Venture Capital: Intrepid start-ups hitting the Rolodexes
By JOHN COOK
SEATTLE POST-INTELLIGENCER REPORTER
Friday, December 6, 2002
Corporate spending on technology remains in the gutter, and recent reports indicate that it may not get much better next year.
So how do early-stage start-ups -- without the name recognition of a Microsoft or IBM -- sell unproven technology products to wary corporations?
That's a question many entrepreneurs are struggling with as the tech slump enters its third year.
Pitching new software or networking equipment is not easy these days. But a few courageous start-ups, which only recently began revving up the marketing engines, hope they can succeed amid one of the worst climates in the technology industry.
Bellevue-based Consera, a 9-month-old start-up that is developing software to help corporations better manage data centers, is one of those companies. It plans to release its first product -- Dynamic Resource Manager -- early next year.
Founded by a group of former Microsoft technologists and backed by Ignition, Consera is trying to thaw the icy business climate at Fortune 500 companies by marketing its software as a cost-saving necessity.
It's a common tactic.
With technology budgets squeezed and chief information officers under pressure, Consera says it can ease the financial strain now plaguing information technology departments.
Companies "are not just throwing money out there, they are being deliberate about their spending," said Pamela Roussos, vice president of marketing at Consera. "But the fact is, they are still spending, so if you can show that you can save them money," it can result in sales.
Consera's management team also is relying on contacts from previous work experience, primarily at Microsoft, to get in the door at larger companies. Chief Executive Officer Frank Artale spent nine years at Microsoft, including a stint as general manager of the Windows 2000 group. Four of the five top managers at the start-up have roots that go back to the software giant.
"A lot of it now is relationship-based ," said Roussos, the former CEO at 555-1212.com. "If we were sitting in front of a room of entrepreneurs giving advice, we would tell them to go to their Rolodex and really work the relationships."
That's something that Vizx Labs founder Tom Ranken is doing. An Immunex veteran and former president of the Washington Biotechnology & Biomedical Association, Ranken is chatting up friends at the University of Washington and the Fred Hutchinson Cancer Research Center about his company's 2-month-old bioinformatics software.
Ranken admits that it is difficult to market the product -- dubbed GeneSifter -- without much cash. But he has found ways to get in front of the scientists and researchers who would potentially use the technology.
In addition to phone calls and meetings with established contacts, Ranken is sending members of his 11-person company to trade shows and conferences at a rate of about one per month. Next week it's a cell biology conference in San Francisco.
The company also caught a recent break when a Japanese company agreed to distribute and market GeneSifter in Asia. While a little bit of luck played a part in sealing the deal, Ranken said the partnership "has worked out great so far." Now, Ranken is trying to do something similar in North America and Europe.
Three years ago, Ranken said, his company probably would have been attending every conference, hiring dozens of business development staff members and coordinating advertising campaigns in an effort to win customers.
Now, because of the high-tech slow down, he said, the goals of the company are more modest.
"The strategy here is not to take over the world in the next six weeks but rather to bootstrap the company and the product," said Ranken, who raised $1 million in angel financing in September. "Our immediate goal is to reach cash flow positive, not to build $100 million in sales that costs us $250 million to get there."
That sort of business focus is also motivating Gwen Spertell, the recently appointed chief executive of Bellevue-based Intelligent Results. Spertell, who joined the maker of data analysis software in October, only recently began marketing the company's first product.
While Spertell said the lack of corporate spending "is a big problem for the whole industry," she is confident that niche markets can be carved out in certain industries.
That's why her company recently decided to switch from a broad-based marketing approach to one that focused only on financial institutions.
As part of that effort, Spertell recently turned down a business contract with a consumer products company because it did not fit the company's target customer base.
Turning down business in this market is tough to do. But Spertell said it is necessary for a small company with a tiny sales force.
"You can't let yourself get too splintered because then you can't deliver," said Spertell, whose company employs 38 people. "It is not easy but you have to learn how to say no. Learning how to say no is just as important as saying yes."
Intelligent Results, with six customers, has relied on other tactics to drive sales.
Like many venture-backed start-ups, company executives are using board members from Ignition and OVP Venture Partners to make introductions. Those contacts recently resulted in a series of meetings with a major West Coast bank, Spertell said.
Still, not every start-up has venture capitalists working on its behalf. And even if they all did, those connections don't necessarily translate into sales in an environment where few corporations are taking risks on new technology.
Some reports in recent days have suggested that sales of computer chips, security software and other technologies may be improving.
But a report last week by Deloitte & Touche found that 85 percent of venture capitalists expect technology spending to remain stagnant for the next 12 months. Recent studies by Gartner and IDC found that technology spending in the United States will shrink or grow only slightly next year.
That's not good news for start-up companies with limited track records.
But Roussos, for one, is prepared for the challenge.
"At a start-up, nothing is ever easy," she said. "So you have to be mentally prepared to go through the difficult times."
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