Power Play What are you waiting for? There's never been a better time to start a high-tech business.

When 25-year-old Brad Wardell began developing software for an OS/2 computer game in 1993, nobody had ever sold any games for this operating system. At the time, software developers just didn't see any real market for them. But Wardell had an idea: a new space-based strategy game called Galactic Civilizations. He'd been hanging out in Internet newsgroups discussing his concept with fellow OS/2 users, and many couldn't wait to try their hands at it. So War-dell, convinced that OS/2 was becoming a mainstream operating system, began developing the game in hopes the market would expand.

Turns out, he was right: Today, 8 percent of the world's PCs run on IBM's OS/2 platform. What's more, Wardell's Canton, Michigan-based company, Stardock Systems Inc., expects sales of $3.5 million this year and has a strong foothold in the OS/2 software market.

Was Wardell's venture a lucky guess? Perhaps. Yet, in many ways, it's not really surprising so many small technology-based companies like Wardell's are finding seemingly sudden success. On the contrary, myriad marketplace indicators point to the fact that all systems are go for today's start-up technology companies. An alignment of the entrepreneurial planets, if you will, is making the climate riper than ever for starting or growing a high-tech business.

"There has never been a better time to start a technology-based business," says Mark Rice, assistant dean of Rensselaer Polytechnic Institute's (RPI) Lally School of Management and Technology and director of RPI's entrepreneurship center in Troy, New York. "All the necessary ingredients are becoming more abundant, and the opportunities to pursue [such a business] are becoming more plentiful."

Opportunitys Knocking

In this era of global economies, rapidly emerging industries anddramatic social change, the world is evolving at breakneck speed.As a result of this fast pace, gaping holes and discontinuitiesthat are not being met by current products and services areemerging in the marketplace, says Rice. These gaps provideentrepreneurs with unparalleled opportunities to improve existingproducts or create entirely new ones.

Meanwhile, Rice says, changes in technology are occurringequally fast, with innovations making headlines seemingly everyday. When you combine these two facts, "there's a greaterset of opportunities to match up emerging market needs with newtechnologies," says Rice.

Consider the case of Craig Skevington and Mary Bayly. In hisprevious business, Skevington, 43, had developed an informationmanagement program for manufacturers to track production processesin real-time. With momentous changes shaping the health-care arena,though, Skevington and Bayly, who worked for Skevington as amarketing director, saw a healthy opportunity to tailor theapplication to this growing industry--and to build an entirely newcompany, which they did in January 1996.

"With so many changes going on in managed care, a lot oforganizations are combining, and the information systems needed tolink them together [didn't] exist," says Bayly, 39,co-owner of Flow Management Technologies Inc. in Clifton Park, NewYork. "We had the core technology; we just needed to adapt itfor the health-care field."

Admittedly, not every entrepreneur has access to cutting-edgetechnology like this. Yet a shift in attitudes among today'sscientists and top innovators is quickly changing all that, saysRice. With lucrative contracts drying up in recent years,government, corporate and university laboratories have changedtheir focus from primarily long-term research to the"transfer" of technology for commercial needs.Consequently, a host of laboratories at the forefront of high-techresearch--including the Massachusetts Institute of TechnologyLincoln Laboratory in Lexington, Massachusetts; Sandia NationalLaboratories in Albuquerque, New Mexico; and the Wisconsin AlumniResearch Foundation in Madison--have active technology transferprograms, pairing entrepreneurs with the necessary technologies tobuild their businesses.

Government agencies such as the Small Business Administration(SBA) are also tackling this issue. The Small Business Tech-nologyTransfer (STTR) program, initially a three-year pilot programstarted in 1993, was developed by the SBA to help nonprofitresearch organizations, universities and small businessescooperatively bring technologies and products to market. The SBAestimates more than $50 million was awarded to entrepreneurs in theSTTR program by the end of 1996. (Congress has extended the STTRprogram through September.)

