Extreme Biz Makeover
Go from drab to fab with these office, tech, marketing, personal finance and money-raising makeover strategies.
Office Makeover: Change of Space
With a little help from the experts, this business owner steppedup to the challenge of overhauling his company's shoddy office-space design.
It's 9:30 a.m., and you need another cup of coffee. On yourway to the break room, you stumble over computer cables and weavearound employees who are conversing in the hallways. Fifteenminutes have passed by the time you get back to your office. Bymidafternoon, you have a headache and one heck of a backache. Formost of us, it's all in a day's work.
When it comes down to it, the modern office setup is a pain.Today's office environments aren't keeping up with thenature of work today, where employees go from working solo toworking on collaborative projects. "The idea that we candefine one space for an individual that will accommodate all thosedifferent types of work is somewhat flawed," says JohnMichael, president and COO of Ivan Allen Workspace LLC, an Atlantafurniture and design firm that works with companies large andsmall. "We need a range of settings for people."
In a 2001 study, the American Society of Interior Designersfound that 57 percent of the 382 office employees it surveyed weredissatisfied with the layout of their offices, saying it negativelyimpacts communication, access, comfort and efficiency. The layoutof an office should aid employees instead of hindering them, saysRita Carson Guest, founder of Atlanta-based interior design firmCarson Guest Inc.: "People spend so much time at work, youwant to make them as comfortable as possible."
Seeing the Light
Mark Metz is co-founder and CEO of OptimusSolutions LLC, a 6-year-old technology solutions provider inNorcross, Georgia, with nearly 200 employees. The company has grownto occupy two buildings totaling 27,000 square feet. Now for thetwist: The two buildings are located a quarter-mile apart in asuburban Atlanta office park. The five-minute walk betweenbuildings has become a drag on productivity. "Our currentspace is not laid out well for our business," says Metz, 41."It's certainly not easy to knock on somebody's officeor step into their cubicle." Other aspects of thecompany's current office setup bug him, too. There isn'tenough natural light. The guest reception area isn't verywelcoming. Managers' offices are too far away from employees,tucked away against the wall.
Recently, Metz decided to sink $1 million into a three-monthproject that will bring all the company's employees togetherunder the same roof in a nearby 40,000- square-foot building. Thegoal is to have a space where employees are more happy andproductive, Metz says.
The new building will have wraparound windows so every employeegets natural light and a beautiful view of the woods outside. Andinstead of traditional fluorescent ceiling fixtures, employees willfind ambient lighting, where light is bounced up against theceiling and back down around the workstation, reducing glare andreflections on computer screens and making it easier to work longerwithout eyestrain and headaches. With ambient lighting, "younever see directly into any light source. They're all beingbounced to you," says Frank Farrington, principal of theAtlanta-based Farrington Design Group, which was brought in as partof Optimus Solution's design-build team. "It's softand comfortable."
Managers' offices will be in the middle of the office,surrounded by employee workstations. Everyone will be just feetaway from each other-an important design element to Metz. "Ourcompany is very much a teamwork type of environment wheresalespeople, consultants and technical people need to work togetherto handle a customer's problem," he says. "We want tohelp facilitate that. Having a face-to-face conversation is muchmore valuable."
New workstations will be installed to increase teamwork andcommunication. Smaller, efficient workstations and ergonomic chairsprovided by Ivan Allen Workspace will create more efficient use ofspace and storage. Cubicle walls in the new office will be reducedto a maximum height of 54 inches, tall enough to offer a bit ofprivacy and cut down on peripheral distractions, but short enoughthat workers don't feel isolated. Lowering the cubicle heightwill also improve air circulation. Cubicles will be arranged in"neighborhoods" of six workstations. Says Farrington,"The goal is that they'll be operating much moreefficiently."
Making an Impression
Metz wants a design that's more open, flexible anduser-friendly. Small lounges where employees can stop for a chatwill run the course of the building. Understated tones--creams,taupes, light greens and golds--will provide a calming backdrop."We'll allow the [employees] to provide the color and theaction in the space," Farrington says. Other innovativeelements include carpet laid in small squares, so torn or stainedpieces can be replaced easily, and wireless networking that willcut the number of cables running along the floor.
