Genesis to Acquisition: Mike Morris, CEO of Topcoder (Part 4)

Sramana Mitra: By this time, you’re one year into the project. Did you figure out monetization already or was that still open?

Mike Morris: That was my job. I would say we probably started on that about halfway through the first year. My responsibility was to figure out how to build a software company on top of this community. I read every book on agile coding, waterfall, and all the different methodologies to manage developers and was trying to apply that to this completely remote group of people.

All we had was a list of people, an email address, their statistics, and their demographic information. We try to take the best people and say, “We’re going to follow this methodology.” We assigned people pieces, and it failed miserably. We had no control over the people. For about the second half of that first year, we tried to manage the virtual workforce just like they were regular employees and it didn’t work at all. It was very frustrating.

We tried to build these reusable software components. In six months, we built six components. It was way more effort than it was worth and the quality of the work was mediocre at best. We were back to the drawing board. I remember sitting inside this conference room and there were four of us in the room. We were just white boarding out how we were going to do this. We knew that people love the for-fun competitions. They loved the recognition model. They loved their name on the leaderboards.

We basically said, “Let’s try and make it a competition.” Instead of assigning work to people, we’ll make it a competition. We’ll still break it down. We’ll do design as a competition and then we’ll do development as another competition. We broke it down into pieces, but we made it competitive. We posted it so people can self-select. Instead of going out and assigning somebody based on their profile, we let them self-select.

The next six months, we built 60 components for way less money, way better quality, and it took us so little effort to manage because we didn’t have to manage individuals, we had to manage our process. We had figured it out. The results were so much better than we ever expected. We’re a year and a half in at this point and we still have no real business model. We had started selling some sponsorships to people to say, “If you want to sponsor yourself to this community and promote your software to these people, you can.” That helped bring in some cash but it was nowhere near what we needed to run the business.

Sramana Mitra: Timeline-wise, where were you at this point?

Mike Morris: We’re just about to enter 2003. At that point, we then said, “Let’s go try to get some customers.” We had those 60 components. We had a community that could develop really good code. Our business model at that point was to go out to customers, find people that need applications to be built, break them down into these small pieces and run them as competitions, and then pull them all back together.

We did the break down of the competitions with our own people, and we did the assembly of the pieces back together with our own people. We got some clients. In 2003, we probably came close to a million. That was all about finding relationships and people who would trust us. What we found was the community work was fantastic, but it was really difficult to break up those pieces.

Then we said, “Let’s try to make that a competition too.” We built an architecture competition to take the requirements and break them up into different pieces. We put that out into the community. At the same time, we put a competition out to assemble them all together. It quickly became clear to us that everything we could do with the community was going to be faster and of a better quality. Over 2003 to 2004, we started getting clients and started to push more things out to the community and the business really started to grow.

This segment is part 4 in the series : Genesis to Acquisition: Mike Morris, CEO of Topcoder
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