These types of programs are effectively placing technology inthe hands of those most capable of turning it into viable ventures:entrepreneurs. Moreover, not only is it now easier to identifywhich technologies can make the shift into the commercial sector,but more systems are being created to facilitate their transfer,says Chuck Rancourt, director of RPI's Office of TechnologyCommercialization. University programs like RPI's RensselaerTechnological Entrepreneurship Council, which brings students andfaculty with technical and entrepreneurial backgrounds together tonetwork, locate investors and learn about technologycommercialization, are becoming more common.

"Programs like these are reinforcing the idea thatengineers and scientists have ideas, but they require entrepreneursto help build commercial ventures," says Rancort.

Perhaps the greatest factor contributing to the swellingopportunities for high-tech entrepreneurs is the burgeoninginformation technology (IT) market. Driven in large part by theswiftly expanding service sector, a whole new segment of theeconomy is opening to new hardware and software products. Accordingto market research firm International Data Corp. (IDC) inFramingham, Massachusetts, the worldwide software market isexpected to grow from $94 billion in 1995 to $177.4 billion by theyear 2000. Furthermore, IDC projects worldwide IT spending(including hardware, software and IT services) will grow by 10percent this year and an average of 9 percent annually throughoutthe decade.

"The information technology industry is just mind-bogglingto the extent to which it [offers entrepreneurial]opportunity," says Rice. "There is a huge amount ofattention put on the value of information and knowledgetoday."

It's the Internet, though, that's garnering most of theattention in IT circles these days. "The Internet has so muchto do with the explosion in IT," says Rice. "We'resitting on the doorstep of a whole new information revolutionbecause of what's going on with the Internet."

Ron Schmelzer, 21, and Dan Housman, 23, are among theentrepreneurs riding the Internet wave. In December 1994, thepartners founded VirtuMall, an electronic commerce site for hostingWeb sites. But when market needs shifted (as they often do in theInternet business) and companies began moving away from centralizedsites to develop their own, VirtuMall had to reinvent itself bymorphing into an Internet software company. Profiting from anationwide shortage of Web programmers and customers' desire tocut costs, in April 1995, Schmelzer and Housman founded VirtuFlex,a Cambridge, Massachusetts, business that helps users build dynamicWeb applications.

While the Internet provides ample opportunities forentrepreneurs like Schmelzer and Housman, owning an Internet-basedbusiness isn't always a smooth ride. "There are nostandards, proven market leader or proven market direction. Nobodyreally knows where the Internet is going," says Schmelzer,VirtuFlex's president. "Since there's no force pushingit in a particular direction, you may spend time working on aproject and by the time you're done, the market has totallyshifted in another direction."

High-tech businesses also experience some additional pressuresthat nontechnology companies don't. "In addition to allthe [typical concerns] of owning a business, a technology-basedbusiness also has the risk and uncertainty of developing newtechnology," says Rice. "On the other hand, [this] cangive companies a competitive advantage if they can deal with therisk successfully, and it becomes a barrier to businesses trying tocompete with them."

Money Matters

According to VentureOne Corp., an investment research firm inSan Francisco, venture capital companies raised a record $10billion last year. The good news for technology-based businesses ishigh-tech companies were among the primary recipients of thisventure capital. IT companies pulled in the lion's share ofthose funds, with a whopping 59 percent. Businesses in the lifesciences fields, which also include technology-based companies,brought in 22 percent of the funding, while nontechnology companiestook in the remaining 19 percent.

Throughout the last five years, software start-ups, particularlythose involved in networking, communications and the Internet, havecontinued to attract the largest share of venture capital funding,says Jesse Reyes, director of Venture Economics InformationServices, the venture capital research and consulting division ofSecurities Data Co. in Newark, New Jersey. This trend is expectedto continue well through the end of this year.

Interactive Learning International Corp. (ILINC), adistance-learning software company in Troy, New York, is onecompany benefiting from the torrent of venture capital funds makingits way to high-tech businesses. (Distance-learning software allowscompanies and schools to offer training sessions and courses tooff-site employees and students.) Last year, ILINC received $1.75million in venture capital funding from Geocapital Partners, a Ft.Lee, New Jersey-based venture capital firm specializing in ITinvestment.

