As a Ukraine-based company, we have a good understanding of how software development companies operate in our region. However, we were curious about business practices in other parts of the world. To explore this, we initiated interviews with successful CEOs and industry experts to gain fresh insights and share them with our readers.
This time, we’re excited to introduce you to the CEO of Pernix Solutions, a company that specializes in development and evolutionary prototyping solutions, and what makes it even more fascinating is that it’s owned by its employees!
Meet Carlos!
Join us for an interesting conversation with Konstantin Klyagin, founder of Redwerk, and Carlos Sirias, Co-Founder and CEO at Pernix Solutions. They’ll be discussing the employee-owned company model, hiring people without experience, studying abroad, and much more. Let’s jump right in!
Here I am with Carlos Sirias, who has been running Pernix Solutions, a Software Development Agency, for the past 12 years.
What’s an employee-owned company?
For quite a few years, I’ve had the idea of providing a path to ownership for employees, but it has been challenging to implement. Early last year, we considered the future of the company. When we started, we didn’t dream it would become as big as it is now and support as many families as it does.
So, after more than a decade of success, we wanted to explore what would happen with the company. What would be our exit strategy? Would we sell the company, or would it become a family business? We had a couple of opportunities to sell the business, leading us to contemplate our long-term goals.
In the end, influenced by the experiences of other software companies, we decided to provide a path to ownership for individual employees. Essentially, we hired Ernst & Young to help us develop the framework and handle all the legal aspects supporting it. Another U.S. company assisted us in implementing the framework.
In a nutshell, once an employee has been with the company for at least three years, they can buy shares. Since most people live paycheck to paycheck, lacking the savings to buy a share of a business, we devised a system. Employees can express their interest in buying shares, and through a legal mechanism, we provide them with shares. They then pay back that debt through the company’s dividends. This approach motivates the new owners to continue performing well, going the extra mile to grow dividends and pay off their debt.
That’s considered an example, right? So, I’ve been with the company for three years. I’m a software developer. How many shares can I buy?
Sure. Every year, we evaluate the company. For instance, if the company is valued at $5 million, the maximum they could buy through dividends would be 1%, equivalent to $50,000. Obviously, living paycheck to paycheck, no one can afford that.
From the company revenue?
No, it comes from their dividends. It could be the revenue, whatever is left after taxes.
Then you distribute it by the shares.
Yeah.
So I can opt for 1%. You give me 1% each year. It is paid as a percentage of revenue.
They will be paying it from the revenue of the company. The sooner they pay off that debt of acquiring the shares, the sooner they start putting that money into their pockets. Obviously, we sell those shares through a loan, so they have to pay interest on it. But again, the sooner they can pay that, the better.
For example, if they get $10,000 in revenue, then they will pay off that debt around year five, year six. But if the company grows more, then that 1% represents more. If it doesn’t, and the company does not perform well, then it will take them more time to pay off that debt.
You bind the success of the company to their personal income, right? How do they know that they can really influence things? Because, for instance, if we are not making enough money, then maybe the sales team is not doing well, and the sales team can say the marketing is not doing well. How do I influence that as a developer?
One of the things that we encourage here a lot is for individuals not only to execute on the projects but to be true consultants on the projects, providing different solutions and services.
So, they are involved in upselling additional services.
Exactly. We don’t have marketing. We don’t have sales. So it’s mainly up to each one of them who participates in the project to see the growth of that project and see the possibilities where we can provide more value to the current client.
What do you call this model? Meritocracy?
Yeah.
All right. And how has it been working? When did you implement it, and what have been the results?
Obviously, something that has grown with the company and with the maturity of the company. In a sense, we’ve been doing it for quite a while, but more intentionally during the last three years.
How much did Ernst & Young charge for the model?
Oh, a lot of money. Their rates are not cheap, but they don’t skyrocket either. They have a lot of knowledge on similar things. So it was not hard for them to come up with a solution. It’s not like they built us hundreds of hours trying to reinvent the wheel.
