Upstarts: Start-Up Services
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.
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