Posts Tagged DEMOgod

A Virtual Office and No Need for VCs

This is Part 2 of my podcast interview with ZDNet’s Phil Wainewright. In it, I discuss our  virtual office and other lean & mean business practices that enabled gwabbit to achieve profitability within 6 months of launch in a major recession with $0 venture capital. You can hear the podcast at http://www.ebizq.net/blogs/connectedweb/2009/09/a_virtual_office_and_no_need_f.php

The transcript of the interview appears below:

—Transcript—

PW: Todd, we talk a lot about software as a service here on the Connected Web and one of the things, of course, with Gwabbit is that you don’t provide it as a service — because that doesn’t make sense for something which actually runs in the inbox client. It has to be there on the client to do its job. It would run in the cloud, obviously, if the client was running in the cloud — if, for instance, you were working with Gmail. And we were talking also about the potential to aggregate contact information in the cloud, with these Gwabbit clients reporting back to a sort of Gwabbit cloud, which I thought was a very interesting idea.

But one of the things that I think is quite prevalent these days is that when software companies are getting established, this ability to reach volume very quickly is very front of mind. Now, you’ve taken, not a novel approach, but one that is a little bit out-of-fashion with your product, because you charge for it, I believe?

TM: Yes, we actually charge money for our product, which is apparently an extraordinary, or novel, concept within the industry.

Do you ever meet people who try and talk you out of doing it that way?

Oh yes, absolutely. And I’ll just tell you a quick story. When we introduced the product at the Demo conference in March, a VC walked up to me and, without introducing himself, he just got in my face and said ‘Where do you get off charging 19.95 for your product?’ And I was really taken aback. I mean I did —

These VCs are quite parsimonious, aren’t they? They don’t like to pay $20 for a software product.

[laughs] Well, I think that this really had less to do with the pricing of our product. I think it had more to do with trying to get a pantsload response out of some young hungry entrepreneur. I’m neither young or hungry and so I didn’t give him the response I think he was looking for. So instead I just replied to him, ‘I’m not looking for money.’

His response was interesting. He literally took a step back. It was as though somebody had sucker-punched him. And then he started making some small talk and — I think he was looking for his own exit strategy — and then he just walked off.

So what is your model? What’s your — the strategy you’ve got for growing the business?

You know the — our model is pretty fundamental. We make a product. It costs us money to make the product. We charge money for it. We believe that the pricing of the product is commensurate with the value that we’re offering to the market — and fortunately, we’re finding that, in fact, appears to be the case.

So in terms of growing the business, our plan is to fund the growth of the business out of the operations. And so far, that appears to be coming to pass.

So how are you managing to keep your costs down?

Well, that raises another very interesting point. We have taken, I think, a very different approach than the norm on Silicon Valley, where I think that normally what you do is you go out and you raise a bunch of venture capital and then you spend it. And I think that there’s a tendency to promote waste in that kind of model.

What we’re doing instead is, we’re growing the company organically. And the way that we keep our cost under control — or the principal way that we do it — is through virtual officing. And this is something that I picked up through my previous company, which I sold last year. That company and this one are 100% virtual offices. So there’s no bricks-and-mortar whatsoever.

So everyone works from home and you don’t even have a reception desk with a receptionist and a meeting room somewhere?

Exactly right. It’s 100% virtual. It’s interesting. I think that when I tell most people about virtual officing, their comeback is, ‘Well, you must save a lot of money in rent.’ And certainly, that’s a benefit, but I would say that it’s not in my top ten list of benefits for virtual officing.

The great big benefit for virtual officing is really productivity. So we find that we’re about twice as productive as a traditional office. And what we have found by looking at other companies and organizations that have attempted virtual officing, they’re reporting similar kinds of numbers.

For example, I’m writing an op-ed piece right now. And in the course of doing this research, I came upon a study from an Arizona healthcare co-operative. They sent four employees home for seven months, and what they found was that these employees — they would normally produce, or process, 2,100 healthcare claims — and while they were virtual officing, they actually produced 4,700 healthcare claims. So they more than doubled the number of healthcare claims that they processed.

