“People always ask me what my business model is, and it’s very disappointingly simple to them. It’s ‘I sell something for money.’”
We did not set out to create a business. When we were designing the Glif back in 2010, it was a fun side project, a design challenge to answer our own needs. After the Glif’s unexpected popularity, Studio Neat LLC was formed. Still, it took us six months to summon the courage to quit our jobs and focus on Studio Neat full time.
Tina Roth Eisenberg (aka Swissmiss) often talks about the importance of side projects. She is sometimes referred to as the Queen of Accidental Businesses, in that several of her side projects have come to generate revenue without that being her original intention. This is an important lesson. The starting point should always be to make something great. Start something on the side, see if it turns into anything.
Our focus, first and foremost, is to make great products. Walt Disney said it best: “We don’t make movies to make money, we make money to make more movies.” That said, now that Studio Neat is our full time occupation, it is imperative that we generate revenue, so that we can eat food and have clothing and be sheltered. This chapter discusses how we do that.
If you’ve been following the tech sector on the internet of late (and we know you have been), you’ll know that there has been a flurry of discussion about money. Specifically, how all of these tech start-ups are supposed to make it. With the acquisition of Instagram (a company that generated $0 of revenue) by Facebook for one billion dollars, many people are left scratching their heads. Is this some kind of new, super secret form of capitalism that only an elite few are privy too? Make zero dollars for two years, and then one handshake later, you’re a billionaire?
Though the Instagram buyout is an extreme example, the model is actually not uncommon among start-ups. The plan is to take investments and VC funding, and then build up a user base as quickly as possible by offering a great product for free. The end game is to either a) get acquired, or b) figure out a way to make money later, typically either with ads or a freemium (free to try with paid upgrades) model.
It is not fair to criticize all start-ups that operate this way, nor does it make sense to. For many start-ups, the only way they ever have a chance at succeeding is to grow very quickly. Social networks are a good example of this.
We hope people realize, however, that this is not the only way. There seems to be a swing back in the other direction, where folks are embracing more traditional forms of business. Put simply, they create something of value and then sell it to customers. Starting a business without taking any outside investment funding is called bootstrapping, and there are more tools then ever for taking this approach.
This is the path we have taken. It might not be the sexiest, and we will never be acquired for one billion dollars, but we’re incredibly happy. We get to do what we love, set our own rules, and don’t have to answer to investors.
People Making Stuff, People Buying Stuff
One of the most satisfying trends we have observed in the last few years is the closing of the gap between people making stuff and people buying that stuff. One of the more striking examples is happening in the world of comedy.
In late 2011 Louis C.K., a hilarious and established comedian, offered his newest stand up special on his website for $5. Now, stand up specials are a common format in the comedy world, and they are typically funded by a television network like Comedy Central or HBO, who gain the rights to show the special on their network while paying the comedian a lump sum. Louis C.K., however, cut out the middleman. He funded the filming and production of the special himself (using the money he made from the ticket sales from the show that was filmed), edited it himself, and made it available to purchase, directly and DRM (digital rights management) free, on his website. He created something, then made it easy, convenient, and affordable for people to buy it directly from him. Other comedians, like Aziz Ansari and Jim Gaffigan, have smartly followed suit by offering their own specials for direct sale online.
All of the comedians mentioned above are established practitioners of their craft, but as we’ve discussed, this direct connection between creators and consumers is happening at all levels. Kickstarter, of course, offers this same kind of satisfaction. It’s more than simply getting the funding to bring an idea to market, it’s about connecting project creators to the patrons. While the Kickstarter projects that raise millions of dollars get all the headlines, people—project creators and consumers alike—are drawn to the platform because of its ability to connect makers with users. That connection is just as integral to Kickstarter's success as are the headline-grabbing projects.
1,000 True Fans
Kevin Kelly, the founding executive editor of Wired magazine, wrote a compelling piece back in 2008 called 1,000 True Fans. The gist of the piece is stated as such:
A creator, such as an artist, musician, photographer, craftsperson, performer, animator, designer, videomaker, or author—in other words, anyone producing works of art—needs to acquire only 1,000 True Fans to make a living.
A creator with 1,000 True Fans sits at a sweet spot on the classic long tail graph: not quite into smash blockbuster success territory, but safely out of the obscurity of the long tail. A middle ground, if you will, where you connect directly with your niche audience. Kelly again:
The point of this strategy is to say that you don’t need a hit to survive. You don’t need to aim for the short head of best-sellerdom to escape the long tail. There is a place in the middle, that is not very far away from the tail, where you can at least make a living. That mid-way haven is called 1,000 True Fans. It is an alternate destination for an artist to aim for.
In a lot of ways, Kelly predicted the success of a platform like Kickstarter, and in fact in his article he mentions Fundable, which appears to be a precursor to Kickstarter. While Kickstarter does have some smash success projects making millions of dollars (Pebble, anyone?) the vast majority of projects that are successfully funded find small, loyal, enthusiastic audiences. The perfect foundation upon which to build a lasting business.
During our first year working at Studio Neat full time, the two of us lived in different cities (Dan in New York City and Tom in Durham, North Carolina). At first blush it seemed like this would be damaging to our business, but working remotely turned out to be fantastic. In fact, now that Tom is back to New York City, we still work as if remote. We typically meet via FaceTime over breakfast in the morning to see what the other is up to that day, and then will IM or email throughout the day as needed. We use Basecamp to keep things organized, and Dropbox to share files.
