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& DESIGN Home Page Architecture Brand Equity Auto Design Game Room SMALLBIZ Smart Answers Success Stories Today's Tip INVESTING Investing: Europe Annual Reports BW 50 S&P Picks & Pans Stock Screeners Free S&P Stock Report SCOREBOARDS Hot Growth 100 Mutual Funds Info Tech 100 S&P 500 B-SCHOOLS Undergrad Programs MBA Blogs MBA Profiles MBA Rankings Who's Hiring Grads | | SEPTEMBER 3, 2003
By Marc Fleury Doing It Wrong, Getting It Right An ill-fated startup produced an invaluable lesson: The secret to making a business take wing the second time around In the late 1990s, while working as a sales engineer at Sun Microsystems (SUNW ), I decided that I wanted to do something more technical, more on the programming side of things. I was interested in developing an application server, a program that manages the applications for an enterprise, using Java, a Sun programming language with which I was familiar. Open Source, whereby a developer licenses the code to users at no cost, was just coming into its own at the time. Users could run the program, and access the source code or even modify it, at no charge. Given the business climate at that time, I felt that there was a good likelihood of finding venture capitalists to fund the project. In other words, once I firmed up the product, I could stay focused on the product while the suits could figure out how to make money and build a real company around it. The prospect of working for myself was also appealing. I had a friend who felt the same way, so together we founded Telkel, Inc. in the fall of 1999. I was the chief technology officer, while my friend, who had a financial background, was chief executive officer, in charge of pitching our product and company to potential investors. BUSINESS MODEL DU JOUR. My partner and I developed a business model, which consisted of building an application hosting business on top of JBoss, our Java application server. Hosting applications, or running programs on our server for a fee, would provide the revenue for our company. Two problems quickly became apparent when we approached VCs with our plan. The first was that we had no credibility in the application hosting business. We had strayed from our core competency, which was developing the technology, and jumped on the application hosting bandwagon because it was the only business model we could come up with for making money on it. The second problem was that our product reached its first stage of maturity in the spring of 2000. Up to this point, we had funded the development ourselves so that we would have a viable product with which to approach investors. At the very moment when people might have been interested in funding our product, the heyday was over, venture capital funding had dried up, and open source had become the pariah of high-tech investment. At this point, we had a great product but no revenues. Since the product is free, we had users but hadn't figured out what we could sell them. Meanwhile, we were carrying significant overhead for salaries, office space, and equipment. The money ran out, and the company folded in November, 2000. My partner and I parted ways. You can probably see by now that when it comes to starting a company, the above is a recipe for "doing it wrong." Fortunately, from my experience to date with the launch of my second company, JBoss Group, in August, 2001, I can also tell you how to do it right. KEEP THE BEST, TOSS THE REST. I had a very strong belief in JBoss, the application server that was the core product, and, unlike the money people, I believed in open source. I had also really enjoyed being my own boss. In short, I just wasn't ready to give up yet on a company of my own. My first company had failed, but I had still awakened the next day. If I gave it another shot, I felt fairly confident that I would still be able to find a salaried job in the tech industry if the entrepreneurial experience didn't pan out. Thus, in approaching my second venture, I took a good, hard look at what went wrong with my first, and segregated those factors that were within my power to change. The product wasn't the problem. The macroeconomic environment was wrong -- VC money had evaporated almost overnight. Tech companies had fallen out of favor. I couldn't change either of these things, but there were some things that I could change. Chief among them were my own understanding about what running a business is all about and a willingness to adapt my business model to the post-1990s reality. I decided that the company had to turn a profit from the start. I had to keep revenues ahead of expenses at all times. I would not seek VC money this time -- the environment wouldn't allow it. Since I had already lost my savings, I had to make money on my venture from the get-go. I had no choice.
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