Start-Ups for Start-Ups
New companies that help other new companies out of the gate

Chuck McMinn needed serious help -- and fast. It was June 1997, and McMinn's communications-technology start-up, Covad Communications, had just cut a deal for $8.5 million in venture capital from Crosspoint Venture Partners, among others. The funding was imminent, which meant that McMinn was running out of time to distribute options to his team members on the most favorable terms possible. McMinn had to transform Covad's team from a loose-knit web of 16 consultants into employees. And Securities and Exchange Commission rules required that that transformation be complete before the venture funds arrived.

Enter Linda Kellogg, a black belt in the art of starting up a start-up. Kellogg turned the problem around on a dime by getting the bank a payroll report within McMinn's deadline of 48 hours.

On the heels of that success, McMinn charged Kellogg with a series of similarly daunting tasks that a start-up's CEO typically handles, from assembling a benefits package (in just 30 days) to hiring Covad's first office manager. "All the things that you suddenly bump into and haven't even thought of, Linda knows how to do," says McMinn, who last October retained Kellogg to help start another new venture, Certive Corp. Kellogg, says McMinn, offers "a seamless turnkey solution."

Kellogg prefers to sign on with start-ups just out of the gate, "before they've made any mistakes."

A 48-year-old dynamo, Kellogg is a pioneer in the burgeoning market of start-ups for start-ups. Her San Jose-based Start-up Resources Inc. has so far worked with 45 Silicon Valley technology companies, enabling their founders to concentrate on building their businesses while she tackles the back office -- everything from handling early-stage accounting and tax matters to finding office space and ordering water for the employee lunchroom. Call it a "start-up in a box," a package of services designed to jump-start today's time-starved entrepreneurs in their breathless rush to market. "Nobody goes into business to handle payroll or to find office space," comments Pradip Madan, chief operating officer at Biztro Inc., a year-old start-up based in Santa Clara, Calif., and Kellogg client. "You can lose precious time on all these administrative things."

It's no wonder, then, that many of the start-up cognoscenti are betting that start-up services will be the next big thing. "The days of taking six to nine months to get a company started are long gone," observes Guy Kawasaki, CEO and cofounder of Garage.com, an on-line investor-matchmaking service in Palo Alto, Calif. Kawasaki himself is backing a Web-based player, Startups.com, that plans to jump into the start-up-services game this month. In an era in which all successful entrepreneurs must move at Internet speed, Kawasaki says, "these start-up services are a tremendous competitive advantage."

Linda Kellogg prefers to sign on with start-ups just out of the gate, "before they've made any mistakes," she explains. "It's more fun for me to go in and do the whole setup." Also, that way Kellogg can take charge of the entire start-up process and work unimpeded by someone else's accountant or real estate broker. Kellogg deploys her own stable of dedicated consultants in accounting, taxes, information services, and human resources, as well as 25 vendor partners. Add to that her high-level VC and other Valley ties -- including her husband, Harry W. Kellogg, vice-chairman at Silicon Valley Bank -- and Kellogg has "an incredible network of contacts," comments client Ford Goodman, president of Certive.

Her engagement typically spans four to eight weeks, and her fees begin at around $12,000 for a basic starter package that includes 10 hours of her own time. At the higher end Kellogg serves what she calls "monster start-ups" -- companies that have more than $15 million in first-round venture money and "want everything done now." Such intensive assignments consume as much as 400 hours of her team's time and can cost clients up to $30,000. For that sum Kellogg delivers a complete setup, which includes finding office space and furniture, installing information systems, and compiling an employee handbook and a benefits plan.

With 16 of her 45 start-up clients, Kellogg has received equity instead of fees, or a mix of fees and equity -- an increasingly popular arrangement with many service companies these days. It's an option that not only saves Kellogg's client companies up-front dollars but also buys them her long-term loyalty. For example, client Biztro, with 75 employees crammed into the 6,500-square-foot space that they moved into last April, has clearly outgrown the initial start-up phase that is Kellogg's chosen bailiwick. "We're considering bunk-desks," jokes COO Madan. But because Kellogg has an equity stake in the business, Madan says, "I know I can call on her for anything," including leads for financing sources and access to Kellogg's other contacts.

Kellogg, says Madan, not only saved Biztro some three weeks in assembling a competitive HR package but crafted the plan with a mind toward the company's projected fast growth. She also created a packet that includes an employee manual, a noncompete agreement, and templates for filling out direct-deposit, W-4, and expense forms. It provides information about benefits (including comprehensive medical, dental, and life insurance), the company's 401(k) plan, and the ever-popular stock options, too. "The package has been a great fit for every one of the people we have hired, from senior vice-president to technician," says Madan. "So far we have not had to rethink any of our choices."

