Mike Derheim

Mike Derheim

Given the option, Mike Derheim would rather spend his time talking to the guy installing drywall in his office than sit at the head of a board meeting in a three-piece suit.

Name of Company:
The Nerdery

Annual Revenue: 
$37.4 million

Number of Employees: 
460

City:
Bloomington

Fun Fact: Known for running an offbeat office, he recently presented a TEDx talk on employee empowerment: “What if every employee at your company was a co-president?”

 

He parks his 10-year-old Ford F150 in an unreserved company parking space and has posters of Camaros in his office—the same car he had on his walls as a kid.

As CEO of the Nerdery, which had $37.4 million in revenue in 2012, the North Dakota native shrugs when he talks about his success.

“I’m just a guy with an idea and it’s turned out to be something cool,” he says.

Based in Bloomington, the 11-year-old interactive development firm specializes in web, mobile and social media integration. The company has 460 employees, affectionately known as “nerds,” with two other offices in Chicago and Kansas City.

The Nerdery is known for more than just nerds and software, however. As emphasized in Derheim’s September talk for TEDx, an offshoot of the TED talks, the 35-year-old believes in empowering his employees. Most of his nerds were born post-1975, notoriously known as the entitlement generation. He encourages autonomy, spreads leadership responsibilities among employees and gives everyone the title of co-president. Staff can express their opinions through an internal forum with an option to anonymously post ideas and bring up problems they see in the company. Furthermore, all nerds meet every Friday in the office’s “nerdatorium,” where they can express their opinions with a microphone in hand.

“You have to have a voice in the company,” he says. “You have to actually be able to have some control of your destiny if it’s really going to be the best place on Earth for you to be every single day.”

There are life-size Ninja Turtles cardboard figures in their headquarters’ hallways and Lord of the Rings-themed conference rooms. Nerds can bring their dogs to work, and a keg is tapped every afternoon. However unconventional these perks may sound, they helped make Derheim a millionaire when he was 31.

A self-described “entreprenerd,” he dabbled in electronics, business and computer science at North Dakota State College of Science but dropped out after two years, joking that he majored in “drinking beer and being really bad at college.”

Derheim started out working for Minnesota Internet, a now-defunct Internet service provider and software developer, where he worked with the other two Nerdery co-founders, Mike Schmidt and Luke Bucklin. He says he gradually lost faith in that company and was unsatisfied with the direction it was taking. An entrepreneur at heart, he says he’s always wanted to run a successful business. So Derheim quit his six-figure job and took a gamble.

Together with Schmidt and Bucklin, Derheim pooled $153 in pocket change to launch the Nerdery in 2003.

“New challenges are what keeps me going,” he says. “I can’t do the same thing over and over again.”

In less than a month, the three landed their first project—worth $4,000—modernizing older computer operating systems by installing up-to-date services like email and online ordering. The privately held company has been profitable since that project, Derheim says.

Over the next four years, they catered to clients who used legacy systems and modernized them by adding Windows, web and mobile interfaces. Since that was such a specific niche, Derheim says it was extremely difficult to find programmers who understood both the legacy systems, modernizing interface technologies like .Net, Java and HTML.

“We were going to always grow,” he says. “What we decided to do was solve the problem with software.”

They invented a middleware software that separated the two technologies, allowing them to hire people who specialized in each and learned how to use the software to work with each other.

Derheim says his company still behaves as a startup—it has always been self-funded and it has never taken out a bank loan nor accepted any offers from investors. “The main currency has always been sweat equity and reinvesting the majority of our profits,” he says.

Since the company relies only on its cash reserves, layoffs have been necessary when growth didn’t meet expectations, which Derheim says were difficult decisions to make.

Six nerds were cut in 2007, helping the company to reach $4.1 million in annual revenue.

After doubling staff in 2008, they had to cut roughly 9 percent of staff a year later. Bucklin wrote in the company’s blog that they were “a bit overdressed for the party.” They still managed to grow, reeling in $8.6 million in revenue.

In 2010, the Nerdery was shaken when Bucklin, the president, was killed in a plane crash. It hit Derheim hard.

“He was just the perfect person for that role,” Derheim says, adding he was also his best friend. “Then the reins were passed to me.”

The Nerdery didn’t grind to a halt, however. In fact, the nerds united behind the company and stepped into new roles; their determination led to revenue spike over the next year, to $10.8 million.

“The only thing you can fall back on is the culture and the trust you’ve built with your employees,” Derheim says.

With a 3 to 6 percent employee acceptance rate, prospective employees have to jump through several hoops to even be considered for a position. During the interview process, prospective nerds are assigned projects related to their desired position, which take at least a few hours to complete. Experts in their field also critique them. The steps are all designed to ensure the candidates will fit the culture, Derheim says.

In 2011, they rebranded their name from Sierra Bravo Corporation to the Nerdery, a name that resonated with their clientele.

Derheim recalls the days when he was actively involved in building the company. Now, he’s assigned those tasks to others and can focus on running the business. Derheim and co-founder Schmidt are equal company owners, with 98 percent of the share.

“Hopefully the entrepreneurial start-up [behavior] is always here,” Derheim says. “I don’t think that will ever change as long as I’m around.”

The only difference before he became a millionaire, he says, is his posters in his office and childhood bedroom have become reality: He now has a Camaro in his garage.