Basically, we communicated our objectives, and they devised a document called a partial Management Bio, comprising about 18-20 pages, outlining what I just described to you. Then, of course, it details how many shares you’re going to buy, the interest rate, and how you’re planning to pay for them.
Okay. But how much was the check from Ernst & Young, if I may ask?
We haven’t finalized it yet, but we’re looking at around $20,000 at this moment.
Are they still consulting with you?
Yes, they’re still adjusting the model based on feedback from early adopters. Our vision is for this company to endure for 100 or even 150 years, evolving into an enterprise with thousands or even hundreds of thousands of employees. So part of the rules is that these shares are yours as long as you are an owner and remain with the company.
You lose them if you quit.
Exactly.
So what happens if you’re fired?
If you leave before the vesting period, which is five years, either the company owners or the company itself will buy back your shares at the price you bought them. In essence, you won’t make any profit.
It’s the original valuation that you bought.
If you leave after those five years, or in the event of death or any circumstance where you’re no longer with the company, the company will buy back your shares at the current market price.
How do you calculate the company’s valuation?
The other firm, Cedar Ridge, created a framework. Primarily, the valuation is based on revenue.
Or maybe beta, as service companies are typically evaluated using beta. What was the approach here?
There’s a formula that considers beta, the history of our revenue, the number of employees, and the percentage of clients contributing to our revenue. This is how we calculate the value of the company.
What’s the current valuation?
A little less than 5 million.
What does the name Pernix come from?
Pernix comes from the Latin word meaning “with agility.”
Did you come up with it?
My co-founder did.
So, like me, your background is in programming and technology. What’s your primary programming language or technology?
My background is in Java and .Net.
How much coding do you do these days?
A little. I still do a lot of research on upcoming technologies, frameworks that we could use to keep people interested. Technical people want to be challenged; they want to use new upcoming technologies. I do a lot of that research.
What are the latest technologies you’ve been researching?
We’ve been exploring Elixir and Amber, although they’ve been around for a while.
What’s the use for machine learning?
We engage consultants to help upskill our employees and contribute to our projects.
You spent a lot of time working for big names like Hewlett-Packard and Intel. I worked at Nokia myself, so I know what it’s like working in a company with thousands of employees. How did you like it?
Honestly, I loved it. When I started my career, I thought I was going to be a corporate employee for the rest of my life. I enjoyed the freedom of having the possibility of moving anywhere within the company. However, what I did not like was how bureaucratic big companies are, how slow they move.
I have a very similar experience. I worked at Nokia. I first worked in Berlin for a startup, then it got acquired by Nokia. I hated bureaucracy. Everything was moving so slowly. I’m having so much more fun working in smaller teams and with smaller companies.
When we started the company, we definitely wanted to be a company that moves fast, showing our clients that the real value is a working product, not the procedure or bureaucracy.
You studied abroad, right? What insights did you bring back from the U.S.?
I think it was mainly a different perspective on how businesses are run, how important it is for individuals to have the opportunity to create a business or be part of a business.
The big responsibility and opportunity they have to impact their economies and the community and society overall by providing employment. So that was very important. I think that before, we didn’t know if the company should keep growing or if we should purposely stop that growth and leave ourselves with 10-20 people, as many small businesses do on purpose.
In the USA?
Yes, many deliberately choose to stay small, but we opted to continue growing.
You studied in the USA before founding the company, correct?
Yes.
So let’s talk about this period of time. Why didn’t you stay in the U.S.? Your jobs, by the way, with HP and Intel, were they in the U.S. or here? Why didn’t you stay there after your studies?
I think that the motherland calls you. That’s a term that I’ve heard from a lot of people, that you always want to get back to your roots. There are a lot of people who want to see that place flourish.
Aside from bureaucracy at big companies, what prompted you to found Pernix?
When we initially started the company, it was intended to be a consultancy firm, with my co-founder.
Is your co-founder also technical?
Yes, he is.
Did you both start the company together?
Yes, we did. However, as we began growing, he became less involved.
Why was he less involved?
