Tag: Josh Baer

An Evening With Josh Baer: On Obama, Lionel Ritchie, and Not Getting Everything Right

Reporter with Silicon Hills News

Brett Hurt, UT Entrepreneur in Residence, interviewing Josh Baer, co-founder of Capital Factory, serial entrepreneur and angel investor.

Brett Hurt, UT Entrepreneur in Residence, interviewing Josh Baer, co-founder of Capital Factory, serial entrepreneur and angel investor.

Josh Baer is living something of a charmed life right now. When ACL was rained out last Sunday, he managed to get Lionel Ritchie to give a private performance for 50 people at the home of a friend. His brainchild, Capital Factory, was visited by President Barack Obama this year and recognized as a model for economic development. He’s got a Tesla. He’s met Bill Gates, among a string of other VIPs. So it’s kind of comforting for beginning entrepreneurs to know that his experience with startups, like so many people’s, was: “You’re always thinking it’s about to fail, until it all works.”
Baer’s close friend and entrepreneur-in-residence at the McCombs School of Business at UT, Brett Hurt, interviewed Baer Tuesday night for the Herb Kelleher Entrepreneur-in-Residence speaker series.

Falling Into a $10 Million Business

Baer said he grew up surrounded by entrepreneurial people and always meant to be an entrepreneur but he sort of “fell into” opportunities, rather than being driven toward a particular business. As a student at Carnegie Mellon University in the early days of the internet, he started answering questions about servers, programming and emails on newsgroups and chats and started getting hired for a little programming, mostly being paid in pizza. But then someone asked him to host their email account on his server because the customer didn’t have time to mess with his own server breaking down all the time. That was the beginning of his own email hosting business.
Baer hired his frat brothers, “which was not necessarily a strategy I would recommend” to do the parts of the business he didn’t know how to do or have time to do. And eventually it grew to revenues of thousands per month, then hundreds of thousands per year.
The growth made him the richest college kid around, but it also scared him. For a few months, he asked if he could use his mentor’s business as an umbrella for which he would pay a percentage of income. But then, Baer said, he realized he wasn’t getting any benefit out of the arrangement and he needed to just step up and create his own business infrastructure. He incorporated, got an accountant and a lawyer.
And then he did what so many budding entrepreneurs do, he screwed up. He was fudging the line between contractors and employees, not paying much attention to the rules various state labor departments and IRS have concerning that line. His advisors told him he needed to hire his contractors on as employees and start paying taxes. But he didn’t.
“Wait,” Hurt interrupted the story. “Is anyone from the IRS here?”
“It’s okay,” Baer said, “the government’s shut down.”
“Oh yeah,” Hurt assented and encouraged him to continue.
The IRS wasn’t shut down at the time, though, and Baer got a letter that he owed $100,000 in back taxes for his employees.
“I was embarrassed and scared,” Baer said. “I’d never been in trouble with the IRS. I didn’t realize it was a totally workable situation. For a week or two I was really stressing it. I felt terrible. It affects you physically. I was depressed. I wasn’t eating. It really hits you then that there are people depending on you and you failed. That was a really dark time for me…it turned out to be nothing. It was totally negotiable. We got on a payment plan and had it paid off in a few months.”

