Tuesday 04 Oct 2005
Starting out your own creative studio is fraught with stress, but it could be the most rewarding move you every make.
Working in your own studio, on your own terms, and with no-one to tell you what to do, is the dream of most creative professionals. But branching out and starting your own studio isn’t always a bed of roses.
Going freelance is a bold move, but breaking out from the corporate machine and starting your own studio has the potential to be a complete nightmare. Many people don’t realize how difficult running your own creative business can be – they simply make the decision based on the promise of creative freedom.
“The main incentive to set up your own studio is the creative aspect,” says Matt Holben, CEO of VFX studio Double Negative. “It allows you a higher level of creative freedom while also giving the independence to run a more effective studio with a less complicated managerial structure and less red tape. Also, you can focus on the creative, rather than the financial aspect.”
Holben started up Double Negative in 1998 with his colleague Alex Hope, after a career in every department of the VFX business, beginning as a lowly runner at the Moving Picture Company.
Alec East, who set up creative agency Tomorrow London in a spare room in North London with freelancing colleagues, feels that one of the best aspects is the ability to choose the projects and clients you work with. “We can, and do, turn down projects that we don’t like the sound of, or where our creativity would be stifled,” he says.
“Many of our most successful projects would never have made it past an account manager in a typical design firm but, because we actively collaborate with our clients, we can work with them to get the best from their brief and explain our thinking along the way. Invariably the client comes away with a better product than they originally imagined, we get to keep our creative integrity intact and we are paid for it!”
The picture is rosy so far, but if it was all smiles everyone would do it. Matt Holben says running your own creative business is incredibly difficult. “Running a VFX company is very hard work,” he says. “The cyclical nature of the industry, with major films generally released in the summer, means that there can be ups and downs.
“Really busy periods can be followed by extended inactivity, waiting for the next big job. The challenge is to keep moving forward, even during the quiet times, both technologically and in terms of staff – you can’t afford to stand still.”
Paul Mallett, MD of digital marketing agency Swamp, says: “When you’re starting up a company with a small group of people the highs are very high and the lows are terrible. Individual’s moods can have a big impact on the company as a whole. It really helps if you know each other well. Trust and solid friendship can help get you through the tough times.”
Alec East has more tales of woe. “Over the past three years we have suffered unpaid invoices of considerable figures,” he reveals, and says that intellectual property rights, copyright, royalties for actors and musicians, administration, and contractual issues all conspire to distract you from actually running your business.
“Running your own business is very stressful and involves personal risk,” agrees Ané-Mari Peter, MD of development and design agency on-IDLE. “Particularly in the beginning stages of building the business – a stable salary is a pipedream. You must have some reserve capital to carry you through in the event of an industry downturn such as the dot.bomb. As young founders with a business less than four years old, and in a high-risk market sector, getting venture capital or a bank loan is close to impossible.”
However, Peter does offer some sound advice: “Take advantage of the free financial services most banks offer,” she says. “You must make sure that you have the in-house knowledge or pay for an accountant to sort out tax, PAYE, and VAT.
You don’t want to leave the ‘boring’ bookkeeping part on the back-burner – HM Customs & Revenue have as much power, if not more, than the police, to do inspections and demand payment. And don’t listen to advice if you’re not comfortable with it – a lot of companies and advisors will try to jump on your entrepreneurial bandwagon.”
Domestic bliss
Once you’ve decided to suffer the slings and arrows of inconstant fortune and start your studio, where are you going to situate it? Hardly anyone has sufficient capital to buy or even rent big studio space in the centre of town. Someone’s spare room will usually suffice to start with.
“If you’re well disciplined, home is as good as anywhere,” says Xavier Adam, who handles PR for a number of agencies. “Having a good Web site and being responsive have partly taken over from postcode snobbery.”
Working from home is fine if you can shift yourself from bed in the morning, but designing in your pyjamas will probably have to stop when there’s more than just you in the room.
“Most of us start out in a bedroom,” says Alec East. “But there comes a time when you have to grow out of that if you want to be taken seriously. Judging that time is down to you and usually it will be when you have to meet clients or need more space. A good transition is either shared studio space, ideally with a meeting room. Another option is live/work space so you can still live-in but can have an area for meetings.”
“I started out in a shed in my mum’s garden, as I was insistent that I didn’t want to work from home,” says Spencer Gallagher MD of Bluhalo. “I think that this is a very important point to stress, as new businesses should try to find a place to work from away from the home. You should be in someone else’s office or somewhere busy where you can network with other people.”
If you’re a VFX house like Double Negative, London is a key location because it has an established creative community that only attracts more talent. However, office space in city centres commands ludicrous costs in the UK and particularly in London.
You could ‘hot-desk’ or share space with another company, but another option if you’ve enough reserve capital, is to take up a medium-term lease. However Ané-Mari Peter advises on taking legal advice before signing the contract.
“Normally you will only be able to apply for lease after being able to show three years of books and you will need a reference from your bank,” she reveals. “If you’re working from home for the first couple of months, simply make appointments at the client’s address. If they insist on meeting with you at an alternative venue, rent a meeting room for a day or a couple of hours at a business centre. Remember that the rent you pay will be a fixed monthly expense, so you must be able to meet this comfortably with your existing customers before you can consider office space.”
