Episode 109 | 6 Facts About Your Brain Chemistry That Can Help You Achieve Peak Productivity

Startups For the Rest of Us

Episode 109 | 6 Facts About Your Brain Chemistry That Can Help You Achieve Peak Productivity

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Show Notes

• (Book) Your Brain at Work

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[00:00] Rob: In this episode of Startups for the Rest of Us, Mike and I are going to be running through six facts about your brain chemistry that can help you achieve peak productivity. This is Startups for the Rest of Us: Episode 109.

[00:12] Music

[00:21] Rob: Welcome to Startups for the Rest of Us, the podcast that helps developers, designers and entrepreneurs be awesome at launching software products, whether you’ve built your first product or you’re just thinking about it. I’m Rob.

[00:30] Mike: And I’m Mike.

[00:31] Rob: We’re here to share our experiences to help you avoid the same mistakes we’ve made. What is the word this week, sir?

[00:36] Mike: The word of this week is Brooklyn because I’m back there again.

[00:39] Rob: Is that where you are?

[00:39] Mike: Yup.

[00:40] Rob: And you’re meeting with a few entrepreneurs while you’re out there?

[00:42] Mike: Yeah. So, I’m meeting James from The Whicher and Corey from the Birdy for dinner on Thursday night. I don’t know if anyone else is going to show up but, you know, we’ll see how that goes. I think we put out some fillers to some people who might be interested and you know, hopefully, we’ll get a small gathering for Thursday night. We’re still kind of deciding on where to meet up. But it should be fun.

[00:59] Rob: So, did James and Corey live there in Brooklyn or in the area?

[01:02] Mike: They live in the general vicinity.

[01:05] Rob: Well, good. So, I have an announcement to make this week. My new product that I’m starting to work on right now is called Drip and you can check out the landing page at getdrip.com. The goal of Drip is to make your website visitors sign up for a trial or to buy, if you don’t have a trial, using e-mail follow up. And it lives in it…the first segment of e-mail follow up, you know, there’s like e-mail follow up during trial, e-mail follow up post purchase but then there’s that pre-trial thing. It’s getting people who just come to visit to get a little more engaged with your product and it’s something…it’s been highly effective for all of my products. And so we built the little engine to…nice little engine to do it on HitTail and we’ve realized there’s a lot of limitations to it. We built and it’s already taking a lot of time.

[01:44] And so, we’re going to start with that and expand it out in to a full-blown SaaS product and the test I’ve done with all my different products I get anywhere between a 5 and a 20% increase in conversion rate. So, that’s from visitors to trial and increases it by that that much. So, it’s something that if you’re only making… I mean for apps making a thousand bucks a month, it’s probably not worth doing because a 5, 10% conversion rate, just it doesn’t move the needle enough. There’s more important things to worry about. But as soon as you get up to, you know, you’re making 5 grand or more per month, this is one of those things where the ROI becomes very, very attractive quickly.

[02:18] Mike: Very cool. So, we have a lot of podcast love this week and I wanted to share a couple of…first one is from Matt. And he says, “Hi, Mike and Rob. I’d just wanted to give you a big thanks for all the podcasts. I’ve just launched my own SaaS app called Icon Practice which I doubt I could have done without your help. I’ve listened to all your episodes and got something from each one. Thanks again, Matt.” We’ll link to that in the show notes. And the second one is from Ryan who says, “Mike, Rob, you guys are awesome. Your show is compelling listening. It’s a gold mine for us all around the world striving to make it online,” and I did not in any way, shape or form modify…modify this. This is word for word from what he says. He says, “Every show delivers. Startups for the Rest of Us is perfectly balanced with delicious tips, wicked insight and practical actionable advice and inspiration for every aspiring digital entrepreneur and I had to write a personal thank you for helping me and thousands like me on the journey. It is truly appreciated. Best. Ryan.”

[03:07] Rob: We should change our podcast synopsis to be that very phrase. That is so well-crafted.

[03:12] Mike: You think so?

[03:13] Rob: Ryan, you are a wordsmith, sir. I tip my hat to  you.

[03:16] Mike: And our third one is from Chris who says, “I’ve been podcasting since 2005 and I subscribed to about 70 podcasts. But you had a number in your list that I think I’ll enjoy. Thanks for the list. I’ve now written down my list in a couple of years before I discovered your show which is definitely become one of my favorites.” So, we’ll link to his list in the show notes. But just wanted to say thanks to Matt, Ryan and Chris who sending all that podcast love and want to say we really appreciate it.

