures for free, and follow along, and do what they were doing.

That was tremendously valuable to me. And all of those resources are very interesting. What's very interesting also is that very few people actually take advantage of this. Everybody with an internet connection essentially has access to these, to the same thing I did.

TODD: Which is pretty much everyone in the United States at least.

JAMON: Right. And yet, it's a very tiny fracture of a percent that actually take advantage of that.

TODD: Well, I would like to, for those of you who have this question and don't have a lot of opportunity for various reasons to go to university, I would give you my kind of recommendation. I forget who said this, I'm not going to attribute it to anyone because I don't remember who it was, but if you want to be a writer, write. If you want to be a poet, write poetry. When you've written a million words, you're a writer. When you've written 100,000 words, you're a writer. You have to write.

You'd be amazed how many people want to do something and actually don't do it. In our industry, it's very possible to be a very successful software engineer by just doing it. But even, we mentioned mechanical engineering which does have some legal constraints for sure.

But I don't know if anyone's ever seen the movie October Sky. It was in the late '90s. It was about a NASA engineer called Homer Hicksam (Homer Hickam) I think. He was a son of a coal miner and he loved rocket engineering. And he just did it, and he did it, and he did it, and he did it, and eventually without ever having an education, he did it for NASA, and he was a very famous and successful engineer at NASA.

So, I don't recommend that route for such things, but it is possible. And I don't care who you are, or what profession you're in, if you just spend a crap load of time doing it, you're going to rise above everyone else.

Another great story I have, I read this book. It was about this guy who was really into etymology. Entomology, not etymology which is the study of the origins of words. Entomology, which is the study of insects. He came from a very poor family, and he was in Alabama, and he got into the University of Alabama for biology. I believe he got a scholarship because he couldn't afford it, but the day one he showed up, he went to the head of the biology, the college or probably ... I don't know what it was, but wherever the college of biology is. Ken will correct me. This shows my education here.

Anyways, he went up to the head and he said, "For the last two years I've been cataloging the ants of Alabama." And no one had ever done this. So on day one he was put in charge of something very important at the university because of this, simply because he just did it. He didn't ask permission. He just did it.

So if you want to become a developer, regardless if you have the opportunity to go to school or not, you just have to start developing. Get into open source, publish stuff, start creating your portfolio and just do it. I'm not going to recommend this at all, but if you dropped out of high school at 16 and started programming and put a lot of work into it, by the time you're 18, 19, you're going to have a high paying job. That's a fact.

Don't do that, kids, but-

JAMON: Yeah. If Cedric's listening to this, stay in school.

TODD: But you totally could do this, but it does require a lot of ... a lot of times people go to the university and those kind of paths because they don't have the kind of internal-

KEN: And by the way, if you're that person, you probably already know.

TODD: I don't necessarily think so, because-

KEN: I mean, if it's flowing out of you so much that you just can't stop doing it basically, that's usually the kind of person who makes it that way.

TODD: I agree, but I think-

JAMON: Well, that was me at that age for sure.

TODD: I think a lot of those people don't know that it's possible, because they don't have an example of it being possible.

JAMON: That's exactly right, and that was actually me at that age. At 16 I was coding every day. Every day I would go home and that's what I would do. I mean, I'd do homework on the bus. I didn't do it at home. I coded at home. But I had no role models that were programmers. Well, I had one but he worked in San Francisco and he had been to college, and I thought that was the path.

So I didn't really have that sense. And I was doing some pretty complex games and stuff, and figuring things out on my own because I didn't have internet at that time.

TODD: Yeah. Well, back in my day I had a book budget, because the only way to learn was from books. There was nothing online, because there wasn't online. I had a book budget where hopefully I could buy a book every couple of months, add to my collection.

But anyways, if you get nothing else and you're aspiring to be a developer, I give you permission just to do it.

JAMON: Another option is code bootcamps. We actually have at least one, maybe a few others that have been to bootcamps here at Infinite Red, and we found them to be quite valuable for getting people up to speed on frameworks, on languages, on sort of the technical skills, and just getting the familiarization and understanding that they can learn these things. Often it doesn't teach them everything, but it gets them the confidence that they need to move forward with it.

I think bootcamps are definitely an option, and there's many good ones. We've worked with Epicodus here in Portland, and there's others as well.

KEN: They're especially helpful I think for people who have some kind of technical or quantitative background but just need to learn to code.

JAMON: Right.

KEN: Per se. Yeah.

JAMON: Yeah. It's a good way if you're switching to a second career, or something like that.

Another one that I'm actually a really big fan of is Austen Allred's Lambda University. Now, this one's got a really unique model. It's a little more intense than a bootcamp I think. It's a fairly solid higher education option. They have a lot of success stories coming from it. But one of the really unique things that Austen's doing there is they do not charge tuition upfront. Essentially they will take a percentage of your income if you make above, I think it's $60,000 or something a year.

Once you get a job that's above $60,000 a year, they'll take 17% of it for up to two years, and there's a cap. Like, $30,000 or something.

TODD: That's amazing. I love that.

JAMON: Yeah. And if you never get a job in that range, then you never pay it back. The debt is forgiven.

TODD: That's a really cool idea. I love that.

JAMON: Yeah. Yeah. It really is great. And apparently the financial model's been working for his university. It's an online one so it's very accessible and they're actually finding that they have a much more diverse student body because of the fact that someone who doesn't have a lot of means, doesn't have a lot of support, they can go to school online, they don't have to pay anything upfront.

They're even good about trying to support them financially during the time that they're in the university. It's a really great model. I'm a big fan. Lambda School or Lambda University I think it's called.

TODD: We'll put that in the show notes.

JAMON: Yeah. And Austen's doing a good job with that. He also, if you follow him on Twitter, he's got some really great thoughts on education. I like what he tweets about.

TODD: Yeah. I guess in summary there's many ways to get there. If you are a maker, like I always was ... even when I was a kid I constantly made things, I think my path might be an interesting idea. If you have the means to go to university, by all means do it for sure. If it's going to be a huge financial burden, I would definitely give it some serious thought before incurring that burden.

CHRIS: I'm curious how you approach education "Once you make it." What does it look like on a daily basis to learn new things, be challenged by new things, or even challenge the people that you work with as well?

JAMON: All you need to do is listen to this podcast religiously.

TODD: It sounds ridiculous but it's absolutely true. Continuing education. That's a good one. Truthfully, for a software engineer, if you can't teach yourself every day, you're going to have trouble because whatever you knew last year ... I've been doing this for 22 years and I think that number changes every time I say it. I started in '96 so whatever that comes up to.

JAMON: We're software engineers. We're not very good at math.

TODD: Yes. That's a fact. But you have to learn new stuff. The stuff you worked on two years ago is not what you're working on today. It's constantly learning new stuff. Now, you learn certain patterns and certain ideas that you use over and over again, and you start as you get a lot of experience you start realizing how we're kind of just redoing the same thing over and over for the last 40 years.

JAMON: Yeah. Ken, didn't you do an exercise where you learned a whole bunch of languages, and you wrote the same program several times?

KEN: Yeah. It was fun. I had fun with it, and then it literally burnt me out of programming for a long time.

JAMON: How many did you do?

KEN: I got through ... I don't know. 20 or 30.

JAMON: Wow. Yeah, so that's what Todd's talking about, is this sort of recurring theme that you see over and over.

KEN: Yeah. And after a while it was just like, it was the same approach over, and over, and over, and over.

JAMON: It became a lot easier to learn your 20th and 21st and 22nd. Yeah.

KEN: Yeah. I always recommend people learn three or four languages, just for their own edification. A lisp, a low level of imperative language, C, C++, even Java, a dynamic language like Ruby or Python.

JAMON: And then something like Haskell or Elm or something.

KEN: Or actually something like Prolog or Erlang is actually probably more interesting than ... Haskell's great, but more interesting than that because it really makes you think about it in a different way. If you learn those, you can learn anything at that point.

JAMON: I think one of the things that really helps me is I have this insatiable curiosity about concepts and computer science. I love reading about it, I'm on Twitter a lot and that's a good place to source new information. You can watch videos.

Other people learn in different ways. I know one of our engineers will troll through GitHub. He'll actually jump into a package.json file which we-

TODD: I don't know if, "Troll" is the right word, but yeah.

JAMON: Well, trolling as in fishing. And he'll look at the dependencies of a particular well known thing, and look at what they use, and then go look at those and see how people code.

It's a very cool way to learn. Other people, they'll learn by pairing with other programmers, they'll learn obviously by experience. Some people read books. We have one of our-

TODD: Watch videos.

JAMON: Yes, watching videos. One of our developers decided to learn ... this is Darin Wilson. He decided to learn Ecto, which is the database layer for Elixir. He decided to learn that by writing a book about it. And apparently that's been quite educational for him. He's learned a ton in teaching.

TODD: Yeah. Don't do that, kids. It's a lot of work. That's kind of a lot about software engineering and that kind of stuff, but we're also, on the other side ... and we probably lost all the entrepreneurs by now, so I guess we should do this first. But on the other side is education when it comes to being an entrepreneur, running your own small business, running a larger business, that kind of stuff.

JAMON: I learned first I would say by watching my dad. He was a small business owner, so I learned some basics there. I did know quite a few small business owners, and I did talk to them. I would go out to coffee with them or whatever, and just ask them questions. But it was very much a learn as I go type of a situation, learn as I had to.

How do you do payroll? I had no idea. I hired a bookkeeper who taught me how to do payroll and did most of it, which was nice. How do you market? I had no idea. That was a whole thing that I had to learn. How do you do sales? I mean, I just plopped myself in front of people and tried to do the best I could, and tried to learn from it. That's probably not the way I would recommend going though.

TODD: We did engineer our sales process by the way.

JAMON: Once we merged companies, then Todd and I started doing sales together, and we had a much more engineery approach to it. It was good. Actually have a feedback loop, and we would try to build our experience over time.

I have read some business books, I've watched some business videos, but for whatever reason software engineering, education has always been more ... I guess got more traction with education on that side. With business stuff that always seems so abstract and not directly applicable.

KEN: I'm definitely at a point where I'm feeling like I could use some formal education honestly. The MBA is not what it used to be in terms of guaranteed high paying work. Even elite MBAs are not what they used to be in that regard. But I wouldn't downplay the value of the network building that they bring. But what they can't teach you, what no school could teach you, is what it's like to stare at your bank account and wonder if you're going to make payroll this month and how you handle that.

I mean, it might mean that you know a good banker who can help you, but it doesn't teach you what that feels like. It can teach you about negotiation, but it doesn't teach you how to actually sit at a table with somebody who's got a lot more money and power than you.

There's a reason that even regular business schools prefer that you go out and work some place for a little while before you go there. And I think that the EMBA route, if you're going for formal education, is probably a pretty good one, because then you have really embedded yourself. You have a very felt experience of what these things are like, so when you go to that negotiation class, or that finance class, or whatever, you get it. It's going to land someplace for you emotionally, that it wouldn't for a kid out of school.

JAMON: What's an EMBA?

KEN: Executive MBA, meaning a lot of the business schools will offer these programs frequently, nights or weekends, even at a high level, so it's right where you as a person who already runs a business can go and fill in your skillset.

TODD: Interesting.

KEN: And hobnob with other people like you. Yeah. And they're not cheap.

TODD: Yeah, that makes sense especially if they're geared towards executives.

My path was way too long. So, if you want to do it fast don't take my path, but this is my third company and I feel like I finally became a business person on my third company. That's a long time, and that wasn't three companies in three years. That was three companies in 15 years.

I definitely wouldn't go my route. I think one of the things ... I mean, there's different aspects of business, right? Ken alluded to some of them. Financing, super important. If you're not making money, if you're not negotiating good deals with your vendors, or employees or whatever, if you're not keeping it cashflow where you can pay payroll, you're sunk, so that's very important.

The other thing is, your management and leadership skills. As you grow, you're going to have a team, so that's very important. That's not something you super easily learned from a book. I think even things like accounting theory ... Ken, I don't know if you want me to share this story. Well, I'll just say it and we can cut it if you don't want it.

This is kind of a funny story. When Ken and I first started this business, this was my third, but this was Ken's first business. And we were going over our accounting and he was telling me all about accounting theory, and he knew it very well, but I don't remember what it was, but it was something like I said, "We should get our P&L," and you had no idea what that was. It's a profit and loss report.

KEN: I don't think that that was what it was. I don't think that's what it was. I don't remember what it was, because I knew what a P&L is.

TODD: Maybe it was AR, account receivable? It was something very basic.

