Believe it or not, plenty of successful dot coms are still alive out there. And they are actually turning a profit. SmartDraw.com, a San Diego-based dot com that sells commercial drawing programs, is one of them.
SmartDraw was profitable without ever needing venture capital funding. Paul Stannard, 47, its CEO and founder, wrote a software program that sold from the day he put it on the market. The story of how he conceived and perfected his product and successfully guided his dot com amounts to a solid business lesson.
Combine business sense and common sense
Stannard was an early adopter who embraced the rapid technological changes being wrought by the emerging Internet economy. From the onset, he had two things in his favor. First was his impressive technical credentials. Second, and more important, he had real-world business experience. The lack of the latter credential was a major cause of the early demise of most dot coms. He also had previously witnessed the equivalent of the dot-com bust when software companies toppled after the early-1980s software boom.
The foundation of SmartDraw was Stannard’s programming skills, which he taught himself when he wrote his doctoral thesis in chemistry. His expertise with FORmula TRANslator (FORTRAN) was the impetus for mastering advanced programming languages so he could change careers and become a programmer.
By the early 1980s, Stannard realized that the place to be was writing software for the growing PC market. During the software boom, he became a much sought-after contract programmer who wrote applications for major companies, including Microsoft and Apple. Those projects led to Stannard’s stumbling upon a potential marketable product.
“While mastering practical user interfaces, I began writing a number of graphical programs,” he said. He was so good at graphical programming, he created a commercial flowchart drawing program and put it on the Internet so businesses could buy it. By day, he worked at high-paying contract programming jobs, and by night, he marketed his first drawing program for creating flowcharts and organization charts as well as diagrams. In 1994, on his 40th birthday, he launched SmartDraw, with the goal of writing the world’s best drawing program.
Start small and build a strong foundation
Stannard’s approach to getting his company off the ground can serve as a business lesson for software developers with entrepreneurial fantasies. To begin, he was a fanatical pragmatist intent on keeping his business simple.
“My goal was to create a virtual company,” he explains. He launched SmartDraw with $2,000, which was used for incorporation, trademark registration, and office equipment.
Furthermore, Stannard didn’t give up his contract work until he knew his company was solidly off the ground. He intended to bootstrap all the way. “You can’t bootstrap a biotechnology start-up, but you certainly can do so with software because there is no capital investment other than labor and creativity,” said Stannard.
He also held off hiring his first full-time employee until 1997, when he rented a small office and was committed to working full time at his company. By then, the business was raking in consistent revenues. It had proven itself in its first three months, when it sold $3,000 worth of software. After that, revenues steadily increased. In 1995, SmartDraw’s first full year in business, revenues were $143,000. Last year, revenues exceeded $2.5 million, and $5 million is projected for this year. Now, Stannard has 17 employees and four versions of his software ranging in price from $50 to $100.
Stannard’s secrets to success
First, his online business model is similar to direct-mail selling. He keeps his pay-per-click costs down by buying banners on small, inexpensive Web sites.
“If it costs more to bring visitors to the site than you make from each visitor, you’re going to go broke,” Stannard explained. “But if you make more than it takes to bring each visitor to the site, you’re going to make money.”
Second, avoid markets that are already owned. Third, keep costs down. “Buy based upon immediate need,” Stannard advised.
And fourth, if you’re unsure of whether you’re cut out to be an entrepreneur, test-drive a business in your spare time. You’ll find out soon enough whether you like it.
Stannard sums up his advice this way: “Keep your overhead low, make money, bide your time, and build your market.”
It’s that simple.
Signs of impending doom
If a conservative growth strategy and an insistence on profits are two keys to success, what choices lead straight to failure? Have you watched competitors or colleagues make bad choices with far-reaching effects? Send us an e-mail and share your experiences.
In Bob Weinstein's next column, he'll talk about the rise and fall of theglobe.com and how its founders made and lost a fortune.