David Chen: Duostack

Start as a kid. That’s what David Chen did. He started his first business at age 11. He used to bring his dad to business meetings. The client thought this was so cute: “the father brings his son to a business meeting.” The reality was the other way around – David was bringing his father to client meetings to give him legitimacy! “Who wants to do business with an 11 or 12 year old,” he questions? This is the first profile as part of my series, “Start as a Kid.”

David put himself through Carnegie Mellon University and drove a Mercedes Benz all through his college years from selling one of his businesses for six figures. You would never know that David is an avid entrepreneur from meeting him. He is quiet, unassuming, charming, and almost shy in his demeanor. He is quick to smile and thinks carefully about what he is going to say. Articulating his thoughts seems like an effort and he crinkles his face in concentration in answer to some of my questions.

Startup #1. As a youth, David didn’t think of himself as an entrepreneur or even as someone starting and running a business. David came at entrepreneurship through his ease at manipulating technology. His story starts with the modern-day lemonade stand – web design and hosting. When the world wide web became a viable means of marketing and doing business, many firms and businesses simply did not know where to start. Turning to high school students, college students and other young people who had mastered state-of-the-art technology became acceptable practice. And young people found a treasure trove in their hobby of learning how to design, code and launch websites. A business was born by matching resources and skills with a need.

Producing websites gave David an education in business: landing customers, setting prices, providing customer service; he had to do everything from soup to nuts. He cites these activities as fundamental to building confidence as a youth, the kind of confidence that enabled him to start a much bigger opportunity business at the beginning of his junior year in college.

Looking back on his web hosting days, David recognizes that the business gave him a good foundation but it was not sustainable as a business. It is very hard to differentiate yourself in a highly competitive arena. Building websites is like consulting; it’s very hard to scale – not that this matters when you are 11!

Like many young people, David didn’t learn to build websites because he saw a business opportunity there; rather websites were for fun. An avid video game player, David loved Starcraft and wanted to build a website about the game. This activity required startup capital. He asked his parents for $70. His dad, a developer for a telephone company, and his mom, an accountant, said no. Somewhat rebellious by nature, David turned to the video game chat rooms – he solicited $15 cash increments from members of the chat rooms. When he started to get all these checks by mail, his parents realized that David was serious and they became more supportive. People were impressed by the site, and David quickly garnered many users. Then a major online media company called and wanted a contract. Of course David had no idea how contracts worked, so his parents stepped in to give him some guidance. David ended up with an advertising revenue split of 50/50. David’s mom bragged about the checks in the mail; they kept coming and they grew in size. Annual revenues were in the thousands of dollars.

Startup #2. David learned a lot from the online media company. And his own reputation among the gaming community grew stronger. He was approached by others to do more sites. At the time, the online media company was going through some people upheaval and David recognized that what they did in the online world was possible without them. He decided to start a business that allowed him to make money from websites without relying on the partnership. One of the first contracts was with a Canadian company to resell their hosting services. It was 1999, and it was still early on in hosting. At the time, he was contacted by VCs but, as he recalls with a smile, “I had no clue what they wanted!”

It was the heyday of Internet Relay Chat (IRC), one of the first chat mediums on the Internet, invented in 1988 in Finland. David was an avid participant on IRC. Through IRC David met technical founders and executives from companies all over the world. They used IRC as the underground Internet, exchanging files, and having what David categorizes as “nerdy chats about all kinds of technical stuff.” David wanted to use chat because he was a kid and thought that others wouldn’t take him seriously if they knew his age. Online, the community helped each other out and built up a strong sense of trust between the members. Online, David could look like a bigger company. He once negotiated a contract with a university, “if they knew I was only a kid, it would have never happened,” he laughs.

Two of his earliest clients were financial services companies. They signed David to add social discussion features to their websites. These early adopter firms enabled David to perfect his interactions with customers; he also hired part-time help on the Internet and outsourced his phone system. Even today, in his early 20s, David is still conscious of trying to look bigger to impress potential clients. He recalls a visit by a potential customer during business #4 where he had to ready the office, the Carnegie Mellon Project OIympus incubator space that he shared with other small student companies, “We stuffed three ring binders with anything to make them appear like customer files, and we spread our home computers and our friends’ machines throughout the space to make them look like we were more people.”

As a young entrepreneur David has had to fly in the face of Asian culture, “I was raised to focus on becoming an engineer or the like and getting a job. You are a failure otherwise.” David has had to prove the stereotype is wrong – that entrepreneurship is viable. Not that he didn’t have other opportunities, including Microsoft, where he interned one summer during college as a Program Manager. David was not the only young Asian flying in the face of convention in his family. His cousin started a venture-funded technology company during the dot.com bubble, right after getting his MBA at Harvard. Now, David’s younger brother, a recent high school graduate, is working on his own web startup, so clearly David has proved to his parents that he can make a career with this path. Or are there entrepreneurial genes at work here?

