High hopes

Entrepreneur, March, 1999 by Heather Page

Small high-tech entrepreneurs express even more optimism than their big-business counterparts. So what does David know that Goliath doesn't?

A small high-tech company must scale many walls if it wants to transform itself from a wannabe into the next Amazon.com or Intel. In addition to the typical demands of running a business, tech entrepreneurs have a whole different set of issues to deal with when growing their companies. With today's dearth of technical workers, they must find creative ways to retain employees who could quit and find a higher-paying job the very next day. High-tech entrepreneurs must learn to strike a balance between their dual roles as chief technologists and CEOs - and bring in help if their shortcomings become apparent. And they must struggle to reinvent their companies if market demand evaporates with just one move from Microsoft or another giant.

Growing a tech firm, one that manufactures or provides technology products or services, or sells products or services exclusively through the Internet, is subject to unforeseen circumstances well beyond an entrepreneur's control.

But that doesn't mean small high-tech companies are letting reality rain on their parade. By and large, tech firms see good times ahead. In fact, according to a recent study by PricewaterhouseCoopers LLP, CEOs of small high-tech companies expect to achieve stronger revenue growth than their larger counterparts: Small companies anticipate a 27.1 percent revenue increase through midyear, compared to 18.5 percent anticipated growth at large companies.

"The outlook at many high-tech companies is quite optimistic," says Murray Alter, tax partner in charge of tech and venture capital with PricewaterhouseCoopers. "Many have grown in sales and customers, and geographically in outreach. Despite [the Asian economic crisis], they continue to see strong growth in the near future."

Indeed, the economic outlook remains rosy for high-tech businesses. Still, cutting-edge entrepreneurs anticipate several potential barriers to growth. According to the study, more than two-thirds of the CEOs surveyed at small tech firms rite a lack of qualified workers as a stumbling block to achieving their revenue goals. Concern over market demand (43 percent), legislative and regulatory pressures (32 percent), competition from foreign markets (13 percent) and their own ability to manage or reorganize (26 percent) weigh heavily on their minds as well.

Taking this into account, we look more closely at these and other growing pains plaguing small high-tech companies - and what some successful entrepreneurs are doing about it.

THE HIRING LINE

According to the PricewaterhouseCoopers study, 84 percent of small high-tech firms plan to add more workers by midyear. Small tech firms desperately need more workers if they want to achieve their lofty revenue goals. Consequently, the majority. are laying out the welcome mat for new employees.

Yet finding and retaining qualified employees remains a tall order for tech companies of all sizes. Competition for talented techies is verging on the cutthroat in a job market that remains startlingly constricted.

Experts say offering flexible work environments, generous stock options and an anything-goes dress code isn't enough anymore. One of the best ways to attract and keep talented technical personnel is to embark on new, innovative projects. "These are people who need a challenge," Alter says. "They put their heart and soul into their work - and need to have excitement."

Linda Yates, CEO of Menlo Park, California-based Strategos Inc., an innovation strategy firm that specializes in collaborative learning software, is providing just that. "We wanted to become the antidote to Dilbert," laughs Yates, 35. "So many people are disconnected from work, yet they spend so much time there. We wanted to find a way to get people really excited [about their work]."

A key part of Strategos' philosophy is creating opportunities for innovation within the company, which now has 30 employees. "Companies are losing out on opportunities by not providing their employees with what they need [to be innovative] inside the office," Yates explains. "There's no law that says companies can't build inside if they create a space for people to do that. That way, [employees] don't need to create spin-off companies."

It's not surprising that Strategos is taking a creative approach to building employee loyalty. In fact, innovation is what the firm is all about. So far, three businesses have been created under the company's umbrella: Strategos, an innovation consulting company; Strategos Institute, a think tank for innovation ideas; and Strategos Innovation Environment, a software company that creates Web, video and CD-ROM tools for collaborative innovation. Employees are given responsibilities in all three businesses to keep their interest level high, and many have been influential in developing these companies from the ground up. "We give employees more free rein," says Yates. "We don't micromanage people. They get to be innovative."