Working in different cities does have disadvantages of course. It makes it much harder to shoot a demo video, for example. On the whole though, we’ve found being apart can be great for long, focused work sessions. If we were together we’d probably get distracted and end up playing Donkey Kong Country all day.
37Signals backs this up in their writings, espousing the virtues of remote working. Furthermore, their new office in Chicago was designed to feel like a library, a quiet place for individuals to get some work done.
The opposing view is a set up like Studiomates, a working environment populated by some of the big guns of tech and design. This workspace fosters collaboration, and many creative projects have sprung out of Studiomates as a result. Likewise, the main Pixar building was designed to have a large central atrium that encourages serendipitous meetings among employees.
Clearly, both sorts of environments seem to work swimmingly. The moral of the story is, experiment and find what works for you. It might be different than what you initially expected.
Obtaining patents for our products is something that at first seemed like a good idea.
As with things of this nature, make sure you contact an expert rather than relying solely on the advice from two dudes with no legal expertise. However, it is our understanding that the path to obtaining a patent is a black hole that sucks up money and spits out sadness. Many people seem to have the misconception that patents are magical things that act like a force field around your product, preventing anyone from ever ripping it off. Sadly, this is not how they work.
Here are a few things we’ve learned about patents:
- They are very expensive.
- There are different varieties of patents. A design patent, which is the “easiest” to obtain, only protects the visual ornamentation of an object, not its function. A classic example of this is the glass Coca Cola bottle. They can patent the specific shape and design of the bottle, but obviously they don’t have a patent on a “container that holds liquid.” Utility patents, which do include the function, are much more difficult (and sometimes impossible) to obtain.
- Most patents only protect infringement within the United States. There are international patents, but these are even more difficult to obtain.
- Patents do nothing to prevent people from stealing your idea. All they do is give you the legal authority to take action if you believe someone is infringing. You would still need to hire a lawyer to take the perp to court. This point may seem obvious, but it’s easy to overlook the cost of pursuing legal action, on top of the cost of the patent itself.
- Ultimately, we have realized that patents are basically designed to protect large corporations, and the idea of a small company of two people obtaining a patent is fairly ridiculous. We decided to pass.
- To put things in perspective, since launching the Glif, there have been a few direct imitations that have cropped up, out of Germany and Taiwan. There is not much we can do, other than shrug our shoulders and carry on. Let’s imagine for a moment we did have a heavy-duty international utility patent. How would that change things? Would we really be willing to sink the time and money into going after them? Our guess is no. We’d rather just spend that time designing more great products. As long as our brand remains strong, customers will choose the real deal versus the knockoff.
Bookkeeping and Accounting
Bookkeeping and Accounting are two things we have hired people to do for us, and we think it was a wise move. These are two tasks that we could conceivably do ourselves, but all it would achieve is sucking our time away from more important things, like designing products. For the minimal cost of having a bookkeeper and accountant, we think it’s a no brainer.
So what do these people do? A bookkeeper tracks the flow of money in and out of your company. They can also make sure you pay vendors on time, make sure people are paying you on time, etc. At first we relied solely on reports from Shopify and Google Analytics to keep us up to speed on how our sales were doing, but once it came time to pay taxes, things got hairy. The IRS and banks speak a special language of “profit & loss” reports and “balance sheets;” bookkeepers help you speak that language.
An accountant does your taxes. Individuals with a normal, steady income can usually get away with firing up the ol’ TurboTax and doing it themselves, but for anything more complex or unusual, having an accountant is a godsend. They can also give advice on how to save on taxes. For example, we’re filing as an S Corp instead of an LLC next year, a tax saving trick we never would have thought to do ourselves.
We found our bookkeeper and accountant with a combination of Google and asking friends for recommendations. Oftentimes it makes sense to hire someone local so you can visit in person, but it is not a requirement.
Our credo from the outset has been to run the kind of company that we would want to do business with. You can learn a lot about a company by how it treats its customers.
We love our customers. A lot. Plain and simple, they are the reason we have a business to begin with. This may surprise many people, especially those with fancy business degrees, but there is a direct correlation between having customers and having a business.
To that end, we are fastidious about answering customer emails. Customers are often shocked by and thankful for how quickly we reply to their questions and concerns. We personally respond to every email that comes in, although we can see this policy becoming untenable in the future. If we end up hiring someone to help with customer service, you can bet email response time will be a top priority.
We also monitor what people are saying on Twitter, and consider that a great place to communicate with customers. It’s also where we go to feel our hearts explode with joy when viewing all the creative stuff people have made with our products.
So, where do we go from here? What is our vision for the future of Studio Neat?
Matt Linderman at 37signals once asked the readers of their blog to help come up with a term to describe a certain type of small, focused company. In his words, a company “that’s small and cares about quality and is trying to do something great for a few customers instead of trying to mass produce crap in order to maximize profit.” Jason Kottke, blogger extraordinaire, came up with a nice way to describe this type of company: small batch business. The naming idea comes from bourbon whiskey, but it can be applied to anyone making small quantities of high quality products. This is what we aspire to.
There was another nice analogy in the aforementioned Wired article by Chris Anderson. Imagine a jar full of marbles. These marbles represent big companies, operating at a large scale. In between the marbles is empty space, space that could be filled with sand. Each grain of sand is a “small batch” company, addressing all the cracks and crevices the bigger companies can’t fit into. There is room for both, and the jar is efficiently and completely filled by using both marbles and sand.
Stated simply, our vision for Studio Neat is to continue making great stuff. We hope to keep growing, slowly and organically, and we are making a bet that this new economy fueled by creators, this indie capitalism, will continue to allow us to do that.