We're here in Austin, Texas at one of my oldest friends' houses and offices, Zane Rockenbaugh. Would you like to tell us what you do? I'm Zane Rockenbaugh. I run a small software company here in town called Liquid Labs. Now, you guys develop software, but what's the nature of the software that you do? What we have done in the past, which is the model we're trying to figure out how to replicate right now, is do custom software work for companies that have software as a central component of what they're doing, but really have no way of getting it done, so we look to invest in the back end of their projects. Right, and what do you mean by the back end of their projects? Well, the first one we did was with Vigilant Systems, Greg Bennett, and he had an idea for fraud detection for banks, so we developed that product. He didn't pay us very much to do it, but we get essentially... It sounds like a great deal. Yeah. Maybe I'm not who you should interview for business advice, but we get 50% of the revenues afterwards. Right. Oh, okay. So in this case, by back end, you mean the sense of revenue, not the sense of databases? Oh, absolutely. Yes, the back end part of the business. Like those in Hollywood terms. Yes. So far everything we've been working with is a growth company, and we do the business in order to make... We do things that it might be hard to find someone to do initially, but then we invest that time looking to make more money later on. So is the advantage to your clients that it's cheaper upfront to do it? Well, cheaper, and also I think a lot of times we do things that they just couldn't get done otherwise. Right. I mean, aside from the fact that they're not programmers themselves, and they can't do it, I guess. Yeah. And so, I mean, like Greg, he had an idea. All he had was an idea. Right. He didn't have, you know, essentially no money to fund it.
2:01Yeah. I mean, how do you get something like that done? Right. Traditionally, you have to build it up, get some angel investors, get some VCs, and so in that sense, and kind of with Taurus as well, we were kind of taking the place of money investors. Right. And saying, look, what you would spend all that money on is getting this product. Right. First off, so why don't we just make the product? You'll still probably need money to do the sales and marketing into things. Yeah. Unless you're doing it yourself. But, you know, why don't we just substitute our time for that money? We'll probably give you a better deal than the VCs would anyway. Right. And then we get a better deal because, you know, now we're owning the percentages and the, you know, back in that an investor would own. Right, right. Because you have the nice potential payoff. In the more traditional. If there's a strong growth at the end there. Exactly. As far as that, like that you were saying, that step of getting the capital or getting the resources to get something done. Right. How does this method compare to the startup method that you've been involved in? For the client? Or just for yourself, for the software developers? Well, I mean, what we did basically with the first project, which was Fraud Suite with Vigilance, how we did it there is basically I saved up money from previous jobs and then I just worked on it for free more or less. Right, right. Paid my bills out of that saved up money. And eventually, you know, got enough banks sold to where it was kind of paying, you know, my living expenses going forward. And banks for Fraud Suite was the customer for the product you were developing. Yes. Right. And so, Greg was selling banks directly. Now it's been sold to a larger vendor who pays us on retainer. Right. To stay consulting with them. And after a three year period, there's a bonus and everything. So, I mean, it's turned into, you know, hopefully around a million dollar deal. It's going to be a great payoff. Sure. You know, for the time we put in. Obviously, I took a lot of risk in whether that payoff was going to happen or not.
4:04Right. But specifically how it was funded was just I was the only one working on it. I didn't pay myself anything. Right, right. And, you know, I was supporting the company essentially. And at the time, I mean, I don't really know the phrase for it, but there's sort of this virtual pseudo company. You know, those formed with this, as I recall, it was paperwork and then two separate legal entities. It was Greg. Yes. With Vigilance, right. And then Liquid Labs, your own company. It was just the two of you working on it if I remember at the time. Yes. How did you manage the IP between all of that as far as the source code? I mean, was it, it wasn't open source if I remember. No. Although, as we move on and are doing some other projects, we probably will be open sourcing a lot of the modules that we're developing. Right. So, how it worked there is Liquid Labs basically owns all the code and Vigilance Systems owns the rights to the application. Right. So, we couldn't create something that competed. They actually do own kind of the very front end stuff. So, the HTML, that kind of thing, the look and feel of it. But, at the end of the day, we retained ownership of all the code. But, in that particular application, he's the only one that can actually market or sell. Right. Anything similar. So, it sounds like Vigilance Systems and now the person who acquired, the vendor who acquired them, they own the, I mean, correct me if I'm wrong, but sort of the right to use that code in a specific way. Yes. That becomes the fraud suite product. Yeah. Right. And they have rights. And they have certain rights to access the code and, you know, it's all in escrow in case they die and stuff like that. Right. So, there are protections for them as well. Right. But, you know, part of our model in the idea that what we do is we invest our knowledge and time, we obviously have to retain, I mean, the IP becomes our investment. And so, unlike, I think, a more traditional work for hire custom software shop, you know, we do have to maintain ownership of much of what we develop.
