However, to an extent, I have learned that dips are far more predictable than peaks. Here are a few examples, and it is all driven by customer reaction.

In late 2008, the world crashed. The markets crashed, sales crashed, credit crashed. Hell in a handbasket. Through the first three quarters of the year, we were up in sales, and looking great. Fourth quarter hit, and we saw a fifty percent decrease in sales from the previous fourth quarter. Now, fourth quarter is generally our slowest with holidays and such in there, but occasionally it surprises us with some end-of-fiscal-year bumps. However, fourth quarter 2008 nearly called for layoffs, and I admit, it wasn't something I saw coming. Having experienced it once though, I now know to be on the lookout for it again. As a plus though, because the UIU saves customers a tremendous amount of time and money, 2009 turned out our best year to date, which very few companies could say. So again, I now have a historical piece of data to work with in the future.

Another example for us has been associated with the release of a new Microsoft operating system. When Vista was close to release, our sales slowed or were delayed because customers didn't know exactly what to expect from Vista. Rumor had it that UIU would be unnecessary. Well, that was obviously incorrect, as sales continued to increase, but it was understandable. Consequently, when Windows 7 was announced, we fully expected the same thing. Customers would delay purchases while reviewing their environment. Windows 7 would cure all their problems. We had several customers not renew their UIU licenses as they were positive they didn't need us. Well, 2011 proved that wrong, with record sales and several customers coming back to the UIU. But, because of our experience with Vista, the Windows 7 hit and subsequent rebound was predictable.

The third scenario we have run into is with our own product updates. It was not uncommon to hear that a customer wasn't going to purchase or renew until we had released a new version - something compatible with Vista, Window 7, containing certain drivers or fixes, etc. The customer always wants assurances that it's going to work in their environment, and despite years of proving our commitment, fear still reigns. Not much you can do, but understand that the process will take time. So, when we heard customers were leaving us for Microsoft's SCCM, because it would do everything they needed (see point two), we listened and waited, and soon those customers started asking if the UIU was SCCM compatible. As those requests grew, we realized we needed a new product that would integrate with SCCM (UIUSD), which we just released in April. That release though has caused a slow down in sales and renewals because for existing customers moving, or considering moving, to SCCM, they now had to do the research and evaluate their environment. And so while sales fell dramatically in April, I was able to warn my sales and marketing staff that it would likely happen. No one is happy about having such a terrible April, but the interest in UIUSD has been awesome, and we can fully expect the corresponding increase in sales shortly.

I don't think business is tremendously predictable, as far as set numbers. We would all like to increase sales by a certain amount every year, but can we predict that with any accuracy or certainty? I don't believe so. What I can do though, is be somewhat predictive as to when sales may increase or decrease based on certain outside events or perceptions. The more cycles you go through the better a predictor you should become, as long as you learn to recognize the patterns.

Aside from the political conservative side, there is also the issue as to whether one is personally conservative or risk averse. Like the political perspective, this has little to do with the potential success of an entrepreneur... as long as the extremely conservative nature can be curbed slightly when it comes to the business. A small business owner must take some risks, no matter how small, or the business will never get off the ground. An excessive amount of risk can lead to either quick ruin or potentially mind shearing success. Extreme conservatism will lead to a slow death, and that's really about it.

One of the things to realize as your business grows though, is that the perception of you as a business owner, may be vastly different than the reality. However, that's because your reality changed dramatically, while that of your friends and family did not. As the business grows, we begin to deal with numbers and decisions that others close to us can't fathom, and so what is perhaps a conservative, low-risk decision to us, can easily appear as a crazy, outrageous decisions to those around us.

I can't tell you how many times my grandfather has asked, "You sure you're OK kid? That's a lot of money..." when looking at the property and renovations we've made to our offices. The idea of paying over $1,000,000.00 for a piece of property is unfathomable to him because he never made more than $50,000.00 in a year (if I had to guess.) That's a risk he just can't wrap his head around. For Big Bang though, the far greater risk was staying where we were, in what would have been an undersized office building. In order to allow the business to grow, we needed more space, and this option cost less than our existing lease space.

Anyone that knows me, would likely not describe me as conservative, personally or professionally. We offer great salaries and benefits to our employees. We have a great campus on five wooded acres with golf and volleyball and disc golf. I have played poker in some of the biggest tournaments around, traveled the world scuba diving, and drive an Infiniti convertible. I doubt "conservative" is what friends and families think of me.

But in business, for the most part I am conservative. But that still means providing the support and materials my employees need to succeed, not nickel and dime-ing them on the small stuff. That means sending them to expensive training courses and tradeshows, so that Big Bang maintains the highest quality of employees. That means paying our bills on time or early so our vendors respect us and want to do business with us, rather than holding off payment for 45 or 60 days.

As Sue, one of our employees is fond of saying, "Make good decisions." Well good business decisions are conservative decisions, that are made for the good of the company, even if they look like crazy decisions from outside.

How a business grows from there generally takes one of two paths - small organic growth, or funded rapid growth. I chose the organic path, and it's worked well for me. After eight years in business, Big Bang does a few million a year in sales and has fourteen employees. We have a five acre campus, with a putting green and tee box, sand volleyball court, and a recently added disc golf course. We grill out in the summer for lunch and hang out on the patio after hours with cold beer and drinks. We have actually been profitable every year. I can't begin to explain how much I enjoy what I do and who I work with.

However, I'd be lying if I didn't say I occasionally thought about what Big Bang could have done with venture capital. Would we have become the next Facebook? Not likely at all. But, could we be doing tens or hundreds of millions in sales? Potentially. But at what cost? Would I even still be here? What about the staff? Would they be here too, or would the appeal of cashing out stock options have been too tempting? It's both exciting and daunting to consider.

Regardless of the path taken though - slow and steady, or meteoric - the path to smart business is not dramatically different. And what I mean by that, is be conservative.

When it became time to move from the house to an office, I elected to sublease two offices from a law firm I did business with. Now that obviously didn't leave much room for growth, but remember, adding that first employee was a 100% increase in staffing! That's huge. It gave me the opportunity to learn about business outside the house - about employees, phone and internet bills, liability insurance, etc. The risk was minimal, and I think that's something business owners don't always take into consideration. We're supposed to be these aggressive, passionate, mavericks, when in reality, we're far more conservative than most would ever expect.

As Big Bang and the UIU grew, we moved our offices from the subleased rooms to a 3500 square foot office... in the same building. Nothing crazy, but it accommodated the four of us (another 100% increase!) and gave us room to grow to eight people, and have room for our testing equipment and lab. Here was a bigger jump, but the decision needed to be weighed against our growth. Now, did we still buy our desks from Office Max or Office Depot and have to put them together ourselves? Absolutely. The conference room table and chairs? Scavenged from my father's storage unit because he moved his business. Risky at $5000.00 plus per month for rent? Somewhat, but not much in comparison to the revenue of the company. The greater risk was stagnating the business.

Eventually we moved again, this time to our five acre campus with an office building that could accommodate another 100% increase in staff... which we're quickly approaching. And it was the conservative decision. While admittedly we've put a tremendous amount of money into the property, we didn't have to right away, and our loan payment is less that our former lease. So, while the million dollar loan might seem outrageous and frightening, the day-to-day math proved to be an easy decision. Less money being paid for twice the space and an awesome environment. Wild and crazy appearing from the outside, but actually very conservative. Could we have gone bigger and more expensive? Yes, according to the bank. Should we have? Absolutely not.

Where I'm not conservative though, is with my employees. They are the lifeblood of the company, and while I can nickel and dime on desks and chairs, I refuse too with the employees. We generally pay at the high end of the scale. Our benefits are second to none. Keeping these people, and keeping them happy is what allows Big Bang to thrive, not just survive. Spending a couple hundred extra dollars for a bigger, better monitor, or dual monitors, is a no-brainer. And because we're willing to do that, they're that much more productive, which makes Big Bang more profitable, which leads to the disc golf course in the back yard.

The simple math of my example was that an employee generating revenue produced a profit similar to his salary - so a one-to-one ratio. Please keep in mind, that when I refer to "profit," what I mean the direct relationship to the expenses and costs associated with that person. This isn't pure In-The-Owners-Pocket profit. It doesn't take into consideration the overhead associated with running the business, advertising, marketing, research, development, etc.

So now let's consider the pricing structure for UIU. Unfortunately, there was no other product on the market to compare to, so we had to come up with our own. The first thing we looked at was the tiered structure for Symantec Ghost and mimicked that. We started at ten licenses minimum, and went from there. Because UIU was essentially an add-on product to Ghost, we felt it should be priced less expensively than Ghost. (Or education customers continue to complain that we're more expensive, but an 80% education discount is unrealistic.) The other aspect that we tried to incorporate was ROI - Return on Investment. We were able to establish pricing that we felt would provide an ROI of 180 days or so for our customers. Essentially, UIU would pay for itself in about six months for a customer of average size.