KEN: Well, we had a long running argument about cash verus accrual accounting as I recall.

TODD: Right. So regardless of what it was, and I don't mean to insult Ken whatsoever, but that's actually not uncommon. My wife's an accountant and she was trained at university for that and then she worked as a corporate accountant for a long time and worked her way up to a fairly high level.

The day-to-day, just like in programming, you learn the concepts but once you hit the real world, the real world's so much different than anything. And I think that's true with a lot of ...

KEN: I'll go into that. I was like, "I think we should do accrual accounting," and Todd's like, "I don't think so." I'm like, "Well, no. I really want to be able to ..." the benefit of accrual accounting is that you can see profit versus cashflow and it sort of gives you more information, but it's way more work, way more work. And if you haven't done it, you don't know that, so we are still a cash accounting.

JAMON: Yes.

TODD: Is it more work, Ken?

KEN: What, accrual?

TODD: Yeah.

KEN: Much.

TODD: Is it way more work?

KEN: Much, much, much more work. Yeah. And that's something I don't really like very much.

JAMON: One of the things I did well when I started my business was I forced myself to do a monthly budget. And I was doing this for my personal life too, so I just used the same skills I had there to do a budget for the business, which was much easier because I wasn't buying diapers there generally. There wasn't quite as many transactions-

TODD: There's a joke in there somewhere.

JAMON: Yes. There weren't as many transactions and stuff. But it was actually really great because I was able to keep a very close eye on where we were in a cash basis obviously, and then I did have accounts receivable system that I could look at to see what kind of money would be coming and do some forecasting and stuff.

We've carried that forward to some extent here at Infinite Red doing the budgeting. We got away from it for a little while, but we're going to be going back and do it because it has been very helpful, even though you in some way feel like you're doing kind of double entry.

TODD: Yeah. I think, gosh, business education and experience, you really have to have both. You have to study in some form, and you have to have experience. It's really challenging to be honest, compared to something more straightforward like becoming a designer or an engineer, just because it's very nebulous and very human oriented for sure.

JAMON: And there's so many ways to do a business right, and there's many, many, many more ways to do it wrong. If you just follow a formula, that's not necessarily going to work. There's a lot of variables in business.

TODD: And people tend to do things the way that they're comfortable with, or the way they're familiar with. It's kind of funny. My wife, she's actually a small business person now, but she's an accountant by trade as I mentioned. In accounting, they use spreadsheets to a ridiculous amount. And when I say ridiculous amount I mean they're super familiar with spreadsheets, very advanced spreadsheets, so if there is a task, they throw a spreadsheet at it.

Now, as a programmer, my first thought was database. So, my first company, I did my accounting like a database, which probably wasn't great but it's what I understood. And that's what people do, they apply. So my wife Heather and I, sometimes I've went there and said, "That's cool, but you know, if we use a database this will be much easier." And I set her up with a great product called Airtable, and she switched from a spreadsheet for that particular thing to the database, and she loves it.

And then looking at some of her spreadsheets, for example, as a programmer, if I needed a particular report for finances, I would assume I'd make a report and I would use a system to make a report and stuff. But for her it's super common to extract data from multiple sources, stick it into a pre-made spreadsheet and have the spreadsheet be the report. This is what accountants do all day. It seems more manual, but it's actually faster and more convenient.

So as a person who's not educated, maybe not educated in starting a small business, or taking a long route like we do, you'll find that you're doing things that you know how to do. It may not be right, but you kind of get them done. And it's good to look, at some point, when you have time, to look how the professionals do it, so you can do it more efficiently.

KEN: Well, and I want to piggyback on that, which is that one of the harder things that we've learned is to do some things manually, that there's real value in doing things manually and personally, and not trying to automate it.

Like Todd says, when we think we need a report, the first we're going to go like, "Hm. We should write a report so we don't have to do it ourselves over and over again." Wrong. Wrong, unless you're-

JAMON: We need the education-

KEN: Unless you're Ford, unless you're a massive company that has already a very dialed in process, automating as a small company is sometimes counterproductive. Not only does it take a long time, a big time upfront, but then you are locked in and can't change it. You can, but now all changes are expensive. And two, there's real value to human eyes going and looking at the stuff and compiling it.

And that was very hard for me to learn because, like a lot of people, I got into computers because I'm lazy, and I wanted the computer to do all the work for me. But there's no substitute for human eyes on the problem, in many cases.

TODD: It's funny, because we're all engineers and designers, the way we do reports at work is we have an artificial intelligence chat bot in Slack that produces the reports for us. That's such an us way of doing things, it's hilarious.

JAMON: If it's okay, before we wrap up here, I'm going to bring this back to universities for a second. I think this is actually a really important thing to get across to people who are considering that path. If your state offers ... here in Washington State it's called Running Start, but essentially the ability to go into a small community college that's nearby your high school, and get your first two years done for free. The K-12 system actually pays for your college, for the first two years. That's really helpful, and there's really no reason not to do that. That's a great way to get started.

Secondly, if you are going to go to a university, unless it's something like Harvard, or maybe Stanford, you should really avoid private universities, especially for-profit universities. Those are really terrible. You really don't want to go that direction.

KEN: Well, I want to draw a very clear distinction between private and for-profit.

JAMON: Yes, of course.

KEN: There's a lot of very good private schools. If you can afford them, go for it. A lot of them are really great, great education. for-profit schools completely different.

JAMON: Todd and Ken, I'm not sure if you know this, but one of the things that ... well, you do know this. One of the things that for-profit universities do is they prey on disadvantaged students and stuff. They'll go and sign them up. And they actually did that at my school and I was actually signed up and accepted to one of these universities, which would have been an incredibly expensive education. I'm not sure what the quality would have been, but very, very expensive.

And I backed out, but for a while I was thinking this is what I'm going to do. I'm going to go to this university for a computer science degree. And you just need to stay clear of them. It's not worth it. They're often predatory, they're just bad.

TODD: Not to be confused. One thing I want to do mention is ... sorry to interject, Jamon. The Code Academies are for-profit also, but those-

JAMON: Yeah. That's much different though.

TODD: That's different.

KEN: Yeah. We're not going to mention any of the names of the for-profit universities, because we don't want to get sued, but ...

JAMON: They're bad, yes.

KEN: They're bad.

JAMON: But there're a lot of really great state universities they can go to. A really great way to go is to do ... your Running Start type program for two years and then go for the next two years at a state university and you can get a degree. And it's honestly relatively inexpensive.

CHRIS: One of the things that I would love to add, regardless of what you do, whether you're an engineer, or a designer, or a founder of a company, one of the best ways to learn is actually to teach what you know to other people.

TODD: Good point.

CHRIS: So that when you don't understand something, you're going to dive in to learn it so that you can explain it to someone else, and that's where oftentimes I found that theory and practical knowledge combine and multiply.

TODD: I think that's fantastic. I would totally agree. I've taught a handful of programmers throughout my career, from nothing into professionals, and nothing teaches you like teaching. It was a big boon.

As for business education, we talked about that as a combination of education, however you get that, and experience. But if you want to be an entrepreneur, there is absolutely no excuse.

Today is Tuesday when we're recording this. You can go down right no, go to Costco if you don't have a Costco card go to Walmart, buy bottled waters. They're really cheap. You're going to get 24 pack, whatever, for whatever it is. So basically you're paying pennies for each bottle.

Go down to the beach, or wherever in your local town where people hang out, and sit there and sell bottled waters for about 30 minutes.

KEN: Until someone calls the police on you for not doing it with a permit.

TODD: Correct. That's why the time thing. But you can sell. When someone's out running, or they're with their kids at the park, you can sell one of those bottled waters for $2. You bought it for 15 cents, you sold it for $2.

Congratulations. You are now a business person. And it just goes up for there, and the truth is, a lot of people who want to start a business, they really want to want to start a business, they don't actually want to start a business.

So I always recommend to people, do the bottled water test. If that's very unpalatable to you, you're probably not ready. Doesn't mean you won't be ready, but you're probably not ready to start that small business yet. Little advice from your uncle Todd.

JAMON: I don't think I would ever go to the beach and sell bottled water unless I had to.

KEN: I don't think I would do that either.

TODD: People like really successful in sales people and stuff like say Mark Cuban, he did this kind of stuff. But from a young age he was a business man and his job was to find things that he'd get for X and sell for a multiple of X. And he would do anything. He would go door to door.

KEN: If you're already a programmer or designer, go get yourself an LLC and put your shingle out as a one person consulting firm. It's not the same quite as business, but it gives you a little bit of a flavor for it. It takes you down that road a little bit. That was certainly what did it for me.

TODD: Don't work for free.

KEN: Yeah. Don't work for free.

TODD: Whatever you do, don't work for free. Everyone will try to get you to work for free. Don't do it. No free bottles of water.

KEN: That's a whole another conversation.

TODD: Except for the cop who's arresting you for permits.

KEN: Yeah.

TODD: Give him a few-

KEN: What if I just slipped you one of these bad boys, officer?

TODD: This fine, fine water could be yours.

KEN: On that note, thanks for listening everybody.

JAMON: See you next time.

TODD: Yes, thank you. This was Todd, and this is Jamon. No, that's not Jamon. This is Jamon-

JAMON: Thank you. This ...

KEN: I had a great stopping point, and Todd just had to keep talking. You just had to keep talking.

TODD: Ken, I'm not the kind of person who has to have the last word.

KEN: Yes, you are.

TODD: I'm really not. That's funny. I'm going to stop recording.

In this episode of Building Infinite Red, Jamon, Ken, and Todd touch on the fears, anxieties, and struggles of running a business. They share stories and thoughts on starting a business, managing stress, how success and failure impact focus, the difference between venture capital and other sources of funding, fear of missing out, and the importance of knowing what you stand for.

Show Links & Resources

• YNAB: Personal budgeting software
• Four Yorkshiremen by Monty Python

Episode Transcript

TODD WERTH: So I thought a good topic today, one of the reasons because I'm personally interested actually, hear what Jamon has to say and Ken has to say, and of course I'm sure they're interested to hear what I have to say. But the topic is when you start a new business or you're an entrepreneur doing multiple businesses, or anything of that particular area. What are some of the biggest fears, anxieties, apprehensions, that you might have you know before the process, during the process, whenever? I find this very fascinating, because I imagine a lot of people, well maybe some people who are listening are experiencing these right now and A) it'd be great to hear someone else express the same thing so they know that they're not alone in this, and B) it's kind of interesting to think about yourself. It kind of, it's not something you typically sit down and think about, so if you two don't mind, that'd be a really interesting subject for today.

KEN MILLER: Sounds good.

JAMON HOLMGREN: Yeah. Well I think back to when I started by business. It was 2005, and I was working for a home builder at the time, so I had a, you know, decent job. It was an office job. I was doing I think cad design and marketing for this builder. Not really doing programming. But I decided that one of the things that ... well I had, prior to this time, I had thought, you know I'd be really nice to own my own business at some point. It'd be something that I would aspire to. And I think that part of that was my dad owning his own business and knowing a lot of entrepreneurs kind of played into that. I thought it would be an interesting thing. I've always been a little bit independent. Want to kind of set my own course.

So I started thinking about doing this and talking with my wife, and at the time I had a six month old baby. That was my first kid, my son, who is now 13 years old. Around actually this time of year is when I decided that I was going to do this. What helped was an opportunity that came up. So the apprehension of how do I get my first customer was sort of already taken care of. My uncle had a bunch of work that he needed done, and he asked me if I wanted to do it kind of on the side, or as a business, and that gave me the confidence to pull the trigger and say, let's so this. Because I had a built-in customer right away. But I do remember the first month sending my bill over to him, and it was only eleven hundred dollars, and that was all I had earned that whole month was eleven hundred dollars. And that was a wake up call to me that, hey I can't just expect the money to come in, and that was definitely ... I sat up and noticed.

TODD: Yeah, that's really interesting. So when you started ClearSight, that was your first company, correct? At that time?

JAMON: That's right. Yeah, ClearSight. There were other points along the way where I was sort of I got kind of gut-punched. Many times along the way. One was when ... my first business was doing websites, but it was also doing CAD designs, so I had essentially two business, and the CAD design part of it, you know designing homes, designing remodels, those sort of things eventually dried up, because remember that was during 2008, 2009 the housing recession kind of came along and that impacted the designers first, because we were the first ones in the process. People stopped taking money, equity out of their homes to do remodels. They just stopped doing it. So basically the whole market dried up.

