Starting an IT Company

1
Starting an IT Company

• A Recipe for Success

2
Agenda

• Introduction
• Case Studies
• Sense Corp
• Qore Business Group
• WAN Technologies/Digital Skyway
• eBay
• Secondary Research
• Conclusions

3
Types of IT Startups

• Software
• Hardware
• Outsourcing
• xSPs
• Internet
• Services
• Etc.

4
Set the Stage

• Only 30 percent of business start-ups survive
  more than five years. 48
• Recent increase in VC Money for technology, but
  it is being concentrated in a few sectors.
  (Wireless networking, security software, storage)
• Number of Start-Up companies over time 1998 -
  68,3121997 - 54,2391996 - 49,710 1995 - 23,942
  1994 - 27,212 TOTALS - 223,415 47
• Estimated that three out of four online start-ups
  will go belly-up in the next three years.
  (4/2000) 49

5
What is an Entrepreneur?
Main Entry entrepreneur   Pronunciation
"änn-tr-p(r)-'nr, -'n(y)urFunction
nounEtymology French, from Old French, from
entreprendre to undertake -- more at
ENTERPRISEDate 1852 one who organizes,
manages, and assumes the risks of a business or
enterprise 43
6
What is an Entrepreneur?
the idea of overcoming resistance to change,
getting things done and thereby profiting.
Entrepreneurial activity is contingent and
situational. Entrepreneurs spot business
opportunities and then commit time and resources
to the pursuit of those opportunities. They do
so as they weigh the incremental value of
successive evolutions. And entrepreneurs,
therefore, earn economic rents, for they bring
together factors and resources to accomplish
specific projects. They organize.6
7
What makes a successful entrepreneur?

• Leadership Qualities?
• Management Traits?
• Venture Capital Availability?
• Timing?
• Technology?
• Location?
• Human Capital?
• Luck?
• Risk Taker?

8
Norman Schwartzkopf
"Leadership is a potent combination of strategy
and character," he says. "But if you must be
without one, be without strategy." 50
9
Peter SiegelSense Corp
10
Siegels Personality

• Motivated
• Decisive
• Not authoritative
• Trusting
• Optimistic
• Hard-working
• Detail-oriented 38

11
Siegels Background

• Childhood traits
• Hyperactive, social, mischievous, self-motivated
• B/A- student in high school
• Graduated from Syracuse University with a
  business degree (Logistics Management)
• Father is a nuclear medicine doctor
• Mother is a doctors office manager
• Peter did not pursue a career in the medical
  field like his father because he didnt want to
  work as many hours as him.
• With his company, he now works just as many, if
  not more hours than his father ever worked!

12
Sense Corp
IT Consulting firm specializing in Data
Warehousing and Business Intelligence Peter
Siegel, 31, was one of 4 founders
13
Sense Corp Profile

• 45 50 employees
• 10 million annual revenues
• 100 annual growth rate from 1997 through early
  2001
• 0 growth from mid 2001 through mid 2003
• New growth has begun in the last few months

14
Sense Corp History

• Started in 1996 with 4 people
• 2 Andersen Consulting employees
• 1 Mallinkrodt employee (client of Andersen)
• 1 independent contractor (friend of Andersen
  consultant) working at Shell Services
  International
• First main client was Shell in Houston
• Grew to 10 consultants just at Shell
• Had a sizeable team at Enron
• during their fallfirst consulting
• firm to be asked back when SEC
• demanded financial data

current technical lead on my project
15
Sense Corps Success Factors

• Each founding partner excelled in a different
  area
• Peter -gt back office capabilities
• Keat -gt vision, business development, recruiting
• Brian -gt execution of the vision
• Mike -gt technical expert
• Run the company conservatively
• Didnt want a debt situation
• Conservative growth approach saved them during
  the economic downturn
• Small size gives them flexibility that their
  larger competitors (big 5) can not duplicate
• Can turn around proposals within days rather than
  weeks
• Concentrate on quality of consultants rather than
  number of consultants

