How to start a 100% virtual company

As many of you know, I spend a lot of time with young entrepreneurs
here in St. Louis as part of a volunteer organization called the
Venture Mentoring Service . But sometimes there is no substitute for experience when it comes to starting a new company, and that is where my dinner with Bruce Fryer comes in. We caught up with each other last week when I was out in Salt Lake City on a business trip, where I was doing some screencast videos for Symantec.

Bruce and I are the same age and have known each other for more than 20 years, back when he was toiling in the fields of IT and I had just left those fields and become an editor for PC Week. We both were getting interested in local area networks and how they could connect to IBM mainframes, which at the time was cutting edge technology. Fast forward to the present and Bruce is embarking on his latest startup, a company to try to cut the costs of delivering worker’s compensation treatment for clinics.

What is interesting about the company, called ProtoHit.com, is that it
is 100% virtual. Fryer works out of his home office. He isn’t even on
payroll, because there is no payroll. Everyone is a contractor. He
uses a set of cloud-based tools that he has cobbled together himself
— why bother building a data center? He’s got a deal with a New
Mexico bank that handles his treasury operations. He has a lawyer in
New Mexico and VC investors scattered all over the landscape. And he loves every minute of being, as his lawyer calls him, COE – chief officer of everything. Like me, he is a lone wolf, trying to sell his vision and make a few bucks along the way. It is the wave of the future.

What he really calls his idea is Cheap Bastard Startup, because he
doesn’t have a lot of dough to invest in fancy digs, tools, or
high-priced talent. He’s been down the high-priced road before and
came up short, indeed, is still paying off the bills from it. There is
nothing like learning from your last blow-up, and so this time Fryer
is determined to prove that he can do it on a shoestring.

So what are some of his tools, just in case you are interested in creating your own cheap startup? Go to his website and click on some of the links here.

Great domain huh? Thanks, that was my idea. Yeah, I just added another $10 a year to his cost structure.

He starts off with Amazon’s EC2, their cloud-based computing services.
Amazon recently added VPN services, which when you think about it
makes a lot of sense – now you can have your cloud and still have an
encrypted path into and out of it to your own office, if you have an
office. He uses DropBox, a cloud-based file synch and storage service,
so he and his staff can share their common business documents. He is
building his app using Google Gears and Mozilla Prism, so his
customers will have a desktop experience but still have the best of
the cloud world too. He uses vTiger for his customer relationship
management – no need to spend the megabucks on Salesforce.com. His
team is using WebCollab for project management and task tracking. All
in all, he spends less than $1000 a year on his infrastructure. Back
when we were young pups just getting started in IT, you couldn’t even
pay your monthly mainframe utility bill or write a requirements
document for $1000. It sort of gives you perspective. I wish him well
and feel free to share other tool tips that you are fond of that
support this model.

3 thoughts on “How to start a 100% virtual company

  1. One reader writes in:
    Here are a few additional notes to your list how to cut down the overhead of a startup – that we have employed:

    1. Avoid VCs (if you can). Get all co-founders to contribute starting capital in exchange for equity. Most CEOs will tell you that dealing with the VCs can eat up to 75% of the CEO’s time – and in many cases sets up a future timing trap for the founders to lose control of the company. And you won’t need to spend time rewriting the business plan, spend hours doing PPTs, fly out to meet VCs, hire lawyers to draft contracts etc. etc.

    2, Keep the personnel costs down. No salaries until the company earns its own money – the old fashioned way. Until you get there, some may contribute only part-time and maintain another job to help pay the bills. This setup works if everyone participating has a meningful stake in the company. And nothing focuses the mind to sensible frugality nore than spending your own money.

    In contrast to your friend’s example. we decided to build our own data center to have the flexibility and control we feel we need with the back-end (setting up debuggers, getting our favorite versions of server software, staying up with latest patches and updates, allowing IP-address-based security, allowing us to upgrade the hardware on a moment’s notice etc.).

    We’ve gone with Microsoft’s latest server platform, and their virtualization software. This allows us to run a production and a development version of IIS, SQL Server, Exchange Server, ISA Server and an admin Windows Server for VPN access, source control and file storage – all in a 1U box from HP that has 32GB of RAM, 2 TB of hard disk space, 2 processors with 6 cores each. All 64-bit. Cost? We purchased the hardware for $5,500. Software is free thanks to Microsoft’s Bizpark program
    (http://www.microsoft.com/bizspark/Default.aspx). Our ongoing monthly hosting cost is $150 that covers cabinet rental, power and bandwidth, taxes included.

    Our review of the Amazon platform revealed that it can get you started cheap, but you’re stuck with their menu of choices and you’ll pay on the long run if you’ll be successful (there has to be a profit there for Amazon as well). If we have a performance problem on the server, we’ll have the tools and the expertise to figure it out without pointing fingers at anyone else. We’re planning to be successful and wanted to be in charge of our own technology – end to end. This will also be an asset if it even comes time to sell out.

  2. As an additional note. Sometimes folks struggle with the installation of open source. I’ve used a hosting site which will do the set up for you. For free. It’s $5 / months hosting (website, MySql, email, et al):
    http://www.tmdhosting.com/sitemap.html

    There’s probably an open source project which is just right for whatever your needs.

    Oh and a followup to the AWS comment above. Yes Amazon makes a profit. But a good rule of thumb is if your server utilization is less than 70%, AWS is cheaper. It’s just a matter of how much money you want to send to HP. Your reader is spending $1,800 / year in hosting + $5,500 for hardware plus t&m to install. Running that size virtual server on AWS 24/7 would cost $5,100 a year. And the software is free. My point is you can automatically spin up and down servers as demand requires.

    Bottom line, pay close attention to your demand curve.

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