I remember my uncle told me, "I don't have any work to send you anymore." And I had a few accounts myself, but they were pretty slow too. And I kind of sat at home for a few days and felt sorry for myself. But in typical Jamon fashion, I was like, well I guess it's time to go do this myself, so I went out and literally started knocking on doors at offices and stuff and handing out my business card. Wasn't too successful at that, but it was at least doing something, and then things turned around eventually.

TODD: Since you had a new baby at home, and obviously you're married, and you're trying to support them.

JAMON: Right.

TODD: Did that add any worry to you at that time?

JAMON: Yeah, for sure. It certainly did, because any worry that my wife felt was reflected back on me because I feel very a sense of responsibility that I need to be making sure that we're not losing our house. Making sure that we can keep food on the table, things like that. So that was a lot to process. My health definitely suffered because of it and a few other things, but there was a lot of stress involved with that. I think that if I were to go back now, knowing what I know now, I could very much have probably pulled out of it much faster. I could have found a better path, but you live and learn.

TODD: I'm sure there's more to tell about that story, but I'm curious to hear your thoughts Ken.

KEN: For me the biggest worry was always money. Right? I mean, since I came out here to Silicon Valley, I had the dream. I had the Silicon Valley dream for sure. I wanted to start my own company. And to a certain degree, the Silicon Valley dream as sold is not sold accurately. Right? It's sold as this sort of fantasy. And the truth of the matter is you have to have more resources than is reputed in order to do the Silicon Valley way effectively. You need to know VCs or people who know them. It helps to have affluent parents who can bankroll you not making any money for years and years and years. I'm luckier than most on all of those accounts, and even I found that very intimidating, challenging. And especially living in the Bay Area, once you have established a life in the Bay Area, the idea of not taking a salary for a couple of years is utterly terrifying if you don't have a big pile of money.

In fact, I wasn't really able to do this until I had a little bit of a windfall from the Yammer acquisition to lean on. Basically just enough to let me barely scrape by for a year for which I'm still very grateful 'cause I probably wouldn't be here today if I hadn't had that. And there were some scary fricking moments. There've definitely been a few extremely close calls financially. So I don't ... that fear I think was justified and surmountable. Let me put it that way. Right? You can definitely figure that one out, but I'm not gonna lie. It can be super scary sometimes.

For me, the biggest mental shift that got me where I am now is that I had always had in my head this sort of venture capital model, because that's what I knew. Right? Because that's the kind of company I'd worked for. I saw how that process basically worked. But it always felt wrong to me. Right? Like, I was always like, what's so wrong with profit? What's so wrong with actually making a business that can support itself fairly early on? And I think it was the Paul Graham post that was like, the difference between a start up and a small business. And a start up is specifically optimized for hundred S growth or nothing.

JAMON: Right.

KEN: And that's what venture capitalists want for the most part. Right? No venture capitalist wants you to be one of the nine or ninety-nine that don't make it.

JAMON: Mm-hmm (affirmative)-

KEN: Nevertheless, the model is set up that way. The model is set up so that only one in ten or less have to make it. And so once I realized, oh no all along I wanted to make the lifestyle business, basically, the small business.

TODD: I just wanted to point out that especially in Silicon Valley the term lifestyle business is a semi-derogatory term.

KEN: Pejorative, yeah.

TODD: Yeah to refer to a normal, actual business.

KEN: Exactly.

TODD: And I always found that amusing when they said lifestyle business it was insulting you, because you make a profit. I always thought that was funny.

KEN: Yeah, right. It's sort of like the Silicon Valley model is for people who would rather be a billionaire or nothing. Right? It's kinda like a shot at a billionaire is worth way more to them then a pretty good path to a millionaire. Once I realized that that was the exact opposite of me, I was much happier and I could actually work towards something that mattered. Right? And not even the millionaire part, right? It's like, if that happens, that would be awesome, but it's more creating the environment that I wished that I'd had.

JAMON: When it comes to fears and those types of feelings, do you ever feel maybe that you are missing out on those wild rides?

KEN: Do I have FOMO for the-

JAMON: Yeah, a little bit of FOMO.

KEN: Sometimes.

JAMON: FOMO being, of course, fear of missing out.

KEN: Yeah, living here especially. I think that's inevitable.

JAMON: Right. Because we're not set up for just rocket growth at Infinite Red.

KEN: I've been at enough companies that ended up making everybody thousandaires or worse. Right? Or negative thousandaires in at least one case. I had a friend, he seemed like he was living the dream. This was way back when in the first boom. Right? He seemed like he'd lived the dream. Right? He was just an engineer at a start up and he was suddenly a millionaire overnight. And then within six month, he was a negative six hundred thousandaire with a gigantic tax bill.

JAMON: Oof.

KEN: The whole model has kind of lured a bunch of people into the stock option thing. This is what I'm talking about specifically. I think there is absolutely a place for the venture capital model, but the stock option compensation model that a lot of people have done, is kind of a raw deal in a lot of ways, but that'd be a whole other topic, so-

JAMON: Yes

TODD: Just real quick, I own tons of stock and stock options that are worth absolutely zero-

KEN: Yes.

TODD: But, if I ever run out of toilet paper, I am set.

JAMON: So Todd, you started a business well before Ken or I, and you know I actually I don't know if I've ever heard the story of your very first business and how you went from being a software engineer at a company to owning your own business, and I'd like to hear about that from the perspective of the topic of this episode which is about fears, and uncertainty and things like that.

TODD: Yeah. Yeah. That's great question, so I've owned three businesses. This hopefully is my last one here at Infinite Red. My first one was in 1999. We started, it was three of us, it was also a consulting company like Infinite Red which lasted for nine years. It was a little bit different. Real quick, we did mainly enterprise, not start ups, larger companies, that kind of stuff. And our model was kind of to be subcontractors. So we had a lot of relationships with other consulting companies.

One of the things we did, is we did really hard things well. So all the other consulting companies, like especially at that time it's gonna sound funny, but you'd have companies coming to us saying, "Look, we're doing most of the project, but they want something on the web, and we have no idea how to do that." And we did. And we knew Visual C++ and we knew all sorts of things. And so we specialize. We were higher priced because of that, and we'd come in and do the fun parts, in our opinion, which was really great. This is circa 1999. That one wasn't ... there wasn't too much anxiety from it. It was a small company, so later I'll talk about most of my anxiety at Infinite Red come from my worry of the 25 families I'm responsible for.

JAMON: Right.

TODD: It's not so much myself, because I do not have affluent parents. Well, most of my relatives are dead now, but I never really worried about money. I mean worst case scenario, I can be a developer. I'm pretty darn good developer, and I can make good money at that. And I moved out of the Bay Area, so for me my lifestyle is much cheaper than it used to be. So I don't worry about that so much, but I do worry about everyone's families who work at Infinite Red.

My first company, we didn't have that. It was all just high level people. There was three to six of us, depending on the time. And we kind of just slipped into it. We had our first few big customers before we even started. So that wasn't really stressful at all.

The second company, which came after my first company, I went back and worked for companies, for other start ups as an employee, and that's how I met Ken. Ken was my boss. And I was doing that mainly just 'cause after nine years running your company, I was just kind of tired, and I wanted to be an employee for a while. And I did that for about three, three and half years. And Ken, sorry boss, it was super relaxing, easy. You work like seven and a half hours a day or whatever.

KEN: This has been noted on your permanent file.

TODD: You know, regular jobs often are pretty lax compared to start ups. As an aside, I was in a pizza parlor once, and I saw a sign behind the wall. It was obviously the pizza parlor was owned by a person, it wasn't a chain, and the sign said, the only thing more overrated then running your own business is pregnancy. Which is true, if you do it for low hours and high pay, you really should rethink that, but there are lots of great reasons to do it.

Any who, my second company was venture capital backed company which means we didn't use our own money. It was intentionally designed to do the hockey stick which means go from zero to very high very fast, and we had investors. And we had to pitch to venture capitalists and angel investors, and we had all the kind of normal Silicon Valley stuff. And that lasted for about a year and a half, and I cherish that experience, because it taught me a lot about that process from the inside. It was completely a failure which is fine. The fears in that, once again, were not personal, because as I did right after that, I went and got a job with Ken.

JAMON: Right.

TODD: And I made plenty of personal money. And because we weren't investing our money, the VCs were, there really wasn't a lot of anxiety there. I would say the main anxiety there was performance. Meaning it's kind of depressing when you're failing, and sometimes you have a great success. We did one month, especially. And we were shooting to the moon for a whole month, and it was super exciting. So it was just kind of a roller coaster of anxiety for that kind of business. Yeah, Jamon?

JAMON: I think it's really interesting to hear you and Ken talk about the idea of, well I can just go get a job as a developer. Because for the longest time, I didn't feel that I had that option. Whether that was reality or not, I don't know. I was basically, I kind of thought of myself as just building websites. I just built websites for people, and I didn't really think of myself as a software engineer. I just happen to be someone that happened to built websites.

TODD: Knowing you Jamon, and the quality of engineer you are, you are completely wrong. You could have totally got a job, but I get why-

JAMON: Yeah.

TODD: -from your perspective you felt that way.

KEN: Yeah, well and it's a matter of ... it highlights how important just knowing the scene is.

JAMON: Right. Yeah, totally.

KEN: If you know the scene, yeah if you're an engineer, even like an old rusty engineer, like we're going to be before too long.

TODD: Too late, Ken.

KEN: Right.

JAMON: Too soon and too late.

KEN: Even if you're an old rusty engineer, you can figure it out. Right?

JAMON: Right, yeah.

KEN: The demand is so overwhelming and so consistent and so pervasive that-

JAMON: Yeah.

KEN: -if you know sort of the ins and outs-

TODD: Even you Jamon could get a job is what you're saying.

JAMON: Even I could get a job.

KEN: No, if you're half-way competent, and he's more than half-way competent, about 60 percent.

JAMON: I appreciate it.

KEN: No, it's-

JAMON: 60 percent. Yeah. No, and to hear that now. It's something that is obviously more of an option now that I don't need it, but at the time it didn't feel like an option, and so especially when I started getting employees in 2009. And most of them were young. They didn't have much in the way of family, but they would obviously still have ... they needed jobs, and I felt that. I felt that in every part of me that if the business wasn't doing well, that I was failing them. And that actually drove me for a long time. I think if I'd had the option to go work for someone, or felt I had the option to go work for someone, I may have actually quit at some point. But I didn't. I kept the course there.

KEN: I will say, that I'm glad that I did not know everything that I should be afraid of going into it. 'Cause there is plenty that you should be afraid of, and if I'd known all that stuff going in, I probably wouldn't have done it, and I'm glad that I did it. And if I had to redo it now, I would do it again.

JAMON: Right.

KEN: And that's an important distinction is that it's not that I would do it again, it's that only hearing the bad stuff at that point, would have been a disaster.

TODD: Ignorance and hubris are the two best tools of the entrepreneur.

JAMON: I feel like it's both more stressful and more scary than you think, but also you're more resourceful and more able to deal with it then you think.

KEN: Yes.

TODD: Hundred percent. I would say, talking to other people who are new to it, and I certainly had to learn this, the biggest problem is the buck stops here. Meaning in every other situation where you worked, you could always throw a problem up the ladder.

JAMON: Yes.

TODD: And when you're a small business person, you don't know accounting? Doesn't matter. Do it.

JAMON: Someone's gotta do the accounting.

TODD: Right, like there's literally no excuse. There's none, and you don't have that money just to pay for people to do it.

KEN: I guarantee the IRS does not grade on a curve.

TODD: No, they don't care about your excuses.

KEN: Yeah.

TODD: So Jamon, Ken, and I come from very different places. So Ken obviously went to Harvard. He's impressive on paper. I actually did not. I didn't finish college. I started making way too much money as a programmer to be honest. But when I first started out in 1996 as a professional programmer, you know I wasn't making tons of money, but it was plenty for me, because where I'm from, it's a lot of money. And at that time, I'd probably be more like Jamon meaning I didn't see myself as really deserving that kind of stuff, but this was in San Francisco in 1996. So I saw the first boom, and then I saw the crash, and then I saw the second boom. And after a while, you start to learn, although I don't have Ken's personal background. I do have Ken's professional background.

JAMON: Mm-hmm (affirmative)- Yep.

TODD: And so, one of the things I've noticed when talking to Jamon, because he's in Vancouver, Washington, and not around that stuff as much, is he feels a little bit like an imposter. He's totally not. And I bet even now in his mind he imagines that those people working at Google somehow have this huge, amazing, genius to them, and Ken's probably in the middle. He probably thinks some of them do. I personally have yet to meet one of these fabled geniuses. So the more you get involved with that, the more you realize they're just humans, and you're just as good as they are.

