Starting Your Own IT Company

1
Starting Your Own IT Company

• Laura Ewing
• Cathy Byrnes
• Matt Schlanger

2
Objectives

• Why this topic is important to managers
• Definition of an entrepreneur and personality
  characteristics
• Phases of a start-up business and successful
  attributes
• Can entrepreneurship be taught?
• Case studies
• Suzanne Joyce TechGuard Security
• Greg Sullivan G.A. Sullivan
• Adam Buffa Buffa-Tech, LLC
• Realistic look at how a business can begin
• Resources

3
Entrepreneur

• A person who habitually creates and innovates to
  build something of recognized value around
  perceived opportunities
• Initiatiative taking
• The organizing and reorganizing of social and
  economic mechanisms to turn resources and
  situations to practical account
• The acceptance of risk or failure.

(Gardner, 1995) (Hirsch, Peters, Shepherd,
2005)
4
High-Tech Entrepreneur

• High level of education
• Undergraduate or Graduate level
• Science and Technology
• Access to a network of associates
• Business Technical
• Primary Motivation
• Desire for independence
• Self-achievement

(Roberts, 1989)
5
Level of EducationHigher in Entrepreneurial
Activities
Viewed on 4/22/06 SBA Office of Advocacy
http//www.sba.gov/advo/research/rs256tot.pdf
6
Motivation for Launching an IT Start-up
(Bolton Thompson 2004)
7
Entrepreneurial Traits

• Internal locus of control
• Creativity
• Achievement oriented
• Drive
• Optimism
• Self-esteem
• Risk- taking
• Recognizes opportunity
• Openness to change

(Koh, 1996, Sexton Smilor, 1986)
8
What Triggers Entrepreneurship
setting off the initial spark

• Opportunity Trigger
• Being at the right place at the right time.
• Potential for growth
• Technology Trigger - Recognition of
• New or different types of technology
• New or different Applications for technology
• Cultural Trigger
• Environmental stimulation formation, growth,
  development

(Bolton Thompson 2004)
9
Start-UpImportance to Managers

• ROI is greater in regions that support
  entrepreneurship
• New Technology Start-ups drive regional growth
• Quality labor pool with IT Start-ups

Viewed on 4/22/06 SBA Office of Advocacy
http//www.sba.gov/advo/research/rs256tot.pdf
10
Key Economic Indicators
Key Economic Indicator Most Innovative/entrepreneurial regions Least Innovative/entrepreneurial regions Percent Difference
Average Annual Employment 2.60 1.20 117
Average Annual Wage Growth 7.00 4.40 59
Average Annual Productivity 4.90 2.40 104
Average Number of New Firm Births 4040 304 42

• High Entrepreneurial Areas
• Versus
• Low Entrepreneurial Areas

http//www.sba.gov/advo/research/rs256tot.pdf
Viewed on 4/22/06
11
Benefits to society

• Create jobs
• Create products and provide services previously
  not available
• Improve our style of living

(Paulsell, 2005) (Tracy, 2006)
12
Personal Benefits

• Control over their lives
• Report to themselves.
• Can work at home
• Potential to increase their own income.

(Paulsell, 2005) (Starting small business is
appealing and challenging. 2005)
13
Drawbacks

• Being your own boss can be overrated
• Jerry Burnett of Burnett Automotive Services
• Constant dedication and sacrifice
• 80 of new ventures will fail within 5 years
• (Butler, p.3) (Starting small business is
  appealing and challenging. 2005)

14
Challenges

• Finding capital or venture capital
• Gaining experience
• Finding the right help
• (Pearsall, 1997) (Phillips, 2005)

15
Types of Venture Capital

• Boot-Strapping
• Non- traditional forms of financial support
• Personal credit cards
• Personal savings,
• Loans from friends and relatives
• Business Angels
• Wealthy Individuals
• Private Venture Capital
• Consortium of investors or fund managers
• Corporate Venture capital
• Investment money large corporation
• Intel - Intel Capital
• IBM NetGen

