« A Modern Startup »

( This entry is long, but it needs to be... )

Some History and Perspective

Remember when I quoted JK Rowling and suggested you should never trust anything that can think for itself if you cannot see it's brain?

This entry is in the spirit of that quote. What I am doing is meant to be shared, a kind of Life Zero + Open Source experiment in building a company.

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If you have ever read about 37 Signals or Delicious Monster, you'll note one thing they have in common:

Both are extremely virtualized.

37 Signals has employees and consultants all over the globe. Delicious Monster works out of a coffee shop on the North Coast.

Take the time to read both "Four Hour Workweek" and "Rework", available on Amazon (and Kindle) if you have not done so already. They will change your assumptions about life, work and time. You'll also rethink how to do everything in both your business and personal life.

Back when I started kozoru -- an advanced, natural language search technology -- in 2004, I coined a term "Inshoring" with the idea that I would move to a less expensive location (I chose Kansas) and start a company there, with only Angel funding, and save a bunch of money because:

a) People in Kansas are less expensive than California
b) Housing/Rent/Cost of Living is less in Kansas
c) High-Speed networking is everywhere
d) You can be a global company without being in a major Startup area
e) We would require less money and be more profitable as a result

I was wrong on a few counts.

People in Kansas are less expensive, but they are also a lot less experienced at highly technical skills and at being in a Startup environment. Because of this, for the highly technical people, we had to import talent from the coasts (and, before you say something nasty to me, yes -- we interviewed over 100 people for a single position before giving up on a great developer role in the area).

The cost of living was indeed far less.

We raised about 1/10th what we would have raised in San Francisco -- only $3MM instead of the $30MM it would have taken to hire the same number of people and run the business for the same amount of time, with the same properties and expenses.

( I stand by this statement )

Why this matters now...

As I start to seriously consider the expansion of kane-box, including the initial release of the technology and all the things that go along with a new company (invoicing, support, sales, marketing, service, corporate paperwork, legal, etc) -- I am literally overwhelmed by the possibilities.

It is, of course, 2010 now. Things have changed (quite a lot) and many of the boring, routine aspects of life have either been partially or fully automated through people/outsourcing or software/solutions.

Let's take a moment to think about a technology-based Startup and the requirements (in no particular order, based on a hardware solution, geared toward kane-box):

• Fundraising
• Development
• Manufacturing
• Administration
• Customer Service
• Distribution
• Legal Services
• Sales
• Marketing & PR
• Office, Location, Phones, Etc.

This turns out to be an enormous list, with several dependencies (i.e. you cannot have a Sales Team without an office and e-mail and phone infrastructure).

But, as I mentioned, this is 2010.
Things have changed. Books have been written.

I wonder, is it possible to create a new (and successful) company, without involving a single VC investor, without maintaining a physical office, while being an international force in an emerging market?

I believe the answer is yes. Many of you, who have made contributions through donating to the project, seem to believe the same thing.

The first and most obvious question, then, is "What can be outsourced?"

A Modern Startup Model

If we revisit the list above, we see several items which can easily be automated. There are also some non-obvious things which can be (and, indeed, in my case, already have been) automated.

There's a somewhat dated, 2005 Essay by Paul Graham, Author of the fantastic "Hackers and Painters" book (which everyone should read) that might be a great introduction, along with the Wikipedia Article (Neutrality Disputed) about Startup Companies.

Starting with one, presumably obvious bit of information (assuming you read my Journal regularly): I have not been physically constrained to a single location for over a year (since July 15, 2009).

I have done podcasts (like The VFX Show and my own (Life Zero). I have worked on kane-box (hours a day, for long stretches). I have negotiated hardware. I have hired developers. I have hired and discussed Incorporation and the donations-for-stock issues with lawyers, which turns out to be quite complicated. I have responded to e-mails, organized meeting, built a team, assembled a Board of Directors and much more.

All from Coffee Shops, Internet Cafés, hotels and "the road" - as it were.

