Way back in 2008, we decided to launch a WordPress themes club called Spectacu.la.  We had a couple of nice blogging themes that had been targeted for a marketplace, but as that marketplace got canned we found we had nowhere to sell them.  We figured it was worth getting our investment back.

But it failed, massively.  Although we got some decent attention for it, the income it brought was negligible.  The only real benefit, we found, was that it opened doors and helped us in our more custom aspirations.  Great, but in the meantime we had a site with assets that required some looking after.

However, it limped along, gaining and losing members steadily, but never enough to make anything close to a profit.  But we spotted something – almost every single new member didn’t join to get support for themes but to gain access to the editable version of the WordPress User Guide we offered.  So we had a support forum with tumbleweed blowing through it, whilst we were still getting sign-ups.

Realising Your Assets

This is where we had a moment of realisation.  We’d only supplied the user guide as a bonus extra.  We always thought our most valuable assets were the themes.  But in fact, the themes weren’t that amazing.  Good, of course, but nothing to get too excited about.  However, a user guide that could be rebranded by trainers, educators and theme designers?  Well yes, that’s got value.

In fact, when we investigated further we realised that although it was our prize asset, there were some significant blocks.

Bundling Isn’t Always Best

There’s an instinct to think that offering a big package of features is the best option.  You can have this, and this, and this.  Spectacu.la was a bundle.  But most people didn’t want most of the bundle.  So here’s how they felt… “hmmm – I only want a quarter of this bundle.  It’s not great value for me!“  That in itself acted as a block.  Then they also had the relatively time consuming sign-up process before they could start to download.

Pricing Is Important

So, that was our first set of epiphanies – we knew we had a good product, and we knew it was sold badly.  So, what to do?  Obvious – sell it as a digital download.

And look there – in the chart below you’ll see that there’s a sudden lift in the rate of income.  The chart plods along in the Spectacu.la years (and the line charts all memberships including non user-guide downloaders) and then suddenly ticks up in early 2011.

Dollars Are Even More Important

The next decision we made was to switch to pricing in US Dollars.  We didn’t want to – accounts wise it’s a pain as each guide, to us here in Britain, sells for a slightly different price depending on the exchange rate of the day.  But we could see that we made proportionately few sales in the US, and rather more elsewhere.

It’s harder to see the effect of dollar pricing just yet, but September took double what August did.  One noticeable difference is that we received just three of the optional donations in August, and thirteen in September.  We’ve also noticed that donations from US residents have gone up dramatically.  Before it was dribs and drabs, and now it’s usually a donation every other day.

Conclusion

Well, we’re not done yet.  In the future we’re going to offer regional options – Eurozone buyers will be able to pay in Euros, Brits in GBP and Americans in USD.  Similarly, we may offer reduced prices to those in poorer countries – it’s noticeable that we’ve only had one purchase ever from sub-saharan Africa, for example, yet we know that many of our old free themes have proven popular there.

We also have to be a little careful – our changes tend to coincide with new releases of the user guide – so the figures are harder to tease out.  However, when you compare like-for-like there is still a significant improvement in sales with each change we’ve made.

This blog post has been written with the purpose of both introducing myself (even if it only to say goodbye for now!) but to also show my appreciation of the great people here at Interconnect IT and hopefully also providing my replacement with an idea about what he is getting himself into!

A little bit about me

I started at ICIT back in April 2010, working for free on a few Saturdays to basically to get a little experience of how to run an office. I had known Dave from our local badminton club and I was stuck in a job I hated and wanted to try my hand at something totally different. I started by helping Dave to get a bit of organisation to the filing cabinet and the accounts. This began with several trips to the local stationary shop for a big pile of ringbinders and dividers! Dave must have been impressed with my organisation skills, as he soon decided to offer me a part time administrator role for 2 days a week. This suited me down to the ground!

My hours increased in January 2011 as Dave’s time became more occupied with gaining and maintaining our clients and providing project management as our work stacked up. I have taken on more responsibility this year for managing the accounts and the other day to day runnings of the business.

Typical isn’t it that just as my work gets better and more interesting, with the probability of more hours – I disappear to have a baby! Ah well… I shall be back after my maternity leave, probably very tired, but with more experience of the good things in life (I hope – unless baby is an absolute terror) which will hopefully give me more skills and make me new and improved when I return!

A little bit about the company

The company has changed a lot since April 2010. When I started, there was simply Dave, James and Peter. The office was small – just 3 desks; and with Peter and I sharing a desk. We worked on different days of the week so there were only ever 3 of us in at any one time. Only a few months before this, there was simply Dave and James.