KEN: That is true.

JAMON: I think that's been something that I've become more and more aware of over the past several years. And it's funny because I don't usually think of myself as having imposter syndrome. I'm actually quite a confident guy, but in that regard I definitely did not really realize ... it felt like they were a different breed. They were a different type of person. And I always felt like I could probably learn anything, but there was still this degree of separation. But, anyway, coming back to the topic at hand, I think that sort of uncertainty and fear can be a motivating factor. But one of the things, so one of the things I'd like to talk about, is there are healthy ways and unhealthy ways to handle that stress, and I've done them all. Believe me.

TODD: Like cocaine?

JAMON: Maybe.

TODD: Jamon's mother, he's totally joking. He's never done cocaine.

JAMON: Yes, thank you Todd. And my mom does listen to this, so thanks Todd.

TODD: He really has not, trust me.

JAMON: You wouldn't want to see me on cocaine.

KEN: Oh god. Yeah, that is the wrong drug for you my friend.

JAMON: Yes.

KEN: Oof.

JAMON: But you don't want to transfer stress to clients. You don't want to transfer stress to employees. You don't want to transfer it to your significant other. To your family. And unfortunately, I've done all of those things, because I'm human and that's what happens. You get a lot of stress, and then you feel like you need to let off steam. One of the things that I actually really appreciated about this partnership is that we're able to let off steam with each other. And in a way, that is healthy. That isn't transferring to someone else who has nothing to do with it or has no power. Where I have two partners who are actually in the same spot, and they can help. It's been really, really helpful. So that is really important. I think how you transfer stress. Yeah, Todd?

TODD: I agree. I don't kick the dog. I kick Ken. Which is better. The dog appreciates it at least.

JAMON: You don't even have a dog, Todd.

TODD: I don't have a dog, and I've never kick a dog by the way. I'd kick humans all day long, but never a dog.

JAMON: This is true.

TODD: Just to be clear.

JAMON: Yes, Todd is the one who canceled a meeting because he had to bring a bird to the hospital that had hit his door, actually one time.

TODD: It's true. It is true, and that bird is flapping happily today.

KEN: As far as you know.

TODD: I hope. Back to my story, because it's all about me. Anxiety at Infinite Red really does come around to team members mostly, and you two Ken and Jamon because I don't want to let you down, and I certainly don't want someone's family not to be able to have a Christmas because of something stupid I did, or because I was acting emotionally when I should have been acting rationally. That kind of stuff.

JAMON: This year, me not having Christmas had nothing to do with you Todd, so I can let you know that.

TODD: Jamon's house was burglarized and burnt down. Not burnt down, but set afire on Christmas Eve.

KEN: Torched.

TODD: So, if you're feeling good about humanity up to this point, now you can feel bad about it. So, there you go, but they're back in their house.

KEN: You're welcome.

TODD: Everything's good.

JAMON: Yes.

TODD: You're back in your house. Everything's good, and he has a wonderful family, and all is well.

JAMON: Yeah, it's really nice to be back. Anyway, I cut you off.

TODD: But so that's a lot of my anxieties about it. At my age, I'm 46, and I've done this a long time. I don't stress as often. Like I used to get very stressed out doing sales calls or that kind of stuff. I've done all that stuff enough where it doesn't really bother me too much. Even tough things where you have to be really tough with the client, or vendor, or something like that. It doesn't, I mean it bothers me temporarily of course you get the adrenaline going and no one likes that. But it's really the things that give me anxiety and up at night is if I make a mistake that will cause us not to be able to pay payroll.

JAMON: Yeah.

TODD: Now, one note. We've always paid payroll.

JAMON: Yeah.

TODD: But that is something-

KEN: There's been some close calls.

TODD: That is something that-

KEN: Yeah.

TODD: That makes me work harder, and it makes me worry. Me, personally, I could figure it out, it's not as big of a deal to me.

KEN: Well, I think also a big stressor that I didn't ... it makes sense in retrospect, but it wasn't one that like occurred to me, is how hard it is to maintain focus over time-

JAMON: Mm-hmm (affirmative)

TODD: Yeah.

KEN: -when you don't have a boss doing that for you. I was a small scale boss at my previous jobs, but this experience definitely makes me want to write a nice little note of apology to every boss I've ever had. Like, however bad they were, I have more sort of sympathy for what they were dealing with then I did before.

TODD: That's so true.

KEN: Yeah, and the surprising thing is how hard it is to cope with success. When you're doing well, that's when the monster of de-focusing really starts to rear its head. It's like driving a car fast. If you've never driven a car at 150 miles an hour, it's a different thing from driving it at 60 miles an hour. It takes a little getting used to that state, oh things are going well, but that doesn't mean that I get to take my eyes off the road.

TODD: Mm-hmm (affirmative)-

KEN: So.

CHRIS MARTIN: Can you guys go in a little deeper on how you manage some of these things? 'Cause you've talked about having the feelings of stress and fear, but maybe some of the ways that you manage it, a part from kicking Ken.

KEN: That's Todd's favorite.

TODD: Well, Ken mentioned that success can be hard to deal with, and I have a tried and true technique I've used for many years with dealing with the problems of success. And here it is. And I'll share it with you. I normally would charge for this advice, but I'm gonna share. Don't be successful. There you go.

KEN: Yeah.

TODD: You're welcome.

KEN: That one we're still figuring out. Having co-founders you actually trust is probably the number one.

TODD: Yeah, it's hard to do, and at one time in my career I said I would never ever had a partner or a co-founder again. And here we are, so.

JAMON: I think getting together in person is important. Of course, we're a remote company. So I'm up here near Portland, and Ken's in the Bay Area, and Todd's in Vegas, but we did get together a couple weeks ago to talk. And there was a stressful situation going on, and that was something that we went through together in person.

TODD: Well, we also hang out in zoom a lot.

JAMON: Yeah.

TODD: Every week. And that's similar. But, yeah having good co-founders who are your friends, and you become almost married at a point, because when you're in business together it is like a marriage, and you know everyone's finances. You know if someone's spouse is having problems with the way the company's working. You have to deal with that-

JAMON: Mm-hmm (affirmative)-

TODD: -at least as an auxiliary person in that particular thing. So it's a very intimate thing for sure. I definitely choose that very, very, very wisely. I've had bad experiences, and of course I've had great experiences here.

JAMON: I think that one of the things that we actually do fairly well is we will say when we're stressed. You know, we'll say, "Hey, I am currently feeling a high degree of stress." And then the other co-founders can say, "Okay, what is causing this." And we can talk about it more objectively. And just saying it out loud sometimes is a way to kind of like let go of it a little bit.

TODD: We also know how to fight which takes a while. That's a hard one to learn.

JAMON: It is.

TODD: But we've learned how to fight. Yell at each other, and know that afterwards we're going to be okay, and that's important.

JAMON: Yeah.

TODD: The trust that you would gain with a girlfriend or boyfriend or your spouse-

KEN: Sibling

TODD: -where you can have an emotional throw up as it were and know that you're still gonna be loved as it were.

KEN: Well, and also it's sort of on the focusing issue, actually. It's relevant there too which is that I'm pretty ADD I would say. I think that's probably pretty common I would say for entrepreneurs. Entrepreneurship is one place where you can actually challenge your ADD tendencies. However, I also know it's like, "Hey guys, I'm having some trouble focusing and motivating on x, y, and z-

JAMON: Right.

KEN: -can I have help with knowing that there's not going to be any judgment coming along-

JAMON: Right.

KEN: -with that help?"

JAMON: Right. Yeah.

TODD: To be clear, it's all not roses. Sometimes one of us gets irritated with the other person because of these issues and-

JAMON: Right.

TODD: -but ultimately once we get talking to it, we're not super human. Sometimes I get irritated with Jamon or Ken and vice versa. But the whole point is, when you get to the end of that, you're supportive.

JAMON: Another really important thing is to have some really core principles. Some kind of tent poles so-to-speak that you can come back to. One of the things that we really strongly believe is that the core of us three is one of the most important things about this company. And so we can come back to that. I mean, if the most important thing that we had was some technology or some financial goal or something like that, then it would put a lot of stresses on our relationship, but since we've made that relationship such a high priority, it's extremely important. And another thing, along those lines, is we recognize that we are human, and that sometimes it's actually a personal situation that's contributing to work stress.

TODD: Yes.

JAMON: You might have situation where maybe a family member has health issues or you're having trouble with a relationship, or anything along those lines, and we ... I was actually talking to an employee recently who talked about a personal situation that they were having and how it was contributing to their stress, and I had noticed the stress that they were going through at work, but I didn't know about the personal situation, and it's okay. I told them, "It's fine. It's a normal, human thing to have situations that arise. I understand. It's something that you can tell us, if there's something going on, you don't have to be specific. You don't have to tell us private information, but just tell us that something's going on, and we will do our best to be as understanding as possible."

TODD: And it's a matter of trust. That particular person trusted Jamon. That's fantastic. It's trust that we build up between founders. It's trust with the team, and to some extent, trust with your customers, and your vendors. Especially with customers and vendors, if you can do that, that's fantastic, but the others you can do with time. Just to give you an example, trust. I try to be trusting even when I shouldn't be. I picked up this guy the other day, in my car, he gets in the backseat. I just picked him up. I didn't know him, and first he gets in, understandably he's like, "Thanks for picking me up, but how do you know I'm not a serial killer?"

TODD: And I just looked at him. I'm like, "What's the chance two serial killers would be in the same car?" Pretty low. So, yeah trust is very important.

Any other tools or techniques that you all have for dealing with these anxieties or stresses or whatever?

KEN: Drinking. Drinking is important. Water. Water.

JAMON: Lots of water.

KEN: What do you think I meant? Oh, come one.

JAMON: Yes, stay hydrated.

KEN: Yes, stay hydrated. Yeah.

JAMON: Actually, along those lines, I started working out a couple years ago, and that has been a really good help for my stress level. When I get through with a workout, I feel better about myself. I feel good. There's probably some endorphins or something that come with that. And it's really hard when you are really critically needed at work to take two hours to go workout, but it's also extremely important for your long-term health. And so you have to prioritize it very high. And you can basically justify it to yourself which I had to do with if I go and do this, I will be better equipped to handle the issues that come up, and it's so true. Working out has been a very good thing for my stress level.

TODD: A lot of people might be worried about their finances or their spouse's opinion and that kind of stuff. Which can be super challenging, so you have to deal with that. Another thing that I've noticed is, and this is pretty common, especially in our world, and I have to remember that 110 years ago, Ken'll tell me a real number, but somewhere around there. Most people worked at home, and most people had their own business. They didn't call it their own business, they were just a blacksmith, and people paid you to hoove their horses or not hoove.

JAMON: Shoe.

TODD: Shoe.

KEN: Shoe.

TODD: Shoe their horses. Thank you. It's been a while since I've lived on the farm about 30 years, but anyway-

JAMON: It's that a farrier or something?

TODD: Huh?

JAMON: Ken, isn't it-

KEN: A farrier.

JAMON: Yeah, it's a farrier.

KEN: That sounds right.

TODD: Whatever that means. Anyways, so you would just do that. You'd just offer your services and that was a home business quote unquote. But, you know, since we all grew up in the late 20th century or the 21st century, for our younger listeners, you know that has been not the normal but the minority. And so a lot of people I've talked with, they said, "Well, can I do that? Do I have the permission to do that or whatever?" And it is kind of hard to get to their skull like who are you asking permission from?

There isn't ... there is the government who has rules, but despite what you might think about the government, the rules are actually fairly basic and the IRS of course wants you to pay the money, but that's actually not the difficult to be honest either. So it's just really an internal stumbling block. You don't have to ask anyone. You can go right now. Get a business license, and sell bottles of water at a popular park. Right now, and you technically have a small business.

JAMON: Regarding the personal finances side of this, one of the things that my wife and I did early on that really helped was we did a monthly budget. So we used the tool called YNAB, youneedabudget.com, and we sat down every month together, and we entered all of our receipts and we had categories and we split everything up. We were kind of finance nerds during this time, and that was helpful, because it gave us a sense of control over our finances. We knew where we were. We knew whether we had enough money to pay the mortgage. We knew how much, we could specifically tell you what day we would run out of money if we couldn't bring anything in, and that was helpful.

Now, sometimes the math brings its own anxiety, but at least you know where it is, and it's not this unknown out there all the time. Actually, more lately, we've gotten away from that. After almost 15 years of marriage, and I kind of want to go back to it, because there are some stresses that come from not knowing.