To be honest though, we didn't know exactly what we were doing, and we've made changes along the way. For example, the discount for education was initially set at 20%, and the flashback from that decision was ferocious! Despite the fact that the ROI was even greater for education customers because of their discount and that they often times had an even greater disparity of hardware than average, the 20% discount was considered an outrage. We increased it to 30% and the sales started to flow. Sadly, the discount is often times more of a focus than the actual price or benefit.

In the eight years we've been selling UIU, there have been two significant changes made to the pricing structure. One was for annual maintenance. Again, like the initial pricing, we didn't have a model to work with, so we guessed as best we could. Initially, we charged about 25% for annual maintenance and support. Eventually we realized the math didn't work and we increased it to 30%. That doesn't seem like much, but it was really a 20% increase, not a 5% increase, but it was sufficient to achieve our goals. The goal for UIU at this point is that the revenue generated by the annual maintenance should cover all the expenses of the business. In other words, with no new sales, Big Bang would be able to survive. There'd be no profit or new development, but we could survive. Obviously, we want more than that, but that's where new license sales come in.

The other major change was to increase the minimum number of licenses, and the push back on this was incredible! However, in 2008, when the markets crashed, our fourth quarter sales were half of what they had been in 2007, and for the first time, we lost money in a quarter. It forced me to really review our pricing structure, and what I found was that our minimum license orders were costing us money, and they had very little upside. Rarely did the minimum customer ever grow to become profitable. So, we adjusted appropriately, and raised our minimum to 100 licenses. The goal became to bring at least $1000.00 per order in to Big Bang, and we accomplished that, which made every order profitable. It also made it profitable for our resellers, who in some cases were getting as little as $8.00 to process an order. I found that to be a bit rude, personally.

Did we lose some minimum customers? Absolutely - about 50% every year. The interesting part though - that was the same percentage we were losing before. So, the customers that were going to stay with us, did, despite an increase of 400%, and the customers that were going to leave, still left. And in the end, we are profitable on every order we take. We will still continue to review and tweak pricing as the market and the business change, but for the moment, it makes good sense for everyone involved.

Every year we hear that we are too expensive. And we can show the math proving that we do nothing but save customers money. Some will believe, some will not. Every year we also hear that we are too cheap. Sometimes I believe, other times not. Our pricing is designed to be fair, but not necessarily fair to everyone. I am not out to gouge our customers for every penny because I think that's short sighted. We want customers for life, not for right now. At the same time, we want Big Bang to grow and prosper and produce new products, and that all requires profit. Our customers want us around for years to come... and so do I.

In previous posts, I've discussed the requirements, that in my mind, must be there in order to hire your first employee. That's the biggest decision a business owner will make, and it will likely have the greatest financial impact on a percentage basis. Here's the math, assuming I could keep an employee as busy teaching as I was:

With a forecast profit of $120,000.00, that meant I could hire someone for approximately a $40,000.00 salary, and with benefits and taxes and such, it'd cost about $60,000.00, leaving me a salary of $60,000.00. To make up for it, adding only $60,000.00 in profit would be pointless, as I'd be at exactly the same profit level with or without an employee. So, if I could add three courses every two months, I'd be a bit better than break even, and if I could increase it to five to six courses every two months for my new employee, then the profitability of the company would grow.

Given that I was already doing that amount of business myself, and felt there was more potential, the decision made sense at my current pricing structure. Lowering prices based on additional volume and capacity, would not pay off. There may have been an argument for raising prices, but given the market and competition, that didn't seem wise.

So, here's the lesson I learned regarding pricing for service oriented products:

Economy of scale does not necessarily apply. An employee can only work so many billable hours, and in order to do so, there is a certain amount of work behind the scenes that must be accomplished, and for a small business, that ratio doesn't change much. Consulting type service businesses are not likely to see much of an increase in productivity as the company grows. It's why a law firm charges $200.00/hr regardless of their size. That lawyer has a limited number of hours, has an assistant that requires the same salary, etc., all regardless of whether there's one lawyer or one thousand.

It's also part of the reason that service based small businesses are challenged to grow. They can't take advantage of economies of scale like a product based business can. It's part of the reason that consultants charge what they do - they have to! (Admittedly, so are ridiculously high.)

Going back to the kid that left FedEx making $16.00/hr, the challenge was not only deciding how much to charge, and why, but also being comfortable with the idea of charging $125.00 to $200.00/hr for my services. In an open enrollment course, I may have been charging as much as $16,000.00 for a twenty hour, three day course. That's $800.00/hr! Those kind of jumps in dollar amounts can be incredibly intimidating!

Without sitting down and doing the math though, I would not have been able to succeed and grow, and Big Bang would not have had the opportunities it has.

First, let's talk about pricing services. When Big Bang started, our primary product was providing Symantec Ghost training. I taught directly for Binary Research as a contractor, and offered the courses up as open enrollment in certain cities, and I offered them as on-site courses directly at a customer facility.

When working for Binary, I charged $1500.00 for the course, plus travel, which averaged about $1700.00. When I taught the course myself as an open-enrollment course, I charged $2000.00 per participant, and allowed for a maximum of eight participants. If I taught a dedicated onsite course for a customer, the rate was $3500.00, plus travel, plus $600.00 per person. So a four person course was generally around $7600.00.

So teaching a 4 person course for Binary was essentially $3200.00, while a four person course would bring in $7600.00 - $8000.00. Given that, it would seem that I'd be crazy to ever teach for Binary, wouldn't it? However, they were responsible for doing all the marketing, sales, collections, etc. And because they were pretty busy at the time, it wasn't unusual for me to do two courses in a month. So, the money wasn't huge, but fair. The reason to do it though was that it provided a decent salary, at a dedicated amount and was reasonably consistent.

However, that's not enough to grow a business, which is where offering up my own courses came into play. A four person course could profit about $3000.00 at the time, after travel, lab rental, etc. However, once that first $5000.00 in expenses was cleared, everything was profit. So, a three person course still made some money, a four person course made more than I would working for Binary, and if I could get the number to six, it meant a $7000.00 profit. Well, if I could do one of those every two months, along with three Binary courses, then I was making nearly $6000.00 per month, and had some flexibility to advertise.

What about the math for pricing out an on-site course? Why make it cheaper than an open enrollment? First, there was no rental fee for a lab, which saved about $3000.00. So why not charge $1500.00 plus travel, like I did for Binary? Simple. There's all the overhead that goes along with getting the contract in the first place. So, most customers that wanted an on-site wanted at least four people to attend, but they didn't want to pay travel expenses for four people, plus the course fee. A four person course would cost $8000.00 plus travel times 4, so figure probably $12,000.00 plus.

So, my goal was to make a four person on-site considerably less expensive for the customer, yet still profitable for me. If they wanted only a three person course, that would be $7000.00 which would probably be slightly less than sending three people to an open enrollment, but not much. That became the sweet spot because I wanted at least three people in an open enrollment, but preferably four to be profitable. And any extras were just extra profit. A four person on-site would profit about $6000.00, so somewhere between a four person and five person open enrollment.

Here's the summary of all that above:

Binary courses - $1500.00 profit, but no marketing, advertising, etc. And regular training.

Open Enrollment - $1000.00 - $11,000.00 profit, averaging about $5000.00, but irregular and variable, and a fair amount out of pocket up front.

On Site - $5200.00 - $8300.00 profit. Again irregular but less variable and less out of pocket.

Now, depending on the business and financial goals, I could establish what I wanted to do with the business.

Just working for Binary would be an OK salary at two-to-three courses per month, and would be comfortable, but never allow for growth.

Open enrollments certainly offered the greatest potential, but also the greatest risk and greatest variety.

On Site trainings seem to be the best situation, but getting a customer that wants to train at least four people is difficult.

What finally worked for me was to try to work five to six weeks in two months, leaving two to three weeks of time for marketing, sales, contracts, sleep, etc. If I could do on open enrollment and one on-site, and three to four courses for Binary, I could profit about $15,000.00 - $20,000.00 in two months. Now that allowed for conservative sales for me and growth for the business without out too much up front risk. And if an additional open enrollment or on-site course came in during that time, it was a bonus.

All told, this created a profit range of about $120,000.00 per year, which was either a very comfortable salary, or significant enough to grow. Consequently, when the Universal Imaging Utility showed up as an option, I had the resources to capitalize on it and grow the business.

When working as an independent consultant, pricing becomes a very personal and philosophical issue. I made approximately $35,000 annually when I left FedEx in 1999. Simple math says I made about $18.00/hr, although it was slightly less because my annual number included overtime. So, let's say $16.00/hr. If I charged that to my customers as an independent consultant, I'd have lost my apartment, car, girlfriend, and likely a lot of weight. Even double that number would not have come close to my annual salary.

