Running the company for 5 years. The lessons learned.

Five years ago three seasoned software developers created a new company and called it Farata Systems. Fa was taken from Fain, Ra is from Rasputnis, and Ta from Tartakovsky. Five years is a good milestone for any firm, and in this article I “ll tell you our story.

When people create a startup, they often have a big idea, sometimes a business plan and an exit strategy (typically, to be acquired by a larger company for an X amount of money). But was Farata a startup in the first place? Here “s the quote from Wikipedia:

The phrase “startup company ” is often associated with high growth, technology oriented companies. Investors are generally most attracted to those new companies distinguished by their risk/reward profile and scalability. That is, they have lower bootstrapping costs, higher risk, and higher potential return on investment. Successful startups are typically more scalable than an established business, in the sense that they can potentially grow rapidly with limited investment of capital, labor or land. Startups encounter several unique options for funding. Venture capital firms and angel investors may help startup companies begin operations, exchanging cash for an equity stake.

We didn “t have any investors. We were profitable from day one by working as billable consultants for corporate clients. We didn “t have any business plan. We had our own software, but it brought us peanuts in terms of monetary rewards. We didn “t have money to invest into finding a professional salesman to offer our skills to potential new clients. We didn “t have any exit strategy. We didn “t even have an elevator pitch to quickly explain what are we doing. What did we have and why did we create this company?

We had good noses. It was the time when Adobe acquired Macromedia and released a software product for development of Rich Internet Applications (RIA). The name of the product was Flex, and even though its first version has been created earlier, Adobe made some smart marketing changes to make it affordable. We decided to bet on this product. We started with writing technical articles and blogs about Flex – in early 2006 there were no or little information available on the subject. Then we wrote an advanced book on bringing together Flex and Java in the enterprise world.

Each of us had billable hours (and the rates were pretty high), but we also started bringing other people on board and offering their service to our clients. How can you sell a consultant to any company without having a salesforce? We did it by PR. Consistent writing of quality technical materials and speaking at various gatherings (from 5 people in a local user “s group to large audiences at major conferences) got the word out – we started getting requests for help in development of enterprise RIA. Using the terminology from software engineering, we “ve implemented the Inversion of Control design pattern, which is also known as a Hollywood Principle: “Don “t call us, we “ll call you rdquo;. We were patiently waiting till someone would call us.

But publishing advanced technical materials was a double-edged sword. While perspective clients knew that Farata “s experts can be engaged for solving heavy-duty tasks, other consulting companies were simply placing their inexpensive consultants on never-ending enterprise projects.

First, we started getting requests for help only with non trivial situations, for example,

– we are going live with our online game in a month, but when more than two people are playing they experience serious slowdowns

– our enterprise application works fine, but once in a while some users are losing messages

– you don “t need to sell us Flex, we know it “s good for UI, but can you improve the reliability and customize communication protocols to fit our needs

– we “ve chosen Flex to avoid page refreshes, but our pilot application requires 40 seconds just to load the first page

We were helping everyone, but didn “t grow much. Placing a couple of consultants on a project at a large company was fine, but it wasn “t a major change from the growth perspective.

At some point, we started getting requests for bidding on projects. If a large corporation was about to start a large project, they “d ask several small vendors to bid on it. We “d sign a non-disclosure agreement to receive a Request For Proposal. Being experienced architects from our past lives, we could properly estimate the efforts required for successful completion of the project in question. We could foresee the issues and warn the perspective client about them. But we were not experience bidders ndash; we were telling the truth.

For example, once we gave a $250K estimate for a project, while our competitors offered to do the same job for $50K. Now we know – they applied such strategy just to get their foot in the door and to win the bid. Six months down the road we “d get a call from the project manager of that corporation complaining that the promised $50K turned into $500K and the project arrived to the dead end. Interestingly enough, we didn “t learn anything from that lesson. If we believe that the project would cost $250K, we “ll say so. But now we also offer to reduce the scope if there is a shortage of funds.

Coming back to promoting ourselves, I “d like to tell you about the role of technical training in our growth. Two of us are Adobe Certified Instructors and all these years we were teaching classes to corporate clients. Adobe develops excellent courseware and we use it a lot. But we also found a niche that was not taken by anyone. We became the only company that started offering advanced custom curriculum in developing rich Internet application with Flex and Java. As an example, during the last two years we were teaching public zero-marketing technical seminars in New York, Boston, Toronto, London, Moscow, Brussels. These seminars didn “t make us rich even though we remain in the positive cash territory, but they gave us a chance to spend two-three days in front of fellow developers proving that we are technically sound. You can “t BS for two days in a room filled with programmers. Have you ever had to go through a technical job interview that lasted two full days? No? We do it on a regular basis.

These public training events are like technical interviews for us and usually we receive a call or two from our former students, “Guys, we need help with our project rdquo;. This can be a year after we met, but hey, it “s better late than never.

At some point we won a large project (no, we didn “t lie in the proposal). How thin can you spread three experienced consultants? We couldn “t be at the same time in three different places. We had to bring more people on board to make a profit and do the job. An hourly rate we “re getting from our clients minus some profit margin would be the rate that we could offer our consultants.

Between 2006 and 2008, consulting rates offered for RIA development have substantially decreased. It became difficult to charge premium even for the expert-grade services, and we switched to a blended rate model. If someone needs a senior developer with Flex/Java skills, we offer a resource (hate this word but this is what the industry understands) that consists, say, from 10% of myself (or one of my partners) located here in the USA and 90% of a developer working from Eastern Europe.

This model works well for us. This gives peace of mind to our clients who know that their project is in good technical hands while staying within the budget. Such outsourcing model works because we (as opposed to large corporations) cherry pick each and every developer we hire from overseas. Today, 25-30 people work on Farata “s projects.

We “ve also learned that for a small company, selling programming tools for software developers is literally impossible. People want free stuff and they get it from us. We “ve open sourced a number of productivity tools that go under the name Clear Toolkit, which became yet another PR-tool for our company.

On the other hand, we “ve created a spin-off startup Surance Bay that “s specializing in development of the software for insurance industry. Today, Farata serves as an investor (!) of that startup, which started bringing cash in a record time, but this can be a subject for another article.

Two years ago, a top manager of a large company decided to create his own company. I knew the guy and he came to me asking for some details of starting a small business. While he didn “t have any experience of running a small company he knew rather well how to run a large IT department. He started with a business plan and a lot of financial calculations. He asked me, “Where are you guys planning to be in five years? How big are you planning to get? What kinds of revenues do you have in mind? What “s your exit strategy? rdquo; He was a very experienced manager and quickly realized that I was not ready to answer all these questions. Finally, he said, “Are you guys just created a company to build a nice life styles for yourself? rdquo;

He was right. Without knowing it, we wanted to have nice life styles while doing what we enjoy. Five years after I can tell you that we “ve achieved this goal. We still don “t have any exit strategy because we are not planning to exit. We are enjoying our lifestyles, developing cool software, helping our large and small clients in achieving their goals, we are writing books, teaching and learning, attending conferences, raising kids, traveling. What else to wish for? God bless America!

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