16
Recruiting Strategy

• Unsuccessfully worked with a head-hunter in 1999
  and 2000
• Found that they cost more than they are worth
• Occasionally uses HotJobs website to find
  qualified applicants
• Large time commitment to browse through hundreds
  of resumes and usually only come away with a
  couple potential applicants
• Most employees are a result of referrals from
  existing employees
• Recruiting statement
• Looking for smart, good communicators,
  business-minded folks with an affinity for
  technology

17
Strategy for Acquiring Customers

• Relationships with past and existing clients
• Partnerships with software vendors
• Business Objects
• Cognos
• Ascential
• Ambeo
• Embarcadero
• Growing accounts at existing clients
• Charter
• Tyco Healthcare
• Enron
• ERCOT
• Bayer CropScience
• BCBS of Michigan
• Accident Fund
• Plains All American

18
Mark PetersonQORE Business Solutions
19
Petersons Personality

• Expressive/Driver
• Flexible
• Stubborn
• Determined
• Caring
• Responsible
• Moral code
• Leader
• Entrepreneurial 36

20
Petersons Background

• Exposed to Entrepreneurial Leadership as a child
• US Navy
• DEC

21
Back to the Beginnings
22
Next Steps in Petersons Career

• QORE Business Solutions
• Sentry
• Meta Group Consulting
• Coeur Business Group
• Coeur/EVP

23
QORE Business Solutions

• 40 employees
• 10 million annual revenues
• Systems Integrator, Help Desk Outsource and Cost
  Containment Consulting
• 2003 focus on Healthcare as a primary vertical 44

24
QORE Business Solutions Success Factors

• Low Risk
• Self Funded
• Partners
• Monsanto as key first customer
• Established expertise in energy market that had a
  gap in expertise
• Good TimingCost Reduction and Value Sourcing
  were a growing need.

25
Tim JohnsonWAN Technologies/Digital Skyway
26
Johnsons Personality

• Good work ethic
• Drive
• Genuine concern for other peopleempathy
• Decisive
• Ability to relate to others 37

27
Johnsons Background

• Entrepreneurial Family
• ATT
• WANTEC
• Digital Skyway

28
WAN Technologies

• 100 employees
• 20 million annual revenues
• Wide Area Network Value Added Reseller
• Cisco Gold Partner
• Network Management Outsourcing, IP Telephony and
  Security are key focus areas 45

29
WAN Technologies Success Factors

• Gap in telecommunications offering for CPE
  integration and management
• Self funded
• Balanced PartnershipVision, Operations, Sales
• Initial Customers through ATT and MCI contacts
• Qwest became key customer

30
Digital Skyway

• 20 employees
• 10 million projected sales for 2004
• WiFi (Wireless Broadband) Infrastructure provider
• Target Markets
• Small/Rural market
• Hotel Industry
• Franchising 46

31
Digital Skyways Success Factors

• Gap in high speed offering to rural areas
• Key partnership with Primary Network
• Self funded
• Partners in Sales and Operations
• First to Market
• Franchising Model
• Extensive Planning

Somebody should be awarewhere are the first 12
months capital coming from?
32
Comparison of WANTEC and Digital Skyway

• IT viewed as a commodity today
• Overcoming barriers to success ahead of time is
  crucial to eventual success
• Seek existing commodities of scalebecome part of
  an ecosystem rather than creating it yourself
• Find good business partners

33
Pierre Omidyar
If you come from a democratic, libertarian point
of view, having a corporation just cram more and
more products down your throat doesnt seem like
a lot of fun. I wanted to do something
different, to give the individual the power to be
a producer as well as a consumer. 16
34
Company Profile

• eBay Inc. operates a marketplace in which anyone,
  anywhere, can buy or sell practically anything.
  The Company has developed a Web-based marketplace
  in which a community of buyers and sellers are
  brought together to browse, buy and sell various
  items.
• Feedback System Users provide rating for other
  users.
• PayPal service - eBay enables any business or
  consumer with e-mail to send and receive online
  payments securely, conveniently and
  cost-effectively.24

