What does a company do to grow when it has 100% of its market and doesn’t want lose its employees? It starts new businesses. With over 2 million members in a country of 2 million people The Draugiem Group needed new ideas to grow. They chose to offer employees seed money to start new businesses rather than lose them to another company. It has helped Draugiem grow into a $27 million dollar company with offices worldwide.
We spoke with Davis Siksnans, the man in charge of Draugiem’s new ventures.
You can listen to Davis’s Interview here and read it below:
Roy: My name is Roy Weissman from MediaJobs.com. We provide job seekers the strategic insight into their job search. Today we’re speaking with Davis Siksnans from Draugiem Group in Latvia, who has a very unique business model. The Draugiem Group is an umbrella organization that houses the national social media platform of Latvia, and currently incubates 16 startups.
So Davis, you guys have a pretty interesting business. You’re the Facebook of Latvia, but you’re many more things than that. So maybe you can give us a little bit of a sense or a history of how this all evolved, and where you’re at at this point.
Davis: Yes, sure, Ray. So Draugiem actually started back in 2004, the same year that Facebook started. We got an idea for the social network from the popular social network at that time, which was Friendster. And we started the business as actually sell t‑shirts initially, because our founder had a Web site where he sells t‑shirts, and he saw that, oh, if I mixed the social network, we could drive traffic to this other Web site. But it went viral back in 2004, and soon we were just in a hurry to put up enough servers and to have the infrastructure ready. And we’ve grown to up to two million registered users at this point, and there’s several, at least about one million unique… people log in onto Draugiem every month. And we’ve pretty much covered the whole Internet population of Latvia.
Roy: I was going to say, what is the population of Latvia?
Davis: Latvia’s population is two million people. So the registered people markets their stuff, some people from other countries. So for a country of two million people, that’s one million log onto Draugiem every month. And our sort of adoption of Draugiem is about two or three times wider than Facebook, currently. It’s one of the few social networks globally that still have not succumb to Facebook, and that’s pretty unique. But pretty early, our founders realized it was going to be pretty hard just to have this social network, as Facebook is also on the rise.
And our Founders asked your entrepreneurs, so they had many ideas. And they expanded. And that’s not just a social network we’re getting into as you mentioned, 16 other companies. And they are only connected by the fact that we’re all in the same building, same location in Greater Latvia. We share all the same resources, same accounting, HR and design teams, but they are pretty varied. It ranges from a drop shipping company that prints t‑shirts and framed posters, canvas, etc., to the GPS tracking devices for cars or vending machine telemetrics. So we’re really varied.
Roy: So how did this evolve? In other words, here you are, you guys are running the Facebook of Latvia, things are going well. Why did this whole… these other companies evolve? Weren’t you looking to evolve Draugiem more? Meaning, the Facebook site, or what was the impetus for all this to evolve?
Davis: We realized that this was going to be very hard for us to grow Draugiem as a social network outside of Latvia. We had a pretty strong user base in Lithuania and Hungary, but Facebook actually took those countries over. So we didn’t see much international growth. We were business people, we really want to see gross every year, but Draugiem’s pretty hard, because we pretty much covered everybody in Latvia on the Internet.
So we remained the national social network. And we started these other companies to expand internationally. And pretty much, I think all main… more than half of these ideas are geared internationally, because the Web site is going to be in English. And also, Draugiem founder now lives in Los Angeles and may have a subsidiary registered in California. And we work with many new ideas that are geared towards the American market. We employ Canadian and American Latvians, so they are descendants of people who actually left Latvia when the Soviets came in after the World War II, and now some of them have come back to Latvia and they know English really well, and they can help us with the promoting, PR and copywriting, and they also speak Latvian, which is great.
So if you take a look at our Web sites, you’d see that it’s… it’s not very easy from the start to realize that these guys are from Latvia. And yes, so we expanded a lot. And also, our founder, who always had the idea that he is serial entrepreneur, and he wants to promote that also within the company. And we saw some people who actually left our company, start their own projects, and there was one guy who started a successful gaming company, he worked on games for the social network. And we wanted to keep those best people inside our company. So we’re starting… we started the incubator for our employees to keep the best people intrinsically motivated and stay by the company.
Roy: So now, you say you have a US office in Los Angeles, I think you said?
