Accidental Entrepreneur: Cryptography Research President Paul Kocher (Part 7)

SM: With 23 people employed, how do you target revenues?

PK: My goal is $4 million per employee annually. That is what we have been shooting for long-term as we build things.

SM: There are not a lot of companies that do that.

PK: We have a lot of contractors, too. The core R&D team as the full-time employees. If something needs to be built, we bring in contractors for that. I have a huge amount of loyalty to employees. Contractors can come in and solve something for us. We spend more on contractors than we do on the base price of employees.

SM: Can we talk more about your DPA licensing?

PK: We did a big litigation against Visa, which we just settled with a good outcome for us. This line of business will grow a lot with the new government mandates coming in place as well. The crypto firewall business is lumpier because we are paid per chip. That means we are paid along manufacturing cycles.

I don’t know what will happen with the economic slowdown. There are two conflicting forces. One is that companies are going to ship pure products and there will be less economic activity. The other is that smart people drive our business, and these are people who are desperate for money or desperate to break something. Places that have poor economic activity are the sources of a lot of attacks. Nigeria is a source of a lot of attacks because you have smart people with few opportunities.

SM: Based on approximations, would you say that you are a $50 million a year company?

PK: This year we will be somewhere between $30 and $40 million. It is not something I worry about too much because our costs are low.

SM: What has prompted you to seek a broader communication outreach?

PK: Hiring is one of them. The people we want to reach are the people who are the hardest to find. I am also very concerned about the patent system. The R&D industry is being lost right now. Companies like ours that treat employees very well are competing in an environment which is somewhat lost right now. Someone who had similar ideas today would have no chance of repeating our model because the costs are so great. You have to have a huge amount of money to litigate today, and if you are not ready to litigate from day one people will just bury you.

We have had people try to do that to us, but we have the money to fight. The idea that the quality of your lawyers and your willingness to go through expensive litigation is what is required for someone to build an R&D business is just wrong. We are an unusual model, and one which works well. I wish other people did it.

SM: One of the reasons I took your story is because your model is unique. There is a cookie-cutter thought process in Silicon Valley that you have to go out and raise venture capital. I think there needs to be an exploration of different models.

PK: The VC model is great if speed to market is important. However, a lot of businesses get destroyed because they go too fast. I think patience is key. You need to put out lots of buckets and see where the drips land.

SM: Timing is complex to get right.

PK: In hindsight people like to say they got it right if they made a lot of money. Really, they just made money. They still may have gone too slow. There are so few data points that I think it is very hard to say if it is luck or skill.

SM: Success is probably a good portion of both.

PK: Probably. There are certainly huge things that helped. If I did not land in Silicon Valley at the right time in life, there is no way I could do the things I am doing now. Also, I started out when the boom was going on, which was complete coincidence. However, perhaps I would have been even happier as a veterinarian!

SM: Great! This has been an excellent story.

This segment is part 7 in the series : Accidental Entrepreneur: Cryptography Research President Paul Kocher
1 2 3 4 5 6 7