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Improving economy could backfire on small businesses – Rise in unemployment tax, SBA loan rates pose challenges

Robert Davidson has been playing an entrepreneurial "game of chicken" since leaving Hewlett-Packard in 2003.

Davidson, 50, is not building a new business around an established product or service. Instead, he’s betting on developing a new product for the $5.8 billion home theater industry.

Joe Estrella
The Idaho Statesman

http://www.idahostatesman.com/apps/pbcs.dll/article?AID=/20041128/NEWS02/411280323/1029

If his money holds out.

Davidson said he "saw where things were headed" when HP chairwoman Carly Fiorina shelved the project he was working on as a senior scientist.

He spent the next six months reading everything he could on starting a new business.

He left HP after 24 years under a voluntary layoff to found Savicon, a venture he’s self-financing with his severance and the proceeds from his 401(k).

To test his plans, he began networking at the monthly sessions of Kickstand, a group of high-tech entrepreneurs that meets once a month in the Rathskeller Room of the Empire Building, 205 N. 10th St., to kick around ideas for starting and growing a new business.

He knew that he was taking "a kamikaze approach, and burning the ships on the beach" by gambling that he would finish his product before the money ran out.

"Money is the biggest issue when you’re developing a new product," says Davidson.

The result is called "The Entegrator," a customized digital wireless home theater system that will allow a homeowner to control movies, music, games, high definition television and home movies through a small wireless touch-pad. It will also monitor home security cameras, allow the user to surf the Web and read e-mails, and will be accessible through the Internet.
The system is constantly connected to the Internet, making it possible for the owner to remotely instruct it to record any television show to a personal built-in video recorder that will hold up to 200 two-hour movies.

Davidson estimates the system will sell for between $15,000 and $20,000, which he calls the low end for home theater systems that can run as high as $1 million. He hopes to begin marketing "The Entegrator" late this month through Sight & Sound by Design, a local home theater installer.

Davidson says holding down the overhead has meant operating out of space in an area clinic owned by his physician wife, Alice, offering other former HP workers an equity stake in the company in exchange for their services and not taking a salary.

"It’s a risk," admits Davidson, adding that many of his co-workers at HP accepted positions elsewhere with the company. "If this doesn’t pan out, working at HP is going to look pretty good."

Native of China sees her chance, quits HP

Ying Donegan seized the moment when she heard that China was joining the World Trade Organization in 2002.

An American citizen since 1999, but born in the city of Xi’an in Shaanxi Provence of central China, Donegan, 41, saw an opportunity to help American manufacturers crack the world’s largest market.

What she didn’t know was exactly how she was going to do it.
Nevertheless, she left a job of 14 years at Hewlett-Packard to found 7E International Enterprises LLC, a small Boise-based consulting outfit.

The problem: Where to begin?

"I had no clue what was required," she says.

The Service Corps of Retired Executives, which partners with the Small Business Administration, came to her rescue through its program that links former business executives with entrepreneurs for confidential face-to-face and online counseling.

They taught her to be persistent, a mindset that helped during the first six months when she had no clients.

Donegan admits she only made "a few hundred dollars" her first year, most of which was spent attending business seminars on all the things she needed to know, including government regulations, bookkeeping and marketing.

This year, business is picking up. One client is a former HP colleague that has created a new electronic sensor that uses laser jet printer technology to test soil moisture levels.

Another invented a tube that’s used for preventing tangles in Christmas lights, a product that should find a ready market in a country where most of the world’s holiday lighting is produced.

"He didn’t know how to sell to the Chinese," Donegan said. "He knew their culture, but he didn’t know how to align his needs with their needs. But within a month he was in production in China."

"Poster Child" buys bankrupt cashregister firm

Billy Knorpp spent 30 years with Hewlett-Packard before becoming what he calls the "poster child" for Idaho manufacturing professionals turned entrepreneurs.
Knorpp purchased a bankrupt RVP Business Systems, 6001 Overland, in 2002 after being laid off from a job as a program manager in research and development.

