Starting Your Own IT Company

Starting Your Own IT Company Nathan Burk Brian Middendorf Sarah Middendorf Vince Tuley IS 6800 December 4, 2003

Entrepreneur Characteristics Overview Class Survey Case Study: SSE Case Study: Internet Solutions Case Study: eBay Conclusion Agenda

What is entrepreneurship? A context-dependent social process through which individuals and teams create wealth by bringing together unique packages of resources to exploit marketplace opportunities. This definition suggests that gaining access to a variety of resources and knowing how to leverage them creatively are two core entrepreneurial functions. Reference 42

IT Entrepreneur Statistics • 30% of business start-ups survive more than 5 years. • Every year, approximately 1million people take action to start a new business. • Only half of these people start a company and only half of those companies survive. • 98% remain small with low revenues and few employees. • 90% of failed businesses did not have a written business plan. References 7, 8 & 44

Causes for Business Failure • Lack of Skills • Sales Problems • Financial Control • Lack of Funds • Marketing Issues Reference 7

Entrepreneurs vs. Dreamers “More than half of Americans polled dreamed of owning their own company some day, while 10% already have a business, and a third have no interest in stepping out on their own.” Reference 37

Why do IT entrepreneurs start their own businesses? • Family history “ . . . the entrepreneurial instinct was in my genes . . . “ - Dan Bricklin, inventor of the first electronic spreadsheet and entrepreneur who started four companies • A way of achieving goals: “I also became an entrepreneur because I felt like I couldn’t achieve my goals through any other means.” – Dan Bricklin • To have a better environment for creativity: “Studies often show that significant innovative technology comes primarily from entrepreneurs and small businesses rather than larger business.” References 39 & 41

Why do IT entrepreneurs start their own businesses? • Desire to contribute to society: “We are not passive observers but active participants in making the world a better place. That sense of individual responsibility – the need to ask, How will I participate?” – Dan Bricklin • To combine learned skills and passions: “There had to be a profession that would merge his [Ron Antinoja] passion for learning systems and baseball statistics . . . Today Antinoja’s young company, Tendu, is aiming to develop software for . . . Major-League Baseball.” Reference 39 & 40

Do you have what it takes to be an entrepreneur? • Are you comfortable stretching the rules? • Are you prepared to make powerful enemies? • Do you have the patience to start small? • Are you willing to shift strategies quickly? • Are you a closer? Reference 37

Have you thought about being an entrepreneur?Let’s take a survey . . .

Leadership • Which best describes you? • A) You are someone that others look to for ideas when starting a new project. • B) You are someone that can be counted on to finish a project for your boss.

Management • If there is a disagreement between two people at work, would you rather . . . • A) Help them come to a compromise. • B) Be content to let them work it out on their own.

Passion • If you are in disagreement with someone, are you more likely to . . . • A) Communicate your feelings to convince them to agree with you. • B) Quickly compromise to keep the relationship positive.

Risk-Taking • If you had an extra $1000 to invest in the stock market, would you . . . • A) Invest in a speculative start-up stock? • B) Invest in a blue-chip stock or bond?

Creative • What really gets your adrenaline pumping? • A) Conceiving an idea for a project. • B) Planning and completing a project. Reference 4

Characteristics of Successful IT Entrepreneurs • Leadership Skills? • Management Traits? • Passion? • Risk Taker? • Creative/Innovative? • Planning? • Marketing? • Need for achievement? • Timing? • Luck?

Case Studies

Susan S. Elliott- SSE Inc. Reference 47

Elliott’s Background • Born in St. Louis, MO in 1937 • Married with two daughters, Katherine and Elizabeth • Education: Smith College, BA in American Studies Reference 47

Elliott’s Background • 1958 - Graduates from Smith College and is hired by IBM as a systems analyst • 1966 - Becomes pregnant and is required by IBM to start maternity leave after 6 months • 1966 - Incorporates SSE, starts programming for First National Bank and has her first daughter Katherine • 1969-1973 - Relocates several times, continues consulting, and has her 2nd daughter Elizabeth • 1983 - Attends her 25th reunion at Smith College where she wins an IBM PC at auction Reference 47

Elliott’s Character Traits • Driven • Passionate • Tenacious • Stubborn • Motivated • Committed • Hard-Working • Possessing High Integrity Reference 47