Here are a few of the factors to consider relating to billing rates as an independent.

• Taxes: As an employee, your taxes are taken out automatically and you never see that money. In addition to that, there are the employer paid taxes that need to be added - Employer social security and Medicare add about 9% to the bill, and you're still responsible for paying it for yourself as the employer.
  
  
• Benefits: Whether it's vacation pay or health insurance, the benefits an employee receives will generally add up to about half the actually salary. In our example, probably another $8.00/hr on average. And the higher the salary, the higher the number, but the 50% is almost always a good number to use.
  
  
• Business expenses: To begin with, this may just be a second phone line and business cards. Eventually, it will include some level of advertising, a web site, perhaps even an office, equipment, travel, inventory, etc. I suggest staying as small and basic as possible, but realize, that can change very quickly. The first large contract may change your entire universe.

So, a $35,000 salary, will cost probably $50,000, plus expenses. Even being incredibly conservative, $25,000 the first year is fair. So, let's say that $75,000 in revenue may allow you to maintain your existing lifestyle.

Now that you've established a number, the next challenge is determining how much work you can actually do... and bill for. Generally speaking, 2000 hours is the number used for hours worked per year, so the $75,000 in sales would require a billing rate of $38.50. Easy!

However, some of the time you are going to be selling, not working billable hours. Some time you will be traveling. Do you bill for that? Are travel expenses billed separately to the customer? That billing rate also assumes you always have work to do when not selling. What if it's a bit dry for a couple weeks? You don't get to charge your customer's overtime on the next job when you are willing and able to work 60 hrs/week.

My estimate is that, at most, as an independent, you will be able to actually bill for 1000 hours in a year. Get the right contract, and maybe that number goes up, but it's a safe estimate, and that's what we're looking for.

So now, conservatively, you have to charge $75/hr in order to maintain your life style, and that still assumes a perfect world. No illnesses, no financial issues, customers paying correctly and on time, etc.

That number gives you no breathing room, at all. No room for error, and very little room for growth. And, I would argue, that's not a luxurious lifestyle. Excepting the unemployed, no one in the United States should set out on their own to start a business to make $35,000 a year! It's bad math.

But here's the challenge. As a 26 year old, making $16/hr in 1999, the idea of charging $75/hr (let alone the $125/hr that I should have) was traumatizing. My god, I thought that was a lot of money, in comparison to what I was making. Sit down with a quick spreadsheet though, and the truth was vastly different.

It didn't take long to realize that it was an incredibly insignificant amount of money, and that I could not live on that, let alone create a viable business. In my experience with independent consultants, most of them start off under-bidding themselves and charging far too little. It can be very difficult to justify to yourself the rate you have to charge. So, sit down and objectively look at the numbers, so you can understand them and explain them to both yourself and your customers. Remember, it's always easier to lower your prices than to increase them.

And what about pricing as the business grows? That's a whole different animal for another time.

When starting a business, whether a one man shop, or growing into a small business, this distinction is something to keep in mind, specifically when it comes to your brand. Unfortunately, I did not realize the importance of this until several years after Big Bang released the Universal Imaging Utility (UIU), and it has likely cost us.

The advantage a FedEx, or any other "service" oriented business, is that their name is synonymous with the service they provide. If truly successful, it even becomes a verb. It's not unusual to hear someone will FedEx a package. It's what they do and who they are.

On the other hand, consider Research In Motion, or RIM if you prefer. Now most technically savvy readers will know who RIM is and what they do. The rest of the known world knows them as BlackBerry. Their product branding is so strong, that most users of BlackBerry devices likely don't know that Research In Motion is the company behind the product.

Let me explain how the branding has worked for Big Bang and how it has affected us. When Big Bang first released the UIU, we distributed it through Binary Research International, the original creators of the Symantec Ghost product. It was a natural choice. We worked with them providing Symantec Ghost training services, they were still involved with Symantec and selling Ghost world wide, and they had a huge database of existing Ghost customers. Our experience was in supporting the software. Their experience was in selling software. Perfect!

Because distribution and sales was not our expertise, we relied very heavily on Binary to market the UIU, and they did that very well. However, we did not insist they market Big Bang, and to an extent, that was a mistake. Their job, as a company that specialized in bringing products to market, was to promote the product to increase sales... and to promote themselves in order to obtain more products. This caused us two issues.

First, our customers, the end users implementing our Universal Imaging Utility software, did not know who Big Bang was. We did not do nearly a strong enough job of getting our name out there. Rather, the UIU was the focus. So, like RIM and BlackBerry, we have created a situation where there is a disconnect between our product and the company. While the business was first taking off, no one thought anything of it. However, as we grow and look to release new products, we don't have the name recognition we would like as a company. Our UIU "Power Button" logo is far more recognized than the Big Bang logo, which has caused our marketing team no end of problems. How do we want our customers to identify us, by product or by brand name?

The other issue that arose with our distribution and marketing model, is that customers associated the UIU with Binary Research, not Big Bang. I can't begin to tell you how many times we have contacted a customer only to be told, "We only deal with the manufacturer." We are the manufacturer! But as I said before, Binary's job was to sell themselves as well as our software. To this day, despite the hassles, I do not begrudge them this. That's how their business as designed, and in order to grow and thrive, they wanted more products to bring to market. It makes perfect sense - for them. We didn't realize early on though what a problem it would cause for us down the road. We have spent the last year trying to educate our customers about who Big Bang is. In some cases, these customers have been using our UIU software and support for years! It has been a hard lesson to learn.

Consequently, my lack of foresight regarding "product" branding versus "company" branding has cost Big Bang a considerable amount of marketing equity. It's something to consider during all the excitement of bringing your first product to market - hopefully there will be a second product! I can only apologize to my sales and marketing staff, and hope they will forgive me.

• How do I find know if I love something if I've never done it?
• I have so many interests! How do I decide?
• How do I take what I love and make it into a business?

I have the advantage of fifteen years of experience to look back on, and so I can apply 20/20 hindsight. Perhaps it will be of benefit as you start to consider your future business endeavors. In order to answer some of these questions, my advice is that you start to regularly ask yourself, "Why?" Hopefully you'll see a pattern emerge.

I like to figure things out. I like to calculate and think ahead and identify a solution. I like playing chess and working a few moves ahead, and that has stayed with me in nearly every aspect of my life. I really enjoy understanding the process, and I like improving the process. If you will, I love to game the system.

My working career began at FedEx in 1990 at the age of 18. I worked at the airport location here in Milwaukee, loading planes and trucks in the middle of the night. Certainly not the most glamorous job, but there are aspects of that job that helped set my course. Looking back, here's what I can tell you started there and has stayed with me.

At FedEx, that meant stacking freight in a container so that it wouldn't move during transport. Why? Several reasons. First, I liked the math and physics of it - "T-stacking" a container made sense, and if I did it right, nothing moved during shipping and nothing got crushed. Another benefit - more freight fit, which made for a more efficient operation. That's the "game the system" side that I like so much. How could I make it better or easier? A third plus - oh, it pissed me off when I opened a container with thousands of pounds of freight only to have a box fall on me because someone else didn't stack the freight smartly. So, pay it forward a little. I didn't want my stacking scheme hurting someone else.

From the airport, I moved into the newly emerging PC environment at FedEx, and worked on databases and spreadsheets to help analyze freight flow and route scheduling. Again, I enjoyed figuring out the formula's in Excel and Access to get the accurate, useful information we needed, and then working to understand and analyze just what that data meant and how it could help change operations. I also dove into the ISO 9000 quality systems integration that FedEx implemented, which looked closely at processes, procedures, and Best Practices.

My passion doesn't manifest only from my job though. Over the past ten years, my wife and I have come to truly enjoy scuba diving, and with it, I also took up underwater photography. With diving, while I love the opportunity to experience sea life up close, I get just as much excitement from improving my diving skills. What can I do to better control my buoyancy? How does my breathing affect me in the water. How can I dive with less weight in my vest, so I can stay under longer? What equipment changes can I make that allow me to be more hydrodynamic, or move faster, or with greater control and comfort?

Taking up underwater photography has set off the same desire for information and understanding. Good photography is both an art and a science. When I started, I'd get the accidental fabulous photo, but I didn't know why. Now, after several classes and cameras and tens of thousands of photos, I'm a much better photographer... and I understand why. I love the art behind composing a good photo as well as the technical aspects of the camera and lens that help make that composition work.

So, after you take an honest, objective look at what you are really passionate about and more importantly why, then the business ideas can flow from there. I will dive into that aspect in the next post.

The great challenges with this bit of advice though? First, identifying something you truly enjoy. Second, identifying those things that you are indeed good at.