35
Pierre Omidyar

• Born 1967, Paris (only child)
• Parents from Iran migrated to France and then US
• Father M.D. at Johns Hopkins
• Mother, Linguist
• First IT Project at 14 Computerized school
  library catalog
• Attended Tufts University in mid-80s 17

36
Omidyar (Cont)

• Finished undergraduate at UC-Berkeley
• Internship at Innovative Data Design
• First paying job at Claris
• 1991- Founded startup Ink Development
• Ink Development re-launched as eShop
• 1994 Left eShop (but retained equity stake)
• 1996 Microsoft buys eShop. Millionaire before
  30
• Joined developer relations at General Magic 18

37
Creation of AuctionWeb

• Legend
• PEZ Story
• Reality
• Pierre spends summer of 95 obsessing about
  internet
• Pierre got in on 3DO IPO and found inequality
  inefficiency in market
• Sought to create online community with level
  playing field 19
• PEZ angle used to get press coverage early on 20

38
AuctionWeb in Action

• Labor Day Weekend, 1995 Developed
  AuctionWeb.com
• Initially one of 3 pages on Pierres personal
  homepage
• AuctionWeb was a hobby.
• Echo Bay Technology Group Pierres sole
  proprietorship for web consulting
• Broken Laser Pointer example 21
• Free service until personal ISP become Commerical
  Account due to traffic
• Arbitrarily Charged 5 for items under 25 2.5
  for items over 25.
• Checks started to appear
• June, 1996
• Exceeds Gross Revenue of 10,000 in a month
• Quits General Magic to work on AuctionWeb 22

39
Enter Jeff Skoll

• February, 96 Consulting for AuctionWeb
• August, 96 Co-Founder
• Stanford MBA
• Born in Toronto, Canada
• Had job selling Amway door-to-door at 12
• Hired by Knight-Ridder for internet strategy
• Brought business practices to Pierres hobby 23

40
AuctionWeb to

• June, 1997 - 5 Million in Venture Capital
  Funding for 21 stake
• September, 1997 Overdue upgrade to site and
  re-branded as eBay
• Missed Opportunity for Patenting 24
• January 1998 42
• Exceeds 21 million bids total bids daily average
  of 120,000
• 5 million auctions since 1995 daily average of
  200,000 per day

41
User Statistics 40
42
Financials Stock Price 41
43
Stock Price vs Nasdaq 41
44
eBay Financials 41
45
5 Yr Income Statement 41
Year 1998 1999 2000 2001 2002
Revenue 86 225 431 749 1,214
Gross Profit 70 167 336 614 1,000
Gross Profit Margin 81 74 77 81 82
Net Income 7 10 48 90 250
Net Profit Margin 8 4 11 12 20
46
Success Factors

• Created a Community
• Word of Mouth
• Efficiency
• Golden Rule in Cyberspace Feedback ratings
• No Inventory Little Cost/Risk
• 80 Profit Margins in early years
• Profitable from 1st month of operations
• Personal Involvement of with community
• Discussion Boards
• Public email addresses for principals
• Self-funded until established very thrifty
• Great eBay Flood

47

• Productive people know there is always a choice
  a choice to succeed, an option for happiness, a
  decision to see the unexpected as a challenge,
  not a crisis. 31

48
What makes a successful entrepreneur?

• Leadership Qualities?
• Management Traits?
• Venture Capital Availability?
• Timing?
• Technology?
• Location?
• Human Capital?
• Luck?
• Risk Taker?