(Bolton Thompson, 2004)
(Van Osnabrugge Robinson, 2000)
16
SMALL BUSINESS INDICATORS

• Venture
• Investment 2001 2002 2003 2004 2005
• Deals 4456 3057 2865 2966
  2939
• Investment 40.7 21.7 19.6 21.6 21.7
• (Billions of dollars)
• http//www.sba.gov/advo/research/sbqei0504.pdf
• Viewed on 4/22/06
• SBA Office of Advocacy

17
Successful Launch of New IT start-ups
Security Technology
GROWTH RATE OF MARKET GROWING CONCERN FOR BUSINESS GOVT. INCREASED DEMAND FOR SECURITY WITH INCREASED DATA STORAGE ACCESS
TIMING OF THE MARKET EXCELLENT TIMING NEED FOR SECURITY WITH DATA SOFTWARE NETWORK SECURITY
REVENUE FLOW REVENUES FROM BUSINESS SECURITY NEEDS RAPID REVENUE GROWTH INCREASING DEMAND
CYCLICAL NATURE OF MARKET LESS EFFECT FROM CYCLICAL MARKET IS A BASIC NEED FOR BUSINESS GOVT.

• Target market growth rates
• Timing of market entry
• Near-term revenue potential and
• Impact of the cyclical nature of the industry

(Umesh, Huynh, Jessup, 2005)
18
STAGES OF AN IT START-UP

• CONCEPT STAGE
• SEED STAGE
• START-UP STAGE
• EXPANSION STAGE
• IPO/ACQUISITION/BUYOUT STAGE

(Swanson Baird, 2003)
19
CONCEPT STAGE

• Entrepreneur comes up with a creative idea or
  innovation
• SEED STAGE
• Ideas or innovation are refined
• Prototype has potential
• Early-Stage financing needed to develop prototype
• Very High Risk

(Swanson Baird, 2003)
20
START-UP STAGE

• 1 to 2 years
• First-Stage financing
• Product Development Phase
• Manufacturing Marketing of product
• Very High Risk

(Swanson Baird, 2003)
21
EXPANSION STAGE

• 2 to 5 years
• Second-Stage financing
• Working capital to support business
• Business growing, No profit, High Risk
• Third-Stage financing
• Break-even point , Moderate Risk
• Fourth-Stage financing
• Capital needed to sustain rapid growth
• Market Development Phase
• Profitability achieved
• Low Risk

(Swanson Baird, 2003)
22
Common Traits of Entrepreneurial Centers

• Location near large, research oriented
  universities
• Educated and technologically skilled labor
• Venture Capitalists
• Intellectual property lawyers
• Cluster of new venture expertise
• Marketing
• Product designers

http//www.neweconomyindex.org/metro/part5_page5.
html
Viewed on 4/10/06
23
Entrepreneurial Centers

• Silicon Valley
• Austin, Texas
• North Carolina Research Triangle
• Technology Corridor (Cambridge Mass. Area)

http//www.neweconomyindex.org/metro/part5_page5.
html
Viewed on 4/10/06
24
Can Entrepreneurship be taught?

• University of Arizona 2002 study
• Classes can
• Teach basic skill
• Speed up learning process for those with
  entrepreneurial traits
• Force students to make a deadline
• Entrepreneur majors or MBAs with this emphasis
• Earn an average of 23,500 more in regular jobs
  than business majors
• Five years after graduation, earn 27 higher or
  72,000 more than graduates with business degrees
  or MBAs alone
• Three times more likely to start a company with
  average annual sales of about 50 million
• (Gray, 2006)

25
Benefits of entrepreneurial programs

• Learning basic skill and ethics
• Making Connections
• Raising Capital
• Making mistakes before entering the real world
• (Gray, 2006)