Arguably, American Idol is the easiest and best example of these two principles. Undeniably, the finalists both love singing and performing, and have the natural talent to go along with that drive. Also, of the several thousand applicants, even though most love singing (although obviously some just want the 15 seconds of fame) and many are undoubtedly talented, all but a select few will not get their chance at stardom for whatever reason. Who do we remember the most though? Those poor wretched fools, who love to sing, who truly believe they can, and have been lied to by their parents and friends all their lives!

Realizing your dreams and aspirations requires understanding your dreams and aspirations, and then establishing whether you have the talents and skills to make them a reality. As much as I might enjoy the rock star ideal, I also realize that I have a great voice for radio... announcing. I'm never going to be a rock star, and that's OK.

When I started college (which I never finished), I started off along a path toward the maths and sciences, most likely leading to some type of engineering degree. Why? Because in high school I had excelled in the maths and sciences, having completed pre-calculus, physics, chemistry, etc., mostly by my junior year. They were a natural fit, I was good at them, and being 17, and obviously heading to college, they were my destiny.

Fortunately for me, it sucked! Which is not to say that I didn't enjoy some of what I was doing. I've found my math, chemistry and physics knowledge to be very helpful throughout the years. However, it wasn't my calling. I was a different type of geek.

Do you remember the dread that sat in the pit of your stomach when you discovered that you had to take "Speech" class in high school. My recollection is that it was the class that students were the most scared of, and I was no exception. Yet there it was, staring me in my pimpled face, sophomore year. Here I was, a member of the chess team, an outcast from baseball having been hit by the pitching machine, and now faced with the terror of speaking in front of twenty or so other teenagers. As a child of the 80's, all I can say is, "Gag me with a spoon!"

However, that semester of speech class may have made more of an impact on my future career than any other single educational experience. I loved it! And I was good at it. I never expected that I would go on to become an actor or great orator, but I found that I was very comfortable in front of people, and that I could readily get my point across to an audience.

Of course, it wasn't until years later that I finally put two and two together, after a failed college extravaganza, and the realization that I would never be an engineer. The truth was that I continued to return to teaching in some manner: My years at FedEx lead me to software and ISO 9000  training there. Later, I did technical training on A+ certifications, QuickBooks, and Visual Basic. My favorite class to teach - Intro to PCs, which normally consisted of twenty or so 70+ year old students who had never touched a mouse in their lives. I loved it. Teaching became my passion. Eventually, that led to my teaching Symantec Ghost training courses, and running into a gentleman who introduced me to what became the Universal Imaging Utility, which has allowed Big Bang to thrive.

My passions and skills have changed over the years, but I am eternally grateful for that sophomore year high school speech class.

After a recent interview, one of the comments was that the interviewee may be too smart and get bored with entry level sales. So, should we choose to hire that person, it will be up to us to manage that. Perhaps he doesn't stay entry level very long. Perhaps he goes along to trade shows and conferences to interact face-to-face. And perhaps, he has no interest in any of that, and wants to come in at 9:00 on the dot, and leave at 5:00, and not take his work home with him.

Regardless, it is important to explain that to the candidate up front. Some people coming straight from college may expect great opportunities. Those from a large corporate environment may expect multiple levels of management and bureaucracy. Others may have no interest in management, but simply want the opportunity to show off their skills. All of these are options, so it is up to us to identify the drive and capabilities of the employee, to identify opportunities for that person, and to identify exactly what we're looking for as owners. Here's a few examples from the Big Bang staff and how it's worked out for them:

Chris was the first dedicated software developer I hired permanently. We had known each other for years and were close friends. Chris had absolutely no desire to move up. He did not want to manage other developers, nor really even be a project manager, and he made that clear immediately. It worked out perfectly for both of us because, at the time, there was no one for him to manage anyway! He wanted to code, and code is what he did - late at night, early in the morning, weekends. It didn't matter - he just wanted to make it work.

When we hired Justin for support, it quickly became apparent that we had a bright one on our hands. He was excellent with our customers and with our software, but relatively fresh out of college, he wanted more. So, he busted his butt for us. He took additional programming courses and got his programming certificate. He started working with our software development team (which had grown beyond Chris) and they started to give him projects to work on. We sent him to Android classes, and he's now got his own Android app.

Nate and Kelley head up Marketing and Sales. When Nate started, he was the Marketing department. When Kelley started, she was the Sales department. Now, we've hired a couple people in sales, are interviewing another, and have started to migrate Tish from sales to marketing because she has her Master's degree in Marketing. So, not only has she started to move into a different role, but so have Nate and Kelley now that they have direct employees.

Perhaps there actually is in fact a bit of an corporate ladder forming at Big Bang after all, albeit small, which hopefully continues to provide opportunities and challenges for those that want them.

Over the years here at Big Bang we have hired people from several different backgrounds and experience levels. Some were IT people, some were, and are still, as far from IT as you can imagine. The key issue for us though, is personality. A small business works like a family, except that you get to pick who's in it.

Rarely have we hired someone and had them do the exact job they were initially interviewing for. It's the advantage, or challenge, of a small business. The Boss isn't the only one that has to wear multiple hats.

Our interview and hiring processes have changed and evolved over time. We still ask the occasional odd question like, "Who is your favorite comedian?," or "What football team do you support?" (We hired a Bears fan here in Packer country. I'm still baffled by that!) However, there is one question that I will continue to ask that truly throws most candidates:

What do you want to make?

I let people know that I don't expect an immediate answer - they can think about it. Get back to me later. And, of course, we have a range in mind that we feel is reasonable based on the position and experience of the person.

I don't ask this question to make people uncomfortable or to put them on the spot. Instead, I ask it because it gives me great insight into how they think, what their motivations are, and how they value themselves. It is also an opportunity for them to take a look at themselves, and a little introspection goes a long way.

Here's how it plays out, (and I normally explain this to them after they get back to me with a number.) First off, I get to see their critical thinking skills in action. When someone gets back to me with a salary request, I then get to ask them, "Why?"

Interestingly, most people underbid themselves. Perhaps it's because we are a small company, so they expect less pay. Perhaps they have heard about our benefits, such as our open vacation policy including a vacation stipend. Perhaps they are looking to leave their existing job and consequently willing to take a pay cut. Regardless, it gives me insight. Also, in many cases, it has worked as a great morale boost, because if I can offer more than they asked for, all the better!

Perhaps they did research on the industry, and found that the average position in Milwaukee pays $X.00, and so they used that. Maybe they did that research, and feel that their experience is more or less than what the position calls for. It gives them the opportunity to explain their position, and me the opportunity to understand how they value themselves.

I've also been told, "I currently make $X.00, but I can come on for $Y.00," which is generally lower. Here I get to delve into whether it is a career change the person is looking for, or perhaps a location change instead? Why the willingness to take a pay cut?

One of my favorites was one of our temporary/contract employees, who wanted to split the difference between what he was getting from the temp company and what Big Bang was paying the temp company! Awesome answer, and justifiable. Of course, I then spent time with him explaining exactly what it costs Big Bang for an employee - employer paid Social Security and Medicare, Unemployment, Insurance - Health, Life, and Disability, vacation time, etc. Sadly, this is rarely explained to employees in detail. (Did you know when the government cut the Social Security tax employees pay from 6% to 4%, but they didn't change the employer contribution? The business still pays 6% on top of the employee portion. Did you even know that your employer pays into Social Security? Many people don't!)

We give everyone the numbers for their benefits so they understand their true cost. An employee costs about 50% above their salary, on average. Once we walked through that math, he accepted a salary less than requested, and has worked out incredibly well for us. I hope he feels the same.

The point is this. As an employer, I will establish what I feel comfortable paying someone, but that number has changed based on what they bring to the table. Establishing a specific salary for a small business employee doesn't work for me because depending on the person, I may change the job. Establish the salary up front, and you will only get people who are willing to work for that number. Instead, I like to get the best people I can find, and help adjust the job to them.

Please don't get me wrong. The potential is there for all those things, but the perception associated with being a business owner can be, shall we say, highly entertaining. Depending on the status of the business - independent contractor or small business - the reality and perception not only change over time, but can be vastly different depending on who is doing the looking.

My personal favorite perception of a small business owner is that life must be grand because I don't have a boss! To an extent that's true, and I wholeheartedly admit that I would make a terrible employee after ten years of independence. However, the truth of the situation is that every customer is essentially my boss. Especially when first starting out, or working independently, the customer is the ultimate boss and arguably more difficult to work for than in a normal employee-employer relationship. Our customers demand more of us as contractors or vendors than they ever would of their own employees. Think about it this way - you will happily try to get better terms from a vendor or contractor. Do you ever negotiate with an employee? Not a chance! So, as business owners, our bosses (customers) are always demanding the most while trying to pay the least. Great fun!