49
Leadership

• What helps a founder often the person who
  developed a new technology application, which can
  be solitary work succeed as CEO? Leadership
  ... and the Ability to resolve conflicts.
• In a non-scientific sample of 200 companies
  fewer than 40 of founder-CEOs made it past
  second round of venture financing
• Its abnormal to have the guy from Day One who
  has the capacity to grow and morph 14

50
Management Traits 7
Global Competence Space
Nonentrepreneurial Managerial Behaviors
Entrepreneurial Managerial Behaviors
Managing Performance
Generic Managerial Behaviors
Managing Culture Managing Vision
Managing Process Managing Stakeholders and
Environments Managing Development
Nonentrepreneurial
Entrepreneurial
51
Venture Capital Investment 3
Types Description Average of Total
Early Stage Funding Early Stage Funding 49.7
- Seed Prove a concept 3.4
- Startup Product development / initial marketing 8.4
- Expansion Initial expansion of established company 37.9
Late Stage Funding Late Stage Funding 50.3
52
VC Investment Trend 39
53
Timing

• Time is a major factor in whether or not
  start-ups are successful
• There is some indication that the survival of
  small firms is affected by overall economic
  conditions when they first entered into
  business. 4
• The difference between success and failure of a
  startup is often a matter of timing, liking
  selling one's dot.com shares before the market
  crashed. 33

54

• Good ideas are common the people who can
  implement them are rare. 31

55
Human Capital3 Important Findings 8

• Entrepreneurs with more Human Capital perform
  better but do not necessarily survive more
  frequently
• Entrepreneurial skills specific to the
  venturecustomer, supplier, product and
  servicesare directly related to performance and
  survival
• Survival directly related to age, family
  experience, or motivation driving higher levels
  of persistence, resulting in survival

56
Human Capital Social Interaction 1
57
Luck
Business is not a completely rational process.
There are always factors beyond your
control--some that you're aware of, some that
will hit you out of the blue. Luck determines
whether you succeed despite those wild cards, and
you can never completely eliminate it as a
factor, but you can reduce its importance 35
58
Passion
In order to succeed as an entrepreneur, you must
have passion in what you are doing. Entrepreneurs
tend to work long hours. Entrepreneurs do not
often find immediate success.
Business ventures required sacrifices of
salaries or security, willingly made because the
companies were based on dreams and passion for
technology. 25
59
Planning

• The significant relationship between pre-startup
  activity and expansion intentions is consistent
  with the findings of Van Auken and Neeley (2000).
  They suggested that the preparation of
  pre-startup documentation (e.g. business plans,
  cash flow projections) lead to a more efficient
  capital structure. 5
• Engaging in tangible activities - signing a
  lease, applying for a patent, conducting a market
  study - prior to the registration of the
  business, the owner-manager effectively builds
  self-confidence which, in turn, helps to
  cultivate growth aspirations. 5
• Successful entrepreneurs also have imagination,
  the ability to envision alternative scenarios. I
  think of it as always having a Plan B. 31

60
Marketing
Many new entrepreneurs think success is all about
developing a great product or service, but
actually it's all about selling it. 51 Marketing
is by far the biggest problem faced by small
businesses. 4
61
Marketing
Companies ought to establish early and frequent
contacts with prospective customers to clarify
understanding of customer needs and to reflect
these needs in product attributes. Entrepreneur
ial teams should include at least one founder
with a strong background in sales or marketing,
who will inevitably provide different information
and attitudes from often-dominant technical
cofounders. Firms with dedicated marketing
personnel have a higher degree of success. 2
62
Do Not Make the IT Entrepreneur
IT Skills
Skills, which are most lacking, are often not
technical or technological. Rather, we find that
most entrepreneurs lack good marketing, financial
and organizational skills. 4 Business
performance had a negative correlation with the
firm's relative dependence on the technical
skills of the owner-manager. 5
63
What makes a successful entrepreneur?
Research Shows

• Location
• Venture Capital Availability
• Technology
• Risk Taker
• Passion
• Planning
• Marketing

