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Chip Off the New Block

Startup ChipIn changes its game plan and name. Big-time success might not be far behind

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Anatomy of a Startup

Anatomy of a Startup Part 1
In March 2006, our cover story launched an exclusive look into the trials and tribulations of building a high tech company in Hawaii. Startup Chipin's ambitious goal was to become a premier Web site to collect money for everything from business lunch tabs to humanitarian efforts.

Anatomy of a Startup Part 2
In April 2006, we chronicled how ChipIn was moving from a theoretical business plan to implementation, while struggling to find affordable office space and having to reorganize leadership.

Anatomy of a Startup Part 3
In August 2006, we chronicled how ChipIn was launching a beta version of its Web site, while struggling with the state government to get recognized as a high-tech company in order to receive important tax incentives.


Anatomy of a Startup Part 4
In February 2007, we gave readers a behind-the-scenes look at ChipIn's failed launch.


Click on any of the images above to read the archived story

 


Still, the Dell encounter cemented in Williams’ mind the broader potential of the WMS. Right around the time that Williams was coming to this realization, ChipIn had its 15 seconds of Facebook fame. When the wildly popular social networking site allowed outside companies to start supplying applications (essentially, widgets) to Facebook users in May 2007, ChipIn quickly built its own Facebook fundraising application. It flopped, gaining little traction compared to widgets offering online poker and digital bling to trick out Facebook profiles. For an encore, Williams and his team cooked up a simple Facebook app called Versus. Williams thought it might build some buzz and ultimately be used to draw Facebook’s tens of millions of users to ChipIn widgets. He hired a designer to create eye-candy fantasy images of vampires and werewolves. ChipIn coders built two widgets designed to run in Facebook. Starting with the ChipIn crew, Facebook floated the application and asked if you were a werewolf or a vampire. Anyone who answered the query was “infected” and could “bite” other Facebook users.

Within 30 days, roughly 500,000 Facebook users had downloaded Versus. Heated debates over which monster was more despicable filled Facebook discussion boards. Then, to Williams’ surprise, money started falling from the sky. Lionsgate Entertainment used Versus to advertise werewolf movie Skinwalkers, dropping $15,000 a month to embed a promotional video inside the vampires and werewolves widgets. Suddenly, ChipIn’s Versus applications were among the 100 most popular on Facebook and worth, at a minimum, $2 million, according to Facebook application measurement company Adonomics. By late July 2007, the Versus applications had become ChipIn’s primary revenue source and more than 2 million people were playing Versus.

Before long, everyone at ChipIn was spending a significant chunk of their time building Facebook applications and working on new iterations of Versus, including Pirates versus Ninjas and other schemes. Hughes, a talented designer, spent several days creating imagery for a Versus T-shirt and mousepad ChipIn hoped to sell. “I knew as CTO that I should not be spending my time this way. But it was addictive and fun,” admits Hughes.

ChipIn’s investors were becoming nervous that the company was getting sidetracked. Williams realized he would have to get rid of the Facebook sideline, either by selling it or spinning it off as a separate company. “It was not going to turn into a company worth tens of millions of dollars,” says Williams. He started replying to some of the unsolicited offers that had dropped into his inbox. Throughout the fall of 2007, the company focused squarely on the new widget builder and management tool suite. Another ChipIn cofounder, Olin Lagon, left the company to spend more time with his two small boys. Lagon had been COO and, Williams says, had played a key role in getting the company to the next level.

The effort to sell Versus took a dark turn when a prospective deal with a richly endowed, venture backed startup called TONIC went sour. TONIC had initially offered to buy both ChipIn and the Versus applications for a sum less than $10 million. Williams’ VC and the company’s angel investors panned the offer. TONIC would add little in terms of marketing or development capabilities and there were few synergies. TONIC’s founder and CEO Pankaj Shah then asked to buy only Versus for more than $1 million. After several months of wrangling, the agreement fell through, leaving Williams holding a hefty legal bill that could have killed the company. In January 2008, Williams succeeded in selling Versus to Facebook applications rollup Buddy Media. The sale was for a sum Williams can’t disclose under terms of the deal but likely was in the high six-figure to low seven-figure range. It covered the costs of the broken TONIC deal and left a bit of pocket change in ChipIn’s coffers. “It was a great lesson on how a broken deal can kill a startup. Entrepreneurs might not realize how fragile young companies are,” says Williams.

Prime Time

All of this set the stage for the latest iteration of ChipIn and the road to DEMO. The conference is an invite-only showcase for hot technology startups. Hundreds apply for slots. Williams submitted ChipIn’s new product along with a new name for the company, Sprout. The thinking behind the name change was that the widgets would be like sprouting plants, easy to spread and useful in planting the seeds of a new way of thinking about and designing Web content. “We are entering a new era of self-promotion. It’s not just about ‘Let me show you my slide show.’ or ‘Read my blog.’ Now it’s about mixing and matching video, audio, external content and other types of data for the promotion of who I am and what I do, either in business or personal realms,” explains Williams, who got word the company was accepted to DEMO in early January.

Pandemonium ensued in Sprout’s Manoa offices, quickly followed by the sobering reality that they had to whip the SproutBuilder product into shape in a hurry. “It was already pretty good but it wasn’t ready for that kind of audience,” admitted Williams. To make matters worse, Hughes and Williams decided only two weeks before DEMO to make a significant architectural change to the software design. Williams then emailed the Webmaster for the famous singer Ben Harper to see if Sprout could build a demo sprout (don’t call them widgets) that could be later shared by his fans. He was shocked to get an affirmative reply. That meant Sprout had marquee subject matter. VP of marketing Todd Kurie helped whip up eye-catching brochures proclaiming the new company mantra, “Build living content.”

The day before the conference, Williams boarded a flight for Palm Desert. Rough weather forced the plane to land at Ontario, a long drive from his final destination. Still shaken from the flight and totally sleep deprived, Williams hit the stage in proper aloha attire. The response was phenomenal. Several top bloggers, including Mashable and Read WriteWeb, cited Sprout’s new product as the most innovative at DEMO. The next day, a tired Williams planned to skip the awards banquet, figuring Sprout had not won anything. His wife urged him to attend. Good thing he did: Sprout and Williams received one of eight DEMOGod awards, the top conference honor and a sure sign that venture capital would follow.

After DEMO, Sprout released its product into a private Beta test with 4,000 users. Thousands more requests to sign up to use Sprout are pending and Williams says the servers can handle the crush. “We just want to make sure the product is close to perfect before we open it up,” he says. All of which still begs the question: How will Williams make money on all this? Ironically, he has an old-school dot-com answer. Grab a ton of VC money ASAP, develop the product well, don’t spend money on silly marketing campaigns and acquire as many users as possible as quickly as possible. “We’re trying to build value in the company and that’s not about revenues. It’s about adoption. Once we have very broad adoption, then monetization will be very easy.”

As of late February 2008, Williams had heard from several VCs about funding but had not gotten firm offers. The company has enough resources to survive for a significant period, but lack of capital will hamper Sprout’s expansion dream. Of course, should Google, Microsoft of software giant Adobe ask to buy the company, Williams will pick up the phone. Then there is the dark possibility that competition could quickly emerge with a product from Google, Adobe, or Microsoft — or another hot startup — and steal Sprout’s thunder. Williams is not popping the champagne cork yet, but he’s pushed Sprout the furthest toward becoming the first Hawaii Internet company to gain massive success on a national scale since Digital Island. Stay tuned.

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