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Did you hear the one about the entrepreneur who thought technology would save his company? Now, there's a joke guaranteed to liven up any gathering of small-business owners. Sure, technology can be like Lassie--a faithful companion who will rush to the rescue if you get into trouble. But make a wrong decision, and it can turn into a snarling beast that could tear your company apart.

For virtually every small-business owner today, the critical issue of changing technology boils down to one impossibly complex question: how to manage it coherently. Everyone knows you can't stand still; change is an imperative for small companies. Their spending on technology alone is evidence of that, soaring from $67 billion in 1995 to $85 billion last year (chart). A company with 20 to 49 employees that wants to stay up to date will spend an average $88,000 a year on tech, and that's expected to rise at double-digit rates this year.

But change is fraught with risk. Move too soon, and you could end up wasting time and money on glitchy new software or a customized system that's poorly designed. Move too late, and you'll be left behind by your customers, disparaged by your employees, stomped by your rivals' efficiencies. Some choice: Trojan horse or white elephant.

That's just part of the conundrum. Industry hype and rosy hopes for expansion can induce entrepreneurs to buy systems they can't afford to maintain. Consultants--either incompetent or overly focused on technology for its own sake--can lead owners into a digital tar pit. And this all takes place in a world that last year saw announcements of about 4,000 new business technology products--250 of them targeting small companies. You couldn't possibly buy them all or, if you did, have time to figure out how they work.

In short, managing change is about as easy as dancing on a spinning top.

Even companies that should be tech-savvy can lose their balance. Consider eLabor.com, a Camarillo (Calif.) software startup that sells a workforce management tool. Before its Web site finally got up and running, some parts had to be reconstructed two or three times. After investing more than $500,000 and bringing in a staff of experts, the system collapsed completely four months into the project. "The 'experts' asked the wrong questions of the wrong people, and we gave them the wrong answers," admits President Michael Edell. "It was a predictable failure but one that should have failed sooner and at less expense."

And what of those who are less surefooted? A miscalculation can be fatal. Consultant Geoffrey D. Knapp, CEO of CAM Commerce Solutions, a Fountain Valley (Calif.) provider of computer systems for retailers, recalls an entrepreneur in San Francisco who several years ago built a single store into a chain of five gift shops called Headlines. He had big plans for expansion, so he switched to a complete retailing computer system that controlled inventory, purchasing, point of sale, merchandising, and personnel. Trouble was, the system was designed for a much larger operation, and the cost of maintaining it was a financial drain. Instead of expanding, the company went bankrupt.

No wonder a Gartner Group Inc. study found top managers rank handling technology among their three leading concerns. Similarly, a new study due out this month from AMI-Partners Inc. found signs of a nascent backlash against the high costs and hyperbolic claims for Web-based services.

DEVELOPING A PHILOSOPHY
Hope as you might, there are no cookie-cutter solutions to picking the right technology. Instead, it boils down to philosophy--a matter of mind-set. Those who do it well plan change to advance their business goals. They understand that technology is a tool, not a fix, and that it needs to be managed with care. They move at the right time by keeping an ear to the ground. They make sure their decisions straddle the line between what's next and what's proven. Above all, they realize that it won't always be easy. "If there is one thing you can count on with technology, it is failure, frustration, and delay," says Gary S. Lynn, a professor of technology management at Stevens Institute of Technology in Hoboken, N.J.

Surely the first pitfall is inaction. "Sustainers" who hold on too long will see the warning signs, if they look. As maintenance costs rise, their old dinosaur starts to chew through their financial resources. Workflow slows, customer support becomes harder to get, key employees move to better jobs. Customers will start to complain that their systems are incompatible--and "will eventually vote with their feet," says William Schiano, a professor of information systems at Bentley College in Waltham, Mass. It may seem like fuzzy thinking, but don't underestimate the perception of customers and employees. The digital economy has created a powerful desire among cutting-edge people to use the "next best thing that comes along," says Andrew Banks, CEO of Mid-America Consulting Group Inc. in Beachwood, Ohio.

