This week, Stephen Ibaraki, I.S.P., has an
exclusive interview with Kee Nethery.
Kagi in September 1994 and developed the initial
systems for the Company. Kagi, which means “key” in Japanese, is a leading
provider of patented end-to-end outsourced electronic commerce solutions that
operates online stores for software publishers and sellers of hard goods. Their
technology and tools provide a broad range of services, including online store
development and deployment, store sales processing, worldwide payment
processing, delivery of digital goods, integration to physical fulfillment
providers, fraud protection, and outsourced sales service. As one example,
their Kagi Registration System Module (KRM) eliminates added Web browser
procedures for final registration and purchase for trial-use downloaded
software applications. KRM provides for automatic registration [activation]
code insertion, which eliminates most of the e-customer support e-mail
exchanges of past systems.
Kagi’s current customer base represents over 3000 active suppliers
worldwide, offering over 6000 active product titles. Approximately 50% of the
company’s suppliers and transactions are international.
Prior to founding Kagi, Nethery was already
an accomplished large-scale network designer and held key positions at Apple
Computer and Farallon Computing (now Netopia). As a product marketer for Apple
from 1994 to 1995, Nethery specified and delivered Apple’s first internet server;
the Apple Internet Server Solution for the Web. Nethery founded and ran Kagi
Engineering from July 1988 to June 1994, where he designed and optimized large
AppleTalk networks. While at Farallon from 1986 to 1988, he designed, installed,
and operated the first MacWorld and Dexpo trade show networks demonstrating
interoperability between systems. From 1981 to 1986, Nethery worked as a
Process Control System Engineer with Chevron USA.
Nethery holds three patents and has
published numerous technical magazine articles. He holds a BSEE from Texas
A&M University and is a Professional Registered Control Systems Engineer.
Q: Kee, you have a legendary reputation for
outstanding service amongst your thousands of customers. We thank you for
coming in to do this interview.
A: Thank you.
Q: Your company name is a bit of a twist on
your name and its Japanese translation of “key” illustrates your mission with
your partners and with consumers. Can you talk about how this name came about
and what it means to you?
A: Naming a company is a bit like naming a child;
the name you give it will shape its future. As I see it there are three types
of company names; founders (Famous Amos Cookies), descriptive (Minnesota Mining
and Manufacturing) and brands (Virgin Records). Although Famous Amos lost his
company years ago, his name, and his fame still compete with whatever he is
doing today. Naming a company after yourself is not such a good long term
strategy. Descriptive names are good starter names if you can describe what the
company does in a very short number of words. But ultimately, as a company
morphs out of old businesses and into new ones, the descriptive name becomes a
burden and the company changes it to a brand (3M, IBM, Ford, GE). Long term,
the brand style name gives the company ultimate flexibility and the Virgin
brand name is a prime example.
I like Kagi as a brand name because it
comes from my name but is not my name, and the lock and key metaphor goes well
with many aspects of any business. The brand name will serve us well as the
company adapts to meet new needs. Consider that when I chose the name, 6 years
before starting the Kagi that exists today, I was doing network consulting not
e-commerce. The Kagi name originally had nothing to do with online stores.
Because it’s a brand, it’s easy to describe what we do today and to tie it to
For example: Global online e-commerce appears deceptively
simple; you can start with an Ebay store and use PayPal for processing or get a
merchant account at Costco. As you grow with a do-it-yourself solution you will
reach limits, or as we refer to them, “locked doors”. Want to sell more than
your merchant account allows in a month? Want to make it easy for people
outside of North America to buy your products? Need a shopping cart to organize your
products? Want to transfer customer product selections on your web site to your
store? You can fight your way through each locked door as you encounter it or
let Kagi’s keys unlock them for you. We have all the keys for online
Because it’s a brand, it was easy to switch
the messaging and metaphors from 1988 Kagi networking consulting to 1994 Kagi
e-commerce. Another aspect of the name that has never been a goal but is fun to
ponder; stock ticker symbols are typically 4 letters and so is our name. The
final fun thing about our name is that Scott Kim was gracious enough to design
our logo. Look at our logo upside down sometime.
