It started innocently enough. The agency wanted a module for their Magento store. We built the extension and installed it for them. Problem solved.

Fast forward a few months and we’re down a team member. There’s a lot of demand for Magento services, but we continued to struggle to maintain profitability on projects. It was time to question our business assumptions (Seth Godin recommends that bootstrappers question everything about their business every 90 days).

At this point the agency owner dropped me an email with a new request: “Do you guys do web stuff other than Magento? Because I have another client who needs someone to design and code a CMS site.” We accepted the gig in order to begin testing different business options. After a couple of Wordpress and Drupal builds we learned that CMS projects, while usually smaller in budget than ecommerce, were actually more profitable.

Succeed with Magento

Now before I move on let me clarify something. Some firms do in fact make great money on ecommerce and Magento. I see two clear ways to do this:

1. build a product. There’s a Magento services company that generates $10-15k/month off of the residual sale of one module. This module has single-handedly kept them afloat in months when project budgets are upside-down. If you plan to weather the ups and downs of big deals, then you would be smart to hedge your bet with monthly stable cash-flow. Plus modules will attract more business and establish your credibility.
2. skim off the top. Magento is enterprise ecommerce. It should come with a warning that states: “Not suitable for small retailers, startup ideas, or little children.” So get your prices up and go after established retailers with big budget expectations. You might even want to become an Enterprise Partner with Varien to get into the big deals.

Unfortunately your friend who saved $5k of his own money to have you build a store for his knock off version of threadless is out of luck. He’s caught in the no-man’s land between Shopify and Magento. Feature requirements are too much for the simple systems and too expensive for you to help him out with Magento while keeping your doors open.

If you heed these warnings then you can avoid a lot of the stress and pain that we had to endure.

Web Agency Playbook

Many web design firms target customers based on location. Some start by building sites in their spare time for friends and acquaintances. One referral leads to another and all of a sudden they have 5 guys churning out work for the local bank, YMCA, and Jimmy’s Pizza. Anxious to get away from customers who don’t understand the web enough to spell HTML, these agencies look for specialties to pull in bigger fish.

Along the way someone will inevitably ask the web firm, “Hey, do you guys do ecommerce?” Enticed by large deal potential the agency owner replies, “Absolutely.” Then they go back to their office and google open source ecommerce to compare feature lists. Meanwhile their developer curses under his breath for the boss’s assumption that ecommerce can’t be that much harder than coding Wordpress. This story rarely ends well.

An agency in Oregon has been building websites for 10 years. They created their own CMS system only to abandon it in favor of open source options like Wordpress. Last year a client asked them to build a Magento store. My agency friend confessed that he has lost money on pretty much every Magento project they’ve done since. $5-15k CMS deals keep the troops fed. “Why do you keep doing ecommerce then?” I asked. “Because we keep getting asked,” was his answer. At some point you have to realize that it’s silly to do the same things over and over but expect different results. I’m curious what would happen if this guy focused on the profitable side of his business. Sometimes what you say no to defines you more than what you say yes to.

90 days at a time

Elias is implementing 90 day business model sprints. That means we’ll set our sights on a focused target for 3 months without questioning strategy. At the end of 90 days we circle up, measure progress, question everything, and set a new objective for the following 90 days. It’s our way of balancing focus with new potential opportunities.

Objectives for our current sprint include:

It’s not you, it’s me. This relationship has had its share of ups and downs. Yes, we’ve become known as a Magento shop. Yes, change is scary. But we want to date other business models and platforms. I hope that we can still be friends.

A Brief History

Elias started as a couple of guys doing after-hours freelance web work. One customer wanted an ecommerce site and liked the features in Magento’s beta version. It took forever to code because of limited documentation, but we felt that the market was ripe for a new open-source ecommerce system. Our total bill to the client: $5k. When you factor in time we probably definitely lost money; but we gained new skills in something poised for growth.

Over the next two years we took on about 30 Magento projects and fostered relationships with stellar developers. But it wasn’t smooth. The first quarter of 2010 ended $10k in the hole because of two projects that went well over their deadlines. Tensions were high. Clients became increasingly frustrated and we lost money each day the projects dragged on. Plus we couldn’t accept new clients without more bandwidth.

Q2 made up the deficit. I attribute this to three things. First, we hustled. Long hours were spent churning out work for several new customers. Second, our business transitioned from a fixed-estimate pricing schema to a more agile hourly rate. This hedged us against a recurrence of those Q1 project misquotes. And third, we added products. We had amassed 16 Magento extensions at this point and put 8 of them on a basic Magento store install to see what would happen. By June the store was generating almost $2k/month – 90% of that tied to one module. The store had potential, but it needed a lot of work to improve on the alpha-esque quality.