Metz is excited about the plan for a bigger reception area withplasma-TV displays and miniworkstations so visitors can work whilethey wait. Conference rooms will be located near the reception areafor vendor and client meetings. Having the conference rooms nearthe reception area means visitors won't have to walk throughthe middle of the office, disturbing busy employees. "We'dlike to have an area that customers and vendors are more impressedwith because the office looks better," Metz says. "Andit's more efficient."
In the end, Metz hopes the new space will lead to bettercommunication and teamwork, and provide a boost to recruiting andretention. "I think it's going to be great," he says."It's going to foster more teamwork. Our employees aregoing to be happier, because it's going to be an area wherethey can get their job done [more easily]."
Update: Looking Good!
Optimus Solutions LLC, an IT solutions provider in Norcross,Georgia, moved into its new digs at the end of January."We're very happy with the outcome," says CEO MarkMetz. "We feel we accomplished our goals with theredesign."
His favorite elements are the open floor plan and the ambientlighting. "There's not a cubicle in the building where youcan't stand up and see a panoramic view through thewindows," he says. "And all the [ambient] lighting willbe easier on the eyes." The final design also allows theoffice to be reconfigured for everything from training toadditional cubicles or whatever else the company has in mind."This adds tons of flexibility for us," Metz says."There's room to grow."
But trading spaces didn't happen without a few headaches.Metz learned that having too many minds involved in thedecision-making process was a quick ticket to a quagmire. Optimuseventually designated the company's IT director to be the pointperson for the project, and things finally got moving. "Putone person in charge," Metz advises.
Another temptation for entrepreneurs is to create their ownversion of Trump Tower. Aim for functionality over flair so you getefficiency out of the space for years to come, says Metz, whobought used $200 desks that he found at a corporate liquidationsale for his company's managers, including himself. "[Somedesks] still had tags on them. They hadn't been used," hesays. "I got them for a fraction of the cost."
It's still too early to measure the impact on productivity,but the vibe around the office is, well, optimal. "Everyonehas been thrilled. Morale is way up," Metz says."Hopefully, [employees] will be happier and moreproductive."
Chris Penttila is Entrepreneur's "StaffSmarts" columnist.
Tech Makeover: Server Them Right
Like many growing businesses, The InnisCompany, a career transition and management company in Dallas,doesn't have an on-site IT person. And its technology is actingup like a 2-year-old.
CEO and founder Karyl Innis decided to do something about it. Ifsome of The Innis Company's technology woes sound all toofamiliar to you, it's probably because these problems arecommon for entrepreneurs everywhere. Before turning to our techexperts for answers, here's some background information aboutThe Innis Company: The firm was founded in 1994 and has sinceexpanded to include several lines of businesses and offices inDallas, Houston and Santa Fe, New Mexico. Sixteen full-timeemployees and about 30 workstation computers fill out thelineup.
Besides the employees, The Innis Company's career transitionclients have access to some of the business's computers."Our business has gotten more complex," explains Innis."That's what my problem is. All of a sudden the technologyends up looking like a patchwork quilt, and I don't want tohave an on-site tech person."
Step one was identifying the company's biggest troublespots. Innis settled on several main issues: Getting the servers intheir Dallas and Houston offices to synchronize their ACT! contactmanagement databases, and creating a technology management plan touse as a road map for the business.
We went straight to the source for much-needed help with theACT! synchronization issues. Innis and Paul Selby, senior ACT!product manager for Best Software, spent some time talking it over. Innisdescribes the problem at hand: "Our people in the Houstonoffice, their info is never current. They're working off of olddata." Innis is looking to stem the Houston workers'frustration and lost productivity. We won't go into all thenitty-gritty technical details of the discussion, but will insteadlook at some of the tips Selby provided.
ACT! users will be familiar with the compress and re-indexfunction. It had been several months since The Innis Company lastused it. According to Selby, "Compress and re-index is kind oflike changing the oil in your car. The more often you do it, theless likely you are to have a problem with your ACT! database.I'd recommend a more regular compress and re-index of thedatabase, once a week or so." Selby also suggested lookinginto ACT! for Web, which works over the Internet as a possiblealternative to trying to get the two different servers tosynchronize.