The web hosting company grew to tens of thousands of websites. But young David had a poor sense of finances. He used cash to buy servers for his data center and ran out of money to continue operations. He remembers that it was New Year’s Day when he took all of those servers and disposed of them, some of them sold, some stored. David didn’t think that he could fail, but he did. After struggling with it for a while, David accepted his failure. Then he went on to start his third business. He was 14.

Startup #3. The technology of the day was “cool,” and David leveraged it to do consulting projects with various companies. He was a pretty good coder and for several years was content to provide services and write software for companies that had all kinds of clients, ranging from individuals to industry giants like Yahoo. He found that there was a market for small projects. For David, this was a time of learning, working on his own projects, and coding for a number of clients.

Startup #4. When he entered Carnegie Mellon University, David wanted to be a normal college kid. He had earned his emergency medical technician certification and thought that he might become a doctor some day. He studied abroad in Australia. And that’s where he got the idea behind his fourth company, Fooala, which had a koala bear for a logo, a tribute to that time “down under.” Fooala was an attempt to solve the problem of online food ordering, delivering sort of a CampusFood for everyone. This was his university business, founded in 2008. With that idea, he joined Project Olympus as a  PROBE (PRoblem-Oriented Business Exploration), which is an an initiative within Carnegie Mellon to foster and encourage entrepreneurship among faculty and students. While he ended up moving on from this business in 2010, it was a great learning experience. Whereas David’s previous ventures were small one-man band type of businesses, Fooala was his first attempt at building a bigger high-value business. There were four founders of Fooala, Todd Eichel, also a Carnegie Mellon grad and who was David’s partner in his fifth and latest venture, David’s roommate from Microsoft, and two students from Duke University.

David’s learning curve has been steep in terms of building a team and funding. He raised money from AlphaLab and Innovation Works, two of Pittsburgh’s economic development organizations. That was a first time experience for him. He used to operate alone; now he wants to build consensus. He used to think of starting businesses as a numbers game – if you start many, several will be successful. That was before he had as much invested (both money and sweat) in Fooala.

David believes that young entrepreneurs need a safe place to fail without being harmed. He realizes that mentors and advisors are invaluable and that trust is a key ingredient in building an entrepreneurial network that can help young entrepreneurs. There are no clear guidelines for a first-time entrepreneur to follow. “It is scary and it takes courage,” David counsels. Starting a business is a huge jump from the standard framework, and David recommends that young entrepreneurs to “embrace the freedom.”

Startup #5. In the fall of 2010, David came up with a clever scheme of how to drive more traffic to the Fooala site and to use the data to their advantage. As he recounts, “But then it occurred to me that what I wanted to do was totally different from Fooala. And I realized that it didn’t make sense to make this new thing part of Fooala – we had baggage. Our existing company was labor intensive, we had to take orders and fulfill them.” Once he realized that he had new ideas, David got the newco excitement again and started developing them independently from Fooala. Soon after, David relocated to Silicon Valley to leverage some friends and CMU alums involved in entrepreneurship.

His newco is Duostack, a cloud computing company. David’s excitement shone through into his voice as he explained, “We believe all web apps can harness the power of cloud computing but most developers do not have enough knowledge or time to manage this. So we built a workflow that any developer can understand, and a platform that automatically adapts their app for the cloud.”

Ok, there are a few buzzwords here, sure… but things have been going very well for David: “In the first month our beta platform was online, over 100,000,000 hits were served using our platform, and we were approaching 1,000 registered developers. Notably, a TechCrunch-featured website-gone-viral switched to our platform when they struggled with handling their increased traffic, proving the value of our technology.”

David was featured for discovering one of the largest security vulnerabilities in cloud computing: “Heroku’s Security Slip-Up – Is It Time for a PaaS Security Certification Standard?” The security discovery earned David a lot of credibility in cloud computing and additional contacts in Silicon Valley.

For David, Duostack is a billion dollar opportunity. He recalls, “I remember Dr. Blum [of Project Olympus] asking early on why I chose to work on something pedestrian like Fooala, and not something more trendy and technical. I told her then that I wanted to work on something I knew I could handle at that point as a student in school – and now I see Fooala as a stepping stone.”

A stepping stone, indeed. Duostack just got acquired by DotCloud (May 24: Wall Street Journal). David is now with DotCloud (which will be featured soon on this blog, along with its founder and CEO, Solomon Hykes.

I am looking forward to startup #6, David!