Davis: Yes. And specifically, we have an office in Burbank.
Roy: And how many people do you have working there?
Davis: Right now, we have just three people. We’re… because all the PR, marketing and support development happens in Riga, where it’s cheaper, and where we have all the best staff. But what we do in California is we made the products and we ship the physical products. Some of our products, like startupvitamins.com, which sells motivational quotes on posters, t‑shirts and mugs to start. You have to ship those products from the United States to have your reliable delivery times and tracking codes and everything. So those people in California and Burbank, they are working with the printers and the t‑shirt printing and packing and shipping stuff.
Roy: So tell me about some of the big success stories out of those 16 companies that you guys have built, and give a little history. Where did the people who started come from, when they were employees, and how did it originate? Give us a little bit of a couple of stories here.
Davis: I think one success would be a company called Vendon. I mentioned that they do vending machine telemetrics. This Vendon, the vending machine owner has the ability to track what’s happening in his vending machine in real time, remotely. So he sees when he’s out of stock, or if he has some issue with the vending machine. And this business is growing mostly in Europe, in Western Europe. And actually, it came out from people who had a… one of 16 companies was the next name and company, Text2Reach, because on Draugiem, when you buy mutual products, you pay with SMS. That’s how most Internet payments were in Latvia back in the day.
And those guys just expanded and did another business, which was this vending machine business. And I don’t know how the idea specifically came to mind, it’s just one of those random brainstorms we’d have. Sometimes you just stay long after the work and engage in some social drinking and stuff, and that’s where a lot of ideas come from. And you just jam with the founders. So yes, so they did the vending machine business, and it’s been two or three years, and they’re growing pretty quickly.
Roy: And it’s called Vendon, V‑E-N-D-O‑N?
Roy: Okay. So in essence, do you have to have a special vending machine for this to work?
Davis: Vendon is compatible with a wide array of vending machines, so it supports most of them.
Roy: So literally, you just have a, I guess, Internet-ready vending machine, I’m not in the vending machine business…
Davis: Well, the way… the device actually talks back to the Internet through GSM network. So it has… each device has a SIM card in there which talks to the Internet wirelessly, like your phone would.
Roy: So it literally calls you on the phone and says, “Here’s what’s happening at this machine.”
Davis: Well, it sends data through GPS and does stuff.
Roy: So it literally communicates what’s going on with the machine. Now, aren’t there other companies doing that?
Davis: Yes, there are some competitors doing that in this space, but our biggest value proposition, or however you call it, how we’re different is the interface, the vending machine interface, when actually the user logs into Web and can see everything. We pay special attention to user experience and things like that. So I think that is where we excel is actually… it’s pretty hard to make hardware which is cheap in Latvia. Most of the people outsource production in China, so that’s where we excel, is that interface, which cannot be copied.
Roy: So now, this service, how many people work for Vendon?
Davis: Vendon is growing quickly. I think it should be at least 10, 15 people.
Roy: Ten, 15 people. And then you’re actually going out and selling the service to companies… people that own vending machines, obviously. Companies that are vending machine owners?
Davis: Yes. Yes, yes. This is just one example. I wanted to also give another example which shows… I think I should explain to you more about the way actually the incubator works for us. So, the idea is that every employee can come to the founders and pitch their idea to the founders. “Hey, I have an idea for this service, that’s an app that does this, and this is the market, this is what we need. I need a Developer and Designer to do this, and we hope to have it done in X‑amount of time.” And if the founders like the idea, they actually provide you resources.
You can assemble your team from the whole company, we have 115 people, so you can assemble the team from all these people, have them come to your project. You usually build the first prototype in your 20 percent time, but we have also, well, Google has also 20 percent, and we have that too. That means people on Fridays can work on their own ideas. Twenty percent time can also be used for some non-business… like, it doesn’t always have to be, you know, where you have to make your own startup. But then we can build the prototype and bring it to market, and if it has traction, then you have the ability to form an actual company.
So the way most other, inside the company, like in LinkedIn. LinkedIn has an incubator. You can’t really form a company with your own idea. So what Draugiem does is that we allow employees to form a company and have equity in that idea. That means that they are more motivated to work that and develop that, and advance it. And one interesting thing was, in Draugiem, they have an advertising department that sells advertising on the social network. And one employee was working there, and he noticed a problem that a lot of advertisers struggled to communicate effectively on social networks, and the spaces also like Trigger and Facebook and Draugiem as well.