And they couldn’t believe those numbers. So they actually went out and they started studying other companies and organizations that had done the same thing, and they were reporting similar kinds of numbers. For example, AT&T did a pilot study and they actually found productivity boosts of about 75%.

But why is that? What are people — how are people able to find so much more time, or work so much faster, just through being at home?

It comes from a variety of sources, I think. One is that certainly, they’re not wasting time in commute — and then the preparation for commuting, getting ready for work — which can easily chew up a couple of hours each day. You find that virtual employees tend to spend more time on the job, simply because it’s convenient to do that. So they might tend to start work a little earlier. They might tend to work a little bit later.

Virtual employees typically do not have nearly as many distractions. So they don’t have people dropping into the office to chat. They don’t have as many watercooler conversations. They tend to have fewer meetings, and the meetings that they have tend to be more productive; they don’t tend to last as long, they tend to get over much more quickly than in the traditional office.

So added up, it makes a tremendous gain overall in productivity and a huge savings in opportunity cost. My company could not be profitable at this point, if we were running a traditional office.

And do think the model scales? Do you think you can become a big company and still operate virtually rather than needing to bring people in to some kind of location?

Yes. And my experience with my prior company, WebFeat, suggests that the model does scale. We were not a huge company. At the time that I sold the company, I think that we had about 40 employees. I saw no reason at the time that the company could not scale to 100 or 1,000 employees. And it’s interesting you bring that up, because that’s one of the chief complaints or arguments against virtual officing that I get, that, ‘Well, it just can’t scale.’ But I just don’t see it. I haven’t seen any reason why the model can’t scale into a large company.

So Todd, one final piece of advice for our listeners. If there was one thing that you could pass on about how the Web is changing business, especially the software business, what would you say?

Well, I think that the biggest thing that I would recommend to entrepreneurs and to business people is — as we’ve seen in recent years — circling back to the revenue model. In recent years, I think that advertising has borne the burden for revenue in the software business. And I’m not quite sure where that changed, in time. Back when I got started in the industry — and this is in the prehistoric days, back in the Comdex era — it wasn’t something that you thought twice about. You made a software product and you charged for it.

Yeah. I think, to be fair, advertising — in the Web 2.0 space and the start-up space, people have been attracted by it. But I think the companies that are more in the business space tend to look to more traditional mechanisms. But I think — I would certainly concur with you that — now that we’ve got to an era where people are thinking more carefully about the value for money that they’re getting and the reliability of the products that they’re using, then they’re looking for products where they hand over an amount of money and they get a contracted amount of value back.

Yes. And circling back to your question and any advice that I could offer. I think that the advice would be, when making decisions about a revenue model, I would encourage business people to evaluate the revenue model based on what is appropriate for the product or service in the market — as opposed to being swept up in the inertia of whatever happens to be fashionable at the time. I think that, certainly, an advertising revenue model makes sense for certain kinds of products and services. But at the end of the day, it’s simply another option in the revenue matrix that is available to business people. It may be appropriate for some products but it’s not appropriate for others.

And in any event, I think that it would make good sense for business people to make evaluations based on what’s best for their product and services, as opposed to what happens to be trendy or in vogue at the time.

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gwabbit Achieves Profitability Within 6 Months of Product Launch!

http://www.marketwatch.com/story/gwabbit-achieves-profitability-in-august-2009-08-31

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Virtuality — Part 2: Strategy and Technics

Virtuality part 2: Strategy and Technics

gettysburg “Muzzle-loading weapons sound awful primitive. They didn’t seem primitive to them. They were a new kind of infantry rifle that is deadly at 200 yards. That was a tremendous step forward. And the tactics were based on the old musket, which was accurate at about 60 feet. And they lined up shoulder to shoulder and moved against a position, and got blown down because they were using tactics with these very modern weapons. They were using the old-style tactics with very modern weapons. A few of the men realized that, Bedford Forrest for instance. He would never make a frontal attack on anything with this new weapon in their hands. But too many of them, including Robert E. Lee and U.S. Grant, followed the old tactics against these modern weapons. That’s why the casualties. There were 1,095,000 casualties in the Civil War. If today you had that same ratio, you’d have something like 10 million casualties, to give you some idea of what happened.”

