[Bamafan]

On some level, I hate articles like this because of all the unanswered questions:

[1] What did you spend that initial $100 on? (Even the cheapest overseas programmer can't do jack for $100)

[2]You mention $400 million in revenue, but how much of that is profit?

[3] What exactly does Trace3 do (if it was so great, I would have heard of it on my own, or you would have explained it in the article, without me having to Google research it)

[4] If things are going so great, why are you writing articles for websites like entrepreneur.com? (oh yeah, you have another thing called POP you're promoting)

[5] You mentioned a "bold" client's advice. How did yo know this was advice worth listening to vs advice to be ignored?

I'll probably get voted down into oblivion, but IMO these kinds of articles say a lot and nothing at all.

[carrotleads]

Something else that bugs me is in the inherent contradiction in his advice..

1. tell people about your concept and ask for money.

2. if people give you money start work.

3. you will pivot 20+ times anyway

Wouldn't that be basically like sell a dream and then figure out a product/service that may make money.

Not much different to how YC like Accelerators/Incubators invest in "teams"..

Shouldn't conmen begin to flock towards such "investors" or are they already?

[hayksaakian]

It depends on how magical the concept is.

If someone asks me for an ecommerce site, I'm fairly certain I can deliver it, my client has seen dozens of ecommerce sites so they are pretty certain I can deliver it.

Payment upfront is just a formality at this point.

[rwmj]

Also - what did the other 999,999 firms do wrong so they didn't make it to $400 million?

[joelrunyon]

He somehow managed to mention both of his companies and I still have no idea what he "does."

[alphapapa]

The $100 must have been spent on phone calls to all the potential clients he asked to tell him why he should not proceed with his ideas. From reading the article, it sounds like this pre-company, ground-pounding, customer-finding is more like finding suckers who would be willing to pay him for his new product/service.

The amazing thing is the POPin product/service he is now selling to large corporations. From what I can tell, it's just software that lets people take surveys and vote on polls so the higher-ups can find out what other people in the company (and supposedly customers) think. Of course, there are mobile apps for it, so it's trendy.

What does it do? It "generates buy-in," and "leverages knowledge" in a "fun and interactive" way to "derive tangible business results." You know the "buffalo buffalo buffalo buffalo buffalo buffalo buffalo" thing, where it's a valid sentence using the same word to mean 7 different things? You clearly could do the same thing with "buzzword."

"Buzzword buzzword buzzword buzzword buzzword buzzword buzzword." And these millionaire corporate execs drink it up and hand over their money! For something they could do already, with existing software, existing employees (who are already paid to do this stuff), and people throughout the chain who should already be communicating back and forth, up and down.

It really makes one wonder if they're all just college frat buddies who, being so insulated from their companies' actual work, budgets, and successes or failures, readily agree to scratch each others' backs at the opportune times. "Oh hey, man, you got a new company selling a new mobile survey app we can use to poll our employees? Well, we could do that already for free, and that's what our managers and VPs are supposed to be doing already--but sure, here's $500,000 for one of your sessions. By the way, aren't you still on the board of the last company you founded? Would that company be interested in buying some XYZ from us? Great, that's what I thought. Good deal."

Their app doesn't do anything new or unique. Anyone could set up a web forum, a wiki, a bunch of online polls--for free. Managers should already be talking to their employees and communicating up and down the chain. Instead of just doing that, they pay this other company big bucks to use their mobile app to do it for them.

And then, after getting a few bigcorps to pay them, they put those bigcorps' logos on their web site, and write an "article" for an entrepreneur magazine, supposedly revealing some business wisdom. Then they link to those articles on their own web site, showing how smart and published their founders are. Then I suppose that sets them up to sell to the next level of suckers, the ones who wouldn't buy in at first.