TODD: Yeah, sometimes everything is just fine, but just don't know it, and you assume the worst because-

JAMON: Exactly.

TODD: -people do. So I have a question for Ken. I grew up very poor, just some background, but later in my early 20s and stuff, my family actually started doing pretty well. My mom and my step-father ran a couple businesses. My brother started businesses and has done very well for himself. So, although, in my younger life, we were almost less than working class, to be honest. Later in life, we had a lot of experience with business. So me being in business was very natural to me, and my family understood, and they actually didn't understand when I was working for someone else. It was weird to them, but Ken, I know from discussions with you, the opposite was true. From your family, there wasn't anyone who were business people and that kind of stuff, and it was kind of outside your culture. I would love to hear if maybe that caused any particular issues for you?

KEN: Yeah, for sure. I grew up in what I would call kind of professional slash academic class household. Right? College degrees going very far back in my family. Doctors, lawyers, scientists, illustrators, artists, also but professionals of various kinds. Going back quite a while. There was a flavor of business being looked down upon a little bit, and that was definitely, even when I got to Harvard. There was that divide was still there even though Harvard certainly has both types. The professional type to kind of like, well I'm good at something. I'm really good at this, and I'm so good at it people want to pay me good money for it. And that's a perfectly good life. And I'm actually here to tell you right now, if you have those skills. If you are happy doing them, you're in a good position. Should you start a business? The answer is probably no. Right?

I did it because I couldn't stand not doing it. Right? It was just this terrifying but enticing thing for as long as I could remember to be ... I just wanted to be on my own. I want to do this. Ah. Right. It was this dragon inside that I couldn't contain. In some degrees, it made me a bad employee. Sometimes. Right, because anybody who's not doing what they're sort of supposed to be doing is not happy. Right? Jamon, do you want to interject?

JAMON: Oh, I just want to say in Ken's family if you say someone is a painter, that means that they are an artist, and they paint on canvas. In my family, if someone's a painter, that means they spray paint on houses.

KEN: Yes.

TODD: In my family, if someone's a painter you're like, "Oh, he's got a job. That's wonderful."

KEN: Yeah, so the three of us we talk about this class stuff all the time because when you start talking with people who grew up in different backgrounds, you start to realize what your blind spots are. Like, I remember Todd saying, growing up people who went to the movies were rich or something like that. Todd, do you remember what some of your things were?

TODD: Oh, there's a long list of what rich people do that most people would find amusing.

KEN: For me, not only ... I grew up in a fairly prosperous town. I would say. Right, but I wouldn't call it, there weren't a lot of rich, rich, rich people, but it was prosperous. And then going to Harvard, of course you get exposed to all sorts, and you start to realize how high the ladder goes. Right? And that gave me I think a sort of warped perspective on life. And Todd's perspective was warped in a different way. And by sort of, not like the three of us, by any stretch of the imagination, now encompass an enormous swath of life experience.

JAMON: No.

KEN: We're all white dudes for one thing. Right?

JAMON: Yes.

KEN: But nevertheless, it gives us sort of perspective on things that helps. It blunts some of the fear.

JAMON: Mm-hmm (affirmative)-

KEN: To have that breadth of perspective.

TODD: I'd like to ask Ken, because your family culture wasn't business-oriented, and as you just mentioned, almost a little bit looked down upon business people, I guess for the crassness of it all.

KEN: It wasn't overt, but it was definitely outside of our purview.

TODD: And definitely your friends from Harvard who weren't in business school or that kind of thing ... do you, like for me. It's easy for me. The bar was so low. I surpassed almost everyone I grew up with long ago.

JAMON: Yeah. Similar.

TODD: I don't have to prove anything to anyone.

KEN: Well, so at this point I don't care very much. At this point, I'm doing my thing and that's that. However, I will point out there is something very interesting about Silicon Valley. Which is that Silicon Valley is a business culture that was grown by people kind of like me-

JAMON: Yeah.

KEN: -from the professional and scientific culture.

JAMON: That's true.

KEN: And as a result, that is where, I think, I'm not a sociologist. I haven't studied this or anything, but my theory is that that's where that sort of disdain for lifestyle businesses comes from. I think it's seen as sort of a grind. Where you're getting paid for the brilliance of your idea, you're just getting paid for hard work.

JAMON: Yeah, I think that this idea of a lifestyle business, which I don't have any negative connotation whatsoever. In my world, a lifestyle business sounds like a luxury.

KEN: Luxury.

TODD: Luxury.

JAMON: Okay, we're gonna have to link to that YouTube video.

TODD: Yes.

JAMON: But some Monty Python there. But I think that's actually something that was really, really helpful was when we merged was the idea that we can design this business to be lower stress. That doesn't mean we take our eye off the ball, which we kinda did for a little while there. That doesn't mean that we don't work hard, cause we do when the situation demands it, but we can design the type of business where the general day to day things are not drudgery. They are things that we enjoy doing. That we're good at, and that we can contribute to the success of the business. And I think that that's something that's actually overlooked a little bit when you're owning a business that you do have the ability to change things. You have the ability to enact change. It may be painful. It may be hard. It might be expensive, but you can look at something and say, "You know what, this isn't fitting for me, and I'm gonna change it."

Whether it's cutting off a client that's being too stressful. Whether it's hiring someone to do something that you're not good at. All of those things are things that you can do. My sister started a small WordPress website company. So she's building WordPress websites. And she asked me for a lot of advice along the way, because she knew I'd kind of-

TODD: Is this Meredith, Jamon?

JAMON: Yeah. That's right that's Meredith. And one of the things I told her was that you want to stay with your kids. You want to be at home. You want to build this business that does not interrupt those things, so make those very core priorities. When you make decisions, they should be based on whether they enhance that or take away from that. It kind of gave her permission to look at things through that lens. That you don't have to necessarily measure it on dollars and cents or even things like customer satisfaction. That may be a goal and you don't want to let people down, but ultimately you don't want to let your family down. And that's something that I think is really important. So for her, you know her husband's an engineer, a mechanical engineer. He makes good money. It's not something where they have to have the business, but she wanted something that challenged her while she was also able to be at home, and I think it's done that.

TODD: And the people she worked with on her team are similar, correct?

JAMON: Yeah, that's right. So she not only provided a business that works for her, but also for the people on her team. So she actually has people that do code. That do design. That do content. And in many cases they are people who stay at home with their kids. And that's kind of a cool concept that there could be a business that enables that.

TODD: I think that super important to mention the reason why, because people think that their business has to be like they see on TV or they read about it in a magazine or a book or whatever, and it doesn't. What principles you base your business on is up to you, and then your job is to figure out a way to make that happen. I think it's awesome that she wanted to help herself and her team who want a particular lifestyle and still be able to have this business, and she's doing it, and that's wonderful.

KEN: Yeah, and I think it's worth saying on the list of reasons to start a business, getting rich should probably not be your number one. If getting rich is your number one reason, well I mean that's fine, and depending on your personality, it at least has that as a possibility.

JAMON: Sure.

KEN: Whereas most jobs done. At least not on any sort of short time frame. The number one reason to do it is 'cause you want more control over your life. And that's why we did it. So the first year that I took off, when we were still trying to build an ap and we hadn't done the consulting yet, my daughter was two, and to save money we took less daycare. I had to still have some, 'cause we both work, but did less daycare. So I spent time with her. I cooked for the family. I found all these ways to save money, and I was sort of part-time house husband while this was going on, and even if the rest of this fails, right? Even if we crash and burn, the chance to have that year and do that will be with me the rest of my life.

So, part of our mission here at Infinite Red, and something we've always agreed on is that we don't just want a successful business. We have to do that in order to make the rest of this work. And it's a perfectly good goal in itself, but that we also want to be an example of how work can work. Right? Not that there aren't others, but this is us. This is what we think work should be like. Not that it's never intense. Not that it's never hard. Not that it's some sort of walk in the park. It is not. But that it can co-exist with the rest of your life in a much more harmonious way than has been the model for 20th century corporate whatever.

TODD: Yeah, there are other ways to run a business, all of them are wrong.

CHRIS: Ken do you think that when we ... that struggle occurs when we move away from those principles and values and what's important to us as business owners or whatever that label would be? So like, when you move away from maybe wanting to spend time with your family or building a company where it fuels the lives of your employees. You know, do you think that fear and intention is magnified if you move away from those things?

KEN: What do you mean by move away from those things?

CHRIS: So that they're no longer a priority. Maybe you're making decisions that go against those values.

KEN: That is definitely a source of stress. And the fact of the matter is, we are still a business. We still have to operate in the same environment that every other business does. And we have to compete against businesses that don't operate the way we do.

JAMON: Right.

KEN: And to whatever extent our values create, like I said, put us at a disadvantage, and I think sometimes in the short term that is true. We sometimes have to make hard choices in order to survive and work another day. And I think there's probably kind of a core, not exactly explicitly articulated, there's some core that we won't push past, but when we have to hopefully temporarily do things that are different from our stated values. Yeah, that's rough. Absolutely rough.

JAMON: Yeah.

KEN: The trick is to kind of figure out ... this is why it's so important to figure out what your real values are. Right? And we've had to sort of narrow it down in certain places, because if you have this long list of things that you claim to care about, but that's not actually true. Right? Then, when it really comes down to it, there are some things that are more core than others. If you die on the hill of one of the non-core ones, and it causes you to fail, that is an unacceptable outcome. And so, figuring out which hills you're really willing to die on and which hills you're not willing to die on is super important and there's not really a shortcut. It's something that you figure out as you go along.

TODD: If you're getting chased by zombies through a forest and the zombies are starting to catch up to you, sometimes you have to give grandma a cookie and push her down the hill. That's all I'm saying. It sucks. It's against your principles, but grandma's lived a good life, and she loves those cookies. Fact.

JAMON: I don't even know how to follow up on that one, but one of the things I was asked early on when I started my company was, what are your core principles and I kind of fumbled through an answer, and I don't even remember what it was at the time. But I actually think it was probably not reasonable for me to even know what those were at the time other than personal values, but over time, taking lumps here and there and bruises, and the stress and anxiety of various situations, it's made it very clear what is really important. At the time I was young, I was idealistic. I didn't really understand what could go wrong. What mattered. What didn't. But I think that all of those stresses and fears eventually taught me a lot of things and so in a lot of ways, even though they kind of sucked at the time, they were necessary to get me to who I am today. You know, I don't want to go back and relive them, but I wouldn't trade them away.

TODD: Yeah. Yeah. For sure. Well that was super interesting to me. I knew some of that. I learned some new stuff which is always fun, and I hope it has some value to the listeners for sure. You know, our experience. At least it's hopefully an interesting story if nothing more.

JAMON: Absolutely.

The theme of this episode is centered around the lessons learned in charging for software development. Starting with a question from the Infinite Red Community, Todd, Ken, and Jamon touch on hourly vs. project pricing, the tension between time and value, how software estimating is a lot like weather forecasting, and the many experiments conducted over the years to find the right pricing model for Infinite Red.

Episode Transcript

JAMON HOLMGREN: We received a question from the community, community.infinite.red, it's a Slack community that we have. Trent asks, "Hey Jamon, I'm enjoying the podcast. Will you guys be covering hourly pricing versus project pricing? It's a question we're dealing with right now. Which do you guys prefer, and what are some lessons learned to bring you to that choice?"

I think this is a really great question. Todd, do you wanna talk about what we're doing right now? And then we can go into maybe what we've done in the past, and what brought us to that choice?

TODD WERTH: Sounds good. Yeah that's a great question, and it's actually a really tough one to deal with. So, what we do now, is we do weekly pricing. We charge per person-week, and we call it "person-week" as opposed to "a week of work" because it could actually be two people working maybe half a week each and that would be one "person-week." Because we're doing person-weeks, we have a point system. So, 100 points equals a person-week. We don't track time. We used to, and we can talk about that—we used to bill hourly. We don't track time, we don't actually know how long things take, it's just, we estimate our tasks in points, and if we've reached a hundred or more per person-week and we charge per person-week, then we're accomplishing our goal.

JAMON: There's a bit of a tension between time and value, and this has been something that we've dealt with, I mean, I've dealt with, since I started my first consultancy. Of course, value-based pricing is kind of a holy grail of pricing for consultancies, and we've heard this for a long time, that you should charge for the value, not just the time that it takes. So an example, this would be fixed-bid pricing, where you're essentially betting on delivering the software in a reasonable amount of time, but you're getting paid on the value to the client.