Trilogy and Capital Factory

Baer continued working on his email company, SKYLIST, even after he was hired as a software developer for Trilogy. At Trilogy, he co-founded e-commerce software maker IveBeenGood.com in three months and sold it a year later for $20 million. In 2006, ten years after he founded it, he sold SKYLIST for $10 million.
The first year after the sale was fine, he said. It was all about integrating the company with it’s acquirer. He was busy and had a role. The second year he had very little to do and even though he was living a “dream existence” his inactivity was driving him crazy.
“Selling your company is a tough choice,” he said. “It was my baby, I’d been working on it for 10 years and then you decide to lose control…selling your first company is the most emotional, hardest part.”
It was when his two-year contract was up and the housing market was starting to collapse that he decided to take the fortune he’d just made and put it into an incubator.
“It was the rising tide effect,” he said. “I thought ‘Other people aren’t starting companies right now, there’s less competition.’ Combine that with the fact that Y-combinator and Techstars had just started. I’d been through Trilogy University and it was really fun. I thought: It looks like starting an incubator is the most fun thing I could do.”
It’s been epic for Baer. Last spring, he got an email that “a senior administration official is thinking of making a trip down here” and was visited by three “people in suits,” Baer said.
“Two of them were definitely secret service,” he said. “They started planning things, ‘We need to shut down that whole street….’ They kept referring to ‘him.’ Then I was pretty sure it was the president even though they hadn’t said so. I didn’t get confirmation until a week before. They came in and put in phone lines and they were doing all this stuff. They were so nice and apologetic and we’re like ‘No, this is so cool!’”
President Obama listened to five pitches and later referenced one in a speech at Applied Materials, a feat that amazed Baer.
“Anybody who has worked on a startup pitch knows it’s really hard. Especially a short pitch, a two-minute pitch, to make sure everyone can understand what your business is.”
But Obama, in referring to his visit at Capital Factory, nailed one of the pitches not in two minutes, but in two lines.

Advice for Entrepreneurs

Baer also teaches 1-Semester Startup, now known as Longhorn Startup, with Bob Metcalfe and Ben Dyer. Asked to give advice for young entrepreneurs he had several thoughts:

  • If you don’t have something you’re passionate about, find someone who is passionate and latch on. Many entrepreneurs have gotten their “big ideas” while rubbing shoulders with other people who were passionate.
  • The two traits he looks for in an entrepreneur: One, the ability to make decisions with less and less information and Two, passion. Passion, he said, is compelling to anyone you want to invest in or work for your company.
  • Sometimes mistakes are a sign of growth. “With my first company I was trying to make everything perfect,” Baer said. “I could be a total hard ass. Could be pretty not nice to be around. I had very high expectations and got upset when people made mistakes. But if you’re making mistakes, you have bad systems. You have to make a plan that allows for people to make mistakes. By the second company, when a problem would happen I’d be like ‘Oh, that problem! I know how to deal with that problem. Cool, we’re big enough to have that problem!”

The next Entrepreneur-in-Residence speaker is Cotter Cunningham, CEO of RetailMeNot, October 29th at the AT&T Executive Education and Conference Center.

A Glimpse of the New Capital Factory Coworking Space

The Austin Chamber last week selected Capital Factory to create a downtown coworking space for technology entrepreneurs as part of its Austin Tech Live initiative.
Josh Baer, cofounder of Capital Factory, a technology accelerator program for entrepreneurs, discusses the new space in this video.
Also this week, Paul O’Brien with Cospace announced its partnership with Capital Factory to manage the new facility.
Cospace will manage operations and provide classes and events for Austin’s tech and entrepreneurship scene.
Cospace, known in Austin as the home to entrepreneurs focused on Lean business and product development, is a collaborative business community that has supported nearly two dozen startups, facilitated the launch of more than 50 products, and hosted over 1500 students through classes in technology and entrepreneurship.

