We’re asked often to expand on the pros & cons of running a transparent business. Our specific flavor of transparency includes open-sourcing our profit and loss statements, releasing the code behind our our profit share calculator, allowing our clients to quote their own projects, and sharing day to day estimates and profitability with every team member.
It’s a non-trivial amount of work, and in software, it sorta resembles open source — we love that people are curious!
Trust & Negotiation
Negotiation could be the toughest part of an opaque business.
If the negotiation strategy is to “throw a number over the wall and see what sticks”, you’re bound to make unpredictable business decisions. We’ve seen big name clients with tiny budgets (that have wasted weeks of our time), and hired senior engineers who are excited & willing to take a $30k pay cut just to work with us (and get a break from their horrible corporate gig).
Negotiation is distinctly rooted in human emotion, and it’s likely to keep you up at night, wondering what the other party is going to reply.
At Sanctuary, we sidestep negotiation with a simple, mathematic quotation format, and a deterministic pay-scale, that are both completely open and accessible to anyone. By clearly laying out simple frameworks that generally work, we avoid the time & money spent going back and forth, trying to judge how deep another parties’ pockets are, and instead very quickly vet the simple reality: can we work together, or not?
Accountability & Candor
When you’re working for an opaque business, you’re often left speculating how successful your team actually is. You might see flashy clients come through the office, and big name brands on the client roster. Seems like everything’s going good right? We can take it easy?
As a business owner, when the going is tough, there’s a natural temptation to make everyone feel it’s AOK, when secretly we’re weeks from bankruptcy. The inverse is true too — when things are going great, you’ll be tempted to understate that, so your employees aren’t beating down your door for pay raises.
Do you see the problem? Human nature dictates that it’s far more likely that your team is out of sync with the reality of the business, and as such, less likely to rally in tough times, or speak up when they’re worried.
At Sanctuary, our bank balance is available to anyone who asks, and we often talk openly about how many months of salary runway we actually have. As a result, our people care deeply about our day to day efficiency, and are far more likely to share their true thoughts & suggestions. After all, their own personal success depends on it!
Crowd sourced business advice
When I first started, I had no idea how to run a profitable business. I didn’t know if we were charging enough, I didn’t know if we were paying enough.
As soon as I started releasing various documents, and running the business in a transparent fashion, I had clients, peers and even strangers on Twitter reaching out with comments, thoughts and questions.
The result — I’ve had countless conversations with people who just wanna talk about wether to use Quickbooks or Xero (we use Quickbooks), or know what to do when a client is creeping the scope; and I continue to get a lot of ideas from those ongoing conversations and relationships.
Hiring the right humans
One of the first things I’ll say in an interview, is that “Sanctuary is not for everyone”. Wanna make a Google-level base salary and never leave the office? We’re not for you. Wanna work 3 day weeks between 4pm & midnight remotely in Bali? We’re not for you. Wanna put a hoodie on and talk to no-one for weeks at a time? That’s just not how we work.
BUT. If you want to be a part of team that interlocks neatly, brings each other up with real interpersonal empathy, shelters each other from stress rather than pushing it from desk to desk, and offers an egalitarian share in the group’s success, then you’re probably a fit! And as an added benefit, you’re probably going to get along with everyone else in the room.
That makes hiring much, much easier.
But if my employees see how much I charge for their work, won’t they ask for more money?
Lol, I mean, sure. If you’re actually ripping them off, that is.
If you’re operating a business with actual honesty and paying people fairly, it should be obvious that they’re being compensated appropriately. If you’re not, they’ll band together, and ask for more money, and that’s good too! In our case, we balance a salary cap ($110k at the time of writing) with a generous, vesting profit share.
Plus, when a team member looks over an open-source profit & loss statement, and sees exactly how much their salary + healthcare + employer taxes + rent + misc actually costs, the discrepancy between their hourly pay rate, your billing rate looks far tighter. That is to say: transparency can give a team empathy for the founder!
But if my clients see how much work actually costs, won’t they ask for a discount?
Well, no, probably not — at least not in our experience. And not if work is priced “within reason”.
If you’re striving to create the best possible work (like us!) and you price your work as such, you’ll attract clients that are willing to pay the right cost to build a best-in-class product. If you’re honest and clear about how you price that work, they’re ultimately going to need to negotiate with a set framework, rather than a human, which we’ve almost never seen in our 3+ years of doing business.
And if they do ask for a discount, we’ll just (nicely) turn down the project (unless it’s cause-based). If after all of this, they still can’t understand our value, or respect our transparency, they’re likely going to be horrible to work with!
The Real Concern
Over-safety, Distraction & Boiled Frogs
A very real concern in a transparent business is that under a similar level of clarity as the founder, a team member might feel a tendency to be overly cautious, conservative or just generally distracted by the business metrics. When a project is bleeding money (and that’s not as rare as I’d like to say it is), the team knows straight away!
We check in around week-to-week business metrics every Monday, so we often see exceeded budgets coming from a distance. However — that is occasionally “by design”. When trying to break into a new industry or medium, we’ll often put forward a quote that doesn’t encapsulate our own up-skilling (that would be unethical for the client) and thus, we might take a loss.
We’ll consider that lost profit RnD, innovation, or education cost. If it sets us up for years in a new industry, it’s worth a month or two of lost profit — but often a team member focused on project-level profitability doesn’t have that context, and can’t see the lost profit as an investment.
If left unattended, that inherent worry could mean they pull less punches in the project they’re on, use older technologies they already know, and generally avoid the bleeding edge.
If conservatism spreads, it could boil our frog, slowly making us obsolete.
The boiling frog is a fable describing a frog being slowly boiled alive. The premise is that if a frog is put suddenly…
Therefore, it’s important we communicate clearly and often around project expectations. A cut and dry website project should be profitable every time. A foray into another industry or service offering might not be profitable for months (but could mean big profits & stability in the future).
Wanna talk more?
Please reach out at email@example.com — we’re friendly and open and would love to chat in greater detail on some of the specifics here.
Ultimately, we believe that large, full service agencies are becoming less appealing to clients out there, and instead, we’re hoping to encourage a world where nimble, specialist companies work together to carefully create intimate & unique work for clients, at fair & realistic prices.
So get in touch! We’re always down for a margarita @ forgtmenot!