If it’s not obvious by now, yes, I did
spend a lot of time thinking about what I wanted for a company name. I still
Q: You hold several patents. What
challenges originally triggered the patents? Can you describe the patent
process for those who may have their own ideas that they want to patent?
A: The first part of a patent is solving a
problem that no one else could solve or that no one else realized was a problem
that needed to be solved. As humans, we all solve problems every day.
The second part of a patent is realizing
that your solution is unique. This doesn’t happen that frequently because to
know that something is unique requires that you are aware of all the other
solutions to the same problem. Most people focus on solving the problem in
front of them and don’t know or care if anyone does the same thing or if they
are the first. A several thousand dollar patent search is used to verify that a
solution truly is unique.
The third part is actually getting a
patent, and that is an expensive legal process. It’s really common for people
to see some company grow around an idea that they thought of long ago and to
regret not having started that company themselves. I think the better way to
view it is as validation that your brain comes up with patentable ideas and
it’s a sign that you should educate yourself on how the patent process works so
that your next unique idea can get protected.
The final aspect is commercialization. The
entire patent system was created to protect the commercialization of new ideas
so that our country would be enhanced by them. Turning a new idea into a
company is a business problem and most inventors are not very good at business.
Consequently they patent ideas that have little commercial potential (a bird
diaper) or the idea becomes wildly successful after the patent ends (Velcro).
My first patent solved the problem of how
to dynamically determine the most economical fuel to air ratio when burning a
fuel; useful in cars, furnaces, etc. Pete Congdon at Fisher Controls tossed
this problem at me my first year out of college. When I came back with a
solution, he smiled and told me it was patentable. I didn’t know it was a
previously unsolved problem, but he did. Thank you, Pete. I then decided to
educate myself about patents.
The first patents we got at Kagi came about
because no one else had stumbled into e-commerce with the acceptance of checks
and cash problems we were running into. We do what a traditional “lock-box” service
does at a fraction of their cost. People enter their purchase information
online and print a form that summarizes their data. That form includes a
multi-stripe bar code that identifies their order. Bar code fonts are typically
designed for specific printer types but our multi-stripe bar code prints
correctly regardless what type printer they have. We receive the payment, scan
the readable bar code, and we’re done. A lock-box service would have to retype
all that customer information which costs money and introduces errors.
It’s too early to talk about the other
patents Kagi has in process, but I can say that although one is mine, the
others come from two employees who are very smart people.
Q: Can you describe three of your customers
and the business value your service brings to them?
A: Case study 1: halfkeyboard.com is a pretty large
company that sells a really nice set of unusual keyboards. Their expertise is
keyboards, ours is e-commerce. Using Kagi gives them an up-to-date e-commerce
infrastructure without worry. We carry the pagers, we keep up with the tax law
changes, we handle the multi-currency bank accounts; they make the keyboards.
Case study 2: skatemate.com is a small family operated
business. They do one thing and they do it well, they make ice skate sharpeners
that you can carry in your pocket. They sell all over the world, marketing
their product in many different languages. We handle all the back-end system
infrastructure, order management, payment processing, multiple languages and
currencies so that they can focus on marketing, product development and growing
Case study 3: semicolon.com is a guy who has been
perfecting Solitaire Till Dawn for over 10 years. His day job is for a large well-known
software company. For an hour or two each day after work, he codes on his
product. He first decided to use Kagi years ago because it was taking him hours
each day just to process the payment checks people were sending him. He was one
of the early adopters of the Kagi Registration Module (KRM) which lets his
customer buy the software while they are playing it, without leaving the game.
The instant gratification makes his customers happy and the automatic
installation of the registration activation code eliminates a huge percentage
of the customer support emails he used to get.
Q: What business value will your company be
offering in the future in terms of new services and solutions?