Shortly after my arrival, we expanded, taking on Rob as another developer in June 2010. This increase in size meant we had outgrown our current office and so moved in July, downstairs to a larger office which seemed cavernous at first!

The company has continued to change and develop: This year we said goodbye to Peter in February and welcomed another new developer – Tom in May, who has settled in as a great member of the team. And we are now taking on a new temporary administrator as I depart for my maternity leave.

Dave is considering the possibility of expansion again to another larger office as we take on more work, new clients and lots of new projects. It is good to notice that a lot of our latest work has come about because we have been recommended in the industry. One of our larger client’s have many different divisions and we have gained a lot of business from their recommendations so we must be doing something right. A busy time is ahead for all, especially for Dave as he is expecting his second baby shortly after me in October.

A word to my replacement

In my experience, after working in different places and feeling like I worked very hard with little or no recognition, this company makes me feel like a valued member of staff and to me that is of great significance. This is a job I don’t mind getting up for on a Monday morning and I hope you settle in as well as I did.

Please keep everything tidy and organised.. I’ll be coming back to check!

The figures are deliberately slightly more vague this time. Why? Because they don’t have to be that precise and it saves considerable time in preparing this post! Efficiencies, you know…

* Equivalence used – two part-time employees working 37.5hrs count as one employee.

One of the largest problems we face is that the growth in cost turns cashflow into a significant issue for management to deal with. One key problem has been that banks are no longer willing to extend lines of credit without personal guarantees from the directors. Given this situation, the directors have opted that should the company require short-term funding this will come from the directors themselves. There is no risk to the company as assets are considerably higher than debts to creditors.

Efficiencies

There is a project in place with the administration and management team to streamline and organise the company processes. This will help release staff members to carry out more chargeable work and should reduce the need to recruit new staff. We are, however, searching for an excellent WordPress developer to help the project team grow.

Order book

We are currently not accepting new customers and have project work planned until the end of April.

Obviously there will be things that we have to keep quiet, such as our plans for world domination (oops!) or commercially sensitive work, but by and large a lot of information will generally need to be published in the future.

The reasons are simple – by being open about our position we can help keep our clients informed.  They are genuinely interested to know where we’re going, what product plans we have, and the services we currently offer.  I’m not going to drill too deeply into the information but provide an adequate enough overview.  I’ll try to stick to the same format and release information on a quarterly basis.

* Equivalence used – two part-time employees working 37.5hrs count as one employee.

As can be seen, turnover has increased massively in a year, and far beyond what the change in headcount would lead you to expect. In effect we’ve learned to do more per person. Some is down to certain efficiency measures, including moving to a quieter and more productive work environment, but one of the biggest changes is due to us working out exactly what we should be charging on jobs. We tended to underestimate the scale of most jobs and effectively halved our hourly rate. This is an experience thing – you never realise how complex some projects can be until you try them.

Intellectual Property Growth

Another key area of growth has been our IP portfolio. With a number of very successful site implementations behind us, we have developed a number of innovative solutions to complex business problems. Whilst first projects, where we develop new IP, often make us no money, subsequent projects of a similar type can bring us significantly improved margins. We expect this to continue feeding our future growth.

Trimming the Fat

We’ve also started to shed some projects. We still like to create free GPL projects, but we now look far more closely at our strategy around it. Do these projects enhance our standing in the community? Do they bring in any support money? Often the answer isn’t quite as positive as we’d have hoped and, as a consequence, we have already started to wind down our Spectacu.la project. We will keep hold of the brand and may build something new with it in the future, but for the time being the income earning parts of that site will be divested back to the original interconnect/it brand.

The Future

We are planning to release some developer plugins to help people achieve more with their WordPress installations. Most will be sold as premium offerings, with the possibility of creating stripped down versions for free download.

We will be developing our training business using some of the latest technologies available.

We will be offering creating some high end products for WordPress, possibly as fully hosted solutions.

Slater Street is a characterful place in the middle of Liverpool’s Artistic Quarter. It also has lots of bars and some amazing people. But with that comes noise, occasional mess, and relatively few facilities.

Liverpool Science Park Innovation Centre 2

Liverpool Science Park

So, to celebrate our continued growth, to give us quieter on-site training facilities, conference facilities and a stronger infrastructure, we’ve made the decision to move into Liverpool Science Park, Innovation Centre 2.  This will give us high quality, flexible office infrastructure, access to Liverpool University’s expertise, and much more besides.