A final suggestion that The Innis Company found most interestingis to give VPNs a try. Essentially, this would allow them to skipthe whole syncing step and have the Houston workers connect to theDallas database through a secure Internet connection. "Youmight see some speed issues there that I will warn you about,"says Selby.
Getting a Boost
Though The Innis Company is committed to making its currenttechnology work, it has accepted that certain upgrades areinevitable. Chris Merrill of outsource IT services company Thrive NetworksInc. recommends upgrading their server software from theoutdated and unsupported Windows NT Server to the newer WindowsServer 2003. The reasons go beyond just availability of support andsoftware patches to another possible solution to the ACT!difficulties.
"The benefit of moving to 2003 is that Microsoft has builtin some remote access technologies. This is a technology that 80percent of our customers are using," Merrill says. Theseterminal services would allow the Houston office workers, as wellas remote workers, to connect to the master database in Dallas in afast and secure manner. Syncing two databases would no longer berequired. Any entrepreneur dealing with similar issues and stillrunning NT should check into this.
Along the same lines, The Innis Company has added PCs asthey've grown and ended up with different hardware andoperating systems all on the same network. The biggest culprits arethe Windows 98 machines that make it difficult to preventinappropriate downloading. Merrill suggested replacing these oldermachines with newer systems. With an upgraded server and desktops,it would be easier to implement downloading controls at the serverlevel to put a stop to Kazaa- and Napster-related incidents.
What's the Plan, Man?
For advice on creating a technology plan, we asked Rick Buddine,IT consultant and CIO of Buddine Information Technology Corp."In terms of a general technology plan, the best thing you cando is to give yourself room to grow," says Buddine. "Thatmeans planning some flexibility. You have to do some shopping and[educate] yourself. There's no shortcut for understanding thetechnologies that are out there."
For help in making technology decisions, Buddine recommendschecking into business forums, inquiring how other companieshandled similar issues, and hiring an outside consultant who is notinvolved in sales. For purchasing, he suggests skipping the latestcutting-edge technology and going with proven hardware and softwarethat's one generation back. That's a sentiment ThriveNetworks also echoes.
With the advice from our experts, The Innis Company is poised tochange from being reactive about technology to being proactive.Though they've had some unsatisfactory IT providers,they've just brought on board a new player, Matt Everhart of ITconsulting firm Everhart Group (which has since been purchased bytechnology services company Ronald Walker Associates II Inc. ofColleyville, Texas), who will be working with them to implementsome of the suggestions they received and build up documentationthat will map out exactly what sort of networks and systems theyare running. -Amanda C. Kooser
Update: Give 'Em Tech
Since speaking to our experts a few months ago, The InnisCompany, a Dallas-based career transition and management company,has been busy getting its technology on track. CEO Karyl Innis wentto work with Denise Shedrick, vice president of businessdevelopment who's also in charge of the company'stechnology.
The first thing Innis and Shedrick did was formulate severalstrategies, including a new technology mission statement. "Weare in charge of our own technology, not somebody else. We'llcreate a plan and hire outside help to implement our plan.We'll ask for their input, but we'll manage them to ourplan," says Innis. That may sound basic, but it lets Innis andShedrick take control of their technology rather than continuingwith their old break-and-fix approach.
Concrete steps that The Innis Company has made include updatingtheir server to Windows Server 2003 edition, looking into migratinga few machines at a time, and setting up separate servers andnetworks for their employees and clients. That last move is a hugeboost for manageability and security. Shedrick says their hopes ofusing Windows 2003 terminal services to share their ACT! databasedidn't work out, so they instead have the Houston officeconnecting into Dallas via a VPN. It's slow, but it's astep in the right direction. They hope to get the terminal servicesup and running eventually.
"I do feel that we were able to make a whole lot ofprogress in a short period of time," says Innis. With a newcomputer upgrade plan in place and several IT contractors they cancall on, the people behind The Innis Company are finally makingtheir technology work for them.