I can't help but think that it's just like the old Scrooge McDuck comic, "Scrooge's Plain Old Soap." Donald starts his own soap company and sells the same soap in fancy packaging for more money--but it's still just soap. And that's all these guys are doing: repackaging existing stuff and selling it to the execs who have the corporate budgets to burn. Then those execs can point to how they "leveraged knowledge" and "derived tangible business results," and they can then "pivot" those "successes" into their next, higher-paying job.

All of this is not technology--it's salesmanship. He talks about finding "truth" and "value"--but the truth is that he's providing very little added value, merely acting as a middleman repackaging what already exists, then finding people willing to pay extra for it. Barnum covered that a long time ago. Still works, and I guess it always will. But with tech and the Internet, you'd think it'd be harder to get away with that.

Makes one wonder, who are the real suckers? The people buying that stuff? Or the ones not selling it?

[RyanZAG]

I think you're pretty close to the truth here, and ultimately this is what all enterprise deals are about. It's why most "software" companies doing enterprise sales will have far bigger budgets on "sales" than on "research and development". Although the current trend is to push a lot of these "leveraging knowledge" and "finding truth and value" parts of the sales process into "Research" anyway.

It works very well for all parties though - the "sucker" executives on the other side come out very well from this: they can use the marketing materiel and buzzword lingo verbatim from the products they are purchasing in their next few meetings to make themselves look on-the-ball even when they've been doing very little. I'd go as far as to say they're actively looking for products they can buy that they can talk to that do as little as possible to minimize the risk of actually having an effect on their business if they don't work. Security products are a big thing here too.

Ultimately though, something is worth whatever you can sell it for. If you can sell your marketing buzzword lingo and "mutually beneficial enterprise deals" for $100 million, maybe it really is worth that much if it's adding value to someone somewhere.

[alphapapa]

> Ultimately though, something is worth whatever you can sell it for. If you can sell your marketing buzzword lingo and "mutually beneficial enterprise deals" for $100 million, maybe it really is worth that much if it's adding value to someone somewhere.

Theoretically you're right. But I think that the way big corporations are structured and run, the people who make the decisions are so far removed from reality, that the values are incredibly distorted. It costs some exec $0 out of his own wallet to spend $100 million out of his corporation's budget. But, like you said, he can then use the built-in buzzwords to further his own corporate career as he pivots to his next job. And since it doesn't promise much, and since its impact isn't really measurable anyway, the risk to his own career is minimal.

But as far as providing actual value to shareholders or customers--that seems a far cry from what it is sold for.

[inthewoods]

A few comments:

1. Salesmanship is involved in all companies - whether that is done in person or online doesn't matter - it is a fundamental part of any business.

2. Enterprise software sales - particularly to the largest corporations, absolutely does not run like an old-buddy network anymore. While it is true that it is still partially a relationship sell (particularly getting in the door), the amount of hoops you have to jump through in terms of getting buy in from various stakeholders, to getting through procurement, means that it is increasingly difficult to sell to the largest corporations. Average close for an enterprise business is likely between 12 and 18 months.

3. Software is not required to be new, different or any sort of high-level technology to be valuable or sell. While you're right that a forum or a wiki or bunch of online polls could satisfy the requirements, they may not work from a process, security, intuitiveness or any number of other points-of-view. Value is often created in software not from being unique, but from finding a valuable use case that is currently underserved and creating a product that matches that exact need.

[carrotleads]

Suckers are the ones not selling it which would be majority of the programming populace..

I have seen top guys code up a entire solution at $X per hr. People who support that solution are able to charge 2X or 3X and who know only 1/10 of it... All cause they know how to speak the language or the sales guy who spoke the language sold it at that level.

People who have access to money are always paying for convenience.. programmers feel guilty charging for such stuff as we are aware of all the free options and generally do it for free.

[noonespecial]

People who have access to money are always paying for convenience..

I'd paint that in big block letters on the side of the time machine I'd send back to younger self if I could.

"Why would anyone pay $100's for that when you can just do it for free (with only 3 days of googling and configuring)?" They pay for the bit in parenthesis, and I failed to even consider it.