"Geocapital approached us and was very eager to make aninvestment in the distance-learning market," says JimO'Keefe, ILINC's CEO. "They were aggressively pursuingIT placement."

Still, experts say the sobering fact for high-tech entrepreneurswho aren't in the hot industries, such as the Internet anddistance learning, is this: Venture capital funding is probably outof their reach. Even though funds are more plentiful than ever, themajority of venture capital firms are looking to invest large sumsof money in well-established companies with proven track records,leaving the majority of high-tech start-ups and most smallcompanies, in effect, out of the loop.

To address this gap, a host of government, state and regionalprograms have emerged to foster economic development, furnishcostly research and development (R&D) funding, and provideaccess to risk capital, says Rice. Among them is the Small BusinessInnovation Research (SBIR) program, which provides grants orcontracts for small high-tech companies in the start-up anddevelopment stages. Each year, 10 federal departments and agencies,including the National Science Foundation, the Department of Energyand the Environmental Protection Agency, are required by the SBIRto reserve a portion of their R&D funds to award to smallbusinesses. Approximately $900 million was given to smalltechnology companies in the last two years.

Another bright spot for high-tech financing: More privateinvestors, often referred to as "angels," have stepped upto the plate to back technology-based businesses in recent years."Angel investors are really carrying the weight forearly-stage investing [in technology-based companies]," saysGerald Benjamin of International Capital Resources, an investmentbanking and capital sourcing firm in San Francisco, and author ofFinding Your Wings: How to Locate Private Investors to Fund YourVenture (John Wiley & Sons).

Rather than dealing with venture capitalists--who have areputation for being too controlling and too interested inshort-term returns--many high-tech entrepreneurs are cutting outventure capital firms in favor of capital from angels. To theiradvantage, angel investors typically furnish small businesses withstart-up capital, a long-term vision--and a whole lot more.

"The beauty of working with angel investors is that theyprovide more than just money," says Benjamin. "Theyprovide extensive expertise, contacts and knowledge of investingfrom an investor's perspective to help raise further money.They are also able to be more closely involved, unlike venturecapital firms."

Having an angel watching over you isn't always a blessing,though. "Whenever you let investors in," warns Benjamin,"you [face] the issue of control, and for many entrepreneurs,this is a critical problem."

Meeting Of The Minds

One of the fundamental elements of a successful technology-basedventure is having the ability to build what Rice calls an"entrepreneurial team." This means a staff that not onlyworks well together but also possesses the key strengths that keepa business competitive, including tip-top technical, marketing andsales skills. Within the last five years or so, says Rice, a numberof factors have evolved to help high-tech entrepreneurs pulltogether the expertise they need to create these teams. At the rootof these changes is the entrepreneur himself.

"It has never been easier to get training and education todevelop the skills, attitudes and knowledge necessary to become anentrepreneur," says Rice. "We've seen an explosion ofentrepreneurship programs, and there are more ways to learn aboutentrepreneurship than ever before."

More than just the blossoming of first-rate entrepreneurialprograms, though, there's also been a move among educationalinstitutions to meld entrepreneurship and technology programs, saysRice. Educators are realizing that to build competitivetechnology-based businesses, students must have an understanding ofboth the technical and business sides of the venture. As a result,some schools now offer undergraduate and graduate programs with anemphasis in technology entrepreneurship. The programs link theknowledge and experience from technical disciplines, such ascomputer science, with business management to create a well-roundedentrepreneur.

As more educators join this trend, leading technology schoolsaround the country are increasingly infusing entrepreneurship intotheir core curricula. Among them: RPI; Carnegie-Mellon Universityin Pittsburgh; Baylor University in Waco, Texas; University ofCalifornia, Los Angeles; University of Iowa in Iowa City;University of Colorado at Boulder; and University of Texas atAustin.

