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I guess I’ve always known this; but it’s never really hit me until today. Maybe the reason that I’m able to wrap my head around it, is because it’s finally affecting me full force.

I’ve been working with a New York development firm for a few months now. We’ve been working on ways to expand our business outside of the typical constraints of a design and development firm. As a firm in this industry you often reach the point at which you meet maximum efficiency and profit. Essentially, that means that your firm is working at 100% and is pumping out all the client work it possibly can. When you get to that point, you can increase revenue in a few ways.

The first way is to hire more people and increase your ability to take on a bigger load; however, this often leads to just a bigger work load with no actual increase in revenue due to the fact that you increase your overhead.

The second way is to find client work that’s repetitive. If you can replicate projects, you can get more done, without actually doing the work. (This becomes the…do it right once, and make money multiple times…theory.) Basically you find a niche market thats specific enough to work in and profit off of. The downfall to this is that you lose your passion for your company. Doing the same projects everyday becomes mundane and while the revenue may go up at first, employee’s become discouraged and you yourself become aggravated with your work, in which case, efficiency declines and revenue goes down.
That brings us to the third way. I like to call this the “37 Signals Way” for the primary reason that they’ve shown tremendous success with this business model and many others can learn from them. Essentially the way it works is…you transform your services into a generic service offering that can be applied to a specific area; while serving a variety of clients and improving your service offering. Depending on your business model, you have the ability to retain a residual monthly revenue which is very nice and can fuel future endeavors into internal projects and such.

So what’s the problem??? Well, the issue remains that moving towards that third method isn’t an easy task. After doing this for a while you obviously develop a method of retaining work. Whether it be from Freelancing sites or from proposals or from referrals, you have a way to gain work, and for most people, getting work isn’t the problem. Most talented agencies actually have the ability to choose which projects they want to work on because they have so much incoming work. The problem arises when you’re faced with the “gap” that occurs when you take your firm’s time away from client work, and focus it on your own internal projects. Sure if you’re big enough, you can easily afford to take the hit in development dollars to get it done, but that’s not what makes a company successful in this.

The biggest thing that a company like 37 Signals has going for them is their passion. Passion is what drives success. I’m not talking about a company that hires a developer to develop their ideas. I’m talking about being able to completely move your firm from focusing on obtaining and developing client work to planning a major internal project that is to drive and support the future of your company.

How do we prevent the huge loss of dropping clients? We don’t. It’s a gamble. I think that’s one of the hardest things that I’ve had to swallow. If you’re not willing to take the risk, then you won’t get the desired results you need. I guess it goes back to the old: “The bigger the risk, the bigger the potential profit.” Companies who have taken this approach have shown that it can work given an idea works.

I’ve read 37 Signal’s book “Getting Real” and to be honest, I recommend it to anyone who has anything to do with this business. I’m dieing for one of the guys over there to write another chapter on how they moved from their first business plan to the current one.

I can’t offer answers, because I don’t know them. However, what I can offer is the following tips if this is something you’re considering…

1. Don’t rush. No one’s going to take your idea if it’s that good. Don’t feel like you need to rush into this just to “get your idea out there.”

2. Plan. And not the “paper planning” either. Plan with demo’s…plan with interfaces!
3. Get to a point where you’re as stable as you can be. If you don’t think you’ll be able to struggle through not having a steady income for a few months while you get things done, don’t do it. Save it till you’re ready.

4. Passion. Have it, or get out of the business.

Like I said, I don’t know the answers to this problem…I can only say that I’m going through it and I’ve seen where the rest have failed, and the things that I have done that have been proven effective.

If anyone has any advice or comments, feel free to share.