Lessons for IT Services

	E-Commerce

by Sunil Sharma

May 22, 2003

These economic times are tough on all tech companies, and software services companies are no exception. A recent study by Gartner reported that the IT services industry suffered its first year-over-year revenue drop in 2002. The reason given is that the customers have become more cost-conscious and are avoiding expensive projects. But this is the prevalent trend across all industries. So how does an IT services company become a success or survive?

Despite the current gloomy atmosphere in tech industry there are still some bright spots. One such bright spot is Cairo Corporation, an information technology company specializing in IT services, technology integration and courseware development for government (federal, state and local) and commercial clients. In just over four years, it has grown from zero to more than 10 million in revenue. Of course, being in the Washington, D.C. area near the biggest IT customer in the world—the U.S. government--helped it. But then the management of Cairo also implemented many strategies and policies that are worth studying.

First Things First--Business Planning
Alba Aleman and Raymond Roberts started Cairo Corporation in 1999, and it has increased its cash inflow and revenue day by day.

How did they do it? Simple. They adhered to the basic principles of business planning and execution. They wrote their plan before they started the company and then followed it diligently. The plan was continuously revised and reviewed every six months. The result was that over the past four years, they are on target and underachieved only once.

Their takeaway of early business planning is that an idea looks quite different in your head as compared to when you put it down on a piece of paper. The second takeaway is that a written financial model supports your proposition and convinces other people--customers, team members and investors etc.--who are so critical for your success.

Start with What You Know
A trend of the late dot-com boom was to have a "killer-idea" or "killer-technology"--mostly because the investors were backing only those ventures that were claiming such ideas. Alba and Ray bucked this trend. They started with what they knew--the federal government.

They had more than a decade's experience selling products and services to federal services organizations. The key differentiating factor for them was that they knew their target market in a compelling fashion. They understood customer needs, knew competitions' weaknesses and believed where they could bring value.

Always Build a Compelling Value Proposition
Targeting a large market like the federal government is a good strategy, but it also comes with giant competitors that are adept at almost all things needed by such a huge market. A startup cannot--and should not--attempt to compete with them in all areas. This is the next thing that Alba and Ray did, focusing on a few target areas.

The lesson is that when you enter such a market, you must identify one or two areas you believe that you know more about than anyone else. Then build your services and value proposition within these areas based upon your expertise.

Understand Where Your Money is Coming From
During the times when the OPM--Other People's Money--mantra was the dominant one and when everyone was going after VC money, team Cairo bootstrapped. They had built their business around the "cash-flow positive" principle and it paid off, helping them accumulate enough reserves so as to start growing exponentially larger and larger. Then the banks started knocking on their door to give them more money.

Their strategy was simple but rewarding--focus your energies on cash-flow and concentrate on how many people/processes you could bring on revenue earning situations rather than getting them for overhead positions.

Stretch Your Dollars
Bootstrapping instills a tighter and realistic fiscally responsible mentality amongst the management. It forces you to stretch your dollars and get more done with less. This is what Ray and Alba did. One cost of this strategy was that both did not take salaries for the first 14 months, living off their savings. They also endured quite a few agonizing moments deciding about every decision involving expenses.

The lessons are that you must establish strict cash flow management early on--do not spend until money is received--and employ all sorts of creative financing mechanisms to quickly secure incoming payments and slow down the outgoing payments.

It's a Meeting of Values--And a Meeting of Minds
You can't build a great business without a team, and you can't put together a winning team if it does not gel well. The founding team of Cairo gelled well since the beginning because the members had shared their vision and values. Because of this, it was able to bring other people on board who were critical for the growth of the company.

The lesson is that common values--honesty, integrity, strong work ethics--are highly critical for the success of a startup.

Even though Alba and Ray started Cairo Corporation when the economy was expanding and many companies were launched, the real sign of their success is that Cairo has been profitable since the beginning and is still growing when the economy has been contracting for some time. The key to their success is quite simple--adhering to the basic principles of building business like thorough planning, executing the plan, working within the area of expertise, instituting realistic cash management procedures, following strict fiscal discipline and putting together a team of common values. The bottom line is that even in the gloom-and-doom days of post-bubble bursts, one can operate a profitable company if one sticks with the basics.

Strategic and results-oriented, Sunil is an entrepreneurial consultant who founded a B2B ASP for the Building and Construction Industry. He is the CEO of Cerebral Works Inc., a strategic management and technology solutions firm. He publishes a business and marketing planning  e-newsletter. An avid mountain climber and runner, Sunil has climbed Mt. Kilimanjaro and various peaks in the Himalayas and finished the Detroit Marathon. He holds an MBA degree from the University of Michigan, Ann Arbor, and a BS in Electronics and an MS in Mathematics from the BITS, Pilani, India. He can be reached at (703) 395-9812 and at sunilsharma@cerebralworks.com.