Lean startup, schmean startup. There’s more than one way to build a Web company.

Just ask Coach Wei, the founder and CEO of Yottaa, a two-year-old tech startup in Cambridge, MA. Yottaa (pronounced sort of like the green Jedi master) makes software tools to help business websites run faster, monitor their performance, and generate sales more efficiently—a field known as Web performance optimization. In a previous life, Wei worked at data storage giant EMC (NYSE: EMC) and founded business software firm Nexaweb Technologies. He is a graduate of MIT and Tsinghua University in Beijing, China, which foreshadows the approach he is taking with his current startup.

Over lunch recently, Wei talked in depth about what he’s doing with Yottaa. You might call it the “anti-lean startup” (my description, not his). In some ways, it is the opposite of the lean startup model, coined by Silicon Valley entrepreneur Eric Ries, which involves having a small team, creating software prototypes quickly, and using customer feedback to rapidly iterate code. The process is much faster than traditional software engineering and uses methods such as “agile” software development and “customer development.”

As Wei explains, that approach works well for some social media and Web startups, but not all. In particular, he says, if you’re trying to build a company that will be able to grow from, say, $1-5 million in revenue to $50 million, you could run into difficulties with the lean startup model. If you start small and local, ramping up to hire a team of 100 people in Boston or San Francisco will be almost impossible because of the current talent crunch and skyrocketing cost of good developers. “There’s a huge scalability gap,” Wei says.

So he’s trying something different at Yottaa—and he’d probably be the first to acknowledge that it might not necessarily work. The idea, he says, is to be “global from day one and have scalability built in.”

Translation: hire most of the team in Beijing and the rest in the Boston area, from the start. “We try to integrate the best of here, and the best of China, to build a company,” he says.

This is different from offshoring, he says, because it’s not about cost, and the Beijing employees are not seen as second-class citizens. “You don’t do it for the sake of cost saving,” Wei says. “You have to think of building a scalable growth engine into your company. You have to build it into your DNA.” More specifically, he says, it’s about “how to leverage the global workforce.”

Here’s how I see it. Plenty of U.S. tech startups—and big companies—make use of developer talent in other parts of the world like Brazil, China, and Eastern Europe. But few are building their … Next Page »

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Consider these five trends, and then ask yourself what kind of Internet business you would create to exploit them.

1. Persistent economic uncertainty, leaving employers unwilling to hire lots of new permanent employees—but needing to get work done nonetheless.

2. The emergence of outsourcing as a mainstream, accepted, even expected corporate practice.

3. A growing number of people with home broadband connections for doing computer-mediated work and easy access to remote collaboration tools like Skype, Box.net, Basecamp, and Github.

4. More workers choosing (not necessarily being forced) to work from home as career contractors.

5. The interconnection of banking and financial systems around the world, making it more practical to transfer payments internationally.

Well, obviously, if you were thinking like an Internet entrepreneur, you’d want to go out create some kind of online service that helps businesses find, manage, and pay remote contractors, whether domestic or foreign, and then take a cut of the action.

But as it turns out, you’d quite possibly be too late: a company called oDesk created just such a service in 2005, and it’s now built up such an impressive lead over rivals such as Guru and Elance that it may be unstoppable. The six-year-old Redwood City, CA, startup has been growing its business at 100 percent per year for the last three years, and is now the world’s largest online employment platform, with more than 1 million contractors and employers signed up in more than 150 countries.

ODesk’s services, which include a hiring marketplace, tools for monitoring contractors’ hourly work, and a backend for handling payments across national borders, have been “a hit from the beginning,” says Gary Swart, the company’s CEO. But the venture-funded startup has also been the beneficiary of some huge and unexpected shifts, especially the global economic meltdown of 2008-2009. “The winds got stronger, fueled by the economy, the Internet, and globalization,” Swart says.