And so, with everything in mind, along with our new "World is Flat" and global economy ideologies in mind,

Fundraising

As many have read about (in various places) and already commented on, I took a different road for raising some Seed Funding. Obviously, my own time has value, but I also invited everyone to put in any amount - from $10 to $1,000 - as a Donation to kane-box. This donation will be rewarded with kane-box stock options, as a gift from me, after September 1, 2010.

This is an interesting model and somewhat circumnavigates the SEC requirements for having "Accredited Investors" because the person is technically not an investor. They have donated to a Project, with a commitment from me that they'll get a gift of stock in the future. It requires some faith, some belief in the current system being a little flawed and an ability to take a bit of a risk on a new and potentially grey-area way of participating in a company.

The good news is there is nothing illegal about it (but, that could change in the future, if more people do this and the SEC/Government decides they don't like it).

The bad news is it has never been done before, so we are literally breaking new ground.

Either way, I set out to raise 35% of the company, arbitrarily valued at $100,000 US (today) and that amount has been raised (with the exception of a small amount held in reserve for last-minute donations).

And, why not?

The Internet means reaching out through various Social Networks (such as Twitter/Facebook/Blogs/Podcasts) is possible. The "flat" world means investors can come from anywhere, for any reason.

I am hoping this also means we will get to a point of profitability, without ever having to raise a traditional Venture round of funding, and prevent everyone from being diluted.

But, if we do raise Venture money in the future (or, more likely, Angel money), it means everyone has a voice and the company is in a much stronger position, by virtue of already having a few dollars and by having revenue and customers -- which we already have a few -- before we have to slay the dragon of more money.

Development

In any new technology, there is a need for development. This can be in the form of hiring developers (the traditional way) or by hiring consultants and independent contractors (the modern way).

In the case of kane-box, it also means pulling in people through an Open Source initiative, where everyone can participate in making kane-box better, by contributing to the free part of the technology.

This is very similar to the way Apple structures Mac OS X. There's a closed version (the interface) and an open version (Darwin, the Operating System).

I believe this will, very likely, be the way of the future. Linux (c.f. Ubuntu) has already shown this as a viable way to build a successful business.

In addition, with companies like eLance, there are ways of hiring persons for one-off projects. It is efficient, inexpensive and gives you the ability to partition intellectual property in a way where someone can develop against a properly written specification, without having access to all the source code in the entire system.

I believe this too is the way of the future.

Outsourcing does not always mean "giving to someone in India" -- I have had many people work, for hire, on kane-box. Many of them are in such far-away places as Indiana. ;)

Manufacturing

By far the most difficult part of the entire process has been finding a hardware source and company who was willing to provide manufacturing.

Hardware vendors are notoriously difficult to deal with for any product. Apple (once again) realized this and moved a good amount of their hardware into the company in various ways: acquisition, building facilities, doing other clever things.

In my case, the most important issue was reliability. Several manufacturers make claims about what they can deliver and the specifications of said hardware, only to deliver something sub-par with specifications which do not match their initial descriptions.

You have (of course) already paid for a non-returnable prototype when you find this to be the case, so...

Either way, Manufacturing can be outsourced, even if it is time-consuming and difficult. It is, however, much less difficult than building your own facility and costs far less.

Distribution

More on this in the future.

Administration

Many, many tasks in this category can be outsourced. From arranging meetings to flights to everything else.

In my case, I am actively seeking a "Virtual Assistant" organization and will focus a future entry on this topic.

Missing Zirga: An Administrative Aside

Oh, how deeply and profoundly I miss Zirga. They were, quite literally, the best Virtual Assistant ever created by anyone... anywhere.

Read about my experiences with Zirga here.

I used them for everything; finding plane tickets, making restaurant reservations, researching things online, purchasing just about everything. I have never experienced such a sigh of relief in my life. I've had f***ing great assistants help me since I started nCircle in 1997, but Zirga demolished all of them in speed, accuracy, cost and politeness.

