Greg:
Hey, it's Greg. We're going way back into the podcast archive with this one. All the way back to the year 2016. And even though this conversation is almost four years old, the concepts Chris shares in it are timeless. So if you're thinking about starting up your own creative business or rethinking the one you already have then do not sleep on this one. We'll have more new episodes to share with you in a couple of weeks. But in the meantime, learn how to run a creative business and enjoy our conversation with Frank Shi.
A former intern of mine and a motion graphics designer and 3D artist, Frank Shi stopped by the studio. He had a lot of questions about how to start and run a design business. And at first, I was thinking, some people might like this episode, but then now I look back and it's close to having 36,000 views. So I think we touched on some business principles about how to estimate, how to price jobs. And I think it resonated with our audience. So without further ado, here's our conversation about how to start and run a design business with Frank Shi.

Chris:
So let's give everybody a little context about what you're doing Frank. Talk to me.

Frank:
So I've been given this unique opportunity to have a partnership with a Chinese production company, and they have a lot of clients under their belt that's looking for high-quality CG production. My partner has come to me because a lot of international brands are using China as their main point of sales and they're wanting to keep that production domestic.

Chris:
And what's your background?

Frank:
My background is I graduated from Otis College of Art and Design with a focus in digital media.

Chris:
When did you graduate?

Frank:
Two years ago.

Chris:
Two years ago. So that's 2013. All right, cool. So just two years barely.

Frank:
Yeah, just barely.

Chris:
Summer's almost over. All right. So let's get right into the questions and let's see how we do. This is unrehearsed. So let's roll.
What do you got?

Frank:
The first question is what are some common business mistakes us new entrepreneurs make in the creative field?

Chris:
Common business mistakes. Now I've got to think back to my own past here. Some things I got right, some things I got wrong. So let's start there.
First is you need to get paid upfront. A lot of designers do work and don't collect any money. And there's a lot of people out in the world that want your creative services, want you to design a logo, build you something, but you need to get paid first. That's how you know the job is real because otherwise, it's just all talk. And I think as creative people, we get really flattered when people show interest in us and they want to talk to us about a commercial or some kind of branding film, and then you get real excited. So let's contain the excitement and turn it into something that's very real.
So what I would do is put together a proposal or talk about a budget and get that 50% upfront. That's when you know it's real. You need to get the 50% upfront. So get paid upfront.

Frank:
Get paid upfront. That sounds good.

Chris:
And then about three-quarters of the way through the job get paid another 25%. And when you deliver the project, you can either ask to be paid on delivery, which is not realistic sometimes, but you can get paid the remaining 25% net 30, meaning in 30 days they have to pay in full or they pay interest. And that way, really what you're risking is the 25%, which should be your profit margin. So if you do it like that, you should be okay. Because the last thing you need is to especially book a big project and for them to go bankrupt and now you're stuck holding the bill. And this has happened to a lot of designers out there that own studios and run companies. So get paid upfront.
If you're in a partnership, which you mentioned, now we're just talking about the partnership not so much with the clients, is you've got to start thinking about, unfortunately, the exit scenario. We all go in with all the hope and optimism, which is really great, but we have to think about how are you going to separate? If you can bring the conflict up front and have that conversation out in the open, you can sleep at night not worrying how it's going to play out when it falls apart. Because eventually, partnerships do fall apart. Nothing is forever. So you have to start thinking about that.
And you need to learn how to bid. So I believe you told me before that you're creative and your partner's a creative. Somebody needs to know how to bid. And so do you know how to bid?

Frank:
Yeah. I'm learning the process of how to bid slowly. That's one of the questions I have for you is also how to bid. He's more of a EP. So creatively, he's doesn't really have much control. He's more about the business and the bidding. So he's helping me sell our services and build that relationship between Chinese clients and me because of course, their value on what we do is a little bit different compared to here.

