2006 Mainfesto

This is an attempt to put my thoughts relating to life, the universe and SSB into a somewhat coherent and cogent fashion. The idea here is that I am trying to figure out what, exactly, it is I should at this point in my life given the, not terrible, situation that I am in and where I want to go with my life. As I look at things as they currently stand there are a few basic realities that I need to plan around.

What I am looking for is feedback on my reasoning and logic and suggestions about what it would make sense for me to do next. If it looks like my reasoning is sane and sound then all I am looking for is support and guidance along the path.

Contents


Not SSB

SSB has been good to me over the last few years. Briefly looking back I think I came into the company as a sheltered “tech” guy who had big dreams and ambition but neither the inter-personal nor business skills to fully realize that potential. I think at this point I am a well seasoned junior executive with a solid story to tell going into the next round of my life. I have moved past lots of the issues that I have had with conflict resolution, team building, people relations and have continued to grow my technical skill set. With that said, my belief is that I am nearing the end of that path with SSB and instead of being a great place to grow my skill it’s starting to hinder my growth. Generally speaking, I think that outside of further cash benefit over the next few months not much is keeping me there other than the people.

As it currently stands we have acquired, or rather are in the process of acquiring, the final assets of the BART Group – an East coast firm that does that same kind of work as SSB. The combined entity, SSB BART Group , is the leader in our little world of IT accessibility and generally has more polish and a better story than any of the other players in the space. The gross margins of the company are good, the operational expenses are well locked down and we have a defensible set of intellectual property. As it stands we are moving between two business models – from one focused on fixed scope consulting projects to one focused on staffed projects and resources.

The problem is that, at the end of the day, the market simply doesn’t appear to be strong enough for the type of services that we offer. We are fighting hard for every single dollar of budget we get out of customers and when we get it the budget isn’t much. Paul Rosenfeld, my VP of Sales, who is a veteran of five startups several of which have been sold is fond of saying “Tim, it’s not supposed to be this hard.” At first I wasn’t sure if I agreed but the more I look around the more I agree with him. Organizations just aren’t spending that much money on this and when they do it is in a half-assed low priority fashion.

There are competitors in the market place but none of the competitors have really grown past one million dollars in annual revenues. If we assume, as I have above, that we are the leader in this space one would conclude simply that the market is just too fragmented to grow a larger company. There are other companies in the space that have grown up from being accessibility companies into general compliance companies but they are few and far between. Finally, the other companies in our space compete primarily on their contract designation 8 (a) status – rather than anything else. 8 (a) status means that you are principally owned by a minority, individual with disabilities or some other disadvantaged person – I am none of these things.

It could be that we haven’t had the kind of success that I would like because we just don’t have the right strategy over the last few years to grow the company. Specifically, we have focused on fixed scope consulting contracts instead of long term staffed contracts. The fixed scope contracts, while relatively high margin for us on delivery, take the same amount of effort to sell as the staffed contracts. The staffed contracts – while lower margin on delivery – are much, much larger in total dollar volume and far more stable. Basically, we spend the same amount of time selling twenty thousand dollars in auditing services as we do selling one hundred and seventy thousand dollars in staffing services. While our gross margin on the auditing is 70%, sales costs eat up pretty much all of that profit. Whereas our gross margin on the staffing is 40% but we have massively larger amount of gross profit to amortize the sales costs against – which leads to far more profit hitting the bottom line.

It is also likely that the market hasn’t firmed up yet – and we are just ahead of the curve – and the market may firm up in the next few years. The ADA, which is a piece of legislation similar to that which drives our market, took about ten years to achieve wide scale prevalence in the market. In you give the same timeline for our market it puts the date for market prevalence around 2011 – which is still about five years off. Unfortunately, the ADA also had far stronger litigious teeth than our legislation so I don’t really think of it as a great proxy. With that said the long term trends of civil rights and the increasing penetration of technology would seem to indicate that the company has longevity over the next forty of fifty years.