Interestingly, I see him as the true entrepreneur. When we began, I had recently bought a house and a new car with my wife. Then, the opportunity arose to leave HP with a severance package due to the closure of our entire 70-person group. My co-founder saw this as the perfect time to start the company, leveraging the severance package. So, we began, and fortunately, things have been on the upward trajectory ever since.
For starting a technology business, it doesn’t require a substantial capital investment, right? It primarily demands knowledge, not necessarily a significant capital investment. We started the business, hired some people, and initially held meetings at my house twice a week, working from my living room. Eventually, we moved to a larger house with a garage, which we transformed into an office. It was a modest setup with a coffee machine and a microwave, and we operated from there for a few months. At that point, I urged my co-founder to leave his job and join us full-time.
Was he also employed elsewhere?
Yes, he was. He was hesitant to leave his job and preferred the security of a steady paycheck.
It’s intriguing how dependency on a paycheck limits one’s potential as an entrepreneur. This is how you became the sole owner.
Speaking of starting, was it easy to begin this journey?
I believe nothing comes easy; it would have been easier to secure a job elsewhere. Starting a business always involves risks, and while luck played a part, we also encountered our fair share of challenges over the years.
Learning often comes hand in hand with mistakes, doesn’t it?
Absolutely.
How old were you and your partner when you started?
When we began, he was around 28, and I think I was about 30.
That’s a good age to start. I initiated mine when I was 23.
Oh wow. I believe we were mature enough to venture into business.
Speaking of conducting business in Costa Rica, are there issues with bureaucracy or corruption?
I don’t believe there’s significant corruption.
I’ve heard stories about police accepting bribes for minor offenses.
Yes, it depends.
How about dealing with tax authorities or other government bodies?
Most processes are online, making things relatively easy. The challenge lies in the additional requirements they’ve added over the years. Keeping track of all these requirements can be a bit challenging, but not impossible.
And how much do service companies pay in taxes?
It’s around 30%.
Is that applied to employee salaries as well?
No, the taxes on employee salaries are about 45%, and that money goes to various government agencies.
So, as a service company, you bear the responsibility for paying all these taxes.
Yes, that’s correct. We collect the money, including the retentions for our employees, to cover our free care and infrastructure. It’s manageable.
Now, let’s talk about 2020. How did the pandemic impact your business?
When the pandemic started, we were on the verge of launching several projects, for which we had hired about 10% more people. Unfortunately, those projects were put on hold due to COVID, leaving us with 10% of our payroll on the bench. Some clients in the healthcare sector also paused their projects.
By May, things started picking up. We secured new clients and managed to reallocate resources, eventually recovering from the initial setback. We prefer having people on the bench to maintain added capacity, which allows us to rotate them into different projects.
What do your employees do when they’re on the bench?
Even when on the bench, they engage in research and development, working on projects for startups and entrepreneurs that might not be funded. Currently, our bench is thin, indicating that most people are actively involved in projects. We’re now working on replenishing our bench, which involves hiring individuals with little to no prior experience.
How do you manage to hire and train people with no experience?
We typically recruit from universities, colleges, and technical schools, aiming to find top talent among recent graduates. Although it’s a challenge, we prefer candidates with no previous experience. We run an apprenticeship program to prepare them for real-world projects. Our approach is similar to other professional fields like law or medicine, where individuals undergo training and gain practical experience before taking on significant responsibilities.
Why do you avoid hiring people with experience?
The software industry tends to be bureaucratic and ego-centric, making it easy for individuals to hide behind excuses when things go wrong. We prefer molding fresh talent, enabling them to grow within our organization.
Hiring individuals with less than a year of experience is sometimes acceptable, but our primary focus is on nurturing and developing our people. We want to foster a culture where responsibility and accountability are central, akin to professions where mistakes are evident to everyone.
Do you take equity in startups you work with?
We’ve had successful collaborations with startups, but we don’t take any equity. Trust is essential.
There could be a gentlemen’s agreement.
But not on our part – rather, on theirs. I mean, no one wants to give away their “baby,” right?
They didn’t have much money and you built an MVP for them.
Well, they did have a little bit of money, and that’s how we created the MVP. This is a common scenario with startups – they begin to receive some investment. With that investment, they pay our fees, and we continue working with them until they either run out of money, financial concerns diminish, or they sell their business.
