Starting an IT
Company
A Recipe for Success
1
Agenda


Introduction
Case Studies
 Sense
Corp
 Qore Business Group
 WAN Technologies/Digital Skyway
 eBay


Secondary Research
Conclusions
2
Types of IT Startups







Software
Hardware
Outsourcing
xSP’s
Internet
Services
Etc.
3
Set the Stage

Only 30 percent of business start-ups survive more than five years.

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:
48
1998 - 68,312
1997 - 54,239
1996 - 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
4
What is an Entrepreneur?
Main Entry: en·tre·pre·neur
Pronunciation: "änn-tr&-p(r)&-'n&r, -'n(y)ur
Function: noun
Etymology: French, from Old French, from entreprendre to
undertake -- more at ENTERPRISE
Date: 1852
: one who organizes, manages, and assumes the risks of a
business or enterprise 43
5
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
6
What makes a successful
entrepreneur?









Leadership Qualities?
Management Traits?
Venture Capital
Availability?
Timing?
Technology?
Location?
Human Capital?
Luck?
Risk Taker?
7
Norman Schwartzkopf
"Leadership is a potent
combination of strategy and
character," he says. "But if you
must be without one, be
without strategy." 50
8
Peter Siegel—Sense Corp
9
Siegel’s Personality







Motivated
Decisive
Not authoritative
Trusting
Optimistic
Hard-working
Detail-oriented 38
10
Siegel’s 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 doctor’s office manager
Peter did not pursue a career in the medical field like his father
because he didn’t 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!
11
Sense Corp
IT Consulting firm
specializing in Data
Warehousing and
Business Intelligence
Peter Siegel, 31, was
one of 4 founders
12
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
13
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
current technical lead on my project
First main client was Shell in Houston
Grew to 10 consultants just at Shell
Had a sizeable team at Enron
during their fall…first consulting
firm to be asked back when SEC
demanded financial data
14
Sense Corp’s Success
Factors

Each founding partner excelled in a different area

Peter -> back office capabilities
 Keat -> vision, business development, recruiting
 Brian -> execution of the vision
 Mike -> technical expert

Run the company conservatively
Didn’t 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
15
Recruiting Strategy

Unsuccessfully worked with a head-hunter in 1999 and
2000


Occasionally uses HotJobs website to find qualified
applicants



Found that they cost more than they are worth
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”
16
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
17
Mark Peterson—QORE
Business Solutions
18
Peterson’s Personality









Expressive/Driver
Flexible
Stubborn
Determined
Caring
Responsible
Moral code
Leader
Entrepreneurial 36
19
Peterson’s Background
Exposed to Entrepreneurial Leadership
as a child
 US Navy
 DEC

20
Back to the Beginnings
"Creation of processes and products, of ideas and
industries, depends on people more than money, on
imagination as well as initiative. Seek out creative
people with the vision of things to be done. Help breathe
life into new ideas and processes and products with
capital - and with more than capital - with sensitive
appreciation for creative drive, with support in
management and manpower, with loyalty to the idea and
to its initiator, the creative individual."
Georges F. Doriot, President, American Research and Development (1946-1972)
“Success is probably the worst problem for an
entrepreneur.” 34
Ken Olsen – Digital
Equipment Corporation
21
Next Steps in Peterson’s Career
QORE Business
Solutions
 Sentry
 Meta Group Consulting
 Coeur Business Group
 Coeur/EVP

22
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

23
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 Timing—Cost Reduction and Value
Sourcing were a growing need.
24
Tim Johnson—WAN
Technologies/Digital Skyway
25
Johnson’s Personality
Good work ethic
 Drive
 Genuine concern for other people—
empathy
 Decisive
 Ability to relate to others 37

26
Johnson’s Background
Entrepreneurial Family
 AT&T
 WANTEC
 Digital Skyway

27
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

28
WAN Technologies’
Success Factors





Gap in telecommunications offering for CPE
integration and management
Self funded
Balanced Partnership—Vision, Operations,
Sales
Initial Customers through AT&T and MCI
contacts
Qwest became key customer
29
Digital Skyway
20
employees
~$10 million projected sales for 2004
WiFi (Wireless Broadband) Infrastructure provider
Target Markets
Small/Rural market
Hotel Industry
Franchising 46
30
Digital Skyway’s 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 aware…where are the first 12 months capital coming from?”
31
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 scale—become part
of an ecosystem rather than creating it yourself
Find good business partners
32
Pierre Omidyar
“If you come from a democratic, libertarian
point of view, having a corporation just cram
more and more products down your throat
doesn’t 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
33
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 costeffectively.24
34
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-80’s 17
35
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
36
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
37
AuctionWeb in Action

