How did a former federal inmate start a $3 million business?
Frederick Hutson spent four years in federal prison for a drug offense, and while inside he spent long hours crafting numerous business plans. Today he is a millionaire.
When loved ones go behind bars, family members are left with limited means to communicate, and this communication does not come cheap for inmates and families.
This prison population, some 1.5 million people as of Dec. 31, 2013, is so underserved that the potential market for streamlining communication with inmates could be worth $2 billion, according to Pigeon.ly creator Frederik Hutson.
Pigeon.ly uses Voice-over IP (VOIP) to allow inmates to call family and friends using a local phone number, according to Tech Crunch. Phone calls from prison can get awfully pricey under current conditions with 300 minutes costing as much as $70, according to the report. Hutson's product drives down the cost of the same 300 minutes to less than $20.
And founder Frederik Hutson knows firsthand the struggles inmates go through to have a small taste of the outside world by connecting with friends and family because Hutson was once an inmate himself. Hutson spent nearly five years in Federal prison after being caught trafficking nearly two tons of marijuana following his honorable discharge from the Air Force in 2006, according to USA Today. While in prison Hutson would read copies of the Wall Street Journal and Wired magazine when he could get his hands on them, according to Tech Crunch.
“While I was there, my eyes really started opening up. I started noticing how grossly inefficient everything was,” he told Tech Crunch. “I thought, I know I can solve this problem. This is a real market.”
Before Hutson's tech firm arrived on the scene, the only other two major companies in this market were Securus and JPay. And there was clearly serious money to be made in this industry – Securus was sold to a private equity firm Castle Harlan Inc, for more than $600 billion in 2013, according to Bloomberg. CNBC reported that JPay earned over $50 million in revenue in 2013.
"I know the population I'm building this business for, and that's my advantage," Hutson told USA Today. "You put all those people together, and that's a large market. But more importantly, I saw firsthand that inmates who stayed in touch had a better chance of not going back to jail after they got out."
Hutson thought up the idea for Pigeon.ly when he thought of his girlfriend while he was on the inside, he told NPR. Inmates do not have an efficient way to obtain pictures of loved ones, and Hutson wondered why there wasn't a way for a person to take a picture on their cell phone and send it to a website that prints hard copies.
Upon his release to a halfway house in 2011, Hutson had his chance to pitch his idea to high-tech backers, but was nervous his criminal background would be a dream-killer and that there was no market for his service.
"I'm, like, worried that he's going say no if he knows that I've been in prison," Hutson told NPR. "So I take the leap and I tell him, I say, well, actually I know [a market exists] because I did four years in federal prison – almost five years in federal prison – for distribution of marijuana and the phone was just silent."
Surprisingly enough, this was exactly what investors like Lotus creator Mitch Kapor wanted to hear, and investors rallied around Hutson's idea, which garnered $1 million in seed funding from Kapor Capital and Eric Moore's Base Ventures, according to USA Today. Shortly after this infusion of funding Hutson moved his company out to Las Vegas where he now works alongside the tech startups funded by Zappos CEO Tony Hseih.
Today his company serves tens of thousands of families who have relatives behind bars, and has received some $3 million in funding, according to NPR.
"I've helped kids talk to their dads and moms and saved real people real money in the past year, and that's humbling and motivating," Hutson told USA Today. When asked if he viewed himself as a role-model Hutson said, "Not for what I did before, which was stupid and hurt my mom and my family. But I enjoy being an example now."