Kellogg has also proved herself to be a shrewd negotiator in the Valley's tight-as-tight-can-be real estate market. She has good working relationships with major local real estate brokers, and because of her husband's high rank at Silicon Valley Bank, she boasts, "I can get a letter of credit in an hour." Client Ford Goodman credits Kellogg with helping him beat out six other start-ups competing for Certive's 41,600-square-foot office space in Redwood City.

Although Kellogg's clients typically count their savings in hours rather than dollars, she's ever mindful that start-ups must spend their early cash wisely. For example, there's her client Affinia Inc., a Web consultancy. Kellogg recalls that CEO Kris Hagerman "didn't want to spend any money on anything other than product development." Kellogg's solution? She rummaged around for used whiteboards and beat-up desk chairs, and even scrimped on paper clips. "I bought one box instead of three," she says.

With demand for Kellogg's services mounting, many of her Silicon Valley colleagues are pressuring her to expand her business into a nationwide franchise. But she fears that expansion might dilute her hallmark personal service. "I don't want to become a commodity," she says.

Kellogg's reluctance to expand may signal a big break for competition on the horizon. On the ground floor of Palo Alto-based Garage.com, CEO Donna Jensen and 20 others are hammering out the beta-test phase of their Internet-based service, Startups.com. Even as her business model is in development, Jensen, 35, is testing her service with a handful of charter clients. Most are not only clients but also Startups.com service providers. EquipmentLeasing.com, for example, is a charter client and is also one of Jensen's office-products vendors.

Whereas Kellogg deploys a hands-on consulting model, Jensen has crafted a point-and-click approach. Potential clients will first fill out a qualification form on Startups.com's Web site, which will contain start-up-focused checklists. After they sign on, they complete a lengthy on-line needs assessment, choosing from an à la carte list of 40-plus services that deal with business plans, staffing, telecommunications, information technology, and corporate-identity issues. Once Startups.com has determined the scope of the project, it posts on the client's password-protected page a project calendar that details, for example, when furniture is due to be delivered or when an HR package will be complete. "It's an on-line project-management tool," Jensen explains.

A big refrain in Jensen's sales pitch is "lowest prices." For instance, she's cut a deal with Business Resource Group, a work-space planner and furniture provider, to purchase bargain-basement makeshift desks: doors stacked on sawhorses and file cabinets. The cost to Jensen's clients? Just a few hundred dollars. But even as Jensen describes these "lower-end alternatives" available to her clients for purchasing furniture or office supplies, the cost of Startups.com's service is notably higher-end: $20,000 to $60,000 per project, Jensen estimates. Although some of that amount goes toward providing direct help with start-up logistics, most of it is for good old "value added."(As in Kellogg's model, those prices do not include the cost of the paper clips and desks/sawhorses.)

How does Jensen justify such prices, especially given the comparison with Kellogg's "high-touch" yet limited $12,000 offering? One rationale is that Startups.com's service will extend beyond the early days. Once Startups.com has established vendor relationships, the client can continually refill those orders on-line. In addition, Startups.com plans to offer its clients Web-based tutorials and other specialized content, including financing advice, profiles of angel and venture-capital investors, and articles on everything from health benefits to accounting and legal concerns.
Despite the steep price of Jensen's services, Silicon Valley investors clearly think that the market is ripe for what she has to offer. When she posted her business plan on an investor area at Garage.com, she says, she received responses from 140 angels and VCs. From those she culled 21, who along with a few others poured $2.4 million into her company. While Jensen has yet to fully prove her model, she has big designs on what services like hers can offer. "We're looking at a whole new way of streamlining the process," she says. "This really is revolutionizing the way that companies start up."

Outsourcing at the start
Are you a budding CEO with a grand market vision but little patience for logistics? You might consider pawning those niggling-but-necessary details off on a start-up pro. Here's a sampling of the basic company functions that the time-starved founder might expect to unload onto an outsourcing service:

Payroll and accounting. Setting up payroll and other corporate accounts is a cinch for experienced outsourcers. Once a start-up grows to 35 employees, though, it's time to bring the accounting in-house, according to Start-up Resources founder Linda Kellogg.

Benefits administration. If you use an outsourcing service, finalizing choices on insurance and benefits packages requires three or four hours of executive time, as opposed to three or four weeks if the job is handled internally.

Information systems. When installing network systems at clients' offices, Kellogg's network manager sometimes has to crawl under desks. Better him than the company's CEO.

Office space and furniture. Outsourcing services have established relationships with real estate brokers and furniture vendors, so they command fast responses and have leverage at bargaining time.

Author: D. M. Osborne