Bringing up business

Pro

It can take five years to become an overnight success, they say in showbusiness. Take away the show and the principle applies — many companies are in business for some time before they arrive at the holy grail of a stock market flotation, a high profile trade sale or even the injection of venture capital. 

Until recently, technology firms often had to go it alone before reaching that stage. That’s not a problem with a couple of years’ trading history under your belt, but the support structures a start-up business needs to help get on its feet are just as necessary as financing, although they are less well known and arguably harder to come by. 

‘More and more we are hearing from companies saying money isn’t everything,’ says Gréag Purcell, CEO of First Tuesday, a community-building organisation for entrepreneurs, start-ups, investors and service providers. He defines incubation as a range of processes for early-stage companies in the first six months of their existence. These processes include office facilities with a boardroom, access to the Web, some form of mentor scheme, financial planning and assistance to access funding in addition to help in identifying key members of staff inside and outside the company. 

Pure incubation facilites allow businesses to concentrate on developing, by removing the worries about IT support or setting up connections to the Internet. Such centres are beginning to spring up around the country, actively encouraged by the government. In tandem with this, support in the form of mentor schemes system for start-ups is available, from both consulting firms that offer business advice and strategic planning, and technology providers who supply hardware and software at reduced rates.

Small acorns
In the south east there is a dedicated incubation centre run by the South East Business & Innovation Centre (SEBIC) in Waterford. The centre provides space for entrepreneurs looking to research projects that are still at a concept or an early stage. Space is also provided to those who have established an IT or e-commerce related enterprise, but are looking for a more formal business environment.

According to the centre’s director Patrick Munden, rent from tenants is not a large part of revenue for the facility, as it receives subsidies from the EU. Companies pay a reduced rent at a rate of £50 per desk per week, with this fee covering the use of Hewlett-Packard PCs, Internet connectivity and use of printers, a scanner, as well as access to a boardroom and canteen. The centre’s Internet connection runs on dual-band ISDN; its internal network can be sub-divided if clients require. 

There are no data hosting facilities on site. ‘Companies might develop a site in the centre and host it after they have finished here,’ says Munden. ‘We’re really at the seed stage.’ 

Among those seeking to use the centre are dot.com companies and one of the current occupants is a portal developer. ‘They are focused and have a very specific target market,’ Munden notes. 

The centre can accommodate up to ten companies at once, with each being accommodated for up to nine months. 

Munden stresses that the centre doesn’t simply provide space to let; there are support services for nascent businesses and that. ‘The difference between us and office space is that we are attached to the BIC and customers can avail of finance, marketing and business planning and advice.’ 

Stout deal
Companies seeking an incubation facility don’t have to restrict their focus to the Irish market. The Guinness Enterprise Centre in Dublin belongs to a grouping of Business Incubator Centres around the UK and Europe that offers networking and expansion opportunities across the continent.

The facility is open since June of this year and provides office space ranging from 10m2 to 160m2 to new and established small businesses operating mainly in software services, small scale manufacturing, light hi-tech engineering and international or technological traded services. The centre also offers clients support services and facilities designed to help developing enterprises. 

To address the bandwidth requirements of its customers, the centre recently upgraded its connectivity to a 2Mbit leased line. Startup firms using the centre can get Internet access at discounted rates, with reduced connection charges and capital expenditure costs. The centre’s recent purchase of more than £200,000 worth of telecomms equipment means that its client companies aren’t obliged to buy their own routers or PABXs. 

Grey hairs
Start-ups often consider themselves technically sound, but lacking in management acumen and experience. To gain the the proverbial ‘grey hairs’, they may need to forge partnerships with established companies. 

HotOrigin is an Irish firm that works mainly with early-stage software companies and corporate-backed ventures, for example the e-commerce wing of existing organisations. Calling itself an ‘accelerator’ rather than an ‘incubator’, the company provides consulting at a strategic level to clients. 

HotOrigin has a series of agreements with IT partners locally and internationally, including IBM, i-fusion, Exodus, Wolfe Group, NewWorld Commerce and Horizon. John O’Connor, director of corporate ventures, points out that the wide range of agreements allows HotOrigin to be ‘technology-agnostic’ with no obligation to recommend one particular system over another. 

‘Our primary focus on doing the right things for the ventures that we work with, rather than trying to recommend particular platforms or systems,’ he says. ‘It’s useful to have a good working arrangement with a lot of the technology providers and we would have pretty good connections into most of the technology players in Dublin and internationally.’ 

