Advantages of an Entrepreneurial Approach
Example of Profit Participation
If You Are Interested in Working With Us
Internet Illuminations (“II”) is a new company that will research, start and incubate Web-based businesses, using its Internet marketing, search engine optimization and conversion skills to add substantial value to such businesses. II will focus on starting businesses that generate positive cash flow within a few months after start-up, rather than burning through millions of dollars raised from venture capitalists and hoping the company will be sold five years from now. Under the right circumstances, however, we will also start businesses with substantial potential which require significant investments of venture capital.
Depending on the Web site, revenues will be derived from:
AdSense is an advertising service offered by Google. You place Javascript code developed by Google on whatever pages you wish to. Google then analyzes the pages and then decides which ads to place in the box you have specified. If a user clicks on an ad, Google pays II a percentage of the revenue it collects from the advertiser. This is called "pay per click." For clicks performed in a certain month, II will receive a check from Google about 45 days after that month closes.
Other advertising agents (such as BlogAds.com) pay Web sites on a cost-per-thousand (CPM) basis — e.g., if your site receives 10 million page hits a month, and your net CPM (after commissions to BlogAds) is $3.00, you would be paid $30,000 a month. BlogAds charges a commission of 30 percent of the net revenue (revenue after credit card processing fees). In most cases, II will display pay-per-click ads rather than CPM ads, simply because the former yields more revenue.
There is no point in designing a great site if no one visits it. Among its partners, II will have several search engine optimization (“SEO”) experts who will use their proprietary SEO techniques to drive traffic to a site. When considering which Web sites II should develop, they will conduct extensive research before the site is designed as to what keywords pay particularly well, and we will design Web sites with that in mind. II will only utilize "white hat" SEO techniques; “black hat” techniques will not be utilized.
Once a visitor comes to your site, you want him to do something that makes you money: Click on a pay-per-click ad. Sign up for a subscription. Purchase a product or service. II will have several conversion experts who know how to entire visitors to go the next step.
II will partner up with experienced Web professionals to develop Web-based businesses. Potential partners include:
In almost all cases, II will look for highly experienced professionals who know what they are doing and are up the learning curve. (In The Mythical Man-Month, Fred Brooks says the top programmers are at least an order of magnitude more productive than an average programmer, and this is also true of Web designers, developers, writers, and other Web professionals.)
II will work with such individuals on an entrepreneurial basis — rather than being paid a salary, they will receive a percentage of the profits generated by the Web site. II offers these individuals several advantages:
One of the greatest benefits offered to our partners will be an intangible one — the ability to have a substantial impact. Many Web developers have worked for large companies where they are part of a large team. Or they are consultants who are tweaking an existing site or who have clients whose viewpoints are different than theirs. With II, designers will be able to choose the design they want. Developers will not be writing version 12.3 of the Korean version of the Microsoft Office paper clip, but rather will be able to design and code a system from scratch, doing it right the first time.
Offering an piece of the pie will allow us to attract a higher caliber of professional than even if we were paying huge salaries — people simply work harder, and care more, when they own equity. In his essay Great Hackers, Paul Graham notes:
At our startup we had Robert Morris working as a system administrator. That’s like having the Rolling Stones play at a bar mitzvah. You can't hire that kind of talent. But people will do any amount of drudgery for companies of which they’re the founders.
Division of profits will be according to a formula negotiated upfront. Let’s assume that the split that is agreed to is:
So it is agreed that the Web professionals will receive Z percent. Assume that John initially does everything and works 200 hours; in that case, he would receive all of Z percent. Assume later on that John gets busy, works another 50 hours, and Sally works 100 hours. Assume that John and Sally are at the same skill level. In that case, going forward, John would receive 5/7 (250/350 hours) of Z percent and Sally would receive 2/7 (100/350 hours) of Z percent. In many cases, there would be an agreement that John has to stay with the project for some minimum commitment; otherwise, he would lose his share of the Z percent.