Marketing Makeover: New and Improved
The fallout from Silicon Valley's depressed economy hascertainly affected local businesses--and Innovative Installers Inc.in Fremont, California, is no exception. Founded by siblingsMirzett Evans, 43, and Glenda Heldris, 58, the company provides avariety of services related to office space and relocations,including installation services for modular office furniture, spaceplanning and layout consultation, office moving and setups, andfurniture repairs and replacements based on an ergonomicevaluation. Launched in 1992, the business banked more than $2million in sales for 2003.
But because of economic concerns in the area, InnovativeInstallers has decided it needs to ramp up its marketing efforts.Though there are some signs of an uptick in the financial fate ofthe region, Heldris believes the service sector will be the last torebound. It's especially frustrating because, according toHeldris, "Businesses are looking for ways to save money, andif we could show them how we could save them money, we could dowell."
Innovative Installers uses a mélange of marketing methods,including a Web site, cold calls, direct mail, a brochure andYellow Pages advertising. To date, its most successful tactics havebeen referrals, cold-calling and the Yellow Pages. Thecompany's main objectives for its marketing are to achievegreater name recognition, to leverage its satisfied customers toget more clients, and, of course, to make more money. The targetmarket for Innovative Installers' services includes midsize tolarge companies, schools, hospitals, city and state offices, andresearch facilities, as well as government contracting.
Making It Better
We assembled a top-tier board of experts to diagnose InnovativeInstallers' marketing missteps and make recommendations forsolutions. Here's a roundup of their recommendations, based onan evaluation of the business's current marketingstrategies.
- Brochure: Innovative Installers uses a rathernondescript and homemade-looking tri-fold color brochure. The frontcover shows a photo of the company's headquarters with theinexplicable headline, "We blend in . . . to stand out."This headline in no way intrigues a prospect or even indicates whatInnovative Installers has to offer.
Although Innovative Installers professes to work with severallarge companies, its marketing materials, especially the brochure,lack the aura of a polished company. According to Marlee J.Ehrenfeld, president and creative director of MJE MarketingServices LLC in San Diego, a firm that provides advertising, PRand marketing services, the brochure doesn't project "anylevel of sophistication or knowledge of what big business islooking for." Ehrenfeld believes the company should completelyrevamp its image with a new name, logo and collateral materials.She also suggests including some "glamour shots" ofsuccessful projects. The tag line "Exceeding your expectationsis our goal" is utterly generic and could be used by justabout any company.
Sam Parker, co-founder of Justsell.com--a Web community forsales and marketing professionals in Richmond, Virginia--andco-author of the e-book 50 Ways & Places to Find NewBusiness, is a bit kinder about the brochure, noting thatit "attempts to address the benefits of working withInnovative Installers," includes all service offerings, andlists multiple contact methods. But Parker concurs that the tagline should be removed, and the front cover--including theheadline, logo and photograph--should be completely overhauled.
- Web site: The company's site, isclean and easy to navigate, but panel experts noted that the"Request for Quote" link is inoperable. Parker suggeststhat a more descriptive and easier-to-spell domain name might makegood marketing sense. (It's a breeze to have several domainnames pointing to one site, so Innovative Installers would not haveto give up its current URL.)
Miki Dzugan, chief marketing guru for Rapport Online Inc.in St. Paul, Minnesota, a company that helps clients use theInternet as a business promotion and relationship-building medium,praises the site for its great graphic appeal and the no-frillscopy. Dzugan recommends that Innovative Installers use descriptivemarketing copy on its home page because it helps make the siteeasier to locate on the Web when matching terms are typed intosearch engines.
Bob Phibbs, aka "The Retail Doctor" and author ofYou Can Compete: Double Sales Without Discounting (BrixtonManor Publishing), notes that the site is too generic overall andcould benefit from photographs showing people rather than justoffice environments. Phibbs disagrees with Dzugan about thesite's copy--he thinks it's too formal and suggests"plain speak, please."
- Sales letters: Innovative Installers uses sales lettersfor "cold" mailers to prospects. Heldris scans thebusiness pages and sends a congratulatory letter to those noted forprofessional achievements. The good points of the letters are thatthey're short, to the point and mention well-known customers.The letters could stand some editing, though, and some rethinkingabout calling a cold prospect by his or her first name. Phibbssuggests describing a similar project that Innovative Installershas recently completed--to show prospects that InnovativeInstallers has experience with a particular type of job.