So he noted that there was HootSuite and other options who included Facebook and Trigger, but there was no tool that included also the Latvian social network, which is important for the Latvian businesses. So he went out and made this service called ProDesk.com, which is the social management platform for all three important social networks.
Roy: And that’s ProDesk, D‑E-S‑K?
Davis: Yes. ProDesk.com. And I think it was… like in America, we hear that people are very entrepreneurial, they are ready to take risks, but in Latvia, the whole 50 years of the Soviet occupation didn’t really help entrepreneurial spirit, and the common economy, it didn’t have the capitalism here, so we’re just learning more about business and promoting that. Latvia is, I think, my colleague, Janis, who did ProDesk, he would probably not have done his idea if it wasn’t for the support of Draugiem, engaging big lead time to break even, and also gave him the team who can build this.
If he would have left the company to recruit team and basically not pay them and promise some revenues down the road, it would be much harder. In Draugiem, he can take these big risks and new ideas, and still don’t worry about job security, because the social network and other companies who are profitable in our growth, we use those profits to invest in all the other startups, and started ideas.
Roy: That’s fantastic! What… so now, any of these companies that people… what’s the oldest company in your program?
Davis: Well, the Draugiem, that’s the oldest. But the oldest is actually the first one, the first company called MapOn.com.
Davis: So if you actually look at all 16 companies, you know that even some of them are related. You’ll see MapOn, Vendon, you’ll see they’re similar. So what MapOn is is a car fleet management system. It’s also a pretty crowded space, but back when we started it was pretty new. So it allows you to car your car fleet via GPS. Also, you can track how much fuel is left in the tank, like for example, Statoil, a big Norwegian oil company is using that to track whether somebody’s not stealing the fuel from their big trucks who deliver fuel to the Gauspans, so.
Roy: I have a question. I noticed… I went to MapOn, and it looks like a great product, but obviously you don’t seem to be… you seem to be, I guess, marketing to Eastern and Western Europe, primarily?
Davis: Yes. The MapOn is actually the product which is strong in Latvia, and expanding in Ukraine, Lithuania. And the Vendon is mostly for the Western Europe. And what I actually want more is an idea basis that… you know, it’s very hard, because we have 16 companies who still work. So I actually work with ideas with the founder, who is in Los Angeles. So we’re a pretty global business in that sense, that we cover Europe and America.
Roy: Well, I was going to say, it would seem like there would be unique opportunities to partner with American companies, given that you have such great technology. You could substantially grow your businesses by partnering with American companies. Or, just starting it here, either way, it’s up to you. But do you have plans to try to expand in the US?
Davis: For MapOn and Vendon, no, not yet. We’re still grasping the vast European market. We populate just a small fraction of the vending business in Europe, which would be billions of dollars probably. So the European market is large. We actually… I think we had offers, some American companies wanted to buy out MapOn, and we’ve had those offers once in a while. But America isn’t like in Europe. Europe is not a unified market, but it’s a big enough market on itself if you want… you don’t have to go out of Europe.
And also the same, that’s why we have the subsidiary in California, because we noticed that there’s a lot of niches that would just not work in Latvia. Because the country of two million people, an economy is really small just like the economy would be the size of… just like some normal size city in America would have the same size economy as Latvia. So there’s a lot of niches that doesn’t work in Latvia. When we started those ideas and businesses in American, it’s a big unified common market, and that niche just is more successful there because there’s much more people, and you can market pretty much in almost the same way in all the United States.
And in Europe, you have to have representatives and distributors in each country, and you have to market in the way French people like, and you have to translate your product. It’s much harder to do here, to do here than in US. And we’re lucky in that for StartupVitamins, we just put on a Web site and market to everybody in the same way, and I think it’s great about America.
Roy: Well, that’s why a lot of people… that’s why a lot of people try to sell their products in the US because it’s a relatively homogeneous market, versus like you said, all the different countries. Each one is a different culture, it’s a different approach. I mean, no question, there’s a lot of money to be made in Europe, both Western and Eastern Europe. It’s just like you said, each country may require a different approach, or slightly different changes. Can you give us a sense for your whole company what kind of overall revenues you guys are doing?
