At the beginning of 2021, I would have told you the theme for the year was going to be Margin. After turning a small profit margin in 2020, we were trying to get back to a healthier number in 2021 while also creating more space for the team to breathe and work on internal processes.
Then 2021 punched us in the face. If you ask me now what the actual theme of the year was, I would say Rebuilding. We will just barely be profitable this year if you look at our books as accrual and won’t be profitable in cash terms for the first time in 4 years.
But I would change very little. Even in a rough, up and down year, I’m proud of the decisions we made and the progress we made because of them. Our team is in a great place right now; our processes are far from perfect, but they’re way more mature than they were a year ago. And we have a positioning and go-to-market strategy that is showing some really promising results.
2021 was a tough year, but we strengthened the foundations of our business in a way that should help us for many years to come.
Here’s what I’ll be covering in this review:
- Raising rates
- Team turnover
- The challenges of entering a new market
- Higher client churn
- Investing in tooling (plus a new outlook on time tracking)
- Design process improvements
- Launched a podcast
- Crossed $1 million in annual revenue
- What I would change
We started 2021 by making significant increases to our rates for new and current clients. This was something we started working on in Q3 of 2020 and took really seriously. There were multiple reasons we decided to increase rates:
- It had been years since we had raised rates. In that time there was inflation, we had grown in our skills, and our positioning had evolved.
- We had a profit margin of about 7% in 2020, which was clearly not enough to maintain a healthy business (healthy margins in services businesses are in the range of 30%). We were also still paying low-end of market rates for employees, and paying the principals well below market rates.
- We were managing 8-10 concurrent projects at a time with a small team. Our senior engineers were often stretched across 4-5 projects at a time, which meant a lot of context switching, reduced productivity, and stress.
- We were billing hourly and losing lots of billable time to client delays and factors outside of our control.
David Baker, the expert on building creative agencies, says that utilization is the ultimate profitability tool, and that pricing should be looked at as a positioning tool:through pricing, you signal to clients whether they’re a good fit for you or not.
I think this misses a key point: your pricing model can make it easier or harder to capture your true utilization. We were all working as much as we possibly could in 2020, so it was clear we didn’t need more work; instead we needed to capture more of that work and bill for it.
So at the beginning of 2021 we switched from an hourly model to an increased day rate and gave everyone 3 months heads up. We still lost several clients because of the changes, and while that hurt, it ultimately supported our goal of growing with less context switching. By the end of the year,we grew our revenue by about 20% while reducing the number of clients we worked with.
We still want to increase the concurrent clients we work with back to our previous numbers, since having fewer clients opens us up to more risk. But we only want to get back to our previous numbers by growing our team as well.
We’re also continuing to evolve our pricing model to find one that works best for us and our clients (one where we balance risk and have as little admin overhead as possible).
Despite raising rates and reducing concurrent clients, the beginning of 2021 was marked by team turnover. From exit interviews and our internal reflections, there are a few primary reasons people left.
Lack of senior leadership on the engineering team
Our lead engineer went down to part time in 2020 to pursue his Masters in Data Science and left in early 2021. While Austin has done a great job leading the production team, we really needed more seniority on the engineering team to help others grow and develop. So we worked on adding seniority throughout 2021.
Overall disorganization and problems with our processes
We’re a growing team, and organization has never been a strong suit of Austin’s or mine. But we’re constantly working on this and investing in resources to help, because it’s critical to our long-term success.
Projects in the pipeline
With our new positioning (more details in the next section) came a bit of a change in the type of work we were doing, and that understandably wasn’t interesting to everyone on the team.
While most of the people who left said salary wasn’t their primary motivator, everyone got a higher salary in their new role. We made changes to our compensation model as a result, but still have work to do to be able to offer top-of-market salaries.
At the same time, we are considering whether we want to compete on salaries or benefits and time off, which few companies in the US do (well).
People talk a lot about “the Great Resignation,” but in my eyes it’s always a positive thing for people to look at their lives and ask if they’re happy. If the answer is no, they should absolutely make a change. Plus, it’s good for business owners to think deeply about creating an environment that makes people want to stay.
The challenges of entering a new market
While we were busy recruiting to replace the team members who left for other roles, our client pipeline dried up, which made this summer one of the slowest periods we’ve had in years. I think some of that was a ripple effect from Covid, as the situation was not unique to our agency. But some of it (and some of the team turnover) was a result of our positioning changes.
