Insta-Firms: Just Add DollarsHow to start a company on not much more than an idea.Reprinted courtesy of Elizabeth Corcoran JUST WHEN YOU THOUGHT you had embraced the chaos of business on the Internet, where the market merrily values loss-ridden companies above the billion-dollar mark, get ready for the next new thing: the insta-firm. Convinced that getting to the market fast means the difference between going bust or making a fortune, many startups are relying on others to do much, if not most, of their work for them. Can’t build a marketing staff quickly enough? Outsource it. Short of engineering talent to design a product, prototype it and mass-produce it? Outsource it. Anything you want to do on the Web? Outsource it. Absurd as it sounds, some Net entrepreneurs can even imagine a day when a “company” might be little more than one person with a great idea and a big bank account. “Can you create a business with no people? The ultimate virtual organization? It’s happening, to a certain extent,” says C. Gordon Bell, an industry grayhead now at Microsoft. “And it doesn’t matter if the product is physical or not.” “You could do it,” says N. Rao Machiraju, chief executive of ConceptLabs, a Sunnyvale, Calif. firm that handles prototype design for companies. “The only glitch would be the venture capitalists,” he says. “VCs aren’t ready for it yet, but they will have to be! They don’t have a choice. Young guys get frustrated by how long it takes.” Companies have always paid someone else to do a few tasks they lack the time, ability or staff to do: public relations, legal, running the in-house computer system. In the 1990s electronics makers in the U.S. outsourced entire production lines to contractors in India, Mexico and elsewhere. But in Silicon Valley, where reality outstrips exaggeration, tiny firms are getting others to do the things that once no self-respecting company would have left to someone else. Zindigo Inc. is a “marketing angel” that will step in and run a startup’s entire marketing strategy in exchange for an initial 3% to 10% stake--and in the Valley, marketing is everything. “Right now, it takes about 12 months to find a vice president of marketing,” and finding engineers--any engineers--can be just as hard, says Sheridan Forbes, Zindigo’s founder (no relation to the owners of this magazine). “We can be the vice president of marketing, a virtual chief executive or the vice president for business development.” So just how much of a company can you rent from elsewhere? Say you have an idea for a new Web site that gives better driving directions and can recall your previous trips. (Your future revenues, of course, will come from advertising and sponsorship. Perhaps you can even sell out to AOL one day.) Sure, other sites already do it, but face it: These are directions written for guys. (”Go northeast 0.1 miles. Turn right.”) Your Web site gives more intuitive guidance. (”Keep going until you see the gas station next to a beauty parlor. If you see a pet store, you’ve gone too far.”) First step: You need a business plan. Take your idea to an “incubator,” such as Idealab, Internet Capital Group or Ecompanies, to name a few. There, you trade a chunk of your fledgling firm for help in creating a strategic blueprint and raising money from “angel” investors and venture firms. Now for some software building blocks. Fork over, say, 2% to 16% more stock and a board seat, and an “angel engineer” such as ConceptLabs, started by six renegades from Apple Computer, will do it for you. The firm helped Magically Inc. devise Web-based information management tools. To scale up software into a real product and build the front end of a Web site, ConceptLabs passes the baton. Scient, Viant, Razorfish and others will design a catchy platform for your Weblet. Once the site is ready, a growing number of folks are eager to host and manage it for you. Marc Andreessen, who jump-started the Internet age at Netscape, now runs LoudCloud, a Sunnyvale firm that wants to be an Internet utility company. For a monthly fee, LoudCloud will store your data, guarantee that your Web site stays up and running, and help you sleep at night by staving off hackers. Chris L. Wong, founder and chief of Santa Clara, Calif.-based SkillsVillage.com, found out the hard way just how valuable such services can be. SkillsVillage opened its site before creating a firewall against intruders. Two days later the FBI called. Hackers were already using the SkillsVillage site as a jumping-off point to break into other systems. Wong wound up paying consultants hefty fees to get a firewall in place fast. SkillsVillage was one of the first clients of LoudCloud (a comfortable move, as Andreessen was an early investor in that shop, too). Wong says it reduces headaches and time. Instead of devoting four engineers to the site, Wong needs only one. The others work on the core software applications that help SkillsVillage serve customers--which, by the way, are companies looking for skilled engineers and contractors to work on specific projects. Just about every firm outsources customer service and tech support. Send an e-mail to “tech support” and the engineer who responds may be in India. Instead of having to employ a staff of say, hundreds, Handspring, which makes the Visor, a PalmPilot rival, needs only a few key people, says Donna Dubinsky, chief executive. “But I really need those people! They need to communicate extremely well.” So much for running your site and serving visitors. What about managing your in-house computer system? CenterBeam and other firms will do it. As for other housekeeping chores--legal services, p.r., payroll, human resources--all are available for hire. Some lawyers, recruiters and p.r. shills want equity, whether in lieu of a fee or on top of it. But at some point, you still need to hire at least a few full-time employees. “You still need people to manage the outsourcers,” Dubinsky says. “The good news is that you can go and outsource all this stuff,” says Nathan Myhrvold, the Microsoft futurist who now is on a leave of absence. “The bad news is that anyone else can do it, too.” There is, of course, an underbelly to outsourcing. While your firm is tiny, leaning on someone else for help may give you more expertise. But as you get bigger, outsourcing may mean that chunks of your company fall outside your control. And what about profitability? “The time can’t be too far away when companies have to make money,” says Edwin Niehaus, who runs the public relations firm Niehaus Ryan & Wong. “The truth is: All companies that provide outsourcing have to make money, too.” But could you go it totally alone? Should you? “Yeah, I think you should really do it,” says Paul Saffo, a director at the Institute for the Future. After all, he adds, “The hardest thing for a company to get in the Valley is office space.” Go to Business Tips Index to read other articles! |