26
Entrepreneurial Programs

• According to Jerome Katz, a management professor
  at St. Louis University
• Entrepreneurial programs are among the fastest
  growing in the nation
• According to the Ewing Marion Kauffman Foundation
  survey
• 1,992 colleges and universities offer courses on
  entrepreneurship compared to about 300 in 1984-85
  
• (Gray, 2006)

27
Mary Paulsell

• In the end, it makes little difference, as long
  as we continue to provide opportunities for them
  and create the right environment in which they
  can succeed.
• (Paulsell, 2005)

28
UMSLs entrepreneur class next Fall

• BUS AD 4614 Entrepreneurship/Small Business
  Management
• (Hauff, Alan. Telephone interview. 13 April
  2006.)

29
TechGuard Security

• Suzanne Joyce
• Network security for Government Agencies and
  Businesses
• 95 Government and RD

(Joyce, Suzanne. Telephone interview. 11 April
2006.)
30
Her Personality

• Type A
• Slightly ADD,
• maybe not so slightly
• Coffee Addicted
• Positive
• Natural Salesperson

(Joyce, Suzanne. Telephone interview. 11 April
2006.)
31
Funding Support

• Wanted to give 10 of the company for 10 million
  dollars
• Started Feb. 2000, at the beginning of the dot
  com crash
• No more easy money ?
• Friends and Family
• Bootstrapped
• Incubator and other Entrepreneur Groups

(Joyce, Suzanne. Telephone interview. 11 April
2006.)
32
What keeps you up at night?

• Financial issues
• Personal responsibly for employees that rely on
  the business
• Personal responsibly for investors that are
  taking a chance on the business

(Joyce, Suzanne. Telephone interview. 11 April
2006.)
33
Her Suggestions

• Find a mission or a focus
• Attract people with your passion
• Dont do it for the money, but because it is
  important to you
• Dont try to be everything
• Build a team not like yourself so you can
  compliment each other
• Use the resources available to you
• especially other in the Entrepreneur community

(Joyce, Suzanne. Telephone interview. 11 April
2006.)
34
Case Study Greg Sullivan

• 1982 Founded
• Used Boot-Strapping
• Custom software for businesses using the IBM PC
• 1992 Expansion Stage
• 335,000 in revenue ,25 employees
• 2000 Experiences rapid growth
• 22 million in revenue, 300 employees
• 2004 Buyout Stage
• 30 million in revenue, 350 employees
• 2004 Sold to Avande Inc
• Undisclosed selling price
• 2006 CEO Global Velocity
• Innovative reprogrammable hardware solution
• At Early Start-up Stage
• Raised 1.7 million used Business Angels
• Ready to leave incubator - Technology
  Entrepreneur Center

The company specializes in providing e-business
solutions for middle market companies, E-business
start-ups, as well as Fortune 500 companies (St.
Louis Commerce Magazine, Jul, 2000)
(Sullivan.Greg Telephone interview. 11 April
2006.)
35
Gregs Advice

• Quality prevails ultimately, but brief periods
  when sizzle has more appeal
• Starting your own business is not for everybody
  only if youre in a position to take career risk
• You must be serious about business but at the
  same time have fun while your doing it, when its
  not fun its time to get out
• Be prepared to adapt to the changes in business
  and technology I changed the way we did business
  to better use the internet

(Sullivan.Greg Telephone interview. 11 April
2006.)
36
Key points we learned from Greg

• Technology presents opportunity
• Need vision, drive, and a network of good people
• Requires sacrifices before you reap rewards
• Personal satisfaction and a sense of
  accomplishment

(Sullivan.Greg Telephone interview. 11 April
2006.)
37
Buffa-Tech, LLC

• Adam Buffa
• Buffa-Tech, LLC
• Goal To provide technology and accounting
  support to small businesses and homes in the St.
  Louis area.