The Future

This is all a part of plans for the company.  Interconnect IT has had a successful 2009, with a growth in revenues anticipated to be approximately 75% over 2008 and the same growth for the 2010 financial year.  We have established ourselves firmly in the News & Media sectors with clients such as Informa Group and Telegraph Media Group.  We are also growing our Intranet business and developing new intranet technologies to help business improve their internal communications.

Our success means we need more space, more people and more ancillary services such as a staffed reception, on-site training and conference facilities, modern phone system and more.  Liverpool Science Park provides this, along with excellent business support facilities.  That coupled with being able to work closely with other leading technology companies in Liverpool gives us a very bright outlook even in these difficult times.

David Coveney, Director.

Anyway, the whole point of this post is to raise awareness of their need for a new home by the end of July.  If you, or anyone you know, has the capability to offer some real and useful help then they’d love to hear from you.  IT industry firms are probably the best candidates.

Visit the Museum of Computing’s website…

But what happens if our clients and potential clients start to suffer as a consequence of an economic downturn?

Problem 1 – Spending Cutbacks

During uncertain times, many businesses choose to be careful on spending outside of their company.  In particular they may look to what are perceived as cost centres (website updates, build and application development) as being something that can wait for a while.  If that’s the case, there’s going to be a slowdown in spending on technology unless it’s deemed as essential for the company to operate.

Problem 2 – Credit Freezes

Thankfully we’re based in the North of England – this is an area which is traditionally very conservative with money.  People don’t like to borrow money or use complex financial instruments and most SMEs in the North West still tend towards being self-financed.  However, this article’s aimed at everyone.  Business that rely on finance will face certain problems.  In particular, curiously, the ones that have a moderate but high risk position are the ones who face the biggest chance of foreclosure.

Why?  Well it’s time to think like a banker.

1. Example 1: This business has loans of £100,000, assets of only about £30,000, and sales have plummeted.  However, the business is still viable if it can renegotiate its loan terms.

   If the bank decides to close this company it will definitely lose £70,000.  In renegotiating the loan the business will continue to  function, and the bank will get its money, albeit over a longer period.

2. Example 2: Another business has been far more careful with its money and has a £30,000 loan with assets of £100,000.  However, sales have died due to the downturn and income is poor.  They too need a renegotiation as their cashflow situation makes it impossible to meet the loan payments.

   In this case the bank, needing to bring in money to improve its cash position, will be less inclined to renegotiate.  After all, if it closes the loan it will get everything back – the full £30k.  Their cash position is improved and everyone’s happy.  The business may struggle now because it’s now £30k down on cashflow.  In fact, it could even fold because suddenly there’s no cash left in the company to help pay its wages and bills.  Worse, it can’t even negotiate a loan against its assets because all the banks are being ultra-cautious, will take one look at the cashflow problems and decide to look for someone safer to lend to.

   You also have to think very carefully about any secured loans.  In the event of a repossession it’s possible for the bank to get everything.  They may repossess your premises and resell them at a significant profit.  In many jurisdictions there’s no compulsion for them to share or give the profit to the original debtor.

Problem 3 – Price Inflation

Inflation is pretty steady in the UK still.  But we still have one massive problem – we’re starting to sell internationally.  Countries that trade internationally in dollars will have found their costs rising dramatically when dealing with EU based economies.  It’s not that long ago since a British pound was worth $1.5 – yet now it buys $2.  But thankfully there’s an upside – the more steady, more sensible and less loan happy mainland Europeans have found their Euro increasing dramatically in value.  It makes our holidays to Europe more pricey, but the upside is that our services look a lot cheaper to Europeans – so as one market declines, another has grown.

But it’s not all bad….

Opportunity 1 – Competitive Pressure

Businesses that are struggling will need to fight to compete.  No longer will money simply roll through the door as naturally as leaves through a courtyard.  Instead some firms which have experienced an easy ride lately with their easy finance, will need to get out there and find customers.  They’re going to need to invest in technologies that help push them up ahead of the competition.  This is where there could be some real growth in the web technology market – at least, for the companies that can give the best results.

Opportunity 2 – People With Time

If there is a downturn it’ll mean more people with less work to do – perhaps not needing to work so many hours, or even higher levels of unemployment.  For them the web will be one of the cheaper forms of entertainment available to them.  They’ll be getting into blogging, Web 2.0 applications such as Facebook, and even maybe dabbling a little and learning how to code themselves.  They’ll help the market to grow and will be enthusiasts for the business in the future.

