As the owner of a web development firm, one of my primary jobs is to manage risk.

When taking on new projects, I am betting that we can complete the work in the time we have estimated. If we win our bet, we have solid profit margins and a healthy work environment. If we lose our bet, we throw our schedule into chaos, stress out our team, and lose money.

What makes this process so risky is that I have to make budget decisions about the projects we take on based on imperfect information. There is no way to know for sure how much time a website will take to build until it is finished. While different pricing models and approaches can mitigate risk, ultimately the client needs some idea how much a project is going to cost before they will agree to work with you.

It goes without saying that I’ve made some poor decisions in the five plus years I’ve been running the Brick Factory. I have taken on some projects I shouldn’t have and hurt both staff morale and our bottom line.

What follows are tips on how to mitigate risk based on some hard lessons I’ve learned.

(1) Specialize, specialize, specialize.

At the Brick Factory, we specialize in building Drupal and WordPress-based websites for non-profits, advocacy groups, and trade associations We understand how to build supporter bases online and how to mobilize them to raise money or bring change. We have expertise in integrating with the third-party tools (such as Mailchimp, Salesforce, Stripe, etc.) that these groups are likely to use.

Having executed hundreds of projects for these types of organizations, I have a pretty good idea of what it is going to take to build a website for them. I have confidence that our team will be able to execute on time and on budget.

If you are constantly taking on projects using new technologies for new clients in new sectors, you are maximizing your risk instead of minimizing it.

(2) Have a defined approach.

To make money building websites you must have a strong point of view regarding how you do it.

The starting point is the technology stack you use. As mentioned, we build in Drupal and WordPress, and have expertise in a dozen or so third-party systems. When we’ve taken on projects using technologies we aren’t familiar with, there is inevitably a learning curve and higher risk.

Similarly, when working with a client you need to have defined processes for everything. What is your process for designing a site? How many rounds of feedbacks do you allow? How do you present your deliverables? The more structure you provide to the project (and the client) the more likely you are to keep it from going off the rails.

(3) Pay attention to fit/personalities.

People get excited by sexy projects. A project for a company building spaceships that will take people to Mars is more exciting than building a site for a professional society of morticians.

While doing something around a sexy topic is a plus, in my experience the excitement for the topic wears off pretty quickly if the client relationship is bad. To me, the number one priority is to work with people that are professional, reasonable, and kind. If their company is also doing something I’m excited about, all the better.

If you are working with good people, projects tend to run smoothly and your team will be happier.

(4) Be wary of projects that are too small or too big

We are a twenty person web development firm. When taking on new projects for new clients, our sweet spot is managing three to six month web builds that will take somewhere between 100 to 1,000 man hours to complete. We have difficulty managing projects that are both below and above these thresholds.

While a 20-50 hour project may seem easy, we have found them to be really disruptive to our schedule. These projects aren’t big enough for us to fully devote team members to the work like we can on larger projects. Given the start/stop/repeat nature of most work, small projects turn into juggling acts. Our team members end up having to manage 2-3 different deadlines simultaneously instead of being able to focus 100% of their energy on one problem.

Perhaps more importantly, we struggle to give smaller clients the attention they deserve. It is better to refer these clients to smaller firms or freelancers who specialize in these types of projects.

Taking on projects that are way too big for you can be even more destructive. Say we have an opportunity to take on a big money client that will occupy half our team for a year. Sounds like a no brainer right?

This is actually really risky for a bunch of reasons:

We likely don’t know how to manage a project at that scale efficiently.
To service the account we would probably need to quickly hire a bunch of new employees. Finding good people who fit into your culture is difficult and time-consuming.
We would struggle to provide great service to our existing clients. Our resources would be spread too thin.
A far too significant portion of our firm’s revenue (around 50%) would be coming from one client. What happens when the project ends?

(5) Avoid poorly defined projects

This is a bit of a tough one as 90% of the new business opportunities we get could be described as poorly defined. However, in my experience there are two types of poorly defined projects:

• Ones where the client understands their big picture objectives but hasn’t defined specifically what they need done. In this circumstance, we can usually define the project through discussions. To quote Donald Rumsfeld, there might be some “known unknowns” but not so many that we can’t move forward.
• Ones where you legitimately don’t have any idea what the client needs.

If you get a project in the second scenario, you need to either walk away or pitch a paid discovery process to better define the scope of the project.

(6) Don’t cut your prices

You are pitching a client you really want to work with. They call to say they really want to work with you, but need you to cut your budget by 20% to meet the price of another firm.

Don’t do it. You should never cut price without accompanying cuts in the scope of work.

By cutting your price you are essentially giving away any chance of making a profit on the project. As a twenty person firm, we have a variety of fixed costs: payroll, rent, health care benefits, software subscriptions, etc. A typical web development firm our size has profit margins between 10-25%. If we discount our pricing on an individual project by 20% the best we can hope for is to break even on the work.

Perhaps more importantly, by cutting price you are establishing the precedent with the client that you are willing to negotiate on price. Basically, you will be locking yourself into working with the client at below market rates throughout your relationship.

(7) Be intentional when you do take on risk

At our firm, our COO, Hannah, is sort of the naysayer about new work, while I tend to be the optimist. I joke with her that if she had her druthers we’d have no clients because she would literally pass on every project for being too risky.

While that is a bit of an exaggeration, I recognize that this blog post could be a really good formula for not having any clients. And for creating a firm that stagnates, never grows, and never evolves.

Despite all these rules, inevitably you are going to end up taking on some risky projects that most likely won’t be profitable. And that’s ok.

Just be intentional about it. Make the decision knowing things are very likely to go wrong. But only do this if you are going to get something out of the project that is more important than money.

Let me give you a few examples.

• Your team has never done a decoupled Drupal project. You have an opportunity with a client that needs an Angular front end and a Drupal back end. You take on the project knowing your team will likely exceed their estimate in the name of developing technical expertise in an important emerging technology. You see the project as R&D.
• You are running a five person Drupal shop and want to grow into a team of 15-20. You are financially stable and want to start taking on larger projects. You have an opportunity to take on a project bigger than anything you have ever done before. You take on the work even though it is risky and might stress your team because it furthers your strategic objectives for the firm.
• You have a great team but have had a slow quarter. You have team members you want to keep that are underutilized. A project comes in that has a tight budget but otherwise is doable. You decide to take the project on as a way to get through a slow period.

It is fine to take on risk so long as you do so with your eyes wide open.