Greg:
So executive producer, when you say EP, some people in our audience may not know what that means. Excuse me. There are a couple different types of executive producers. The one type is in charge of new business, business development sales. They really just go out and hustle and meet with clients, potential clients, and try to sell the services of the company. They typically do not sit down and break out the Excel spreadsheet and work on the bids. That's a different kind of mentality. This person is usually very outgoing, very short attention span, really is gregarious, extrovert. And isn't always the best on details. And you need that kind of person because that person is a guy or gal who's going to go out there and get you business.
The other kind of executive producer is the one who runs your company for you. In some instances, they're referred to as head of production. They do the bidding. They do the calls. They set things up and they close the job. Closing the job requires a very specific set of skills that we may or may not have time to talk about. So that's a different kind of person.
So sometimes you have a person that is both. So they're going to be a little bit weaker or stronger in one than the other and you have to think about that. So that leads me to the next thing about common mistakes is sales is everything. Sales and marketing. With robust sales and big-budget projects you can fund any kind of company and you can run it the way you want. Without those sales, without the cash flow that's coming in, you're going to start to suffer severely.
The other thing I want to talk about is there's two ways to make money. There's one way to make money, which is to build yourself a cushion of profit. The other way to make money is to spend less money to produce the project. And so you have to think about that. Sometimes people focus all on getting higher revenue, grossing revenue, and they're not thinking about how to spend that money. So if you get a million-dollar job, but you spend $999,000, it's really a $1 job. And so we get caught up in the idea that it's a million-dollar job when really it's a $1 job.
Conversely, you could do a hundred thousand dollar job and only spend 50 and have a gross profit of $50,000. Now, if you ask somebody, would you rather get the million-dollar job or would you take the hundred thousand dollar job? Most people don't think about it, and they say, I want the million-dollar job. It's really at the end of the day, what you're able to keep after all expenses are paid, including paying yourself and your partner and seeing what else there is in the profit margin.
So we talked about bringing the conflict upfront in negotiations. I would do that with my clients as well. So oftentimes I think we sit around and think the client has all the power, and they have a lot of power, but they don't have all the power. They have as much power as you're willing to give to them. So if you're concerned about certain things like the schedule, the budget, maybe they're asking for something that would be fairly tricky to do given the budget. You need to address those upfront. And that way we can act like adults and professionals and run a real business and talk about these things versus dealing with it after the fact and griping about it later.
There's a really great line in here from The Win Without Pitching Manifesto here. Let's get a shot of that. By Blair Enns. He talks about this. He says, "A lot of times we underbid projects. We underbid projects and later on, we regret doing that." So he says in the book, "Think about your client. When they call, are you anxious to pick up the phone or are you grimacing and trying to avoid that call?" And oftentimes it really is directly related to the budget.
So a client that's asking for lots of revisions and needs a lot of hand-holding and customer service and you're feeling bad about that relationship is because you've charged too little. But if a client's going to pay me a million dollars, you can call me as much as you want. You can bug me as much as you want because I'll take care of it because it's worth the trouble. Usually, what happens is the lower-paying clients tend to pay less and are harder to deal with. That is the tricky part.

Frank:
That's true.

Chris:
Let's go. What other questions do you have?

Frank:
How do you sell your company or your service without much experience to show?

Chris:
You're going to sell your company mostly on your confidence, believe it or not. You can have a gigantic body of work that's won every award, but if you don't go in there representing yourself well, in terms of like, I know what I'm doing, I can take care of this, then it won't matter at all. So there are a lot of people out there... Think about this. If you're an executive producer or you're a sales rep, a sales agent, you don't do the work. You don't do any of it. But what you do is you're managing the relationship between the client and the person that can get it done. You as the head of the company aren't that much different.
I don't know if a lot of our clients are out there thinking that I'm the guy who's working on the box. I opened up After Effects the other day and I was a little rusty. I haven't opened it up in a while. It's coming back to me, but that's not what I sell myself on. What I'm selling is I'm a problem solver. I'm a business designer. Come to me with your problems. I'll help to solve them in a way that makes sense for the parameters of what you're trying to achieve. So that's what I'm selling. I'm selling confidence and assurance. Assurance, not insurance. Assurance. I'm going to assure you that the job is going to get done. And based on my experience and my confidence, the client's going to make a decision if I can do it or not.
So you don't actually need any work, believe it or not. Because later on, if I walk away from this company and for whatever reason, I sell all the assets to the company, including the portfolio, I'll still be able to go out there and get work because I'm selling who I am and what I can do, not the work. So number one mistake there is to sell the portfolio. Number two mistake is sell the process. I think you should sell the people.

