Here’s a small anecdote from the world of book publishing that I hope wll give encouragement to Exbiblio.

Earlier this week, I attended an event in London held by Puffin, the children’s book publisher, owned by Penguin. I was chatting to one of their senior managers who told me that when her seven-year-old son finished reading a book, he always went straight to his computer to see if there was any web-related material. She admitted that publishing companies were not always the first to embrace new technology, but in the case of children’s books, they had to be at the forefront, because that was what the audience expected. Exbiblio currently sees college students as a key market for its technology to link the paper world to digital… perhaps that even that group is too old? Anyway, I take this as a sign that the world is changing, and it’s changing in the right direction for Exbiblio.

One of the big problems for Exbiblio is that book publishers don’t want to give their content away on the web. This makes it hard to link an in-copyright paper text to its digital equivalent. Now here’s some encouraging news (discovered via Scoble). Joe Wikert of Wily books says that giving away content on the net helps build an audience. In fact, it does no harm to sales, and probably helps them.

Here’s the biggest piece of news for a while on the printed word / digital convergence theme: Microsoft is to launch its ‘search inside books’ service this Thursday, in beta. The BBC reports that the digital archive will include out-of-copyright texts from the British Library, The University of California, and the University of Toronto. Later, Microsoft intends to integrate the service into its main search engine. Naturally developments like this greatly help Exbiblio, which wants to link printed texts to their digital equivalents.

Wednesday has been snowed off at Exbiblio. The terrible weather in Seattle has caused traffic mayhem, and people are finding it hard to get into the center. This combined with what I imagine (from London) is not the highest morale right now, has prompted a ‘company holiday’ to be declared.

I don’t know what plans there are for Friday, but with such a mass exodus of staff this week, I imagine that everyone will get into work, come what may, because surely there will be quite a party.

I’ve been ringing round the Exbiblio team looking for reaction to the news of the retrenchment and staff cut-back. Not everyone has been at their desks, but this is what I’ve been told so far.

Brydie Ragan, who has been just five days into her job as Exbiblio’s “hardware evangelist”, says that she was still learning about Exbiblio, its people, and its projects. Even so, she wasn’t bowled over, as she’s worked on startups before, including one of her own, and “there are always surprises”. She adds that it’s just part of “life’s great adventure.”

Engineer, Brendan McNichols, tells me: “In a sense, I’m not surprised because it’s a startup and we’ve been spending a lot of money on a piece of hardware that was ridiculously expensive to bring to market. Where the surprise comes in, is that just a week previous, things had been seeming to be going okay. We’ve been getting software stuff on track, and then we’ve been hiring , and usually that’s a sign that things are going well.”

Ian MacDuff, the engineer who has been co-ordinating the relationship with contractors Synapse, tells me that he has been discussing with Exbiblio’s management how to wrap-up the hardware project. He suggested that they should document the oPen’s architecture and explain how it works. However, he adds, “I’m not feeling hyper-motivated. I would like to be, but I’m pretty disappointed about the whole thing.”

(update) Lauren Summers tells me: “I was surprised at the announcement last week because it was very sudden, and am sad to break up from this team of people. I do hope Exbiblio can figure out a way to make it work. The growing idea of the (working) device over the past months, and seeing each new development, makes the idea of not using it soon feel like a loss.”

Adam Behringer will be writing shortly about his own impressions.

Speaking to a couple of others off-the-record, I get the impression that there is not a huge deal of surprise about the event itself – these things happen in startups – but the timing and suddenness was unexpected. There is some bafflement about why the management appeared not to know about potential problems – even to the extent that they were hiring recently.

I received an email from Martin King at the end of last week saying: “only drastic action will save Exbiblio.”

Well that’s one way of getting the company blogger’s attention.

A telephone call this weekend filled out some of the details. Martin tells me that conversations have been taking place, both on an individual and a collective level, in which he has informed Exbiblio’s 17 employees that the company will retrench down to a core of about 5 to 8 full time staff by the end of this week. The consultants, who form a large part of Exbiblio’s cost base, will also be cut back – if not to zero, to something close to that.

