Small Companies, Big Returns

By David F. Carr  |  Posted 2003-10-01 Print this article Print

You don't have to be big to be smart.

Inder Guglani had at his fingertips something most big corporate execs can only dream about: A blank sheet of paper on which to plan his information technology strategy.

Guglani is co-founder of Emoonlighter.com, an online marketplace for freelance writers, programmers and other knowledge workers. He spent frugally when he launched his service in July 2000, a discipline that's kept him in the game while more free-spending rivals have struggled.

"We chose a path to profitability, not a path to IPO," says Guglani, sitting on a barely used Aeron chair purchased at a sale of assets from now-extinct online grocer Webvan.

The company he and Dr. Kannan Srinivasan created, formerly known as A2Zmoonlighter, is on track to reach annual sales of about $10 million next year, he says—about $1.25 million in productivity from each of its eight employees. The Pittsburgh-based company does not release its financial data, but Guglani says it has had a positive cash flow since November 2001 and is profitable. The firm says it has the names of more than 320,000 contract workers and more than 30,000 employers in its database, which runs on a used Dell 6450 server it bought at a bankruptcy auction.

Emoonlighter's success is a reminder that big companies can still take some lessons from small ones—in this case, how to prepare for growth without overspending on computers and software. Each of the five companies profiled on the following pages rings up less than $500 million in annual sales. But all have scored outsized success using information technology, from Hot Topic's newly installed wide area network, which turns its store staff into instant sentinels of market trends, to Pediatrix's ability to mine clues from mounds of data to improve the weight and life expectancy of newborns. The Dallas Mavericks put bar codes on tickets, not just to track sales of the ducats, but to make sure they are selling them to folks who actually fill the seats.

To be sure, scale matters. Large and small companies can't do everything the same way. A big-time chief information officer, for example, isn't likely to shop for used equipment as Emoonlighter did. But any project manager can appreciate Guglani's focus on cost and value, his drive for efficiency even when the market condoned the opposite approach. "When funding dried up, it just made it tougher for our competitors who were burning cash," says Guglani. "We were very lean to begin with, so the market worked in our favor."

When Emoonlighter opened its doors, it had four employees and two Dell servers—one for data and one for the Web—along with a workstation for its lone information technology employee, and a low-end Dell PC running Red Hat Linux and a free e-mail program. Guglani, who provided some startup funds out of his own pocket, and his marketing director used their personal PCs. "We got started with approximately $28,000, which I felt was ridiculously high," he says of the original investment in technology. Connectivity came via a $40-per-month DSL connection to the startup office—his basement.

By November 2001, the company had survived a devastating loss of connectivity; Emoonlighter's Web traffic had been routed through Verizon's New York center, which was destroyed in the 9/11 attacks. Emoonlighter found a less-expensive provider of Internet service, Telerama, and began generating more cash than it expended on operations.

It added a refurbished Dell 2400 server—total cost: $2,800—for Web and data backup. In January 2002, Emoonlighter picked up three more servers, a Dell data storage unit, and a Cisco switch at a bankruptcy auction, all for $3,500. Overall, the company spent about $105,000 for information technology in its first year, including $30,000 on hardware and software, and $75,000 on its one-person IT "staff."

"Before we take credit for not spending money, I have to say, we never had money," says Guglani, if the $400,000 of venture capital he raised qualifies as nothing. It's certainly small change compared to Guru.com, a San Francisco competitor, which burned through $63 million in funding. This summer, Emoonlighter bought for an undisclosed amount Guru.com's database of worker profiles; Emoonlighter will assume the Guru name in January. Its largest remaining competitor, Elance, raised a $68 million bankroll. Guglani says Elance, which has about 100 employees, was roughly 10 times larger than Emoonlighter 18 months ago in terms of the number of job placements, and is now about 30% larger than his company.

Guglani will spend where he must. "One of my three tech guys has a Ph.D. in database technology," he says. "Does he work cheap? Not at all. But our database is one of the most critical components of what we do."

Like the other companies profiled here, Emoonlighter will have to stay nimble as it grows. That's the thing about small companies: the good ones don't stay that way.

David F. Carr David F. Carr is the Technology Editor for Baseline Magazine, a Ziff Davis publication focused on information technology and its management, with an emphasis on measurable, bottom-line results. He wrote two of Baseline's cover stories focused on the role of technology in disaster recovery, one focused on the response to the tsunami in Indonesia and another on the City of New Orleans after Hurricane Katrina.David has been the author or co-author of many Baseline Case Dissections on corporate technology successes and failures (such as the role of Kmart's inept supply chain implementation in its decline versus Wal-Mart or the successful use of technology to create new market opportunities for office furniture maker Herman Miller). He has also written about the FAA's halting attempts to modernize air traffic control, and in 2003 he traveled to Sierra Leone and Liberia to report on the role of technology in United Nations peacekeeping.David joined Baseline prior to the launch of the magazine in 2001 and helped define popular elements of the magazine such as Gotcha!, which offers cautionary tales about technology pitfalls and how to avoid them.

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