There will be some weighting as to experience and seniority — a very senior professional is often 3 times as productive as a mid-level professional. In all cases, however, we will focus on working with experienced, highly skilled developers. With each partner, II will sign a detailed contract specifying who has responsibility for what. Partners will receive their share of profits as long as they continue to do whatever they contractually agreed to do.
In the ideal world, II would partner up with individuals who want to work full-time on developing a Web site and a Web-based business. No doubt we will be able to find such individuals and enter into a partnership with them. In many cases, however, there will be individuals that either have a full-time job or who have a consulting practice. II will accommodate such individuals, even if they cannot work full-time. However, at the beginning, we will need a minimum amount of effort; otherwise, things simply move too slowly, and you can only subdivide a project so much.
In most cases, during the initial phase, we will seek a minimum of 20 hours a week. Those who can work substantially more than that will receive substantially more than a pro-rata increase in compensation (percentage of the profits) — e.g., everything else being equal, an individual who works 60 hours a week developing a site is much more than three times more valuable to II than someone who works 20 hours a week.
In some cases, work can more easily be subdivided and handled by part-time partners:
II will operate as a virtual company. Our partners can work wherever they feel most comfortable — an office, their home, Starbucks, the beach. With notebook computers, broad¬band wireless access, e-mail, virtual private networks, and mobile phones, knowledge workers are no longer chained to a desk. As a result, II will be able to partner up with individuals around the country and even outside the U.S.
For most of its Web sites, II will focus on generating cash flow from its Web sites, rather than a "liquidity event" in which the business is sold. II will offer its partners the opportunity to earn recurring income over a long period of time, with an initial up-front investment of time which is then tailored off as the site matures. For many of our partners, this is a more attractive option than working extremely long hours for 5 years, hoping that the business is sold.
For example, assume one individual is able to handle the design, writing and programming of a Web site. (All Web sites need a designer and writer, while not all Web sites will need a Web developer.) Assume that over a 3-year period, we can build the Web site up to $500,000 in annual profits, and that such individual receives 30 percent of the profits. Assume that in the first two years, that individual worked 30 hours a week, and thereafter works 10 hours a week maintaining the site. His 30 percent share of the profits will provide far more than he could ever earn in a job or doing consulting. In addition, he can work at home, without the political games that big companies are so good at, with substantial control over the Web site, and he can work when he wants. Once the Web site goes into maintenance mode, he can then work on other Web-based businesses with II.
Some Web-based businesses will have greater potential to achieve a sale of the business than others, and for some of them, II will focus on an eventual sale of the business. In some of such cases, substantial funding will be required to develop that business. In that case, II will spin-off such business and raise venture funding for the company, keeping a percentage of the equity for itself.
In 2002, James Mitchell founded Boston Convivium, which has become the most successful “high end” social group in Boston. James hosts one large party every month, with approximately 500 people attending, as well as one or two smaller cocktail parties a month, with approximately 100 people attending. All of these parties are given at high- end venues (the Harvard Club of Boston, Davio’s, Great Bay, the Langham Hotel), and BC attempts to limit its membership to interesting people who have manners and good social skills and who are not rude, flaky or space cadets. BC has over 7000 people in its database, 4100 of whom are currently on its invitation list for parties and other events.
In December 2006, BC upsized its Microsoft Access database to Microsoft SQL Server and then connected its database to its Web site. For the rest of 2007 and 2008, BC will ask its members to log in and provide additional information about themselves, including a detailed description. BC hopes to finish writing all of its Web-based forms by August 1, 2007, and to obtain complete information on most of its members by the end of 2008.
James has developed an outstanding reputation in the Boston community because of BC’s extraordinary success. II will utilize his extensive contacts to find partners for II. Currently we do not have descriptions for most of our members, yet James has been able to identify more than 100 individuals he will contact about working with II. James believes that many of these individuals will be interested. As most of the 2900 members who have not written descriptions submit their information online, II will be able to identify at least another 100 people to contact about working with II.
Currently BC is adding about 100 member a month, with no recruitment efforts. Once new members can sign up over the Internet, BC will begin an active recruitment campaign, primarily by asking its existing members to recommend others, as well as posting ads on Craigslist. Through these efforts, BC will be able to add a minimum of 300 additional members each month. James will read each of these new member applications to see if any of them would be suitable partners for II.