Tipping Point

Magento-based work took its toll on our team. We might have pulled through Q2 in the black, but our personal income was laughably poor for the software world. Compounded on top of this was growing dissatisfaction from our Magento guru, Lee. He was a capable developer but didn’t like being an isolated coder on a virtual team.

Lee and I grew up together in the same small town. He was a friend long before either one of us knew what PHP is. So it was important to our ownership team to help him figure out where he fit without forcing him to continue doing something he disliked. Lee ultimately felt that stepping away from coding and the startup environment was the right call for his family. Eric, Luke and I committed to support and cheer him on even though losing him meant shaking up our business strategy.

Where do we go from here?

Over the past 60 days I’ve looked at several ecommerce and CMS communities, talked to development leaders in the Magento community about forking, documented the elias 10 step website process, and littered my office floor with papers covered in research notes. I’m always open to listening to new opportunities (unless you’re an offshore company spamming me with grammatically incorrect offers for cheap labor). Drop me a note if you have suggestions for a new product or approach: josh {at} eliasinteractive.com

Practically, the module menu redirects to a store that Lee is managing until arrangements are finalized with a buyer. Magento-related leads are being diverted to trusted colleagues for now while our team is working hard to finish new projects in design/development. A refreshed elias site layout is in the works for this month and I’ll discuss strategy in an upcoming post.

We have one meeting a week on Fridays, and we get together. Everyone in the company has only two things that they have to do. Everyone has to do Customer Support, and everyone has to thank the people that basically pay their paycheck. And so everyone writes about 10 thank you cards to customers…

Wufoo founder Kevin Hale in his interview with Andrew Warner on Mixergy

[The founders of AnswerLab] both worked at multiple companies before starting AnswerLab and saw that the demands of outside investors to hit quarterly numbers can really impact the relationship companies have with their clients. Pressuring a customer to ensure that they sign your agreement before the end of the quarter does not create a trusted advisor relationship.

- AnswerLab founder Dan Clifford (cited from 37signals interview)

“A fanatic is one who can’t change his mind and won’t change the subject.”
- Winston Churchill

I write to you all out of ambition and hopefulness. Though I also write this in a time of change and adjustment. Over a period of recent dialogues, ideas, challenges, and even joys – I am announcing today as my last day working with Elias. One might wonder why (what seems to be the sudden) change? It actually isn’t sudden. Quite the opposite, actually. Let me give you a little background on Elias and the decision.

I had the great privilege of connecting with Josh and Eric years ago when their media company produced a mini-documentary on part of my story years ago. And for me, a privilege it was indeed. Years after, I decided that I wanted to be more purposeful in whom I shared my work-life, ideas, ambitions, and desire for integrity, transparency, top-notch quality, and desire to be progressively forward-thinking. The birth of Elias began, while Eric Clark and I decided to try at least one project together. With a fantastic experience on the first project together, we decided to pursue more, specifically with Magento near it’s 0.8 beta phase.

From that point, we worked hard until Josh came about a year later. We’ve grown into a full-force virtual company that exclusively specializes in the eCommerce (specifically the Magento framework). Some time after, we had the unique (and stellar) opportunity to connect with Luke Whitson, and connected so well that we all were in favor of him joining the Elias team with his skill-set and perspective. Since then, the four partners in Elias have extended our breadth of influence on the web into the Drupal, Wordpress, and Magento communities (while even having built some of our own apps in the process).

We’ve focused heavily (and endlessly) on simplifying processes, efficient communication, improving the client experience, and nailing down the best way to manage/develop full-scale projects and integrations. I’ve worked in multiple roles (as much of the team has) such as: lead programmer, project manager, client interaction, we all took part in internal strategy, business development, and overall problem-solving.

As the years have gone by, I love the problem-solving, but have acknowledged amidst the years that the combination of coding and working virtually (with my personality) preclude me from leading social initiatives with culture, connecting people together, problem-solving in and outside of code, and remaining mindful of people – which are key for my well-being. My relational side has been somewhat neglected, and so I’m changing the pace, switching the role(s) I’ll be responsible for, and have decided to switch gears with Elias in doing so.

I intend to spend this next season pursuing a few other ideas my wife and I have, working with local partners and business in a consulting role, leadership and community development, and allowing me to become more relational (and less virtual) in these events. I have big dreams, and hope to position myself with more alignment to these aspirations by making this next move.