• Leadership Qualities
• Management Traits Human Capital
• Luck
• Timing

64
Success Factors

• Pre-Founding
• At Founding
• Post Founding
• Corporate Success 2

65
Compare Case Studies to Research
A strong correlation exists between important
entrepreneurial traits identified by research and
those displayed by the successful entrepreneurs
in our case studies.
66
Advice to Would-Be Entrepreneurs

• Have Industry Knowledge
• Be Willing to Work Long, Hard Hours
• Get Expert HelpBanker, Lawyer, Accountant, etc.
• Research for Demand
• Keep Good Records
• Have Adequate Starting Capital
• Be Prepared to turn over the reigns, if
  successful 10

67
Advice to Would-Be Entrepreneurs

• Develop a Business Plan
• Set Goals sales, profits, market share, etc.
• Hire good employees
• Watch Overhead and Fixed Costs
• Continue your Education
• Use Employee Participation
• Diversify your Product 10

68
Recipe for Success
Having a blend of these critical ingredients does
not guarantee success. However, they will
increase the likelihood of success for your
information technology startup.
69
Bibliography

1. Lechler, Thomas. Social Interaction A
   Determinant of Entrepreneurial Team Venture
   Success, Small Business Economics. Vol. 16
   (2001) pp 263-268.
2. Roberts, Edward B. "The Success of
   High-Technology Firms Early Technological and
   Marketing Influences. Interfaces. Vol. 22, Iss.
   4 (July/August, 1992) pp. 3 12.
3. Rausch, Lawrence M. Venture Capital Investment
   Trends in the United States and Europe, National
   Science Foundation. NSF 99-303 October 16, 1998
   pp 1 4.
4. Wu, Chunchi and Young, Allan, Critical operating
   problems and survival rates in small firms A
   look at small business institute clients,
   Journal of Developmental Entrepreneurship, Apr
   2002. Vol. 7, Iss. 1 pg. 1, 23 pgs
5. LeBrasseur, Rolland, Zanibbi, Louis, and Zinger,
   Terrence J, Growth Momentum in the Early Stages
   of Small Business Start-ups International Small
   Business Journal, Vol. 21, Iss. 3, 8/2003, p 315
   
6. Osborne, Alfred E., Jr., Understanding
   Entrepreneurship, Business Forum Fall 1987
   12,4 ABI/INFORM Global, pg. 12 (what is an
   entrepreneur)

70
Bibliography

1. Sadler-Smith, Eugene Hampson, Yve Chaston, Ian
   Badger, Beryl Managerial behavior,
   entrepreneurial style, and small firm
   performance Journal of Small Business
   Management Jan 2003 41,1 ABI/INFORM Global pg
   47
2. Gimeno, Javier Folta, Timothy B. Cooper, Arnold
   C. Woo, Carolyn Y. Survival of the fittest?
   Entrepreneurial Human Capital and the Persistence
   of
3. Underperforming Firms, Administrative Science
   Quarterly Dec 1997 42,4 ABI/INFORM Global, pg
   750
4. Lussier, Robert N. Startup business advice from
   business owners to would-be entrepreneurs S.A.M.
   Advanced Management Journal Winter 1995 60,1
   ABI/INFORM Global pg 10
5. Keely, Robert H., Roure, Juan B. Management,
   Strategy, and Industry Structure as Influences on
   the Success of New Firms A Structural Model
   Management Science Oct 1990 36, 10 ABI/INFORM
   Global pg 1256 (management traitsI
6. Amit, Raphael Glosten, Lawrence Muller, Eitan
   Does Venture Capital Foster the Most Promising
   Entrepreneurial Firms? California Management
   Review Spring 1990 32, 3 ABI/INFORM Global
   pg. 102