If lagging is a liability, so is rushing in. Granted, something better and cheaper is always being introduced. But the first users usually end up paying top dollar for the dubious privilege of testing products that are often unproven, and ultimately unsuccessful. (Remember network computing, killed off in less than a year by powerful, low-cost PCs? Remember Betamax?) Frequently, business owners underestimate the time, complexity, and cost of integrating a new system into the company. Technical support may be scarce, customers may not understand it, and their old systems may not communicate with it. "Those that are 'first on the block' are also going to be the ones who suffer the bugs, glitches, and security loopholes," warns Stan Hunter Kranc at Wonderworks Publishing, a technology consulting firm in State College, Pa.

The solution: Don't be an early adopter. Instead, profit from pioneers' mistakes. "If you can live with it, being a second mover is more cost-effective," says Cynthia Hollen, CEO of Knowledge Strategies Inc., a New York e-commerce strategy consulting firm. It's like playing poker: The goal is to remain in the game as long as possible, anteing up only what's necessary to see new cards. That means waiting for reviews to appear in mainstream, nontech publications, thinking twice if a new product is still so scarce that few vendors stock it, and being wary of any software release called "1.0."

A TECHNOLOGY PLAN
The best players have a clear strategic vision for their company. In fact, a "technology plan" should be an integral part of any business plan. Ask first what business goal you want technology to achieve. Consider also the cost and potential return--the benefit to both employees and customers. "Technology features should not drive the decision," warns Larry Shoup, president of Janus Technologies Inc. in Pittsburgh. Just because accounting can now be done online for free doesn't mean you should ditch Quickbooks, a program that everyone, including your accountant, understands. When you're toting up the costs and benefits, consider the benefit and cost to employees, partners, and customers.

With that in mind, shorten your horizon. Look for simple-to-learn products that fulfill a tangible, near-term goal, not a long-term, vaguely defined gain in efficiency. Why? Because in a world where technology life cycles are so short, plans spanning 5 to 10 years will be useless, and so will products you plan to use that long. A horizon of 18 to 24 months makes more sense.

What makes for a bold plan? Your best bets will likely involve heavy investment in cutting-edge technology that lets you offer customers an important new service ahead of the competition. That's what Ozark Motor Lines Inc., a trucking company in Memphis, did recently, after analyzing how it could use the Internet. In the past, like most shippers, customer-service staff at Ozark spent huge amounts of time on the phone telling clients where their loads were. Now, customers can track shipments by themselves on the company's Web site, which provides continuous global-positioning system data transmitted from each truck's cab. "By being on the leading edge, Ozark tied itself more closely to its customers and won the opportunity to poach customers from competitors who still worked the phones," says Billy Hollis, general manager of Oakwood Systems Group Inc. in Nashville, which advised Ozark.

WHOM CAN YOU TRUST?
If you can't afford an in-house tech manager, consultants can be helpful. Choices range from independents who charge by the hour--figure on about $50 to $100--or local tech merchants known in the trade as resellers. Either way, be wary of their recommendations, which sometimes are determined by which manufacturer "educated" or marketed to them most aggressively. Insist they lay out alternatives and detail the rationale for their preference. And don't be afraid to challenge their premises and reasoning, regardless of your knowledge. "The consultant gets paid, no matter what happens, and usually before anything bad happens," notes Richard Luettgen, a consultant at Technology & Business Integrators in Woodcliff Lake, N.J.

With or without one, it's almost a given that delays will occur, no matter how clear the strategic imperative. You'll have to include that in your plan. Consider Bernard Food Industries Inc., a 53-year-old family-held purveyor of more than 1,500 sugar-free, low-fat, and low-calorie food products. Traditionally, the company sold primarily to hospitals, nursing homes, and other institutions. In 1996, Steve Bernard, the founder's son, decided to tap the consumer market, which brought in only $100,000 of the Evanston (Ill.) company's revenues of $18 million to $19 million.

