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How one entrepreneur started a $3 million business from prison
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Frederick Hutson was always enterprising. While he was behind bars, he hatched an idea for a phone service for inmates. - photo by Lane Anderson
As a young man, Frederick Hutson was very enterprising. In his early 20s, he figured out a clever way for his friends to transport marijuana across borders using shipping containers and vacuum-sealed units.

That stunt landed him four years in jail in 2007 when he was 24, but during his time behind bars he whiled the hours reading business magazines and drafting business plans.

One idea stuck out to him: A big problem for inmates and their loved ones is that it's hard to keep in touch. There's no Internet, just phones and snail mail. There are only a few companies that handle communication in and out of prisons, which have to be highly screened. Players like Securus and JPay had a monopoly, which means that prisoners got gouged. About 300 phone minutes can cost $70, for example.

While I was there, my eyes really started opening up. I started noticing how grossly inefficient everything was, Hutson told TechCrunch. I thought, I know I can solve this problem. This is a real market.

Hutson had the advantage of experiencing the problem firsthand and started thinking about solutions for the largely low-income population. Im very close with my family and I knew they cared about me but even with knowing how much they cared about me they were still sometimes unable to send me photos, he told Forbes.

He hatched an idea called Pigeon.ly. It's a platform that uses VoIP (the same technology behind services like Skype) that creates a local number that prisoners can use to reach family and friends. It's much cheaper than traditional long-distance and drops the cost of 300 minutes to $20 instead of $70.

Pigeonly also allows users to send digital photo prints. Typically, family and friends have to have photos printed out and then mail them via USPS or UPS, which is tedious in the digital age. Pigeonly's Fotopigeon service allows people to send photo prints to inmates using an online Shutterfly-like service.

Hutson and his partner had already started launching the company when he was in a halfway house. They sent direct-mail flyers to prisoners and gathered 2,000 customers that way.

Today, the company is supporting about 2 million minutes a month on the phone calls and sending a quarter-million photos every month, too. It's on track to be profitable on about $1 million in revenue in its first year, after receiving $2 million in Silicon Valley investor money and attending NewMe, a startup accelerator aimed at underrepresented minorities.

Raising the first round of funding was very tough, and Hutson was afraid to tell people about his background.

A lot of times a thing that can be perceived as a weakness actually turn into the greatest strength and for me it was that. It actually became the reason people invested because Id been there, and I know and understand this market better than anybody else, he told Forbes.

Still, he pitched to about 60 investors when he was raising his first round of funding before he got six to buy in.

Now his company is relocated to Las Vegas, where he works with a group of startups supported by Tony Hsieh, the Zappos CEO. About 1 percent of the U.S. population has a loved one in prison because of the explosion in the American prison system, so Hutson estimates that there is a $2 billion market for services like his and lots of room for growth.

He thinks that prisons contain a lot of entrepreneurial possibility and that many people behind bars need an opportunity to do legitimate business. When you take away that 7 percent or so that did something violent that people are afraid of, people who we need to have locked up, most of the other guys were selling drugs or involved in some kind of scam or did some kind of wire fraud, or white collar crime that was motivated by finances, he told Forbes.

"If you can apply that same drive and bottom-line principles to something positive then now you have a viable business."