Now, Big Bang is in a comfortable spot for me as the owner, because our customers love our product and tend to be very reasonable. Add to that a growing group of awesome employees, and I do currently live the life of not having a boss, wife excepted. But, if Big Bang continues to grow and eventually considers something like investors or a public offering, suddenly the board of directors, investors, and shareholders become my boss. Here's to growing organically, and never having to deal with those headaches!

And what about the freedom and flexibility? I can make my own schedule, set the path for the business, golf when I want to! Again, that has become a bit more of my reality as the business has grown and I am incredibly grateful for that, but for the first several years that was certainly not the case. Technology deals aren't made on the golf course in my reality. Might I golf with my banker once a year? Sure. But as the owner, you are continually pulled by employees, customers, product development, outside interests, etc. I can't tell you how many times I have received a call to play hooky because of the perception that I've obviously got the freedom to do anything at any time. When independent, perhaps I could put work off until "after hours" or the weekend. If you have a family or deadlines though, that may not be an option. In my opinion, this is the greatest misperception people have of small business owners. Many, perhaps even most, small business owners put in far more time than anyone ever knows.

The most difficult perception to deal with though is the one associated with the financial state of the business, and the perception can go either way. For example. my grandfather is perpetually worried about me as we grow. But at 83 years old, and as someone that worked for one company all his life, when he sees us buying property and an office for Big Bang and doing renovations and hiring employees, he sees the risks I'm taking. For him, those risks are huge, arguably overwhelming. The numbers are bigger than he can fathom. So I do what I can to explain the business and the money and the risks to him so he's comfortable with what we do here. He worries and I appreciate it. It reminds me to evaluate what we're doing from a different perspective.

The flip side of that coin is the perception of financial success. Of course, that term means something different to everyone and changes over time - a topic for another time. But it is amazing how people and organizations perceive you and the business as it prospers and gains traction. The best example I can offer is from when Big Bang was awarded a Future 50 award for the Milwaukee Metro area a couple years ago. We were subsequently bombarded by people and organizations wanting us to buy virtually everything and donate to every cause under the sun. I have actually been yelled at and chastised for not being willing to donate to a cause that I have no knowledge of or connection to, by random phone solicitors! It still amazes me.

Whether an independent or an owner, the perception of you and your business will vary dramatically depending on the viewer. The perception will likely not match with reality, and that can be incredibly difficult to deal with because it is very personal. Remember though, most people have no experience as a business owner. My suggestion is to help teach them what you can.

The second aspect of hiring is you, the business owner. Are you ready for an employee and the risks and challenges that go along with it? How will your reality change, and can you accept those changes?

The final piece to hiring that first employee is, "Who to hire?" Assuming you have detailed what you want this person to do, that should help identify the traits and skills and talents required. It is unlikely that this first employee will fall into a specific and limited role - bookkeeper, for example - because you should be able to do your own books as a single person business.

It is far more likely that you will need to hire someone who will answer the phone, interact with customers, handle quotes and sales, help provide a service or create a product, support your customers - basically someone like you. It's really something to consider - can you handle someone like you in your space? To be a business owner generally requires more than a little bit of ego, and someone talented enough to be your Number One will not come with a small ego. And you don't want them to either! Consider yourself warned.

There are two ways to approach this first hire - either as a Partner, or as an Employee. A partner may mean some level of financial buy-in from that person. It may mean some level of control in the company. There is a lot to consider here, and a partner is a whole different venture. Personally, I don't recommend it, but that's a decision only you can make. I have mentioned the NY Times Small Business Blog before, and Paul Downs has a few great posts about his Partner Experience. Here I will stick to actually hiring an Employee.

Of course, hiring a first employee is obviously something you only do once, so my thoughts on it are based on my limited experience. Your situation may be vastly different. There are four groups to consider when hiring - Family, Friends, Acquaintances, Strangers.

Generally speaking, I am opposed to family members working together. The holidays are difficult enough without added stress. Do I know people who have had some success working with their families? Yes... and she now works for me while her sister works somewhere else. They no longer work together, but as a plus, they still love each other! The biggest challenge with hiring a family member is that you are essentially hiring that whole side of the family. You can not expect privacy. Add to that the family members who feel they are qualified to work for you, and you are setting yourself up for planning Thanksgiving vacations away from the family for the rest of your life.

Strangers I think, is a difficult group to consider at first as well. It may be difficult for someone to take your business seriously as a one-man shop. Also, it can be very difficult to judge a potential hire's enthusiasm for your business early on. Once you grow and have a reputation, it's much easier to attract and hire the type of people you want for the business. But initially, that first person is such a make it or break it proposition, I think hiring blind would be tough. Also, it will represent a tremendous amount of time, effort, and perhaps cash that you likely don't have the ability to spend.

So, Friends and Acquaintances is where I would draw from first - leaning towards Acquaintances. I have hired friends and friends of employees, and actually found that to be extremely beneficial. They know your quirks, you know theirs. They know about the business and the passion you have. It can really work out well... for the third or fourth person you hire. Try for and Acquaintance first. Here's who I hired and why.

One of the odd jobs I did for twelve years was to deal craps (yes, the dice game) for a local casino party company. I got into it because I loved the game and I stayed because I really came to enjoy teaching people how to play a very complicated game. Jason was another dealer whom I got to know over the years. We would probably see each other fifteen to twenty times a year - a lot more regularly around the holidays - and the group would often head out for a beverage after a gig. So, my definition of an Acquaintance. We later became friends.

What I learned about Jason during these years was that he was arguably one of the smartest people I'd met - quick with math, capable of multi-tasking, picked stuff up incredibly quickly. He was also good at instructing people. We spent a lot of time teaching people who had never played craps, how to play correctly, and that's not always easy depending on the amount of alcohol flowing at a party. I knew that he had been in the banking industry, doing loans and mortgages, so his business skills were there. He had also moved over into the IT department of his bank, and he complimented my technical skills well. The final piece that fell into place was perhaps a bit of luck on my part - his bank was bought out right at the time I was looking to hire, so he was about to be free.

It was the perfect hire, and he helped Big Bang grow into the business it is today.

I would argue that issues like customer support, product development, etc. will help drive later hires, but the profitability should already be there and the finances of any hire must still make sense. However, employee number ten has far less of an impact from a percentage basis than does employee number one, and as a business owner, both the specific numbers ($40,000 salary) and the percentages are important to pay attention to. We sometimes get caught up on one or the other. 

So, for that first employee, the math may be that as one person, you make $100,000.00, and 100% of the revenue (after expenses) goes to you. Adding that first employee at $40,000.00 (which costs you $60,000.00 really), needs to increase sales to $200,000.00 in my mind. That means that as the owner your percentage decreases to 70%, and honestly some people have a terrible time adjusting to that idea. Of course, you also make $140,000.00 now, so it's good math. Trust me when I say that 15% of $1,000,000.00 and ten employees will give you far more personal time and satisfaction than busting your ass for sixty to eighty hours a week for $100,000.00! 

But the idea of the first employee really is incredibly difficult for some people. It was for me. Again, without having children of my own, I can only hypothesize, but I liken it to the first child a couple has. You read the books, you talk to people, you plan and plan and plan, and then the baby comes, and it's nothing like you expected or planned for. Perhaps your first employee isn't quite as disruptive, but the planning and fear and excitement and trepidation is all there. Which means you need to decide whether you are ready because here's a few examples of how it will change your life - both from a personal and business standpoint. 

Do you communicate well? You will need to identify what you want that new person to do, and perhaps not do, and be able to explain it clearly and quickly. 

Can you delegate? You haven't had to so far. Can you give up some responsibilities and duties? Micro managing one person is an easy trap to fall into. So is letting them run free. Neither is a good idea.

What will this person be responsible for? Like with planning for the baby, the plan will change Day 1, but do you at least have something in place for what you want this person to do and why. Are you giving up aspects of the business you don't like or are not your strengths? Are you planning to give up areas that are your strengths or passions in order to focus on another part of the business? Are you strategically planning how to best utilize this person? 

Can you share? Delegating is one thing, but you may well need to share a lot of information that many business owners consider personal. How much are you billing? What are the business expenses? Even if you don't advertise your salary or profitability, the savvy employee will likely have some idea. Some people are incredibly uncomfortable with that idea. 

Are you patient? When I hired my first employee, I had been training and consulting on Symantec Ghost for three years, and had spent several months working on development of the UIU. I understood it, but I had to have the patience to let my new employee catch up. 

Can you handle the responsibility? I've said it before, but this was the scariest thing I've done because I would now be responsible for someone's livelihood. You should be nervous, but if it keeps you up a night with a bleeding ulcer, it's a bad decision! And if you're flippant about it with a "someone can always get another job" mentality, I think you would do an injustice to your employee. 

Can you let someone else be responsible for you? That's essentially what employees do. How they interact with customers or develop your product will directly impact you in so many ways. If you are fiercely independent, an employee may be an incredibly difficult thing for you to accept. 