I can say it has been a privilege working alongside the fine group of Elias Interactive.

I am definitely still a doer, but I am definitely, also, still a dreamer of good and hopeful things. I want to incorporate giving into the next initiative I start up or join. And so I anticipate what is to come in this next season.

Should you ever have a need or simply want to connect, I’m here: doer [at] leetaylordoes [dot] com (skype: leetaylordoes)

Best to you all. It has been a great ride.
Lee Taylor

Rather than trying to invent a “make it big” idea, having good instincts, foresight and putting together a team that can execute has much greater value. If you spend time putting together a group of people that can actually deliver the goods, an idea becomes nothing more than a showcase for your talents. With the ability to execute, ideas become distilled down to their essence. This makes way for knowledge and communication.

- Aviv Hadar @ Think Brilliant

• small stuff stinks…but it’s essential
• planning is important…so is flexibility
• put reliable stuff last
• life can be messy
• this too shall pass

I think these lessons are applicable to software development.

“Design is a funny word. Some people think design means how it looks. But of course, if you dig deeper, it’s really how it works. The design of the Mac wasn’t what it looked like, although that was part of it. Primarily, it was how it worked. To design something really well, you have to get it. You have to really grok what it’s all about. It takes a passionate commitment to really thoroughly understand something, chew it up, not just quickly swallow it. Most people don’t take the time to do that.

Creativity is just connecting things. When you ask creative people how they did something, they feel a little guilty because they didn’t really do it, they just saw something. It seemed obvious to them after a while. That’s because they were able to connect experiences they’ve had and synthesize new things. And the reason they were able to do that was that they’ve had more experiences or they have thought more about their experiences than other people.

Unfortunately, that’s too rare a commodity. A lot of people in our industry haven’t had very diverse experiences. So they don’t have enough dots to connect, and they end up with very linear solutions without a broad perspective on the problem. The broader one’s understanding of the human experience, the better design we will have.”

- Steve Jobs,Wired interview (1993)

Elias is a small web services firm. Everyday we face questions about constraints. It’s tempting to find client projects that will keep the lights on and then avoid taking risks; or sometimes we get so obsessed with discovering perfectly fulfilling work to the detriment of cash-flow. What client projects should you take on? How much time should you spend on your own products? Which product ideas have the most merit? And these are just the HOW and WHAT questions to a business. WHY you do these things is even more significant.

What Ed Catmull, president of Pixar, had to say about competing constraints:

If I look at the range, you’ve got one [constraint] that is art school – I’m doing this for arts sake. Ratatouille and WALL-E clearly fall more on that side. The other is the purely commercial side where you’ve got a lot of films that are made purely for following a trend. If you go entirely for the art side then eventually you fail economically. If you go purely commercially then I think you fail from a soul point of view. We’ve got these elements pulling on both sides, the art side and the commercial side, and the the trick is not to let one side win.

Fundamentally successful companies are unstable. And where we have to operate is in that unstable place. The forces of conservatism, which are very strong, they want to go to a safe place – I want to go to the same place for money, I want to go and be wild and creative or I want to have enough time for this. Each one of those guys are pulling and if any one of them wins, we lose. I just want to stay right there in the middle.

I feel the pull that Ed describes. It’s a battle of priorities.

Ed’s perspective gives me comfort in our situation. He admits that he doesn’t always know what the right answer is. He goes as far as to say that “successful companies are unstable.” That certainly appears to have been the case at Pixar, especially in the early days.

A Pixar Story

Steve Jobs purchased Pixar from Lucasfilm in 1986 for $5 million and then put another $5 million into it. But by 1990 Pixar was running a net operating loss of $8.3 million with its hardware and software products.

It wasn’t until Pixar inked a deal with Disney in 1991 that the future maker of animated videos would uncover a new business model filled with beloved Buzz Lightyear, Nemo, Cars, and 9 hit movies. Pixar’s first film, Toy Story, debuted in November 1995 and raked in $382 million worldwide. Now Pixar is preparing for Toy Story 3 and being praised for its creative culture.

Elias has been in business for over two years now. We don’t have it all figured out. We’re learning everyday and working hard to add value to our clients’ businesses. And we will continue to invest in our team, embrace the tension of competing restraints, and build the culture of creativity & transparency which I believe will lead us to infinity and beyond.

I’ve had a string (play on word there with a reread) of dreams where I was actually (and unrestfully) thinking of a creative way to twitter about my dream. Something like…

$_dreaming->inCode($_unfortunately->getAwake());

…is what I’ve got so far under the zzz’s.

Just unfortunate I can’t control my dreams any better than this.