Being Small Ain’t All That Bad!
One-person companies are earning upward of $1 million in revenue annually. How do they do it? With high-speed Internet connectivity, mobile apps, automation, and a little help from their customers.
By Alice LaPlante, InformationWeek
Nick Bradbury is a legend among the independent, grassroots, pull-yourself-up-by-your-bootstraps Web-developer set. A serial entrepreneur, he is the creator of the HTML editor HomeSite, the CSS/xHTML editor TopStyle, and the RSS reader FeedDemon, all of which have achieved a near-fanatical user following over the years.
Although he won’t divulge how much NewsGator Technologies paid for Bradbury Software in 2005 — or what his annual revenue was prior to that, when he was a one-person business for more than 10 years — Bradbury admits that they were both “considerable” and provided for “very good living.” And although now technically an employee of NewsGator, he refused to move to Denver, where NewsGator has its headquarters, preferring instead to continue working solo in his home outside of Nashville.
“Colorado is beautiful, but I didn’t want to uproot my family,” he said. “Besides, it’s too cold.” Perhaps even more significantly, he likes the independent developer lifestyle. Although now part of a large organization, he is continuing to work on his own creations — just with more resources behind him. “I’m allowed to just work on FeedDemon out of my house,” he says. “It’s a lifestyle decision. Every developer who grows his business ends up not developing anymore. I didn’t want that to happen to me. I’m still doing the things I like doing — designing new applications and then coding them.”
Call them lifestyle businesses. Peopleless enterprises. Solo entrepreneurs. Workers like Bradbury are becoming increasingly common as the Internet matures, software as a service (SaaS) is more reliable, outsourcing becomes more commonplace, and customers and user communities begin to shoulder more of the work of keeping operations going. Such companies get big results by thinking small — from an organizational perspective, that is. From a revenue perspective, they’re quite ambitious.
“We’re seeing them everywhere — they almost don’t feel like businesses, because there’s no there there — these are people working from anywhere and in any time zone, and who are grossing from $250,000 up to $5 million or $6 million,” said Paul Kedrosky, a senior fellow at the Kauffman Foundation, who has written extensively about peopleless businesses. “Generally, these are people for whom the interesting part is the delivery of the product or service, not the management of other people,” he said.
“The no-employee business springs from the notion that there are two spheres: a manager/contributor sphere and a passion sphere,” said Terri Loier, founder of WorkingSolo.com, a Web site devoted to the challenges facing one-person businesses. There are many people who love to live in their passion sphere. They really don’t want to build a big business by hiring lots of other people — although that doesn’t necessarily mean they don’t think big in terms of dollars.”
InformationWeek profiled one-person companies that are currently reaping more than $1 million in revenue annually. (We cheated a little and included a four-person company because it embodies the spirit of a lifestyle business.) These businesses have a number of things in common. First, all of them use the Web to leverage their limited financial and personnel resources for everything from marketing and sales to sourcing raw materials and products to customer service and support. Second, they depend on high-speed Internet connectivity and mobile applications to work from anywhere and create virtual teams and partnerships that can be either permanent or brought together on an ad hoc basis. Finally, they depend heavily on their customer bases/user communities to pitch in and help with essential operations.
Lifestyle Businesses Scale Up, Or Down, As Needed
It comes down to priorities, said Guy Kawasaki, managing director of Garage.com, a seed- and early-stage venture capital firm. Naturally, a lot of entrepreneurs aim to grow, admitted Kawasaki. “Given the choice, I think most of them would love to be a Larry or a Sergey or a Bill,” he said. “But, obviously, that’s not going to happen for everyone. There are only 500 companies in the Fortune 500.”
Still, said Kawasaki, there are plenty of people without that kind of long-term goal. “What if you had a really great French restaurant: Would you necessarily want to franchise it?” he asked. “What would make you happiest in the long run? Those are the kinds of questions that many lifestyle entrepreneurs are asking themselves now that they have the Web and mobile technologies to support them.” And the financial barriers for one person to start and run a company have come way down. “You used to need $1 million to jumpstart a business with large revenue potential,” Kawasaki pointed out. “You had to buy $100,000 software from Oracle, and pay three people for 12 months of programming, plus have sufficient funds for all the management and administrative costs and physical infrastructure required. Now, technological innovation coupled with offshore outsourcing has reduced that figure to $10,000 or even less.”
Ramu Yalamanchi, CEO of Hi5, one of the fastest-growing social networking sites, with an international user base of 70 million, which is consistently ranked as of the 10 most-trafficked Web sites in the world, chose to go in the other direction. He and his three partners made a conscious decision that they wanted to grow aggressively and build a big company. Currently at 50 employees, and profitable since its first year in business, Hi5 is on track for expanding, both in terms of employees and revenue, said Yalamanchi.