Zirga, unfortunately, went away a few years ago. Still standing are: GetFriday, Your Man in India (sexist name!) and a few others based in India, along with one service in New York.

Apparently, awesomeness cannot replace inexpensive.

I have been thinking about Zirga quite a lot lately.

Customer Service

Ditto for Customer Service. It can be outsourced, but it is extremely tricky. How many of you have called an outsourced call center -- only to find that they are nothing more than an answering service with a script?

This must be avoided. There is no faster and better way to irritate your customers than providing terrible support.

I am in the process of finding, recruiting and hiring work-from-remote network security professionals who are familiar with large environments and who would have access to all the kane-box hardware.

They would be able to remotely connect, with the customer's acceptance, to a customer's kane-box hardware and provide support, trouble-shooting, updates and more.

They would have -- and, in my experience need -- a direct, Bat-phone ability to communicate with developers for hot-fix issues, support and QA on the kane-box systems.

Legal Services

Outsourced and rarely needed after the initial Incorporation.

On-demand services are required when negotiating big contracts. This can be done by establishing a relationship with a reputable firm and putting them on retainer (or, in my case, getting them involved by giving them stock-for-services as appropriate).

I like tying my legal team to my company's success or failure. It makes them work harder.

Sales

I do not like traditional sales. I believe a sales person should be someone who knows the technology and not someone who knows how to sell stuff. Most sales can be generated through proper Marketing and PR, with the exception of Corporate and Government Sales, which require a dedicated person (the sales cycles for such entities are long, complicated and usually not worth the investment in hindsight).

Companies like Triton are very interesting because they charge nothing up front, require a huge amount of information and are paid commission based on their actual performance, as opposed to an hourly/salaried wage.

In the end, 37 Signals and others have taught us a valuable lesson, "The best sales tool is word of mouth and happy customers."

Marketing & PR

The first rule of Marketing and Public Relations (PR) -- from my perspective -- is "Get the word out!"

This allows people to even know who and what you are and why there's some value - from a basic perspective - in what you are offering.

In the Network Security world, I believe (strongly) the best way to market yourself and your company is by speaking at conferences. This means that you a) need to be able to speak at conferences and b) need to be able to speak about something interesting.

You should probably avoid talking directly about the product, if possible, unless you are simply introducing the product. Otherwise, you'll be relegated to the ranks of "Sleazy Vendor Taking up My Time" instead of "Interesting Person at Company Who I am Glad to Have Seen Speak."

This is a dangerous game and I have, on many occasions, failed to fall into the correct category.

Office, Location, Phones

I have not had a home, much less an office, for the last more-than year. I have no problem making phone calls, answering e-mails, communicating when necessary and doing everything you can do from an office.

I work from a Coffee Shop wherever I am (Asia, Europe, Latin America, the US, Africa) and I make calls through either Skype or a local phone, purchased in the country where I am currently traveling. Cell phones are cheap as chips everywhere but the United States.

For incoming calls, Google Voice just wins. If you have a computer with a modern browser, both Google Voice and Google Mail now support local, outbound (free) calling.

As for working -- I would actually argue I am more productive than an office worker because, when I do have a place to work, I am focused on getting that work done and not just 'being busy' for the sake of my position or place in the company.

I have also learned, through Tim Ferriss' great examples and through my own experiences, nothing is ever really as urgent as people think it is and nothing ever (and I mean ever) requires my immediate, right-now attention.

Conclusion

It's 2010. Shouldn't we be creating companies which require much, much less capital, do more, leverage technology and do not suck?

Isn't it our responsibility to give something back to the world, when we see success in what we do?

Why should only the rich be able to invest in Startup companies and see the reward from their investments?

I am doing something new and different. Whether you like it or agree with it, I hope you'll at least support what I am doing (even if you do not donate to the project).

Isn't it time to create a new company that mirrors our modern world?

I think so...




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