Kagi Shareware vs Industry.net

This is from Guy Kawasaki’s book – Rules for Revolutionaries (the capitalist manifesto for creating and marketing new products and services).

When Jim Manzi took over Industry.net, the world was going to be his oyster. As the former CEO of Lotus Development Corporation, he had the pedigree to be the revolutionary that would collect fees on thousands of on-line sales transactions. All the ingredients were there; world class entrepreneur and red-hot market (Internet transactions).

He renamed the company Nets Inc. and moved it from Pittsburgh to beautiful offices in Cambridge, Massachusetts.He hired executives from Lotus and built an infrastructure of sixty engineers to manage the software and hardware that would support a huge volume. He even merged the company with giant AT&T’s organization called New Media Services.

In May 1997, unfortunately, Nets Inc. declared bankruptcy. The burn (cash disappearance) rate of the company around that time was $1 million per month, but its sales volume could not support the infrastructure costs. Perhaps, Manzi was too early. Perhaps his plans were too grandiose. He should have shaked and baked instead- ‘throw some simple and cheap ingredients in a bag, shake it, bake it, and go to the market’. In other words, build a prototype and get on with it.

Kagi Shareware did just that. This Berkeley, California-based company represents over 1,200 shareware programmers and their 3,400 software products. The company started as the hobby of Ken Nethery; as the business grew, Nethery recruited his wife, son and friends. The company started out by using simple and cheap software (Hypercard and Eudora) running on simple and cheap computers (a Macintosh IIci and Macintosh Classic) to create an Internet payment processing system.

The first office was Nethery’s bedroom. His computer equipment was on a desk in the bedroom, so when his wife wanted to go to bed, he had to roll his chair out of the way so she could get past him. He estimates that the size of Kagi’s first ‘office’ was four square feet! He had to take a second computer out of the bedroom because its fan was too loud and disturbed the couple’s sleep.

Kagi Shareware is an example of a company that bootstrapped itself and became a success without truckloads of capital. Taken together, Nets Inc. and Kagi Shareware illustrate that too much money is worse than too little. As Nethery says, “Companies with too much funding and not enough real world experience tend to solve imaginary problems.”

Kagi Shareware illustrates another great practice – Concentrate on getting on base, and let home runs happen. Nets Inc. swung for the fence by building an infrastructure of people, computers and software, whereas Kagi just tried to survive and build a business.