“A lot of people who pursue these lifestyle businesses do it to avoid going into management,” he said. “We were lucky — everyone on our core team was interested in growing their leadership skills.” Ironically, he says, whereas people who run one- or two-person businesses want to avoid managing even a few employees, most of them end up having to manage crowds of thousands — if not tens of thousands — of users, as a way of keeping their operations going.” (See “With a Little Help From Our Friends.”) It’s a different skill set, said Yalamanchi, “but a skill set nonetheless.”
Bradbury, like many small software companies, early on stopped responding to individual emails from customers needing help. “It was just way too much,” he said. “I would have spent all my time on support.” Instead, he established user forums and when a question came up, would post his answer for everyone to see. Users naturally pitched in as well, but Bradbury hadn’t realized how much he could depend on his user community until taking his first vacation in years. “I deliberately didn’t take my cell phone or my computer, and was truly terrified as to what I would find in terms of support demands,” he said. “Instead, I found out that all my users had already answered them.”
“The risk in such cases is, at what point does the community say, ‘why are we doing all the work? This doesn’t provide much value to us,'” said Loier. “If the ‘group-sourcing’ aspect of an enterprise is not handled well, the business could lose a major business asset.”
Many people believe that there will be an explosion of high-revenue no-people businesses in the coming months and years. A major part of this is simply due to the expectations of younger workers who are just entering the job marketplace.
“There are a ton of people who would be very happy to be on their own, working for no one but themselves,” said Kawasaki. “And to do this while pulling in $1 million a year? “For many people, that would be the perfect life,” Kawasaki said.
“There’s an entire generation of workers coming into the business world who have no intention of working 20 years for other people,” agreed Loier. “They’re the offspring of the first major wave of independent home workers and telecommuters, and they have grown up assuming that their work lives will contain a great deal of autonomy and independence.” Have iPhone, Will Work Solo
As the first one-person business to make the Inc. 500 — Inc. magazine’s annual list of the fastest-growing private companies — Jim Fairchild does no marketing, has no Web site, works out of his home, answers his own phone on the first ring, and is resolute that he is going to remain solo for the rest of his professional life.
“I made the decision years ago to work out of my home when my kids were small, and my wife decided to home school them. I wanted to be part of that,” said Fairchild. He had a business partner at the time, but bought him out and for years has been the sole employee of Coggin & Fairchild Environmental Consultants, in Elgin, Ill. He made $3.6 million and was No. 121 on the Inc. 500 list in 2006. How does he do it? By keeping things simple, leveraging relationships with other companies that he uses to build specialized virtual teams for specific contracts — and knowing which technologies are necessary for running his business, and which ones would just distract from his core business of cleaning up contaminated ground water and soil for corporate and governmental clients. Although he physically handles the testing and monitoring work personally, he pulls in contractors as needed to do the heavy lifting of actually cleaning up sites.
“I like to do things in a single step, and that usually requires me to have information at my fingertips,” he said. “If a client calls me with a question, I want to be able to answer that, on the spot, without having to call him or her back.” Obviously, the Internet plays a huge role in this, Fairchild said. Much of his work is for companies that must obey environmental regulations — both from the Environmental Protection Agency (EPA) as well as numerous state and local jurisdictions — and all that data is posted on the Web. But because Fairchild is constantly away from his office, he needed mobility to have ubiquitous access to this information. For simplicity’s sake, he didn’t want to carry around different devices for different purposes. For that reason, he now leaves his laptop at home, and traded in his cell phone for an iPhone.
“I needed an all-in-one device,” he said. He forwards his office phone to his iPhone, so that he’s always available to clients; he checks his e-mail obsessively; and he can look up anything he needs on the Web from anywhere. When he needs to pull in contractors for a job, he e-mails or texts them and, because of the relationships he’s built over the years, usually gets instant response, whether it’s a price quote or an on-site meeting with a client. And he’s placed electronic devices at all the sites he’s monitoring to track the pollutant levels, which he can monitor from his iPhone. He creates, signs, and sends his contracts over the Internet, and uploads any documents — including complex technical specifications — as needed from either his iPhone or his office computer. “I keep everything electronic, so I never have to print anything out or file any papers,” Fairchild said.
Fairchild used to feel he had to hide the fact that he was a one-person enterprise working out of his home. “That’s why I kept my partner’s name on the company even after it was just me,” he said. Now, however, it doesn’t seem to matter. “There’s so many people doing this today that no one blinks,” he said.
