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netpreneurs on building a business, your way
lessons in leaving home

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the audience: q&a

Ms. MacPherson: We will now take questions from the audience, including some that came through email, such as this one, "Do you have a board of directors or a board of advisors? Do you have other ways that you get counsel in your business?"

Ms. Martin: There are five business owners; we all happen to be women, who meet once a month. I was so impressed with these other four women that I said, "Do you want to get together?" I needed more support in order to continue growing and I needed the support of other people who were in the same situation as myself. We started meeting for an hour a month, now we are at three hours a month. No one misses the meeting; they are crucial. The support has just been fantastic.

Ms. Masri: One of my goals for this year is to set up an ad hoc board of directors or a group of mentors who can talk to us about financial issues and other things. There are things that I get from the networking and the contacts that I have now, but I want to put something formal in place.

Mr. McQuown: That is a good question. For the first two-and-a-half years, we did what I said before, asking people for recommendations. I am impressed with the information and hints I get from people. Now, we are attempting to put together a board of advisors, people who are pretty high up in organizations that we can continue to ask questions, and we have started to assemble a board of directors. It is still just my co-founder and me, but we have also assembled Jay Young, who is President of the DC Tech Council. He believes that we're going places, and he's really been helpful.

You will know when the time is right to form a board. If you do it before, you may just be building fluff and it might be hard to dismiss those people when it comes time to build a serious board with people who can contribute significant cash, their name or other assistance.

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Q: I'm David Frankil with VCOM. Could you comment on the tactics and strategies for retaining employees in a smaller organization?

Ms. Masri: As Patrick said, make sure that people enjoy what they do, that they have the tools to do their jobs and that you are in constant contact with them so that they know what they need to do and can get feedback from you. When someone does something right or wrong, you have to be able to tell them. I think that makes people feel much better than giving them a gift certificate or whatever. Do we have those kinds of nice things? Sure we do. I think it makes it fun. As long as you make it fun, people want to stay. The people we have working for us realize that they're coming in on the ground floor and that there is a lot of potential—not IPO, huge bucks potential, but we are talking about having a real say in the company, maybe being brought in as part of the company in the formal sense, as part of the partnership. There are a lot of ways to incentivize people even when you are small.

Ms. Martin: There really are. It is also crucial that you find people who have a "can-do" attitude. The team has got to want to work together. We have been in situations where someone needed help on something and everyone joined in together. We will do lunches, anything to build the team, and we have a lot of fun with it. We get creative and we listen to the people. You must make sure that you are listening to what your team wants to do. When you bring people on board who have a can-do attitude and see your vision as clearly as you do—sometimes I think they see it more clearly and they believe in it—you've got to hear them out. They can give you wonderful suggestions on how to continue to grow, but you have to listen.

Mr. McQuown: With a professional services organization of Proteus's size, we're doing a lot of PL/SQL, which tends to be tedious work if you are given the wrong project. For us, the wrong project would be things like MCI's intranet. Since we are small and dynamic, we need to keep our guys happy and motivated. What they want to work on are things like wireless applications on the cutting edge. They get to work on a project from conception to completion, rather than just on one aspect of a job like some of our counterparts do. They will have programmers who maybe do a bulletin board engine for a Web site; that's it. They never get to see it go live, and then they move on to another bulletin board engine for another client. Our people work from inception to completion, and it is very rewarding for them to see the fruits of their labors.

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Q: My name is Arnold Kling. Could you talk about the pitfalls and tactics of dealing with large companies when you're small, such as how you avoid going to six months of meetings and ending up with no contract, or how you avoid getting into a fixed bid that costs you money? Also, how do you know when to break off those relationships?

Mr. McQuown: Since my master's in forensic science did not train me to do that in the slightest, after some long searching we were able to find one gentleman to run our California office who has an MBA, and another gentleman who basically runs our sales department in our headquarters in DC. He came to us with five years of experience at Ernst & Young, and he is trained at seeing the telltale signs when something might not come to fruition or, if we stick this out, we can get the contract. We have taken a "he who is most dedicated wins" approach to that, but there are a lot of lessons because you can see the signs if something is not going to go anywhere and your phone calls are now annoying the client. We are putting systems into place to identify that.

Ms. Martin: When we started working with Mobil, the thing that scared me the most was looking at the contract they had given me to sign. I immediately showed it to my attorney who informed me that it was a real property contract, not an intellectual property contract. She rewrote it for them, and they use it now. That was a little overwhelming. The fact that they knew we were home-based was a bet they made that we could do the work more quickly, and we won. We started out doing demo diskettes, and Mobil clients actually came to our home office. We have a fair amount of clients that come to our office.

Sometimes, you see a client and you know you can work together. Mobil was trying to get through all the paperwork and bureaucracy. We actually started a little bit before we signed the contract in order to prove ourselves, and it paid off.

