Lessons learned

Valuable Lessons From Co-Founding in 1998

Near the end of 1998, I became a co-founder of an Atlanta-based startup. My idea was digital surveillance. At the time, surveillance video was stored on VHS tape. The problem for multi-location companies was that these tapes had to be constantly shipped from each store to the corporate headquarters. By taking it digital, a constant video stream from each location could be seen at corporate without shipping expenses or video cassette storage costs.

The pitch

This was before pitch decks were a thing, so I began talking to companies already selling traditional video surveillance equipment instead of writing a business plan and seeking traditional funding. "What if your clients no longer had to ship videotape?" I asked. Furthermore, what if the cost was 50% less than a traditional system?

Unconventional start

Soon, I met Marcus, a Belgian chef turned restaurant investor who recently purchased a video surveillance company. Using a development plan, I explained the cost of developing the digital surveillance system, how it would stream privately over the Internet, and its advantages over current systems. After several meetings, Marcus said yes, giving me a 27% stock option and 3% pre-vested shares.

The development

We brought in a C++ developer to help me, purchased multiple surveillance cameras, and began experimenting with video streams. Soon, we could see video from a web browser, meaning it could be viewed remotely. We met a local hardware manufacturer and had custom Intel PCs with video cards that could accept multiple inputs. At the time, all off-the-shelf video cards only allowed one video input.

Go to market

We needed a box that did not look like a computer, so we experimented with different desktop and server cases. Eventually, we found someone who spray-painted computer cases for gamers. We purchased fundamental cases and had them painted to look more expensive than a typical computer. This resulted in a total cost of around $1000 per unit for the MVP. Furthermore, we could build them on demand and did not need to carry inventory.

A patent and funds

The company filed the first patent for digital video surveillance. Our valuable IP allowed us to quickly raise an additional $450,000 from a friend of Marcus' accountant and the $250,000 seed money that Marcus provided. While not much in today's terms, in 1999, outside of Silicon Valley, this was a respectable raise.

The saleroom

Once we built a video streaming server, we rigged a demo system at our office that recorded the telemarketing room. Those selling over the phone could instruct prospective customers to log in and view the person they were talking to in real time. Sure, it was laughable by today's Zoom calls, but it was a rarity at the time. Especially for a corporate security manager who has little computer experience. At the far end of the saleroom was a whiteboard with each person's name listed and the number of units sold for the month. After closing, the salesperson erases the current number and writes the new one. Soon, it became very competitive.

Pricing

Using an Atlanta area business guide from the Chamber of Commerce, we called local sign shops, restaurants, hotels, and many other companies that use surveillance video. At first, we charged an even $5,000 for the server with the option to use existing analog cameras. At the time, a typical VCR surveillance setup was around $10,000.

First customers

While the first customer was a sign shop, attention soon turned to larger accounts. The effort to sell a single shop was nearly equal to selling an entire convenience mart chain. Plus, the benefits of digital shined when a company had geographic dispersion. As a side note, we learned from our restaurant chain clients to stay away from salad bars.

The bubble

In 1999, Yahoo was a Wall Street darling, Silicon Graphics closed its best year, and Amazon was relatively unknown. It looked as if 2000 would spell disaster for the tech bubble that was occurring. While talking with a law firm about going public, we learned that their last client made an IPO with only $50,000 in revenue. The accounting firm made us popcorn and wanted a significant equity stake to get the company compliant with a public offering. Our investment bank promised a lot, but Marcus was sure the stock market bubble was about to burst.

Flipping

Marcus made his money by flipping restaurants. The bulk of his wealth came just after the 1996 Atlanta Olympics when hundreds of newly opened restaurants started to fail shortly after the closing ceremony. His trick was first firing the entire staff because someone was always stealing. He replaced the staff with people he knew, simplified the menu, cut food costs, and advertised to feel seats. However, this profitability would not last, so he quickly sold these restaurants for an 8 to 10x return.

With a whimper

While we grew fast in the southeast, other firms started with large amounts of VC money. Instead of competing, Marcus taught me that licensing technology to them was a better business model. Partnering with an IP law firm, we began selling licenses instead of systems. The law firm involved liked the model so much that they bought the company just before the tech bust. Soon after, I left for a corporate job, disheartened that we had not become the Dell Computer of surveillance systems.

Hope this helps,

Todd Moses (CEO)

Let me know your thoughts: [email protected]