Software firm owners learn hard lessons

Sunday, May 10, 1998

BY PERRY BROTHERS
The Cincinnati Enquirer

The three men who started the software consulting firm Application Objects Inc. wanted to control their own destiny. In 1995, they took their technological expertise and joined millions of Americans who eschew the semi-secure ranks of corporate America for entrepreneurial risks.

After two years in the rapidly expanding technology industry, the Cincinnati-based company's explosive growth could threaten the partners' control over their own destiny.

Application Objects had 1997 sales of $1.6 million and a staff of 18 people. Rob Sullivan, the company's president, projected that sales for 1998 will hit $3 million and that the staff size will reach about 50.

While Mr. Sullivan and his partners are exuberant about the growth, they worry about the best way to handle the changing management needs within the company.

"Whereas, initially, we could afford to manage or run the company at night (after consulting with clients), we can no longer afford to do that," Mr. Sullivan said. "That came up on us a little more quickly than we had expected."

The company -- started by Mr. Sullivan, Christopher Taulbee and Patrick Lucas -- recently moved from a 3,000-square-foot office in the Gwynn Building, downtown, to a 15,000-square-foot space in the Star Bank Center to make room for the growing staff.

The partners have reduced their consulting hours to spend more time managing the business, but like entrepreneurs in the tech field, they're hesitant to let go of the hands-on consulting.

"We want to be in a position to do some of this work, because whether it's geeky or not, we still like it," Mr. Sullivan said.

Sandy Eustis, director of Xavier University's Entrepreneurship Center and director for Xavier's Center for Adaptive Management, said many technology companies are grappling with the same issues, and the entrepreneurs that make it develop management expertise to match their technological acumen.

"It's hard to do anything other than put out fires," Mr. Eustis said. "Whatever the core of their culture, it's going to be really challenged by this kind of growth."

Mr. Eustis said small-company partners in huge-growth times -- more than 25 percent a year -- should try to sit down weekly, or at least monthly, to discuss the company's direction and how comfortable they are with the effects of growth on the firm's culture and values. Another challenge is the high-tech labor shortage, Mr. Sullivan said. The company hired about one consultant a month last year. It would have hired more if not for the tight labor pool.

In response, the partners devoted a lot of time to developing a recruiting package, which includes several newly implemented employee benefits.

With the package in place and a multipronged approach to recruiting, Mr. Sullivan said the company should find it easier to attract the talent.

This is crucial for technology companies, Mr. Eustis said, and attracting the employees is easy, compared with keeping them. "I've heard stories of people getting 20 to 30 percent raises every year by changing companies," he said.

Company loyalty often is a foreign concept to many nomadic-natured tech workers, but there are some things that firms like Application Objects can do -- in lieu of offering 20 percent to 30 percent annual salary increases -- to hang onto staffers.

A solid benefits package is one offering, but some type of ownership in the company is the best hook, Mr. Eustis said.

"The trend is for companies to go public earlier and earlier, and give small bits of the company, in the form of stock, to employees," Mr. Eustis said.

Profit-sharing plans for non-public companies also have been effective, he said.

But there are other proverbial carrots to dangle aside from dollars, Mr. Eustis said.

Apologizing in advance for the generational generalization, Mr. Eustis said the predominantly Generation X tech workers want the freedom to control their work, and they tend to shun companies with rigid, hierarchical structures.

"They also are turned on by opportunities to improve their own resume -- education benefits, training courses, rotating job assignments -- that give them more breadth to put on their resumes." To weather tsunami-like growth, small companies must recognize and meet these management needs and be willing to seek help.

"Human resources are going to be real important to them," Mr. Eustis said. "Even if they can't afford a VP (vice president) of human resources, there are a number of consulting firms out there."



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