Welcome to Living Breathing
The following is a welcome letter to new members of an organization that I am currently focused on (re-)building. I have chosen to make it public because I want to share these beliefs and lessons learned with the Future of Work community at large.
Hi there!
Welcome to an organization that is most likely unlike any other that you’ve ever worked for. That’s because you’re not working for Living Breathing; you’re working for yourself, with other members of LB, whenever, wherever and on whatever you and they so choose. And while that may sound like idealistic rhetoric, we actually have an organizational structure and operating model that are directly tied to these ideals and bring them into reality. But I’ll come back to that in a second — let me start at the beginning.
A Brief History
I snagged the domain name way back in 2005, from an idea I got when I kept hearing people use the phrase “living, breathing document” in a corporate setting, to mean something that should evolve over time and have multiple people contributing. Keep in mind, this was before Google Docs and Tumblr, so in 2005 parlance the idea was a build-your-own-wiki platform. I started coding a few months later and shared an alpha version with a handful of friends and family sometime around early 2007. I had built it in C#, ASP.NET and Flash. Yup, fun times!
Another year after that, I had a working beta desktop web app (mobile didn’t really exist as a viable platform yet either), but I still didn’t feel quite ready to commit to starting a company, largely because I didn’t want to be both a first-time entrepreneur and a solo founder at the same time.
Just a few months later though, I found that I suddenly did have several prospective partners, but for an entirely different venture. There were four of us, and while we each liked the line of work we were doing, we really wanted to work for ourselves; we wanted to freelance. But again, none of us wanted to be alone — and this was in early 2008, still a few months before the financial crisis, so freelancing looked to be a far lonelier and less traveled path than it is in 2016.
“Well look,” I suggested to the group, “I’ve got a domain name and matching LLC that already sounds like a collective of freelancers, so why not just make it so?” Taking a cue from a favorite movie quote — “hang on tightly, let go lightly” — I made the decision to scrap (or at least never publicly launch or market) something on the order of 50,000 lines of code. I updated our LLC Operating Agreement to add three more owners, we completely replaced the website with no notice and no references to what it had once been, and Living Breathing was reborn.
Three Discoveries
Functionally, to the outside world LB was — and still is today — really no different from any of the other thousands of small digital shops that have sprung up in the last 15 years. And that’s OK, because there’s infinite interesting work out there in our space. The services we offered were an aggregation of what each of us knew how to do at the time: marketing strategy, design, and web development. We didn’t need to be different; we just needed to be competent, which we were, so we started pitching and doing work for clients, and grew from there.
But internally, we had three very important and related insights into the nature of the work we were doing and how we wanted to organize, and our tenacious adherence to these beliefs is rather different.
The first is about how the economics work in a professional services organization. A typical agency or consultancy — from the thousands of tiny four-person shops like us in the beginning to the big five in any category — is a very simple numbers game:
Billings – Salaries – Overhead = Profit.
Duh.
In this space, overhead is generally fairly minimal, as there are no real fixed or startup costs to speak of, and all the work we were doing could be done on computers that we already owned, using basic residential broadband and increasingly cheap or free software. In the beginning we didn’t even need office space!
But most of us were coming from larger agencies, and despite seeing still reasonably slim overhead (albeit sometimes lavish office spaces) at the organizations we’d been a part of, there was still a huge spread — a multiple — between billings and salaries. In other words, we were getting billed out to clients at way more than we were bringing home.
As a quick example, one of us was earning about $120K total — figure about $140K cost to the employer when including taxes and benefits — but was getting billed out at $300/hr. If we assume 1,500 billable hours in a year (which is actually fairly conservative — some places expect a lot more), that’s $450K in billings.
That’s over 320% markup, in a service industry that isn’t supposed to require much overhead. Where was all that extra money going? Profits of course! It gets paid out to the equity partners and investors in the company. That’s basic capitalism — love it or hate it, fair or not, none of this should be surprising. And it wasn’t.
What was surprising, though, was learning that typically accepted freelance rates were pegged much closer to the salary cost than to the billings. That same person, after leaving a larger agency, found he was able to start out as a freelancer billing about $75/hr. This made sense; on a 2,000 hr/year calculation (typical freelance-to-full-time conversion), that comes to $150K, which was pretty close to what he had cost as a full-time employee.
But he was the same exact person, doing the exact same work as he had been doing just a few months prior, for which clients were apparently willing to pay more than three times as much! So, we thought, why not increase the rate, and we’ll emphasize the value and growing reputation and capabilities of Living Breathing, the organization, over that of the individual. This worked perfectly. Clients didn’t care how we structured things internally; they just cared about 1) the quality of the work, 2) the speed of the work, and 3) how much it cost (and not always in that order). When they saw we were on par with competitors on the first two counts at significantly lower net cost, they were happy — as they should be! And this led to our first, soberingly awesome realization:
By working together, we can each make DOUBLE the money we had been making, and STILL undercut the competition by HALF. Holy shit.
Now, to be clear, we were not the only ones to have figured this out. In fact, I’d hope that most of the founders at all the other tiny agencies out there have figured this out. Many do so organically, as freelancers end up running in similar circles, working on the same projects together, and then sometimes coalesce into an organization once they discover the financial benefits of doing so.