- Public relations: Innovative Installers works with a PRfirm and has had success with placing articles with publicationssuch as the Silicon Valley/San Jose Business Journal. Alyson Dutch,CEO of Brown &Dutch Public Relations Inc., a Malibu, California, companyspecializing in high-profile brands and bringing entrepreneurialideas to the mainstream, suggests that the company develop apositioning statement, which can be used throughout all itsmarketing efforts, including advertising, signage and PR.
Dutch also advises Innovative Installers to make a list of alltrade publications, business journals, consumer newspapers,magazines, and radio and TV outlets that reach prospects. Examplesof media to target include the Los Angeles Business Journal, theSan Jose Mercury News and National Public Radio'sMarketplace.
It's important for any PR initiative to have a trendyhook-for example, a pitch on how a badly designed office space canpsychologically affect employees, or what kind of impact it canhave on a company's bottom line. The return on investment of awell-executed PR campaign is compelling: Dutch's firm hasrecorded results of 150 to 1,500 percent ROI, which is almostimpossible with paid advertising.
After meeting with our experts, Heldris and Evans couldn'twait to start implementing changes. Check out "So Far, LooksGood" for the lowdown on how Innovative Installers likes itsnew look and how the makeover aided sales.
Update: So Far, So Good
When we first approached Innovative Installers about allowingour panel of experts to critique its marketing plan and offerrecommendations for improvement, the company fearlessly allowed usto dig around in its marketing nether regions. After evaluating thecompany's sales letters, brochure, Web site and corporateidentity, some of our advisors were in the friendly "keep upthe good work" camp, while others took a blunt "thisstinks, you've gotta change it now" stance.
Sister and brother Glenda Heldris and Mirzett Evans wasted notime putting the panel's advice into action. Since getting itsmarketing rehabilitation prescription, Innovative Installers hashired a sales and marketing manager, redesigned its logo, updatedthe copy and look of its brochure, and revised its Web site. Thecompany is also building a database of contacts for telesales anddirect-mail efforts, and continues to work with a PRconsultant.
Prior to the makeover, Heldris explains that the company knew itneeded to make changes but was in "the mode of doing businessand hadn't concentrated on what everything looked like."With the economic malaise in California, Innovative Installersadmitted it needed to pay greater attention to the look and feel ofits marketing. Heldris and her team are using the experts'advice to focus on the specifics of brand building and plan to"aggressively tackle the campaign in 2004."
Kimberly L. Mccall is Entrepreneur's "SalesForce" columnist.
Finance Makeover: Seeing Green
To say 2003 was a busy year for Sara Walder and Drew Golin isputting things mildly. The owners of InterSolutionsInc.--a temporary-staffing company in Washington, DC--wed inFebruary, refinanced their Capitol Hill home two months later tobuy office space for their company, depleted virtually all theirsavings to buy yet another house in November (converting theoriginal home into a rental property), and expect their first childto arrive about the time this magazine hits newsstands. To top itoff, they've just launched a new joint venture and pushed theirexisting business in several new directions.
"I guess you could say we have a lot of things going on atonce," says Walder, who launched the business in 1997 whilestudying for a graduate degree in ecological anthropology at TheCatholic University of America in Washington, DC. Golin, who joinedInterSolutions after the marriage, said the company is growingnicely, but that the couple now needs a "personal businessplan" to address family finances.
After interviewing the couple, money manager Dolores Kong agreeswith Golin's assessment. "Sara and Drew have a lot goingfor them in their personal financial situation," says Kong, acertified financial planner at Financial Perspectives PlanningServices Inc. in Boston and host of a daily radio show on thecity's WBIX-AM. "But things can be improved."
The business Walder founded started slowly but has grown quicklyin recent years as she moved into increasingly new and differentareas of property management. Likewise, Walder's home inCapitol Hill had also doubled in value over the previous threeyears, so the newlyweds decided to refinance the place and use theequity as a down payment on a building for the company in thenearby Eastern Market neighborhood. Then, in November, the coupleopted to use most of their remaining personal savings to make thedown payment on another home in the same area, renting outWalder's original home. The bottom line: In less than a year,one mortgage had become three.
