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New Wave of Entrepreneurs Runs Start-Ups With Restraint

Are start-ups cool again?

Alexandria software firm BND Group
Inc. launched last week.

There was no news release, no
music, no logo-clad trinkets or
star-studded galas. The four
company executives celebrated with
drinks at a pub.

By Ellen McCarthy
Washington Post Staff Writer

Slowly, quietly, new technology
companies are emerging.. Faced with
a wary public and a dismal investing
market, the new generation of
start-ups has neither the glitz nor the
wealth of its predecessor.

But some people who study such
trends say commitment to technological innovation and personal necessity have
prompted a return to entrepreneurship. Duc Duong, director of the Maryland
Technology Development Center’s business incubator, said he is getting inquiries
this spring from about 20 information-technology companies a month, double last
year’s pace. He expects interest to keep growing.

But if developments have conspired to make start-ups cool again, it is the
essence of cool — an understated hipness rather than the overheated Hollywood
trendiness of the past few years.

The displaced tech workers and serial entrepreneurs who are launching
companies are grounded in financial realities, making the start-up process
lengthy and arduous. There is little room for get-rich-quick schemers.

Why don’t we turn the clock to zero honey?

I’ll sell the stock we’ll spend all the money

We’re starting up a brand new day

— "Brand New Day," by Sting

Sean Kennedy knew the end was near for his last employer, a Web services firm
that blew through nearly $24 million in less than two years. He left the company
in December 2000 but, unlike some peers who were burned by the dot-com
craze, Kennedy still believed in the potential of start-ups.

"It was a brand new day, just like the song. I said to my wife, ‘We’ll sell all the
stock and spend all the money,’ " said Kennedy, founder of BND (as in "Brand
New Day"). "If you have any creativity in your bones at all, it’s absolutely difficult
to go back" to a normal job. "But, you’ve got to do it right. We were not going to
sell vapor."

C. Arnie Quirion, executive director of the Techventure Partnership, said that kind
of lucidity differentiates entrepreneurs coming to the Fairfax incubator today from
those of a few years ago.

"When the bubble was big, it brought in the people who were looking for a
big-money play, and that was the primary focus," Quirion said. "When that is the
primary focus, things don’t go well."

A report by Global Entrepreneurship Monitor, a research group, said all types of
entrepreneurial activity in the United States fell 30 percent in 2001. It also
predicted that if the economic lull continued, as it has, entrepreneurship based
on necessity may increase and that "unemployed workers will turn to
entrepreneurship as the solution to their displacement."

Larry W. Cox, a researcher with the Kansas City-based Kauffman Center for
Entrepreneurial Leadership and an author of the report, said he expects most
U.S. entrepreneurship will continue to be motivated by opportunities or holes in
the market. But as workers are laid off and unable to find comparable
employment, they may feel compelled to start businesses to survive.

Caroline Mansi, executive director of the Loudoun County Small Business
Development Center, said that for some new entrepreneurs, job cuts provided the
push to act on ideas they may have been considering for years.

"We’re getting a lot of the people because of the layoffs," Mansi said. "This is
maybe their second or third layoff and they are sick of it. They want to take their
professional life into their own hands. A lot of people got comfortable in their jobs
and just stayed, but being laid off gave them a new lease on life. They’ve gotten
to do things that they’ve always wanted, but never had the gumption to do
before."

Today’s start-ups may have solid business plans and innovative technology, but
early-stage investors have all but disappeared, leaving entrepreneurs to take on
enormous risks as they launch companies. Some, like BND Group, whose
founders put nearly $100,000 into the firm, have chosen not to bother trying to
attract venture capital. Others still see outside investors as the key to growth.

Novak Biddle Venture Partners received pitches from 1,300 companies during the
first quarter of this year. "That’s as high as it’s ever been," said Jack Biddle. "It
surprises me that it’s so high."

But of the plans that came in, only 91 were reviewed by the firm’s partners and
just two were funded.

The lack of outside investors has not scared off dedicated entrepreneurs, but it
has changed the way they do business.

Camilla Greene, founder of EnRoute Solutions Inc., a Waldorf software start-up,
continued working full-time for nine months while researching the market and
saving money to launch the company. Mansi said many entrepreneurs like
Greene are working on their ventures part-time and at home, to keep costs low.
Greene and her partner, Stephen Carter, said they started the company with
about $50,000 from their personal savings.

"When you are self-funded, you’re darn close to where your money is going,"
said Kennedy, who worked from home during BND Group’s first year. The
company’s three other founders also held day jobs. Today the company has a
small three-room office, furnished with used equipment and a few framed posters.

Quirion, of the Techventure Partnership, said the lack of funding makes
entrepreneurship today more challenging than it was a few years ago, but has
also provided some unexpected advantages. Start-ups are able to fully develop
their products, rather than rush through the process just to beat competitors, he
said.

BND Group’s quiet launch mirrored its founders’ aspirations for the company.

Kennedy knows that the company has plenty of competition in
content-management software, which helps organizations manage Web sites. He
has no delusions of controlling the market. He simply wants BND to offer clients
a quality product at a reasonable price. The success, he said, is in the doing,
and doing it his way.

Companies that require a large infusion of venture capital to get off the ground
may not be able to make it into the next year, but there is plenty of opportunity
for smaller start-ups such as BND Group, said Cox of the Kauffman Center.

Cox said firms that land a lot of money early are less willing to adapt their
products or services to the changing needs of the market than are companies
that depend on client revenue for growth.

"The lack of easy money is going to enhance the chance of success," Cox said.
"If you’re bootstrapping, you know that unless you connect with customers really
quickly, you’re not going to be around. So, you’re more likely to know what your
clients really need, and you’ll develop your product to meet that market niche."

Kennedy also said this is a good time to be involved in a start-up. It took more
than 15 months to develop his company’s product, and he knows it may be a
while before potential clients start spending again. But he’s willing to be patient,
he said, because there’s nothing he’d rather be doing.

"If you can make it through this, you can make it through anything," Kennedy
said. "And you’re better off living and dying on your own decisions than on the
whims of somebody else."

Staff writer Nicholas Johnston contributed to this report.

More stories online at Washtech.com.

© 2002 The Washington Post Company

http://www.washingtonpost.com/wp-dyn/articles/A36508-2002May30.html

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