A: We currently have a very comprehensive
suite of services and solutions. It’s become obvious to us all that the value
we’ll offer in the near future will be in getting the word out, so that more
companies can take advantage of them. After a decade of business we thought it
might be a good idea to do sales and marketing instead of relying upon word of
mouth advertising. The reason for this is that lately we’ve noticed that when
our suppliers say “Gee, sure do wish you could do XYZ, I really need that.” Our
response is typically, “We do XYZ, we’ve had that service for years. Here’s the
link to all the details and contact me if you have any questions or need help
turning it on.” We hired our first
product marketing expert to help us to productize our services and make it
easier for clients to understand all the capabilities that we have so that they
can take advantage of them.
Q: Now going back in time. Share with us
your early history and how you got into computing? Also, what valuable lessons
did you learn from your time at Apple?
A: Back in the 5th grade, I took
summer school class on computer programming and slide rules. This was BASIC
computer programming on a teletype connected to “the” Houston mainframe
with our programs stored on paper punch tape. After about two weeks, I realized
that although the math capabilities of a slide rule were outstanding, computers
were the future and I spent the summer writing a program to alphabetize three
words. Later my dad exposed me to the IBM 360 mainframe at Dow Chemical, where
he worked. When I graduated from high school, he bought me a used personal
computer, a Southwest Technical Products 6800.
That summer school class was my only formal
computing class. Like most active programmers, I’m self taught through trial
and error. The main thing I learned was that computers were tools that could be
modified to solve a problem and Kagi was formed around that idea. If Kagi
cannot create a way to automate the solution to a problem, it’s not something
Kagi should do because it will not scale up when hundreds of people want that
I’m an engineer by training and I had never
been exposed to a formal traditional marketing process prior to working at
Apple. My boss, Doug McLean, and his boss, Jim Groff, were excellent and
through them I learned a great deal about launching a new product and managing
a large business. They tossed a great deal of responsibility at me, probably
because the internet was still in its infancy (Al Gore had recently changed the
internet from a research network into a commercial resource) and there just
were not that many people who had full time internet connectivity with their
own servers in their home. I was lucky to be in the right place at the right
Q: You and Brad Adams [Kagi Director] have
a common history at Farallon (Netopia). What were the top challenges you faced
and how did you resolve them?
A: While I was at Farallon, the top
challenge was growth. Rapid growth is not something that most companies
experience and when they do, it is frequently something that overwhelms them
and kills them. It’s a situation very similar to the Alice in Wonderland
quote of the Queen saying, “Why, sometimes I've believed as many as six
impossible things before breakfast.” On one hand, you prepare for the growth to
end and for sales to drop drastically to the level it was two months ago. On
the other hand, you prepare for the growth to continue and for sales to double
two months from now. It’s a delicate balancing act and if the company is going
to survive, you have to plan for both possibilities. It is a fun ride if you
Q: Looking back, can you share your
insights from the MacCrypto Conference?
A: Funny you should mention that, my wife
wears that conference T-shirt when she works out so I am reminded of it on a
frequent basis. There were two aspects of that conference that were
The first was that Vinnie Moscaritolo (who
was at Apple at the time), decided that the world needed that conference and he
made it happen. The presentations were top notch, the attendees were extremely
knowledgeable, and the conversations were amazing.
The second was that cryptography is very
personal and fanatically important to the people who deal with it. For a group
that deals with secrecy, they are extremely open in helping others find the
The security model in the Kagi Registration
Module was architected to take advantage of all the information that group
could provide. The best information at the conference for me was the helpful
hints on how to obtain an encryption export licence. Back then you called the
Commerce Department, and for technical issues they would connect you with
“Tony” who would not tell you his last name and would not Name the Specific Agency
he worked for, but he knew cryptography. He could help you pick the
cryptography solution that would meet your needs and be approved for export.
That was a very entertaining conversation.
Q: Since you have been involved with the Internet
for so long and have seen it evolve, what top tips produce success?