Regarding the company, what do they do? What was the idea behind the startup?
They are in the security business. So, we developed an application called “ASAPER” – As Soon As Possible, Everyone Responds. We designed a dynamic chat within the app, allowing everyone on the contact list to check and see what happened.
Is the chat within the app? It’s not like WhatsApp or Telegram?
No, it was an on-demand HTML chat.
You just receive a link through SMS.
Exactly, through SMS and email. Later, we also incorporated WhatsApp and Facebook Messenger. We even implemented an actual call that directed users to view their chat. It was a really successful tool that they eventually sold for $350 million.
That’s a great case. I noticed you don’t list any projects on your website. Why?
They’re listed on Clutch.
But there’s nothing on your website.
No, we wanted to keep our website very simple.
Alright. By the way, your blog page returns a 404 error. You should fix it. I just noticed today.
We’ll check on it.
So, regarding marketing – where do you get your leads from?
Excellent question. We’ve always acquired them organically – through word of mouth or from someone we’ve worked with in the past. In a year, we typically work with 20-40 startups, and that’s how we get our name out there.
How do you select those startups?
It’s a challenging process because we need to assess if they make sense.
Which criteria do you apply when you select?
Basically, it’s how serious they are. That’s our main criterion. It means looking at their documentation— not in detail, just a quick browse to check if they have a business plan, an investment sheet. If they don’t know what they’re doing, we don’t even consider it. It takes us only 10 minutes to check. We look for commitment to ideas.
And it’s also good training material for these students.
Exactly! You’re smart, man!
Of course, I’ve been doing this for 15 years. How much do you pay fresh college graduates?
We provide a stipend — basically enough for them to cover their meals, transportation, and studies. We offer free meals at the local eatery in the building. So, we cover that not only for the students but also for our employees. We don’t want them worrying about where to eat each day.
We do the same. We provide lunches in the office and breakfast. How much is the stipend in dollars?
Yeah, it’s like $2 an hour.
So in a month, it’s like $300-$400.
It depends on how many hours they can put into the problem.
It’s pretty much a Ukrainian stipend or the salary of a junior entry-level specialist.
And then when we hire them, our base salary is almost $2,000.
How much do they get after taxes?
Around $1,200.
That’s a good salary.
As for a senior developer? How much do they get?
They have $3,000-$5,000 depending on their experience.
Pretty much the same as in Ukraine.
So you have a profile on Clutch, which is very well-developed with reviews and projects. Have you ever used paid listings to promote your business?
No, not really.
How do you price your work? Do you work on fixed projects or time and materials?
We have our rate sheet. Our preferred method is time and materials. We do a lot of projects where we take full ownership of the project and build material, and we do a lot of projects where we take full ownership of the project and do a fixed bid. The latter ones are less common, and we still do them depending on our bench and how it looks.
The way that we estimate those is that again, the number of hours, we provide ourselves a good cushion, and then that’s how we build it. Lately, we’re exploring more and more doing it on an iteration basis, meaning that we provide a movable quote. So we tell the client this project is going to land between here and here.
This is how we price our projects.
Yeah, but we’re committing only to the first one or two iterations. So that’s our fixed bid for the first two iterations. And then after that, we do a review and say, you know, we feel that we built you a lot, so we feel it’s going to be less.
You can bill by the higher figure. If you price it from A to Z, you take Z. And then return the difference.
What are the rates, if I can ask?
Sure. Our rates start in the low $20 and could go up to $100.
What do you charge $100 for?
Machine learning projects, big data projects, projects that require a lot of knowledge. Some of our people got trained by Andrew NG from Stanford, so they’re very expensive.
What’s the average for, let’s say, normal development?
It all depends on the specifics. We bill by the individual, on where the individual stands right now, on their career, on their experience. When we take the requirements of a client and the client tells us, “I want somebody that has four to five years of experience on a very specific set of frameworks.”
