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Birth of a Startup: Big picture coming into focus for entrepreneur

Lon McGowan’s start-up has survived its first six months, a tumultuous 176 days
that has seen the young entrepreneur pile up more than $25,000 in credit card
debt and lose his first employee.

By JOHN COOK
SEATTLE POST-INTELLIGENCER REPORTER

But it’s also been a half-year in which
a germ of an idea has been
transformed into a real business with a
real product. McGowan’s iClick is now
one of the top 25 best-selling, low-cost
digital cameras on Amazon.com. The
company turned a profit last month,
allowing McGowan to redesign the
camera’s logo and packaging. And a
Brazilian distribution deal recently led
to the sale of 500 cameras.

"So much has happened and so much
has changed it’s like I’ve been in
business forever," says the
23-year-old. "It feels so natural now. The business has really become a part of
me."

The business certainly is consuming his life, preventing any kind of vacation or
serious girlfriend. He hired a part-time employee and an intern earlier this
month.

But the hours still pass by so quickly
McGowan doesn’t find time to exercise,
saying he feels "so drained after a day’s
work it’s like 10 hours at the gym."

Despite the grueling schedule,
McGowan has been luckier than most
entrepreneurs who toil in relative
obscurity as they attempt to
commercialize their dreams. After all,
his story has been told in a major
metropolitan newspaper. The benefits
from that exposure are starting to add
up.

McGowan, who pitched the Seattle Post-Intelligencer with the idea for the
series late last year, said the media exposure has led to numerous business
contacts. For example, his newly formed advisory board, which includes former
REI Chief Financial Officer Dan Ducich and marketing executive Scott
Whitmore, got involved with the company after reading the last installment in the
P-I. Some camera sales, which now top more than 1,300, are directly tied to the
coverage as well.

In one of the biggest benefits, McGowan late last month received a $25,000 loan
from the CEO of a publicly traded Washington company who read about
McGowan’s struggles in the P-I. The loan — terms of which were not disclosed
— provided a significant boost to the debt-ridden McGowan.

"I can’t even explain. It was incredible," said McGowan, who after receiving the
initial call from the executive promptly asked him out for coffee. "I can’t imagine
a venture capitalist giving someone $20 million, but this for me was about that
much."

McGowan admits that the media exposure has helped his start-up business in
other ways, though he points out that approaching the P-I was one of the many
guerrilla marketing efforts he pursued. Others include promotional giveaways
with radio stations, creating discussion threads in online chat boards and
sponsoring the "Star Wars" fanatics who waited outside the Cinerama movie
theater.

But the P-I stories have helped immensely in the past couple of months, a
benefit not afforded to most start-ups.

"A lot of people thought it would have an impact on sales, but it doesn’t,"
McGowan said. "What it has done is that it has gotten me a lot of business
contacts. … To get those kinds of connections and contacts has been great. I
knew it would be beneficial for sure, that is obviously why I did it."

Ducich, an advisory board member who is helping McGowan with financial
issues, said entrepreneurs have to take risks. In this case, McGowan took the
chance of possibly failing in a very public way.

"I don’t know how many businessmen would have contacted a newspaper to get
their name out there," Ducich said. "Doors are opening from (the articles), but
he is just trying to figure out smart ways to get out there without the financing
behind him."

Whitmore, a 47-year-old former executive at two Seattle-area high-tech
start-ups, said the impact of the articles has been huge. After working at a
start-up company that wasted $20,000 on expensive public relations efforts,
Whitmore said McGowan took the right approach.

"It probably was the single best move for his business," he said. "A lot of things
may have eventually happened, but would he have survived long enough for
them to occur? Of course, the jury is still out on that."

The advisory board, formed in early May with six members from The Executive
Network of Seattle, a non-profit networking organization, has been an important
part in the development of the company.

Made up of experts from finance, law, human resources and marketing, these
gray hairs from the Seattle business community have provided advice and
guidance. Their only compensation is free pizza at monthly meetings held in
McGowan’s Belltown apartment complex.

Ducich’s involvement has already led to introductions at REI and a supplier of
education products. Lou Kertesz, an MBA who has worked at companies such
as Intermec and Pet’s Choice, and Carrie Schnelker, a lawyer, have helped out
with employment issues.

Whitmore has spent the most time working with McGowan, playing the role of
coach, mentor and advisor during their estimated 80 hours of meetings. On
several occasions, the two have talked late brainstorming about financial issues
or marketing strategies over beers at T.S. McHugh’s or lattes at Starbucks.

Even though McGowan could still pass for a teenager, Whitmore said the
baby-faced entrepreneur is wise beyond his years.

"While maybe he doesn’t look his age, from a business standpoint he is really
mature," Whitmore said. "I have been really impressed with him. I wouldn’t have
put together the advisory board if I thought this guy was a numb nut that was
going to waste everyone’s time."

Whitmore’s one worry about McGowan is that he might not be balancing his
time well, spending too much effort on tasks such as order fulfillment or product
development.

Right now, sales and marketing should be the focal point of McGowan’s efforts,
Whitmore said.

"No one is going to care about the sales of this product more than he," said
Whitmore. "And no one can sell it as well because he has such a vested interest
and he gave birth to this."

McGowan recognizes that as well, saying that with his new employees more
time should be available to go after the big fish he needs to fry.

"I need to be out there selling," he says. "If I am not out there selling, the
company is not making money."

Yet, despite the advancements of the past six months and the benefits of the
media coverage, McGowan is not out of the woods yet. He has yet to pay down
any of his credit card debt. Competing camera companies continue to lower
prices. And financing remains a major challenge.

Ducich, drawing on his 15 years at REI, has suggested some ways to get around
the financial hurdles.

"I can’t tell you how many times I dealt with companies in the outdoor industry
that started out financing their inventory on the back of personal credit cards,"
he said. "In order to carry their product, REI would sometimes purchase the raw
materials and fund production costs. With others, I’d issue domestic letters of
credit to entice their own banks to provide adequate operating lines. Lon may
need to follow a similar course: Find downstream partners willing to help finance
their ‘mutual’ inventory."

With ideas like those flowing from the advisory board, McGowan is getting the
collective brain power of half a dozen executives.

He will need that assistance if he wants to survive the coming months, a period
in which the University of Colorado grad must find new sales channels while
maintaining strong relationships with retailers such as Bartell Drugs.

On a recent Wednesday afternoon, a Fortune magazine sat on top of a work
bench in McGowan Technologies’ tiny Pioneer Square office. The cover story
featured a graphic of cruise liner sinking in a gray sea with the title "Why
Companies Fail." McGowan studied the issue, reading the top 10 fatal mistakes
made by bankrupt companies such as Global Crossing, Kmart and Polaroid. He’s
hoping to avoid the same pitfalls of those corporate titans.

"It doesn’t matter how big you are or how many employees you have, you
always run into the same problems," McGowan said. "The biggest thing I took
away (from the article) was to focus more on cash. I may be making a profit,
and that’s great, but I also may be out of cash. … I think that’s where most
companies with good ideas fail."

P-I reporter John Cook can be reached at 206-448-8075 or
[email protected]

Lon McGowan last month received a $25,000 loan from the CEO of a
publicly traded Washington
company who read about the
young entrepreneur’s struggles in
the Seattle Post-Intelligencer. The
benefits of media coverage have
placed him in an enviable position,
with access to people and money
he never dreamed possible.

To read previous articles, visit
http://www.seattlepi.com/business/startup.asp

http://seattlepi.nwsource.com/business/75758_startup24.shtml

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