Starting Your Own IT Company

1
Starting Your Own IT Company

• Inshirah Bawazeer
• Jennie Charoenpitaks
• Owais Karamat
• Dave Boltz

2
Project Plan and Presentation Outline

• Provide an overview of published research on
  entrepreneurship focused on three areas
• Trends in Entrepreneurship
• A review of the classics especially regarding
  personal backgrounds of entrepreneurs
  personality/experiences
• Updating the classics based on changing
  demographics and cultural factors.
• Based on this research, interview three local IT
  entrepreneurs to assess the applicability of the
  literature especially to the field of IT
• Analyze interview results and draw conclusions

3
Presentation Agenda

• Entrepreneurship and Trends
• Reviewing the Classics
• Updating the Demographics
• Interviews
• Andrew Sobey Jr.
• Sanjay Kumar
• Wayne Haar
• Conclusions

4
What is Entrepreneurship?

• Entrepreneurship is a human, creative act that
  builds something of value from practically
  nothing. It is the pursuit of opportunity
  regardless of the resources, or lack of
  resources, at hand. I t requires a vision and the
  passion of commitment to lead others in the
  pursuit of that vision. It also requires a
  willingness to take calculated risks.
• Jeffrey A. Timmons, The Entrepreneurial Mind, as
  cited by Lambing and Kuehl, 2000.

5
Entrepreneurship is flourishing

• In 1955, the Fortune Magazines 500 list of
  largest industrial corporations captured
  Americas attention. Who had unassailable
  positions?
• In 1955, there was one small business for every
  38 persons.
• By 1965 one for every 29
• By 1975 one for every 26
• By 1985 one for every 20
• By 1994 one for every 16
• 1997 saw a U.S. record 884,000 new business
  incorporations.
• What explains the growth in the number of small
  U.S. businesses from 4.5 million in 1955 to 16
  million in 1995? Lambing and Kuehl explain
• Entrepreneurship, 2nd Ed. Lambing, Peggy and
  Charles Kuehl. 2000

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Lambing and Kuehl

• Two factors impacted the American economy
• Competition from companies abroad increased
  during the 1960s and 70s.
• The late 1970s began a period of deregulation.
• As a result, further economic and cultural
  changes occurred. The largest corporations had
  massive layoffs downsized as corporate
  survival was at stake.
• Any company that has more people than it needs
  is headed for trouble
• Fewer jobs in the post-industrial economy.
• Entrepreneurship, 2nd Ed. Lambing, Peggy and
  Charles Kuehl. 2000

7
The United States is not alone

• The European Union has sought to simplify
  accounting procedures and improve the business
  environment for small business.
• China and Russia, traditionally opposed to
  capitalism, have seen small enterprises emerge as
  an economic force in their new economies
• Eastern Europe has witnessed similar growth
• And in the Far East, as an example, the
  government of Malaysia requires commercial banks
  to make funds available for small business loans.

Entrepreneurship, 2nd Ed. Lambing, Peggy and
Charles Kuehl. 2000
8
New business success rates

• Easton and Conant note making the transition from
  corporate employee to entrepreneur is not easy.
  Citing a study by Cooper(1982), they note 6.3MM
  firms were started in 1947-54
• 23 gone in six months or less
• 23 more gone in one year
• 29 survived 4.5 year mark.
• In 1977 study of 250 new high technology firms
  near Palo Alto, CA better results
• 5 failed in the first three years
• 24 stopped operations within seven years
• 29 stopped within ten years
• But, 42 still existed after ten years.
• Importantly, in 1983, only 3 of new firms were
  high tech.
• Easton, Thomas A. and Ralph W. Conant. Cutting
  Loose Making the Transition from Employee to
  Entrepreneur

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Presentation Agenda

• Entrepreneurship and Trends
• Reviewing the Classics
• Updating the Demographics
• Interviews
• Andrew Sobey Jr.
• Sanjay Kumar
• Wayne Haar
• Conclusions