The problem is that our costs are not based on value. So, we're not necessarily paying our people based on the fixed-bid, a percentage of the fixed-bid, or something like that. There are industries that do that, but ours is not one of them. So we're paying people salaries, and our costs are over time, and so if something takes a very long time, then our profitability and the ability of the company to remain financially solvent is threatened.

Conversely, you have, of course, hourly. We've done that in the past, and the nice thing about hourly is that it corresponds, obviously, very tightly with the amount of time that it takes to do. But the problem is that every hour is not equal. You have hours that are maybe really valuable, you've automated something and in a lot of cases you're actually delivering more value than the client is paying for, quite a bit more. And then there are others where the person's getting spun up, or they're hung up on a particular problem, whether it's their fault or not, and that turns into a bit of an issue, because then you're billing hundreds of dollars an hour for something where the client isn't really getting a lot of value. So I think that's why we ended up where we are, in a way.

TODD: Yeah, both have issues. When you're doing hourly, it might seem to a client that's more fair, but it's not. It means every time there's a bug, or any time there's an issue, we basically are nickel-and-dimeing them, and they don't necessarily like that. We have to spin up someone, like Jamon said, where in our value system that we use now, they don't see any of that. We fix the bugs because it's part of the value of that particular feature. It does mean, though, sometimes, that we can produce a feature faster than the hourly would've been, and so they get charged, I guess, more for that.

KEN MILLER: There's a couple of different ways that hourly works out sometimes, though. There's certainly the very literal, like, you sit there and you run a clock, like the way a lawyer would, you actually have a little timer that shows exactly what you're doing. When I worked for a large sort of corporate consulting company, Big Five-style, back in the '90s, I remember my first week I was filling out my time card, and I filled in the insane hours that I worked, because that's the kind of work that you do. And my project manager comes over to me and he's like, "No no no no no no no no, this is not what you do." And he took my time card and he filled in "eight, eight, eight, eight, eight." (laughter)

TODD: That's ridiculous. But...

KEN: Right. So that's how the Big Five work, often.

TODD: So it's completely fake in that situation.

KEN: It's completely fake. It's basically pretty close to what we do now, which is that weekly billing. Where an hour is just a way of measuring a week.

To answer the question directly, you know, do we prefer hourly or project-based, we prefer hourly.

JAMON: Yeah.

KEN: Hourly leads to less problems in the long term because the trouble with fixed bid, although it seems like it's appealing—It's appealing from your point of view, if you think you can be really efficient, and it's appealing from their point of view if they think you can't. But that's exactly it right there, it creates this adversarial relationship. Todd?

TODD: Yeah, clients all– not all, but many clients think they would love a fixed bid. And in truth, they will hate a fixed bid. Ken's right. Fixed bids create an adversarial situation. Even if both sides are extremely... They're at the table in good faith, and they're trying to do the right thing and do their part and stuff, it still means that the client is trying to get as many hours as possible out of you for the same price, and us would be trying to do as few hours as possible. Like I said, even if you're both being very nice and very ethical in the way you're billing, that always creeps in.

It also means that you have to lawyer every change. You'll have companies that have change order systems that are pretty complex. Clients hate that. When I talked to especially start-ups, one of the things I say is if the project we're working on at the end ends up exactly as you envisioned at the beginning, that's a huge red flag. That means you didn't listen to your beta testers, that means you didn't think at all during the process even after you got in your hands what could be better, it means a bunch of different things.

So, we have a pretty strong process, but it's designed to be flexible. We wanted it to be flexible. So when we get to the point when we do estimation after a research phase, it's fairly accurate. The likelihood that it will actually produce your project for this estimate is extremely low. Not because we're incompetent– I'm sometimes incompetent– not because we're incompetent, but because you're gonna make a bunch of changes, and we welcome that. We don't lawyer that.

But that's a little bit difficult, there's a little bit of education involved in getting people to understand that fully.

JAMON: One of the objections is that, well, there are other companies that do fixed-bid, and they seem to do just fine. They're able to sustain that and their customers are generally happy, and things like that. But I think there's a hidden cost in there that people don't take into account. Which we've sort of driven a stake into the ground, we've said, "Hey, we're not willing to go down this route." And that is that those companies put the burden of hitting those estimates onto their employees. They essentially say, "Okay, well, we estimated this amount, you're not done yet, so you're gonna stay late until it's done." And they push, and push, and push, and they really, really just drive the screws in on their employees. Maybe not overtly, maybe not directly, but there's a culture and an expectation of being able to hit those estimates that puts a lot of stress on the employees.

KEN: Yeah, that doesn't necessarily look like a slave driver. It can look like a "Rah-rah, sleep when you're dead," "work hard, play hard." "Rah!" But like, that kind of corporate culture. There are firms out there that I respect that do fixed-bids, and they seem to make it work, and that's fine. But in our experience, someone is paying for that somewhere.

JAMON: Exactly.

TODD: There's another type of fixed-bid which isn't just slave-driving your employees into the dirt. It is, you think it's gonna cost $100,000 on this project, you bid $800,000. So no matter what, unless you're ridiculously off, you're fine. The problem comes in when clients want both the lowest possible price and a fixed-bid. That just... It's not really possible.

JAMON: So, our system is different. And Todd, I'd like you to talk a little bit about why our... Because, we are giving an estimate with points, and we're trying to hit those points, so it may feel like a fixed-bid, but do you want to explain what we're doing differently, where it really does change over time as you do a project?

TODD: Yeah, so we do spend a decent amount of time doing research, architecture, that kind of stuff, before we estimate the points. So we're not just doing a ballpark estimate. We do a ballpark estimate at the beginning, but that's a few hours of our time. But we spend a few weeks or whatever doing research, architecture, that kind of stuff. And at the end of that, we produce an estimate in points.

So those are fairly accurate. Obviously, anyone out there who does software development... By the way, everything we're talking about here is for development. On the design side, we do fixed-bids, and that's a different discussion. The gentleman who asked us the question was more towards the development side, so that's what we're talking about.

JAMON: Right.

TODD: So, our estimates are based on a whole lot more information than a lot of people do. And we do have clients who want an accurate estimate earlier, and we just have to push back, because in that situation we have only two options: We either push back against them and try to educate them in the process and help them do a successful project, or we lie to them. (laughter) And unfortunately a lot of companies just lie. They just come up with a number, they act like they put some thought into it– they didn't. I worked for a consulting company in the late '90s where the way we estimated was we asked the sales person how much they could afford. That was our miracle estimate. Which to me, I hated as an engineer. I just loathed it. I'm digressing a little bit here, but I don't want to make it out that our estimates are super accurate or that estimating software at all is an accurate thing at all. We know it's not.

KEN: One of our sort of colleague companies out there calls them "forecasts," which I really like. People understand, like, a weather forecast is not necessarily going to be accurate. It's like, "Based on what we can see right now, this is what we think is gonna happen." And everyone understands that. So I really like that as a bit of language.

TODD: Yeah, we should call it "forecasts."

KEN: I'm tempted to steal that, but... (laughter)

TODD: The other cool thing about a forecast is it's known: the further out you are from the date, the less accurate the forecast is, and the closer you get, the more accurate, and that's very true in our situation as well.

JAMON: That's a great point, Todd, because we will definitely adjust those estimates as we get into things, and as we learn more. And I try to, I do a lot of the sales calls now, and one of the things I try to do is set the expectation that over time, the estimates will get more and more accurate, as we know more. The same thing with the weather forecast. You look at the ten-day, and you look at day number ten, and as you get closer and closer, you're gonna see a better and better forecast. And it's not uncommon for that to change even quite drastically, because weather systems can get delayed a little bit or something, and that can impact which day they land.

KEN: Unless you live in California, in which case our weather never changes.

JAMON: Yeah. No, I live in the Pacific Northwest near the Columbia River Gorge, and nobody understands the weather here.

TODD: Our weather's hot and sunny. Tomorrow? Hot and sunny. The next day? Hot and sunny.

JAMON: What if it's-

KEN: And then a terrifying thunderstorm. And then hot and sunny.

TODD: Once a year, we have terrifying water from the sky. I live in Las Vegas, Nevada, which is in this very small patch– I'm totally digressing here– but it's a very small patch in the US with the most sunshine out of the whole US, and it's just basically Las Vegas and around the desert area here. I think it's something ridiculous like 300 and some days of pure sunshine. Which is nice, as I lived in San Francisco for 20 years, and it is the opposite of that. And I enjoyed that for a long time, but I enjoy this. Anyways.

So one of the things I wanted to bring up is, and we should talk about estimates. Because estimates are a big part of how you charge. And it is a difficult problem, and we have all sorts of issues that, I think, would be very interesting for listeners to hear that they're not alone in, and that we're still struggling with.

KEN: Nobody has a magic bullet. Nobody has a magic bullet on that.

TODD: It's a soft problem, it's definitely a people problem, and it's something that I'm actually actively working on all the time. But to finish up what we were saying before, we do find that weekly billing has worked out very well. It does require education. Your clients may instinctively go, "Okay, well they're just doing this to make more money because they're gonna get it done way faster, and they're actually gonna charge me this extra money, and they're not gonna do anything."

And that's a perfectly normal human reaction. But one of the ways that we added some sugar to that tea is we say, "A bug comes up, sometimes bugs take five minutes, sometimes bugs take a half a week to fix. That's all included in that estimate. You don't have to worry about that. No nickel-and-dimeing." When the estimate goes up, say we add person-weeks to the overall estimate, and then maybe we add some calendar-weeks...

By the way, we have typically a minimum team of two, and most times people work on one project full-time, so if you have a two person team on a project, we're producing two person-weeks per week. From that, and the number of points we estimate, we can calculate the calendar time, as opposed to the person-week time. And the calendar time does get extended, and the person-weeks do get extended. But it's always– not always, but it's usually from changes, and we try to be very good about being very transparent in explaining, and the client should know what all those changes were. They hopefully have approved them, and that's what adds the person-weeks and that sort of thing.

JAMON: There are some times where we will feel like maybe we made a mistake, in such a way that it was maybe, we're not comfortable charging the client more for a particular thing. And in that case we will adjust what we're billing for a particular chunk of a project. And we'll take on that risk. There's a shared expectation of being reasonable in this. If a client's asking for something, then we're gonna bill more. If we make a mistake, then we'll try to rectify that as much as possible. But it does have flexibility built in, and that's important. But then also, like you said, Todd, the bug-fixing is built in and things like that. That really helps mitigate the amount of risk that the client is taking on.

TODD: And truthfully, it's much easier for people doing the actual work, because they don't have to constantly, "Oh, this three-hour task is now a five-hour task, I have to ask permission for those extra two-hours, and it's just a lot of paperwork and a lot of thought about stuff that has nothing to do with making a great project."

But yeah, and I also want to add on to what Jamon just said, the way we deal with issues... Let's say the value wasn't there, we had some problems, we typically deal with it on the invoicing side. We tell our people, "Okay, for whatever reason we're not gonna be charging for these person-weeks." But from their perspective, it doesn't matter. They're estimating points, they're working during the week, they're getting at least a hundred points per person-week, and they just keep on going forward.

We'll adjust it on the back side, on the invoicing side so that our process keeps going and we have accurate data, even if we're in a situation where we made a big mistake or something like that, and we're not charging them for, say, a few weeks or whatever.

JAMON: Yeah, totally. And Ken, would you wanna talk about the chronic problem of under-estimating? 'Cause I know this is something that's near and dear to your heart.

KEN: Yeah, I don't know why engineers... I don't know if they want to feel like they, you know, they're really fast, or they feel guilty, or if it's imposter syndrome, or whatever it is, but it is a chronic problem. Engineers will estimate too optimistically. So we have sort of structures and practices, and this is not an easy problem to solve, right? But we have sort of structures and practices in place to sort of counter-act that, hopefully, whether it's sort of checklists like, "Have you considered these sort of failure cases? Have you included the bug-fixing and the testing time? Is the testing time including every platform that you could possibly use this on?" Et cetera, et cetera. Todd?

TODD: Yeah, this is a problem we have not solved. We really try to hire, and I think we have hired, really decent, ethical people. Which is fantastic, and that's the intention, and I very much enjoy working with almost everyone here (maybe not Ken, but that's okay). (laughter)

KEN: You can't fire me. (laughter)

TODD: I cannot. I've tried many times.

KEN: It's a perk of the job.

TODD: Actually, it's funny, because I've been working on this a lot lately. We hire good, ethical people, which I very much enjoy. But they tend to feel more guilt, and they tend to be a little... They contemplate it and worry about it a little too much, to be honest. And so we do have chronic under-billing.

