No magic: just software that works.

"Most people whom I meet seem surprised when I tell them that my husband and I have a business which is based in Lithuania," explained Victoria Girdziunas, President of No Magic, Inc., a software development and consulting company. "All people react in this manner--be it Lithuanians, some of whom believe that to better their economic condition they need to find a way to the U.S. or Western Europe, or Americans or Western Europeans, who sometimes exhibit very naive viewpoints about Eastern Europe." She continued:

We don't find it strange at all. We see that the 'globalization of

business' and the 'global economy' are not future occurrences, but

present realities. Businesses which are not adapting to this change

will lose their competitive advantage. We also find that Lithuania

has the fundamental infrastructure needed to support our business.

Certain elements may be lacking in various degrees or not available,

however, the basics--a developing infrastructure, and the most

important element, an educated workforce--are available to the

degree we need them.

Founded in 1995 by Victoria Girdziunas and her husband Paul Duncanson, No Magic provided systems software development services to Western European and U.S. clients. By 1999, No Magic had programming facilities in Lithuania and Thailand that created software products and provided outsourced software development and installation services. Taking advantage of the cost advantages of offshore locations, No Magic's revenues increased steadily through 2000. By 2003, however, the company had experienced two consecutive years of losses. Victoria believed that No Magic needed someone to develop a marketing plan and to build an internal sales organization. She estimated that it would take $700,000 to hire a chief sales officer and two additional dedicated sales people to develop and implement a sound marketing plan. She and Paul thought that No Magic had matured to the point of needing outside money and expertise, but were cautious about relinquishing control of the company to outside investors. As Victoria worked on a business plan to present to potential investors, she reflected on how she and Paul had started No Magic and pondered how they might proceed into the future.

Setting up a software development operation in the United States would have been challenging enough for most American-born MBAs with limited managerial experience. But while Victoria prided herself on being able to wade through financial statements, to negotiate deals with Europeans and Americans alike, and to "talk tech" with software engineers, instilling American cultural values about work in Eastern Europe seemed, at times, beyond her grasp.

In the early days, we were the guys picking up the toilet paper at

the little shop in Lithuania on the way to work. On the same day,

we were the guys negotiating the deals in the U.S. at 10 P.M. local

time. During the day, we dealt with training staff and establishing

the local [Lithuanian] infrastructure--office space, buying

computers, establishing the software development process, ties and

relationships with universities, local vendors, and government

officials. In other words, we were chief cooks, bottle washers and,

when necessary, got dressed up and cleaned up to play the 'American

company founders and executives.' During the weekends, we worked on

writing proposals, reviews, policies and procedures--you get the

picture.

As frantic as those times appeared, there was satisfaction in building something new. Paul oversaw most of the software development and Victoria acted as coordinator and chief financial officer. Managing banking relationships in a country with little expertise and standardization and creating cohesion among No Magic's Lithuanian workforce was trying at times, but rewarding.

The business started off slower than she and Paul had envisioned, but revenues--and profits--grew steadily (see Exhibit 1) for the first 4 years. "We expected to ride the dot-com boom of the nineties," Paul recalled. "We were an early mover, so we had high expectations, but things didn't happen as quickly or easily as we had hoped." Paul and Victoria enjoyed the independence of owning their own business and the opportunity to devote their energies to the parts of the job they enjoyed most.

With the economic boom of the late 1990s, No Magic's consulting services were in demand. Paul moved to Bangkok in 1999 to set up a satellite office where No Magic's teams began to develop several stand-alone software products. Later that year, Paul and Victoria divorced, and Victoria moved back to the United States to work more closely with No Magic's American clients and to explore potential funding opportunities.

Even before the economic downturn in 2001, consulting contracts began to taper off in response to declining revenues industrywide. In September 2001, the already lagging U.S. economy took a marked turn for the worse, and No Magic's largest clients braced themselves for what looked like a prolonged downturn. No Magic's consulting services, the mainstay of the company's business, were severely affected by industrywide cutbacks. The economic downturn prompted layoffs in 2001 in the Lithuanian office, reducing the headcount from 100 to 50. Morale was low and Victoria feared that the company was being stretched too thin.

When, by 2003, the increase in revenues from their product lines did not compensate for the declines in consulting sales, Victoria and Paul knew they would have to seriously evaluate their opportunities and decide where to put the limited energy and time at their disposal. Clearly, No Magic's financial position was tenuous, at best. Their limited resources impeded their ability to promote the company's products and services, despite the recent publicity the company had gotten in the software development press. As they discussed various product line expansion and marketing strategies during one of their frequent phone conferences in 2003, they contemplated the possibility of seeking outside investment. They knew that reliance on external funding could jeopardize the autonomy to which they had become accustomed. Would a change in ownership or an increase in debt put their company at risk? These were just some of the options that Victoria and Paul would need to assess as they reviewed No Magic's 2002 financial results, evaluated their projections for 2003, and developed their business plan.

The Business Idea

In 1994, Victoria Girdziunas and Paul Duncanson were living in the Netherlands, where Paul worked as an IT (information technology) consultant, and Victoria was the Managing Director for the European IT operation of a U.S. logistics company. Looking for new opportunities, Paul suggested that his employer explore the feasibility of setting up an IT development project in Lithuania. Lithuania, which had been part of the Soviet Union, had regained its independence in 1991. Victoria and Paul had recently visited Lithuania and saw a developing country with a solid infrastructure (airports, highways, rail transport, and a seaport) and several universities. Victoria had relatives in Lithuania and had learned the language as a child in Chicago. Victoria observed, "The universities there were much more advanced than I would have expected. The course offerings seemed to rival those of the U.S. technical colleges and universities, and the people were extremely bright, talented, and industrious."

Having successfully completed a small project for Equinox, Paul and Victoria saw the potential for launching a stand-alone technology consulting group in Lithuania. In 1995, they took the plunge and decided to start their own company. They sold their home in southern California, made a $10,000 equity investment, took out a $100,000 loan, and moved to Kaunas, Lithuania. Victoria explained:

Vilnius is the capital of Lithuania, and has more prestigious

universities. However, the prestige, in our opinion, was left over

from the communist regime. Kaunas has the more technically

progressive universities. Vilnius University's Department of

Computer Science was run as a sub-department of the School of

Mathematics. We were not looking for mathematicians who knew comp

sci. We were looking for computer science professionals who could

be trained in business. At that time, Kaunas Universities were

heading toward a more worldly rather than theoretical and

mathematical orientation in their tech departments. We spoke with

Mr. Markauskas, the assistant head of the Kaunas Technical

University's (KTU) Computing Center, and asked for assistance. We

also spoke with Mr. Seinauskas, the head of the Computing Center.

In subsequent meetings, I knocked on Mr. Markauskas's door and,

after the requisite coffee, proposed 'If you would give us two

rooms and an Internet connection, we will start a software

development company here.' I remember him telling me later that he

was thinking, 'Well, this pampered American woman ought to last a

month--maybe.' He acquiesced, thinking that all would be over in a

few weeks. No Magic has donated computers, books, and software to

KTU to make up, at least in part, for the rent-free facility. No

Magic's subsidiary sponsors a scholarship for an IT student in KTU.