As it currently stands the capitalization structure of the company is completely FUBAR. The short version is that we have about one point two million dollars in preferred claims against the company – of which around six hundred and twenty five thousand are held in short term – immediately claimable amounts. That means two things for me: (i) the note holder could call the notes tomorrow and force the company into Chapter Seven bankruptcy, (ii) in the event that we sold the company all the proceeds up to 1.2 M would go to satisfy preferred claims before they paid out to any other shareholders. So let’s say we sold the company for two million dollars. In that scenario I wouldn’t be splitting ¼ of the two million but rather a quarter of the eight hundred thousand left over – a three hundred thousand dollar difference. As the numbers get bigger the preferred claims become a smaller issue – but the numbers aren’t going to be big for a long time. In either situation the stock ownership that I have in the company is worth little to nothing in the worst case scenario or a couple hundred thousand bucks in the best case scenario.

Opportunity cost is another big consideration with SSB. Currently, I bill with the organization at between one hundred and thirty and two hundred bucks an hour. My expectation is that I, alone, probably have a realization rate of about 120% given effective use of offshore resources, process driven benefits for fixed scope projects and that I bill more than forty hours a week in general. If we assume that I bill one hundred and twenty dollars an hour, forty-eight weeks a year, forty hours a week and have a realization rate of 120% that puts me at three hundred forty six thousand bucks a year. This also excludes the reality that if I walked most of the employees would happily walk with me and my back of the envelope estimate is that I would retain probably sixty to seventy percent of our contracts – which puts the annual yield at more like one point four million on a cost basis of around eight hundred thousand or so.

Over the last two years I have been averaging around one hundred thousand in annual compensation. The rest of the compensation is in the form of stock options that vest over my career at SSB. The problem is that, as outlined above, I am about one point two million dollars back in the queue at SSB for liquidity so the value of those options is far less than the value of the paper they are printed on.

There is the issue of acting in the best interests of the shareholders of SSB. My assumption is that apart from the note, the shareholders assume that the company has exactly zero dollars of value at this point. More realistically the company that the investors put money into is one that hasn’t been operating for the last four years. Our business model is so radically different from that business model as to be laughable. So while I know it is in my best interests to act in the shareholders, and I am doing my best on that front, the reality is that they lost their money four years ago – reality just hasn’t caught up with that fact yet.

Finally, the key challenge that I have with SSB is the unending unyielding stress of just being stuck with the whole thing. I actually enjoy the responsibility of being in charge – the problem is that there is so much baggage that I have to carry that has been abandoned by other people. Let’s face it, Doug (Aley – a co-founder) wants his shareholders to get there money back but he bailed four years ago. The note holder group wants their money back but doesn’t even think of this as a real investment and doesn’t understand the changes to the business since then. The rest of our shareholders are employees whose hopes and dreams were vested in another company and I just don’t feel responsible for. That leaves the current employees – who frankly don’t care about any of the old shareholders or have a tie to any of that stuff.

Unfortunately, I think all that speaks to massively restructuring the company and or liquidating things. That, however, gets tied up with some of the secondary considerations below – so I have a bit of a conundrum on my hands.

Resume

I don’t consider SSB the be all and end all of my entrepreneurial career. Generally, the way that I see my skills developing I would be prepared to take on a larger challenge in a larger market within the next three years. I see the bridge between where I am now and there as getting a good story out of SSB that can be optimized on a resume. The other thing that I would like to do, at least to get closure on this part of my life, is finish my education at Stanford options – but that is outlined further in the forthcoming Education portion of this document.

Basically I want to get my resume to a point where I can say:

  1. Started SSB Technologies in a technical capacity
  1. Developed product strategy and architecture

 

  • Release version 1.0 – 4.2 of commercial grade software
  • Managed development process from conception through release and support
  • Built consulting organization
    1. Grew consulting revenue from zero to 1.6 million over four years
    2. Created and published consulting methodology
    3. Developed company’s ongoing consulting revenue basis
  • Promoted to CEO of organization
    1. Turned around the company
    2. Reduced current debt levels by 95% to trade payable balance
    3. Increased current assets by a factor of ten
    4. Shepherded shift in company revenue from software to consulting
    5. Successfully executed acquisition and integration of BART Group
    6. 85% of quarter profitable
    7. 95% of quarters cash flow positive
    8. Blah, blah…

 

Now, obviously I still need to scrub that up a little bit with metrics and numbers that are compelling but basically I want to tell the logical story of skill progression, financial success and responsibility and success in turning around a company whose finances were completed destroyed when I took the leadership post.

The problem is that the final chapter of that story needs to be some form of liquidity for the shareholders or a good story about ongoing operations for me to really lock in a good story for the next time that I go out for equity financing. To get there we would need to get the company to a stable financial position or restructure the long term financial obligations into something we can service.