We take a comprehensive approach to all these things. We scrutinize their code, evaluating how testable it is to match them with someone who will add value to it. We have highly skilled individuals who are well-compensated, and some have become owners of the company. I believe they are the most valuable assets.
What do you consider a good margin in this business?
I think anything above 25% is a good margin. The pandemic has emphasized the importance of having a rainy day fund, and good margins are the key to building that fund.
Where are your customers located?
Mostly in the U.S., primarily in the northwest Chicago area.
Ruby on Rails is a West Coast technology.
We have clients spread across the U.S., including Chicago, Denver, Oregon, Seattle, California, Texas, and New York.
How often do you go to the U.S.?
We’ve always had people there, and we prefer to work with them side by side. While it’s easy with small companies, for medium-sized and larger companies, getting approval for a contractor to fly over there requires a significant process. Those were things we funded ourselves, but currently, it’s not happening much.
So not having people there must be saving you some extra money?
We are indeed saving money, and we plan to invest it later. We’re eager to send people over there to build rapport.
How often do customers from the U.S. visit you here in Costa Rica?
It’s not as frequent as we’d like, but they do come. They appreciate the fact that we travel on our budget, not depending on theirs.
How do you manage to have a budget for your employees to travel and live in the U.S.? It can be expensive, right? Depending on the place. Like if you send someone to New York, it’s pretty expensive.
They usually stay for a week or ten days.
Not too long.
Exactly. It’s mainly to build rapport, start a new project, a new iteration, a new release.
Our guys often travel at the customers’ expense, depending on how badly they need them there.
It’s always challenging due to approval processes and justifications. Sometimes it’s not about lack of funds but the demanding nature of the process. Doing it on our own money is appreciated by our customers, and we’ve built long-term relationships with most of them.
Have you ever considered establishing a footprint in the U.S., like opening an office or hiring salespeople?
Yes, we’ve always considered it, but we haven’t found the right opportunity yet.
Besides software development, what other services do you provide?
Quality assurance, DevOps, and consulting. Before the pandemic, we had a project to provide free training services to high school kids in the area.
But that’s a side project. This is not a commercial service offer. So, how big is Pernix?
We have 42 engineers, but the overall headcount is 50.
So the only roles you have in the company are engineers and DevOps.
QAs and designers too.
San Jose is a small place, right? How difficult is it to find talent here, even considering your own way of hiring fresh graduates?
Technology is significant in Costa Rica. It’s well-positioned in the mindset of people, and students pursuing engineering technology are in high demand. Technology-related careers are very popular; people prefer studying technology, software, computer engineering, or related fields over traditional professions like physicians or lawyers. It’s very popular, and there’s a lot of demand.
Do you think it’s because of the money they get or for some other reasons?
I think it has a lot to do with how well they get paid at the beginning. Probably in technology, not only here but I believe in most of the world, someone entering the field can make a lot of money right from the start. Maybe not down the road because some people tend to get stuck due to the issues we discussed, like bureaucracy. But in the very beginning, there’s a lot of money in the business. A junior developer is definitely going to make more money than fresh graduates in any other job.
All right. Is it easy to retain talent?
No, it’s not easy.
How often do people switch jobs here?
I think country-wise, the average turnover is around 25% or something like that.
Staff turnover in the company?
Yeah.
For a typical software developer, how often do they switch jobs? What’s the typical time span of an engineer in one company?
I have no idea. I used to think it was two years, but now I believe it’s even less than that. We’re fortunate that we’ve grown our engineers; they’ve been with us since they were recent college graduates. For most of our current engineers, we’ve been the only job they’ve ever had. They learned a lot of things with us, so they’re very grateful for that.
So it makes them loyal.
Yeah, the average stay here is about four years.
It’s pretty good.
People are very grateful that we helped them grow as professionals, and they’re also appreciative of the opportunity to show others how they can grow in this industry.
I can share a story about working remotely that happened to me last year. We hired a WordPress developer, and he was somehow falling behind, not managing his own time or meeting deadlines. We decided to get feedback from his previous job. It turned out he never left his previous job. That’s all you need to know about working remotely.
Some people get creative. So we fired him, and the other company did too. But I was very surprised; I would expect anything but this.