Davis: So, I don’t have the data for 2012 yet, because I don’t think that’s public, but back in 2011, we did about 15 million Euros in annual revenue and managed to get about 1.2 million Euros in profit. If you go on DraugiemGroup.com, you actually see that information as well there. I could actually… we’ll probably update it soon.
Roy: Oh, okay. So have you seen your revenues growing year to year?
Davis: Yes. We’re growing every year, yes. But we’re growing the fastest when we started with the social network, and then there’s people that are still adapting it. When we hit it pretty much the 100 percent expansion of population that grows slow, and that’s why we started this incubator to kind of work, following the lean charter principles to work on these new ideas, granting the minimal allowable product, putting in the market and see if there’s traction, so to have the same growth rate that we used to have, we actually have to innovate really fast. And I think that incubator is helping us to do that.
Roy: Well, there’s no question that obviously, Latvia is a relatively small country, and there’s only so much you can get out of it, and as you observed, for your advertising on Draugiem, do you get outside, other than… you know, non-local advertisers on there? Do you get a lot of those? Or, is it just primarily Latvian?
Davis: It’s primarily Latvian, there’s a lot of international grounds, like Samsung and Nokia, you know, all those international brands of agencies in Latvia. So when they do a big global campaign, they do it both on Facebook and in Latvia, they do it both on Facebook and on Draugiem.
Roy: Oh, okay. So you’re picking up some of that advertising. But obviously, you’ve seen that by adding new businesses, you can grow your business. So that makes a big difference.
Davis: Yes, yes, definitely.
Roy: We have a zillion companies up here. So of these companies that you have, is there any one that you can talk about, that you think is really the up and coming one? Something that’s relatively new, but you really think is going to explode?
Davis: Yes. That’s actually our latest project, and that’s a company called Printful. The Web site is ThePrintful.com. And it just started out. It’s a drop shipping service with an API. Actually, when we started… some of the businesses, like StartupVitamins, sells posters, initially we wanted to outsource the production of posters to somebody else. But we couldn’t find a drop shipper who works through API, meaning that when the order comes in to StartupVitamins, it would be automatically pushed to the drop shipper and they would deploy… they would ship the product to the client. And also, we couldn’t find the service that would concentrate on print products. I mean, t‑shirts and posters, screen prints, greeting cards and so on. So we just made our own.
And we just launched it a month ago in a private beta, and we’ve seen an overwhelming response. But that’s also mostly because we had a pretty good audience for StartupVitamins.com, and you just send out an e‑mail to all the followers of StartupVitamins, “Hey, here’s Printful.” If you want to make the same kind of business like StartupVitamins by selling posters and other print products, here’s the tool that you need. And all you have to worry about is just having to put up the Web site, having it be able to accept payments, and have products and designs. And forward that design to Printful, and we’ll drop ship your products to your customers from California.
Roy: Now, I’m sure you must be familiar with CafePress and Zazzle.
Davis: Yes, CafePress and Zazzle, but they don’t…
Roy: What are you doing that’s different, better, whatever, than them?
Davis: I think our difference is that we will have a very elegant and fast API, so that you don’t… you just have the Web site up and running and all the orders go straight to the Printful system. So that, okay, they might have a little more varied selection of products, but they’re adding new brands and new products every day on Printful.
Roy: Now, do you offer… I know they offer Customer Service. So if somebody uses the API and sells something and then there’s a problem, you can call the Customer Service department of CafePress and Zazzle directly and the storefront doesn’t have to deal with that. Do you guys offer that too, or…?
Davis: No, we don’t offer that. We discussed that in the team, and they decided it would create too much problems. We offer Customer Service only to extend that, if your customer receives a broken item, so let’s say a mug was broken in the mail, we would handle that. But our clients communicate with their customers directly. And actually, one of our early customers said that he doesn’t like the CafePress and Zazzle’s Spreadshirt because they brand everything, or they brand their product and they ship it, and they doesn’t have the full control.