Barring the collapse of the Internet, a drastic drop in unemployment, or a sudden end to globalization, oDesk seems positioned to keep growing for years to come—and perhaps to eventually earn a nice return for investors Sigma Partners, Globespan Capital Partners, Benchmark Capital, and DAG Ventures, who have put $29 million into the company. With 38 full time employees of its own, the startup may or may not be breaking even yet, but … Next Page »

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IT executives from some of San Diego’s better-known employers, including Amylin Pharmaceuticals, Sony Electronics, and Broadcom are banding together to find new ways to retain local IT jobs and to counter the effects of foreign outsourcing.

The formation of a new regional business group, the San Diego-based Industry Council for Competitiveness and Globalization (ICCG), comes as the Washington D.C.-based Alliance for American Manufacturing released a study that claims the U.S. lost 2.4 million jobs to China from 2001 to 2008.

The Alliance, an advocacy and lobbying organization formed in 2007 by the U.S. steel industry and its labor union, says California accounts for almost 370,000 of the job losses—including high-tech and IT jobs in data processing, computer programming, and technical support. The alliance contends that the 370,000 lost jobs represents about 2.2 percent of California’s workforce. On its website, the alliance says Massachusetts lost 72,800 jobs (or 2.2 percent of its statewide workforce) and the state of Washington lost 44,000 jobs (or 1.4 percent of its workforce) over the same period.

Alliance spokesman David Roscow tells me the group issued the report as part of its continuing effort to focus the attention of U.S. policymakers on China’s trade subsidies, currency policies, and other practices that have adverse effects on the U.S. economy, and amount to “cheating,” according to the Alliance.

The formation of the new business group in San Diego also comes as many local technology and life sciences companies—especially the biotech startups—are turning to … Next Page »

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While tech deals remained scarce last week in San Diego, Qualcomm served up some of the biggest news by launching the delayed expansion of its Media Flo network and signaling an increase in its wireless chip sales, at least in the current quarter. More on all that, and the rest of last week’s San Diego business and technology news below:

—MadCap Software CEO Anthony Olivier says the four-year-old startup has had no trouble staying ahead of rivals, such as Adobe, that develop competing software offshore. “Generally, you get lower costs” by moving software development offshore, Olivier says, “but you don’t really get innovation.” MadCap, which specializes in authoring software that is used to create technical user guides, introduced new versions of its software this past week.

—Just in time for the summer travel season, San Diego-based TelCentris said an update of its VoxOx universal communications service makes it easier to place low-cost international calls through a clever adapation of its text messaging service.  For example, if you’re abroad and send a text message of the U.S. phone number you want to call to a special access number, the VoxOx system automatically dials that phone number and connects it to your cell phone, sparing you often sky-high international rates.

—Following a four-month delay in a nationwide plan to convert to digital TV broadcasts, San Diego’s Qualcomm was finally able to expand its satellite-based Flo TV network to more U.S. cities, including Boston, Houston, San Francisco, and Miami, when the switchover to digital finally took place last week. Qualcomm invested at least $800 million to buy the broadcast spectrum for what was UHF channel 55 for its Flo TV service. But the company’s plans to expand Flo TV coverage got postponed at the beginning of the year when Congress decided to delay the digital TV conversion until June 12.

—The Campo Band of Mission Indians plans to add 100 electricity-generating wind turbines on its reservation, about 60 miles east of San Diego, in a renewable energy venture that will add 160 megawatts to the local power grid. If the project is completed in 2012 as expected, it will generate enough electricity at peak production for more than 100,000 homes. Chicago-based Invenergy will build and operate the estimated $300 million facility for the 351-member tribe.

—One of the main engines of San Diego’s tech economy transmitted some mixed signals last week in its financial outlook. Qualcomm raised its guidance for the fiscal third quarter that ends June 28, based on expectations of slightly higher revenue and increased shipments of CDMA-based devices. But the average sale price of CDMA devices is slipping, and Qualcomm said it expects sales of its chipsets to decline through the summer, as cell phone sales remain sluggish.