Frank:
Sell the people?

Chris:
Yeah, sell the people. The people are the ones who are going to make this work. All right. What's your next question man?

Frank:
How do you efficiently brand what we do and who we are?

Chris:
How do you what?

Frank:
So I was looking at the kid with the school and there was a mission statement and I was having a really hard time writing one.

Chris:
They're really hard to write.

Frank:
Yeah. Because you have to kind of like... I was looking at Jose's. He talks about it and his mission statement I was like, wow, this is really broad.

Chris:
Pretty broad.

Frank:
Yeah. But it's hard for me because I know who we are as a team and what we want to do, but how do we communicate that? And how do we put that in a sentence or effectively... If I get the client to look at it and be like oh, I get what you guys do.

Chris:
One way to look at writing your mission statement is to think about your value. What value do you provide to your customers? What do you really do for them? It's not really about you.
So I know that writing a mission statement is very difficult. And if you go through the exercises in the CORE 1.7 Kit, it'll help break that problem down to a much smaller bite-sized piece. But it's really not about you. Think about the value you provide. So what value do you provide to your customers? So the one way to do this is to profile your customers, to figure out who are they? Are they ad agencies? Are they entrepreneurs? Are they startups? Who are they in China? And who's going to need your services? And what problem are they facing? What challenges, what pain points do they have? Think about their job and think about their pain points and think about which one of those pain points you can solve and start thinking about how to communicate who you are based on that.

Greg:
Time for a quick break, but we'll be right back with Frank Shi.
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Welcome back to our conversation with Frank Shi.

Frank:
Okay. This goes to some of the paying upfront budget questions.

Greg:
Sure. Like money stuff?

Frank:
Like money stuff which is a awkward topic for a lot of people. How do you budget for unexpected things that goes wrong in the project? So other than labor costs, overhead and stuff like that, how do you bid for a project and okay, there might be a mistake or someone might screw up. This and that.

Greg:
It's a mistake that is caused by you and not by the client?

Frank:
Yes. An unexpected... Say you hire someone who's a FX artist. He's super expensive, but he's like one of those dudes who just puts stuff on the reel and doesn't really have any... And then you kind of like, oh my God, this is really expensive, but he didn't do anything. How do you budget for that and how do you deal with that?

Greg:
Are you talking about our last job?

Frank:
No.