Providing Small Businesses the Personal
Attention They Deserve http//www.buffa-tech.co
m/index.htm Accessed 4 April 2006 http//www.bnis
tl.com/memberdetails.php?ID1349 4 April 2006
38
Why did Adam decide to start his own business?

• Change
• Passion for technology
• IT companies skip over small businesses
• If he can perform IT services for one small
  company, why not for others
• Always willing to try something new
• Not afraid of failure

(Buffa, Adam. Telephone interview. 6 April
2006.)
39
Funding

• Took 1000 from his savings account and opened a
  checking account for the business
• Produced enough income to keep the business
  operating and to receive a salary
• Fortunate to have his former employer as a client

(Buffa, Adam. Telephone interview. 6 April
2006.)
40
Non-financial Support

• His wife
• Business Network International of Missouri
  Southern Illinois (BNI)
• Helped him market his business
• Positioned him in front of other business owners
  and prospects
• Helped him to establish a routine

(Buffa, Adam. Telephone interview. 6 April
2006.)
41
What keeps Adam up at night?

• Being asked to fix something or perform a task
  that he is unable to accomplish
• Finding clients

(Buffa, Adam. Telephone interview. 6 April
2006.)
42
Personality traits he thinks entrepreneurs should
possess

• Willing to fail, take risks, accept failure, and
  move on
• Outgoing
• Able to sell ones business
• Organized
• Know who to turn to for help

(Buffa, Adam. Telephone interview. 6 April
2006.)
43
Adams advice for future entrepreneurs

• If accounting is not your strong point find
  help!
• This will save you time and money!

(Buffa, Adam. Telephone interview. 6 April
2006.)
44
Key points we learned from Adam

• Be able to sell/market your business
• Know who to turn to for help
• Be willing to take risks, fail, accept failure,
  and know when to move on!

(Buffa, Adam. Telephone interview. 6 April
2006.)
45
Start Your Own IT Company

• A Step-by-Step Example

46
KEEPING IT REAL
Disclaimer

• Many books, trade publications, and information
  sources out on starting your own business.
• Although many qualified sources were used in this
  story, it is not a technical how-to guide
• Each business is different but in order to avoid
  broad generalizations this story is very specific

47
KEEPING IT REAL
Companies Involved

• OfficeMax
• PC House Calls
• Safeco Insurance
• Scopel Associates
• Softwaire Centre International
• St. John Co. Accountants
• St. Louis Business Journal
• St. Louis County Government office
• Stephen Finch Associates Inc
• Sunset Office Suites
• TigerDirect.com
• Vistaprint.com
• Yahoo.com
• Yellowbook
• Yellowpages

• Adsell
• Bank of America
• City of Maryland Heights Government office
• Computer Concepts Inc.
• Computer Ease
• Computer Nerdz
• Data Science Corp
• Data-marq
• Friendly Computers
• Godaddy.com
• Google.com
• InfoUSA
• Kaiser Law Firm
• Kama Inc.

48
KEEPING IT REAL
About Jane

• Jane Pevely
• Graduated BS in Computer Science, 2000
• Working as programmer ever sense
• Making good money, but hates the cubical
• Too social to continue this career forever
• Would like to start a small on-site computer
  repair business

49
KEEPING IT REAL
Competitors
Company Name Per Hour Travel
Computer Nerdz 99.00 0
PC House Calls 89.00 25
Computerease 89.00 0
Softwaire Centre International 110.00 0
Computer Concepts, Inc. 85.00 45
Friendly Computers 88.00 5
(Based on phone conversation, 21 April 2006.)
50
KEEPING IT REAL
Business Goal

• Decides on 75 an hour.
• Goal to maintain 15 hours a week for a full year
• 75 x 15 hours x 48 weeks
• 54,000 gross income
• Will work part-time until the goal is reached

51
KEEPING IT REAL
Lawyer Consolation

• 150 an hour
• Comes prepared with questions
• Supports LLC or Inc. to protect personal assets
• Suggests business insurance
• Reviews and makes suggestions on Janes service
  contracts