The other question is what kind of resume and reference do I need if I want to get in to business school or grad school? My assumption is that I can go to the shareholders (Ray Kurzweil in particular) as long as they hold equity and think the company is going ok. If I were to force them to liquidate I don’t know if they would be so happy to write me a recommendation or am I being overly presumptive or harsh there? The upside is that if we were to do some restructuring than I might be able to get significantly more cash out of this “career” and just use that as the education story.

Not San Francisco

I like San Francisco especially now that I live in Marina fantasy land. Long term, though, I just don’t see myself here – I would see myself in someplace warmer like Miami. I think I could see myself having some form of residence here for the next year or so but after that I would really like to start thinking about where I would go next.

I think that is based on two things. First, while I like the general environment of San Francisco I simply couldn’t afford a house here without a high income earning spouse or a large windfall from the value of my SSB shares – and both are unlikely in the short term. Given that I can either wait until I am thirty five and marry a twenty-seven year old girl or I can get the hell out of dodge and get on with my life.

More generally, though, I am just bored with the entire San Francisco scene of going out drinking, hanging at the bars, and so on. What’s the point? The more I drink and the longer I stay out the less happy I am. What am I doing with my spare time that has any real value? I have been far happier and stable in the last few weeks when I have spent my spare time writing my memoirs and riding my bike – so that tells you something right there. Anyway, I think I am just done with this post-college go out Thursday – Saturday scene and I am ready for a change. Granted, I have been doing this scene since I was twenty so that probably makes sense in terms of timing.

The problem is that if I get out of here than my Education options are severely limited. Basically, if I don’t get my degree(s) at Stanford I don’t really see a reason to get any form of higher education. If I move out of here too soon the chances of me getting that degree, from Stanford, drop off pretty drastically. So basically before I get out of here I should get the degree. If I move away before than, the chance of that occurring drops of significantly – although not to zero.

Ladies

I started dating this girl Mercedes, in Miami and I am investing the time and energy to retain her attention and interest. At this point given the relative complexity of the ties that bind I am intentionally taking things slow and just sort of seeing where things go at this point. With that said it seems like a good match and its give me a good path to do a lot of the things that I would like to do with my life. The long story short is that I think this one will continue on its was for another couple of months and then I will reach a decision point late this year about what to do and where I am really going to go with this thing.

Education

How long do I have left to get the degree? I am not sure yet – I need to talk to the Stanford offices and see what the deal is here. When I left I had four quarters left and a solid two to three full time quarters of classes. My assumption is that, yes, I can go back, but I am not sure if I can do classes part time or if I have to be a full time student. Also, I really have no idea how far away from a degree I am, so figuring that out will be a big challenge to getting things done. My hope is that I can play a little let’s make a deal with Stanford and garner some (or a lot) of credit for the work that I have done at SSB. I know that for the CS undergraduate portion of my degree a good chunk of the work that I have done at SSB would be applicable so hopefully I am looking at one or two quarters at most.

To complicate things a little further I have seriously considered pursuing a master’s degree in CS from Stanford as a co-terminal degree. The idea there is that I could get it relatively quickly (three quarters or less with the SSB stuff) and that combined with an MBA from a Harvard, Wharton, Tuck, etc. it would basically guarantee that I would never make less than 150K a year for the rest of my life. Granted, I will likely keep doing my own thing but, hey, it’s nice to be able to fall back on one hundred fifty thousand bucks a year as an “insurance” option.

One other option is to move to Miami and then commute back here for the degree. Now that sounds like madness, however given that my brother has a house about twenty minutes from Stanford, and would probably consider putting me up on the rack every now and again, it’s probably not as silly as it sounds. Even when I was there five years ago most all the classes for CS were online. The projects themselves are pretty easy to do from anywhere on the planet – so I do think I could live in DC or Miami and actually still get the Stanford thing done – aggressive but doable.

The other thing that confuses matters would be business school. Pretty much everyone that knows me has told me that I would love business school and do well there. The degree itself, if I assume I get into a good school, would provide access and it would be nice to get exposed to more aspects of running large scale enterprises than I currently am. Granted the cost is a consideration but I could generally cover it out of savings if I can convert some more dollars out of SSB over the next year and a half.

