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Wednesday, April 17, 2013

Contract Work for Key Clients & Partners

This is the age old issue of making "feed the company" money while trying to build up your core product. I think quite a fair bit has been said about this. I stand by what i wrote 7 years ago esp if your business is a pure bootstrapped type which has no Other Peoples Money. Sometimes, we just need to make ends meet and so taking on a few projects is nothing to be ashamed of.

Some good examples :

1) My own company. We used to do HR software for SMEs. Each year about $100-200K to help pay the bills while we focused on growing our own core job portal and media businesses. We got pretty good at it , so much so we ended up doing almost 0.5M of this many years ago. Then we made a decision to scale back as our core business was growing and such contracts became distracting.

2) More recently, i met with 2 other internet companies who are doing the same. One is at the 500-1M revenue stage of which about 200-300K are consultancy service which the founder is providing to MNCs. Nothing wrong so long as it is clear in future, this area will scale down as it is too unscalable and obviously tied to founder being the account manager.

The other example is a more famous one owned by Singtel in the mobile arena. Now they seem to be pureplay service provider when originally the idea is to build a product and scale up.

To be clear, those of us who take this route need to understand what we are doing. There is nothing wrong with becoming a software house or SI. In SG, SME software houses which do not productize can do up to 5-10M in revenue if done well and can make 20% margins. However, it is a different business for building a platform or product that scales. And usually the valuation afforded to pureplay software solution houses is weaker since recurring revenue is lower.

============================================================================ (Article first published on sgentrepreneur Jan 2007)

Thought I will share my experience about branding and the importance of building your own brand. In hindsight and for some of you, this may seem to be very obvious. However, I think for startups struggling to make ends meet, having revenue perhaps matters more than having your brand but low revenue. Let me elaborate.

I notice that quite a lot of service firms in Singapore leverage on their partner/client’s brands to deliver what is essentially their product. For example, magazine industry has lots of contract magazine publishers who will do the artwork, editorial, sales, printing etc for a big brand. They get paid a fixed fee and a variable depending on sales. They may even get to keep all sales and no fixed fee. However end of the day, the brand is not theirs. So all effort put into building it goes to naught. Krisflyer, AA magazine, AlumNUS etc, anyone knows who actually does all the work?

A similar situation can be found in dot commers. Many dot commers get distracted. They start with a great idea. Job Portal, Food Review, some Web2.0 stuff, but when they built their prototype, it takes a long time to grow it. Along comes an appreciative client who asks them to customize something and build and maintain it for them. Most startups will take it, cuz it generates some $$. But as time goes by, the client’s site and brand is the one who grows strong. And all efforts spent improving it goes to the client not yours. What I am driving at is that while it is important to do adhoc work and skills related work (design, editorial, IT contracting), never lose sight of your core business plan. Of course, unless your business is to be a contract service provider! At the first chance, use all revenue to grow your brand and strengthen your own position.

A good example is Their clients came to them to do online IR pages. They made it into a core service and integrated it with their forum and investor information offerings. Now they are pretty dominant in Singapore in their niche market worth easily 3-4M a year.

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