Trust you can stand against the ruling software vendors.

Inhale Open Source. 

Enjoy the incredible lightness of underbidding. 

Be Joseph Franklyn McElroy.

“Open Source makes business sense. Why depend on a proprietary company, putting your applications in that company’s hands, when you need to protect the business that you have built upon?”

He is the co-founder of a New York-based business that makes much out of its incredible lightness of underbidding when competing with a formidable bevy of “business software suite providers.” McElroy’s business, everydayoffice, sells itself as a “leader in integrated back office and e-commerce solutions for the small office and SOHO market.” Translation: He’s selling software applications that can be used by small businesses. His business also offers a server that a customer can buy or access via ASPs. “We provide an integrated solution customized to what the end user needs.” Earlier this year, when Crain’s was sizing up the viability of everydayoffice it described McElroy’s competition: “Every other small business application out there.” How does he do it?

McElroy’s ability to grow profits can at least partly be attributed to his decision to use Open Source software applications as the building block of his business model. But he can tell the story. 

“I was a small business person and artist before starting this venture with my friend, Moshe Lifshitz. Lifshitz remains as co-founder and chairman and McElroy credits him as instrumental in raising capital and “keeping the company funded.” McElroy in recalling the earliest days says “We were sick and tired of the cost and headaches associated with managing the back office needs of a small business. We decided that since we would run our business with the system we created. That would make it nice and interesting to be around. And so,  everydayofficeINK was created.”

The cornerstone to their strategy to compete with established players was the Open Source software mode. “Open Source enables me to present a price point that can attract small-business customers who need to see profits. It’s all about providing a food chain that everyone can digest.”

Back in 1999, the company was an e-magazine, a “business portal.” Eventually the everydayoffice team--all of whom had either owned or been part of building small businesses elsewhere--was keen on forging alliances. They set about to enhance a suite of software applications that run any small business: accounting, e-commerce, customer management, event scheduling, Net access, file storage, order fulfillment, and the like. The business portal was now a full-scale software company. Small business customers would be attracted to a one-stop shopping site for integrated applications. McElroy’s business would allow them to rent the software. The question was: At what price?

“We realized it took a lot of money to do a portal concept and we didn’t have that kind of money. And I realized we didn’t have a million dollars. I started working the numbers. We had to figure out the fundamentals of making money and how to make scalable business models. I couldn’t make a business case for a higher price point to charge small businesses for our services, because then they wouldn’t be able to make real money.”

McElroy calls his ability to charge lower prices “the food chain that everyone can digest.” That ability stems from Open Source, which everydayoffice has used for apps, server platform, and databases. Everydayoffice is built on a technology infrastructure that relies on PostgreSQL, Enhydra, and Linux. What drew McElroy, who was a Microsoft solution provider for years, to Open Source? Was it for money-not-love plain and simple? McElroy prefers to say it this way: “I’m a pragmatist. I was a Microsoft solution provider for years. But building an enterprise on Open Source software makes such good sense.

Having worked at IBM, McElroy knew the workable concepts of freeware and shareware. By 1999, he was studying with interest developments in Open Source and continuing developments in application servers, database servers, and web servers. He was convinced that Open Source makes the best business sense for small business customers: Why depend on a proprietary company, putting your applications in that company’s hands, when you need to protect the business that you have built upon? McElroy says, that the real payoff ahead for his business won’t be in the list of small business customers using the suite directly, but rather in the reseller channels (surprise, surprise) that can take everydayoffice services and apply them to the channel players’ wider base of small-business customers. 

“Resellers. That’s what will make our business scalable. If we are just depending on direct sales to small businesses directly, it will be difficult to grow.” In December, everydayoffice scored an alliance with Vancouver-based Torque Ventures, the latter to develop and manage sales channels for everydayoffice, including a network of resellers.

We asked McElroy if the business technology base of Open Source software created any hurdles in winning over resellers reluctant to use anything Open Source. His reply is Absolutely Not. “More than anyone, resellers today understand the value proposition in Open Source.” 

In January, the business turned a significant corner when it inked a deal with ISI Dentsu of America, to partner on developing the Japanese market for everydayoffice services. The plan: ISI Dentsu, which is an IT services company with roots in Japan, develops and manages a network of resellers in Japan for everydayoffice That means banks, trading companies, ISPs, telecom businesses.  Back in October 2000, everydayoffice had reached an agreement with Pal Japan to develop a co-branded Japanese language version of its web-based products and services.) 

Keen on seeding useful alliances, getting the word of his business out there into influential circles of influence is a capitalized name of this CEO’s game. McElroy appeared this summer at the Yale Club for a New York investment conference, Private Equity 2001, showcasing early-and late-stage companies building on leading-edge technologies and new business innovations. Predictably, McElroy does not suffer stage fright. A frequent speaker, he bears an interesting portfolio as consultant, technologist, business leader, and exhibited artist.

We asked what we feared would be a most un-New York question: Is McElroy a split personality, torn between his drive to create art and his drive to make lots of money off business software and services? “I’m always asked that question, about how I reconcile an artist and business life. For me it’s one and the same. I can remember as a child, becoming fascinated with the process of creating sculptural pieces and seeing how it comes together. I found business to be like that. It’s not different from creating art. You gather people. Resources. You build your layers. You think about strategy. Running a business is a creative activity.” 

If McElroy’s creative business thinking rested on his move to build his infrastructure and pricing model on Open Source, his brightest idea today might turn out to be chanting “channels” at least 1,000 times a day.In the early days of the business, a familiar refrain was “We can make small businesses look and operate like big business.” This year, you’re most likely to hear this from McElroy. We did: “Everydayoffice is providing tools to resellers to offer their small-business clients. We can make a ‘service’ provider into a ‘business’ provider overnight.”