Do you have the rest of your business in order to accommodate an employee? Have you talked to an accountant about expenses and taxes? What about benefits? Do you have a lawyer that you've discussed an employment contract with, if it's necessary? How will you handle payroll? I started using Paychex with my first hire so as to ensure his paycheck was always there for him regardless of whether I was in the office or traveling around the country. 

This list can go on and on, and as the business grows, the list will change. At this stage in the game for Big Bang, adding an employee now brings little if any stress associated with that individual hire. However, Big Bang is nearing the point where I won't have as much of a direct connection with new employees as I once did, and that's my next horizon of fear and trepidation. Of course, it also means exciting opportunities and growth for the business as well as for my employees and that's hard to ignore. 

What it comes down to though, is that hiring requires a lot of thought and reflection. Each person has brought something to the company that has made it better, and I am so very thankful that I took that step. But it's not a step to be taken lightly, nor is it a step everyone should take. Think long and hard about whether you are ready.

I have said many times that the scariest decision I ever made was my first hire. Getting engaged? Easier. Getting married? Easier. A million dollar loan for office buildings? Easier! Firing an employee? Incredibly difficult, but easier. If I had children I would liken it to finding out your wife is pregnant with your first child. It is exciting and terrifying at the same time. Employee number two is a cake walk, probably like child number two.

There are so many things to consider with that first employee, and I think it is worth walking through a few ideas.

When to hire:

Having quit my job with FedEx in 1999, I was working as an independent computer consultant. Most of my jobs were along the lines of creating Microsoft Access databases for customers. I also did a lot of training and consulting work, both with Microsoft products as well as Intuit's QuickBooks. A fair amount of work came from clients of my accountant as I helped them migrate from paper bookkeeping methods to electronic. Additionally, I handled some small network setups. Essentially, I worked as the IT department for small companies with five to twenty employees. Finally, in 2001, I added traveling to provide training and consulting for Symantec Ghost through Binary Research International.

The rates I charged my clients varied greatly, from as low as $60/hr to as high at $125/hr. For my traveling work, I generally charged $500/day plus travel expenses. And of course, like all independent consultants, if I wasn't working I wasn't making money. When you sell, you don't work, and when you work, you don't sell! Consequently, while $125/hr seems like great money, and it is, it does not translate to a $250,000.00 salary like it would if it were a job. So, my income varied dramatically from week-to-week and month-to-month.

I count myself incredibly fortunate to have had all that going on, and with gross sales of about $100,000.00 annually, it was time to hire someone. Here's what went into that decision, and it is all about math:

First, my new wife had a full time job which included our benefits. She wasn't making great money, but it was enough to live on and her opportunities were only going to grow. Not that we could support us and an employee on her salary, but it gave me a level of comfort to know there was a backup in place.

Next, business was growing. I had to spend less time "selling" because I was getting referrals and more work from my existing customers. Also, because I was providing training services for Binary Research, they were doing the selling for me. More billable hours for less selling time! If the graph is moving that way, you're going the right way.

Also, I was working more than I wanted to be. Weekends in a client's office and calls late at night. Traveling on Sundays. My life was being encroached upon. Should you be willing to bust ass and work hard? Yes. But you have to decide when too much is too much. I was reaching that point.

Finally, my customers were beginning to feel ignored. That can go on occasionally and they will understand, but it can't happen for long before you start to lose clients. If taking on a new client will negatively affect your relationships with your existing clients, or if you are turning away PROFITABLE work, then you are rapidly approaching the point of needing an employee.

You can afford to push your limits and client's limits for a while, and I encourage it in order to ensure the financial stability you need to hire. But really, the first hire should only be a math problem. Assuming you are charging the most you can in your market, you have some level of financial stability, and a reasonable forecast for growth, then you can do the following math problem:

If I make $100,000.00 annually and hire someone for $40,000.00, and don't increase sales, can I survive?

If I make $100,000.00 annually, and hire someone for $40,000.00, can I increase the amount of business I do by at least $60,000? (Figure salary plus 50% for true cost of an employee.)

If I make $100,000.00 annually, and hire someone for $40,000.00, can I increase the amount of business I do by at least $100,000?

If the answer to the first question is Yes, then you may really be considering a first hire, but without a plan for growth, or some major anticipated looming project, it's a bad idea. You are better off dropping a client or two to maintain the quality of your work. Don't hire!

If the answer to the second question is Yes, then you are actually in a position to hire, but to what benefit? Your salary and your new employee's are covered, but each employee, especially the first one, should represent an increase in BOTTOM line revenue. Paying someone $40,000.00 for a $40,000.00 project is bad math. I think this is one of the more damaging decisions people make because there are always expenses associated with employees that you don't foresee. And if sales dip, then you're back to question 1, and that's not a happy place to be.

If the answer to the third question is Yes, then you are ready to hire. In a small business, an employee should only be brought on if that hiring will increase the bottom line profit, and I think that amount should be at least equivalent to their annual salary, and preferably more.

If you can honestly do that math above - with whatever salary numbers are appropriate for you - then it's time to consider two more things. Are you personally ready for an employee, and who do you hire?

Since August, we have had the outside of two of our buildings stripped and repainted, replaced fourteen windows on one building, built out a new conference room and three new offices, added two thousand square feet of concrete, replaced ten thousand square feet of asphalt in our parking lot, bought two new servers to replace three aging servers, added new network switches and massive storage, replaced laptops and bought huge monitors for employees, and.... The list goes on.

Some of this we have done because it was necessary. The windows leaked and the parking lot was not likely to survive another Wisconsin winter. Of course, we have had no snow as of December 27th, which is highly unusual, but I can only imagine what January will bring. Other purchases, like the servers, were not absolutely necessary, but we are able to take advantage of some of this year's tax laws regarding expensing equipment. You have probably read articles or received emails from your CPA or local car dealership about saving on taxes in 2011. We had the cash available, and so we made some purchases perhaps a bit earlier than we might have, but will help tremendously for 2012.

But our purchases this year because of 2011 tax savings reinforce my issue with the tax laws regarding businesses. Big Bang is an LLC, which means that in addition to my salary, the profits of the business flow directly through to my wife and I on our IRS 1040 forms. With this year's option of expensing equipment (up to certain dollar amounts), it means that the $30,000.00 we spent for servers and network equipment can be directly expensed, rather than depreciated over several years. That's awesome for a small business as it allows Big Bang to grow more quickly and serve our customers better.

However, many of the improvements we've made, can not be immediately expensed. Arguably, some will qualify as expensable repairs, but many are capital improvements, which must be depreciated over time. For example, we spent approximately $20,000.00 to replace the windows. My accountant could tell you the specific depreciation schedule, but I believe it's somewhere around twenty years. (I may be off on that, but it makes the math easier, and the outcome doesn't change much.)

Consequently, at a twenty year depreciation, I expense $1,000.00 of the windows. The other $19,000.00 come AFTER taxes. Next year I will be able to expense another $1,000.00, and so on. The math works out such that my depreciation from several projects will start to accumulate over the years, and sort of balance out, but that doesn't help me or the economy in the immediate future. Between state and federal taxes, we pay approximately 42%, so that $19,000.00 this year actually requires we make nearly $33,000.00 in profit this year in order to cover the project and the taxes.

Considering that Big Bang did approximately $100,000.00 in renovations, we will pay over $70,000.00 in taxes in order to accommodate that construction! Of course, we will get it back over time through depreciation, but there are two problems with that. First, imagine how much more Big Bang could do with the extra $70,000.00. Second, the depreciation schedule also assumes that Big Bang will be around in twenty or thirty years, and while I certainly expect we will, there are no guarantees.

So, we were in a fortunate cash position this year to be able to make some of these infrastructure investments, which should mean good things for us in 2012, but I would like to see the tax laws changed to make depreciation an option, rather than a requirement. As a business owner, I could do so much more with my money.

As we meet new people in our lives, one of the first questions asked of us is, "So, what do you do?" I think that for a small business owner, establishing a title to effectively answer that question can be very difficult, and the choice must be made with some serious thought.

Going back to my post about "Defining Small Business," there are two small business types we're looking at - the independent consultant versus the small business employer - and they have differing requirements for titles. Let's start with the Independent Consultant.

If the business is a one person shop, I think a business title is not only unnecessary, but out and out deceptive. If you're a consultant, your business card title should reflect that. If you're a painter, a baker, a candlestick maker, it doesn't matter, put that on your card. Maybe even get creative with your title if it's appropriate for the business. What you are not though, is the President, CEO, or even Owner, and I think using any of those titles is disingenuous, and being disengenious is a dangerous practice to get in to.

