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Socialtext: A Virtual Company Looks For A Home

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When I was CEO of a risk management software startup, in very risky times, I had the honor of having John Nesheim as an Advisor.

His book, High Tech Startup is a classic guide for entrepreneurs from idea to IPO.  According to these Cliff Notes, we are at stage 9:

Stage 1:   Getting the Idea
Stage 2:   Meeting Around the Kitchen Table
Stage 3:  Getting the Founders’ Commitments
Stage 4:  Pullout from Employer
Stage 5:  Creating the Business Plan
Stage 6:  Filling the Management Team
Stage 7:  Raising Seed Capital
Stage 8:  Incorporating and Cash in the Bank
Stage 9:  Finding a Home
Stage 10: Starting Up
Stage 11: Raising Secondary Rounds of Capital
Stage 12: Launching the First Product
Stage 13: Raising Working Capital
Stage 14: Initial Public Offering

The best advice Nesheim repeatedly gave me was to think bigger. But more on that later, as it is a dangerous thought process when measuring square feet. Real Estate is the leading cause of death for startups.

The thing is, Socialtext has purposely leapfrogged a few of these steps through net-enabled bootstrapping. We started with a wiki, me in Palo Alto, Pete in Foster City, Adina in Austin and Ed in Ann Arbor. Today we are ten, and hiring, spread throughout North America. We have had product in the hands of paying customers for two years now, served them well, and with almost zero overhead. Everyone works from their home office, with a social fabric made of broadband and social tools:

  • Socialtext — the building and garden
  • IRC — the hallway
  • FreeConference.com — the conference room
  • Skype — the meeting rooms
  • IM — talking over the cubical
  • VNC — peeping over the cubical
  • Our blogs — the front porch
  • I am convinced that being virtual is the best way to start a company. The benefits go beyond cost (although the culture of frugality can go a very long way). In our case, it improves the product. But generally it is more productive. When the bandwidth for collaboration is constrained at times, you gain a certain focus. And with wiki, you develop a group memory to draw upon as you go forward.

    The biggest downside is it is more difficult to celebrate victories. Pete Kaminski has a saying: time F2F is to valuable to be spent on work. I can order a pizza to be delivered to everyone’s home, and we have had our pizza parties, but it’s not the same as being able to have that bash when you hit a big milestone. So instead, we celebrate our victories with the people we our working for. Our friends and family.

    Which brings me to perhaps an even bigger upside.  Working from home has given me an opportunity to be around while my kids are growing up.  Work does bleed into off hours, joyfully, and you have to be careful not to let it turn into Perma-work.

    Interestingly enough, being virtual was seen as a plus by customers and employees, but seen as a risk factor by VCs. In a sign of not getting it, one even used it as a reason to pass. But you can learn about risk factors, perceived or real, from VC feedback so we took it seriously. Even considered consolidating the team earlier. Basically there are two risks:

  • You can manage yourselves virtually, but can others manage you? You never run a great startup to be acquired, but you certainly do not want to rule it out. There is the possibility that an acquirer may not perceive the distributed structure as a strength. Something similar to the walking around theory of management, people like to see busy people working in a row of cubes. And there is the day when I give up my job as CEO, would the requirement of managing a distributed team decrease the candidate pool?
  • How will the culture adapt to the somewhat inevitable office? This is real and what we are working on now.
  • As we start office hunting while growing the team, our challenge is maintaining the practices and culture we have fostered over the last 2+ years. Our approach is to have at least half of the team remain virtual and for those the main office to have flexibility to work at home at times as well. We will encourage travel not just to the headquarters for cheerleading, but for people to get together in the field and various on-sites. The big risk is bifurcation between “the office people” and “remote people.” Not as in warring tribes, but collaborative practice.

    Adina is in town to work with Pete and me this week. One of our better practices is collaborative note taking sharing for meetings. For our real estate tour, we are sharing photos of places we like. With an evenly distributed team, the incentives for sharing are easy — it is a by product of daily work. With a partially distributed team, the norms must evolve based on new incentives.

    This is more than finding a home, it’s raising a barn that is shared by the builders. I’ll try to share more about this transition and the journey itself.

    Reader’s Comments…

    Ross Mayfield is CEO and co-founder of Socialtext, an emerging provider of Enterprise Social Software that dramatically increases group productivity and develops a group memory.

    He also writes Ross Mayfield’s Weblog which focuses on markets, technology and musings.

    Socialtext: A Virtual Company Looks For A Home
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