Labor Day Weekend, 1995 – Developed
AuctionWeb.com





Initially one of 3 pages on Pierre’s personal homepage
AuctionWeb was a hobby.
Echo Bay Technology Group – Pierre’s 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
38
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 Pierre’s hobby 23
39
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
40
User Statistics 40
70
60
(Millions)
Registered Users
80
50
40
30
20
10
0
'97
'98
'99
'00
'01
'02
Year
41
Financials – Stock Price 41
42
Stock Price vs Nasdaq 41
43
20
04
20
04
20
03
20
03
Q
4
Q
2
Q
4
Q
2
Q
4
Q
2
Q
4
Q
2
Q
4
Q
2
Q
4
Q
2
Q
4
EPS
20
02
20
02
20
01
20
01
20
00
20
00
19
99
19
99
19
98
EPS
eBay Financials 41
Estimates
0.35
0.3
0.25
0.2
0.15
0.1
0.05
0
44
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%
45
Success Factors

Created a Community




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”


Word of Mouth
Discussion Boards
Public email addresses for principals
Self-funded until established – very thrifty
“Great eBay Flood”
46
“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
47
What makes a successful
entrepreneur?









Leadership Qualities?
Management Traits?
Venture Capital
Availability?
Timing?
Technology?
Location?
Human Capital?
Luck?
Risk Taker?
48
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”
“It’s abnormal to have the guy from Day One who has the
capacity to grow and morph” 14
49
Management Traits 7
Entrepreneurial
Managerial Behaviors
Managing
Culture
Managing
Vision
Entrepreneurial
Global
Competence
Space
Generic Managerial
Behaviors
Managing
Process
Managing
Stakeholders
and
Environments
Managing
Development
Nonentrepreneurial
Managerial Behaviors
Managing
Performance
Nonentrepreneurial
50
Venture Capital Investment 3
Types
Description
Early Stage Funding
Average
of Total
49.7%
- Seed
Prove a concept
3.4%
- Startup
Product development / initial marketing
8.4%
- Expansion
Initial expansion of established
company
Late Stage Funding
37.9%
50.3%
51
VC Investment Trend 39
120.00
(Billions)
Amount
100.00
80.00
60.00
40.00
20.00
0.00
'90
'91
'92
Inv Amt (B) 2.90 2.30 3.60
'93
'94
'95
'96
'97
'98
'99
'00
'01
'02
3.90 4.20 7.70 11.60 15.20 21.50 55.00 106.4 41.10 21.20
Number
1471 1279 1415 1209 1239 1901 2656 3250 4203 5684 8208 4691 3028
Avg (M)
1.95 1.79 2.54
3.2
3.39 4.04 4.36
4.66 5.11 9.68 12.96 8.76 6.99
52
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
53
“Good ideas are common; the people who
can implement them are rare.” 31
54
Human Capital
3 Important Findings 8



Entrepreneurs with more Human Capital perform better
but do not necessarily survive more frequently
Entrepreneurial skills specific to the venture…customer,
supplier, product and services…are directly related to
performance and survival
Survival directly related to age, family experience, or
motivation driving higher levels of persistence, resulting in
survival
55
Human Capital
& Social Interaction 1
56
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
57
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
58
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 prestartup 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
59
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
60
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.”
“Entrepreneurial 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
61
IT Skills Do Not Make the IT
Entrepreneur
“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
62
What makes a successful
entrepreneur?
Research Shows
 Location
Leadership
Qualities
 Management Traits
Human Capital
 Luck
 Timing

 Venture
Capital
Availability
 Technology
 Risk Taker
 Passion
 Planning
 Marketing
63
Success Factors
•Pre-Founding
•At Founding
•Post Founding
•Corporate Success 2
64
Compare Case Studies to
Research
Peter Siegel
Mark Peterson
Tim Johnson
Leadership Qualities
X
X
X
Management Traits
X
X
X
Timing
X
X
X
X
Human Capital
X
X
X
X
Luck
X
X
X
X
Passion
X
X
X
X
Planning
X
X
X
Marketing
X
Pierre Omidyar
X
*A strong correlation exists between important entrepreneurial
traits identified by research and those displayed by the
successful entrepreneurs in our case studies.
65
Advice to Would-Be Entrepreneurs







Have Industry Knowledge
Be Willing to Work Long, Hard
Hours
Get Expert Help—Banker,
Lawyer, Accountant, etc.
Research for Demand
Keep Good Records
Have Adequate Starting
Capital
Be Prepared to turn over the
reigns, if successful 10
66
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
67
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.
68
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