However he stresses: ‘Most of the stuff we do is at the strategic level — business, technology and alliance strategies to help ramp up the value of the early-stage software companies we work with. Another key area is helping to beef up the management teams in those companies.’ 

HotOrigin has chosen to focus on early-stage software companies, O’Connor says, mainly because it is possible to create value in those ventures. ‘We’re looking for companies with a strong possibility of exceptional growth and you’re more likely to see that in the software sector. We have got involved in very few dot.com ventures. But a dot.com would have to be an exceptional proposition for us to take it on.’ 

HotOrigin becomes involved with companies before they have try to seek venture capital — a process that has been made more difficult in light of current market conditions. 

‘Last year it was very easy to raise funds on the back of any business plan,’ says O’Connor recalls. ‘There’s still money out there, but people are more discerning about where they are investing it.’ 

In a perverse way, this situation has meant that HotOrigin’s business is performing better this year than last, because companies are in greater need of assistance before they try and seek funding. O’Connor says: ‘We get talking to companies when they have moved beyond the concept and have at least a test product and possibly even some customers, but are still at an early stage of development.’

International rescue
Despite the access to technology-related information and research now available on the Internet, individuals working on a new technology or business idea may be unaware of similar developments in the wider world. As a result, the perspective that multinational organisations can provide can be of major help to fledgling companies. 

Once company offering such an international ‘validation process’ is the consulting firm PricewaterhouseCoopers. The same US-based staff responsible for PWC’s annual technology forecast can evaluate a company’s technology and confirm if it is leading edge or not. 

According to Paul Hennessy, partner in charge of enterprise development services at PWC, his firm’s role is to take the long view when assessing a company’s potential. When considering a product, typically, he asks: ‘Is it a technology that can develop a business to a certain level, but which may require a strategic partner to take it beyond that?’

PWC’s input is not limited to strategic or management issues. ‘We’re very comfortable to talk to people from a technology point of view,’ says Hennessy. ‘We have the resources to determine whether a technology is valid and what the market is for it.’ 

Deciding on potential markets can involve determining which platform a company chooses to develop its technology. If it intends to provide software to the financial sector, for example, the company may be advised to develop its product on a secure operating system such as Unix.

Although experienced businessmen, who may not be technically proficient themselves, often front start-ups who come to PWC for help, Hennessy observes that techies are almost invariably involved in the project. He commented: ‘They tend to be very open and receptive to what we have to say.’ 

For PWC, the preferred option of taking an equity stake in start-up companies, instead of fees, has not changed in spite of the downturn in the technology sector. ‘That’s been the position since the very start,’ says Hennessy. ‘We value equity over and above time per hour.’

Hennessy says that the relationship PWC has with these kinds of ventures are closer than with a standard consulting arrangement. ‘There’s more handholding,’ he says, ‘But we know that if we admit a project, what comes out at the other end will be a tenable business.’

To cater for the physical incubation facilities that clients require, PWC has aligned itself with Growcorp, which has a facility at the City West business campus. 

Risk taking
While IBM also provides assistance to companies, like PWC, Big Blue is not in the business of providing physical office space to start up companies. Instead, IBM has partnerships with local incubators such as HotOrigin, the Cork Business Innovation Centre and facilities at UCD and Trinity College. 

Where IBM brings its influence to bear is in providing what it calls ‘new economy’ companies with financing up to $400,000 up to two years. This money is effectively credit with which an start-up company can buy hardware and software. ‘That’s quite a risk we’re taking,’ says Dave Tallon, country manager for NetGen, the group within IBM that fosters relationships with start-up technology firms. ‘We will do this for a company with zero trading history and no venture capital.’

IBM aims its support solution and application providers, e-markets, ISPs and start-ups in the life sciences or biotechnology sector. The latter requires huge amounts of computing horsepower, required in the drug discovery process to design complex algorithms to search across databases. Tallon observes that Linux is proving to be a very popular development platform. 

For companies intending to be application service providers, IBM has a lab facility that can model, design and scale the software so that it is capable of being served to large numbers of users. There, the bandwidth requirements for the software can be assessed and the software can be stress tested. IBM will also help start-up ASPs to work out how to bill customers for every transaction. 

In the case of companies developing software for resale, IBM provides development software and hardware and can work with the firm in formulating a business plan. ‘It’s to IBM’s benefit,’ says Tallon. ‘If the software works on an IBM platform, there’s also the opportunity for our hardware to be sold as well. It’s another sales channel for IBM, that’s why we put a lot of funds into it.’

Read More: Hardware & Equipment