Small business owners want their companies to be perceived as larger than they are. I understand that, and have undoubtedly been guilty of it over the years. The concern, legitimate or not, is that if we appear small, we may not get the job. Will a potential customer put their faith in us if they know how small we are? Consequently, the title of CEO or President is thrown out there. However, would I want or expect the CEO of Chrysler to build a car? Of course not! It's not their expertise. So, if that's not what I want as a consumer, why would I think my customers are any different?

If my title is President, my customers should rightly believe that I have a team, albeit potentially a small team, that I can bring in. It's going to become fairly obvious fairly quickly that I am really just a consultant if I am the only one answering the phone, doing the work, and sending the invoices.

What it comes down to is this: don't lie to a customer by offering a title that doesn't fit.

And if the independent consultant grows to the point where an employee or two is needed, and an LLC or INC is created, then what? It's likely that when still small, the President or Owner is still going to be doing work. I actively and regularly interacted with customers and did product development and testing for a few years after Big Bang started. It wasn't until we had probably eight to ten employees that I slowly slid out of the "doing" role and into my "management" role. So, is a title appropriate once employees are added? Absolutely. Start with "Owner" because that covers the fact that you both manage the business and work for the business. Once a few employees are added though, the title starts to actually matter more and define what your role is. Here's what I did.

I had two sets of business cards created - one read "President" and the other read "Instructor." Why? Well when I taught courses around the country I felt that the students in the courses reacted differently to "President," and their perception was my reality. So, I went back to using "Instructor" when teaching, which generally made people more comfortable with me in class. On the other hand, when my banker was going to make a presentation to his board of directors regarding our line of credit, being the "President" was necessary. Or is a title necessary for my Marketing Director, or Sales Director? Beyond a doubt, because of who they interact with on a daily basis. It makes their business life easier because that's actually what they do and they need that level of respect and understanding of all the things they are responsible for.

For the small business owner though, my suggestion is to take your ego out of the decision. If I look at a résumé or CV that is filled with multiple self-proclaimed titles of President or CEO, I can almost guarantee that that person is a serial independent contractor, and likely more interested in their title than my needs. My title doesn't matter to me at all, even now as Big Bang grows. Often times when people ask what I do, I tell them, "I'm a geek," or "I work at a small software company." The thrill and ego boost of being President is not what I'm about. The excitement of Big Bang's success is enough for me, and that has nothing to do with my title.

One question that should be considered as well is, "How does the staff learn about business?" They have come on board from any number of different backgrounds. For us, we have men and women of different races, ages, experience, education, etc. Some have owned their own businesses or managed large organizations; some were 23 years old and fresh from college; some are on their second careers. We encourage everyone to attend training seminars, workshops, webinars, tradeshows and conferences, but those are often related to their jobs. It may be technical training on a specific software application or a webinar for the new CRM software, but what about learning about business itself?

In my opinion, small business learning starts with the small business owner. Unfortunately, in my experience, many small business owners are unwilling or unable to talk about business with their employees. There is almost a jealous guarding of all things "business related." I want my employees excited about the business, and dedicated to it. When you have only a small group of people working for you, you need them to understand how their contributions affect the business.

We have done a few things here at Big Bang in order to bring everyone into the fold. First, I will answer virtually any question. Whether it relates to legal questions, banking issues, sales, insurance renewals - it doesn't matter. There is nothing off limits, and we let people know that when we hire them. They are expected to ask questions and to challenge me and each other.

The second thing I try to do is regularly tell the staff what's going on, both verbally and in print. Consequently, everyone know where sales are at for the month, or how close we are to exceeding the previous year's sales. I do a brief email newsletter every one to two months that summarizes everything that's going on in the business - Sales, Marketing, Development, Support, profitability, travel and construction schedules, etc. I can't take credit for this idea - blame it on the business blogs - but it seems to be very well received.

Finally - and this will sound odd - everyone here knows that they are welcome to leave at any time for a new opportunity. I want and need employees that are informed, excited, knowledgeable, curious, ambitious, opportunistic, dedicated and well trained. Hiring people, keeping them ignorant and being afraid they will leave is a colossal mistake. I would hate to lose any of the staff here, but Big Bang and the UIU would not exist if I had not learned enough to step out on my own. I want the same opportunities for my employees and they deserve it.
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So, my question is, where do you go for learning about small business and entrepreneurship? Books? Blogs? News shows? Friends and family? Other business associates? Here's a few that have impacted my personal and business philosophy.

Books: Some fluff, some anecdotal, some analytical, and some deeply personal, in no particular order.

Rich Dad, Poor Dad by Robert Kiyosaki
Great by Choice by Jim Collins
Where Have All the Leaders Gone by Lee Iacocca
Why Work Sucks by Cali Ressler and Jody Thompson
Illusions by Richard Bach
The 10 Laws of Enduring Success by Maria Bartiromo

Blogs: I love the immediacy of blogs, and I find the comments amusing! From a business perspective, I regularly read the New York Times Small Business Blogs, called "You're the Boss."  Specifically, I'm a fan of:

Paul Downs - The best questions about his own business
Bruce Buschel - The most divisive blog I read
Jay Goltz - Just plain great small business advice

Do I agree with everything from these sources? Of course not. Often times I disagree, actually. And some times my opinion changes over time, or I re-read a book or posting and get something new out of it.

As for other sources - I am always talking business with people, whether they're asking about Big Bang or I'm seeking advice from them. My father bought his sales rep business from the previous owner. My mother is entrenched in the politics and unique chaos of the VA hospital system. My wife travels the country for Northwestern Mutual training and working with financial reps. The ideas and suggestions of my employees have proven vital throughout the years, and I continue to go to them to tap their wisdom or to get their perspective.

My point is that there is a tremendous amount of information available, and in business, like in poker, the more information you have and the more open your mind to possibilities, the better a decision you can make. Where do you go for small business inspiration and wisdom?

Here's the challenge though - What happens when you don't agree? The primary responsibility, or duty even, of these three individuals is to look out for your business, and they should take that very seriously. However, there will be times when you don't necessarily see eye to eye.

The problem that I have seen arise is that because we view these people as experts, we naturally want to defer to their opinion, even if it contradicts our instincts. I would argue that in some cases they may even expect us to defer to them. However, as the owner, the decisions associated with these three areas in particular, are ultimately ours to make and the business consequences ultimately fall on our heads. Let me give you an example.

Of the three professions mentioned, I think that having a lawyer that you philosophically agree with is the most critical. It is important to have a discussion early on in the relationship. Explain to him how you do business. If you don't mesh on business philosophy, it doesn't mean you have to find someone else, but it could certainly be a warning sign. Maybe you can learn from each other and work well together, or maybe you are simply going to butt heads.

A few years ago, I had a contract negotiation with a distributor. After a several days of calls, emails, proposals, legal wrangling, etc., we had agreed to definitions and terms. The lawyers wanted to meet once, face to face, to finalize the deal and ensure everything was covered. When everyone arrived at my office, the lawyer for the distributor suddenly informed us that he did not agree to the terms! The distributor's owner, someone for whom I had tremendous respect, sat there, hands crossed and head down, and said nothing. I was flabbergasted as I had thought the deal was done.

Eventually I asked the lawyers to leave, and nearly had to throw the distributor's lawyer out when he refused and told me, "I don't feel comfortable leaving my client alone." I can guarantee that if my lawyer had performed like this in front of me he would have been fired on the spot. A few days later we finalized the contract in person, without the lawyers. The repercussions of their lawyer's performance though? The new terms favored Big Bang more than the original agreement, and I lost a level of respect for our distributor.

What it comes down to, is that even though your outside professionals are experts in their fields, they are not necessarily experts in relation to your business, or your business relationships. You must filter their expertise and advice through your personal philosophy. You may not always agree with their suggestion, and that can be a very difficult thing to accept when we're paying them a tidy sum, but it's OK. Better to have to sleep with your decision than have someone else misrepresent you.

The third outside relationship that I feel is necessary, and which is often overlooked by the independent consultant, is with an accountant or CPA. I'm not talking bookkeeper here. That's a subject for a different day. I'm talking about someone who can provide you with both personal and corporate tax advice. Someone who can create and submit your state and federal corporate and personal tax returns. Someone who can point you to financial advisors or suggest retirement, pension, and savings plans. Someone who can help you legally keep as much of your money as possible!

Here's the truth of the situation. As a business owner, you have your expertise. I have commented that my philosophy is to hire people and get out of their way. That's not quite the case for your accountant, but close. His or her job is to know what has changed in the tax laws and how that will affect you. If the "Bush Tax Cuts" are revoked, what will that mean for your business, if anything? If you fire or lay off an employee, how might that affect the amount you pay into Unemployment? Is installing new carpeting a capital expenditure that will be depreciated over several years, or a is it repairs which can be expensed? So often with tax issues, we don't even know what questions to ask, let alone what those answers might be! That's what your CPA is for, and if he is kept in the loop about what's going on with your business, he can help you avoid IRS issues.