One final area that I need to optimize around for education is good old grade point average. The concern here is nothing more complex than entrance into business school – if I decide to go that route – and what is the weight that they put on GPA. At the time that I left Stanford I had well below a 4.0 average – probably just under a 2.8 or so. Most of that was pulled down by degree courses that I took late in my career at Stanford when I was wholly distracted by the SSB thing. Basically anything that I took during that final couple of quarters or the year of the DKE house is a little suspect. I think that there would be benefit to taking some CS theory courses again anyway, (I am super rusty) on that stuff, but the real question is what courses do I need to retake. Should I even worry about my GPA or just go for it based on resume and personal story? Outside of past performance, however, signs are encouraging as both Kevin and Doug upon return to school racked up straights A’s. Apparently once you go into the real world school is a lot easier.

One final option, suggested by Kevin, was to actually switch majors out of Computer Science into something else. Generally while I think the CS degree would be great for technology it is unlikely that I will be writing code for the rest of my life. As such maybe another degree, or a make your own degree, would be a good idea. That would let me focus on classes that are more interesting classes rather than being restricted to this specific degree course. With that said I don’t know if a make your own major is as good idea as getting something immediately recognizable. And let’s face it if you are going to get a CS degree Stanford is a good place to have it from.

Cash

Circling around all of this is the issue of cash and cash compensation. Basically while I am probably under paid relative to the market by about forty thousand bucks I make more than enough at SSB to cover my lifestyle. If I had a family to support, kids, and so on that assumption might change but for my purposes I am comfortable and generally can support the lifestyle I am accustomed to while still living well within my means. With that said, I am under paid relatively to the market and I need to either realize a higher dollar value yield from SSB within the next few months or seriously consider doing something else with my time.

In addition, if I decide to go back to school and finish my degree(s) I would like to do that while minimizing my cash hit from the situation, if not continuing to accrue cash from the company. I think I can do that by transitioning into a part time roll with the company that largely keeps my base salary or a chunk thereof and frees up the extra cash from my bonus to hire the admin support we need to keep the company running. Realistically, if I can have six months I can pretty much get the company on auto-pilot – at which point I am freed up to use a chunk of my time to do other things.

Further, if the company is on a good growth pattern and we have strong revenues it might actually make sense for the company to co-fund some of my education is exchange for a contract that keeps me around after the education for some number of years. For example the company could fund X part of my degree but in exchange I would stay around for two years. If I left prior to that I would owe the company X dollars – that kind of thing.

Where does that leave us?

The drop dead date for figuring out all this stuff is June 30, 2006. At that point I would like to have a fully developed understanding of my options and a good sense of what the immediate and future options are from SSB. If the new business model really takes off and things get interesting at SSB I will likely stick around for another six months and see how big we can get it assuming I can realize the market compensation rate I would like. If the new business model does not work out than I will probably just strip down the company to operating essentials and go after my degree part-time. The company can be profitable and cash flow positive at some payroll and operations size – so I can always just pull people out until the books balance.

So my big questions are:

  • do I make the decision between striking out on my own and sticking at SSB? Is that even a decision given what I want to accomplish?
  • How do I make the decision to split time between Stanford and SSB? Is it even feasible for me to do this or do I need to pick one or the other?
  • Should I go to B-School or just get the undergraduate thing?
  • How big do I think SSB needs to get before June for me to scrap the other stuff and stay full time?
  • If I finish school when should I move to Miami? If the company has a future at that point can I reasonably operate the company on an ongoing basis from Miami commuting to DC and SF?

For now I am sort of just biding my time and seeing what happens. SSB owes me about forty thousand bucks so if I were to walk out and demand the monies I would likely push the company into bankruptcy. The company should have those funds on hand by the end of the next six months, though, so I should be whole by that point.

At that point the question that becomes what do I do and when do I do it? My assumption with Stanford is that I would be looking at fall quarter of 2006 for potential re-enrollment. At that time what I would be contemplating is some sort of hybrid scenario where I work at SSB fifteen hours a week and then at Stanford forty or fifty hours a week. Since I have been working sixty-five hours a week, six days a week for the last four years I think I can handle that workload with the modification of the SSB stuff.

Anyway that is my current thinking. As your time permits I would appreciate your feedback and thoughts on the above. What I am looking for is trying to understand if this stuff is reasonable and, if so, what you think makes sense. Everything is still very fluid at this point – so I am assuming that my thinking and reasoning will progress as time goes on.

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