—Venture capital partners around the world are expecting some enormous shifts in their business, beginning with a retreat among the pensions, endowments, and institutional investors who usually account for much of their investment capital. But VCs in the U.S. anticipate that foreign investors will largely fill the need for more capital, according to a survey of 725 VC partners released last week by the National Venture Capital Association and Deloitte.

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San Diego’s MadCap Software may stand as an exemplar in showing how a small American technology company can compete against rivals that take advantage of low-cost development offshore.

The startup, founded in 2005, specializes in developing authoring software that is used by technical writers and others to create owners’ manuals, user guides and other types of technical documentation. MadCap announced late yesterday the release of new versions of its mainstay Flare software for print and online publications, and Blaze, its alternative to Adobe FrameMaker.

The updated versions of both products support DITA, the Darwin Information Typing Architecture, which MadCap’s Mike Hamilton says is significant because the companies that have adopted the DITA standard tend to be Fortune 500 companies. “This opens up a whole new world to us in terms of gaining entry to enterprise-level customers,” Hamilton says.

The privately held company says it has more than 4,000 customers, and boasts that Microsoft Health Solutions Group, for example, is using Flare to streamline publishing for the just-released version of its Amalga Unified Intelligence System. The results were encouraging enough for Microsoft to allow MadCap to use the Redmond, WA, giant as a promotional case study on MadCap’s website—and to extend Flare across its entire Health Solutions Group. As Hamilton puts it, the introduction of Flare 5.0 and Blaze 2.0 also moves MadCap away from competing directly against Adobe and its RoboHelp software—and therein lies the lesson of MadCap’s origins.

Hamilton and MadCap CEO Anthony Olivier were both at San Diego-based eHelp, which originally developed the RoboHelp software, when San Francisco-based Macromedia acquired the little company for $69.3 million in 2003. Olivier had been eHelp’s CEO, and had stayed on as business manager following the Macromedia buyout. But Olivier says what Macromedia really wanted was RoboDemo, a Flash-based program used to create software simulations (which is now known as Adobe Captivate). Macromedia soon began to lay off members of the RoboHelp development team in San Diego and moved the work offshore, first to the Philippines and later to India.

Adobe, which acquired Macromedia for $3.4 billion in late 2005, was even more indifferent about RoboHelp and the rest of the eHelp product line. Adobe moved more software development work from San Diego to India, and according to Olivier, the products languished.

Seeing an opportunity to create a more versatile sourcing tool, core members of eHelp’s development team, including Hamilton and Olivier, founded MadCap in 2005 with less than $1 million in funding from angel investors who were former software industry executives. “We wanted the VC help without the VC strings attached,” says Olivier. Although eHelp had originated in 1990 as a bootstrapped business, Olivier says venture investors who invested … Next Page »

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When you’re listing countries rich in Web development and software engineering talent, you might think of places like Estonia, Russia, Poland, and Romania. Now you can add Costa Rica to the list. That’s the location of the “offshoring” facility where a new Massachusetts-based digital advertising, marketing, and communications firm called digitalArbor will turn for low-cost labor.

DigitalArbor launched today with news of a $5 million Series A venture round from Boston’s Flybridge Capital Partners. Led by Robert Willms, a former executive at the international Web marketing firm Digitas, Cohasset, MA-based digitalArbor will specialize in “digital production management”—building and maintaining company websites and other Internet- and mobile-based corporate communications. It promises to keep costs low for clients by drawing on “global labor pools within the time zone,” according to its website.

Costa Rica is on the same time as the U.S. Central time zone. DigitalArbor’s offices there are located in La Aurora de Heredia, an industrial park zone outside the capital city of San Jose.

The growing variety of channels available for reaching consumers—such as Internet video, mobile advertising, video games, interactive ads, and traditional website display advertising—means that companies have to tap more tools and technologies, which means higher costs. In a statement, Willms said the key to decreasing those costs is combining “onshore producers and offshore technical talent.”