A Collaborative Center for Tech Entrepreneurs Launches in Austin

Josh Baer introduces a new coworking and collaboration space downtown

A groovy new space in a downtown Austin high-rise offers tech entrepreneurs a place to develop startups.
It’s part of the Austin TechLive initiative by the Austin Chamber to create a tech-focused coworking site. Capital Factory will oversee the 22,000 square foot space on the 16th floor of Austin Centre at 701 Brazos Street. The wide-open floor offers spectacular panoramic city views. It’s furnished with Herman Miller desks and chairs and even has a full cafeteria. The workspace should appeal to creative people who like bright, expansive and beautiful office space. Smiley Media formerly occupied the offices.
“This is confirmation that coworking has moved beyond the emerging stage and is here to stay,” said Liz Elam who runs Link Coworking in Austin. She also organizes the Global Coworking Unconference Conference.
Coworking spaces provide workers with shared desks, conference rooms and other work areas. The number of co-working spaces has nearly doubled each year since 2006 to 1,300 worldwide in 2011 and projected to increase to 2,150 this year, according to Deskmag, which follows the industry.
The Capital Factory coworking site already has 60 desks filled and a waiting list from entrepreneurs wanting to rent a desk there, said Josh Baer, managing director of the Capital Factory, an Austin-based accelerator for tech startups. He referred to the coworking site as the “community entrepreneurial center of gravity.” A desk at the coworking center costs $750 a month and a community membership, which allows a person to work in the common areas, costs $150 a month. The site provides round the clock access everyday to members.
The Austin Chamber of Commerce selected the Capital Factory as its strategic partner for Austin TechLive. A few companies including Baer’s startup, OtherInBox, which Return Path acquired earlier this year, and WP Engine are already moving into the space. It will be fully launched within a few months.
In addition to the Capital Factory, the University of Texas at Austin and the General Assembly of New York are helping out with the new center. The General Assembly will offer certified educational programs at Austin TechLive.
During a press conference Thursday morning, Baer talked about the need to create “healthy vibrant strong companies” in Austin. And said there’s been a lot of talk lately about Austin versus Silicon Valley and other places. By creating a dense tech environment downtown, the new coworking center can foster interaction, connections and collaboration among the city’s high tech workforce, Baer said. That will lead to new companies and more high-tech jobs, he said. His goal is to have 250 companies occupy the space.
The other companies moving into the Capital Factory coworking space include Swoosh Traffic, Agent Pronto, Tweet.TV and Swimtopia.
The Capital Factory coworking space will also be the site of tech events, meetups and training, Baer said. The goal is to bring together tech events that happen all over the city into the central coworking site, he said. For example, Capital Factory used to host Austin on Rails but it got too big and moved to a bar. He plans to host that again in the new center.
The idea of the central coworking space focused on the tech sector is similar to an initiative launched last November in San Antonio called Geekdom. It’s a collaborative workspace with more than 300 community members and it recently expanded to another floor at the downtown Weston Centre. But while Geekdom is run as a nonprofit organization, the Capital Factory coworking space is a business, Baer said. A group of successful Austin entrepreneurs put up the money to launch the site. They include Baer, Bill Boebel, Andrew Busey, Ross Buhrdorf and Dan Graham.
“Nobody is trying to make a lot of money off this,” Baer said. “The people who did this really want to help entrepreneurs in Austin.”
“The mission is to create this great entrepreneurial center downtown,” said Bryan Jones, chair of the Austin Chamber’s Technology Partnership.
In addition to launching the coworking space, the Chamber’s Tech Partnership is focused on creating 5,000 new technology jobs, up 5 percent from last year and to attract 50 new technology startups to the Austin region, including 10 at the new Capital Factory space. It also wants to recruit 15 new entrepreneurial companies to the Austin region.
One of the biggest challenges startup companies face is hiring great talent, Baer said. The Capital Factory coworking space will attract that talent and help the new startups grow, he said.
Chuck Gordon, cofounder of Sparefoot, a Capital Factory company from 2009, has seen firsthand how being in a shared workspace with other tech companies can help a startup grow to a large company.
“It’s possible. We did it,” said Gordon.
Sparefoot recently moved out of the Omni building to 5,600 square feet in a neighboring building. The company now has 45 employees.
“Tons of companies in San Francisco and New York go to incubators,” Gordon said. Those spaces serve as entrepreneurial ecosystems that strengthens the entire technology industry in those cities, he said.
“This is going to make it happen here,” he said. “The networking opportunities of getting a bunch of smart people in one space are incredible.”
Boebel, managing director of Capital Factory, will manage the new coworking space in partnership with Cospace, an Austin coworking site.
Capital Factory will leverage Cospace’s expertise for IT services, furniture, assigning workstations and all the nuts and bolts that go into running a coworking center, Boebel said.
“I’m mostly excited about working with the startups,” he said. One of the benefits of working at the site will be access to successful entrepreneurs like Boebel, who sold his e-mail hosting company to Rackspace. And Baer, who has founded and sold several startups.
“I wish there was a space like this when I started my company,” Boebel said. He founded what eventually came to be known as Webmail.Us in the basement of a townhouse in Blacksburg, Va.
“It’s nice to be around other entrepreneurs who are going through the same things,” Boebel said. “Friends and family don’t understand what it’s like to bootstrap a company.”
The coworking environment allows the startups to learn from each other’s mistakes and that can accelerate their progress, Boebel said.
Also, the space allows them to share resources, he said. Three companies might be able to hire one User Interface Designer, he said.
Boebel is also working on setting up a fund to provide access to seed stage investment for startup companies at Capital Factory.
Jason Cohen started Capital Factory with Baer in 2009. In surveys of the program participants, the entrepreneurs always reported access to mentoring and the close working proximity of the other startups as the top benefits of the program, Cohen said. The Capital Factory coworking space provides both, he said.
“It’s an insane space,” Cohen said. “It has just the right kind of attitude and energy for creative people.”
That helps WP Engine, a hosting service for 40,000 WordPress blogs, which has 15 Austin employees and 20 overall, Cohen said. He founded WP Engine a few years ago. It’s adding two new employees every month, Cohen said. The space will help in recruiting, he said. “Who wouldn’t want to work here?”