In 2020 we made the decision (alongside the pricing increases) to change our positioning. There are two types of positions:
- Horizontal: position around a specific skill set or unique differentiator across multiple industries
- Vertical: go all in on one industry
For years we held a horizontal position: it was interesting work, but clients were difficult to find and we worried we were outgrowing our market. At the same time, we had started doing more and more work in the cybersecurity space, and it was a natural fit for our skillset.
The cybersecurity industry is very technical, most products are B2B, and product teams are often strong on the back-end side but lacking in design and front-end talent. We are a nerdy team of fullstack designers and developers who have always liked making niche tools more user friendly. So we decided to go all in on a new vertical position: product design for early stage cybersecurity startups.
Of course, the lead gen efforts that had worked for our previous position and price point weren’t working anymore for our new one. Combined with my focus on recruiting, things slowed way down.
The good news is I turned my energy back to lead gen in the second half of the year, and we’ve seen some really encouraging traction. And because of our new position, it has been easier to cut through the noise and get that traction quickly.
Higher client churn
In addition to the clients we lost to rate changes, we saw increased client churn for most of 2021. We were working with fewer clients, so the sample size is small, but we feel that several problems contributed to the churn.
We weren't intentional enough about design direction
Before 2020, Austin was the only designer we had ever had on the team. As we brought on new designers to the team, it took us some time to figure out how to provide the right direction to make sure the work matched client expectations.
Larger clients meant new challenges
For much of our life as a company, we’ve worked with teams of… 1. Now our sweet spot is clients who have raised a Series A, whose teams can range from 5-50 people. And that brings new challenges.
For example, we had a client this summer with about 50 people. The founder hired us and then handed us off to the VP of R&D. We still thought the founder was leading the project, and failed to sell ourselves to the VP of R&D and to check in on his goals.
No dedicated account manager
This is a challenge we’re still struggling with. Account management responsibilities are spread across me, Bina, and Austin; without any one person focusing on them, client communication can slip through the cracks.
I think we also haven’t fully cracked the strategy on how to sell ongoing design services or to keep the value high year after year. We have a tendency to slip into implementation work with long-term clients, and don’t provide the same challenges and guidance we do as part of our up front roadmapping process. We’re working on improving this.
Investing in tooling (plus a new outlook on time tracking)
One of the biggest positive changes we made in 2021 was adopting Parallax. At the beginning of the year we were struggling with time tracking, I wasn’t doing a good job of communicating leads to the production team, and we were struggling to forecast how much time people were going to be spending on client projects.
We stumbled across a new startup called Parallax, which is aiming to build the ultimate agency management tool. They have a unique sales approach that requires you to go through their super consultative onboarding process.
Because of what we learned from their team, we made some fundamental changes to our time-tracking process, adopted Hubspot to use as a consistent CRM, and now have a much clearer picture of where our time is going.
In 2020 we were tracking everything at a super granular level; we would track time to the client and the specific task, so that we could improve our estimates by comparing estimated time to actual. But the truth is that we rarely looked back at estimates. At the same time, our team felt like they were always fighting the clock instead of focusing on deadlines and doing the best work they could. And we were underbilling clients, so we weren’t even tracking all of our actual time anyway.
Now we track time to the project and to a broad category (task, project management, or meeting) and we estimate our time in terms of percentages of an FTE (full-time equivalent). And all of our time gets pulled into Parallax, so we can easily see that we estimated we would spend 20 hours on Project X this week, but we’ve actually spent 25 or 15.
It’s resulted in less stress for the team, and a clearer picture of what’s going on for us. And at the same time we’re capturing more time, which improves our utilization. But we’ve also shifted the focus to deadlines and quality of the work, which is better for clients in the long run.
Design process improvements
Austin and the design team have also made some big strides in terms of our design process (in addition to Austin personally taking a more active role in design direction).
Weekly design review meeting
The entire design team now meets once a week to get feedback on work and talk about process improvements. This has been a simple way to get the team communicating.
Improvements to design tooling
Before this year we were repeating a lot of basic work in our design process, and files quickly got disorganized. In 2021, the team created a standard set of wireframe files to speed up wireframing work and a template for tiles to use to help with labeling files in Figma. This makes it a lot easier to hand off work to non-designers and helps keep everything clean and organized.
We really hope to add a Director of Engineering this year to do some of the same work with the engineering team.
