With our recent announcement of our new venture, the web has been abuzz with speculation. What follows is a guest blog post by Ed Sussman who visits lullabot.com to help shed some light on the situation. If you'd like to reach Ed, contact him at emsussman@gmail.com
Amid the gyrations of the stock market, and predictions of a severe economic downturn, I have found myself in the interesting position of launching a start up with my friends at Lullabot and Bond Art + Science. Over the past six years, I've worked within the comfortable fold of two well known brands in the media world: Inc. and Fast Company, the last four years as president of a digital division with six websites, 40 employees and more than $10 million in revenue. Now I've left to be the CEO of a self-funded company formed by Lullabot and Bond Art + Science that doesn't even have a name for its product yet (even the name of the company is just Codename Enterprises.)
Some people think we're crazy to do this now. Jason Calcanis wrote a couple of weeks ago that he expects 80% of the start ups already funded would collapse because of the down, part of a "start up depression." And legendary VC Fred Wilson said companies without angel or VC funding in place would probably have to try to make it without VC funding.
There's an old axiom, "There's no bad time for a good company" but that's a bit flip for the times. After all, some companies with good products are going to fail this year because of the downturn – they won't be able to cut their expenses deeply enough to make up for lost revenue, and VCs will cut the cord before second or third round financing becomes available. That's why there's some panic in the start up world right now, tempered by lots of practical advice from VCs about tucking in for the long winter of recession ahead. Sequoia Capital's long slideshow shared with their portfolio companies recently is the best I've seen on the subject.
With our fledgling company, we only need to move around headcount numbers on a spreadsheet to make phantom staff we never hired go away. We're working lean from day one. If this were a funded start up, about three million dollars of other people's money would have been burned up so far. Instead, we just burned a few more pounds off of Lullabot Jeff Eaton. (That's an inside "skinny" joke.) By the way, Eaton talks about the technical work done by Codename so far, and the excellent contributions that will ensue for the Drupal project, in this blog post.
That's been the story for almost a year, now, actually. Day one for Codename was about ten months ago, when Lullabot managing partner Liza Kindred and I started talking about how damn hard the Drupal open source social publishing platform was for the likes of her and me (non-developers), and seemingly, even for the many developers who were working on a large project for me. I was in the midst of launching two of the most complex Drupal-powered sites to date – FastCompany.com and IncBizNet.com – and the separation between the promise of Drupal and the practical restraints were fairly maddening. I advised the Lullabots (the world's leading Drupal consultants) to start working with Bond Art + Science, one of the best user experience firms in the nation. I also read an amazing post called "How Drupal Will Save the World" by Lullabot CEO Jeff Robbins, that pretty much laid out all the guiding principals that came to be the Codename company.
Some 4,000 hours of development and design by Lullabot and Bond Art + Science ensued. The object was and is to build a hosted platform, powered by Drupal, that gives ordinary people, businesses and organizations simple tools (like drag and drop or point and click) to custom-craft websites with features such as multi-user blogs, social networks, wikis, member reviews and ratings, photo sharing, and custom form fields. With these tools, even newcomers should be able to build feature-rich multi-user websites that go well beyond the boundaries of blog sites, or more rigid products such as WordPress.com and Ning.
"Working lean" is an understatement of what happened. Working for nothing is what happened. Lullabot juggled consulting and Codename to make it happen so far. The excellent user interface experts at Bond similarly kicked in their valuable partner time. An amazing advisory board has similarly been offering up valuable advice: Jeff Dachis, former CEO of Razorfish and senior partner at Bond Art + Science; David Bradley, owner of Atlantic Media; Jeff Veen, founding partner of Adaptive Path and former design manager for Google; and Lane Becker, co-founder of GetSatisfaction.com and a founding partner at Adaptive Path.
The Product
But "Why Start Now" isn't answered just by saying, 'we know how to do it if we want to, even if it means working lean and in a tight economy.' "Why Now" requires a deeper examination of the importance of this product, especially in tough economic times.