Walder and Golin say they want to make sure they're set upjust as well in terms of their personal finances as they are intheir business finances. Kong has some specific ideas about how toaccomplish that. "They need to build up their cash reserves,or 'bulk up,' as Drew described it," Kong says."And they need to do some tax and estate planning, beef uptheir insurance coverage, better diversify and streamline theirinvestment portfolio, and start thinking about saving for the newbaby's education."
One of the biggest weaknesses Kong identifies in Walder andGolin's personal finances is that their business and all threeof their real estate properties are in a tight geographic area. Ifthe city's economy takes a turn for the worse, their businessrevenues could drop at the same time they have trouble renting outWalder's previous home. With little savings to fall back on,Kong says, Walder and Golin could find themselves in trouble. Shetold Walder and Golin they should aggressively rebuild the savingsthey depleted to buy the real estate. The normal rule of thumb isthat people should have three to six months worth of livingexpenses set aside for safe keeping, but Kong says Walder and Golinwould be better off with six to 12 months' worth. That shouldbe one of their first budget priorities.
"We also feel we need an emergency plan," Golin adds."It's just something we have to get done." Withparenting in the picture for the first time--and the obligationsthat come with it--Walder and Golin also need to seriously rethinktheir estate planning and life insurance decisions. With adependent to think about, both agreed that boosting life insurancewas a priority. Even before talking with Kong, they had looked intoadding to Golin's $250,000 term policy and buying lifeinsurance for Walder for the first time. Kong suggests that eachget at least $1 million worth of insurance, possibly more.
Since neither has a will at this point, let alone otherestate-planning documents, that's another relatively painlessarea the couple can fix. For a few hundred dollars, they can eachhave a will drawn up, along with a health-care proxy and a durablepower of attorney. The most important issue, all agreed, was thatthey address who the baby's guardian would be if Walder andGolin were somehow incapacitated or killed.
Kong also suggested that the couple split their educationalsavings dollars. To pay for private elementary and secondaryschools, she said they should start putting $2,000 per year--thefederal limit--into a Coverdell Education Savings Account. Althoughthe contribution does not qualify for a deduction, it can growtax-deferred and later be withdrawn tax-free to cover the cost ofprep schools or college.
But Walder and Golin know they will need to save more than$2,000 annually to pay for their child's future college bills.With that in mind, Kong says they should look at Washington,DC's 529 College Savings Plan, which offers much highercontribution limits, tax-free growth and withdrawals, and anage-based investment portfolio that becomes more conservative asJunior gets closer to high school graduation.
As for their own investment portfolios, Kong says the coupleneeds to organize its holdings first and foremost. Walder has thebulk of her SIMPLE IRA in relatively expensive Class C shares ofthe Strategic Partners Moderated Growth mutual fund, andGolin's is entirely in an ultraconservative money market fund.Walder's nonretirement account, a gift from her mother, islargely concentrated in technology stocks.
Kong suggests that Walder figure out the tax basis of her fundshares inside the SIMPLE IRA and sell some, especially if she canlock in a taxable loss to offset other gains. She should build theretirement account around more than one holding, anyway, Kong says.And since an IRA is a long-term investment, Golin's accountshould be in something with more upside potential than the paltryreturns offered by a money market fund.
Walder says the couple appreciates the help in clearing up theirmuddled investments. "We both have IRAs; we both havestocks," she says. "But what do we do about collegefunds? What about the 529 account? Where do we put it all?"InterSolutions topped $1 million in sales for the first time in2003 and, Golin says, will come close to $2 million this year.That's up from the $13,000 Walder says she made from thecompany during her first year out of graduate school. Including theowners, the company now has seven full-time employees and twopart-timers. For the sake of their budding company and theirbudding family, Golin says, it's time he and Walder followedKong's advice.
"It really is about quality of life," he says."The money has to be there to do the things we want to do.That's what this is about."
Update: Banking on It?