Ms. Masri: That is very similar to what happened with us. I was contacted in June of last year by a person at www.ccl.com who had my email address and said they needed a Web site. I didn't know anything else about them, so I type in "www.ccl.com" and it turned out to be Carnival Cruise Lines. "Maybe this is wrong," I thought. "Could it be somebody else?" I started a dialogue with this person who does work with Carnival, and we are now working with them, too. We finally got started on the first of this month, so it took a while. What was surprising was that she said we were one of the few firms that took any interest in and had excitement about the project. We will be doing work for their casinos, which is one of their biggest money makers. It took three months of contract negotiation; not because we were fighting things out, but because their lawyers, our lawyers and we were concerned about signing a contract with such a big corporation. It really is rather daunting. The attitude that "I can do this" is really what helped us prevail.

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Q: I'm Gabe Goldberg of Computers & Publishing. My question deals with the times when your companies were virtual and all of your employees were not sitting in the same place. What kind of technologies and practices did you use to keep people glued together and feeling like part of the same company, and how did you keep your projects in forefront of their minds when they also worked on other things?

Ms. Martin: That's a good question and I'm very familiar with it. When I first started LeapFrog Solutions, I initially knew the people I wanted to bring on board. We have production meetings every Monday morning via conference calls. We were all connected through the LeapFrog Solutions Web site and we have our client files there. One of the things I find with home-based businesses is there's an isolation issue. That's why a lot of people leave home-based businesses. It isn't because they couldn't be successful; it's because of the isolation. I was able to offer people the camaraderie of a team while still being their own business owners.

How do you keep your projects in the forefront of their minds? We scrutinize the projects that we work on. This is a good time to be in business. When you hear your team saying, "Yes, what a cool account!" you know you have the enthusiasm. Enthusiasm sells, not only to your clients, but to the team. When we start partnering with a new person—and our eventual goal is to have them be 100% LeapFrog Solutions—the best thing to hear them say is, "Wow, these are the best clients!" It is all enthusiasm. To stay on top of it, everyone gets a production schedule. They know what they have to commit to, and I think that has been the secret to our success.

Ms. Masri: For part-timers especially, we have very detailed schedules that show what we expect. "In X amount of time you will have the following back to us." It is more a matter of setting goals and making sure that those goals are met. I don't necessarily care at what time of day they you do the work as long as it has the quality we expect and comes in on deadline.

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Q: What are your revenues and do you have VC funding?

Ms. Martin: Let's get down and dirty now. This year, our goal is to do between $1.5 million and $2 million, and we are trying to position ourselves to double again next year. We are self-funded. We didn't go after any venture capital, although I have talked to VCs and angels just to get an understanding about it. We don't need it right now; we are a profitable company, but it depends on our goals further down the road. That is why we are evaluating it now, when we know we don't need it.

Mr. McQuown: As far as revenue goes, that is privileged information. I would say that VC calls probably come in the neighborhood of three or four a month. Acquisition calls come in about every other week, and they've been anywhere from 5X our revenue, on the low side, up to about 17X revenues on the high side. Right now, it's just stuff we entertain after surveying the troops, most of whom have options in the company. Everybody says, "Let's keep going down the road we are on." Morale is high that we can build this thing even bigger. Our first buyout offer came when we were about three people, and we almost took that one. It was very, very tempting. It was for $1 million, and when you are right out of college, you kind of do the math in your head. After you take out the taxes, you think, "Wow, I can pay off all my loans and go buy a couple of other things. It won't be so hand-to-mouth as far as paying myself and everyone else." However, we opted not to do it, and we think it was a good choice. We have been self-funded the entire time.

 

Q: I'm Daniel Odio. Where do you expect to be in the next year or two, and, specifically, how are you going to get there? If you did have an opportunity to take in a lot of capital, would do you that, or do you want to keep things internal and do everything on your own dime?

Ms. Masri: We definitely are looking to grow, but I don't think it would be right for our organization to do a quick spurt. It is important to bring people on in a controlled manner. I would like to make sure there is a good fit with the company, the client and the person. To hire three or four people into a company that is now five people would be doubling who we are. With the clientele and the amount of business we are getting, we definitely see the need to bring in more people; it is just a matter of our comfort level. We still are not sure where we are going, or how fast we want to go, but it is one of our goals to get up to a 10-person company. It is kind of an untested thing for us, and it gets a little bit daunting. We are excited, but there is a little trepidation, as well.

Ms. Martin: I was fortunate to be in this year's NVTC MindShare Program, and, although I didn't know much about funding or angel money, I learned quickly. A lot of the companies there were announcing that they had just gotten their first round of funding. I always learned that you sell a product or a service for a profit, and that's how you do business. They are great people, but I would see them getting this money, and say to myself, "Their product doesn't work, they haven't sold anything, and they are getting $10 million. How does this work? It looks good, but what do they give up?" That was my concern. I wanted to learn and understand it. I started to think about how fast I wanted to grow LeapFrog Solutions. As Gene Riechers said, be careful what you wish for, so I took the time to evaluate it and meet people. I don't want to sacrifice my team or my clients in order to get the funding. It's not worth it. I have seen too many good people for whom it did not work out. As Mary said in her intro, the numbers are pretty small there, and we have a great thing right now.