[dreamfactory2]

...and the higher powered they are, the more that time and context switching costs them

[alphapapa]

Right. But what gets me is, these big corps already have armies of employees who already get paid to do this stuff.

If I went to a millionaire's house and offered to mow his big lawn for $500, he might prefer to pay me that than mow it himself. But when he already has a gardener...?

Maybe I'm way off-base, but it seems messed-up to me.

[gregpilling]

There is a disconnect between <decisionmaker> and <programmer>. They may be separated by 2 layers vertically and 5 horizontally in the org chart. There is no situation that occurs where <programmer> is making appointments with <decisionmaker> and taking him out for drinks to find out what problems he has and what solutions would be valuable. (I used to sell $10-50K equipment; I used to joke that I got paid to visit people, and listen to their problems. A roving bartender)

Could you imagine that? BigCorp paying <programmer> to schmooze <decisionmaker> AND PAY FOR the meals, drinks, travel etc. Never going to happen.

So insert <salesperson> layer. Because <BigCorp> would never allow a setup like above, 2ndCorp gets into the action. BigCorp doesn't care how much 2ndCorp spends on <salesperson> because it doesn't cost them anything unless a purchase is made. 2ndCorp sends the <salesperson> out, pays them, pays their expenses, and <salesperson> chases after not only BigCorp's <decisionmaker> but another 100 BigCorps at the same time. 2ndCorp is focused on providing a really good solution in one specific area; there are free ways to do this, but the free ways do not have <salesperson> doing market discovery and finding solutions to <decisionmaker> problems. 2ndCorp has advantages of scale; free solutions have no marketing, staff, etc.

When BigCorp purchases, once <decisionmaker> has been the decider and selected a solution from <salesperson>, then 2ndCorp deploys the solution, the same solution they have deployed hundreds or thousands of times before. Advantages of scale apply. Ultimately <decisionmaker> has to answer to someone (even if they are sole owner of megacorp, their spouse will have comments) and because <decisionmaker> HAS TO ANSWER TO SOMEONE, they will choose the solution that comes with a built in problem fixer and person to yell at called <salesperson>. Nobody ever got fired for choosing IBM.

If <decisionmaker> goes for an open source free solution, then they have to personally support it over the upcoming YEARS (sometimes stuff stays in use a long time; Y2K), so the likely result is that they would not deploy a solution that they were not experts in, so probably no code they have to maintain themselves.

In big ticket sales I had three jobs; visit people and listen to their problems, be the person to stand there and get yelled at by the customer. and then get the company to fix the problem. I was the human interface layer.

TL;DR - the suckers are the ones not doing this. It works for good reasons on all sides of the deal.

[alphapapa]

Very interesting and insightful, thanks.

I have a question: do you think that this pattern will continue into the future, or do you think that FOSS, the Internet, and commoditization of hardware and software will ever tilt the balance in favor of in-house staff using free and open solutions?

[gregpilling]

I started a small manufacturing company in 2004. I used some open source software, and set it up myself with the help of Mr. Google. I can cut and paste, but I am no programmer.

Then things got busy, and I couldn't keep everything patched, and we had a hell of a time with spam, and so I hired an inhouse self-taught IT guy that was not very good. It wasn't working and after a year, he went somewhere else (we are still friends) and we went to Google Apps for the spam control and the Docs, Sheets, and Sites.

I know there are many many many free and O/S choices out there. Maybe something better for us than Google Apps. I do not have the time to evaluate hardly anything. If some person comes to me and has a solution, and can explain all the other choices available from free or O/S all the way to Oracle, that exist for me on the market, then I may buy his product or service. If the first thing they sell me works, then I will look at the next thing with eagerness.