"The MBA program gave me a strong foundation forunderstanding technology and how to base decisions abouttechnology," says Mark Bernstein, ILINC's co-founder andexecutive vice president, who graduated from RPI's MBA programin 1994. "It was also very helpful in understanding the basicsof raising capital, the trade-offs involved in designing technologyand how to stay focused."

Technology incubator programs at many universities are alsogiving high-tech entrepreneurs a leg up. Established in 1986, theUniversity of Alabama at Birmingham's (UAB) Office for theAdvancement of Developing Industries houses approximately 18technology-based companies, providing them with below-market rateson laboratory and office space, access to UAB scientific expertise,and clerical and professional staff support. Others, like theBoulder Technology Incubator's Entrepreneurial Success program,offer high-tech entrepreneurs mentors, business advisors andintroductions to capital resources.

Networking is another facet of entrepreneurial education whoseimportance for high-tech entrepreneurs can't be overstated. Intoday's collegiate environment, students from separatedisciplines are encouraged to interact more than ever before, saysRice. Those with technical skills are becoming more aware of careeropportunities in nontechnology ventures, while business studentsare pairing up with technical talent to build businesses.

"There's a lot of networking with students, faculty andwell-connected alumni," says Flow Management Technology'sBayly, a 1979 graduate of RPI's MBA program. "To bringthat level of people into your sphere of advice and influence isjust an incredible advantage to your business."

Meanwhile, world-class universities continue to pump outstudents with cutting-edge technical skills. This has resulted in ahighly talented labor pool, says Rice, enabling entrepreneurs tohire qualified staff in almost any part of the country.

And to further round out the entrepreneurial team, high-techconsulting and incubation companies have evolved to supplytechnology start-ups with expertise. For instance, InteractiveMinds, founded in January 1995, provides online, multimedia andinteractive media companies with interim management to developstrategic planning, raise financing or fill tactical roles likedirectors of marketing, sales or product development.

"High-tech companies are looking for resources to augmenttheir businesses," says Randy Haykin, president of InteractiveMinds in Pleasanton, California. "With a team of people withhigh-tech experience who've done this before, companieswon't have to waste their time."

Even so, forming an entrepreneurial team in a high-tech companyisn't without its challenges. For instance, with such a sharpdemand for technical talent, the problem of key personnel migratingto other high-tech start-ups can be a tough problem forentrepreneurs.

Despite a long list of hurdles, high-tech entrepreneurs canstill look to the future with well-founded optimism. Thanks to arecent convergence of opportunities--namely changing market needsand the evolution of technologies to address them, ready access tocapital and a larger pool of talented technical personnel to hireor partner with--the odds have swung in favor of high-techbusinesses in recent years. Overall, the message from all ends ofthe entrepreneurial spectrum seems to be loud and clear: Seize theday.

Contact Sources

Boulder Technology Incubator, 1821 Left_-handCir., Ste. B, Longmont, CO 80501-6740, (303) 678-8000;

Flow Management Technologies Inc., 56 Clifton CountryRd., Clifton Park, NY 12065, (518) 373-2005;

Interactive Learning International Corp., 385 Jordan Rd.,Troy, NY 12180, (518) 283-8799;

Interactive Minds, 7908 Paragon Cir., Pleasonton, CA94588, iminds@aol.com;

International Capital Resources, (415) 296-2519,(http://www.icrnet.com);

International Data Corp., 5 Speen St., Framingham, MA01701, (508) 872-8200;

Office for the Advancement of Developing Industries,University of Alabama at Birmingham, 1075 13th St., Birmingham, AL35205, (205) 934-2190;

Small Business Administration, (800) 8-ASK-SBA.

Stardock Systems Inc., 7977B Ronda Dr., Canton, MI 48187,(313) 453-0328;

Venture Economics Information Services, (201) 622-3100,fax: (201) 622-1421;

VentureOne Corp., (415) 357-2100, (http://www.ventureone.com);

VirtuFlex, (617) 497-8006, (http://www.virtuflex.com).