71
Bibliography

1. Anonymous. What they need to succeed.
   Canadian Banker. Toronto Jul/Aug 1995. Vol.
   102, Iss. 4 pp 24 25.
2. Bailey, Jeff. Small Business Entreprise For
   Investors, Founders Are Short-Term CEOs. Wall
   Street Journal. (Eastern edition). New York, NY
   Oct 21, 2003 pg A.24.
3. Banks, Brian. The silicon billionaire.
   Canadian Business. Toronto Jul 30-Aug13, 1999.
   Vol.72, Iss. 12 pp 26-31.
4. Cohen, Adam. The Perfect Store Inside eBay.
   New York Little, Brown and Company, June 2002
   pg 7
5. Ibid, pp 15-16
6. Ibid, pp 17-21
7. Ibid, pp 18
8. Ibid, pp 83-84
9. Ibid, pp 4-5

72
Bibliography

1. Ibid, pp 21-30
2. Ibid, pp 30-72
3. Ibid, pp 76-91
4. Colkin, Eileen. Blast from the past.
   InformationWeek. Manhasset May 7, 2001. Iss.
   836 pg 89 92.
5. Faletra, Robert. Now may be the best time in a
   decade to become a solution provider. CRN.
   Jericho Sep 22, 2003. Iss. 1063 pp 82.
6. Grimes, Ann. Venture Capitalists a Bit More
   Willing. Wall Street Journal (Eastern edition).
   New York, NY Jul 29, 2003 pg C1.
7. Krekhovetsky, Luba. "75th Anniversary Jeff
   Skoll." Canadian Business. Toronto Feb 3,
   2003. Vol. 76, Iss. 2 pg 54-56.
8. Skoll, Jeff. New town square. Forbes. New
   York Oct 4, 1999. pg 65 67.

73
Bibliography

1. Phillips, Bruce D., Headd, Brian.
   Characteristics of Small Business Employees and
   Owners. U.S. Small Business Administrations
   Office of Advocacy, Office of Economic Research.
   1998.
2. Goodman, Jon P., What Make an Entrepreneur,
   Inc, 10/1994, p. 29
3. Himelstein, Linda, All Cashed Up with No Place
   to Go, Business Week, 9/29/2003, p. 107
4. Davidson, Andrew, Rupert Howells 10 Steps to
   Start-up, Management Today, 4/2003, pp. 58-62
5. Rifkin, Glenn and Harrar, George The Ultimate
   Entrepreneur 1988 Contemporary Books, Inc. (Ken
   Olson)
6. Brodsky, Norm Improving Your Luck Inc.
   Magazine, Apr 1997
7. Mark Peterson, CEO Coeur Business Group,
   interviewed in person by Tim Myers, October 10,
   2003
8. Tim Johnson, CEO Digital Skyway, interviewed in
   person by Tim Myers, October 12, 2003
9. Peter Siegel, CFO of Sense Corp, interviewed in
   person by Micah Katcher, October 3, 2003.

74
Bibliography

1. http//www.nvca.org/ffax.html, viewed 10.16.2003
   (National Venture Capital Association)
2. http//investor.ebay.com/annual.cfm, viewed
   10.17.2003 (eBay Annual Reports)
3. http//bigcharts.marketwatch.com/, viewed
   10.30.2003
4. http//pages.ebay.com/community/aboutebay/releases
   pr98.html, viewed October 17, 2003
5. http//www.webster.com/cgi-bin/dictionary, viewed
   10.18.2003 (entrepreneur definition)
6. http//www.qorebusiness.com/about_why_qore.cfm
   viewed 10.19.2003

75
Bibliography

1. http//www.wantec.com/about/index.htm viewed
   10.19.2003
2. http//www.digitalskyway.com/company.shtml view
   10.19.2003
3. http//www.venturecoach.com/resources/content_stat
   s.htm, viewed on 10.15.2003
4. http//www.score.org/entrepreneurship_career.html
   , viewed on 10.15.2003
5. http//www.drapkin.net/news/whystartupsfail.html
   , viewed on 10.15.2003
6. http//www.brainyquote.com/quotes/quotes/g/genhnor
   ma124399.html, viewed on 10.15.2003
7. http//www.entrepreneur.com/article/0,4621,304960,
   00.html viewed 10.28.2003