[03:38] Rob: Very nice. Now, we also have a listener question we’re going to get in to before we get in to the facts about brain chemistry. Do you want to read that?

[03:44] Mike: Yeah. So, this one is from JT and he says, “Hi, Mike and Rob. I’ve been listening to your podcast for about a year now and I love it. It’s been very helpful. Keep up the good work. I recently developed via oDesk a personal finance iPhone app called MoneyWYN which is Money Within Your Needs. I’ve had a couple of people tell me that I should create an Android version or they don’t have smart phones at all. So, I began looking at turning it in to a SaaS app so that more users can access it. That actually was part of my end goal anyway. I put up an MVP site at withinyourneeds.com to gauge interest. I have a couple of issues going about this. First, I know what I want the app to do but I’m not very creative so I don’t think I can design the app myself and make it look good. I have the same issue with the iPhone version. The app does its basic level what I want it to do but I think it can look a lot better. So, do I hire a web designer and then pass the design to a developer to code everything or do I create my own mockups so probably I want everything to look and pass that to a developer? Second, what is an appropriate level of interest for my MVP site? I’ve started to get ad clicks in the day since I put the site up and not sure what point I can gain there’s an appropriate level of interest. Any thoughts would be appreciated. Thanks.”

[04:43] Rob: Wow, this is a tough one. This kind of app is personal finance app is…it’s a super competitive market. There are so many of these apps out there and typically to take any kind of control of the market, you’re going to need to go free and because you’re aimed the consumers and then try to have some kind of paid upgrade or make money like Mint does where you get to scale and you have…you obviously have to raise funding to get there and then they make like recommendations of credit cards and they basically make affiliate money. So, I guess that’d be my first inclination. Now, I understand MoneyWYN, the iPhone app could feasibly make it work because the iPhone app still provides ongoing sources of traffic that are really inexpensive and so even  at 99 or 4.99 price point, you can do it. But I don’t know. My initial inclination just with the idea is like wow, why would I use this over the literally 20, 30 others of this that I’ve seen launched within the last two years that are SaaS apps.

[05:39] Mike: Interestingly enough, one of the guys I’m meeting with on Thursday his name is Corey and he runs the Birdy and the Birdy is also a personal finance application which is a SaaS app. It’s on the web and what he did for his differentiating factor was that he makes it accessible vi e-mail and the application e-mails you during the week and I’m not familiar with all the details of exactly how the app works but it…it is heavily, heavily reliant upon e-mail communication with the user because that interaction with people who use e-mail is so high that if it’s a SaaS application that’s just sitting out there, you might not necessarily think about it and his application I believe it e-mails you and ask you what you spent money on that day. So, people use it as kind of a to-do list and then he parts it with the e-mails and does a lot of things with them. And he, you know, is doing recently well with it. I think its pricing is around 495 a month for but with an iPhone version, obviously, you’re only going to get the people who have iPhones, first of all. Second of all, the recurring revenue is just not there and as you pointed it out having lots and lots of competition is this…in the space is one of those overwhelming things that you have to come out with some sort of marketing strategy that is going to overcome all of that.

[06:48] One of the questions I would have is just how do you overcome that marketing challenge and I don’t think that it’s about getting people to use your app and say, “Yes, this is a good app that I would use.” It’s more or less how do you identify the people who you want to come use your app and then get them to your website such that they will actually use it. I see that as more of a marketing challenge versus what I think that you’re concentrating on in your first question is “How do I make the application look better?” And I don’t think that’s your problem at all. I think that you’re focusing in the wrong place. I think you need to focus on how do I get traffic to my site such that people would use it and I think that’s a much bigger problem than making it look good.

[07:25] Rob: Yeah, I would agree. Let’s just say that you are able to answer that. You want to move on to the, you know, the question of “How do you build it?” Your question was, “Do I hire a web designer and then pass the design to a developer to code or do I create my own mockups and let it pass to a developer?” Well, if you’re not a designer, you’re going to need someone to design the app to create the look and feel because otherwise you’re going to wind up with a very poor UI because developers has a rule do not have design skills. Some of them obviously do but most do not and I’m one included [Laughter] that I have no design skill. So, when I used to code things even when I was building my own apps, I would have a designer create mockups, create HTML, send it to me and then I would code it up. So, that’d be my answer to your question of being creative and making things look attractive is that you would find the designer who’s reasonable and depending on your budget and then you would describe either the pages that you want or even the high-level functions and then pay that designer to create basically an individual mockups of each of those pages, make sure that that everything is in there and then have them create photoshopped files and either have him then create the HTML or have that go to a service and you know, find someone on oDesk basically to create the HTML then hand that to a developer and have them build it out.