The short answer is that websites that are social and dynamic are dramatically more useful than websites that are static, and that has a powerful social implication. In his post, Jeff Robbins tells the story of a village in Nigeria that allowed an oil company to use its land in exchange for clean water and schools. Because they had a website with some flexibility, they were able to post the contract with the oil company and bring attention to the oil company not living up to its obligations.
It's incredible how many organizations and businesses in the United States, let alone the world, still have static websites where they can't even change their business hours without going back to the developer who built the site for them. The simplest CMS back-end remains unavailable to them, unless perhaps they keep a blog (which in all likelihood is hosted elsewhere.)
I switched FastCompany.com over to Drupal in February, making it a dynamic site for the first time. Within three months, repeat visits had increased 1000%. The site went from a straightforward publisher to a platform for conversation. But it took us almost a year to build and the work of half a dozen full time developers - not something ordinary people or businesses can do.
Yet, think of the practical implications if we could create a widely accessible web publishing tool with great social tools and format flexibility:
- Small businesses in search of leads for scarce business online could do a significantly better job attracting and creating a conversation with clients. More efficiency means more business and more jobs. Really.
- Small organizations could tap into the knowledge and needs of their members, and help them better engage with one another. Stronger organizations mean more powerful grass roots social movements. (Or at least better organized bowling leagues.)
- Bloggers could expand their work into real websites, with highly flexible formatting of pages and forms, rich tools to interact with their readers, and a back-end CMS akin for group blogging to what a major publisher pays thousands of dollars for. Better blogging platforms mean better information to readers at a time when newspapers are disappearing.
Earlier this year I was a judge at a startup competition put together by Jeff Jarvis, one of the great voices of "citizen journalism." We were charged with judging the business plans of a group of grad students who thought running their own websites might be a better alternative to getting a job. A couple of the plans were, in effect, community newspapers, and a big chunk of the money they were after would have gone to pay for development of their sites. A few others involved more sophisticated dynamic tools: bookmarking, ranking and rating, user profiles, and the links.
When our platform reaches its potential, the startup costs for making these business plans real will drop dramatically. Companies will launch that would otherwise have never had a shot. And more start ups equals a better economy -- it's large enterprises that shed jobs during a recession. Job growth comes from small business.
Drupal is a magnificent modular platform that lets you build most any website you can imagine. If only you have the special know-how. It's hard even for developers to master, though. And that's not good enough to reach the mass audience that needs a social platform to build their websites.
That's why we're building a layer between Drupal and the end-user -- a layer that simplifies choices, but leaves Drupal core intact. And it's free.
Can we make money with a free product?
Yes.
Some websites will want help with advertising. That something I'm good at, having grown ad revenue almost 600% during my time at Inc.com and FastCompany.com. Some will want premium services, like extra storage space, beyond what we'll provide for free. And some websites will want to tap into our expertise in how to maximize a social website with great copywriting, custom branding, SEO, SEM, and community building.
The business model for freemium remains viable even in a weak economy. Fred Wilson wrote a good post about this. The services surrounding a free product can be very valuable, and even in the worst economy, people will pay to get help succeeding in whatever is most important to them.
We're well aware that plenty of others have their own visions of expanding social media platforms to more people: Ning with better social networks, WordPress.com with better blogs; Acquia with better, supported distributions of Drupal itself.
What we will offer as an alternative is a more flexible format that's still straightforward for average users. And we'll be improving Drupal all along the way by giving back to the open source project. Jeff Eaton discusses a number of important breakthroughs we've already contributed in his blog post.
We'll see over the coming months whether this approach interests outside investors -- outside investment money would certainly speed things along. But we're going to keep going in any case.
So why start up now?
Because innovation is always important.
Because getting in at the bottom is how you make the most money in the long term.
Because aggressive companies pick up market share more easily during bad economic times.
Because efficient ad-supported media, like radio during the great depression, can and do catch hold even when times are rough.
Because, as investor Mike Moritz put it, the best time to invest is when people are cowering under their desks.
Because people need this product.