Starting Small

IP Intelligence Tech & Home Entertainment Installation

Digital Envoy Inc.

Startup costs: $100
Believe it or not, IP intelligence technology provider Digital Envoy Inc. was spawned from two serious sweet-tooths. Sanjay Parekh, 31, started buying candy from Costco and reselling it to his telecom co-workers when he struck up a friendship with Rob Friedman, 38, general counsel at the company and an Atomic Fireball enthusiast. Soon, their friendship moved beyond candy cravings, and they were bouncing around business ideas.

Parekh made an interesting discovery when visiting the FedEx and Ikea websites in 1999: both prompted him to enter what country he was in. "I thought that was kind of stupid," he recalls, and the extra step slowed down his home dial-up session. "So I architected a solution to that problem using IP addresses." Friedman agreed that the technology--which provides general information about an online user, such as the city, local demographics and type of internet connection being used, based only on the IP address--would help businesses. They launched Digital Envoy Inc. in 1999, bringing along senior finance manager and co-worker Dennis Maicon, 40.

Filing fees for corporate documents cost $100, and Friedman drew up all the legal drafts. An article on the Red Herring website about their business led to their very first client, (now owned by AOL). Since they worked from their homes, Friedman quips, "I negotiated that deal in my bedroom." They also hired an intern and Friedman's cousin to do programming work in the beginning.

After moving into an office in 2000, they hired three more employees. Friedman found $10 chairs, and opted for modular desk setups rather than expensive cubicles. In their newest office, they have cubicles, bought inexpensively from the office's previous tenant. When it comes to traveling to trade shows and to see customers, they've also found ways to save their Norcross, Georgia, company money, using slightly out-of-the-way but much cheaper flight options.

Digital Envoy now works with many major ad networks and sites, and projects 2004 sales at less than $10 million. The company's latest product, IP Inspector Fraud Analyst, allows companies to fight identity fraud by verifying user identity in real time. They are also combating fraud with a product that analyzes whether an e-mail is really a phishing attack. Digital Envoy continues to grow, but in many ways remains the same. Says Parekh, "One of the philosophies we've always had is to do more with less people."

Home Connections

Startup costs: $350
Brooks Swift, a self-proclaimed car audiophile in his younger days, parlayed his electronics savvy into a business of his own in 2001 with Home Connections, a Topeka, Kansas, company that services, sells and installs home entertainment equipment.

Recognizing that no professional home audiovideo installers existed in his town, Swift launched his company with just $350--which paid for his home theater installation certification through the Custom Electronic Design & Installation Association, a global trade association. He already possessed the tools needed to hook up the VCR, DVD player, TV and speakers on his first job. Swift worked from home to handle business matters and phone calls, so he had no overhead costs. And since he didn't have to invest in inventory, he was able to use his clients' deposits to buy the products they needed.

As luck would have it, one of Swift's neighbors worked for The Topeka Capital-Journal and pulled some strings to get a front-page article about Home Connections published. The exposure led to new business, which Swift needed to fund his move into the new-construction market. "People were building housing and wanted to have home theaters and the whole-house audio system, with speakers installed all around the house," explains Swift. He bought tools and a vehicle, hired an employee and began approaching builders, winning over many who were dissatisfied with their past installers. Home Connections soon positioned itself as a specialist in the burgeoning field.

There was one competitor, Aaron Koker, with whom Swift had established a friendly business relationship. "It just made sense to combine our forces," says Swift. The businesses merged on New Year's Day in 2003, and the pair put some of their profits, combined with a $70,000 bank loan, toward opening a retail store, Home Audio Connections. Although they still specialize in outfitting new homes, the retail location sells an array of home theater options and gadgetry and provides turnkey installations for any home.

But Swift, 25, is not one to rest on his laurels. In 2004, he started alarm company Security Connection, and continues his lean operational approach by having his wife, Kelli, run the business from their home. Also focusing on new construction, Security Connection pre-wires new homes so security systems can be readily installed at the request of homeowners. With 2004 sales for all three businesses projected at $1 million and plans to expand to another city nearby, Swift continues to keep costs minimal: "You have to stay lean; it's a very competitive industry."

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This article was originally published in the February 2005 print edition of Entrepreneur's StartUps with the headline: Starting Small.

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