Despite this utter reliance on technology to achieve his work, Fairchild is not a gadget freak. He’s not interested in acquiring technology for technology’s sake. “I don’t feel the need to upgrade every time something new comes out. Because of the time it takes to get up to speed, I have to make sure it offers a specific advantage before I’ll buy,” he said.
The Reluctant Millionaire
Dave Novak was just 21 when he started his eBay business in 2002. A recent graduate of the Art Institute of Phoenix, his first job had been as a graphic designer with large Internet company. After the company floundered and he got laid off, he got another corporate job, but soon rumors began circulating of a merger and more layoffs.
About that time Novak’s first daughter was born, and he decided he was sick of the whole corporate scene. “I wanted to be home around my family, and so my wife and I invested $2,500 and opened up our eBay store,” he said. Because he was a bit of a handyman, and knew something of home improvement, he did research on emerging trends in that industry sector. He decided to go into the business of selling high-end steam showers. “And we’ve been riding this wave ever since,” he said.
SteamShowers4Less.com was profitable right from the beginning, and has grossed over $1 million for the last three years. Novak is the only employee. He manages the Web site, answers the phone, responds to e-mail inquiries, and provides after-sales support.
Not having any e-commerce experience, eBay was the easiest place to start an online business, he said, because the technology infrastructure was there to do everything from listing the product for sale to communicating with potential buyers to accepting payment. He started small, and cautiously: buying only one steam shower unit at a time, and only purchasing another one after he had sold that one. “We kept our overhead very low,” he said.
But success brought its challenges. Two years ago, Novak made a difficult decision. Because his business had been growing so fast, he had been having trouble handling it all himself. So he had begun hiring employees. Soon he had four workers on payroll, doing everything from helping him in the warehouse with shipping and handling, to answering the toll-free number, and providing customer support. “I can’t say I loved it,” he says now about the experience of being a boss. “It definitely took a load off me, and allowed me to ramp up and start selling a lot more. But everything got more chaotic, and I had to spend time managing employees. I just decided, in the end, that it wasn’t something I wanted to do.”
So Novak laid off his employees, and made the deliberate decision to scale back. “My priority is my family,” he said. “I want to keep it simple.” He had the opportunity to open a retail store selling steam showers, but declined for the same reason. “People said, ‘Just get it up and running, and hire someone to manage it for you,” but it doesn’t work that way,” he said. “I could be making a lot more money today, but I decided it wasn’t worth it.”
Naturally, Novak couldn’t do what he’s doing without leveraging a broad range of technologies. There’s his Web site — now independent of eBay — that is set up for e-commerce with an online catalog, shopping basket, and checkout. He has an 800 number and fields quite a few calls. Although most of his sales come from the Internet, he’s found that because it is a relatively large purchase — units range from $2,000 to $4,000 — many people like talking on the phone before handing over their credit cards. He’s also incorporated live chat into his Web site, which he says is a popular feature, and allows him to be very efficient at both sales and support, as he can monitor multiple chat sessions at one time.
He purchases Google ad words as his primary vehicle for getting the word out about his business. He’s also been lucky enough to have been featured in local television and radio spots, and in specialty home and bath magazines. “I’ve never placed a traditional advertisement,” he said. “It’s either been free, because someone has done a story on us, or it’s online.”
Sometimes it helps for people to know he’s a small business, sometimes it hurts, he said. There are clearly people who would prefer to deal with a large, established firm. “I rarely come out and tell people it’s just me here,” he said. “But a lot of people like the fact that they are talking to the owner of the company, and feel they are getting personal attention they wouldn’t get at a bigger firm.” The Wisdom Of Crowds
Markus Frind has been getting a lot of attention lately. He’s been profiled in The Wall Street Journal, The New York Times, and numerous other mainstream consumer and business publications. Much has been made of the fact that Frind only works part-time — by his estimate, only 10 hours a week — to keep his free online dating site, Plenty of Fish, up and running. Acclaimed as “the world’s most productive business,” by Henry Blodget at Silicon Alley Insider, Plenty of Fish is run out of Frind’s home in Toronto.
The site was founded in 2003, and, according to Frind, is netting more than $10 million annually from advertising and affiliate marketing revenue. In a typical display of showmanship, Frind last year posted a photo of a nearly-$1 million check from Google AdSense for just a two-month period (Google confirmed the check was real.)
Automation is key to Frind’s success. He wrote the site using .Net, which gives users the tools to post their profiles online themselves, without handholding. He also created an algorithm that allows him to automatically separate legitimate forum posts from spam. But Frind also depends heavily on his user base. Volunteers pour over the more than 50,000 photographs of new members that are submitted every day, and weed out the ones that seem suspicious or which involve nudity. Additionally, Frind noticed several years ago that in his user forums people had started rating and voting on the photos of other members. At the same time, he was constantly being contacted by users who were reporting offensive or inappropriate threads or posts that they felt should be deleted. Frind realized he could spend all his time moderating such activities. Instead, he created an automated system to allow users to vote on everything from whether a string should be deleted to ranking other users to deciding if a member photo is of too poor a quality, or too obscene, to be posted. “I allow people to vote on whether something should be deleted. If seven out of 10 respondents want it gone, it’s gone,” Frind says.
