How to Build a Startup Out of Nothing
By locating in Mexico and using Latin America as a lab, software company Sapotek launched on the ultracheap.
By Robert Levine, Business 2.0 Magazine

(Business 2.0 Magazine) -- Joshua Rand flies to Mexico on business every few weeks but rarely takes a laptop. Instead, he uses the virtual-desktop software made by his startup, Sapotek, based in New York and Toluca, Mexico.

The software, also called a webtop, lets users access personal files and software applications - including e-mail, word-processing, and spreadsheet programs - from any Internet-connected PC.

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In 2003 the company began offering a free Spanish-language version of the webtop, which has attracted 100,000 users in Mexico and Latin America. The giveaway was not an act of altruism but a way to stress-test the service before its official debut.

It worked: Since last year Sapotek has licensed the software to six enterprise clients, including universities and companies with limited IT budgets, and in July it started marketing an English-language version in the United States.

"The idea was to use Latin America as a big focus group," says CEO Rand. Thanks to that and other clever money-saving tactics, Sapotek is proving that you can build a bulletproof software product on an extraordinarily low budget: The company has spent just over $2 million since 2002.

Here's how Sapotek stretched its peso:

1) Beg, borrow, and deal.

Rand and Oscar Mondragón formed Sapotek in 2002 using savings and a $500,000 grant from a Mexican governmental agency.

Rand set up shop in a cheap shared office in downtown Manhattan, while Mondragón, the director of technological development, hired eight programmers in Toluca, near Mexico City, for about a fifth the cost of an equivalent team in the States.

Using open-source tools, the coders quickly released a Spanish-language version of the Flash-based webtop.

2) Find the right focus group.

For server-based products, stress-testing is crucial but expensive. So in November 2003, Sapotek began offering a free consumer service - which comes with 14 software programs and 1 gigabyte of storage - aimed at Latin Americans who use e-mail but don't own computers.

The webtop (at computadora.de, which translates as "the computer of") became a modest hit, funneling feedback from as far away as Argentina. In response to users' requests, Sapotek added an MP3 player and a blogging tool.

3) Let the product sell itself.

Though Sapotek didn't plan to introduce its enterprise product in the heavily open-source Mexican market, the company was approached by a number of clients who were familiar with the free consumer version.

In 2005 it struck deals with its first corporate customers, including a Mexican subsidiary of MetLife (Charts) and a university. IBM de Mexico recently began offering Sapotek's software with its Linux packages.

4) Get more sophisticated as you go.

This summer Sapotek rolled out the English-language version of its webtop, DesktopTwo, free to consumers. The startup is also selling a customizable enterprise version in the United States.

Though Sapotek won't say how much it plans to charge, analysts say such products typically cost $8 to $12 per user per month.

As its U.S. customer base grows, Sapotek will continue to solicit feedback from users and relay suggestions back to the Toluca coding team. To Sapotek, all the world's a focus group.

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Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer.

Morningstar: © 2014 Morningstar, Inc. All Rights Reserved.

Factset: FactSet Research Systems Inc. 2014. All rights reserved.

Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved.

Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor’s Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2014 and/or its affiliates.