[foundation-board] Viderum Budget Proposal

Mon Apr 18 13:00:14 UTC 2016

Hi -

Thanks for the thorough analysis, as always.

I support the proposal but have a few comments/conditions.

A. My recollection differ from yours on some of the assumptions. 
Specifically,
     1. There was an assumption about a workable, scalable model.  I 
think there were ideas to explore (e.g., SaaS) but the state at the time 
was that there was no scalable model. We had conversations about the 
current NRE/consulting model didn't scale. When I raised that concern I 
was told that part of the spin out idea was to give time and space to 
find that business model in a way that couldn't be done directly by OKI.
     2. OKI team would join. I agree that this was an assumption, but it 
don't think it really mattered and is likely for the best anyway. I 
specifically raised concerns about the skills/temperament of those folks 
and whether they were right for a start up. I've never met them so this 
wasn't a performance review, but rather an observation that a commercial 
start up requires a different intrinsic motivation than OKI
     3. I do agree that this was an assumption.

B. I'd like a little more clarity on what will be achieved in the period 
up to July 2016.  You say that you'll hire Irina as a consultant to give 
a second opinion.  I don't think that's enough. If we're going back to 
basics, then we need to go back to basics with a business case, plan and 
a board level go/no-go decision in July.  This may be what you mean be 
"a review in July", but I think it should be more explicit that there is 
a clear decision point on whether we reverse the previous decision to 
pursue Viderum or continue (and if we continue, what the plan/milestones 
are).  We should avoid the slippery slope of funding Viderum in 3 month 
chunks because it needs a little more time/money to figure things out.

thanks,
Jane

On 14/04/16 22:21, Pavel Richter wrote:
> 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 <http://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 ViderumReality: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 2015Reality: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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