Greg:
Okay, awesome. Hiring quote-unquote "experts" that don't deliver. It's a big problem, especially in FX. The FX world is fraught with challenges because you come in on a budget and oftentimes the scope of the work is, well, we don't like it so you have to just keep working on it. And so you can easily drive your company into the ground so you have to be very careful about how you bid. There are only a handful of successful visual effects companies out there that are still doing what they do today. And why is that? Because they're underbidding projects and they're having a hard time managing very expensive artists.
So let's first look at who you are. Let's look at your company and your infrastructure. Something that I've learned is that we're a relatively small company. We don't have dedicated departments or teams of specialists who can do a particular job. So in larger VFX companies, they have a whole department that just does modeling or does lighting, like there's a lighting TD, and there are technical directors who just optimize the code for rendering. So when the models and all the lights you put in, it can't render and it can't render in under four hours of frame, which is unacceptable, they have a guy go in or a gal and they code and they optimize a scene. And then all of a sudden it can render in 10 minutes. You don't have that.
So what happens is you have people that come from that world who are moving on, either they quit or they were laid off and they're used to working with a pipeline and the technical director and all these kinds of people. And then they come in and they can't produce. It's not that they're not capable of doing it, or they're misrepresenting the work. It's just, they need a certain infrastructure. What I've learned is I would be very upfront.
And this is going to be a theme in business here, whether you're dealing with your partner or a client or a vendor or an artist, is to be very upfront, say, you know what? We're a team of six people. We need more generalists to work on the project so if you have a problem, I need you to fix it. Can you do that? And here's what we got. And if they say yes and you're still not sure, I'd just be very up front. I'm willing to try you for X number of days. And if it doesn't seem like you're going to hit it, I need to be able to move on. You need to know that up front. Are you okay with that?
If you have a year booking with Weta, I advise you to take that because this is not that stable. Just be very upfront. That way people can't get mad at you because you were hiding something. And I think on the other side, if I was a vendor, I would appreciate that level of honesty and directness versus somebody who's like, oh, we'll book you and then unbook you. And I missed out on an opportunity or I canceled a vacation with my wife or girlfriend. That would be horrible.
So the thing that you also need to know if you're a business owner is cut your losses quick. You bring some money in, you say, you know what? I'm going to give this X number of days, and you stick to it and you talk to them and we're not hitting it. The benchmarks. We're not doing it. I'm going to give you two more days to figure this thing out. Do you feel confident about that?
One thing that I've learned is you need to give them space to say, no, I can't do this. I think, especially for guys, because an effects world is generally very male-dominated. There's an ego issue and a pride issue. I don't want to say I can't do something. And so if you say, can you do it? Of course, I'm going to say, yes, I'm going to do it. So you got to give me an out. Say, look, I can see that we're all stressed out here and put it on yourself to say that, you know what? This job is harder than I thought. And our pipeline isn't there or whatever reason there is. Tell them that.
So if there's a chance that you don't think you can deliver, I would rather shake hands with you, part ways and look at you for something else as opposed to us burning this together and maybe moving in a direction where we can't recover from this. Be very upfront and be that transparent and you don't have to be a jerk about it.

Frank:
And another for talking money-wise is talk a little more-

Chris:
Talk money as much as you want, man.

Frank:
So like if an artist costs a thousand dollars a day and they're supposedly they're-

Chris:
Don't hire them.

Frank:
Example, top of the crop and you had them say booked for five days. How do you put a margin on their mistakes if they do screw up?

Chris:
So this is actually to the heart of your question because I see now what you're saying, how do you bid a job and cover for unexpected delays or missteps? Now when we get to bidding because I had asked you before, do you know how to bid and you said your EP knows how to bid. So I just shelved that whole topic altogether, but I'm going to just give you a broad overview because this is something that I learned early on.

Frank:
Oh yeah, I can answer my other questions.

Chris:
So how do you bid? Here's how you don't bid. You calculate your time and you do an hourly rate and you guesstimate. Just give me a reasonable hourly rate that somebody starting out might charge, what do you think?

Frank:
50.

Chris:
Okay. 50 bucks an hour. So that's eight hour day. Let's say for 10 hour day. That's 500 because those numbers are more round. So you're going to charge $500 a day. So you guesstimate that it's going to take you 10 days, keeping numbers really round. So that's going to be $5,000. So you submit that. So $5,000 is a number you submit to the job. And then you say, okay, go ahead and do it. What's the problem with that model? Well, that's not a business. There's no profit and there's no room for error. The way you look at it as a business person, as an entrepreneur is how much would you have to pay somebody else to do that job? And that's how you bid it and you have to pay yourself.
What's next?

Frank:
So how do I insure myself as a business owner to get over that first year, that first hump?

Chris:
The first year, first hump. What do you mean?

Frank:
I've been talking to a lot of business owners. They say the first few years are the hardest.

Chris:
Yeah.

Frank:
So how do I play my cards right so I get over that hump and don't crash and burn?