Design audit research
We also tasked part of the design team to work on a system to evaluate existing designs for quality. We wanted to be able to quickly answer the question, “how well designed is this?,” and hoped to create a numerical system we could use to compare different projects, or client projects before and after Krit works with them.
We also wanted to generate a list of quick wins we could give the client that their team could start implementing right away, which makes our roadmapping process more valuable for clients with an existing product.
We ended up creating a powerful list of recommendations and best practices that standardizes the process of looking for quick wins in a product. However, trying to tie that to a numerical score that made sense proved difficult, so we’re focusing less on the numerical value and more on the qualitative suggestions for the time being.
Launched a podcast
I’ve been threatening to launch a podcast for years, and in 2021 I finally did it. In collaboration with Miscreants founder Sean Sun, I created the podcast Small Efforts.
We publish episodes twice a month about cybersecurity, design, and the continuous small (and large) efforts it takes to build a business. The podcast is part lead gen and part passion project (okay mostly passion project).
Podcast analytics are notoriously unreliable, but we’ve published 14 episodes and have 580 downloads as of writing this. That number felt really small to me (coupled with the fact that we have an estimated 11 subscribers), until Sean pointed out that our episodes are almost an hour long which means that people have listened to more than 500 hours of us rambling this year. Pretty cool.
Crossed $1 million in annual revenue
While revenue numbers aren’t as meaningful as profit numbers, we did hit a major milestone this year: we crossed $1 million in annual revenue for the first time ever.
I remember moving to Charleston in 2016 and telling my business coach that if we could just hit $30k a month we would be set.
We honestly didn’t do a great job of celebrating. I announced it to the team (and one of them did send me brownies which was an incredibly kind gesture!) and talked about it on the podcast, but for the most part it was business as usual.
We need to get better at celebrating little wins and finding excuses to have fun, because the journey is long and the goals are going to fade fast.
What I would change
While I stand by most of the choices we made in 2021 because of the long-term value or the learning we got, there are definitely mistakes we made:
Keeping our foot on the gas with leadgen
The first quarter we were at max capacity despite client turnover, and our biggest problem was team turnover. So I took my foot off the gas of marketing and lead gen and focused on recruiting and hiring. We eventually found an incredible engineer to join the team, but in the meantime got behind on the work we needed to be doing to revamp lead gen for the new market.
Lesson learned: always be selling. But really. Even when things are busy.
Getting the team involved in hiring sooner
In 2021(and the end of the previous year) I made a couple of clear hiring mistakes and onboarded people who (while still good people) weren’t the right addition to our team. So we made some changes to our hiring process:we instituted a take-home test for engineers and added a team interview after the technical interview. This is a chance for the team to meet the potential candidate and sign off on them before we officially hire them.
I think if we had done this sooner, we may not have made the same hiring mistakes. At one point there was a candidate I liked, but the team just wasn’t excited about them so we decided to pass. A couple months later we found a truly incredible candidate, and I’m so glad we were patient.
I’m sure there were many more mistakes I made this year, especially on the account management side. But most were good learning experiences that I hope won’t have done any lasting damage.
Theme and plans for 2022
As we begin 2022, I’ve spent a lot of time thinking about where we should focus our energy. For me, it’s helpful to come up with a theme again.
My theme for Krit in 2022: Staying the course.
We want to double down on what’s working and focus on building a really great foundation so we can continue to grow. Despite the progress we made this year, I think it would be easy to overreact to the challenges and try to make massive changes. Austin and I have debated multiple times whether we should do exactly that.
But I think we’re on the right track. I have a vision of Krit in just a few years as a small but thriving company that is known in the security industry as the go-to team for product design, and is known in tech as being a fantastic place to work.
As for specific goals for 2022, we’ve got those too.
Our 2022 Goals
- Hire an Account Manager
- 15% profit margin
- Launch an open-source tool
- Run 3 diagnostics per quarter
- Hire an Engineering Lead
- Launch V1 of the Krit playbook
- Get together in person for a team retreat again!
Want to see if we hit on these and stick to our theme for the whole year? Tune in to next year’s Year in Review.
If you want to read a past year-in-review post, you can find those here:
And to all of our clients, team members, and the people who were a part of building this business this year, thank you so much. It was a tough year, but it would have been so much harder without all of you.
P.S. If I had to pick a sub-theme for 2022, it would be “decrease the difficulty.” I think we have a tendency to make things harder on ourselves by thinking we have to push hard and grow, grow, grow. I want to get to the point where we can more easily enjoy the journey.