SSE Services • SSE is an Information Technology Solutions Provider with nearly 20 years of experience delivering application development, network design, eLearning, computer training, and technical staffing services. By bringing together the best of business, people and technology, we develop solutions that empower and enable new levels of performance across the enterprise. Our goal is to measurably and substantially improve your business. Reference 48

SSE’s Mission and Vision • Mission - We create value for our clients by applying Information Technology to solve their business challenges. • Vision - By building on our values and blending our services to deliver complete IT solutions, SSE will see significant revenue growth with sustainable profits. Reference 48

SSE Profile • Privately held • 40 Employees • $10 Million annual revenues • 5-Time Winner of the St. Louis Regional FAST 50 Technology Award • Ranked 2nd largest software training company in the 2001 Book of Lists Reference 48

How was SSE funded? Susan’s husband was a successful attorney. He was able to support them financially, which allowed her to put all of her earnings back into the company. She did not initially take a salary. Reference 47

How did SSE acquire customers? • Elliott attached herself to well known companies to help pull SSE through • IBM Example • Educational Opportunities • Ladue School board contacted her about teaching computer classes -- She traded training for advertising space in the school directory. • Direct Sales Reference 47

Success Factors • SSE developed and maintained 3 core competencies at a time when many other companies were focusing on just 1 area. This ensured their survival during tough times. • 3 Core Competencies: • Infrastructure • Application Development • Learning • Elliott hires only the most talented and skilled employees. In the last few years, she has not been familiar with the latest technology, but she makes sure her employees are. Reference 47

Challenges • Rapid change in the industry • Deciding what type of software to use - mainstream or client-specific • Challenges common to women weren’t as much as difficult for her. She leveraged the opportunity and used it to her advantage. • Recessions and slowdown of spending on technology Reference 47

Clients Lutheran Church Missouri SynodMallinckrodtMaritzMasterCard International, Inc.MetaPhaseMissouri Botanical GardenMonsantoMortgageBid.comPharmacia PremcorQwest CommunicationsRalcorpRalston Purina CompanySmurfit StoneSolutiaSouthwestern BellSSM Health CareStLouisBestJobs.comUnity Health PlansU.S. Army Anheuser-BuschArch Coal Inc.Arthur J. Gallagher & CompanyAstarisBJC Health SystemBKDBlish-MizeBoeingBridge Information SystemsCharter CommunicationsCitiMortgageDot Foods, Inc. Drury InnEmerson Electric Co.Enterprise Rent-a-CarFisher RosemountGeneral AmericanHaystack ToysHOKIndoffInner Circle Logistics Reference 48

Susan S. Elliott "Excellence - technically, professionally, and personally - means continuously bringing value to our client relationships; we must conduct ourselves with impeccable integrity in all aspects of our work life. To that end, we commit our full support to our employees and their future with SSE.” “Impeccable integrity is absolutely essential.” “[When the customers are demanding the very latest technology], you have to be able to deliver what your sales reps are selling. And if you can’t, you’re not going to survive.” Reference 47

Brad Suddath - The Internet Solution Reference 49

Suddath’s Background • Born in Springfield, Mo 1978. • Lived in Mt. Vernon, MO. • Lived on farm. Disliked farm chores. • Attended a high school with only 400 students. There were limited activities • Spent time playing sports and reading • Graduated high school in 1996. Ready to leave the small town. • Started University of Missouri - Columbia. • Possessed an Entrepreneurial Spirit through college. Reference 49

Suddath’s Background • Started a car dealership with roommate in college. • Obtained necessary certification to attend auctions. • Involved with on campus activities • Delta Sigma Pi • Graduated Summa Cum Laude, December 2000, Finance & Real Estate. • Excelled in academics and on-campus activities • Invited to do an assistantship through the MBA program. • During the MBA program, started independently studying IT. • Thought IT was fascinating. • Enhanced Technical skills and built sites for fun! • Started bidding on small projects as a side job. Reference 49

Suddath’s Background • Devoted long hours to the design process. • In time, the process became tedious. • Envisioned coordinating projects. • In 2000, the Bubble was bursting. • Believed in his own potential. • Started networking with programmers overseas. • Began outsourcing web site design to Canada, Russia, and India. • Low cost of labor enabled high returns. • $2,000 project, outsourced and completed for $300. Reference 49