Sara Walder and Drew Golin, owners of temporary-staffing companyInterSolutions Inc. in Washington, DC, realize that the road to ahellish financial situation is paved with the best of intentions.Still, two months after talking with Entrepreneur about getting afinancial makeover, the couple had yet to put Kong's adviceinto practice.
"It's the problem a lot of people have," saysGolin. "With all that's been going on, it's beenreally difficult to deal with it." After putting 20 percentdown on their new house last December and hiring several newemployees for the business, "we're pretty muchextended," as Walder puts it.
Once their baby is born this spring and things settle down, thecouple expects to be back in position to start rebuilding theirsavings and putting together an education fund. The best ofintentions, in other words, are still there.
Scott Bernard Nelson is Entrepreneur's"Personal Finance" columnist.
Money-Raising Makeover: Growing Up Is Hard to Do
After nine years in the Marines and the National Guard, BradCunningham left military service in 1996 to start something new.The discipline and planning skills he learned in the military havepaid off: His company, 8-year-old eBridge Technologies Inc., haswon numerous awards for its innovative software design and ITservices. But Cunningham, 38, is now engaged in a surprising fightfor the financial capital that eBridge needs to grow.
Based in Greenville, South Carolina, eBridge seems poised forgreatness. With A-list customers like Fujifilm and Liz Claiborne,the company's annual revenues are approximately $700,000 andhave been growing steadily at 20 to 25 percent per year.
While the company has great technology and a solid financialbase--80 percent of its revenue is recurring--it flounders when itcomes to signing new clients. Its nine employees are overwhelminglyinvolved in customer support and application development. SaysCunningham, "You get bogged down in customer service andimproving the current product, and don't have time toconcentrate on sales."
The long-term answer, Cunningham believes, is to raise somesignificant growth capital and hire a small army of sales andmarketing people. "I'd like to hire a business developmentmanager for channel sales, a senior sales and marketing person, anda couple of sales and [administrative] people, plus collateral,trade shows and advertising [to support them]."
But such bold battle plans come with a big price tag. Cunninghamestimates that the total cost for his aggressive growth plan willbe about $1.5 million. Advisors and investment bankers told himthat he should be ready to part with 30 to 35 percent of the equityin eBridge to get the money. That pegs the current companyvaluation at about $3.5 million. Armed with that advice and all theconfidence he can muster, Cunningham is on the hunt for aninvestor.
With limited resources, the first thought was to search forcapital close to home. "We went to our local [entrepreneurialdevelopment council], which includes corporate, academic andentrepreneur members," he says. That network led to agood-size list of prospects: high net-worth individuals, and VC andprivate-equity funds. Cunningham whittled the list down to the mostlikely investors--those who had been active recently and who couldappreciate his own entrepreneurial spirit. "We focused more onangels, thinking that VCs would require a lot more [planning andnegotiation]."
But the list of active investors in Greenville was not long.Cunningham's local leads quickly petered out, and eBridge wasleft looking to regional cities, including Atlanta and Charlotte,North Carolina.
Traveling on a shoestring, Cunningham began pitching hisbusiness plan to angel forums as far afield as Nashville,Tennessee. "They all told us that if we were located there,they'd fund us; but they didn't want to reach past theirlocal sphere," complains Cunningham. And relocating thecompany didn't seem like the right answer.
Near and far, the story is the same: Investors aren'tenlisting. "We've made close to 100 pitches,"Cunningham laments. "We've been blown away by how positivepeople are about our business model, our customers and ourproducts. But nobody's opened a checkbook."
Many investors, he says, would like the company to post higherrevenues before investing. But that's a Catch-22 for eBridge.Without the investment, sales efforts are limited. Without thesales, funding opportunities seem scant.
For now, there is no Plan B. "If the money's not there,we'll just keep doing what we do," Cunningham concedes."But we're watching some of our market opportunity goby."
What's the solution? We talked to the following experts tofind the best way for Cunningham to attract investors so he can geteBridge on track to faster growth.
Mac Lackey founded, built and sold two technology businesses andis currently a founder and managing partner of BlackHawk Equity, aprivate investment and consulting company in Charlotte, NorthCarolina. Here's his advice:
"One immediate challenge Brad faces is his valuation. Atrue market value for his company is probably closer to$700,000--about the same as his last 12 months' revenue--and itcould be even less. Lowering the valuation will lower one barrierthat is keeping investors away. Brad should also be prepared to putmore of his own money into the deal. Many investors like to see 25to 35 percent of a founder's personal net worth invested in the[company].