“The company is coming to the market at a critical point in the evolution of digital marketing services with a business model that is even more compelling in our current economic times,” said Flybridge general partner Jeff Bussgang in the company’s announcement, which noted that Bussgang will join digitalArbor’s board. “With digital advertising outperforming many other forms of media, there is a huge unmet need for technical resources to fulfill production needs,” he said.

A digital marketing firm might seem an unlikely bet for venture investors, who typically seek investment returns of 10x within a three- to seven-year period. However, venture firms have had good luck with Boston-area digital communications companies before; Softbank and other investors profited nicely when Cambridge, MA-based Art Technology Group (NASDAQ: ARTG) went public in 1999, and last year AOL bought Boston’s Third Screen Media, a mobile advertising firm backed by TD Venture Capital (now Fairhaven Capital) and Blue Chip Venture Co.

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Being the leader of the pride, it seems, doesn’t guarantee you a nice meal everyday. Waltham, MA-based Lionbridge Technologies (NASDAQ: LIOX) may be the world’s largest provider of localization services, helping hundreds of other companies from Microsoft to Merrill Lynch to Pfizer go global by translating their websites, product manuals, software programs, and drug warnings into other languages. But it sure isn’t getting rich doing it: On May 6 the company reported a net loss of $4.4 million for the first quarter—its third straight quarterly loss—and last Friday Lionbridge stock dipped to $2.37 per share, its lowest point in more than five years, and down 61 percent compared to a year ago.

That’s lower than even the most pessimistic analysts were predicting at the beginning of 2008. As the financial website 24/7 Wall Street put it in a catty post recently, “It looks like the lion’s roar is a meow, at best.”

It’s a frustrating reversal for a company whose CEO, Rory Cowan, was being lionized (that’s the last cat pun, I promise) just three years ago for putting together a $180 million deal to buy one of its main competitors, the Global Solutions unit of New York-based Bowne & Company. That acquisition vaulted Lionbridge into the ranks of Boston’s 60 largest companies. And it’s a puzzling state of affairs, given that the company’s revenues are large and growing—a record $117 million in the first quarter, up more than 8 percent from a year earlier. But no matter how high the company’s revenues go, its expenses seem to go higher.

One answer to the puzzle seems to be that Lionbridge’s expansion has put it at the mercy of the same twin forces—technology and globalization—that drive demand for its services.

Analysts who follow localization services—a $12 billion industry in 2007—point out that translation is still a labor-intensive process, and that Lionbridge’s strategy of employing hundreds of managers, engineers, and translators in expensive regions like Europe may be backfiring with the weakness of the U.S. dollar against the Euro and many other currencies.

And while Lionbridge has made a significant investment in technology—especially on work-flow automation and memory systems that save labor by identifying material that’s already been translated—it hasn’t really profited from that spending. “What has happened is that the benefits of the efficiency gain that Lionbridge has been able to produce through the use of technology have been handed right to the client” in the form of prices that have stayed flat despite global inflation, says Ben Sargent, content globalization strategist at Common Sense Advisory, a localization market research firm in Lowell, MA.

It wasn’t supposed to be this way. Lionbridge, founded in 1996, has spent hundreds of millions of dollars on acquisitions and other growth strategies, and has the client list (Bayer, Cisco, DuPont, GE, Google, IBM, Merck, Merrill Lynch, Microsoft, Morgan Stanley, Nokia, Pfizer, Sony, and Wal-Mart are a few of the big names) and revenues ($452 million in 2007) to show for it. With 4,600 employees in 45 offices around the world and a network of 25,000 freelance translators skilled in more than 200 languages, the company is three times the size of … Next Page »

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We got an interesting e-mail on Tuesday from the global communications staff at IBM. The company was concerned about the message some readers might be taking away from an economic report published last Friday, the Massachusetts Technology Collaborative’s 2007 Index of the Massachusetts Innovation Economy.