[08:37] You could also, you know, the developer may be able to do HTML. I mean it all depends on overlapping skill sets but in general, that’s the process that I follow is I try to find people who are experts at design, experts at cutting to HTML and experts at development and then going through those three steps. In terms of your second question, it says, “What is an appropriate level of interest for my MVP site.” And what…what he has is a landing page and it just has a couple of bullet points and then kind of the thing to sign up for mailing list. I mean I think at this point, I think the page needs some work because it does look…it looks rudimentary. I don’t think you’re going to get much interest here. I think you want to design or to mock something up but it’s a tough question to answer because it depends on your revenue model.

[09:17] If you have a SaaS application that’s going to charge $50 month, then you need a heck of a lot fewer e-mails, then you do if you’re going to have something that’s a freemium model and I know we can have 1% of people convert to a very low paying, you know, or low revenue plan. It’s huge. I mean it literally can be a hundred X difference between those two. If you’re sending using ads and sending people to the site and you’re not getting at least 15 to 20% of people to opt in, then I think you’re going to have a problem long term because I think you’re just going to have to pay way too much for people to sign up for your up unless you have a really good revenue model. You’re not going to make enough money to pay back the acquisition cost.

[09:54] Mike: So, JT, hopefully, that helps answer your questions and give you some idea which direction to go.

[09:59] Music

[10:02] Rob: This week, we’re diving in to six facts about your brain chemistry that can help you achieve peak productivity. And I created this outline based on a book I recently read. It’s called Your Brain at Work and it’s written by a psychologist named David Rock and he studied brain chemistry, brain functioning. And he’s just gathered a community of psychologists and neuroscientists and all types of people who study the brain and he’s had a few conferences and then he’s kind of put all his knowledge in to day to day application. And so the book Your Brain at Work is really interesting because it’s not written…he has a lot of really deep research content in it but it’s written using day to day scenarios. It’s written about this husband and wife who are both professionals and the husband is like a software consultant and then the wife I think organizes conferences. And so it’ll give us scenario where like the wife is in a meeting and this happens and everything goes bad because of it, you know. And then it’ll go in to what the brain chemistry and how that works and why things went bad and then here are the things you can do to help your brain chemistry adjust and how you can perform better in that meeting and then it will redo the same story with her making different decisions.

[11:11] So, when I first heard the premise of it, I thought it was pretty cheesy and I figured I’d be skipping around a lot. But the author actually does a good job of mixing what…what otherwise be very dry material, very academic material and enters this person with interesting stories. And then you start liking the characters in the story. You know, it just takes you away. So, there is a ton of information in this book and I just picked out six tidbits that I thought were most applicable to our audience. So, the first fact about your brain that can help you achieve peak productivity is that everytime your brain works on an idea consciously, it uses a measurable and limited resource. So, in other words, doing really hard thinking, doing really hard tasks like writing or outlining a podcast, something that’s intense thinking, it actually depletes your mental energy for that day and you’re going very fine at that amount. And it actually burns more sugar from your blood stream when you do that.

[12:05] So, long haul truckers, they can drive 16, 20 hours a day. I mean they eventually get tired but it doesn’t actually attacks them mentally because it’s a row…like muscle memory task. You don’t have to think actively to do it but no professional writer…if you ever hear Stephen King, Steven Pressfield, someone who does professional writing for a living, they typically write 3 to 4 hours tops at a stretch and outside of that and basically waste that resource on things that aren’t important.

[12:31] Mike: I’ve seen a couple of studies on this as well that indicate the same types of thing and it’s funny because I’ve noticed the same thing myself when I’m working if I…if I have an extended amount of time off, the pressure is kind of there for me to sit down and work for 8 or 10 or 12 hours straight because I have that time available to me but if I’m sitting there working on stuff that tends to be very difficult to do like certain programming task, then I can’t just sit there and do it because what ends up happening is I’ll get 3 or 4 hours of solid work time in and it will be really good and then after that my brain just sort of shuts down and I just don’t seem to get nearly as much done.