I talk with my accountant regularly, and meet with him a few times a year. He gets all our bookkeeping backups monthly. Our bank statements actually go directly to our accountant. Why? Because I want to be confident that our taxes are correct.

Now, is it always the case? Honestly, no, because there are grey areas. We as the business owners are ultimately responsible for understanding our books and our taxes. But when the IRS wanted to audit me for our 2009 taxes, while I was understandably nervous, I was also confident in our books and taxes. Because of that organization, our IRS audit took an hour. What did they find? They decided I had erroneously expensed $15,000.00 in landscaping instead of depreciating it. I felt it was repairs as we had to have sewer work done, so I was comfortable in our justification, but they disagreed. The end result? A$5,000.00 bill from the IRS, all of which I will get back in the next few years through depreciation. I have now gone through two audits, neither of which caused me much anguish nor cost me much cash. That is entirely because John Noggle, my CPA, knows my business so well. Had I wanted him to, he would have even handled the audit directly.

You have likely noticed by now that I firmly believe in keeping my people in the know, and your lawyer, banker, and CPA really need to know EVERYTHING. The best example I can provide is the $2.4 million bill I received from the IRS. Imagine my surprise! What happened is that in late 2008 and early 2009 I decided to play around a bit in the stock market, doing some day trading on margin. Overall, I lost a couple thousand dollars. Because I lost money, I didn't tell John about it, figuring that I couldn't write off losses, which was true.

The problem was that ETrade provided a 1099 to the IRS. In and of itself, this wasn't a problem, except that all they provided was the information for the individual sales done. None of the purchases were actually included! So, in addition to our 2009 1040 tax forms, the IRS received a 1099 statement from ETrade showing I had sold several million dollars in stocks. And with no purchases associated, the IRS correctly surmised that I had not included this income on my return.

Of course, had I told John along the way what I was doing, he would have asked for all the necessary paperwork, included the loss on my taxes, and life would have continued on. Instead, we have now been dealing with the IRS for a few months, and the case still isn't finished. I wasted my time and money by not keeping my advisors in the loop. Don't make that same mistake!

Finally, after writing this three part story, I realized there will need to be a fourth part. I have not always agreed with my three advisors, nor have they always agreed with me. I think it's worth taking some time to discuss how those relationships should work.

Small business owners are often loathe to spend money on something they can do themselves. For me, I chose not to use a lawyer for a long time because I knew I was perfectly capable of handling the few contracts that Big Bang LLC would encounter. How tough could it be? Ha! A few years later we actually have two attorneys - one for intellectual property (IP) like our patent and the second for business needs like contracts, non-disclosure agreements, real estate, lawsuits, etc. I unfortunately wasted entirely too much money and time, and caused numerous problems for the business, by doing things myself first.

I don't recall which we hired first, business or IP, but they have both been invaluable. We initially went through a patent application process with an IP firm in the area that unfortunately did not specialize in technology IP. So, when their first patent search, which cost about $5,000.00 for just the search, came back with references to Microsoft Word documents and image scanning instead of HARD DRIVE IMAGING, I should have known to run the other way. Instead I tried to train them up on my product, and we filed a patent application that was of little value and severe expense.

When my general manager, Matthew Burger, came on board, he rightly insisted that we change over to an IP attorney with a sound background in technology - Thomas Sylke. Tom was justifiably mortified by what our other IP firm had done, and several months, and a trip to DC to meet with the patent office later, we actually had a patent in place that reflected the UIU software. The additional expense I added due to my novice move? About $20,000.00 wasted on the first firm. The potential risk associated with not getting the patent or not covering things correctly? Immense! So, while we are not like Microsoft, pumping out patent after patent, working with an expert like Tom was absolutely necessary.

Our other attorney, Jan Scott Pierce, is with the boutique business firm of Mawicke and Goisman, and handles all our business law issues. And like with the patent, I believed I could handle our legal contracts and I was beyond wrong. As an example, when we began selling our UIU software through a distributor, it was the distributor who brought the contract to the table. I reviewed it - everything seemed to make sense - and off we went. Imagine my surprise two years later when their attorney tried to claim they had a sixteen percent ownership in the UIU. WHAT?! At that point, I needed an attorney, and like before, Matthew steered us well to Jan.

Since that debacle, our Distribution Agreements and Reseller Agreements have been rewritten - this time by us. Every contract is reviewed, every End User License Agreement is analyzed by my lawyer. Why? Simple. As business owners we know what we mean, and we expect our customers and our vendors to understand all the terms and agree with us. Sadly, that's rarely the case. Anything can be interpreted incorrectly if it is not specifically spelled out, and that's what your attorney is for. His job is to think of all the ways something can be twisted or misinterpreted and make sure it's fully explained before any signature hits paper. It is worth every dollar.

I am going to take each individually per post because I believe they are that important to a business. Is one more important than another? The timing of when you need one or the other will likely determine when you bring one into your reality - it certainly did for me - but if you can establish these three relationships early in your business career, preferably before you need them, it will make your life far easier as your business grows.

So let's talk bankers. I would argue that early in our adult life the idea of having a "banker" is unheard of. We may be lucky to have a checking account with a couple hundred dollars in it. Also, as banks have failed and merged and hit us with ridiculous fees these past few years, our loyalty to an individual bank is as deep as, well, their loyalty to us. Public sentiment now throws bankers into the same ring of hell that was previously reserved for lawyers and used car salesmen. However, a good strong relationship with your banker will not only make your business life easier, it may be a key to your survival.

Earlier this year, my banker, Dean, retired. Thankfully we had had a couple of years to prepare for this and the owners of Cornerstone Community Bank had done a terrific job of finding his replacement, David, and integrating him into Dean's practice. The transition has been seamless, which has been critical for Big Bang. It may surprise you that we work with a small, privately owned bank, and I want to explain why.

Dean Neimuth was my father's business banker, and I have known of Dean since 1990 at least. When I started my first business - a story for another time - my father helped me establish a banking relationship with Dean and the bank he was with at the time. When my business failed before really starting, both Dean and my father helped clean up the mess. Fast forward a few years to the start of Big Bang LLC in 2004. Dean had moved to Cornerstone Community, and despite having only two branches, the nearest of which was a 30 minute drive, the first thing I did was set up a new business checking account with him. Over the first couple years of Big Bang's existence, we grew to a couple million dollars in sales annually, all of which moved through Cornerstone.

In those first years, Dean and I spoke occasionally, whether it was business, politics, or fishing didn't matter - our friendship and his understanding of my business both grew. We put a money market into place and an FSA account for employees to go along with our business checking account. Business was good. My wife and I bought a new home in 2005, and as Dean knew everything about our financials, that process was wonderfully easy. As 2006 continued to increase sales and staff, we began discussing purchasing a building rather than spending $80,000 annually on rent. Dean was incredibly conservative (and you should find the most financially conservative banker you can!), but when we found the right property for the right price the $800,000 loan took only a few days to put into place. We moved from a 3500 square foot rented office in downtown Milwaukee that we had little control over, to a five acre wooded campus with three buildings and room to grow. And our monthly payment is less than the rent had been downtown! I mentioned in an earlier post that hiring my first employee was the scariest thing I'd ever done. Buying a million dollar property for Big Bang didn't cause me a single sleepless night, and I owe much of that to Dean. It was the right business decision and the process was simple because the relationship was in place.

Occasionally, Dean would suggest establishing a line of credit, which I honestly felt wasn't necessary as the business was doing well and we had a fair amount of cash on hand. Why would I need a line of credit? However, after a few more conversations, I decided that it couldn't hurt. If we didn't use it, it didn't cost me anything, so we set up a line of credit associated with our average monthly sales. We didn't use it for over two years - until fourth quarter 2008 hit.

The stock market crashed, the economy screeched to a halt, and customers stopped buying. Our 2008 fourth quarter sales were half of what our 2007 four quarter sales. It was the first time Big Bang had experienced something like this. We had bought our new property in late 2006, spent most of 2007 renovating it and adding staff, and were rebuilding our cash reserves in 2008 as the renovations and staff were not inexpensive. Then suddenly we went from comfortably profitable to losing money in the blink of an eye, and I was honestly utterly caught off guard.

Thankfully, we had that line of credit sitting out there, and unlike so many small businesses that had relationships with big banks, Cornerstone did not cut our line of credit. Over the course of 2009 we tapped it, and tapped it hard. However, we did not have to cut staff and it was enough to get us through the chaos that reigned for the past few years. Would we have survived as well without that relationship? I doubt it.

I could tell several more stories about Dean and now David, and how they have helped both me and Big Bang, but I think you get the idea. As you start out on your small business journey, whether as an independent consultant or an employer, find a true small business bank in your area, set up an account, and start to build a strong relationship directly with your banker. Share everything with that person so they watch out for you. He or she may be a huge key to your financial success, both personally and professionally.