10
Literature Review

• There is a significant history of research on
  entrepreneurship.
• The conclusions of a major study carried out by
  Collins and Moore at MSU in 1964 (cited in Liles,
  1974) did not portray entrepreneurs in the most
  positive light
• we have been having difficulty deciding
  whether the entrepreneur is essentially a
  reject of our organizational society who,
  instead of becoming a hobo, criminal, or college
  professor, makes his adjustment by starting his
  own business or whether he is a man who is
  positively attracted to succeed in it. We have,
  perhaps without intention, regarded him as a
  reject.
• The men who travel the entrepreneurial way are,
  taken on balance, not remarkably likeable
  people.
• Collins Orvis F. and David G. Moore with Darab B.
  Unwalla. The Enterprising Man

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Literature Review

• However, Liles also cites smaller-sample studies
  at Harvard and MIT that yielded a different view
• Entrepreneurs were not found to be failures
• founders had experienced a generally higher than
  average level of success in their previous
  employment
• Several had achieved outstanding levels of
  achievement

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Literature Review

• Using the same data as Collins and Moore, Norman
  Smith (1967) hypothesized 2 types of
  entrepreneurs
• Type I the Craftsman-Entrepreneur. Blue collar,
  task oriented and valued the practical.
  Successful at one job and then moved on. Didnt
  like big companies but didnt identify w/unions.
• Type II Opportunistic-Entrepreneur. More often
  than not came from a middle class background and
  often had a father who was a small businessman.
  Typically, academically successful. Often a
  social leader. Career demonstrated not only
  technical abilities but capacity for competent
  administration. Key unlike Type I, Type IIs are
  adaptable.
• Smith, Norman R. The Entrepreneur and His Firm
  The Relationship Between Type of Man and Type of
  Company

13
Literature Review

• Dennis Kimbro (1996) argues that a successful
  entrepreneur must have
• mission (being able to take charge)
• vision ( the ability to inspire others to action)
• passion (an intense commitment and determined
  perseverance)
• Kimbro, Dennis P. Mission, Vision and Passion in
  the Entrepreneur from Smilor and Sexton.

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Literature Review

• Beyond these three most important
  characteristics, Kimbro asserts successful
  entrepreneurs must also have
• a desire for independence
• a sense of purpose (including the ability to set
  challenging yet clear goals and attain them)
• tolerance for uncertainty
• perseverance
• self-esteem
• salesmanship
• self-discipline
• Finally, Kimbro notes successful entrepreneurs
  are ready to just plain work hard.

Kimbro, Dennis P. Mission, Vision and Passion in
the Entrepreneur from Smilor and Sexton.
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Literature Review

• Peter Drucker states Entrepreneurship, then, is
  a behavior rather than a personality trait. I
  have seen people of the most diverse
  personalities and temperaments perform well in
  entrepreneurial challenges. To be sure, people
  who need certainty are unlikely to make good
  entrepreneurs.
• There are, however, four requirements cited by
  Drucker to entrepreneurial success (ibid. 189) 
• 1.     A focus on the market. You are creating
  customers
• 2.      Financial foresight (esp. cash
  flow/planning capital needs)
• 3.      Building a top management team before
  necessary.
• 4.      Finding a role for the founder as the
  business matures.
• He notes however a difference between starting a
  small business and entrepreneurship.
• Drucker, Peter F. Innovation and
  Entrepreneurship Practice and Principles. 1985.
   

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Literature Review

• Liles concludes there are three types of small
  firms
• high potential venture. It is the intention of
  these firms to grow rapidly in sales and profits
  and eventually become a large corporation.
• attractive small company. Less intent on
  developing to the point where there would be a
  public market for its stock or appeal to venture
  capitalists. Rather, these firms are started to
  provide a good salary for the owners, often with
  a variety of perquisites including country club
  memberships, a company car and travel.
• marginal firms. The vast majority of small
  businesses incl. dry cleaners or repair shops are
  included here.
• Liles, Patrick R. New Business Ventures and the
  Entrepreneur

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Literature Review

• Backgrounds, experiences and motivations aside,
  Liles (1974, 11-12) also discusses precipitating
  events specific conditions that appear as
  major influences on decisions to start a new
  venture
• Job dissatisfaction built up over time,
  reflecting budget cuts, no promotion or
  disappointing salary increases, denied staff.
  Key new job vs. start-up
• the last straw one of a series of
  disappointing incidents
• Identifying a new venture opportunity
• Encouragement and support A wifes reaction to
  the idea of starting a company is usually a major
  influence