It’s a challenge to answer an open ended
question like this. If it’s OK, I’ll narrow it down to creating and selling a
product on the Internet. Literally anyone, anywhere in the world can create and
sell a product to a global market from any cybercafe, and at Kagi, we’re
committed to helping them succeed.
Let’s take the fictional example of a woman
in a third world country getting a Grameen bank micro loan of $100 to buy a
sewing machine and cloth. She can get a free email account. She can sign up
with Kagi for free and describe on her shopping cart page what products she can
create, how much she would charge, and ask people to email her if they wish to
purchase something from her. Then she can go to each search engine and submit
her web page for indexing.
If there are people who want what she has
to offer, they will find her through a search engine, contact her via her free
email, and then she can arrange to produce the articles they desire. Once she
has made them, she can ask them to purchase through the Kagi store. Once Kagi
receives payment, she ships the goods and Kagi pays her.
As with any business it requires the normal
skills of finding a niche that no one else is filling, and then filling it. The
trick for Internet success is to leverage all the free services and to reach
out to a global market.
Eventually she is going to repeat this
cycle enough times to where she develops a standard set of products and has
enough cash that she’ll be able to make them in advance and start selling them
In many ways, this scenario applies to
large companies also. They describe the unique capabilities of their existing
products, and make sure that search engines index their product pages. When
people want to buy their products, they either point customers to the various
brick and mortar stores that sell their products or they point customers to a
shopping cart based store that they, or a company like Kagi operates for them.
Having a company like Kagi, being the online store, eliminates all the sales
tax issues that a manufacturing company might not want to deal with, eliminates
the need for staff with all the technology expertise needed to do e-commerce,
and eliminates sales channel conflicts, since Kagi is just another sales
From my view, the big lesson of the
Internet is to leverage the services that are offered and focus most of your
efforts on the things that are unique to you.
Q: As an industry leader and innovator, you
are ideally situated to identify areas requiring change. Please describe them
and your solutions?
A: For me, “requiring change” implies that
if change does not happen immediately for some specific problem, the world
falls apart, and that’s not the way I see things. I believe that many problems
have existing solutions currently in use somewhere in the world and that other
problems will eventually get solved. So how about solutions to problems that I
I like Lawrence Lessing’s proposal to
create a bounty hunter kind of system for spam where if you can provide the
evidence so that the government can prosecute and convict, you receive a
substantial bounty for getting a spammer.
I really liked the Larry Walters solution
to personal flight, a lawn chair with a bunch of helium weather balloons. When
I heard about that ride on the news my first thought was “Wish I’d thought of
that!” Simple solutions are so inspiring.
I liked James Cameron’s ideas on how NASA
should sell its future missions by treating its robots as explorers, and having
detachable camera systems to film their explorers in action. He’s right, we all
want to share the moment.
I know it got cancelled for political
reasons, but I liked the government idea to predict the future through a market
where people buy and sell futures about future events. The Iowa Electronic
Markets have been using this technique for years to predict the future and it
turns out to be amazingly accurate.
There are tons of creative people coming up
with imaginative solutions to problems. At Kagi the problems we see and the
solutions we develop typically relate to Kagi and either they are deployed and
I can talk about them or they are not and I cannot. Although the problems and
solutions that Kagi has are important to our product suppliers, they aren’t in
the “end world hunger” category, but we do see them making a huge difference in
It is very satisfying for us to see someone
live the life they want, doing what they love, and making a living doing it.
There’s the guy who built a solar racer and raced across Australia,
managing his business while doing it. The guy who spent months traveling around
the world and spent a little bit of time online each day managing his business
from the most remote exotic locations. The couple who spent time figuring which
country they wanted live in and then paid cash for their home from their
product sales. The two women who live on opposite sides of the globe and
collaborate to produce a beautiful product. We make it possible for them to
focus on what they enjoy and that is very satisfying, even if it doesn’t end
Q: Who are your top picks for future
winners/losers and why?