6:07So, how kind of legally in the paperwork or whatever do you say that, you know, that the person who acquired your stuff owns the right to the fraud suite software? Like, is there sort of, can you just draw, like, here's the actual code that you own the IP to or is it more of a conceptual thing? Initially, what we did is we left it kind of a to be decided thing in the initial contracts. The later contracts really focused down on this idea that it doesn't really even talk about code. It just talks about the rights to use the code. Yeah. And that has certain implications in that, you know, the look and feel, the things that users are going to associate as being, you know, the very much fraud suite stuff. Right. You know, it's of no value for us to use that or to own that anyway. Yeah. So, that's kind of de facto owned by them. But the actual mechanism is we don't even try to delineate the code. We just say you've got the rights to market and sell, you've got the exclusive rights to market and sell a product that does X, Y, and Z. Right. Based on our code base, I guess. Yeah. And you have all the rights necessary in our code to do so, even without us. I mean, they could choose to quit their relationship with us, hire someone else to maintain this code for them. Right. They would have access to all the code, everything they would need. They wouldn't actually own it. They couldn't sell it for any other purpose, but they could maintain it and develop it for the purposes as laid out in the original contract. Right, right. So, I mean, how did you figure out what you needed to do to sort all of that, the legal stuff there out? I mean, did you have a really good lawyer or something? No, we did it ourselves mostly and just thought about it for a long time. And I think it's also, you know, choosing partners that, and part of our relationship is that since we are investing in the company, I think in a very real way, just like with any investor, you want to have a good relationship, a good understanding of who you're investing in.
8:12They need a good relationship with you. You both need to be bringing value to the table. So, since ours isn't as cut and dry as, you know, some other method you might do, we do spend a lot of time on making sure that this is the right customer for us. We can work with them. Right. Everyone understands what needs to be understood. So, a lot of it is an extra legal understanding. I mean, if you never disagree, it doesn't matter what contracts say. I mean, we could both violate the contracts all day long. If no one cares, then there's not a problem. And so, you know, we definitely spend a lot of time on that end. Just making sure that, you know, we won't need to fall back on the contracts. Now, the contracts are there and I think are sufficient and usable. But to a large extent, the contracts are to just make sure that we both clarify points to each other as much as to, you know, set up an infrastructure if we were to go to court or anything like that. That's really a secondary purpose for the contracts in our case. Right, right, right. Well, that makes sense. You've hired several people in the past, like, year and a half or so, right? Yeah. And so, I mean, what, how, owning your own business, I mean, what's that experience been like? I mean, how do you, when do you make the decision that you need, that, I guess there's really two things. When do you make the decision that you want to hire someone and then how does that interlace with the decision that you need to hire someone? I mean, I'll tell you what, I think it's, um, it's hard. And I don't think there are any pat answers. And, you know, it's, you always run the risk of making, you know, non-optimal decisions. I think a lot of times it just comes down to, you know, you've got to make your best guess at the pros, make your best guess at the cons. So, you know, what's the value if I hire this guy, what's the value if I don't, or what's the value if I hire someone, you know, before you even have candidates. And, you know, what can I do with that extra person? What's it going to cost me in terms of time if I don't have them? And then you've just got to go with it. I mean, especially when you're small, you know, I mean, we don't know how many projects we're going to have in.
10:17We don't know what the timelines on those are going to be. And, you know, getting one more project in, you know, doubles or triples or workload, potentially. Right. You know, how do you... I mean, you don't have a lot of people on the bench. Yeah. I mean, you can't plan for that kind of situation. Right. Because at the same time, I can't go hire 10 people because I might have work for them, you know. Right. So, it's a naturally chaotic system because it's so, since there's not a lot of inertia just by the fact that you're small. Even if you're moving really fast in one direction, you still don't have a lot of momentum because you're just not big. Right. So, you're very sensitive to any type of perturbation of the system. A system like that, it's kind of like you can't really... It seems like you can't necessarily so much predict success as hedge against failure. Yeah. Right? And so, I mean, are there some hedging techniques that you've come up with? Absolutely. Well, yeah, absolutely. And I think it's... Again, though, it's... I don't know if I can say there's anything general, but I, you know... Sure. So, I always have backup plans and, you know, backup plans for the backup plans. And I try to approach everything first with thinking what happens when all this fails. Right. You know, can I, you know, take this action and if it blows up in my face, it not destroy me. Right. And so, you know, when you think about hiring someone, you're like, okay, well, maybe I'm bleeding the money now, but I have X amount of cash in the bank, so I just need to increase my revenue above that before I run out of money. And worst case scenario, I fire him and then I'm back into, you know, now I've got way too much work to do, but, you know, the company's not bleeding anymore. Right. So, you know, when's the time? So, maybe it looks like I'm close to closing another deal. Okay. Well, I want to get this guy in, so I'm absolutely slammed with work, and I think the deal will close within three months, and I've got six months of cash to pay for the difference in the revenue till then, so it can take as long as six months to close that deal.
12:17Right. So, if I believe that deal will close, I'll go and hire him now, and then, you know, hope the deal closes, and if it doesn't, you know, you're going to unfortunately have the firing. Right. And, you know, move on from that. And if I had to change one thing, that's actually what I would change. I was focused on doing an excellent technology job. Right. And, you know, making this incredible product for Fraud Sheep, which I think we did, but, you know, and I kind of had this build it and they will come attitude, which I carried on for a little bit too long. It would have been better if I, you know, really, even when I wasn't looking for new work, I had started networking earlier, so when I told people I was ready, there would be people that would, you know, then meet people and know my name and drop my name to them and that kind of thing, because, I mean, that's how it happens. Right, right. So, would you say that you've sort of learned how to do that? Yeah, to some extent. I think it's also, I've learned how to do it for myself, because part of the reason we've structured the company the way it is is because I want to stay a software company. I don't want to be a support company. Right. I don't want to be a product company. In my mind, those are two very different things. I want to be a software development company. At the same time, you know, I want, you know, to be working with these, you know, with real applications like we are. So, I don't want to sell libraries. I don't want to sell a compiler, you know, that kind of thing. Well, great. Well, thanks for taking all this time. Thank you.