[13:07] Rob: Yeah and that’s why thinking about your conscious thinking as like a precious resource to conserve can be helpful for trying to identify that time of day when you have that optimum functioning because if you pair your optimum functioning time of day with short burst. So, say you just block out your calendar for 2 hours and you say, “Turn the phone off. Turn the e-mail off and I’m going to write copy or I’m going to write this intense piece of code just for these 2 hours, you can get enormous amounts done, literally 2 to 3 times what you would get done if you had an interruptions and you are working, you know, at a non-peak time like if the afternoon time is not your peak time.

[13:43] So, I think there’s a lot to be said here. What’s interesting about each of these points as we go through is some of them I think you’ll probably already know intuitively but you may not have actually said this out loud before and not realized it. I’ve already started doing this one here without knowing it and in the mornings, I drink some coffee. I work very intently and then the early afternoons, I just find they’re not peak times for me and then late…like in the evening after the kids go to bed, another peak time. And I find that I get a lot work…of work done then and I focus really intently on those times and I think you can actually…that’s why you can work, you know, a 20 or 30-hour a week and actually get more done than if you were sitting in an office somewhere in a cubicle getting interrupted all the time just with the…noise around the office and it’s just a lot different working arrangement allows your brain to function as its optimum level.

[14:31] Mike: Part of those 40-hour work weeks that a lot of people end up working is more because, you know, the companies kind of force you to put the time in versus put the work again because they’re paying you for your time and it’s really when it comes down to but at the same time they’re not necessarily paying you for productivity.

[14:45] Rob: Our second fact about your brain chemistry is the less you hold in your mind at once, the better. So, this comes back to the brain being a measurable and a limited resource but in this sense, it’s decluttering your mind. And so this is actually, you know, if you read Getting Things Done, the GTD method, he talks a lot about removing that…that mental stress of holding a lot of things in your mind at once. And I think that the answer to this or if you’re not already writing things down and having to-do list and anytime you think of something you need to do, e-mailing it to yourself or somehow capturing that in a way that is not sitting in your mind basically, you know, slowly stressing your mind out and making your mind tired, then you need to start doing that because this absolutely is one that will impact your peak productivity overtime and people who try to remember things and carry more in their mind, you just…you never give your mind a rest even when you’re not thinking about those hard things. And so when you need to think about hard things, your mind is tired from carrying this weight around.

[15:50] Mike: Yeah, I do this a lot myself. I mean just writing things down all the time and what…regardless of whether it’s stuff that I’m writing down to create a list of things to do, just the very act of writing those things down so that I don’t have to try and remember them, I found that that’s to be very helpful. And it’s funny because this reminds me of Joel Spolsky’s comments on his Painless Bug Tracking post from years and years ago where he basically said that he was…”At any given time I can only remember two bugs. If you ask me to remember three, one of them will fall in the floor and get swept under the bed with the dust bunnies, who will eat it.”

[16:23] Rob: Yeah, I remember that post as well. You know, I’ve taken a lot of away from both his writings and just other writings on getting organized and what you’ll realize is it starts…they all kind of start to say the same thing under the covers and that’s because there is some science to it and we do all kind of, you know, as humans work in similar fashions the deeper you dig. So, the third one is performing multiple conscious tasks at once results in a big drop off in accuracy or performance. So, this is the multitasking myth. Now, the interesting thing is that they’ve done research and they’ve actually found that 5% of people can actually multitask and they actually do get more than faster but that 95% of people do not. And so the odds are that you are not one of those people that can multitask and I know for a fact that I am not and most programmers who I know who are very good at programming are not good multi-taskers because if they tend to be really focused and that is a gift onto itself, right, to be able to focus and to be able to hold large numbers of things in your mind having that in multitasking does not…they don’t tend to go together.

[17:28] Mike: Now, is there anything in there that kind of indicated how to identify yourself as somebody who could multitask effectively or no?

[17:36] Rob: No, it didn’t and in fact that 5% number came, it didn’t come from this book, it came from a book I’ve read last month that talked about this topic as well and either of them said how you would identify by yourself. I do know a couple of people. Actually, women are more likely to be in that, in that 5%. I do know a few people who are actually just from experience from working with them.

[17:56] Mike: Cool.