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Presentation Agenda

• Entrepreneurship and Trends
• Reviewing the Classics
• Updating the Classics Changing Demographics and
  Cultural Factors
• Age
• Gender
• Ethnic Background
• Interviews
• Conclusions

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Age

• The popular press has widely reported on the
  successes of young, high tech entrepreneurs like
  Michael Dell, Steven Jobs and Bill Gates.
• On the other hand, group two noted that Wal-Mart
  was founded by Sam Walton in 1962
• 22 years after he graduated from the University
  of Missouri.
• It would appear entrepreneurial opportunity
  exists at different stages of human life cycle
  

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Self-confidence increases with age
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But changes in financial and personal conditions
are important
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Types of Female Entrepreneurs(Goffee and Scase,
1985)
Attachment to Entrepreneurial Ideals High Attachment to Gender Roles Low Attachment to Gender Roles
HIGH Conventional Often married. Guest house, restaurants and catering, nursing or secretarial services. Innovative Unmarried with few friends. P.R. advertising, market research, publishing
LOW Domestic Biz is secondary but provides limited autonomy. Arts/crafts, beauty care. Radical Seeking to overcome subordination. Diverse areas of enterprise.
23
Female Entrepreneurship

• Throughout the 1980s and early 1990s the number
  of businesses owned by women grew by 50. By
  1996, the 8 million businesses owned by women
  employed 35 more people than all the Fortune 500
  do worldwide.
• Motivating factors include desire for more
  challenge and dissatisfaction with corporate
  life, including downsizing, but also
• Glass Ceiling issues low pay, limited
  advancement
• Seeking balance between work and family
  responsibilities

Entrepreneurship, 2nd Ed. Lambing, Peggy and
Charles Kuehl. 2000
24
Female Entrepreneurship

• Start-up funds for women averaged 15,000
  compared to 36,000 for men.
• One explanation women tend to start service
  businesses that often require less capital.
• However, many believe, women do not have equal
  access to capital when they need it, possibly
  related to networking / previous business
  connections.

Entrepreneurship, 2nd Ed. Lambing, Peggy and
Charles Kuehl. 2000
25
Asian-American Entrepreneurs

• Asian-Americans have been very successful as
  entrepreneurs in the United States.
• Like women this has reflected frustrations of
  trying to climb the corporate ladder.
• David Lee, CEO, Qume Corp People believe
  Asians make good engineers, not good managers.
• By 1990, Asian-Americans headed 300 of 800
  high-tech firms in the Silicon Valley.
• Korean-Americans have the highest
  business-ownership rate (1/10) of any ethnic or
  racial group in America. This compares to 1/15
  for non-minorities.

Entrepreneurship, 2nd Ed. Lambing, Peggy and
Charles Kuehl. 2000
26
Presentation Agenda

• Entrepreneurship and Trends
• Reviewing the Classics
• Updating the Demographics
• Interviews
• Andrew Sobey Jr.
• Sanjay Kumar
• Wayne Haar
• Conclusions

27
The Interviews

• Andrew Sobey Jr., Founder and President, S
  S Systems Consultants, Inc. Fenton,
  MO
• Sanjay Kumar, Professional experience included
  participation in .com start-up effort in Fremont
  CA (1999). Currently employed as computer
  network specialist in St. Louis, MO.
• Wayne Haar, President and CEO, Interlock
  Resources Inc. Clayton, MO
  

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S S Systems Consultants

• Founded in 1990 as a provider of computer
  programming services. Since inception, services
  have expanded to include training, EDI and
  process mapping.
• While initially founded with four employees,
  current business activity is centered around
  Founder and President Andrew Sobey Jr.