When criticized for having an ugly and difficult-to-navigate site, Frind just shrugged. “People only use stuff that works,” he pointed out. His biggest and most time-consuming challenge is keeping the membership of the site fresh and up to date. “Approximately 30% of your members stop coming every month,” he said. “It’s just a fact of the business. People either find someone or they give up.” Mostly, getting rid of the inactive accounts is a manual process, he said, although he does “look at patterns, and at how the site is running, when deciding whom to eliminate.
Most of the tasks Frind performs are related to infrastructure: adding servers, making the site run more efficiently. “For example, Boxing Day [the day after Christmas] is our biggest day of the year. Our traffic increases 20% overnight,” he said. “This year I had to run out and buy and set up two new servers to accommodate the rush of activity.”
Frind recently hired his first — and what will probably be his last — employee, who handles complaints about possible fraud and information requests from law enforcement agencies. But mostly he doesn’t like the thought of having to manage people. “I have the skills to do everything myself, why would I need to hire anyone else?” he asked.
What does Frind do with his ample free time? He travels a lot. Spends time with his girlfriend. Blogs. And he’s glad he can choose to work when he pleases. “Like with any job, it’s not an issue of how much you work, but how smart you work,” he said.
“This is pretty much a business that runs itself,” he said. The fact that technology costs are dropping so fast has made his business scalable and flexible enough to accommodate the kind of growth necessary to remain competitive with competitors like Match.com. “This wouldn’t have been possible 10 years ago,” he said.
With A Little Help From Our Friends
Dave Lu had his “aha” moment for creating Fanpop from a Web site he built in his spare time just after graduating from business school. The site focused exclusively on Canon digital cameras, and provided a forum for users to come together and learn how to use the devices effectively, and share their experiences with each other. Through affiliate marketing programs and Google AdSense, he found himself pulling in more than $1,000 a month from the site without doing much of anything. “It turned out to be a great source of passive income,” Lu said.
At the same time, as a big fan of the television show The Office, Lu was constantly surfing fan forums, taking polls, and keeping on top of the show. Putting it all together, he came up with the idea for a network of social portals where “communities of interest” could access, contribute, and share content on topics dear to their hearts. “I realized that we’d never gotten past the first generation of fan sites,” he said. “Really, they had pretty much stayed at the level of Yahoo Groups.”
Excited by the possibilities, he got together three of his friends and proposed a social networking platform that would facilitate the creation of fan sites that could be designed and run by their members. “By giving the fan communities themselves the tools they needed to build their sites, we don’t have to keep up with the trends — our users do that for us,” said Lu. Today, Fanpop is a conglomeration of social networks, polls, image galleries, news, and — of course — user forums. “Because the community owns the site, there is no hierarchy for managing it,” said Lu. Fanpop itself generates its revenue through affiliate marketing and display advertising.”
The four partners made a conscious decision not to go to venture capitalists for money. Instead, they raised $100,000 from family and friends in January 2006, “and we haven’t taken any money since then,” Lu said. “We never wanted to lose control of the vision.”
Early on, Lu bumped into the term “lifestyle entrepreneur” and found it derogatory. “I don’t see how our company is different from those that ended up getting a lot of funding,” he said. “When I hear that term, I know we’re being written off.”
Yet, Lu argued, “we’re building a business as much as anyone else. Just because we’re four guys, just because we didn’t take VC money, doesn’t mean we’re not thinking big.”
The partners have also, for now, opted not to hire additional employees, but to share the work amongst themselves. This was a very personal decision,” Lu admitted. “Once you start growing, politics starts infiltrating the organization. Cliques form. That was what we couldn’t stand about large companies. We love being able to sit in one room and call out to each other when we have an idea or need help.”
Each of the four partners has taken significant risks to do what they are doing. “If we were just into cushy lifestyles, we would have all taken six-figure salary, and a safe corporate environment,” he said. “But it’s very rewarding. We’re in charge of our own destiny.”
For Lu, the most rewarding part has been doing the things he wasn’t trained to do. After working at Yahoo and eBay as a product manager, he got his MBA at Stanford before founding Fanpop. Yet he finds himself doing everything from graphic design to HTML coding to business development, accounting, and finance. “Because we all chip in for anything that needs to be done, we’re 150% to 200% more productive than large companies.”