[17:57] Rob: Number four is that switching between tasks uses energy and if you do it a lot, you will make more mistakes and you won’t get things done as quickly. There’d been studies done in offices where they say if you’re working in a cubicle or office that you on average you work on a single task for eleven minutes before an interruption and that is catastrophic especially if you’re trying to do long…you know, creative tasks like programming or copywriting or designing or anything. The interruptions like I said before if you can block out two hours of time and what I was…I came up with this thought today. I call it striping and I’ve started doing this to my calendar where I’m doing thought intensive work, I’m going to put a one or two-hour block in my calendar and color it with a certain way and then the next one or two-hour block is going to be, you know, the opposite kind of the low mental energy mode of thinking. And so I can let my mind rest for that and so it will kind of look like a stripe pattern because it’ll be every other.

[18:54] But I think that’s not only something I’m going to start doing but something that that I think we need to be more more deliberate about doing and about during those schedule of  blocks of the intense time, that’s when you shut everything down. You shut your e-mail down. You shut your phone down the whole deal and I think we’re learning to be aware of your levels of alertness and your…kind of your interest throughout the day really leads you to find the time of the day where you’re going to get your best work done. And if your mind begins to wonder, then you need to ask yourself, “Well, am I just too tired, mentally tired to do this right now or do I need to, you know, to kind of refocus?”

[19:26] Mike: So, are you saying that in a run about way Microsoft has killed millions and millions of hours of productivity because of that little ding that Outlook plays —

[19:33] Rob: Oh.

[19:34] Mike: …[Laughter] when an e-mail comes in?

[19:36] Rob: Yeah. I mean I don’t know. I do not get a ding or notification when e-mail show up on any device of mine.

[19:42] Mike: Yeah —

[19:42] Rob: And —

[19:42] Mike: And I don’t either with one exception and I don’t know how to turn it off but I just…I have an exchange account whenever I have the web interface open and I get an e-mail, it dings. So, typically I have the sound turned off on my computer when I’m working. So…

[19:57] Rob: Indeed. You know, I have the G-mail tab open quite bit in Chrome and I turned that off several times a day now for stretches of, you know, between 30 minutes and an hour just because I find myself naturally wanting to go back to it because when I get in to kind of a hard thinking time and let’s say, I am writing some copy or writing some really intense code, your mind wants to shy away from that because it is so exhausting. And so that’s what procrastination is, is it your mind trying to sneakily give itself a rest. I’m not making this up. It was like —

[20:27] Mike: You’re making it sound like, you know, our brains are slackers or they want to be slackers.

[20:30] Rob: No, it says like your brain tends towards the lowest risk and the highest rewards and the least output of energy like it just naturally goes to those areas and so what that means is that it really does when you’re taxing it and you’re thinking intently, any chance you give it, it will wander away and it will say, “Oh, Hacker News, oh, this is so much…so much more appealing and so much fun.” It’s like a brain’s trip to Disneyland instead of, you know, sitting there trying to write two pages of intense copy or deal with some…some complex coding. So, fact five that can help you achieve peak productivity is that peak mental performance requires just the right level of stress, not minimal stress. And this comes back to there’s something called the Yerkes–Dodson law and those were two psychologists that studied peak performance, the ability to focus and think. They uncover that when you have minimal, minimal stress that you actually don’t perform as well because there are certain things in your blood that are required in order for your mind to really hyper focus and you actually need to have a little bit of stress about it.

[21:33] And that’s why a lot of people work better with some deadlines and a lot of people work better if they are concerned about something like if you’re going to do a talk tomorrow, then that can intend to motivate you to do really good work and to be pretty focus, right, and to actually crank out some pretty good stuff. I have to be honest with my experience, caffeine helps this and this was not in the book. Now, the flip side to this is if you get too stressed, you hit a level where your performance starts degrading because you get too much stress and your brain starts to shut down. So, there is a careful balance there.

[22:02] Mike: I think the caffeine and alcohol kind of go hand in hand as well. I mean both of them acts to help you kind of cut down on outside stimuli and focus on whatever it is that you’re actually looking at. So, I can definitely see how caffeine would do that. I don’t know the scientific explanations behind it but you know, in the morning when I have coffee and I’m sitting there working, it definitely helps me focus on whatever it is that I’m doing. If I’m sitting there doing a programming task, you know, late in the afternoon or whatever because I would not admit to drinking before noon but if for any reason sitting there working on stuff, it seems like my focus tends to be much higher. I don’t know if that relates back to the…to the productivity but it definitely seems that way.