WP Engine Cultivates a Lucrative Niche Hosting WordPress Websites

Special contributor to Silicon Hills News

WP Engine co-founder Jason Cohen knew there was a market for what he wanted to build. Because it was exactly what he needed.
The founder of four companies and a dedicated blogger, Cohen often made the front page of Hacker News. And every time he did, his site went down. Having a sudden surge of popularity and traffic, he realized, doesn’t do you a lot of good if it causes your site to crash until the traffic goes away.
It was easy to assume that, with 15 percent of all websites and 22 percent of new websites in WordPress according to WP statistics, others were having the same issues. WordPress is a free and open source blogging tool and one of the web’s most popular content management systems.
“I needed to know what are the root pain points?” Cohen said. “Volume is one. Speed is another. It can often take three or four seconds for a page to come up. What about security? What about support? What about testing? Everything is live right now. Testing is where I can work it out and see it.”
Cohen talked to 50 people before starting the business, asking them: “Would you pay for this? What would you pay for this?” Once 30 people committed to spending $50 a month, he started to build his hosting company for the middle market, people with a lot of traffic “who aren’t CNN.” WP Engine launched in July of 2010. Cohen founded the company with Aaron Brazell, who stepped down last October to do consulting work.
When Matt Halfhill heard about Cohen’s infant company that hosted high volume WordPress sites, he said what so many of WPEngine’s customers say: “That’s exactly what I need!”
“That was my biggest problem ever in business,” Halfhill said. “So few hosts understand the nuts and bolts of how WordPress works. (WPEngine) breaks it down to the point where there are next to no inefficiencies.”
At the time he joined WP Engine, in 2010, Halfhill’s company NiceKicks had more than a million visitors per month. The site, which previews and reviews sneakers, was paying Rackspace $6,000 to $7,000 a month for the bandwidth to handle all its traffic. With WPEngine, it pays closer to $1,000. And its monthly traffic has more than doubled.
Rackspace spokesman Rob La Gesse said “While many providers choose to compete on price, Rackspace differentiates itself on service, which we call Fanatical Support®. With that being said, WPEngine and Rackspace have significantly different business models, products and pricing structures.”
Cohen has always been something of a prodigy. He was fresh out of college with his computer science degree when he was discovered by Jim Woodhill, a famous psychologist and venture capitalist who was on an email list of “random smart people” with Cohen’s dad.
“He is the kind of guy who doesn’t care as much about the idea as the team. He decides ‘I just need to collect certain kinds of people and I want you,’” Cohen said. The company Cohen started, however, didn’t create products but performed services. And though he was bringing in $1 million a year, the venture capital firm lost interest. Soon afterward, he connected with Gerry Cullen, a serial entrepreneur.
“He was young,” Cullen says of Cohen. “You want to know how young he was? He was so young I had to rent cars for him.”
The two created Sheer Genius Software.
“He was the genius software guy and I was the CEO lead developer,” Cullen said. “I was the leg guy and he was the brains….Jason was very fast on his feet. People asked him questions he just answered them, kaboom. I’d lift the flagstone up and all the little snakes would run and we’d get them. It was great happy times.”
For one order, the $750,000 big order, Cullen said, they were brought to London to develop a program for a government office. Cohen wound up having to jerry-rig a modem using ‘doorbell’ wire running from the building’s bathroom. And, because the monitors were so small and the offices so bright it was difficult to see the screens, Cullen created a little hut of foam board to make it dark enough.