Chris:
So your question is how do you prevent crashing and burning because you run out of runway, right? So you have a cash flow issue. There's a couple of things that you can do.
First, you can get a line of credit if you can get one. So if you have some kind of credit history, you can get a line of credit from your bank. Right now I think we have 400,000 on a line of credit with Wells Fargo. It's a necessary... It's how companies fill the gap against pending orders, right? So if you get a new contract, say it's a hundred thousand dollar contract. Now you got to staff up. You got to buy the machines. You can usually use that and go and take that invoice to the bank and get a line of credit because clients don't always pay you upfront.
The good news is if you've been listening to this episode, you have gotten $50,000 upfront. But before you even get that, you're pretty sure it's a lock. You need to start getting the team ready and the things together. So you may do a little expenditure. I would rent everything. I would work on crates and boxes and buy your furniture from Ikea if you can. You don't need fancy-schmancy furniture and things like that. I would go to Office Depot and buy a $79 chair and don't worry about getting the Herman Miller Aeron chair. You don't need it right now. And the last thing that you want to do is to create this cash flow expenditure that you can't manage. So run it very lean.
That's why, when you go to startups, you'll notice they can be some of the most valuable companies, but they're working on milk crate boxes with a door for a tabletop. Do it like you would do it in college. Keep your expenses down. That's how you manage that. So once the job comes in, don't start spending that money right away. Some people think, okay, it's a hundred thousand dollar job. I got a hundred thousand dollars in my pocket. I'm going to go buy a new car. Don't do that. Do not do that. So live within your means.
Where you'll want to spend money that you don't have is potentially because there's staff or an artist or a designer or someone that you really think you need and you need to take a little bit of an educated guess or risk at the new work that's going to come in and you roll the dice. And that's what entrepreneurship is about. You have to take some risks. Don't be stupid about it, but take some risks.

Frank:
And here's my follow up question to that. What's the benefit between doing a startup from your home, like digital nomads, just everywhere, scattering and managing that team compared to having a small space, that's very manageable, very small space. So what's the benefit and pros and cons between the two?

Chris:
It's a lot... So the question is what's the difference between a brick and mortar company versus a, I think the term is fluid model where you just have a very small core team of people. Everybody else works remotely from all over the world and you manage things remotely.
Well, the first thing is that... You want to compare the benefits and the pros and cons or just one or the other?

Frank:
The pros and cons.

Chris:
Okay. Pros and cons. And you know what the pros and cons are going to be. Communication is going to be much more difficult. You're going to spend more time dealing with project management because you've got to get the assets out to everybody and not everybody's working with the same version of software and not everything's synced up. So you have to figure out some way to manage that. And what are some of the tools that people use to manage teams across the globe?
They might use Trello. They might use Basecamp or Slack. There's a bunch of project management software that's out there that can help you do that. And they can even use it to track time, like time sheets, things of that nature. The benefits are you get to work with anybody. It's a higher quality of life for those artists because they get to work from home and do whatever they need to do as long as they do the work. You'll most likely pay less because you can work with whoever you want, wherever. And so you got to look at in the U.S. or the UK, maybe the pound or the dollar is quite high, relatively speaking. Cost of living is quite high.
And so there are a lot of people in Brazil, amazing artists and animators, some people in Korea in Japan or wherever else it is. I shouldn't say Japan. Japan is not going to be cheap or in China. India would be another place. So you can leverage what the local economy is and the cost of living with the quality of the artist. Now, generally speaking, the best artists do go to the biggest markets. So they're going to come to San Francisco, L.A., New York, the UK, probably London. Wherever the big effects shops are. That's where they'll migrate. So you probably will not be getting the same quality of artists that you're used to seeing here. So more management.
I'm going to give you one more question because I think we're way over time. So what other question do you have?

Frank:
I guess the last question will be what, this is a little different, but what is good company culture? Like team building. I feel like you've been talking a lot about management and I feel like the way I have to run this thing has to be the digital nomad where everyone's scattered for the initial startup.

Chris:
That's fine.

Frank:
So how do I manage the team and get them to feel positive and feel confident in me and themselves to do this work because I feel like that's very important in this kind of setting?

