STIRR is a notable organization run by Dan Arkind and Sanford Barr that puts on gatherings for founders and entrepreneurs around the Bay Area. At last Wednesday’s event they had a few of us do 5-minute “Founder Hack” talks. It was really fun and the crowd lively. <see video>
At Ooga, where we’re building 5 separate products (with separate code bases, URL’s, business models, corporate entities, etc.) we develop in what we call Speed Teams.
A Speed Team is composed of two people: an engineer — who is responsible for programming the database, the application, and some of the front end — and a Designer — who is responsible for the look and feel of the site and most of the front end code. Each Speed Team works with me and Stan on a daily basis, and the project is held together with a simple document that lists the tasks and help us prioritize them. No Product Requirement Documents, no Marketing Requirements Documents, just talk and go. We find this gives us maximum freedom to iterate on a project as it moves along. Without a Board of Directors to hold us to a plan we might have come up with in the past, we are free to do what makes sense based on new information, new ideas, or feedback from the users without having to convince anyone, again adding flexibility.
By constantly adjusting to new information, we hope and expect that it will increase our odds of building something that works. Time will tell. In larger companies, they often have large groups of people on a project, each with a designated expertise. We don’t think this makes sense in the consumer Web space.
At our last company, Tickle, where we also were developing about 5 separate products, we got it down to 5 people per project: database, application layer, front end coder, visual designer, and product manager. This was pretty good and pretty fast, but still time consuming to manage everyone.
When you have good people, they all have an opinion, and it takes time to let everyone have a say. So at Ooga, we’ve taken it the next step, down to 2 people per project. Ideally, in the future, we will experiment with getting it down to 1 person, although finding someone who likes doing all layers is rare. (If you are one of these people, let us know.) As a website grows, we’ll add one or two more engineers, keeping the one designer. We’re not sure it gets much faster after 3 engineers + 1 designer, unless you have a business that can be easily modularized. That group of four will then tap into shared Ooga resources for customer service, IS, and revenue.
We’re confident we can grow a business to a significant size with that configuration given the right people. Some of the challenges with this Speed Team approach so far: 1) Having only two people on a team means each person must be learning constantly in several skill areas to be good enough to execute. 2) It’s pretty intense because the whole product rests on each person’s shoulders. There is no hiding. 3) Our one simple document let’s us know what to do on a weekly basis, but doesn’t yet let us break down tasks into sufficiently small chunks where we know what to do on an hourly basis, so we’re changing that.We’ll talk more about this in the future.
And right now we’re looking for people who think this sounds like their cup of tea.
Yesterday there was a great article by Jessica Guynn in the Chron. She did extensive research and jammed a lot into it, and it ended up on the front page, which was really cool. It’s our first public announcement of what we’re up to. My favorite parts were when she compared James to “Timothy Leary the 60’s icon”, and then called the rest of us a “merry band” and an “eclectic clan of nerds.” Heh heh. Story link.
So a couple of us engineers and our CEO went up to Portland, OR for RailsConf 2007. Overall, it was a good conference and the whole list of “Who’s Who?” was there. We attended many sessions, but I liked JRuby and Solr the most.
RailsConf 2007 had over 1600 in attendance, so its pretty clear that the Ruby/Rails community is growing leaps and bounds. This is great news for us as we’re big proponents of the Rails platform. All of the energy and community behind Rails offers a lot of credence to the platform, and this was very evident with all of the many interesting sessions at RailsConf.
It was also clear that the number of Rails jobs is growing faster than the number of available engineers. In the foyer of the conference was a big message board and there was easily a ratio of 25:1 the number of “we’re hiring” to “looking for work” posts. We are looking to hire developers too, and we will teach you Rails and Ruby if you’re a great programmer in another language.
But onto the cool stuff! Adobe Apollo, and to a lesser degree Flex, was a common topic. Its very clear that the Adobe Flex/Flash platform is going to be a major player. Some engineers from Adobe did a session and showed how easy it is to connect an Apollo app to a Rails backend. Super cool!
We went to so many sessions that they are all blurring together. Here is a link to all of the RailsConf 2007 presentations.
We’re starting several companies simultaneously at Ooga Labs, and we are trying to be careful and creative about the financial and corporate structures we’re putting in place. It can end up mattering a lot in terms of how much value you can create and capture over the life of an enterprise. My last company, Tickle, founded in 1999, was a Delaware C-Corp, which is the most familiar structure to the VC community, and some of the Ooga Labs companies are also C-Corps.
The C-Corp structure served Tickle well until 2004, when we were trying to do a $20 million round of financing with new VC investors. It made no sense for the company Starters (which we define as the founders as well as early employees) who were still renting apartments, driving old Toyota Corolla’s and starting to have children, to keep going without taking some money off the table. The traditional equity structure prevented it from being easy without raising the strike price of the common shares. As is typical in most C-Corp’s, the Starters held common while the VC’s held the preferred, senior shares. The main reason a Board wants to keep the common share price down is because it’s hard to hire sophisticated new employees (including existing management’s replacements, potentially) when the strike price of the options in their equity package is high. The Board fears really good people will do the math and see they have far less upside for coming to your start up vs another start up with a lower strike price. It’s a point VC’s will often not relent on, certainly ours wouldn’t.
So we embarked on trying to figure out how to get the Starters some liquidity without killing the common share price. We spent 3 months and $350K of money with three prominent Silicon Valley law firms (one for us, one for our existing VC investors, and one for the new lead VC investor) to try to figure out how to make it work. What we found was that the ways of accomplishing our goal that had been acceptable to the IRS and SEC around 1999, had been eliminated by Sarbanes-Oxley by 2004. So we had to explore other back flips like re-capitalizing the company. In the end, we bailed on the financing for other reasons, but I had learned my lesson about the need for some sort of special stock for the Starters. I had also learned a lot more about how the SEC and IRS think about things, and we had come up with an idea for a new type of stock that would alleviate all the machinations to get Starters some liquidity along the path of growing their company. I vowed that when we started my next companies, we would fix this problem by implementing from the beginning, this separate kind of Starter Stock, which would represent some minority portion of the stock that each of the Starters received.
The basic idea of Starter Stock is that it 1) confers special voting rights to those who get the stock, and 2) it can be converted to any preferred equity stock at the time of a financing so it can be sold at that time without raising the strike price of the common stock. For instance, if the company is considering doing a $9 million Series B preferred round with a traditional venture capital firm, the Starters would first have to approve the deal due to their special voting rights, and second, Starters could sell some – say $1 million — of their Starter Stock as Series B stock bringing the total round to $10 million. $9 million goes to the company and $1 million to buy baby some new shoes. Whether this happens or not will be up to a negotiation among the investors, the board, and all the Starters, but at least you have the opportunity to legally and simply take some money off the table which then gives you the continued confidence to go for the big hit, which, in turn, aligns you more with the investors.
Every new C-Corp. at Ooga will have a Starter Stock class. We encourage everyone starting a company to look at this option if you are going to do a C-Corporation and you are planning on raising money. Two law firms that understand this new class of stock are Orrick and Perkins Coie and you should call them if you want to go this way.