[foundation-board] Viderum Budget Proposal

Thu Apr 14 21:21:45 UTC 2016

Dear Board of Open Knowledge International,

I am hereby asking you to approve the following proposal regarding changed
to the business model and the budget of Viderum. You can find the same
document as a Google Doc here
<https://docs.google.com/document/d/1x3dqMivjA1MfWoKFjkkOCAEj2QLocKSeBsOkszMe8UA/edit>
.

________________________

Viderum Budget Proposal

From: Pavel Richter, CEO

To: The Board of Open Knowledge International

CC: Mark Gibbs, COO, Sander van der Waal, Portfolio Director

Date: 14. April 2016

Summary: In this memo, I make the case for a change in direction for
Viderum. I propose to move from a model that seeks to raise venture capital
quickly to a model that bootstraps our efforts in developing CKAN in a
viable business. The reasons for this change in direction are outlined in
this memo.
As part of this change, I propose to change the compensation package of the
CEO of Viderum.
We will evaluate the progress of Viderum along this new proposal together
with an external consultant, within the next 3 months.

Back in September 2015, when OKI hired Sebastian as CEO of what was has now
become Viderum, all parties involved made a number of assumptions, based on
available information.

   1.

   Assumption: OKI commercial has a working, scalable business model.
   Reality: It turned out that this was not the case: The business model
   was dependent on one-off consultancy projects, which put a heavy strain on
   the sales approach. Sales was done by Rufus and through ckan.org. Hosted
   sites were built on widely divergent, one-off  infrastructure with complex
   support requirements.
   What did Viderum do about it? Viderum designed a new  business model
   with the team and built a cloud-based highly scalable unified
   infrastructure to reduce cost of operation (ready in November 2015 -
   migration of customers from old systems ongoing).
   2.

   Assumption: OKI’s commercial team (Jo, Arturas, Adria, Brook) will join
   Viderum
   Reality: Only Arturas accepted to join, others preferred involvement in
   non-commercial efforts at OKI. This let to loss of domain knowledge for
   Viderum, which in turn resulted in slower business development
   capabilities. It also let to some morale-reducing priority conflicts and
   time-consuming coordination tasks between Viderum and OKI.
   What did Viderum do about it? They had to hire whole new staff
   (currently one new product manager, one new project manager, two
   developers) that needed onboarding and training on the technology used.
   3.

   Assumption: Most importantly, we assumed that OKI has a profitable
   commercial services business in September 2015
   Reality: The visibility into the actual financial situation was not
   given for a long time, and only recently could we assess the actual
   financial situation. It turned out that profitability of the OK commercial
   services was dependent on heavy resource sharing and cross-project bookings
   between commercial and noncommercial projects.
   This made the search for VC capital over the last couple of months
   impossible, because we were not able to show a viable and sustainable
   business model to potential investors.
   What did Viderum do about it? Worked with OKI finances to properly
   account for commercial services and developed a business case that is
   attractive to outside investors.

None of these things are really show-stoppers; given the state of
administrative processes of OKI in September 2015, and given that OKI never
invested in commercial services as a sustainable business, it is no
surprise that things turned out different than we expected them in
September 2015.

But this has two consequences, that OKI needs to address:

   1.

   We initially expected Viderum to be able to take on larger amounts of
   external funding from VCs in order to grow its business. But because
   development of Viderum will take more time and effort than we expected, I
   now propose to bootstrap Viderum until July 2016. Therefore, OKI needs to
   make the decision to continue to support the development of Viderum. We
   expect this process to be funded out of the current business of Viderum
   2.

   The contractual agreements between OKI and Sebastian (as CEO of Viderum)
   were very much dependent on the key assumptions listed above. We were
   expecting Viderum to get VC funding much quicker than it turned out to be
   possible, and we expected the whole business to grow faster than it
   actually did.

Regarding the development of Viderum, Sebastian, at my request, has put
together a budget that addresses the additional work and the new
circumstances under which Viderum needs to operate.
He has broken it down to three possible scenarios:

Viderum Budget March 2016 - July 2016 (5 months)

Worst

Likely

Best

Revenue

   -

   One-time

118,300 €

313,300 €

400,800 €

   -

   Recurring

66,682 €

66,682 €

66,682 €

Total Revenue

184,982 €

379,982 €

467,482 €

Cost of Sales

   -

   33,902 €

   -

   130,152 €

   -

   152,027 €

Gross profit

151,080 €

249,830 €

315,455 €

Expenses

Staff

   -

   Staff

127,235 €

131,631 €

144,818 €

General Expenses

   -

   Technical

19,167 €

19,167 €

19,167 €

   -

   Marketing

5,500 €

12,500 €

25,000 €

   -

   Others (Rent, legal, supplies)

17,900 €

17,900 €

17,900 €

   -

   Accounting

15,266 €

15,266 €

15,266 €

   -

   Travel

5,000 €

5,000 €

5,000 €

Total general Expenses

62,833 €

69,833 €

82,333 €

Net income / loss

   -

   38,988 €

48,366 €

88,304 €

For a detailed breakdown of these numbers, please see this spreadsheet.
<https://docs.google.com/spreadsheets/d/1e27qBfXC-x8uS2dA3nQKalDWVhq70BjEK7ZMKypzIjQ/edit#gid=1821942248>

Our new COO has been actively working through the figures that have been
accrued against the projects that Viderum have taken over.  Although we are
still having a difficulty to forecast we do perceive that the CKAN projects
that are now in viderums portfolio would yield a net profit in excess of
£30,000.  This would then mitigate a proportion of the perceived loss in
regards to the worst case scenario listed above, further reducing the
maximum potential loss to 9.000 GBP.
Mark Gibbs is actively working with our auditors to define the best way to
breakout that income from OKI.

Part of this budget is a revised compensation package for Sebastian as CEO.
Based on the positive case presented in the fall by Rufus (who was himself
relying on an incomplete overview of the actual financial situation),
Sebastian agreed to a considerable discount in expectation of external
investment within six months. Since September, Sebastian earns just 2,500 €
/ month. His monthly pay would have been raised to 7,500 € as soon as
outside investment would have been secured.

Due to the factors detailed above, finding external investment has been
significantly delayed. While Sebastian (and I) are still confident that it
is possible, it will definitely require a more patient, long-game approach
than anticipated.  Based on this new approach, I want to increase
Sebastian's monthly costs to 7,500 €, which would give Viderum the needed
management attention while allowing Sebastian to focus on Viderum
exclusively. This is already part of the budget scenarios above.

Both myself and Mark Gibbs believe that the above listed approach should be
supported and then make a full review of Viderum in July 2016. In order to
be able to make a full assessment of the potential of Viderum with this new
business model, I am planning to hire Irina Bolychevsky as a consultant.
She will be tasked with evaluating the business model and giving me a
second opinion on the proposed way forward for Viderum.
_______________

-- 
Kind regards

Pavel Richter
CEO
Open Knowledge International
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