That report’s executive summary emphasized the growing challenges for Massachusetts companies in the face of international competition, and it listed IBM, alongside General Motors and Microsoft, as one of several U.S. companies expanding its global footprint and hiring large numbers of employees in places like India and China. In their note to us, IBM staffers expressed concern that readers of the summary might peruse that section and question Big Blue’s commitment to employment and innovation in Massachusetts.

Curious about the scope of this apparent spat between one of the Commonwealth’s leading economic development agencies and one of its largest technology employers, I called up both organizations. In the end, it seems, everybody’s still friends: the Massachusetts Technology Collaborative didn’t mean to imply that IBM’s global expansion is hurting the state, and IBM isn’t feeling irreparably wounded by the report’s language. But the whole conversation is an interesting case study in the politics of economic development in Massachusetts, and in large U.S. companies’ sensitivities to even indirect suggestions that they’re shipping jobs overseas.

Here’s what the report’s executive summary actually says about IBM: “The rules of the game for research and development investment, market access, and competition in and among states, regions, and countries are in flux…Evidence of these sea changes abound….IT services and hardware giant IBM counts more than 50,000 employees in Bangalore (the greatest concentration of employees outside the US) and went so far as to hold its annual investors conference there in 2007, an event historically and exclusively held in New York.”

I talked yesterday with Mohamad Ali, IBM vice president for business development and strategy, who said he was “a little bit surprised” by that wording. He pointed out that over 5,000 of IBM’s 250,000 employees worldwide are in Massachusetts, making it one of the state’s 20 largest employers; in fact, the new campus it’s building in Littleton and Westford will be the largest IBM software development lab anywhere in the world. “I think you’re seeing our non-U.S. employee population increasing, but you’re also seeing our U.S. population increasing,” Ali says.

“Yes, the reality is that the world is becoming a more competitive place, but I don’t think we are looking to abandon our core position here at all,” Ali continues. “IBM is an American company. We are based in New York and we have a large presence in Massachusetts, and we expect to continue to grow that. The reality is that there are substantial intellectual assets here and we continue to leverage that, and I don’t think the fact that we also have grown our India and China operations means that there is a tidal wave of offshoring.”

Next I called the Collaborative and ended up speaking with Mike Tavilla, the organization’s program manager for research and analysis and the lead author of the Index (a dense, chart-filled, extremely informative report that the Collaborative has been publishing annually since 1997). “We are keenly aware that IBM is hiring people here and consolidating their software labs in the state,” Tavilla says. “We don’t mean to nominate IBM or any other company as a poster child for offshoring. What we are trying to show is that it’s now a condition of global business that activity is growing overseas.”

In fact, the term “offshoring” has acquired an unfairly negative connotation, Tavilla argues. “It’s a common mistake that offshoring is automatically perceived to be a net loss for Massachusetts and for the U.S.,” he says. “There is nothing to document that. In fact, I think it’s a good thing that companies such as IBM can take advantage of what other regions have to offer, be it work forces or raw materials or whatever they need to conduct their business more efficiently. If they can then reinvest those efficiencies back into Massachusetts, that’s clearly a good thing.”

To my own eye, it’s a slight stretch to read the Index’s executive summary as explicitly taking IBM to task for moving U.S. jobs offshore. On the other hand, the statistics about IBM’s hiring in India are part of a passage about the challenges of globalization whose tone might fairly be characterized as defensive or alarmist. Either way, it’s clear that IBM wants the local community to understand that it’s here in Massachusetts for the long haul. And it’s equally clear that Tavilla and the Massachusetts Technology Collaborative think it’s important for the Commonwealth to stay engaged in the global economy.

The advisory board overseeing the production of this year’s Index actually included one representative of IBM, corporate community relations manager Maura Banta. But the board wasn’t asked to sign off on the report’s final language, according to Karen Lilla, a spokeperson for the global communications department of IBM’s Software Group.

“I don’t want you to think that IBM is feeling slighted,” Lilla told me by phone yesterday. “I just wanted you to understand that while IBM is a global enterprise, we do have these strong ties to Massachusetts.”

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