No. Let’s face it; in this industry, people are often mercenaries. It happens everywhere. I think that speaks very poorly of the professionalism of particular individuals. Many developers, once they feel accountable for what they’ve done or not done, leave. That’s one of the reasons why we prefer not to hire people with previous experience. It doesn’t mean we haven’t done it; we do it every year, but it’s not our preferred method.
What’s the gender balance in your company?
15% are women, and 85% are men.
Is it because women don’t usually have an interest in technology here?
Exactly, that’s the reason.
Because in Ukraine, I think it’s approaching a good half. In my company, it’s 40%.
Nice.
Is that a Latin American thing, or what do you think? Which professions do women typically choose?
Women often opt for more social professions like psychology, teaching, and healthcare — everything related to the social aspect. In technology, not as much.
Do you have an HR manager or a recruiter in the company?
Yeah.
And I presume that’s a woman.
That’s right. The admin is a woman too. We also have a few engineers, one of whom is a recent hire. We hired her two weeks ago.
All right, well, hopefully, that changes for the better.
Hopefully. So one of the projects we had was related to the training we were planning to do with local students. We were going to start with only women to get them more interested in technology.
What’s essential in Costa Rica?
That’s a recognition given by the government for compliance with a few key performance indicators they’ve defined. These include economic sustainability, social progress, and another pillar that I just forgot.
What do you do to comply?
Basically, you have to show, for example, for sustainability, that you are taking steps to reduce your carbon footprint. For social programs, you must demonstrate that your workforce is well-paid and living a healthy life. But when you comply with those, there comes another evaluation of how you have implemented programs and how sustainable those programs are in the future.
So they come and check if you don’t have a pile of plastic bottles and are not standing over your people with a whip.
Exactly. And they look at our payroll to ensure we’re paying well, what kind of healthy programs we have put in place to guarantee that we keep them moving.
Do you sponsor gym membership?
Yes. Those kinds of things are looked at by the audit team. And that’s how we get the brand.
Any company can apply, right? Not only information technology or services? It can be agriculture, machinery, or transportation.
Exactly. Any company.
Well, what are the perks that you provide to your employees? I saw a picture on the wall. What are your favorites?
My favorite is that we give them time to nap, so everyone can take a nap of not more than 25 minutes.
We use Slack for internal communications, and they can put their status as napping. So that’s completely okay with us. We pay for lunch, gym, vacations. Now, the tourist industry has been very hard hit, right? So we provide cash for them to go with their families.
How many days of vacation do they normally have?
Ten days a year.
Like in the States because the European vacation is 20 days.
Over here, it’s ten. We also provide them with a development bonus. So that’s $1,200 a year that they can use on whatever they want, whatever they call development. To be a better professional, I’m going to spend that on golf lessons. That’s fine. To be a better professional, I’m going to travel to Australia to do an Ironman. That’s fine. So I’m giving you examples of how people have used it.
Personal development. Professional development is different.
Personal or professional, that’s development. Very few people use it for coThe same fund. Okay, so we give you $1,200 a year. If you want to use it for conferences, use it. If you want to use it for golf lessons, use it. For the gym or guitar lessons, we have another thing, because those are cheap, right? But we’re talking about something that is expensive. People mainly use it for either equipment or travel.nferences.
Is it separate that you pay for conferences, or is it the same fund?
The same fund. Okay, so we give you $1,200 a year. If you want to use it for conferences, use it. If you want to use it for golf lessons, use it. For the gym or guitar lessons, we have another thing, because those are cheap, right? But we’re talking about something that is expensive. People mainly use it for either equipment or travel.
All right. But this equipment stays in the company?
No, it’s theirs.
What do you like about Costa Rica?
The weather is always perfect. Costa Rica is very different from the rest of Latin America. You’ll notice that because many capital cities or big cities in Latin America are near water, near the ocean. For instance, Panama City, New York City, Los Angeles, Buenos Aires, Santiago. People who came here and decided to settle chose the inland areas because the shore is harder to defend against invaders.
Thank you for this insightful conversation.
Likewise!
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