Two’s company
Unless you just want to be a freelancer in a big room, you’ll need to hire staff. “Be very careful when recruiting through the general press,” advises Ané-Mari Peter. “You’ll need time set aside to deal with the sheer deluge of CVs you will receive. You must word the job advert very carefully to ensure that you don’t get, for example, photographers applying for an HTML coder job.
“You must interview candidates – and don’t be afraid to ‘test’ them when it comes to a specific field such as database coding. You’ll be amazed how many blatantly lie on their CVs and overestimate their experience level.”
You should research beforehand what the market rate for that position is, so that you can be sure what to offer any prospective employee. Longer-term contracts are normally cheaper than having to pay by the week or hour. Always build-in a trial period (exit clause) and sign an agreement, even for temporary contractors.
Taking care of your employees’ HR needs is important too, according to Matthew Butterworth, MD at creative marketing company Folk. “You have to make sure that people have reviews and are given incentives,” he says.
“You must keep a record on file of anyone you take on, where you store records of disciplinary procedures, conversations, holidays and sickness. In the unfortunate event of having to dismiss someone, you need to make sure all the appropriate actions have taken place otherwise you can end up in court with an employment tribunal on your hands.”
Legal advice is always good sense, so we consulted Caroline Walker, employment partner at Sprecher Grier Halberstam. “If you decide to employ someone, you need effective contracts of employment in place, which importantly will stop your new recruitment from running off with your hard-won clients,” she says.
“If you propose to take on freelancers, beware. A Tribunal may think the freelancer is an employee, even if you and he think otherwise. For example, you engage a freelancer on a casual basis and s/he submits a monthly invoice. However, the freelancer provides a personal service, yours is the only studio he works for, you control what he does and when, and you provide regular work that he’s obliged to carry out. He may well be entitled to all the normal rights enjoyed by employees.”
Show me the money
Enough of the preamble though, let’s gets down to the money. Paul Mallett has some sage advice on this score: “If you’re not financially minded, and I’m not, make sure you set-up in business with someone who is.”
“Don’t kid yourself that it’s going to be easy,” says Alec East. “The first thing you have to do is make a list of all business outgoings – utility bills, hardware and software, rent, rates, decent Internet connections and Web-hosting costs, accountant’s charges, stationery, media such as CDs and DVDs, and everything else you can think of. Add it up until you know how much you will spend over a specific period. Then divide it so you get a day rate of outgoings. That’s how much you have to earn before you can buy yourself a beer.”
Costing a job is also a problem for new studios. “If you’ve no experience, the easiest thing to do is to phone up some other local design companies, explain what you are doing and what you are about,” advises Paul Mallett.
“Most should be happy to give you an idea of current rates, at least. Other routes are the ‘phone up posing as a client’ trick – although a savvy agency would rumble you. Honesty is normally the best policy.”
Double Negative’s Matt Holben arrives at realistic costing by intricately breaking down every shot on every job and working them out according to the amount of labour and internal costs. “A well thought-out payment structure, agreed up front with your client, is very important. This allows the whole job to be mapped out for them to see before you begin, and that way if they don’t pay, you can stop working.”
If you get a lot of new business and work on many projects, you can guarantee that someone, at some time, will fail to pay you. “It will happen and usually not from the direction you were expecting,” says Alec East. “You can’t avoid this. Companies go broke, people leave their jobs, and projects get cancelled. To minimize this, it’s imperative to get purchase orders for any work you carry out and to get that work signed-off in stages linked to payment/invoicing schedules.
“It is also essential to make sure the person signing-off a job is the person who signs the purchase orders, or you could find the office temp signed-off something without the knowledge of the client.”
“If a job changes or amends are made outside of the original scope of a project, get another purchase order,” continues East. “You may think this is boring bureaucracy, but many large companies will respect this, as they understand the importance of budgets and paper trails. It removes the clouds of insecurity and questions over extra costs that can affect your ability to concentrate on doing the job well.”
“Write the terms of working into the purchase order, project specification or any other piece of documentation,” advises Ané-Mari Peter. “Make sure the ‘fight’ is not about ego, but really about who will benefit from copyright ownership and how.
“You’re getting compensated for the loss of rights – alternatively start negotiating on payments. If all else fails, you will need to sit down with legal representation on both sides in a neutral environment to sort it out. But, this costs – so be sure what monetary benefit you are sure to have.”
Paul Mallett suggests that you try to deal with established, reputable companies. “Check that they have filed their accounts at companies house regularly,” he says. “If not, negotiate deals where you get 50 per cent payment up front and 50 per cent on delivery.”
Bluhalo’s Spencer Gallagher learnt quickly that it was a bad idea to accept payment on completion. “Even though a client may just be waiting on one small bit of content, they would delay payment and I wouldn’t receive it for up to three months,” he says.
He learnt his lesson – Bluhalo now insists on 50 per cent payment up front and 50 per cent on completion. “I would also recommend not making a site live until you receive the final 50 per cent. If these payment guidelines are made clear to a client prior to starting work, they will be happy, as they are aware of what is expected.”
“It’s all about relationships and you need to build them with accounts teams – if you’re flexible with your terms then nine times out of ten people pay on time,” agrees Matthew Butterworth. “The only problem we have ever had with payment was in the beginning, where we did a load of work with friends, before getting our terms sorted. Payment was always ‘tomorrow’ and in the end they never paid. We learned early on to be tough but honest.”
Michael Burns
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