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Andrew Sobey background

• Native of Sharon, PA. Son of postal worker. As a
  child, every morning from his bedroom window,
  overlooking the Westing-house plant, Sobey saw
  the 8,000 people walk into work.
• Holds Masters degree in Computing Science
• Employed for 17 years at Westinghouse, including
  10 as IS manager.
• Job dissatisfaction increased after experiencing
  several years of no raises/cuts.
• Precipitating events un-reimbursed mileage
  expense on Easter and division close down.
  (during 1990 recession he was age 40)
• Spouse supportive of entrepreneurial start-up

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S S Systems Consultants getting started

• As part of close down benefits learned
  pro-forma planning, proposal writing.
• From Westinghouse 15 years of IT experience,
  some contacts and commitment to customer
  service.
• First four years were scary. Getting finances
  to hire four people put life savings on the
  line. Start-up included cold-calling but
  ex-Westinghouse employees were important.
• Realized his business was established when he
  needed a car and knew he could buy it. And, when
  he started saying No to some potential
  projects.
• Personal note Heightened spirituality because
  when I needed the phone to ring, it did.

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S S Systems clients include

• Bausch and Lomb Surgical, St. Louis, MO and
  Clearwater, FL
• Sunbeam Corporation, Chicago,IL
• Westinghouse Electric, St. Louis, MO and
  Asheville, NC
• A variety of smaller businesses with job sites
  that included Alamo, TN, Athens, GA, Pittsburgh,
  PA, Muncie, IN, S. Boston, VA, Fayetteville, NC,
  Greenwich, CT, and St. Louis.

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Maintaining/growing the business

• Large personal satisfaction in job variety
  mainframe COBOL, FORTRAN, RPG, SQL, EDI, MS
  Access and Crystal Reporting, ORACLE.
• Planning is very short term oriented.
• Paid by the hour. Company grows by increasing
  rates. Last month sent out five invoices (i.e. 5
  different current customers incl. small
  manufacturing, CPA firm, church).
• Vs. ideal one major customer w/30-40 hrs/week.
• Lots of travel. Ex. six month one year project
  in Chicago. There M-Th.

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Sobeys lessons learned

• If you think you worked hard at a company, you
  aint seen nothing yet.
• Be focused.
• Its difficult to stay abreast of changes in
  technology VB4, VB5, VB6, VBNet.
• Be a team player to get call-backs stay out of
  office politics and recognize the need to do some
  work without charging for it to build good
  relations.

34
A Silicon Valley start-up

• This story begins in 1999. The .com boom is in
  full swing.
• Two IT professionals who room together in Fremont
  seek to participate in the boom by linking local
  angel investors with others who have many
  ideas many of whom are consultants or IT
  professionals in their native India. All parties
  were anxious to capitalize on the market boom and
  dreamed of a high potential venture
• Key investors agree to fund development of
• a prototype model to demonstrate the viability
  of the concept. Today, www.keen.com developed by
  others at approx. same time is similar in
  concept.
• a B2C website to generate revenues from day 1.
  Into Indian music? Try www.saregama.com
• Sanjay Kumar, and his friend Ravi, are on their
  way

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Technical Issues

• Investors signed a one year agreement to have
  Exodus host their servers.
• A prototype website (w/ expert advice on
  astrology and programming) would be able to
  handle 100 users at a time higher levels of
  funding would be needed to develop a site capable
  of handling hundreds of thousands of users.
• Their plan seek capital from investment banking
  community
• Focused on utilizing JAVA and LINUX, developers
  planned to use free software as much as possible.
  Additionally, as much development as possible
  would take place in India.
• Programming strategy develop websites reusing as
  much code as possible.

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Living on the edge

• Sanjay and Ravi wore multiple hats technical
  specialists, project managers, lead programmers.
• 14-16 hrs/day a labor of love with people they
  enjoyed.
• The venture, then nicknamed The Pundit
  Junction, culminated in a presentation to
  investment bankers where break-even analyses,
  profit forecasts, and technical specifications
  were presented.
• Shortly thereafter the dot.com market went bust
  and the investment bankers never called back.

37
Sanjay Kumars Background

• Technical undergraduate degree from an Indian
  university.
• Expertise Networking technology.
• More than background however, the 1999 culture of
  young adult IT professionals in the Silicon
  Valley was key.
• Sanjay was correct in his assessment he could
  always get a job in IT if the start-up failed
  minimal career risk. Didnt realize however, that
  job would be in St. Louis, Missouri.
• Start-up effort required developing different
  skills (quickly) in order to communicate with
  investors and manage the projects overseas
  development. No MBA? Try www.fedex.com

38
Lessons Learned

• Clearly, this start-up activity was
  late-in-the-game
• You must enjoy what you do
• No regrets.