It didn’t take long to decide that self-employment was his best option.

"The job prospects were slim to none. Especially for a guy my age," says Knorpp, now 58.

He was buoyed by a seminar conducted by The Service Corps of Retired Executives, which links retired businessmen with would-be entrepreneurs. The day-long session touched on taxes, marketing and how to get a startup loan.

"They really jump-started me," says Knorpp. "I came away with the idea that ‘this doesn’t look like anything I can’t do.’"
His purchase of RVP gave him ownership of a company that sells computerized touch-screen cash registers, the type restaurants use to track customer orders, sales, inventory, what’s selling and what’s not.

Knorpp had to finance the deal through a combination of his HP severance pay and his savings. Banks, he said "are only interested in lending money to people who have a proven (business) record," and the Small Business Administration left him with the impression that it was "unlikely that I would be able to get a loan."

One of his first decisions was to cut the staff from 48 down to six employees. He later "morphed" the company by adding a credit card processing service. His company sells the service to area businesses, then provides equipment repair when needed.
After a slow start, he says revenues have doubled each of the last three years. Still, he advises new startups to have three years of capital on hand.

"It will take that long to make any money," he says.
There have been a lot of headaches along the way. Like most small business, Knorpp has had to grapple with skyrocketing health insurance costs. He recently had to raise the deductible on his company plan just to keep the monthly employee contribution at current levels.

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Our expert panel

To help prepare this series, The Statesman convened a panel of economic, employment, business and government leaders to give us their opinions about the most important issues facing Idaho’s economy. The panel included:

• Bob Barber, WorkSOURCE

• Jon Barrett, Idaho SmartGrowth

• Mike Ferguson, Idaho chief economist

• Bill Foxcroft, Idaho Primary Care Association

• Stephen Fultz, Caldwell Economic Development Council

• Janell Hyer, Idaho Department of Commerce and Labor

• Bernie Rakozy, U.S. Bankruptcy Court

• Alice Whitney, Hispanic Business Association

Where to go for small business help

Idaho Small Business Development Center
• 208-426-1640
http://www.idahosbdc.org
Based at Boise State University, SBDC offers free and low-cost information designed to educate and support Idaho small business owners and managers, inventors and potential entrepreneurs. The staff delivers counseling, training and technical assistance in all aspects of small business management, with a primary goal of helping small business owners and potential owners make sound decisions for the successful operation of their business. It’s funded by the U.S. Small Business Administration, and is a partnership with Idaho’s institutes of higher education and the private sector.

The Small Business Administration
• 1020 Main, Boise
• 208-334-1696
http://www.sba.gov
Facility includes the Small Business Library, SCORE volunteers (retired business executives who offer free counseling services) and the SBA loan facility, which offers loan seminars twice each month.

Women’s Business Center
• 9th and Idaho, in the basement of the Wells Fargo Bank Building
• 208-336-5464
http://www.wbcidaho.org
Helps startups and existing women-owned businesses with free confidential one-on-one business counseling; loan request preparation assistance; affordable business classes and workshops; mentoring and networking groups; trade shows and other marketing opportunities.

Sage Community Resources
• 10624 West Executive Drive, Boise
• 208-322-7033
http://sageidaho.com
Provides loans to businesses in 10 Southwest Idaho counties through three different loan funds: a revolving loan fund that requires the participation of a bank; a program where it makes direct loans or partners with a bank to fund smaller projects; and a community reinvestment fund designed for larger real estate loans.

KICKSTAND
• P.O. Box 1643 Boise, ID 8370X
http://www.kickstand.org
A networking group consisting of 650 high-tech entrepreneurs and would-be entrepreneurs who gather the second Thursday of each month in the Rathskeller Room of the Empire Building, 205 N. 10th St., from 5:30-7 p.m. to exchange ideas about starting and growing a new business.

Source: Small Business Development Center
Severance pay helps finance new product

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