(Paul Kaiser, Kaiser Law Firm, phone
conversation, 21 April 2006.)
52
KEEPING IT REAL
Accountant Consolation

• Small, low risk company more concerned with taxes
  than legal liability
• Prefers the Inc. over LLC because it has been
  around longer and the rules are more established
  than the LLC
• Suggests Inc. filed as an S-corporation to avoid
  double taxation

(Scopel Associates, St. John Co Accountants,
Stephen Finch Associates, Inc., phone
conversations, 21 April 2006.)
53
KEEPING IT REAL
Business Name

• Missouri Secretary of States website to search
  current business names
• Likes
• Janes PC Repair, Inc.

(https//www.sos.mo.gov/BusinessEntity/soskb/csear
ch.asp, 21 April 2006.)
54
KEEPING IT REAL
Returns to the Accountant

• Although it would only cost her 58 to
  incorporate online, she chooses to pay the 775
  to the accountant to have both the business
  entity and the tax information filed correctly

(Scopel Associates, St. John Co Accountants,
Stephen Finch Associates, Inc., phone
conversations, 21 April 2006.)
(See Appendix I for full details of how the 775
is spent.)
55
KEEPING IT REAL
Board of Directors Meeting

• Two months later the approved Articles of
  Incorporation are received
• Meeting at the kitchen table
• Janes Husband, Jack elected Secretary
• Review business plan
• Agree to file for a business license
• Agree to open a business bank account
• Agree to loan the business 10,000
• Agree to repay Jane the money she spent with the
  lawyer and accountant

(Scopel Associates, St. John Co Accountants,
Stephen Finch Associates, Inc., phone
conversation, 21 April 2006.)
56
KEEPING IT REAL
Government Licenses

• St. Louis County Government office
• Merchant License
• Does NOT pay the 5 charge since she is running a
  service based company.
• Her county, City of Maryland Heights
• file as a home-based business
• pays the one-time occupancy inspection charge of
  25
• And 25 per year charge for a business license.

(St. Louis County Government office and City of
Maryland Heights office, phone conversations, 21
April 2006.)
57
KEEPING IT REAL
The next day

• Business checking account for 11 per month
• Buys envelopes, paper, toner, and gets her
  contract printed at Office Max for 157.23
• Spends 80.59 at TigerDirect.com on computer
  repair tools
• Spends 50.03 for janespc.com and a year of
  basic hosting
• Designs basic 5 page website explaining her
  services

(Bank of America, OfficeMax, TigerDirect.com,
GoDaddy.com, 21 April 2006.)
58
KEEPING IT REAL
Marketing

• According to her business plan, she is going to
  use primary direct mail
• Purchases demographic specific mailing list from
  InfoUSA.com for 1,416.40
• Purchases St. Louis Business Journals listing of
  businesses for 149.95
• Bulk mail permit for 160 from US Postal Service
• Orders 5000 business cards and 5000 postcards
  from VistaPrint.com for 443.57

(InfoUSA.com, St. Louis Business Journal, USPS,
VistaPrint.com, 21 April 2006.)
59
KEEPING IT REAL
Secondary Marketing

• Yellow Pages listing for 540 per year
• Google Adwords budgeted 20 per month
• Yahoo express search 49

(YellowBook quote, http//www.google.com/ads/,
http//searchmarketing.yahoo.com/srchsb/sse_pr.php
, 21 April 2006.)
60
KEEPING IT REAL
Insurance and Office

• 1,000,000 insurance
• Does not cover workmanship but will cover
  accidents
• 500 per year
• Virtual Office
• Physical mailing address 25 per month
• Live receptionist for 100 per month