When an opportunity arose for one of us to take on a small solo project, even if it meant doing so as an individual without attaching Living Breathing’s name to the invoice, that was completely fine. But if that thing grew and there was then an opportunity to loop in another one or two partners and “make it an LB project,” we’d jump on it. We demonstrated that it was entirely possible to work together without needing to exert any control over one another. Not only was it possible; it was deeply fulfilling. This felt like how more of the world should work, and it was our second important discovery:
Autonomous does not mean alone.
This, too, is a realization that surely many other small organizations have, though most fly through this phase as they start hiring their first employees. This is where we departed.
Things were getting fun; we were doing work we liked, with people we liked — exactly what we’d set out to do. A big part of what kept it fun was our explicit choice from the outset not to attempt to control one another, and accordingly, to adopt an operating model that would structurally guarantee this autonomy.
We had decided that from Living Breathing’s perspective, profit should be $0. There was no reason for organizational profit; we would pay everything back out to ourselves for the work each of us was doing, a pure meritocracy. Our eighth grade algebra came into good use here: if profit would be $0, that meant:
Salaries = Billings – Overhead.
We ball-parked overhead, conservatively, at 10% of billings in order to have a safe cushion in case we ran into unforeseen costs (e.g., General Commercial Liability Insurance), and called it a day. With overhead pegged at 10%, we would each personally take home 90% of whatever we billed.
The one question this structure initially appeared to leave open, however, was how to expand our organization. Typical agencies — or any company type for that matter — rely on either profit or outside investment in order to hire employees and grow in size. We had no desire to involve the latter, and had done away with the former entirely, so how would we grow?
The answer was beautifully simple. With profit out of the picture, there was no structural difference between us — the founding partners who owned the LLC — and anyone else, because there were no financial implications of that ownership. If the autonomy and meritocracy we’d baked into our operating model worked so well for the four of us, then why not just extend that model to everyone! It dawned on us: we wouldn’t recruit employees; we had no more desire to manage them than we had to manage each other. Instead, we would recruit members: autonomous individuals who might otherwise be solo freelancers. And here we had our third, and undoubtedly most unique, realization:
Sustainability is better than profit.
In fact, having removed profit motive from the organization altogether, sustainability — and growth too — became really fucking easy. Our pitch went something like this:
“Hey, I heard you’re thinking about going freelance — congratulations! You should join Living Breathing. Being part of our collective means you can pool your work into our growing portfolio, which will help you justify charging twice as much for your services, maybe more, and you’ll keep 90% of that. Plus, you can work on whatever you like with whomever you like, and work as much as you want. And if you want to do non-LB side projects too, by all means go for it — you’re just a member here; we don’t own you!”
It’s disarmingly anti-capitalistic. And it’s not a hard sell.
We functioned similarly to any successful membership-based organization (such as a guild in a MMORPG, which is no coincidence, but I won’t go into that here). What’s more, we found we could easily operate and grow without creating any useless process bullshit, internal politics, power struggles or bureaucracy, because we had steered clear of the two essential ingredients for all of those things: employees and management! Instead, we just had people and work, and a sustainable operating system to allow the two to happily mix.
The Quiet Years
It was all smooth sailing from there onward, and we grew another 10X over the following few years! Actually, that’s not what happened at all, but that wasn’t really Living Breathing’s fault. Instead, just one year after starting LB, we got a product idea for an online travel venture called Wanderfly.
All of LB’s original founders got involved right from the start. Unlike LB, this was a prototypical startup in most every respect: we had seed investors and then VC investors too, we had different classes of equity, we had employees, we had expectations of mass scale and we had an ever-dwindling cash runway, which all made for an insane level of urgency.
Wanderfly quickly took center stage, forcing LB onto the back burner. And so while we had proven a successful operating model and had a growing client roster, member base and portfolio of work, instead of ramping up and building on that success, we were perpetually winding down.
That tumultuous startup environment caused us to part ways with two of LB’s original founding members. When Wanderfly was then acquired two years later, that took the other two out of commission also via full-time corporate jobs. Wanderfly’s life effectively put Living Breathing into a coma.
Awakening
It’s now several years later and the coma is over: Living Breathing is waking up again. We already have an operating model that we know works, and people who are eager to revive this ecosystem.
In one respect, you’re joining a newly reborn creative services shop, and it’s entirely up to you to define what we do. Maybe in a year or two from now we’ll be rooted in UX design. Or maybe we’ll have a thriving agile development coaching practice, or perhaps a video and sound production studio. Or, most likely, all of the above. What are you good at? What do you want to get better at? What are clients interested in paying you to do for them? OK, great — go do that, and see if you can find opportunities to involve one or two other members. Yes, it may seem unconventional to arrive and not be told, “Here is What We Do,” but I promise you: answering this question for yourself, with the support of the community we are building together, will be a whole lot more fruitful and satisfying.
In another respect, you’re joining a highly evolved organization, and you’re getting in at the ground level — which is great for both you and Living Breathing, because there are no other levels. When we re-formed LB, we did so because we looked at all of the prior teams, groups and organizations that we’d been a part of and felt like there must be a better way to work together. A way that is equally if not more lucrative than working alone (discovery #1), a way that encourages us to collaborate with each other without trying to control one another (discovery #2), and a way that is sustainable and becomes even more effective as we scale (discovery #3). We tested and confirmed these hypotheses one by one, and we know they hold water. We put things on hold for a few years, but now we’re back in action and ready to pick up where we left off.
We’re psyched to have you with us. Thank you for joining us on this journey, and welcome to Living Breathing.
Sincerely,
Evan Schneyer, Founding Member