II will also post free ads on Craigslist and other Web sites. Because II will operate as a virtual company, partners can be located anywhere in the U.S. or even located outside the U.S. In addition, there are numerous monthly conferences in the greater Boston area for Web-based startups, search engine optimization, Web designers and Web developers. Members of II will attend most of such conferences in order to recruit new partners.
II has chosen five software stacks and platforms that are not only popular with the better Web developers but also offer excellent functionality. One choice will be Microsoft’s platform — Windows Server, IIS, SQL Server and .Net. Various Microsoft programming languages (primarily C#, Visual Basic and VB Script) will be used within the Visual Studio oe Expression Web IDEs.
The other four choices will utilize Red Hat Linux, the Apache Web server, and the MySQL database. Although there are other good open source databases, MySQL clearly has the strongest mindshare. For programming languages/frameworks running on the Linux platform, II will focus on PHP/CakePHP and Ruby/Ruby on Rails. For content management systems, we will use WordPress and Joomla. Obviously there is some overlap — e.g., a Joomla developer would also know PHP. We are particularly interested in Rails because of the substantial savings and development and modification time that Rails offers.
II has chosen these five platforms not only for their technical excellence, but because of the developer community they have attracted. As Paul Graham said:
When you decide what infrastructure to use for a project, you’re not just making a technical decision. You’re also making a social decision, and this may be the more important of the two. For example, if your company wants to write some software, it might seem a prudent choice to write it in Java. But when you choose a language, you’re also choosing a community. The programmers you’ll be able to hire to work on a Java project won’t be as smart as the ones you could get to work on a project written in Python. And the quality of your hackers probably matters more than the language you choose.
In the ideal world, II would choose one platform and use it exclusively. The problem is that whatever platform we choose, there will numerous desirable partners whose experience is on another platform. If we choose exclusively the Microsoft platform and we meet a Ruby on Rails guru, not only will it take him several years to get good at Microsoft technologies, in almost all cases he will have no interest in learning Microsoft technologies — that’s why he choose Rails.
Our experience has been that the better the designer or developer, the more fussy they are about which tools they use. By offering developers the opportunity to work in platforms they are not only really good at but really love, we enjoy much higher productivity. With these three choices, we can build institutional expertise in a few selected platforms while still offering our partners substantial choice in what they use.
For Web design, we will use Dreamweaver almost exclusively, given its extraordinary power, the large number of third-party plug-ins that are available, and its collaboration features. For Web development within the Microsoft platform, Visual Studio will be used. For PHP and Ruby, it is not clear which IDE is the most logical choice.
II will have two servers which our partners can access 24 x 7 x 365:
II will have a server on which all files for all of its Web sites are stored. We believe that version control is important, so that we can easily go back to previous versions if necessary. Some form of check-in and check-out system is essential, so that two people are not working on the same files at the same time. Ideally we would use a hosted site so we do not have the expense of setting up a server and a version control system.
We have not found the perfect solution and certainly would welcome your thoughts on what is the ideal solution. We tried Microsoft SharePoint and found it to be quite useless for what we wanted to do. We have listed our thoughts version control and backup system. If after reading that page, you have any suggestions, please e-mail James Mitchell or telephone him at (781) 647-0136.
II will not have any production servers on-site. Server maintenance and system administration is a specialized skill with little upside and lots of downside, so it makes sense to outsource this. Initially II will use shared server hosting and as traffic increases, we will eventually have our own server located at the hosting company. II intends to focus on a few Web hosting companies because each company has different control panels and policies and it makes sense to learn only a few of these.
GoDaddy will be used as our domain name registrar.
II will develop a detailed set of Web design and programming standards, which will be applied consistently to all of our Web sites. Particular emphasis will be placed on "white hat" search engine optimization standards.
Recruiting information for prospective partners
If you're interested in working with us, please read our information for prospective partners and then send James Mitchell an e-mail at JMitchell@KensingtonLLC.com.