“It was like we were showing weird porn in the government offices and we didn’t want anybody to see.”
They got the order.
After Sheer Genius, they started IT WatchDogs, which manufactured climate monitoring devices for server facilities. During that time, Cohen said, Cullen taught him all about the business end of startups. He taught him, for example, about the Stanford Test, a test he made up.
The Stanford Test is this: If you make something, can you give it away for free? Will people want it? Because if they won’t, there’s not much point in charging for it.”
IT WatchDogs demonstrated the Stanford principal. The first climate control monitor plugged directly into the servers. Server companies were horrified.
“They’re like ‘You’re not sticking that thing in my server!’” Cohen recalls. It failed the Stanford Test. Then they created a model that only plugs into the wall outlet and never touches the server. That model people wanted. They’d even pay for it.
Cohen and Cullen wound up selling IT WatchDogs. But about the same time they had started it, Cohen had, almost inadvertently, started Smart Bear Inc. He created a site online whereby programmers could submit code they were working on for peer review. It was an idea he was tinkering with that took off. He ran it until 2009 when he got an offer to buy the company that would give him enough money he never had to work again. After checking with some of his advisors—17 to be exact—he took it.
He took a sabbatical to stay home with his new baby. He began blogging almost obsessively. And then the idea for WPEngine arose.
He and Josh Baer, founder of Capital Factory and a serial entrepreneur in Austin who runs Other Inbox, put in a little bit of seed money and within seven months, the company was profitable. They hired two people and six months later it was profitable again. But all these baby steps were time consuming. So Cohen sought funding and wound up with $1.2 million last November. Silverton Partners from Austin led the round, which included prominent angels investors like Eric Ries, author of the Lean Startup, Loic Le Meur, Dharmesh Shah, Jeremy Benken, Bill Boebel, Rob Walling and others. Automattic, the company behind WordPress.com, also participated with a strategic investment.
WP Engine now has an install base of more than 30,000 personal and professional WordPress blogs. It recently dropped its base hosting price from $50 a month to $29. And it has plenty of room to grow. More than 71 million WordPress sites exist worldwide and WordPress.com hosts about half of them.
WP Engine is always tweaking.
Halfhill said the company is super proactive. They’ll call him to say “You’re definitely sucking up a lot of resources, we might want to reconfigure. There are no charges for that. It just feels like they’re taking care of me as a customer. It’s just like breathing.”
Cohen, though, is a startup guy. He’s constantly percolating with other ideas. Lately he’s been really focused on the idea of honesty, how honesty should be the bedrock of businesses. He might do something with that at some point.
“People asked me, ‘When you had enough money to live off forever, why do a startup?’” Cohen said. “It’s just in you…some people have to do companies.”

Disclosure: Rackspace is a sponsor of Silicon Hills News

The Capital Factory’s Demo Day 2011

At The Capital Factory’s office, founder Josh Baer gave an overview of Demo Day 2011 during the Startup Crawl.

The third annual Capital Factory Demo Day took place on Wednesday at the AT&T Conference Center in downtown Austin. Five Capital Factory Finalists showed off their companies to investors and others at the day-long sold out event, which was livestreamed. Each of the five companies spent 10 weeks to nurture their ventures.

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