The news seems all the more unexpected when you take into account that Exbiblio has hired four new people over the last month. In fact, I was just about to publish a portrait of one of the new arrivals. But if you follow some of the links in this post, you will see that all the warning signs have been there.

Martin described the decision as “a sudden awakening”. The company is burning through its resources “way too quickly”. Week after week has passed when there was supposed to be a fully functioning prototype of the oPen scanner pen in their hands. Each week has been met with disappointment.

As well as these continuing “challenges” there were two immediate causes that precipitated the ‘awakening”. Exbiblio found on November 17th that the price of a key optical component was going to be two and a half times what it had budgeted for. Then, on November 21 came another blow: it found that a critical component, the oLed display wasn’t going to be available, and it would require a major redesign to incorporate another display.

In addition to all this, the software project to accompany with the hardware has been progressing slowly.

Martin now acknowledges he made a fundamental mistake six months ago. He insisted that the project would progress in ‘experimental mode’ discovering what worked as it went along. It didn’t have a full spec- just a sort of general direction.

“That was a terrible mistake”, he admits, “I should have allowed people to develop formal product specification, and let everyone know that it would change as we went on. People don’t like working in environments of uncertainty. Formal disciplines are necessary.”

On my last visit to Seattle, I was pleased and surprised to see Exbiblio starting to work in a more formal manner, with milestones that had to be crossed built into the system, and progress ticked off each day. Two months ago I was astonished to discover that Exbiblio had only recently hired a part-time bookkeeper – and could only now present its financial position in detail. I had noted the lack of a finance director but I had wrongly assumed that there was somebody I hadn’t met yet keeping a close eye on every last figure and doing financial projections.

I think that part of what’s happened is that the real picture has started to appear out of the mist. In the new spirit of ‘formal discipline” it has become much clearer just what an enormous undertaking Exbiblio has made, how far away it is from completion, how little room there is for setbacks, and how much it is likely to cost.

I put this point of view to Martin. He doesn’t deny it. Perhaps he is feeling a little low, because normally he is more combative when I put forward my views. However, I have a strong feeling that this is a big part of the truth.

I don’t think Martin made these mistakes unawares. He is experienced in business and knows how things are normally done. He has been – and to an extent still is – determined to do things his own way. The cost of the experiment so far has been high with precious little to show for it. I will be interested to see how conventional or unconventional Exbiblio will be in its coming phase of ‘retrenchment”.

Martin King told me about Exbiblio’s innovative share option scheme on the ferry leaving central Seattle. I recorded his thoughts using a digital recorder, and he tells me that one day I will be able to use the oPen which will include a voice memo facility.

He feels passionately that the option scheme is central to Exbiblio’s values, and he hopes that it will be emulated by other companies and help redefine American capitalism.

“The historic model of options in early stage technology companies is the American lottery culture model,” he tells me. “The first 20 people to join the company win the lottery and end up making $5 million to $10 million to $20 million dollars each by sheer luck. And that is a terribly costly outcome both for society and the natural world.”

“To put those kinds of extreme resources in the hands of individuals to the complete neglect of competing interests like the natural environment and society is just not a model that works in the world. It doesn’t address our needs.”

Bearing the above in mind, Exbiblio has devised a share option scheme to provide motivation and opportunity to employees, while also taking into account competing interests.

Employees at Exbiblio who qualify for the scheme receive options in two forms. Half their options come as a traditional right to buy Exbiblio shares at a certain price. This part of the scheme is more or less like the majority of share option schemes, with unlimited upside for the employee if the company prospers.

However, the other half of the share option grant has a capped upside. Once the company is deemed to be worth $100 million in total, Exbiblio’s non-for-profit foundation, Compendia, will have a right to buy out this part of the employee’s grant. The employee will receive fair value for the shares at the time. If he or she holds holds half a percent of the company in this part of the scheme, then it will be bought out for $500,000. However, from that moment on, the shares will belong to Compendia.

For example, should Exbiblio ever be worth $1 billion, then the half a percent that Compendia has bought from that employee will be worth $5 million. This money will be spent by Compendia on environmental causes, thus achieving the aim of sharing a company’s success with the world.