[22:41] Rob: And our six and final fact about your brain chemistry that can help you achieve peak productivity is that focused attention changes the brain. This is something that the author harped on a lot in the book and I really took it home. He basically said that the brain, the internal structure is constantly changing and adapting. That’s why habits are relatively easy to form. They may not be as easy to break but you can get in to patterns and thinking patterns relatively easy because if you focus a lot of attention on something, your brain changes fairly quickly. It’s surprising how quickly it can adapt. So, what that means is that if you spend a lot of time being distracted, checking e-mail and moving to Hacker News and always listening kind of to your brain and letting it be lazy and pull you away from your important task, your brain will actually not totally lose the ability but it will severe away. It will slowly…it will make it easier for you to continue in that pattern.

[23:35] Whereas if you make very deliberate choices and you start whether it’s doing the striping technique I mentioned or just forcing yourself to be really focus, turning off distractions, your brain changes. It will actually change the chemistry of it so that you will be more likely to get in to focus, to get in to flow quicker just to perform at a higher level. So, this is actually both good news and bad news, right? It’s easier to fall in to that patterns but it’s easy to get out of them if you’ve very deliberate, if you know yourself, you learn to monitor your levels of alertness and interest throughout the day. If you’re just deliberate about performing and keeping the six things we mentioned to you in mind.

[24:09] Mike: In a way that seems kind of bizarre to be able to do that because you’re trying to trick your brain in to doing certain things in a specific pattern but it’s your brain that’s tricking your brain that just seems very inception-ish.

[24:21] Rob: It’s a dream within a dream for sure. So to recap, our six facts about your brain chemistry that can help you achieve peak productivity are number one, everytime the brain works on an idea consciously it uses a measurable and limited resource. Number two is the less you’re holding your mind at once, the better. Number three, performing multiple conscious tasks at once results in a big drop off in accuracy or performance. Number four is switching between tasks uses energy. If you do it a lot, you make more mistakes. Number five is the peak mental performance requires just the right level of stress, not minimal stress and number six is that focused attention changes your brain.

[24:58] Music

[25:01] Rob: We have some extra time here, Mike. Do you want to answer a couple listener questions?

[25:04] Mike: Sure. So, the first one we have is from Søren Jacobsen and he says, “Hi, guys, loving your podcast. I have a question for you. In an episode recently, you talked about level one apps and that was a good way to start. Can you give us some real examples of what level one apps can be? I don’t want to go in to iPhone apps. I was thinking more like web apps with recurring revenue that would not cost a fortune to outsource. I cannot code it but I’m a good marketer. I have some level zero websites with AdSense and affiliates that bring in around $2,000 a month but I want to step away from that “sleazy market” overtime and focus more on my own applications. Thanks. Søren.

.

[25:37] Rob: So, to start with I…I don’t actually think that all level zero apps are sleazy but you can certainly be in level zero which is kind of like AdSense and affiliate stuff without…without catering to just the…the dating and weight loss niches. But your question was about level one and that this one reference us back to episode 102 which was four levels of income generating web apps. And level one web app is a low competition niche app. So, typically this is something that has autopilot marketing. So, you either have a nice stream of traffic, very low cost. Typically from either Google, can be from YouTube, it can be from Amazon, WordPress, iPhone apps store. You have to find a source of traffic that’s fairly consistent and that it’s not paid acquisition strategy. So, you just get in the path of that traffic and as long as it converts, it can generate some income.

[26:28] And the examples that I…I threw out a few in that episode but a good example is like a WordPress plugin, iPhone apps. which you said I guess you don’t want to get in to anything that ranks four in niche term, something like apprentice lineman jobs which is one of my apps is like that already, has good SEO rankings and so. It has good rankings in Google and so that’s…that’s where it gets a good chunk of its traffic. Even like a wedding website builder like WeddingToolbox that could also be in these low competition level one niche areas. So, I hope that helps.

[26:59] Mike: The next question we have is from Tom and he says, “Hi, Rob and Mike. I got a question for both of you. I’ve been doing development for 10 years and I’m ready to go out of my own. I want to create software products and going to consulting preferably PHP custom business application to help bootstrap my business. Shall I create two separate business entities for both businesses? I know Mike has two different companies for both but I know companies like 37signals do both consulting and create products or does not really even matter. Again, thanks for your time. Tom.”