The Internet Solution Services • Incorporated early 2001 • Privately Held • Web Site Design • E-Commerce hosting • Content Site Management • Store Front and Shopping Cart References 49 & 50

The Internet Solution • Recently profit margins have decreased significantly. • Restructured to offer a package deal at a low monthly rate. • “Auctions” projects to overseas technical doers. • Posts jobs to a virtual auction room • Programmers competitively bid • Project awarded to best sample and price Reference 49

The Internet Solution Profile • 2 Employees with the company. • Suddath and a database manager • Hiring 2-3 individuals that will add value • Revenues: Low 6 Figures • Profitability: “Profitable enough to justify not working for someone else” Reference 49

How was the Internet Solution funded? The Internet Solution was self-funded. Suddath paid $5,000 for software design. Reference 49

Challenges • Financial Uncertainty • Social Interactions • “In the corporate world, your part is defined and you have a sense of certainty. In the corporate world, when you are assigned a project, the project could generate significant value to the company, however, your reward has already been defined. In the entrepreneur world, you are the puzzle, and you are fitting the pieces together.” • Referenced Atlas Shrugged, Ayn Rand • Dagny Taggart – has a mind of her own and stakes her future on her own judgment. • Suddath believes he can create something prosperous and successful. Reference 49

Suddath’s Character Traits • Hardworking • Decisive • Innovative • Ambitious • Open-minded Reference 49

How did The Internet Solution acquire customers? • word of mouth • referrals • mass advertising • pay-for- performance search • $1.1 Billion in 2002, expected to be $4.3 Billion in 2008. 6 Reference 49

Clients • Great Falls Swim and Tennis Club • Wild Rush Seafood • M & S Enterprises • Loose International Inc. • American Coach Company Reference 49

Pierre Omidyar

Omidyar’s Background • Born in Paris, France to an Iranian couple who moved the family to the US when Pierre was 6. • First programming experience was developing a card catalog system for the school library while in high school • B.S. in Computer Science from Tufts University in 1988 • Started career working as a developer for Claris, a subsidiary of Apple Computer, shortly after graduating References 15, 24 & 33

Omidyar’s Background • Co-founded Ink Development in 1991, which was later named eShop and purchased by Microsoft. • Joined General Magic in 1991 as a software engineer • Created eBay in September 1995 -Pez Story References 22 & 33

Omidyar’s Background • Created eBay in September 1995 • Incorporated eBay in May 1996 • Left General Magic in mid-1996 to work on eBay full-time • Ranked #2 on Fortune magazine’s 40 richest under 40 in the Sept. 2001, 2002, and 2003 issues. References 18, 19, 20, 21, 22 & 33

Omidyar’s Personality Answers to these questions as of 10/9/01 per WSJ: • Current Reading: Dalai Lama, An Open Heart; Robert Heinlein, Stranger in a Strange Land, uncut version. • Favorite Tech Gadget: TiVo • Trip He Would Like to Take: Gotta go to Space Camp……been wanting to go there since I was 15. • Favorite Item bought on eBay: Pez “bride” dispenser for my wife as a wedding present. • Favorite Item sold on eBay: Broken laser pointer, sold as-is “broken” for $14. • Hobbies/Sports: Racquetball, reading, backgammon Reference 25

eBay Profile • Headquartered in San Jose, California • Publicly held company- traded on the Nasdaq under ticker EBAY- currently trades at $55.89 and had a 2:1 stock split on Aug. 29, 2003 • Online person to person trading community. • Buyers can browse and bid on auctions free of charge. • Sellers are charged in a few different ways: • Insertion fee - between $0.30 - $3.30 • Additional listing fee - optional • Final value fee - 1.25% - 5% of final sales price • eBay notifies buyer and seller at end of a successful auction and buyer and seller finish transaction independently of eBay. Reference 22

How was eBay funded? • Omidyar sold Ink Development to Microsoft as eShop and became a millionaire • eBay was immediately profitable which helped fund itself and require only one round of venture capital

Success Factors • Immediately profitable • Self-sustaining system • Using suggestions of customers • Feedback Forum • Partnerships formed with large companies such as AOL, Sun, Disney, and General Motors Reference 27, 28, & 33

Starting Your Own IT Company