Opportunity 3 – Weak Rivals Will Decline

One of the best things about a recession can be that the really weak rivals will suffer.  Web designers, for example, who churn out poorly thought out and over-priced websites will find themselves at a disadvantage to those with a reputation for positive results.  They’ll either have to reposition themselves more truthfully (at the economy market perhaps) or spend some time improving.  It’s also worth looking out for closing companies and seeing if you can pick up their past clients.  Filling a dead-man’s boots may not seem too ethical, but chances are it’ll be a relief for those clients to know there’s still someone around who they can rely on.

See the image below:

Now, you may notice something… The purchase price of the UK software is, before taxes, £705 while the US software (presumably with taxes) is $999. I’m going to compare our tax free price with the US full price, simply because I can’t assume that the US price includes taxes – I just don’t know the US system that well.
Now if you’re not well up on exchange rates the figures may make the UK copy seem cheaper. But every one of our Great British Pounds will buy 2.03 of your now considerably Cheaper US Dollars.

So let’s work it out.

If bought in the US, the cost without taxes is:

US$999 = GB£492

If bought in the UK, the cost without taxes is:

GB£705 = US$1431

So there we go – we pay over 40% more to download Adobe Software in the UK than in the US. And pity us with our taxes – if you add VAT the price goes up to an equivalent of a whopping $1682. If there were shipping costs, or shop costs to take into account we could understand it. But this is software. It costs the same to deliver wherever the end user is if you’re using the Internet. While there are costs with accounting, they don’t add up to 40% extra.

The US economy isn’t doing that well, but do they really need to rape the wallets of overseas developers in order to improve the situation?

Oh, and I’ll leave it as an exercise to you to spot just how much of a rip-off the upgrade prices are. I wish I had a daughter just so I could forbid her from dating Adobe accountants and marketers.

Actually, I’ll rephrase it a little… it happens all the time!

It’s rather tricky. Clients are interested in us because we offer them something that gives them better efficiency, sales and returns. But what we do is complex and sophisticated.

As it’s myself that does all the sales work I often find myself giving over two hours of my time to a prospect in order to explain how the dynamic websites work. I’m educating them. For two hours.

How much would it actually cost to get an expert in any field to educate someone for that period of time on a one-to-one basis? £120? £240? Certainly it wouldn’t be cheap.

Yet there I am, explaining various elements of design, hosting and development… all for free.

Not only that, but many clients expect proposals, complete with mockups. For free too, of course. After all, we’re only selling.

And it’s a trap I think that all IT types need to be wary of. We’re natural born ‘pleasers’. We want to write cool stuff, but more importantly, we want people to acknowledge that coolness. It’s interesting that the concept of Open Source is so strong in IT. There aren’t nearly so many top photographers offering any of their materials with a right to free duplication as there are developers.

But here’s the thing… free doesn’t put food in the table. Each prospect may be the result of two hours of work before we even get to visit. On top of that is the two hours of free consultancy they end up receiving when we go and see them. Then there’s the proposal – that can be four hours for something simple, but easily a 16hr job. So we have up to 20hrs per prospect, before a sale is even agreed.

If we then assume a one-in-three conversion (because they’ll probably talk to three potential clients) that means up to 60hrs of work for each client won. I’ve actually estimated that by and large we manage on about 40hrs per client win.

Now here’s the funny thing – many of the websites we produce take less than 40hrs to build. Let’s say each is 30hrs of work to build – what with all the toing and froing of ideas, images and copy.

That makes 70hrs per website. If you’re going to make a modest, middle class income, and cover costs, then chargeable rates have to be around the £30 an hour mark. That’s about what most backstreet mechanics are charged at. So the very base price for a website built according to expectations above, has to be £2,100.

Read that figure.

£2,100!

For a basic, simple, custom website.

We’re working on developing techniques to get web developers away from this problem. Expectations are far higher than can be fulfilled economically. Check back to the blog regularly to see our up and coming announcements…

But I’ll say that I feel a slight tingle of concern over Face By Fix – a new website where folk can upload their photos and visitors can say what cosmetic surgery they should consider!

In a way a shocking idea.  In another way quite cool.  If we were all well balanced individuals then we’d be able to take the discovery that our ears look funny in good humour.  But allowing the public to choose what you need improving – especially when the public doesn’t necessarily have your best interests at heart… well really.

So what do you think?  Good or bad?