One of the things we do is, we ask them for estimates, and we never ever– up to this point I've ever said, "This estimate's too high. You need to reduce this estimate." Because this is the estimate they're giving us, and they're gonna do the work, and it's not fair for us to come and say, you know, "You said it's gonna take a hundred points, I think it'd take 50 points." And of course when they do it and it takes a hundred points, they've failed, but only because in my opinion it should've been 50. We never do that. We never push back on that.

So you would think that just human nature, in order to alleviate stress, they would say, "Okay, that's gonna take 50 points, but I'm gonna make it a hundred and 50 points just to give me an allowance." No one does that, surprisingly. That is not the problem we deal with. It could be just our team. Probably not just our team, I'm sure there's a lot of people out there who do that.

KEN: I mean, I've seen this everywhere I've ever worked, right? People wanna feel like a hero, people don't... It's not as much fun to think about all the ways that things go wrong, well, depending on your personality I guess. But yeah, the ideal way that we're always striving toward is basically, the engineer gives us as accurate and conservative of an estimate as possible. And then in terms of how we present it to the client, if we feel we need to make an economic adjustment in order to get a sale, for example, then we will do that on our end. We don't want it baked into the estimate.

JAMON: And Todd actually ran an experiment with our own engineers at one point. He took a screen, I think it was a login screen of a project we'd actually already done-

TODD: Yes.

JAMON: -and sent it to several engineers and asked what their estimate was. Do you wanna talk about that, Todd?

TODD: Yeah, I've done a few of these to try to kind of understand this problem. In that case, it wasn't clear what kind of project it was, whether it was a mobile app, an iPad app, a website. I did that on purpose. I also didn't give them any requirements other than I gave them a screenshot. Which is not untypical to get from a client if we didn't do the design, to just get the screenshots. So I wanted to see A) how they approached the estimation process, and B) what their estimates were.

I'll skip to the spoiler part. The lowest one was like three hours? This is back when we did hours, we weren't doing points. The highest one was like 46 hours. So the range is three hours to 46 hours. Some people, their estimate wasn't accurate for obvious reasons, they got back to me within five minutes and didn't ask any questions. And that was more on the junior side, and that's perfectly fine. Estimating is probably one of the most difficult things that we do, and so it's understandable when people with less experience do it less well.

But the interesting part is that a lot of people didn't even ask what platform it was on. The person who did 46 hours, the highest one, had a huge write-up of all the reasons why it was 46. And when you look at it, you're like, "Yeah." Because it seemed very simple. Like, it's a login screen. It's two text inputs and a button that says "Login." But there's actually a huge amount of stuff. A lot of people assumed they were just doing the screen as opposed to actually making it work, like, making you log in to the backend, and Facebook integration and all this stuff. But the fascinating part is how different it was and their different approaches.

KEN: It should be mentioned, though, just for the record, that the way this exercise was set up was intentionally, on Todd's part, very vague. Right? It wasn't like, "Hey, I need you to do this for a client so that we can get a good estimate." It was a very off-hand... But the range of responses to that very vague setup was illuminating. Because some people are constitutionally incapable of not treating that seriously. (laughter) And some people are like, "Whatever Todd, I've got work to do." Right? So there's gonna be a very broad range there, and the range of real estimates is probably not gonna be quite as wide. But still.

TODD: Ken has a particular personality, and so does a few other people on our team, where he really didn't like the "gotcha" part of that question, the vagueness of it. And he felt like I was looking for a real answer and he was set up to fail on the real answer because I didn't give him any information. That wasn't the point of it. I actually didn't care what their answer was as much as the process by which they went around the answer. And I didn't say that, on purpose, too. And so he was a little bit like, "You're setting me up to fail, I don't like this, go to hell." Which was kind of funny. But it's funny from my perspective, but it's also illuminating. For people with that type of personality, that's the reaction they have to that, and that's a very real thing.

KEN: Well, it's also, like, if you just ask me a very vague off-hand question, I'm gonna devote a vague off-hand amount of attention to it. Right? And I think a lot of other people are gonna be that way too. It's kind of like, "Oh, okay, without any further information, why am I gonna spend an hour breaking down this problem for you?" Or however long it takes.

JAMON: I will point out that mine was both quick and accurate.

TODD: Yeah, I hate giving Jamon a compliment, but I thought Jamon's was one of the more accurate, and he did it very fast, and it was very thorough.

KEN: We brought Jamon on because he's lucky.

TODD: That's right. I have a rule: Every quarter, I randomly fire one of our team. And the reason I do this is very simple. I don't want anyone unlucky working at our company. That's a joke, in case anyone thought it wasn't. We don't horribly fire people because they're unlucky.

But yeah, so that's a very interesting thing on that. There's other interesting things too. Another experiment I did was, I had people estimate something simple again. Then they gave me the estimate, whatever it was– the numbers don't matter, but let's say they said 10 hours, and this is once again, back when we did hours. If they said 10 hours, then I would say, "Okay, what's the likelihood– are you 100 percent confident that you can do it in 10 hours or under? Are you 90 percent confident? 80 percent confident?" And then I would ask them, "Okay, how about eleven hours? How about twelve hours, how about thirteen hours?" And what I found is that the first estimate they gave me, almost no one was confident they could do it in that time. Which was fascinating-

JAMON: Yeah, it'd be something like 60 percent or something, and then you'd have to go quite a ways up before they were 90, 95 percent confident.

TODD: Correct. So I'm not sure exactly what to make of that, except for, that's a phenomenon.

JAMON: I did ask some of our employees that were doing an estimate to include a confidence factor. And that estimation is not done yet. It should be in the next week or two, and it'll be interesting to go through that and see where they landed.

KEN: Yeah, that would be interesting.

JAMON: There are some other reasons why you might not be confident. Maybe there are a bunch of unknowns that we will have to dig into before we'll know for sure, and there's no amount of hours that would satisfy that necessarily. But I think that that's something... You should give a number... Again, we're not doing hours, but doing the point system you should have your estimate units, of course, for each task, but then also include a confidence factor. And that might be a percentage or something that you're confident. I think that's an aspect that maybe will be helpful going forward.

TODD: To be clear, that's a hypothesis. Jamon has at this point, we haven't tested that. So take that as an idea.

JAMON: That's exactly right, yeah.

TODD: Another thing I asked them was, it's very fascinating, the same kind of line of questioning on giving them a very simple thing to estimate. And then I asked them, "Does that include tests? Does that include QA? Does that include bug fixes? Does that include any production issues when it goes out to the real world?" All over the map, whether or not they included, very few people said it included all of that. So when you asked them, "How long will this take?" They didn't take that question as, "How much time will you spend to have this completely done and you never touch it again?" Very few people took it that way. They more took it as, "I could get it done and in the app and then later we would debug it or test it or make changes or whatever, but that's not included in my estimate." So that was a fascinating result, also.

Now, I don't have any recommendations for any of this, other than it's very interesting to see how people's minds work, and how different people's minds work differently when they're given a task to estimate how long something will take.

JAMON: There's a couple of ways that we can mitigate that. Ken mentioned earlier, checklists. I think those are probably under-utilized. That's something that we should use more. So when you're looking at a screen, you'd have a checklist of things. And maybe some of them don't apply and you just mark them off. But some of them are definitely...

KEN: Yeah, there's something else that we're trying, which I've never really heard of anyone else doing, I've never encountered it before. We're trying to keep a database of past features so that instead of sitting and de novo every time, sort of like thinking through step-by-step every feature, you say, "Does this feature feel more like this one or that one?" Right? And then you just take the number that we actually empirically determined previously.

JAMON: So it gives you kind of an anchor point, and then you can determine if it's maybe more or less than that.

KEN: The jury's out on whether this could work as a system or not, but.

JAMON: Exactly.

TODD: What does "de novo" mean, Ken?

KEN: From the beginning, from new.

TODD: So, you replaced "from new," which is two syllables, with a three syllable word, "de novo." Okay, just making sure I understand. (laughter)

KEN: It has further implications, but whatever, Todd. Feel free to make fun of my vocabulary as much as you like.

TODD: I would make fun of your vocabulary, but the word "vocabulary" isn't in my vocabulary, so...

KEN: Obviously.

TODD: It's a vicious circle.

JAMON: So I think it's good maybe for us to go back a couple years, maybe. When we merged, we had... We try to be a little bit unconventional in our thinking. We try not to bring a lot of preconceived notions into what we're doing here, and think things through de novo, you know, start from the beginning, start from– you like how I did that?– start from first principles and kind of look at it in a way that... "Okay, can we innovate on this? Can we look at it and come up with something new?"

And we did, actually. And I don't actually remember whose idea this was, maybe one of you does, but we had the idea, "We're gonna bill hourly," was what our initial thought was. "We're gonna bill hourly, and then let's have a base salary for all of our developers and designers, but then pay them per hour billed that they personally billed." And it was an interesting experiment. I think we ran it for probably a year, maybe it was two years? Something like that, with varying success. And we learned a ton of things that you wouldn't when you just start out as salary employees. I will point out that we are now on salary. But we should talk a little bit about that experiment and what we learned there.

TODD: Yeah, that was... We had specific goals, and we had tons of good intentions for those goals. And like all good intentions, we fell on our face. But that would be a very interesting podcast in itself, the lessons... What we did, what we went through, what we changed to, and the lessons we learned during the process.

JAMON: I think to just kind of give it a really quick little thing, since we've teased it here, one of the things that we found is that people are generally not that motivated by money. Because they can certainly bill more hours and make more money, that was one of the benefits of the system, if you were very productive–

KEN: A couple people did.

JAMON: Yeah, some people did.

KEN: Some people took advantage of that.

JAMON: Yeah, for sure, but it was not anywhere near even a quarter of those people. So that was good to know. Other people, they were just motivated by different things. They were motivated, it's not that they're not motivated, but it just wasn't purely by money.

Another thing was that there were some situations that ended up not really being very fair. So, some people would be in projects where bill hours were very easy to come by. And others where we really either had to supplement their bill hours or something along those lines. It also didn't really encourage collaboration between people, so there's some silos.

The benefit to the company, obviously, is that if we're having sort of a down month because, you know, it's cyclical, then your costs go down. And the benefit to the employee is if you're having a really busy month, then you're getting paid more. But ultimately, that whole system, we went away from, and went to the system that we're using today.

TODD: Yeah, I can, in my opinion, it was a complete failure. That being said, it was, I'm pretty sure, originally my idea. And like I said, great intentions, but I think that was one of our biggest failures, to be honest.

JAMON: We learned a lot. I think that was the big thing. And those lessons will stick with us.

TODD: We learned a lot, and we changed, and, you know... But I think it was more painful than it should've been.

KEN: I forget where I sort of read/heard this advice, but basically, when you're starting a new company, you're trying to do something innovative, you should limit what you try to do that's innovative. Focus your innovation where it really counts, and then don't try to innovate too much in the rest of your business practices. I think that that's part of what we learned there.

Even setting aside all these sort of incentive things, there's a bunch of things that just work better when people are on salary. Right? Their benefits work better, insurance works better–

TODD: Vacation time.

KEN: -vacation time works better, there's a bunch of things where there's a whole ecosystem of support for how to run a business. And if you try to innovate in how you do that, you cut yourself out of all those things, and make yourself less competitive on the labor market. You make yourself... You know, you spend more time on things you shouldn't be spending time on. And so, you know, I think we've become in some ways a more conventional company in certain aspects, so that we can stretch out into places that we still want to stretch out.

TODD: It's so interesting you said that, Ken, because I literally give people that advice when they're starting out producing an app or a website or whatever it is. For the things that don't matter to your particular customers, or don't matter to your particular business, stick with tried and true. That's well-known, you don't have to worry about that stuff. Put all your innovation and your avant-garde ideas into the things that really differentiate your company from other companies. So it's so funny that you said that in respect to our company, because although we didn't apply it ourselves, it's advice we give.

KEN: Well, I had heard that advice before we did all of this. And the truth is, when you're there, you don't always know which one is the most important, right? So that's gonna happen. But it's worth bearing that in mind, to always be asking yourself the question, like, "What really makes us different as a company?" And if it's not this thing that we're doing and spending a lot of time on, maybe rethink that.

TODD: I'll personally admit to hubris.

KEN: What?! Never.

TODD: "We can do anything, and we'll just apply our big brains to it, and we'll figure it out."

KEN: Big brains are not the commodity that's in short supply. It's time, right? It's time and attention.

JAMON: I think I'll actually disagree a little bit, here. We've actually gotten the feedback that we all agree a little too much here. So I'll play the part of the devil's advocate here. I think it was well worth trying, and I think it was actually based on some things that we...