Mr. McQuown: I don't want to echo too much of what has already been said, but, at least in the past, the traditional wisdom was the build-to-last model. Now we are starting to see what people refer to as the build-to-flip model. Our concern is that we do not grow out of control, something that a lot of service organizations do. We have measures in place to make sure that it doesn't happen. If we were to receive funding, we are in an appropriate enough office space that we could accommodate the people. By the time we would need to get out of that space, our lease would be up because it is a short-term lease that we took over from a defunct law firm. Nevertheless, if we don't grow at that quickly, we always have the option to renew the lease. We are going for more of a build-to-last model. It seems that Layla and Lisa are as well. If you look at the long-term rewards, it is not instantaneous wealth, but you have Henry Ford on that list and a lot of people who made a much bigger mark than the build-to-flip people.

Ms. Martin: We're starting to get a lot of business from clients who went to large companies that got funding, but they felt like they were a small fish in a big pond—or a small fish in an ocean. They have come to us, now, because they know they will get the client service they need. I am watching this. If you grow too fast and you get lost in the crowd, the client suffers in the end.

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Q: I'm Barbara Bode from CashCares.com. Given this economy and the number of new companies looking for services like yours, what I am hearing in your go-slow approach is a little bit discouraging. Have you positioned yourself to take advantage, if not of funding, of all these new clients and potential clients that are around?

Mr. McQuown: The number one obstacle that we face is something that Layla said earlier—you have to wear so many hats, at first, that you just do not have time to chase down every sales lead. You are busy being the lead HR person and the head cheerleader; you are busy looking at the books and wondering if you have to get more RAM for this computer. The list goes on. You have to fit in some proactive sales time to try to get new clients while always making sure that the current clients are being taken care of.

Quite honestly, there is also the embarrassment of being a home-based business because you know it is frowned upon at times. You are talking to these big organizations and you know that they are looking at you thinking, "We will smash you. We will kill you. You will never be able to do our work." Other times you can show them what you have done, and let them know that you are hungry and that you are going to give great customer service. You encourage them to call your other clients, and it turns out to be a gem that gets you a third more revenue than you needed so you can grow your company.

There are just tons of obstacles that you face, and the thing that will behoove you the most is to get people who will alleviate the HR, bookkeeping and IT headaches that you are going to face so you can concentrate on bringing in new sales. It is a fine line you cross when, one day, you can finally put aside all of those other hats and just concentrate on sales. It is hard to do as an entrepreneur. Every book says that. You are not necessarily a control freak, but, at the same time, it is difficult to find qualified people whom you really, really, really trust with something that you have built up. You know that they have a very fundamental responsibility and, if they mess it up, it is going to have huge effects on everybody.

Ms. Martin: I don't feel that I am growing slowly. Doubling revenue every year has its price. I feel I am growing at warp speed. I am not knocking funding; I am saying that right now, for us, it's not the right time. I am evaluating it, however, and I want to be educated about it. Because of the grassroots network in this area, I hear horror stories. If I am going to go the funding route, I want to go into it with my eyes wide open. A big part of getting funded is the control issue, and just because you get your first round of funding doesn't mean that you are going to get your second round. You could be way out on a limb. I just want to be educated, and I am seeing some nodding heads around the room.

Ms. Masri: The reason we are not considering the VC route is because this is our baby. We have nurtured it. Our heart and soul are in this business. We got into it because we wanted to do things our own way. I'm not a control freak, but you want to have ownership over it and you want to have the ability to say, "This is how I want things to go" without someone dangling money over your head and saying, "No, I think we ought to go this way." It is important for us to be true to ourselves.

That being said, I definitely agree that it has been frustrating to open up the newspaper every day and read about people getting millions of dollars. People's personal wealth is going through the roof, while you sit there and say, "Well, I am still in my home office. What am I doing wrong?" Every business is different. You have to evaluate what is success to you. We are not trying to get one of these buildings on the Dulles Toll Road. We want to be a studio. We don't want to get massive. We want to do very good work, be respected and make some money, and we want to have fun. We are doing those things, so we feel that is the success that we wanted. We are very excited that we are doing that now.

Ms. Martin: I just wanted to mention something about what Patrick said. "Home-based business" is not a dirty word. We have a lot of clients who come over. Sometimes they take advantage of it because they know we can work 24 hours a day, seven days a week—well, they want us to, anyway, so we do have to be careful with that. We have clients who know that we work out of our houses; it is not something that we are going to lie about. We are very honest. We don't go around promoting it all the time, but it is an office and we treat it as an office. Our office is separate from the house. Everything is office-based, and it is a good fit, even with our clients.

[continued]

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