A: I’ll give you a generic answer and a
First the generic answer. When I was
learning about venture capitalists (VCs) the lesson over and over was that VCs
invest in teams not ideas. Like many others, that seemed wrong to me. If you
have a better mousetrap, it seemed to me VCs should invest in your idea.
Over the years I’ve observed that investing
in the team and not the idea is absolutely the right thing to do. Companies are
not static, they evolve and change on a daily basis and if they do not, they
die. If a VC was to invest in the better mousetrap and someone created a device
that kept mice away so that there was no need for a mousetrap, that company
would die. But if the VC invested in an experienced team that had a less than
stellar mousetrap, that team would find something else to do, morph their company,
survive and thrive. So my pick for future winners are companies with teams that
have weathered adversity and come up with creative solutions to growing their
business. Not to say once a success always a success, but that team experience
is a good indicator for picking future winners, not the product idea.
Next, the specific answer. In the category
of “putting your money where your mouth is”, the only team I’m investing money
in is mine. I know my team. I’ve seen them deal with adversity and win. I’m
sure there are other teams equally as qualified or even better, but I don’t
know them. I know my team and they are my pick for future winners.
Q: Can you share four major challenges you
have experienced in the last ten years and how you overcame them?
A: 1) I spent months thinking about how
Kagi would work, what it could offer, how it would be structured, what kind of
growth path was possible. When I was ready, I contacted software authors to see
if they would utilize the service I envisioned and they all said no. I
continued talking about it with people I knew and eventually, six months later,
I hooked up with my first supplier, Peter Lewis in Perth, Australia.
He had the exact problem I had envisioned that Kagi could solve. I got past the
“getting it started” phase by continuing to talk to people until either I
convinced myself it was never going to succeed or someone wanted the
service. Keep trying if you believe your
idea is sound.
2) Initially Kagi operated out of my
bedroom and was something I did part-time while doing other consulting jobs. I
knew it could grow large but starting small and slow gave me time to encounter
and solve technical and organizational problems in non-traditional ways. As the
business grew, I added people and the way I handled growth was to hire people
who wanted flexibility in their work hours. That way I could shrink or grow
their hours as the company changed and that has continued to work well. Plan
3) As I brought on more employees, it
became obvious that I needed to provide benefits such as medical, etc. Plus as
we grew, the employment paperwork requirements got more complicated. When we
had 5 employees I outsourced the Human Resources function by going with a
Professional Employment Organization (Trinet). Everyone at Kagi, including me,
officially works for Trinet. We have five medical plans to choose from and
dental, vision, etc. Best of all, all
the employment paperwork is handled by Trinet. If there are any employee
issues, they have a team that works with the appropriate parties to resolve the
situation. Focus on core competencies and outsource everything else.
4) This is my first management position and
although Kagi is doing quite well, several years ago it was obvious to me that
Kagi needed someone with more experience than me to grow the company to the
next level. So for the past several years I’ve been learning about how to find
and hire someone to transition to without killing the company. I’ve found that
professional organizations where I can talk with other CEOs have been
invaluable. I’ve found that face to face networking with all the various
professionals I deal with has been invaluable. I’ve been looking for years on
how to solve this issue and a couple months ago we brought in a guy who has the
background and skills to grow Kagi to the next level. Right now he is a
consultant and over time, if things go as planned, I’ll be his boss providing
top level direction, and he’ll be mine on the day to day activities needed to
reach those goals. To quote a movie character, “A man’s gotta know his
Q: This is a staple in all my interviews.
Pick four topic areas of your choosing and provide commentary.
A: Area 1: The advice I give to suppliers
who are just starting to build a product and company is to not quit the day
job. I highly recommend keeping a normal job while you build your company.
Building a company requires trial and error and that process takes a longer
amount of time than most people expect. Live simply so that your cash flow
requirements are small. Eventually if
you are successful, it will become obvious that you cannot afford to keep the
day job because the company you’ve built pays much better. Don’t quit the day
job until it’s painfully obvious that you cannot afford to stay there.