Also, the storefront is hosted by I think it was the Spreadshirt company, in this case. They would market the Spreadshirt service to their customers who used it, basically hijacking them. I think that our customer used the term that’s basically, you know, something you should… it’s faster, I think, I think he referred to as, it’s wrong how they exploited this new customer base for their own good. When you use Printful, you are in complete control of your platform, you don’t rent the ship products in any way. So you might as well… your customers might as well not know that you don’t really make that…
Roy: So in other words, when I set up your API with Printful, and I sell my t‑shirt, you guys make it and you ship it to my client, my customer, and the return address is me?
Davis: Yes. Return address could be you, could be us, you can choose your own return address.
Roy: So in essence, it’s totally what they call “white label.”
Roy: So that’s interesting. Because you’re right, I know through CafePress and Zazzle, they don’t even give you the customer’s names. So not only don’t you find out who bought your product, you have no way to communicate with them unless you convince the customer to give you their e‑mail address, or whatever. So definitely an opportunity for a white label service there, no question. No question. So is there anything that I didn’t ask you that you wanted to mention in our interview here?
Davis: Okay, the one thing I didn’t, I think, I am actually, myself, taking advantage of this business model we have here. And me and my colleague, the Designer, had an idea for a Mac app called Inboard, it’s InboardApp.com. This is a Mac, we noticed like in my work and in his work, as a Designer, we take a lot of screen shots of cool ideas we found on the Internet, like a cool bus, or a cool idea how to convert more customers, and other things. And those screen shots just pile up in a Finder and it’s very hard to sort through the Finder. So we made an app called Inboard.
It’s a Pinterest-like user-interface, it means that there’s not just the small thumb views of icons like in Finder, but it fills the screen evenly. The screen shots you get back, then sort them. You can take full page screen shots from Chrome, et cetera. So that was our old problem. We sort of scratched our itch and made a product, and now we’re better. And the founders believed in that idea, and now we can do that. And I also think we would not have done this if it were not for the support of Draugiem Group.
Roy: That’s fantastic! So let me ask you a question. So your role there is, you run the venture fund, I guess it is? The Incubator?
Davis: Well, it’s not a venture fund, because we don’t invest outside of Draugiem, so yes, I’m working at this idea, which we evolve these new ideas. The way it works, we initially work in this subsection of company ideas, and you work on this new idea. When you make it, and it’s finally can be your own independent company, then you graduate and move to the different parts of the company, so did Vendon, for example.
Roy: And your role is to oversee all of these companies, is that correct?
Davis: Yes. Yes. And I also work directly, on my own projects, so.
Roy: You have your own projects.
Davis: Yes. For example, Inboard is my own. So I do that. We’re not big on titles here at Draugiem Group, because it’s changing so fast, we don’t care that much for that. We only… we want to keep the small startup sort of culture, even though we are growing, and we are already 113 people.
Roy: So let me ask you a question. So now, the people that are listening to this, what if you have somebody out there who’s a great Developer, or just a great business person, has some great ideas. Would you encourage them to communicate with you to see if there’s an opportunity to work together on it?
Davis: Well, for Developers and business people like that, you would kind of need to move to Latvia to work with us. But we always are looking for partners in America who can help us promote our products, or also in Europe who can help us, like re-sellers and PR people in agencies who can help us to reach audience in America. So I would suggest, if you take a look at our Web site, if you really like some of the products you see, just write us in, we’ll see what we can do.
Roy: And how would they reach you?
Davis: Everybody can reach me at email@example.com, or firstname.lastname@example.org.
Roy: Davis, or, what’s the other one?
Roy: I‑D-F‑S.com, okay.
Davis: No, Ideabits, like the incubator name.
Roy: Oh, Ideas.
Davis: Yes, Ideabits.
Roy: Why don’t you spell that for everyone?
Davis: It’s I‑D-E-A-B-I-T‑S.
Roy: Oh, Ideabits. Okay. Dot com. Very good. Very good, well, I really appreciate your taking the time, Davis, to share some of what you guys are doing. I think you guys are a very dynamic organization. It’s truly a business model that everybody should take a look at and companies should think about, how could we grow? And you guys have solved an important problem being in a small country, how do you grow the business? You kind of like an amoeba, you just let all kinds of people come up with ideas and you start a new business. So just… I really appreciate you taking the time, and it’s a great interview, and we appreciate it, and thank you very much!
Davis: Thank you!