Be forewarned, this is a long post! I started out by outlining everything that I wanted to talk about for April, and 1,200+ words later, I've come back up to the top to re-write the introduction. If you want an insight into the growing pains of a service-based business, add this to your reading list.
This is the month that required a lot of hustle, a fair amount of lost money and at the same time, the month where we tore up our foundations and laid stronger ones, ready for getting past the problems experienced in the previous few months. I'm not going to lie and say everything is 100% rosey now, we still have need for improvement (and I think every business should always hold that view anyway).
As I mentioned at the end of the March report, we had a huge backlog to get through, a result of fantastic growth for the latter part of 2015 and the first part of 2016. More than this though, it was a result of not adequately planning and scaling to cope with the demands.
Two Out Of Three Aint Bad?
There are three main components to every business; sales, operations, and finances. Each of these main components can have any number of sub elements, depending on what their business is about, but a business needs to be strong in these three areas.
For the first year or two of HPD, our issues were finances and sales. We didn't have any disposable cash to invest in growing the business, paying for advertising, or building up inventory. It was just me and my ability to write content and put together sites when orders came in.
Over time, as I created more content, did more outreach, turned more heads, and improved my products, I made more sales. Sales was starting to become a strong part of our business.
I reinvested profits in plugins, themes, and training, raised prices to allow me to pay freelancers to help with building sites, made enough to be able to “go full-time” and eventually, finances were becoming a stronger part of our business too.
As sales increased, I hired more writers, more editors, and put more responsibility on my project manager and web developer. It got us to the point that we were at around Q4 2015, but it wasn't going to get us beyond that. Our system had evolved over time and wasn't necessarily one that would work at scale.
If you could use two words to describe our operating style, you would use “hacked” and “together”. A recipe for long-term disaster.
To some extent, all we needed to do was hire more staff, but in other areas, we needed to simplify and re-assess responsibilities and systems.
I'm sure there are a lot of businesses out there that would LOVE to be only limited by their operational problems and capacity for fulfilment. If your finances are going well, you can stay afloat. If sales are going well, you don't need to worry about marketing or finances, and operations are, in theory, the easiest thing to fix.
The problem is though, we were slow to realize the scale of our problem. It's one of those things where, you don't realize you've got a bottleneck until the pipe bursts, and at that point, you've got to fix the pipe, clean up the mess, AND continue to manage the flow.
As one of my newest team members, Brad, pointed out to me, when you are driving a speedboat, it's easy to make a small, quick change to adjust your course, but when you are steering a big cruise ship, a simple correction can take a long time to fix. While I am happy that we can be compared to a cruise ship rather than a speed boat, the point wasn't lost.
Imagine if you are driving that cruise ship with an engine that is designed for a slightly bigger speedboat, and you'll understand roughly where we were at. We realized in late March that we had to shift gear and focus on fixing our problems, which is why we launched zero ready-made sites in April and turned down a few other project offers too. However, even though we were able to put things into place to make a stronger, better system, it was still going to take a number of weeks for things to iron out, and it will still take a couple more of those weeks too.
A great visual example of this was in watching our bottleneck move down the site creation process. I documented exactly how many outstanding orders we had and updated it every week. It made tackling the problems pretty easy. It started at the front, with content creation, and over the course of April and early May, we increased our capacity in each production stage.
For example, in April week 1, we could see that we were top-heavy in the writer department. We had something like 30 articles or sites that were waiting to be assigned.
I hired 10 new writers to deal with this, and 1 of those writers went on to refer 6 other writers to me as well (this was outstanding by the way. If you need to hire new staff, get your existing ones to refer them to you if you can. The writer I had who referred 6 others to me had already briefed them, shown them examples, and pretty much pre-trained them by the time I was ready to put them to the test. Amazing.)
We could also see that there was a large number of sites that needed editing. In theory, editors could work twice as fast as writers, so we had only hired half as many editors. The problem was, sometimes editors got stuck in projects, took time off, or were doing other work (the nature of using freelancers). As a result, I realized we needed to hire way more editors, so in week 2 of April, I hired around 12 more. All but 1 turned out to be a good hire, and a handful are able to turn around a batch in 24 hours.
I was very conscious while hiring, that I wanted to make sure we were able to increase our capacity as well. I calculated that if we wanted to launch 20 sites every two weeks, we'd need X number of writers and X number of editors. I hired about 25% more just to be safe.