As a business owner, I have 1000 headaches and having 2 fewer is great. Free software is not free maintenance. Your o/s software getting hacked (because you didn't know there was a patch) really sucks and can screw up your 4 day long weekend. Or worse. When your small site that brings in $1000 a day in sales and feeds your family tanks, the $25 per month you saved using open source software looks really insignificant, and you feel really stupid.

[CPLX]

It's amusing to me that there's so much venom for an IT consulting business model on HN but apparently changing the contrast on iPhone pictures or posting ahort anonymous ramblings of college students is profound.

[alphapapa]

Well, to me it's not that it's IT consulting that's the problem. What seems distasteful to me is the impression I have that it's a wealthy, corp-jumping exec starting a company selling buzzwordy, trendy services to another wealthy exec who spends freely from his corporate budget, then writing short, vague articles about entrepreneurship to sneakily advertise his company. It seems like a new old boys' club scratching each other's backs and gaming the system.

But maybe it's just me.

[CPLX]

I agree with you.

But how does that differ from how YC type consumer startups operate?

[alphapapa]

I'm not sure exactly what you mean. Selling to consumers means selling to many more customers for much smaller margins. And the selling is much less personal. And consumers are spending their own money, not from a corporate budget.

So it seems pretty different to me. Or am I misunderstanding you?

[CPLX]

"It seems like a new old boys' club scratching each other's backs and gaming the system."

[dkfmn]

For [2] and [3] it sounds like Trace3 is a technology consultancy, integrator, and services provider. So the business is more like "specialized IT for hire" than a new product or innovative technology.

As a result, I'd guess that the $400MM is gross revenue over the life of the company (not annual), and a large portion went to vendors like Avaya and Rackspace that he set-up for the clients.

Then again, this is just reading between the lines, I have no direct experience with Trace3.

[logicallee]

regarding your point 1, let's see what happens if $100 isn't a red herring. Let's call this assumption H+ (a real herring? I don't know. Anyway, it's H+. The entirety of the comment below is from the perspective of H+, i.e. that it is not a red herring, but a meaningful actual seed amount that made a difference.)

If it's not a red herring, then it is far more impressive to turn $50 into $400M than to turn $100 into $400M, as that is a factor of 8million versus a factor of 4 million only. It's twice as good. But turning $1.50 into $400M is even more impressive, as (by H+) in this case this is a factor of 266 million, i.e. 33 times better than a factor of just 8 million. Likewise, if he had turned $1,000 into $400M it would have been only a factor of 400,000 and if he had turned $10,000 into $400M it would have been an even less impressive factor of 40,000. And if he started with $100K, a decent but by no means excessive seed, the factor would have been only 4,000. (There are higher seeds, not mentioned here.)

So we have data points for factor returns ranging from 8 million to 4,000, and (by H+) his data point actually legitimately falls at exactly 4,000,000x return attained.

Now what is impressive is that if there EXIST data points at seed multiples of 4,000,000x return, they should be investable data points around that value, with a capped upside. It should be possible to angel somebody else's business for values ranging from $1.50 (aggregate total fully subscribed seed round) to $9,000 (i.e. 90x as high as the seed round we are discussing from the article). That is quite remarkable, if true. H+ has remarkable consequences.

[Retric]

Your assuming all capital can be invested which seems unlikely given <1000$ investments and significant capital.

Assuming a limited 'deal flow' you want to tailor things so you get the maximum total returns not just highest return on invested money.

[logicallee]

Define "you". I didn't think a maximum round of $9600.50 for a seed into a business needs to be considered by a VC who normally invests $500,000 for example - it can be a different group of people. Likewise for a $100 'seed'.

It is hard to imagine that these amounts are actual legitimate seed amounts into a business, but, there you go, that's H.

If we don't allow H then it's irrelevant whether the OP started with $100 or $9700. i.e. without H this is not a real, significant, or relevant number. (instead it is clickbait, for example, or a false memory due to lack of recording of actual spend at that stage.)

H is the hypothesis that it is, in fact, relevant and meaningful.