"Finally, to attract angel investment quickly, eBridgecould look for a smaller amount of money--say $250,000--using a'guaranteed note.' Guarantee the repayment of theinvestor's money by tying it to business and/or personalassets. Use the money to prove you can get some new sales, and thengo for more money with the momentum you have created.
"I think eBridge can lower its capital requirement andstart doing some things that will generate momentum before goingafter bigger dollars. If Brad really believes in the business'spotential, he should take on some additional risk personally andprove it. Once he's seeing some good results, efforts to raiselarger amounts of capital will be much easier."
Rich and Jeff Sloan are the founders of Birmingham,Michigan-based StartupNation.com and Sloan Ventures, a venturedevelopment firm that has raised more than $60 million for itsportfolio of companies. Here's what they suggest:
"Some key attributes are lacking and may be contributing toBrad's fund-raising challenges, including: 1)a clear vision todominate his niche, 2)a track record of exciting revenue growthwith existing customers, 3)rapid growth in the overall customerbase, and 4) a sustainable competitive advantage. More than any ofthese, though, eBridge's fund-raising woes result from theamount of funds they're seeking. At $1.5 million, Brad may becaught in fund-raising 'no man's land.' It's lessthan interesting to VCs and may be too high for angel investors inthis risk-averse market.
"We recommend two possible options for this round offinancing:
- The Blended Round: Lower the equity portion of the raiseto $750,000, a better amount for angels. Then, if your currentreceivables or other assets are insufficient as collateral, get aline of credit from a bank for the remaining $750,000 by askingyour angels to act as guarantors.
- The Aggressive Round: Raise $6 million to $12 million ona much more ambitious and exciting 'niche domination'business plan to entice VCs to participate. Identify a lead VC tohelp you organize the meetings with co-investors to fill out theround."
Mark Dunkel is managing partner of the Southeast TechnologyFund, a $120 million VC fund in Atlanta that invests in softwareand IT companies. Here are his comments:
"There are many emerging technology companies, likeeBridge, looking for capital, but few investors still have thestomach to invest in technology after being hammered by the techbubble. The best advice for Brad may be simply to be patient.Eventually, things will turn around, and he'll find the rightinvestor at the right time.
"There are two areas that eBridge should continue to workon. One is the management team. The adage that 'money followsmanagement' is truer today than ever. While Brad has a solidpersonal background, there is always room to add executive teammembers with recent experience building large software companies.Investors love to see people who have done it before.
"Finally, eBridge could beef up their investor presentationin two ways: 1)Show more clearly how revenues for each currentclient have grown over the years, and 2)illustrate the strengthsand capabilities of the software more succinctly. I felt thoseareas were worth highlighting in the company's pitchdocuments."
Update: Cashing In
Since speaking with our experts about raising money, softwaredesign and IT services firm eBridge Technologies Inc. has madesignificant progress. The Greenville, South Carolina, companyposted a profit in 2003 and is already projecting 25 to 30 percentrevenue growth for 2004. And while eBridge president BradCunningham is still looking for more money, he seems to be gettingmore interest from other sources, including venture banks andVCs.
"We have really had a better response from institutionalinvestors than angels," says Cunningham. That was a welcomesurprise, since most of his fund-raising efforts last year focusedon individual investors.
Now it looks like the "aggressive round" strategy thatRich and Jeff Sloan--founders of StartupNation.com and venturedevelopment firm Sloan Ventures--suggested may be a real winner.Not only is Cunningham in discussions with a VC and a major venturebank, but other software companies have also expressed an interestin licensing or buying his product.
Meanwhile, Cunningham has recruited a seasoned CFO/financialconsultant and has also signed up an outsourced sales team. Andhere's the icing on the cake: One of his products is nowavailable direct through IBM's Web site and in IBM's globalsolutions catalog-an honor reserved for very few IBM-approvedsoftware packages.
David Worrell isauthor of the e-book Finding Funding.