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Starting Your Own IT Company

Starting Your Own IT Company. Laura Ewing Cathy Byrnes Matt Schlanger. 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

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Starting Your Own IT Company

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  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 • Internallocus of control • Creativity • Achievementoriented • 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 High Entrepreneurial Areas Versus Low Entrepreneurial Areas Viewed on 4/22/06 http://www.sba.gov/advo/research/rs256tot.pdf

  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 • 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 MBA’s 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 MBA’s 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. UMSL’s 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 R&D (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 • Don’t do it for the money, but because it is important to you • Don’t 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 StudyGreg 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. Greg’s Advice • “Quality prevails ultimately, but brief periods when sizzle has more appeal” • “Starting your own business is not for everybody only if you’re 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.com/index.htm Accessed 4 April 2006 http://www.bnistl.com/memberdetails.php?ID=13494 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 one’s business • Organized • Know who to turn to for help (Buffa, Adam. Telephone interview. 6 April 2006.)

  43. Adam’s 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. 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. KEEPING IT REAL Companies Involved

  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 (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

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