By Donna Fenn | February 7, 2011
Lee Loree wanted three things: to be his own boss; to have a flexible schedule; and to work in whatever location struck his fancy. Employees, typically necessary if you want your company to grow significantly, were not on his wish list. “If I had employees, it would be tough to go play golf on Fridays if I felt like it,” he says. And so Loree built a $3 million virtual company, Innovative Sleep Solutions, with just one employee – Loree. Here’s how he did it.
- Solve a common problem. Back in 1999, Loree was an analyst at an investment banking firm, and while he was reading an annual report in the middle of the night, his wife suddenly woke up and, he says, “had a very lucid moment.” It got him thinking about sleep cycles and what causes up to wake up refreshed or groggy. “I don’t have a formal education on sleep,” he says. Wouldn’t it be great, he mused, if you wake up lucid and refreshed every morning? “So I read some books and I took some meetings with some people in the sleep industry who I found in the phone book,” he says. His idea was to develop a wearable product that would track sleep cycles and wake the user at an optimal time
- Tap your network’s expertise. Loree had developed relationships with engineers he worked with at the investment bank. “I asked them if they knew anyone who could help me and I found a micro electrical engineer who I gave a little bit of equity to,” says Loree. “I was winging it. I took money out of my 401(k) and we worked in my basement at night.” Loree quit his job and spent two years developing the product with no salary. “Everyone told me I was crazy,” he says.
- Prove your concept. By November of 2004, Loree had built a prototype — a watch that monitors your body while you sleep and continuously looks for your best possible waking times. A second-generation product, called the Sleeptracker Pro, would be launched two years later and would also include a PC and software component to track sleep data over time. Loree got the thumbs up from family and friends who tested the original product. “The challenge was ‘now I have this cool idea but how do I raise money?’” he recalls. So he put together a road show and, once again, used contacts he had made with his former employer to arrange meetings with some potential investors. He let them wear the Sleeptracker overnight and then analyzed the sleep data the next morning. Letting investors experience the product was a huge selling point; Loree got three offers of financing and “picked the one I liked the best.” In total, he spent $100,000 of his own money, and raised $250,000 from investors. His first product went to market in March of 2005.
- Be persistent. The entire time that Loree’s product was in development, he was trying to find a manufacturer for his invention. “I put out a RFP (request for proposal) to people doing things in the watch world,” he says. “And one person who runs a watch company gave me the name of a manufacturer in China.” But the manufacturer would not give Loree the time of day (pun intended). “I worked on him for three years and bugged him,” says Loree. “He took my emails and my phone calls and even today he tells me that the only reason he stuck with me is that he liked my tenacity.” The result: Loree feels confident that his IP is safe with the manufacturing partner that he worked so hard to win over.
- Be prepared. When the Sleeptracker first came to market, it was featured immediately on the gadget site Gizmodo. Loree hadn’t counted on that, and was totally unprepared for the impact. ”They put it up on their home page and our website exploded,” says Loree. “We weren’t Firefox supported, we had no international shipping, and we ran out of product in an hour. I had 500 emails from people saying ‘what’s wrong with your website?’” He had to scramble to ramp up his website, and to increase manufacturing to meet demand.
- Think virtual. At that point, Loree had a feeling that the business may get bigger than he anticipated. Still, he was determined not to hire employees and that remains strategy today. Instead, he outsources everything, drawing upon 12-14 independent contractors who handle everything functions such as software development, public relations, SEO, and bookkeeping. Even his administrative assistant is virtual. Loree uses the same manufacturer in China, and works with a warehouse in Pennsylvania, a call center in the Pacific Northwest, and a virtual team of independent sales representatives and distributors in the U.S. and abroad. “The business is totally scalable because 95% of our products are sold through distributors,” says Loree. He boasts that last year, the company “ran on less than $10,000 in SG&A” (sales, general, and administrative expense). Of course, just because you don’t have employees doesn’t mean you don’t have to manage people. “It’s a lot harder to reach out to the guy who live out in British Columbia about being late with software,” says Loree. “And I didn’t; realize I’d be dong so many conference calls in the middle of the night.” Still, it’s better than the alternative.
Last year, Innovative Sleep Solutions was number 766 on the Inc. 5000 list of fastest growing privately held companies – not bad for a virtual company. Loree also says he’s sold more than 100,000 Sleeptrackers worldwide without spending a nickel on advertising; about 1/3 of them went to gadget-hungry Asia. “The U.S. is actually one of our least mature markets,” he says. Ironically, he believes that new competition from companies like Wakemate and Zeo, will change that. ”You would think that competition would be a bad thing. But the biggest challenge is making people aware of who we are and what we do. Having others in space tends to get the message out.”
Do you have a multi-million dollar virtual company? How did you do it?