- Shelby Foote, Civil War Historian

“They were using the old-style tactics with very modern weapons.” History has demonstrated again and again that military strategy and tactics lag the available technology. This is also true in business, where the adoption of advancements like the telephone, fax, email, the internet, software-as-a-service, virtual meetings, voice-over-IP telephony, web 2.0, social networking, viral marketing, etc, have been impeded by the previous generation’s management best practices.

As was the case with previous generations, today’s managers encumbered by yesterday’s vision face an insurmountable competitive disadvantage from those embracing the current technologies and practices available to them. At WebFeat, we were able to defeat companies as much as 100 times our size, simply because we were much more efficient and more productive than our bigger, slower, traditional adversaries. How was this possible?

Two words: opportunity cost.

When I attempt to recount the benefits of the virtual office to a stranger, I invariably am (preemptively) told that office rental is the #1 advantage. While office rent might make my top 100 list of reasons to go virtual, it is far from #1. Number 1 is the cost-effectiveness of my work force. Our virtual office easily yielded double the productivity of our traditional competitors. How?

strategytechnicstable1

This may not seem like a lot, but it adds up:

strategytechnicstable2

27.5 years lost in a 100 person organization. That’s the equivalent of 27.5 extra people!

In addition, in my own experience, I found that my virtual employees tended to work longer hours than those in traditional offices. Typically, this ranged from 20% to 30% more than traditional employee office hours. Apparently this was attributable to two factors:

1. Virtual employees tend to make less of a distinction between work time and personal time than traditional employees, and…

2. It appears I am a hard task master

Whatever the reason, in our 100 - employee hypothetical company, this would add an additional 20 - 30 years annually, bringing the total to 47.5 - 57.5 years of additional productivity — a virtual company is 47.5% - 57.5% more productive than traditional companies.

But wait, there’s more!

While at work, my virtual employees tended to accomplish more than their traditional counterparts. This was due to a number of factors, including:

We held only a fraction of the number of meetings held by traditional companies

When we did hold meetings, they tended to be more productive — why?

Because most of our meetings were held via teleconference, the attendees tended to find silence or “dead air” to be uncomfortable. Consequently, our meetings tended to be short, and they followed classic successful meeting techniques, namely:

  • An agenda was published prior to the meeting, informing attendees what to be prepared to discuss
  • Brief minutes were taken, with action items captured, as well as persons responsible and deadlines
  • If follow-up meetings were required, these action items fed into the subsequent meeting

The bottom line is that we didn’t hold very many meetings, and we got a lot done in the meetings we did hold. Additionally, because our meetings produced cogent sets of action items, the work resulting from our meetings tended to yield better results

Finally, no one “dropped in” to our virtual offices to chat. Granted, some of our more gossipy employees made effective use of online chat, but they had little time to waste at the virtual water cooler. The moral of the story is that the success of the virtual office, as well as the traditional kind, is determined largely by the effectiveness of the management team. However, an effective team in a traditional office will be no match for an effective management team in a virtual office.

While it is difficult to gauge the amount of time consumed in useless meetings and water cooler gossip, consider that if it averages only 1 hour per day per employee, our virtual productivity edge over traditional offices grows to 60% - 70%! How many employees do you know that give up a mere hour each day in meetings and gossip?

Clearly, I’m not talking about moving the corporate performance needle a couple of percentage points. I am talking about a great big game-changing, Earth-moving, paradigm-shifting fundamental makeover that can enable your business to not only weather the current storm, but enable it to prosper and handily crush its competition.

More to come in part 3…

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Interview with gwabbit president & founder Todd Miller

Interview with gwabbit president and founder Todd Miller about the origins and future of gwabbit

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DEMO ‘09 Launch of gwabbit for Outlook

This is gwabbit President & Founder Todd Miller’s presentation at DEMO ‘09. gwabbit received the prestigious DEMOgod award, the highest honor bestowed by the nation’s premier technology conference for launching startup companies. See the presentation that started it all!

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