Area 2: Outsource things that you don’t
like to do or things that you are not good at. The reverse of this is, you must
spend time observing yourself and understanding what you do better than most.
Spend your time doing that and hire others to do everything else.
Area 3: Do what you love and the money will
come. And if the money doesn’t come, at least you’ll love what you are doing.
The least happy folks I know are those who choose money over satisfaction. If
you love it, you’ll spend all your time learning about it and figuring ways to
do it better. You’ll be the best at it because it’s your passion. If you just
do it for the money, someone with passion is always going to be better. Be that
person who has the passion for the job.
Area 4: From a software development
standpoint, there are two types of software, stuff that changes infrequently
(desktop applications, firmware) and stuff that changes daily (IT
infrastructure). In an IT infrastructure project, you will release new versions
of your code on a weekly or daily basis and if a problem crops up, you’ll roll
back, fix and then roll forward. In a desktop application development cycle,
you create a huge list of new features and once or twice a year you release new
code. For IT projects, you release one feature at a time and you build systems
so that testing can be compartmentalized to one module rather than the entire
system. Don’t use a desktop application development process for an IT
Q: Can you share a story or two--something
amusing, amazing, surprising?
A: 1) John Larroquette called up to
retrieve a registration code for a game he had bought. I happened to be
answering the phones and I asked him if he was “the actor” John Larroquette,
and he said yes. Told him that he was in good company, even Drew Carey paid for
shareware. He replied, “Well if we can’t afford it, who can?” Nice guy.
2) In the early years it occurred to me
that I should send a thank you Kagi T-shirt to the very first customer to have
bought something from us. I looked in the database and found that the person
was adamsd@.... and that he was
located in London. I wondered if he might be Douglas Adams of “Hitchhikers Guide to
the Galaxy”. Tried the email and it bounced, tried the postal address and it
came back. A year later I saw him at a MacWorld Expo book signing. Stood in
line and asked him if he used to be adamsd@....
and he said yes. Asked him if he had ever bought Anarchie (the product) and he
said, absolutely, probably 5 times or so. Our very first sale could have been
to anyone, it was to Douglas Adams. I’m glad to have met him.
3) You never really know when you are
successful. Long ago when Kagi was not that old, my wife and I took a long
weekend and went to a 4 room bed and breakfast on the northern California coast.
The local town didn’t even have cell phone coverage. I spent time that evening
talking to the host and he asked lots of questions about my business, I’m sure
he did that with all his guests. The next morning we met the other three guests
including a couple from Germany. When he explained what I did for a living, the guy from Germany
asked “Is it anything like Kagi?”
Q: Kee, you have an incredible history of
accomplishment. We thank you for sharing your unbounded talents and deep
insights with our audience.
A: Thank you but “incredible history of
accomplishment” seems a bit too extravagant. Anyone can do incredible stuff as
long as they are willing to try and fail and then try again. I was very
fortunate that my father recognized that success and failure were essentially
the same thing, continually striving to achieve a goal. He let my brother,
Scott Nethery, (who has been very successful in baseball scouting) and I try
anything and he was always supportive. When I left Farallon back in 1988 and
was talking to him about looking for some other job, he told me to stop looking
for a job, to hang out for several months, to not worry about finances, and to
see what opportunities came my way. Within two weeks I was swamped with work
and I’ve essentially been self employed ever since. From where I sit, the
people who succeed are the people who take a chance and refuse to be stopped by
failure. Education, upbringing, nationality, whatever, none of those seem to
determine success. It appears to me that anyone can succeed if they keep
working at trying to succeed. I was lucky to have parents that supported all
the unconventional choices I’ve made.
This has been a fascinating interview,
thank you for the interesting questions. Mostly I spend time looking forward.
It’s been a nice change of pace to look back. Thanks, I’ve enjoyed this.