[27:24] Rob: So to start, 37signals doesn’t do consulting. They used to and they turned it to a product business. So, as far as I know they haven’t done consulting for five or seven years. It’s been quite a while. There are some companies that still do both but most that I know as soon as they’re able, they…they leave consulting behind. I think there’s really two questions there, Mike. There’s a question that he asked which is whether he should have two different companies for this but the bigger question I have is are you leaving salaried employment to start a consulting firm and to try to lunch products? Because that…that’s a lot to take on all at once. And if you have a decent salary job or you’re not working a bazillion hours a week and you’re reasonably happy, I would say stay at your salary job for now. Don’t take on all the headaches of getting in to consulting and trying to build that business because that’s going to take all your time and you’re not going to have time to build products. So, if ultimately where you want to go with these products and you do have that job thing kind of dialed in, I would stick there and launch the product. Now, if you don’t have a salary job, you already…you know, delved in to consulting full time and then that’s the way it is and then, you know, I think we can answer the business entities question from there.

[28:28] Mike: Yeah, I totally agree with Rob. If you have that salaried employment and things are going reasonably well, definitely, stick around until you can get your own products launch and launch them on a side and I think that you’ll find that you’re probably a lot happier and will probably work a lot better for you in the long run just because you’ll have that stability behind you versus when you dive in to consulting, you generally have to pick up all the pieces, all the paperwork of, you know, things like payroll and insurance and all the other things that go with it and it can be a real nightmare to deal with. So, if you don’t have to deal with all that stuff, I wouldn’t do it. That said, if you’re in that other situation, then you have to deal with the question of, “You know, do I open up a second entity for a business or not?” And I think for that, the primary reason that I had two companies was because the businesses were radically different enough that I didn’t want them inter tangled. I didn’t want people to come in to the website and try to figure out, well, are they a product business? Are they a consulting business? And part of it was also just the fact that —

[29:32] Rob: You had a high liability, right?

[29:33] Mike: Yeah.

[29:33] Rob: High exposure?

[29:34] Mike: And part of it had to with insurance. So, I had a lot of legal liabilities associated with the consulting. I mean if you’re doing custom programming and development, chances are pretty good that you are not going to incur a lot of liability and there’s just not a lot of risks for things going wrong. What I was doing was I rejected going on site with clients and I was working on their production system, so, like production databases, production servers. Typically, I was directly on their network and was touching, you know, thousands and thousands of computers and environments. I mean there were…there were some companies I went in to where I would literally install software in some way, shape or form on more than 50,000 computers and when you get in to a situation like that, you really want to be able to limit the liability and part of having that second company was so that I could put a dividing line between the two companies and I can work on my products, have them under the software business. I could do the consulting under the consulting business and if the consulting business ever got sued in to oblivion, then I didn’t necessarily have to worry about it taking down my software business as well and I could, you know, have that very clear dividing line between them. For me it was more peace of mind than anything else.

[30:43] Rob: Whereas I did consulting under a single company. First, I was a sole proprietor. So, it wasn’t even really a much of a formal company and then I’ve eventually moved it to an LLC. And when I launched products, I didn’t really want to go to the headache of managing two entities. There is both cost with it as well as in the paperwork. There was more paperwork because I had despised all the tax filings and all that stuff. And so, I just kept it under the umbrella of that LLC and then I stopped doing consulting and all of my products are, you know, are essentially under that now. So, there was never…there’s never been a reason for me to change that. I mean I guess I did that several years where they overlapped, you know, the consulting and the products but it does depend on risk tolerance. If you really want to be all buttoned up and yeah, you have a different…realistically, you have a different company for every one of your products that earns more than thousand or 2,000 a month or something but that would…there should be a lot of paperwork and headache in that. So, I think you just have to way that out. A lot of people I know do the…the single company and put everything underneath it and you know, that can work for as well as long as you don’t have…a lot of liability involved.

[31:46] Mike: So Tom, hopefully, that answers your question and thanks for writing in. If you have a question or comment, you can call it in to our voicemail number at 1-888-801-9690 or e-mail it to us at questions@startupsfortherestofus.com. Our theme music is an excerpt from ‘“We’re Outta Control” by MoOt, used under Creative Commons. You can subscribe to this podcast in iTunes by searching for startups or via RSS at startupsfortherestofus.com where you’ll also find a full transcript of each episode. Thanks for listening. We’ll see you next time.