I think in certain cases, actually, it could work, I think it could be actually be something that a particular company could actually make work. It's just that we didn't like some of the side effects of it. Sort of like, taking a certain experimental medication. Maybe it works, but the side effects are not worth it. And I think that that's actually where we ended up with that. I wouldn't, like Todd said, I wouldn't necessarily classify it all as a complete failure. I think there were parts of it that were a failure. And I'm happy with the system we have now, but I'm also very much happy that we tried that.

TODD: It was 90 percent a failure.

KEN: It got us to the point we are now.

TODD: Well, sure.

JAMON: What's your confidence level on that, Todd?

TODD: I am 90 percent confident that it was a 90 percent failure.

CHRIS: Do you guys wanna touch on psychology and perception in the role of pricing?

KEN: Oh, man.

**CHRIS: That's something I was kind of thinking about as you were talking.##

JAMON: Yeah, actually, I do have some thoughts on that. So, one of the questions that comes up is, "When you are selling fixed-bid or hourly, what do clients think? Is it hard to do?" And I've found that neither fixed-bid nor hourly are particularly hard to sell. Both are well-understood.

Our current system takes a little more explanation, and so I think that's something we need to continue to work on, our messaging on. But most people understand them. Some people have a problem with it. They'll say, "You know what, we're not willing to do hourly. That puts too much risk on us." And that's totally cool. It's not something that... maybe they're not a good fit for us.

KEN: Well, yeah, the thing is, whenever you're asking a vendor to assume risk for you... You're paying for it somewhere, right? You know, if they want you to be the insurance, then you're paying them to provide insurance. Either that, or they're mismanaged and they're gonna go out of business and then you don't have support.

You know, when we switched to weekly, I was concerned that we'd have trouble selling it. It doesn't seem like it's been too big of a deal. For the most part, people still mostly care about the total number, correct? And how you get there?

TODD: Correct.

KEN: They're not as, they're not usually as concerned with... We've had a few cases where... We had something recently where the upstream source of funds was a grant that had rules about how it's charged, so there's things that come up around that. So sometimes we'll make exceptions. And we have at least one enterprise client that we still use hourly. But for the most part, this has been pretty popular. We feel like it has the best of both worlds in some respects, that it has more predictability than hourly, but it still has built-in flexibility that a fixed-bid doesn't.

TODD: Our team definitely thinks the weekly is a success. It wasn't that difficult to convert clients from hourly to weekly, and for new clients, they don't seem to mind whatsoever. It's interesting from our team's perspective. Sometimes they could be working more than they used to, because they have to fix these bugs or whatever, but because they don't have the stress or the guilt, a lot of times of the hourly, they still like it better. It's kind of counter-intuitive, in that way.

JAMON: Yeah, I think there's three vectors, or three metrics that you would go off of, you know. "How satisfied is the client?" "How stress-free is it for the employees?" And then, "How much do we as owners like it as a business model?" And from those metrics, I feel like all three have been a success.

TODD: Yeah, it's definitely been a success. I think we could definitely do with hourly, but I think the weekly billing has been a huge success. I'm 90 percent sure that it was 90 percent a success. (laughter)

As far as the psychology from the client standpoint? We understand... One of the things we do, we hire a people who have a lot of experience, either they ran their own small businesses, they ran teams, that kind of stuff. We have a lot of people who have real-world kind of business experience. We're definitely not business consultants, per se, but we do work with a lot of start-ups who need some basic, not basic, but need some of our business consulting.

And one of the things that we do is we understand the risk involved. And there's a lot of companies like us don't talk about this at all. For example, from a client's perspective, it's a big purchase. If you're spending 100,000, 200,000, 500,000 dollars? That's a large purchase. If you're a start-up, that's a risky thing. So we try to really think about their risk.

Now, we have our own risks, too. We could put five people on a project for a few weeks, incur a huge amount of money, and they could just never pay us, go out of business, whatever reason. So we have risk as well. So we're not here just to alleviate all their risk and put it on our shoulders, being the insurance risk, insurance Ken just mentioned. But we do try to figure out a way to have a nice balance between us helping them with their risk, and them helping us with our risk, and just being up-front. Like, "This is risky, you don't know us. You've had a recommendation, maybe you liked us during a sales call so you're choosing us, but you really don't know us."

And we're a huge believer in gaining trust over time. So at the beginning, or whatever that word is Ken had, I forgot now, already, at the beginning, the risks are much higher. So we do put a lot of thought into that. Some clients, to be honest, aren't a good fit for our system. We're very happy to help them find someone who would better fit the system than us. So we do lose some clients, for sure.

JAMON: One way that some clients have asked us to share an undue amount of risk is when they ask us for hourly with a cap. That is sort of the worst of both worlds for us. If we finish early, we make less money, but we also take all of the risk of when it goes over. So we really do refuse, essentially, to do that.

Now, there have been some situations where we've put such a cap on ourselves because of particular circumstances, but we don't work for clients that demand that sort of thing.

TODD: Yeah, we have a general rule where we strive not to work for free. Which sounds funny, especially if you're in a different kind of business than ours, but it's actually super common for businesses like ours to work a lot for free, for nothing. And it's actually, in my opinion, a rampant problem in our industry. So we really strive not to do that.

I think that would probably come to a shock for a lot of people. If you're selling hamburgers, the concept, "Well, you know, 30 percent of the people walk through today, you're just gonna give them the hamburger for free." That would be shocking to them. But that's kind of like what people like us do, too much so, in my opinion.

Anything else on the psychology from the client standpoint that we could talk to, or talk about?

KEN: I mean, pricing is a huge topic.

TODD: Could you talk about pricing per week or per hour, the psychology? Because I know you've discussed this in the past, Ken, and I'd love for you to tell people.

KEN: Yeah, so one of the things we... We've tried a bunch of different ways of pricing. So one of the things we did before, we would only bill for extreme, like the instant we step away from the keyboard, the timer goes off. When we first started, we tried to do this. So we would charge like a pretty high hourly rate. But then, the actual number of hours burnt would be low. Nobody liked that. Nobody understood that, it was much better to bill in the way that people kind of understood about that.

When we would bill hourly, like an hourly rate, we're much more likely to get really kind of angry responses sometimes. To people who didn't really have a sense for what software costs. Because what people will do is, they'll look at the hourly rate, and they'll compare it to how much they make. Right? They'll go, "Wait a minute, that's what a lawyer makes!" Or something. It's not actually what a lawyer makes. But we would get this very visceral reaction to that.

But by doing it weekly, where we've kind of smoothed all that out, then they can kind of approach it more like a product that they're buying. Kind of like, "Well, it comes in this many chunks, and okay, that makes sense." So that, I think, was always one of the benefits of fixed-bid for people. Fixed-bid in sales has always been nice, because you can just say, "Here it is, and that's your price." Although, it's 100,000 dollars, they were like, "Well, my budget's 150, so I could do that." Right?

And with doing this weekly, although it's not quite there, it is a little bit like... The way we're doing it now is a little bit like fixed bid plus an extremely well-oiled change request process, basically.

JAMON: Yeah, exactly.

KEN: And that seems to solve both of those problems. Where it's like, they can look at that and instead of being some unknown number of hours, weeks seem like they're easier to kind of grapple with. And that's exactly what we want, right? I don't think we end up charging more, particularly. But it does come in these chunks that are easier to grapple with. They know what size the check are gonna be that they're writing next week because it's gonna be a certain cadence. It's not the surprise every time. It just seems to work better. Go ahead, Todd.

TODD: People will pay extra money to remove the surprises happily.

KEN: Yes, absolutely.

TODD: I don't think our weekly is more money, but even if it were, they would be happier. It's so funny, what Ken said is they associate their salary with their hourly, or even if they take their salary and divide it by 40 and divide it by 52 or whatever, and they compare it to ours, and they think, "Wow, these people are getting paid a massive amount." Of course, they don't see all the other business stuff. There's actually no–

KEN: They're not counting the overhead, they're not counting the things that they're not having to pay for.

TODD: I'm not complaining at all, but it's just a fact of our business: we actually have fairly low margins for a business type. Our team is extremely expensive compared to other businesses, extremely. Not saying we overpay them, I'm not claiming that, it's just the nature of their jobs.

JAMON: Yeah, and another aspect of this, and I realize we're going a little long here, but another aspect of this that we could talk about is that with the point system, it's not 100 points for each person, it's if we have three people working on it, the whole team needs to deliver 300 points. So they work together to divide up the work in such a way that maybe someone's doing 150, the other person's doing 50 but they're doing a lot of client communication. And allow them to divvy up the work in a way that makes the most sense to them.

Where with the hourly bonus structure that we had before, that would actually hurt the person doing most of the communication with the client. And that was a problem.

TODD: That's huge. And that was a decision we made. And because we chose that, meaning that we don't track individual contributions. I mean, technically we could probably figure it out based on Trello cards and that kind of stuff. But we don't track individual... It's team-oriented. So if it's three people, like Jamon said, it's 300 points. And we give them the flexibility to figure it out, how to be the best, most efficient to do those 300 points that they can. And I think that's worked out really well.

It has some downsides. It is harder to keep metrics on individuals that way.

JAMON: Yeah, a lot of what we do for that is to simply ask their teammates how it was to work with them, try to encourage them to be honest about their contributions and things. It's not a perfect system, but we are able to track individual contributions a little bit better, just through the perceptions of their teammates.

TODD: I do it more efficiently, I get 'em all in one room and I say, "Out of all of you, who's the worst?" (laughter) And then I let 'em... It's kind of like that inspirational movie, Hunger Games?

JAMON: The inspirational movie?

TODD: Yeah, so, and it's quite efficient, and you get right to the meat of it, literally, sometimes, to the meat of it.

JAMON: Literally.

KEN: And what they say is, "You are, Dad, you are!"

TODD: And I remind them once again, I'm not their father, that's Darth Vader. Fact.

JAMON: There's a lot more we could talk about here on this topic, this is probably something we could revisit at a future...

KEN: You may have noticed that we like to talk? Especially Todd. But, yeah...

TODD: My words are all very small, so I need lots of them.

KEN: We get very passionate about very dry things, sometimes.

TODD: There's some things to be said, too, on the subject of billing... It's a touchy subject, because although you can say that clients can be difficult in certain ways in regarding to this, it's all... Assuming that the client isn't a jerk and they're just trying to squeeze a rock for as much blood as they can, and let's assume that's the case, and most times that is the case. From their perspective–

KEN: Wait, you should be clear on what you're saying is the case. 'Cause otherwise, you mean... Most of the time, they are not trying to be jerks. That's what you're saying.

TODD: Most of our clients–

KEN: Okay, good.

TODD: Most of our clients are really great, and they're showing up, and they're partnering with us, and we're both working towards the goal of making something awesome. So if they are being difficult in a certain way that we may complain about in the background, they always usually have a reason why. It's usually a miscommunication, it's just something that they're misunderstanding on their end.

KEN: And like you said, presumably they're getting the software because they need it for some reason. Right? And it's a lot of money–

TODD: It's scary!

KEN: Yeah, it is scary!

TODD: And the last thing they wanna hear is, I mean, if you're doing a bathroom, you don't want a contract to come over and say it's gonna be from 50 dollars to 50,000 dollars. Which may be a true statement, but you don't wanna hear that, that's horrible.

JAMON: Well, one of the ways that we can mitigate that is if someone does have a fixed, like, hard-cap budget, which does happen and we understand when that is, then something else has to be flexible. And usually it's scope. We're not gonna compromise on quality. We wanna deliver really quality experience. But scope can be adjusted, and if a client is willing to work with us on scope, we can accommodate a tighter budget and still deliver a quality, but narrower scope, piece of software.

TODD: That brings up something very interesting, Jamon. It is a trade-off between low-price and low-risk. So, if we crank up the risk, we can give a quote at a very, the lowest price possible, because it may change. "We think we could possibly do it at this price." The easier thing to do is have a much larger price that reduces risk, but they're almost guaranteed to pay a lot more. Some companies hate the first one. They'd much rather have a much bigger price that's reliable and low-risk. Other companies, especially if they're really lean, they would prefer the first one. And the problem from our perspective is, we don't know who's who. And it's hard to get them to tell us, or they may not even know. So when you choose to go down one of those paths, do we give them as lean as possible estimate but we know it's much more likely to change? Or do we give them a much larger estimate that reduced the risk? When you're doing that, you're kind of choosing your customer at that point, too. It's all very complicated.