A meme from The Office: "If you could stop being an idiot, that would be great."

How to Avoid Being a Business Idiot When Going Freelance

Fresh freelancers are idiots. Business idiots. At least I was a complete business idiot when I started my one-man show six years ago. When starting up, we freelancers don’t spend a dime on anything and we intuitively think that not spending any money is reasonable and “good business.” Investing in the future is an impossible thought. This was exactly my case in 2014.

But now after growing my one-man show into a mature business, I cannot help thinking that the lack of spending money on strategically important things was the reason why my start was so slow. I didn’t spend any money on anything! I spent my own time instead. Every time, all the time… and all of my time.

My problem was never the lack of funds as such. Nobody should start freelancing without a healthy reserve of about 6 months’ living expenses. It’s reasonable. My problem was the allocation of the funds. I didn’t realize that to make money I should first spend money! That sounds like a cliché from the business world, but I didn’t realize that it is so even in the case of freelance businesses. It is, actually.

Why was I a complete business idiot? Because I did every single thing myself knowing that I had no idea what I was doing in the beginning. The lack of budget for important business-building activities was the biggest reason it took months to get my business off the ground.

Running a freelance business requires you to manage the finances and the normal business conduct.

If all of us freelancers are business idiots, in the beginning, the one becoming a pro fastest wins.

The normal case

Freelancers whose business reaches a point of certain maturity realize that the money is there for making an exchange. A trade. And typically, that trade is your own precious time vs. the money you have already earned.

A personal example from lead generation, i.e. how to find potential clients.

From the beginning, I took a process improvement goal for myself to find a new way to reach new clients every year (well, almost every year). All of the methods I tried worked to some extent, real-world networking and freelance sites being the best ones for me. There were some differences in terms of efficiency, mainly.

One year I took my decade-old LinkedIn profile and started investigating how that platform could be utilized efficiently and in a sustainable way.

Just to find people when you have a clear profile of the people you wish to connect with is not difficult at all these days. It’s a matter of clicking, almost. However, for busy individuals, the problem is always time. The year I was experimenting with LinkedIn, I was pretty busy with the execution of really interesting client projects. Also, because of them, there was extra cash available for new “experiments.” So I hired a couple of virtual assistants to do web searches and identify the companies and individuals I had profiled as my target client types.

First I tried to do all the searches myself to understand the amount of time required. Then I figured it makes no sense to spend several hours every week searching for people when I can buy that service for 20-30 dollars. Those hours spent on executing my core projects that paid really well easily covered the cost of the virtual assistance services I bought.

It worked brilliantly! I happily traded a tiny part of my hard-earned cash to someone who managed to save me hours every week. An organized list of contacts sorted by type and formatted in a way I can just click to get things going with the clients.

It was a really good trade!

Then I thought: What if I had done this when I started? What would have my first-year business been like if I had invested just a few hundred dollars in optimizing my search for the best possible clients? Would I have got my dream project a little faster then?

Of course yes!

I could have done much more. The above is just one example of the services I bought from others. Nowadays I’m as much as a client of other freelancers as a freelancer myself. The only difference is the ratio of dollars coming in vs. going out. That’s what we call managing a business. 😉

What I should have done

The first year of running almost any business is always the hardest one. Every business starts from $0 in revenue. Then there is the first sale. A bit later the second one. It takes time to find the paying customers no matter the type of business. In many other domains, huge investments must be made to get anywhere near the first sales which can take years to make. My illusion was that in freelance business there are no startup costs. But there should be when the start is done right.

Now, after getting a hang of things on the business-building side, it is easy to list things that I should have done in the beginning.

As it has always been clear that my skills and experience mostly help people in the startup scene, there are loads of things that I could and should have in 2014, for instance:

  • Join more startup events and meetings and particularly to those that are not free to join, that’s where the interesting guys are!
  • Get my online profiles promoted and become more visible
  • Do simple but effective content marketing
  • Grow my network with other freelancers working in my field to have sub-contractor options
  • Make a properly designed and unique website to stand out
  • Get introductions to the key people in related organizations, e.g. startup accelerators and incubators as well as angel investor networks
  • Get bookkeeping done by a professional to avoid hassle and save time

All of those activities I did later with great success! And all of those things have a monetary cost assigned to them.

I quickly realized that a specialist always does the work better than me no matter the task. A guy I hired for lead generation was good, fast, and accurate. He had search strategies I didn’t know anything about and his work process was already optimized for the task. My bookkeeper did stunning work from which I learn a couple of tricks that improved my overall process. My web designer figured out all visuals way better than I would ever do, and so on.

