The methodology you described is correct for making "birdseye" (or "pool&eye"). If your doing it by hand, the larger bit you use, the eaisier it will be to work. One of the things I have done is to start with a 1/4" bit, and then go over each hole with a counter sink. Don't worry if the holes slightly overlap, this just adds more pattern to the blade. The thing to remember about any stock removal pattern (ladder, birdseye, and such), is that the pattern can be removed by over grinding. With this in mind it is a good idea to forge the blade very close to finished dimensions to retain as much of the pattern as possible.