Chris:
So you have multiple time zones now. You're trying to sync everybody up. Assuming that they're not all local to you. So first of all, getting everybody on the same page is tough. So let me just talk about company culture first, and then we'll figure out how to do that over distance-based operations like this fluid agency that we're talking about.
Company culture to me is one of the most important things that you need to focus on as a company. You get it right at the beginning and you just go from there. So what values are important to you as an artist? Because you've worked at places where you were an artist, and now you're going to flip... You're going to go on the other side of the game so to speak, you're going to go on the other side of the fence. So now you got to remember what was important to you as a person. What attracted you to a place?
Now, chances are when a freelancer is out there or a person who's going to consider taking a staff position. They're looking at everything. They're looking at, how much am I getting paid? How good is the work that I'm doing? And how did they treat me and how do they manage their companies? So very likely you cannot compete on price or the quality of the project. So you've got to focus on the other two components. How do you treat them? How do you manage projects? So that's your competitive advantage to level the playing field if you will.
Some companies will mention who they are. They do amazing work. Their company culture is less than desirable, but they can get people to come in because the work is so good. So you've been there. You've done that. So you know and so you know what kind of company you want to have.
I look at it like this. People that come into our company, whether they're freelance or staff, I want to make sure that their long term career is protected and nourished as opposed to just using them up and spitting them out. Because if you go at this rate where you're working all day and night, and I've done that, I've stayed up all night. I worked all night with freelancers before when the sun's come up together. It takes a toll on you and you only can do that for a certain period of time. So the idea is that you want to minimize those moments when you're taking those kinds of jobs that require you to do that, where you're staying up all night. Something's telling you it's wrong. You accepted a job going in knowing that there's not enough time. The job is too big or complicated and you don't have a big enough team. So that's a recipe for burning everybody out, including yourself.
I've been doing this now for almost 20 years. I'm as passionate about the work I do today as the day I first started because I learned how to manage the projects and my time and what I put into it. And if you haven't done so already, I would highly recommend... I don't have the book here. I could go grab it, but Delivering Happiness by Tony Hsieh. Definitely read that book. And Tony Hsieh, for those people who don't know who he is, he's the founder of Zappos. And he sold his company for like a billion dollars to Amazon. That's not an expression. I think it was right around a billion dollars.
And he's selling shoes, and he writes about how the margins are so small. The only thing they have is culture. And he's a big believer in that. So read that book and then come back to me, and we'll talk again. If you have questions after you've read that book, Delivering Happiness, I'll provide a link down below to buy the book. Once you guys read it, you can post questions, or we can have a little conversation about it.
These are two books that I believe are really important in shaping my thinking about business. First is The Win Without Pitching Manifesto and the other one, Delivering Happiness by Tony Hsieh. He sold his first company when he was in his twenties for a couple of hundred million dollars. So he knows what he's doing.

Frank:
I heard he lives at a trailer park.

Chris:
He lives in a trailer park now.

Frank:
I was looking at video of him. He cherishes experiences and culture more than anything. That's something I really admire.

Chris:
So there's one thing that I read about him recently. He says, "Everybody's talking about work-life balance. To manage those two things." He's like that's not his idea right now. His idea is about work-life integration, that if your life and your work can be the same, you're living a pretty good life and you're working in a pretty cool way. And that's why he lives in his park that he's asked everybody to come out and live next to him. So he's got a llama living in the desert in Las Vegas. So that's pretty cool. Work-life integration.

Frank:
Is that something you strive for?

Chris:
I'm striving to achieve that same kind of goal.

Frank:
Awesome. That's most of the questions I have.

Chris:
All right. Well guys, thanks for tuning in. See you guys next time.

Greg:
Thanks so much for joining us in this episode. If you're new to The Futur and want to know more about our educational mission visit thefutur.com. You'll find more podcast episodes, hundreds of YouTube videos and a growing collection of online courses and products covering design and business. Oh, and you spell The Futur with no E.
The Futur podcast is hosted by Chris Do and produced by me, Greg Gunn. This episode was mixed and edited by Anthony Barro with intro music by Adam Sanborne. If you enjoyed this episode, then do us a favor and rate and review us on iTunes. It's a tremendous help in getting our message out there and let us know what you like. Thanks again for listening, and we will see you next time.

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