Startups - The " Inside" Stories

By: Ron LieberWed Dec 19, 2007 at 12:12 AM

You don't need to quit your day job to launch a startup. Instead, follow the lead of a team from Nortel Networks whose members jump-started a big idea, declared themselves intrapreneurs, and never looked back.

Is There a Business in There?

Once Larose had recruited his core group of coconspirators, the next step was to make a case for the business. It's easy to get starry-eyed about your prospects when a big idea is buzzing around in your head. But unless you are utterly realistic, you won't impress the people in your company who control the money and the resources that you need.

"Be open to discussing any potentially fatal flaws that could blindside you along the way," says Hyland. "For example, it's crucial to recognize that a single product will rarely sustain a business in the long run. To impress potential investors, you must clearly present a business model that has long-term sustainability in the marketplace." That was certainly one of Channelware's concerns. But fortunately, it was offering a highly flexible product, one that could be used to deliver all kinds of software in a number of different ways.

Who would want what Channelware had to offer? Not everyone. Larose and Dodge decided to target software companies whose retail products had a high turnover rate. Instead of focusing on companies that sold graphics programs that people upgraded just once every three years, they searched for software developers that made their money within 90 days -- and then started gearing up for the next release.

The two men decided that the computer-gaming industry should be their main target, because a small number of players control most of that market. Dodge figured that if they could sign up two of these companies, then Channelware would be in business.

Meanwhile, Larose was thinking about the executives who ran the technical side of those companies: How would they want to leverage his software? "We decided to make Channelware totally blind to business models and delivery methods," he explains. "Video-game companies don't want to build another server to deal with selling their wares online. So we made Channelware compatible with every system used by game developers. That way, they'd be able to deliver product over the Web , by CD-ROM, or however else they wanted to deploy it."

Does the Damn Thing Work?

By early 1997, the Business Ventures Group had been formalized, and Hyland had seen Channelware's business plan. But Dodge and Larose knew that they needed more than just an innovative model and encouraging projections. Only a prototype -- a piece of working software -- would demonstrate that the concept really worked.

"All sorts of people pitched the Business Ventures Group using nothing more than PowerPoint slides and some numbers scribbled on a napkin," Larose says. "We wanted to show the group something real, even if it was pretty rough."

The demo had to answer some basic questions: How would Channelware deliver its customers' software to consumers? How would those software developers know when Channelware had delivered the goods to consumers? And how would Channelware protect the software from cyber-pirates?

"The prototype was really fancy," Larose recalls, laughing at the application he helped build. "It was an analog alarm clock that appeared on a computer's desktop. The clock represented the software that we'd rent. When you double-clicked on the clock, you were immediately linked to our Web site. You entered your name and other information, you exited from the site, and then the clock would pop up again and start ticking. That was our proof of concept."

It wasn't elegant, but Nortel's technical people understood immediately that it took some pretty sophisticated programming to make the app work. Still, there was another worry.

Back then, Larose and Dodge were working in Nortel's residential-broadband group. Nortel had charged them with finding new applications that would drive demand for high-speed Internet service in residential buildings, thereby increasing demand for Nortel equipment. As Larose built the prototype, he confirmed a long-held suspicion: His uncomplicated piece of software wouldn't need one of Nortel's fat pipes. The software worked just fine on a 56-KB modem, which was the standard for most home computers at that time. The problem: Channelware was not fully devoted to broadband. So why would Nortel decide to back it?

But Dodge remained optimistic. "Despite the flaws, we just couldn't shake the idea from our brains," he remembers. "It was so intuitively good, we knew we'd convince somebody that the business made absolute sense." Dodge was right. Hyland and the rest of the Business Ventures Group quickly realized that if Channelware survived its incubation period, Nortel could spin it off.

But what if your company lacks a setup for spinning off great projects? "There's an obvious argument that you can make," Dodge advises. "You point out that if the plan has real potential, the company should put some resources into it, nurture it, and work to improve the ROI -- just as it would with any other investment. It's that simple."