(SafeCo Insurance recommended by anonymous
insurance agent in phone conversation, Sunset
Office Suites phone conversation, 21 April 2006.)
61
KEEPING IT REAL
Product or Service Cost
Hour consultation with Lawyer 150.00
Articles of Incorporation and Tax Information Filed 775.00
Bank of America Checking Account 132.00
Business License, Occupancy Permit, and Inspection 50.00
Office Max (Printing, Envelopes, Paper, Toner) 157.23
TigerDirect.com (Equipment) 80.59
GoDaddy.com (Website) 52.03
Vistaprint.com (5000 postcards, 5000 business cards) 443.57
YellowBook Ad 540.00
Yahoo Listing 49.00
Google Listing Up to 240
Bulk Mail Yearly Fee 160.00
Bulk Mail 2000 Letters 564.00
Bulk Mail 2000 Follow-up Postcards 522.00
Lead Listing from InfoUSA.com 1,416.40
St. Louis Business Listing 149.95
Business Insurance 500.00
Virtual Office (Live Receptionist and Mailing Address) 1,500.00
Random Expenses 1,000.00

Minimum Estimate for First Year of Business 8,481.77
Minimum Estimate for her First Year of
Business8,481.77
(Added all the following costs plus 1,000 for
random expenses, estimate example only, not an
exact science, refer to paper for complete
narrative)
62
Key Points

• Make a plan
• More to starting a business than just the
  Articles of Incorporation
• Find a good accountant

63
Resources

• http//www.missouribusiness.net/
• http//www.startupjournal.com/
• http//www.entrepreneur.com/
• http//www.score.org/
• http//www.sba.gov/
• http//www.sos.mo.gov/
• Steingold, Fred S. Legal Guide for Starting
  Running a Small Business, Berkeley NOLO
  Publishing, 2006.

64
Conclusion

• Why this topic is important to managers
• Definition of an entrepreneur and personality
  characteristics
• Phases of a start-up business and successful
  attributes
• Can entrepreneurship be taught?
• Case studies
• Suzanne Joyce TechGuard Security
• Greg Sullivan G.A. Sullivan
• Adam Buffa Buffa-Tech, LLC
• Realistic look at how a business can begin
• Resources

65
Questions
66
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70
Appendix I
Date ___ /___ /200__ Discuss strategy with
client, incorporate, and Handle all filings
for_____________________________ , Inc. Phase
I Develop strategies and filings Client
interview to determine issues and strategies of
preliminary business plan Determine proposed
Corporate name availability Develop all necessary
and pertinent information to scope project
out Determine type of entity and tax
effects 180.00 Phase II Do
Incorporation Preparation of Incorporation
Articles File Incorporation Articles with MO
Secretary of State (includes travel) Pay all
necessary filing fees on behalf of client Initial
Annual Report to Secretary of State pay
fees Preparation of Corporate By-Laws Preparation
of Corporate Minutes of initial meeting of
Incorporator and Director(s) Develop and prepare
supporting exhibits Issue Stock Purchase
Corporation book, Stock Certificates, Corporate
Seal on behalf of Client pay fees. 230.00
Phase III Preparation of documents and
registrations - Federal State(s) Compile and
file Federal, State, and Local 1. SS-4 Federal
Identification Number 2. DOR 860-1663, Corp.
65/m860-1103 State Withholding, Corp
Registration 3. Election of Sub S status form
2553 (if appropriate) 4. Sales Tax Registration
Form (if appropriate) 5. Annual Secretary of
State Report of Directors/Owners 6. Section 351,
Tax Free Rollover Election (if appropriate) 7.
Annual Franchise Tax Report (if appropriate) 8.
Election to Amortize Incorporation Costs 9.
Election to Amortize Start up cost 275.00 Ph
ase IV Finalize Issue Stocks Set up meeting to
discuss Payroll Set up and forward paperwork to
bank to set up new account Determine amount of
assets to be included in corporation Meet with
client to finalize and sign all necessary
documents 90.00 Total Cost for
Incorporation Flat Fee 775.00 ___________
_________________ __________ __________________
__________ __________ Client Signature Date
Incorporator Signature Date