Had I done those things earlier and paid for them, my business would have reached maturity much sooner. For sure!

But would it have been measurable in terms of cash, really?

The cost-benefit calculation: Here is the $$$ you’re not getting!

Here is the deal that starting freelancers don’t get. Spend money to make money. Let’s do a very simple theoretical calculation by comparing monthly salaries.

A mid-level software engineer in the U.S. earns about US$92K a year in a so-called normal day job according to CareerExplorer (median $92,824 annually, rounded down to $92K which is $7,666 a month if we simplify bonus schemes and all other factors).

When starting freelance, you might have one or two clients in mind, probably ex-colleagues or ex-employers who know what you do and what it is worth. That’s how almost everyone starts and it is a practical and reasonable way to get started with.

Let’s say the first couple of projects are rather secure and easy to complete. The next ones, the truly new clients, are the hardest ones.

A good case is if you get to start with a project for someone who believes you are the man for the job, but requires some evidence and convincing first. So, the first project is inevitable more on the small side because of the perceived risk in the client’s mind.

If a first small project is of size $5K and takes about a month, you’d be losing in comparison to your ex-job as you’d only get 65% of the previous income. And if it is of size $10K, you’d be winning about 30%.

So, logically, whatever small costs, the sort of things costing from dozens up to a few hundred dollars a month, should be paid without a question if the chances of getting into the $10K class projects increases. Improve your brand, use promoters, make your portfolio absolutely stunning, increase your perceived credibility, etc… All activities that might improve your chances of nailing the best possible projects are worth the money many times over!

To nail that $10K-a-month gig would easily justify a cost of $1,000 a month! And it’s is a no-brainer. You’d still land at $9K after the expenses, which leaves you at a cozy 17% increase compared to your earlier day job. It makes perfect business sense!

But somehow, we starting freelancers don’t think like this. Not before we have loads of cash to spend.

Another even simpler example comes from the freelance sites: the monthly membership fee many premium sites have. My favorite site, Upwork, charges US$14.99 for the Upwork Plus account which guarantees that your online profile stays visible in all search results done by clients.

Basically, as soon as your profile breaches the $0 earnings barrier, your profile might appear in someone’s search results and you might become visible to the right person at the right time when a purchase is about to happen. Being visible means you have a chance of getting invited to a project without you spending any time watching for new projects to appear or sending proposals by your own initiative!

US$15 a month may look like a ridiculous cost to many freelancers. I’d say especially here in Malaysia most freelancers would do anything to avoid such a cost, particularly when it is recurring on a monthly basis. Fifteen U.S. dollars is over 60 Ringgit Malaysia which buys you ten simple set meals on a street café or food stall! Yet, I’d argue that if that 15 dollars/60 Ringgit helps you to increase your chances of getting good instead of just ok kinds of clients, it is totally worth it.

Why not pay for increasing your chances, even if it is only a small increase? Buying a lottery ticket is a worse investment, yet people have no problem doing it.

The trouble is, of course, that you would never know what the alternative is without trying both of them. Usually, people don’t pay for any kind of Plus or Premium account subscriptions and then complain the freelance site does not work for them. Before going “all in” with the seemingly expensive alternative you should not be making that judgment because you would miss seeing the results and the benefits.

How not to be a freelance business idiot

At the end of the day, it is important to think strategically and spend money on items that improve your chances of getting into the game you should play instead of spending months in a game that you hope to get better over time, eventually. Why start aiming for those $5K gigs in the first place if you have a way to aim for double that from the beginning?

Invest in visibility, credibility, and reach. Also, investing in growing your own skillset is a logical thing to do.

So, spend strategically, and spend with care. Avoid doing everything possible yourself. Focus on the core value that your clients are happy to pay for and let others take care of the mundane parts. Even hiring expensive specialists might make sense if the returns are nearly certain. A specialist does better work in the same amount of time as an amateur.

A good freelancer cannot afford to stay as an amateur marketer and an amateur salesman even if the core skill is very high. Sometimes it is beneficial to hire someone good just to get an impression of how far from professional your skill level is at the moment. Then bridge the gap by taking a couple of strategic steps.

Instead of being a business idiot like me in 2014, be a business person from the start. Budget and manage important costs that bring you the best type of business. Don’t even aim for the second-best clients, unless you have no other choice. The second-best should be your Plan B and considered only if you’re Plan A fails.

Spend money to build your freelance business. That’s the only shortcut there is.

Next, check out how to build a high-value freelance business based on your unique strengths: Freelancing – It’s an Expert’s Game.