Favicons are very small – only 16 by 16 pixels. It is very difficult to do a creative design on such a small canvas. Instead, a better way would be to start with a larger canvas and resize it later. Be sure to select a multiple of 16 so that the proportions remain the same. I recommend a canvas of either 64 x 64 pixels, or 80 x 80 pixels.
Open up Photoshop and click on File. Select “New", and create a canvas of 80 x 80 pixels. If you have an existing logo that you’d like to use, you could resize it down to 16 x 16 pixels, and see if it looks good. If not, you may need to come up with a new, simple, creative design that uses your logo colors and can represent your site.
Once you have your design ready, you need to test it out to see if it still works when it’s resized to 16 pixels. Click on “Image", and then select “Image Size". Enter the new size of 16 x 16. For Photoshop versions CS or higher, click on the “Resample Image" drop down menu, and select “Bicubic Sharper", to prevent any blurriness that may occur during the resizing. If your favicon does not look good after resizing, you may need to keep adjusting the design to make it work. Remember, simple graphics with high color contrasts work best.