Raw Notes: Lullabot Case Study

Presentation by Liza Kindred

Background on Liza and Lullabot

• Liza's background is fashion - "a lot of stuff that most people here don't care about" - and art, nonprofit boards of art orgs, now a Lullabot (employee #3)
• Liza is obsessed with open business models
• Lullabot - podcasts, high-level consulting, site architecture, development, training, books
• Lullabot is not only professional and successful but cheeky, funny, nontraditional, fun

Open Source Business

• awesome video comparing open seeds to open source - navdanya.org
• same ideals that are true in open source technology are true in open source business
• make mistakes - Lullabot has made many ones (epic ones) and it's and important part of doing open source business.
• Lullabot is an awesome place to make mistakes - e.g. Angie Byron's major data import messup made her Lullabot's data import expert
• Be forgiving, create an environment  where people feel comfortable admitting to their mistakes, recognize value of lessons learned from mistakes
• "Management's job is not to prevent risk but to build the capability to recover when failures occur." Ed Cartmill, President, Pixar
• "room for stupid" - Addison Berry's concept - takes "stupidness" and help other people to not be - help others learn the lessons you learned the hard way, value that sharing
• "give it away" - do what good chefs do - out-teach, out-share, and out-do your competitors
• Create, then capture - Open Business Models by Henry Cheeseborough (sp?) - create value, then capture value. Drupal business is a pie; Lullabot grows the pie bigger so we can all share the pie. More room for everyone.
• Ways to contribute back - not just code!
• Social Signal - gave their intellectual property from four years of consulting, strategy, and development and made it available for free online under Creative Commons
• have to balance giving away vs making enough money - at a certain point you have to draw boundaries, determine what you actually charge for.
• consulting vs development: dev is building, consulting is recommendations, best practices
• Liza did some surveys of small Drupal shops, got data on what rates people are changing. She'll post them soon. (All of the rates are higher than my highest rates! Hmm.)
• Threadless business model - designers submit design (1500 designs submitted per week), community votes, when they rise to the top the designs are chosen and printed. Designers are paid $2000 per design that's chosen, additional money on reprint
• "have faith" - if you have faith in what you produce, you feel more comfortable giving it away
• Example: In Rainbows, Radiohead album that they gave away. They weren't able to count the ones they gave away as album sales, but the "official" sales still sold 3 million copies and topped the charts
• Moby - his sites are on Drupal, including mobygratis.com - given away for free to small filmmakers, nonprofits, etc

Lullabotisms

• 20/20 rule - Lullabots get 20 hours a week of client time, 20 hours a week of whatever else they want to do
• No Bad Clients - mean people suck, only work with people who are nice and interesting and return the favor
• Saying No - Liza's first job description was to say no, filter through all of the requests, tell almost everyone no (client gave her a nickname - the Velvet Hammer!)
• Rule of Threes - clients need to be nice, have a healthy budget, and/or have a fun or interesting project. Each client has to have two out of three, one of them being "be nice"
• keep it open!

Audience Q&A

• Q: How do you structure ownership, profit sharing, etc? A: don't do ownership because it is expensive for Lullabots; have done profit sharing; try to give good, competitive compensation (though not at the top) but make it an excellent place to work. Not a monetary part of the compensation but a really big part of the compensation.
• Q: how do you identify the people you want to hire? A: Used to have a saying - never hiring, always looking. Open source = meritocracy - sit back, see who's really awesome, grab them up
• Q: how do virtual teams work? A: up to 17 people, no office, entirely virtual, all over North America. Everyone works from home or their own office. Get together a couple of times a year entirely as a team (usually Drupalcon North America or Do It With Drupal). Tools for communication. Use IRC, IMing, Skype, team calls, screen sharing. In constant contact!
• Q: are Lullabots paid hourly or salaried? A: Salaried! At first it was hourly, went from group of freelancers to employees after about 1-2 years. REALLY HARD TO DO - Liza spent a year on the transformation! (eek!) Core Lullabots all full timers with 401k and benefits and all, though some contractors as well
• Q: How does advertising work? Google Ads, Targeted Search, etc? A: They do some of that. Lullabot was started on $10K, never got outside investment, never took out a loan. Competing now with much bigger budgets, so they've had to start doing a little advertising
• Q: Where does most of the revenue come from? A: for a long time it was mostly consulting, now more evenly split between consulting, development, training. Had to diversify over time. Made cognizant choices. DVDs are a product but they're a service company; saw that the economy was changing, people would have smaller amounts of money to spend, Drupal was growing huge so needed new ways to reach more people
• Q: How did Lullabot start? A: first did dev, then started doing higher level consulting, then realized they needed more Drupalistas out there so started doing trainings to create a bigger Drupal pie to sustain themselves on multiple levels (training revenue + more people doing Drupal to make Drupal sustainable and successful)
• Implicit Q, A: for startups, use freelancers for as long as you can before converting to employees - so much overhead and resources go into making people into employees!