Here’s a speech which I think is worth quoting at some length:

Many people seem to think that companies only exist to make money.

Well, companies do need to make money – to reward those who trust us with their capital and also to enable us to invest for the future. No business can exist for long unless it makes money.

But making money really isn’t the purpose of business.

Our purpose is to supply the goods and services which people want to buy at a cost they can afford. If a business can’t meet the needs of its customers it will cease to trade.

Those needs, of course, are not expressed through a single transaction. Business is about meeting customer needs again and again over a long period of time and building a relationship which enables the business to respond as the needs change.

That means that to be a sustainable business you have to look at the challenges which are facing your customers.

You have to examine the things which threaten the sustainability of the relationship. And in a spirit of mutual advantage you have to examine what you can do, as a business, to remove those threats. To make the relationship sustainable. To ensure one transaction leads to another, and another.

That’s about relationships with individual customers and with the communities of which we are part.

Business is part of society. Business is affected by what is happening in society and business can and should be an active agent of change and progress. Meeting challenges and offering new and better choices.

I’ve often heard Exbiblio’s Martin King say similar things, but this quotation is from a speech by the CEO of the world’s third largest oil corporation, BP. The speech by Lord John Browne was entitled, “Sustainability – A Pracitcal Agenda.”

It’s always nice to know that you are in good company

Exbiblio has recruited an evangelist for its oPen hand-held scanner due out next year. Her name is Brydie Ragan.

Brydie’s career resume made quite an impression at Exbiblio. Her many achievements include developing the East Coast Sales channel for Aldus Corporation, where she managed strategic co-marketing relationships with Apple, IBM, and numerous computer dealers.

Later she helped set up the design and communications firm, Bridgemark, but as you see from this extract from her resume, her interests range far and wide and include Exbiblio’s passion for social responsibility. She is a true “Exbiblio” person.

During my years as co-owner of Bridgemark, I made a personal commitment to social responsibility. Two of my first steps included joining one of the first Community Supported Agriculture farms in America and living without a car in a small city that had no public transportation. In addition, I also became a mentor for Project Soar, a program for women on welfare who were starting entrepreneurial endeavors.

I also decided to heed Thomas Jefferson’s advice to practice “eternal vigilance.” I started by making a commitment to attend all of our city council and school board meetings for one year. After sitting through the first city council meeting (for over four hours), an elderly council member approached me and asked, “Oughtn’t ya be home with ya husband at night?” I will never forget his question, which I now see as the deciding moment that marked the beginning of my deeply-ingrained habit of civic involvement.

During my years as a citizen activist, I have become involved in many issues, including land use and planning, affordable housing, and education. I have attended countless public meetings, conducted research, and written and designed reports, press releases, fliers, and newsletters for many causes and citizen projects, suffering through my failures and delighting in my successes.

In addition to my volunteer work, I incorporated activism into Bridgemark’s business by designing, producing, and distributing a kit for refusing junk mail. I succeeded in selling thousands of kits nationwide with virtually no advertising because I was able to gain national publicity. Substantive articles about the kit appeared in the Christian Science Monitor and in many major city newspapers, prompting stores such as Urban Outfitters, the Boston Museum of Science, and Ben and Jerry’s company store to retail the product.

My effort to reduce junk mail also resulted in invitations to speak publicly about the effort. One of my most memorable speaking engagements was at Dartmouth College, where I enjoyed a meal with the Club of Rome author, Donella Meadows. Luckily, public speaking had been an integral part of all of my work as a professional, so I thoroughly enjoyed this opportunity,and others like it, to generate interest in the issue as well as sales of my product.

Somewhere in the Exbiblio HQ there is, or used to be, a meditation room. I believe it has been used for yoga and naps, but not very often, and is now an office.

It seems that praising the Asian way of doing business is back in fashion (it rather went out of fashion during the long years of Japanese deflation). I think the team at Exbiblio would be interested in this post about Apple, Buddhism, Design, and Corporate Culture.