39

• Principal business is staff augmentation in MIS
  functions for clients in St. Louis region. Their
  50-80 consultants respond to a broad range of
  client needs
• Web Development
• Help line / network support
• Systems development in Visual Basic, C
• People Soft
• Founded in 1989, Wayne Haar was originally an
  outside investor. He bought out 1 of 2 primary
  owners in late 1996.

40
Interlock Resources

• Today, management team involves three primary
  owners
• Wayne Haar focused on finance and administration
• One technical partner, focused on client
  development
• One partner focused on human resource issues.
• Company experienced strong growth in 1997, 1998,
  1999 attributable in part to Y2K remediation.
• Listed 2 in the St. Louis FAST 50 high growth
  technology firms in 1999. Revenues were 5.9MM.
  (St. Louis Commerce Magazine Sept. 2000, St.
  Louis Business Journal 9/25/2000)

41
Interlock Resources Clients

• U.S. Government
• Anheuser-Busch
• BJC Health System
• Enterprise Rent A Car
• Maritz
• Mastercard
• Monsanto

Source www.interlockresources.com and St. Louis
Commerce Magazine (Sept. 2000)
42
Wayne Haar, background

• Son of h.s. educated, Union Electric worker
• Bachelors and MBA from Washington U.
• 19 years of experience of planning and analysis
  experience in retail sector Edison Bros.,
  Venture.
• Reported being not happy working for others. Less
  motivating environment for those with strong
  drive.
• In mid-1980s, Haar/others investigated business
  opportunities, incl. fast food. None made
  sense.
• Precipitating event problems of Venture led to
  downsizing in 1995. In response, he worked out of
  his home on Interlock business.

43
Interlock Resources getting started

• Never dreamed of being a big corporation.
  Objective One of strongest staff augmentation
  firms in the region with upside potential to
  either
• Replicate in other geographic areas or,
• Sell firm to others. He has previously received
  offers.
• Personal issue contributing factor to divorce ?
• Key business start-up issue cash. Working
  capital to pay consultants for first sixty days.
  Sources
• Family / friends
• Personally put up stock certificates etc. as
  collateral
• SBA-supported loan

44
Interlock Resources growing the business

• Biggest surprise The business is more reactive
  than expected. No loyalty in this business
• Clients are unpredictable
• Consultants see themselves as hired guns
  identifying with IT profession, not the firm.
• Planning focus is a few months at a time
• By late 1998, company was really cruising, Haar
  recognized we had built something that was going
  to last.

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Presentation Agenda

• Entrepreneurship and Trends
• Reviewing the Classics
• Updating the Demographics
• Interviews
• Andrew Sobey Jr.
• Sanjay Kumar
• Wayne Haar
• Conclusions

46
Interview Summary
Attribute Haar Sobey Kumar
Precipitating Event Downsizing Downsizing Silicon Valley Culture
Type of startup Attractive small Co. Attractive Small Co. High Potential Venture
New Business Success Sideline Close to Failing Failed
Significant Previous Employment Corporate Manager Corporate IT manager IT Professional
47
Interview Summary
Attribute Haar Sobey Kumar
Academic Success MBA MS in Computer Science Tech BS
Key Motivators Mission, Independence, Financial foresight Passion, determined perseverance, focus on the market, creating customers Vision, Purpose, Self-esteem
Personal Issues Lack of family, Support Spouse Support, Spirituality Strong Social Ties
48
Key Conclusions

• The stories of the entrepreneurs interviewed are
  intertwined with their personal circumstances
  mid-career downsizing or early career cultural
  factors played a major role.
• Rebackground the notion entrepreneurs are
  rejects is a clear misconception.
• Getting started showed many consistencies hard
  work, the importance of financing working capital
  and the requirement of needing to fill many
  roles.
• Issues in growing the business were very
  dependent on the new ventures objectives
  maintaining sole proprietor, being attractive
  small company or developing a high potential
  (greatest risk/reward potential)
• Universally, however, none of our interviewed
  entrepreneurs regrets their decision.