Why You Should Increase Your Capacity Before Your Sales
I would have hired them before the issues had first arisen if I was experienced enough in business, but alas, I had no idea how many I'd need until I got to that point, and I didn't even think of hiring them first if I am honest with you.
My fear was, what happens if I hire extra staff but don't have the sales to maintain it? Why build the capacity to sell 50 sites if you can only sell 20?
Well, because the alternative is to sell 50 and only be able to cope with 20. We've seen how that turns out…
By week 3, the bottleneck had moved beyond writing and editing problems (we edited something like 60 sites in one week and had zero projects in our “to be written” queue, and were moving on towards building sites. This has led to our current situation where we have changed how we assemble sites, so that we can get them done faster, and there is no bottleneck.
This big ship is still turning, so it will take a couple of weeks before the web development bottleneck is fully cleared, but I'm happy that we've restructured it.
As a result, we now have a stronger system in place with a much larger capacity, and for the things we are still working on, we know what we need to do.
We now have a lot more staff and freelancers too. Some of them are working almost full-time for us, others are part-time. In our day to day operations, we have:
- 31 Writers (Up from <20)
- 16 editors (Up from <10)
- 1 web developer
- 2-3 VA's
- 4 keyword researchers (Up from 1)
- 2 Team Leaders (Up from 0)
- 4 Managers
That's a pretty large organization, but the size isn't what I'm most proud of. The fact that systems are working better now and allow us to add more or replace with ease, is something that will allow us to consolidate and scale a lot more easily in future..in theory.
This was definitely trial by fire, but I feel like we've come out the other side and are only mildly burned.
Income Report – A Note On The Bigger Picture
Let's move on to the income side of things. A lot of our expenses are hard to reflect this month because we were building sites that were sold in previous months, and have already had their expenses reported. For example, if in a given month we made $4,500 gross from site building, and those sites would cost us $1,500 to make, I would have written that we had $4,500 gross, $1,500 expenses, and $3,000 profit. Simple right?
The problem is, our expenses aren't paid out until those sites are actually made, and since we made the vast majority of them in April rather than the month they were paid for, I can't just report the expenses twice. In hindsight, this shows that I should have had a different approach to how I reported expenses, but I wasn't expecting to have a month that was so skewed like this.
So to keep things even, I will continue reporting the expenses the way that I usually do, reporting for them in the same months the profits are made. The result will be that in April, you might think we did OK, because we made X and had X expenses, but you'll need to realize that I spent a lot more money than we earned, because I was using cash reserves to pay for sites that were bought in previous months.
This is also a good lesson in making sure you keep on top of finances and always keep funds on hand until the sites have been built.
We also refunded a few customers who grew tired of waiting for us to finish their site, which was fair enough, (thanks to all those of you who did remain patient with us). Since these already had their profits and expenses reported in previous months, I will report them as expenses again this month (since the money went out) and if/when we re-sell them, they will be reported as profits again.
Oh yeah, I also moved country on April 18th, so that took up a fair amount of time and money too (Don't ask me about the Typhoon that waylaid us in Japan).
Sounds confusing? The TL:DR version is that April hurt. What profit we DID make from custom sites and articles kept the business afloat.
I'm looking forward to writing May's report, let's just leave it at that.
Human Proof Designs Income
Ready-Made And Custom Sites: $8,469
Remember, we launched zero ready-mades in April (sadface).
Keyword packs: $75
Keyword packs will be re-launched in June!
Affiliate Income From Blog
Long Tail Pro: $151
Seems that this keyword tool did a lot of testing in April.
Amasuite: $666 (Evil!)
Authority Azon Income:
Theme and Sites: $2,272
Total Gross Income: $18,526
Pretty good considering we did zero launches.
Expenses (including refunds, authority azon, and affiliate commissions): $8,962
Total Profit: $9,564
Dipping below $10,000 is slightly frustrating, but there were extenuating circumstances and higher than usual expenses, so I'm not worried (Plus, writing this on May 20th, I already know May has been good).
What's good is that we've built a boat(ship?) that can still bring us income even when *da bian is hitting the fan. This is good for all those involved, because it meant we were able to actually fix our mess-ups, rather than just having to run and hide.
*Gotta keep my Chinese up to scratch now I'm no longer in Taiwan. Da Bian is Chinese for…something that hits a fan.
If you've read this far, thanks, I know it was a lot to take in. See you next month.