How to reach consumers? Bernard looked into the future and saw the Web. Just a handful of companies were marketing on the Net at the time, but Bernard wasn't deterred. The first effort, by a Chicago area Web development and hosting service, was completed in November, 1996, but the entire project was lost when that company folded. Next, Bernard turned to a telecom giant that promised the moon but outsourced the job to a subcontractor that couldn't build the site. Finally, the third developer he hired finished the job in 1998, two years off schedule.

Despite the setbacks, Bernard has no regrets. The site, diet-shop.com, has quintupled retail sales, to about $500,000, and is on track to do $1 million in 2000. "We didn't turn to the Web because other people were doing it but because we knew where we wanted our business to go," he says.

THE HUMAN FACTOR
People count. Don't forget to include employees' attitudes in your planning--something entrepreneurs all too often fail to do. "Resistance is the main reason why major technology projects die," says Rick Maurer, author of Beyond the Wall of Resistance (Bard Press, 1996). People often fear they will lose control over their work or that change will "add time and hassle to their jobs--or worse, that they might even lose their jobs," says Maurer.

Only training will persuade them otherwise--and get them to use the technology effectively. "Without adequate training and support, all the technology in the world is basically worthless," says John Memar, president of Medac Inc., an anesthesiology billing-and-practice management specialist in Augusta, Ga.

Outsourcing can also help blunt the impact of change on employees. "Only technologies that are mission-critical and deal with sensitive, highly confidential information should be managed in-house," argues Mary Alice Lawless, CEO of ClickUpdate in Morristown, N.J., an "application service provider," or ASP, that provides companies with a system for managing and updating catalogs and sales materials over the Web. Another benefit of a well-run ASP is that it helps reduce risk (Digital Manager, frontier, Apr. 24). A small company can outsource key software--from human resources to accounting, marketing, and supply-chain management--and access it through the Web. Without having to own the infrastructure, the total cost of ownership is the monthly fee. "If you make shoes, then be the best shoemaker and leave the technology to the technology people," says Michael Edell of eLabor.com.

SAVE, DON'T SKIMP
Still, there's gear that every company needs, from desktop computers and modems to servers and telecom equipment. You may not want to own that either. To control costs and keep up with technology, small companies are turning to leasing. By leasing, you get state-of-the-art technology, paid for with manageable, predictable monthly financing, plus the opportunity to trade it in for the next generation at regular intervals. The cost after taxes is comparable to buying, and you're able to preserve your capital for purchases that might grow instead of depreciate from Day One.

If you do buy, it's always tempting to wait for prices to drop. But experts advise focusing on value when buying expensive systems (as opposed to PCs): While waiting, you may be putting off changes vital to survival. "The money you think you might be saving will not come close to what you could lose," says Bahram Yusefzadeh, who heads Phoenix International, a Heathrow (Fla.) company that specializes in software for small community banks. "Jump in now, close your eyes, and don't worry about pricing," advises Jeff Multz, who founded Emerging Market Technologies Inc. in Atlanta when he was in college in 1986 and built it into a $2 million company. "If you wait, you'll always be waiting."

Even in simple matters, skimping can wreak havoc. Lois Melbourne of TimeVision Inc., an Irving (Tex.) startup that produces Web-based organizational charts, recalls how a key secretary in the company was given the oldest computer in the office, with puny memory, even though her work required keeping multiple applications open. The machine crashed constantly. The woman held her tongue until she was "ready to throw the computer out the window," says Melbourne. "All of this for a few hundred dollars' worth of RAM."

THE MORE THINGS CHANGE...
Once you have it all figured out, what do you do next? Start over again. Listen to your employees, particularly salespeople in touch with customers and your customers themselves. "Internal people will complain that their computers keep crashing, and external people will say you aren't moving quickly enough for their needs," says consultant and author Marc Kramer of Kramer Communications in Downingtown, Pa. Also, keep a jaundiced eye on competitors. Ask yourself if they're doing a better job, whether tech plays a role, and what they are using.

So how does a company tame the techno beast? With attitude. If you see technology as a cost of doing business, you may be doomed to failure. If you view it as your Holy Grail, you may have lost sight of what really matters. If you pick your way through the bewildering options and plan strategically, you just might end up with a loyal ally that will be eating out of your hand.