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ENTREPRENEUR PROFILES

7.29.99  
How to Succeed in Business Without Money
Onvia.com's founders used creativity to beat their lack of cash

Penny Pinchers In today's high-tech mythology, entrepreneurs who don't have venture capital right off are losers. After all, product cycles get shorter everyday. And nothing helps like cold cash when you're trying to get a product out first. Good thing Glenn Ballman didn't pay all that much mind when he started out in business two years ago.

The Vancouver (B.C.) entrepreneur had an idea that was really novel at the time. His Web company, then called MegaDepot.com, aggregated shopping and services aimed at Canadian small businesses. Most sites just sold one type of product. And small-business offerings were still few and far between. No VCs were waiting in the wings to fund Ballman. That didn't deter him, though.

Ballman, then 25, had $20,000 (U.S.) of his own for startup money -- which got him a windowless walk-up for an office with a few sticks of furniture. When visitors called, Ballman and four colleagues would dash down to an obliging furniture store on the street below and lug back leather sofas, plants, and artwork. They even borrowed computers to pad out the office's paltry array. "If they had come back in two hours, [the place] would have been empty," he says. Twice, Ballman pawned his CD player -- his only asset aside from an 11-year-old Renault -- to keep the phone service on. Lacking anything more portable, he hauled his server to client demonstrations. When short of gas money, he crashed in a sleeping bag on the office floor.

"It's the Wild West -- you've got to get things done, and little details like furniture are inconsequential. Working on the bigger business model was all that mattered," he says with a shrug.

In February, 28 months after he began, his company got $11.7 million in venture capital from Mohr Davidow Ventures, Internet Capital Group, Stanford University, and individual investors. That gave the fast-growing company the cash to launch a site for the U.S. market, Onvia.com, and capitalize on the success of its Canadian business, which was becoming a force to be reckoned with in that country's online office-supply market. The company, which has taken the name Onvia.com Inc., also quadrupled its staff from 15 to 60 people in 90 days, expanded its office space to 20,000 square feet from 1,200, and launched a glossy ad campaign.

Onvia.com's scrappiness endeared it to the VCs. "We've heard some crazy stories from them," says Nancy Schoendorf, a general partner with Mohr Davidow. "But that's one of the reasons they struck us as such outstanding entrepreneurs. Right now, times are very strong for lots of companies, but every company also goes through tough times. You've got to be sure you have entrepreneurs willing and able to drive the company through those times too."

Ballman is unabashed about his group's single-mindedness: "It's a company full of triathletes, long-distance runners, mountain bikers, and hockey players. We'd sooner totally burnout and collapse and end the day like that than be just an OK player."

A Saskatchewan farm boy, he surfed around the South Pacific for a few years after college, then worked for an E-commerce company, where he started thinking about Web companies that serve small businesses. In 1996, he and Rob Ayer, his former boss, struck out on their own with the original MegaDepot.com idea. It took them eight months to develop proprietary software that all their suppliers could use and four months to persuade a bank to let them accept credit-card orders over the Internet.

Glenn Ballman 
Glenn Ballman

Their model was to get wholesalers to send the goods directly to the customer -- after slapping their company label on them. That meant getting big companies used to dealing in small quantities. "They had never done shipping with a company like ours, and we had to teach them how to do it, endure their laughter, and come back again and again," says Ballman. The cash situation was always dire. As a new company without assets, no one would give the venture credit.

Ballman's $20,000 ran out fast -- on Day 90 of his venture's short life. Unfazed, he launched a second company, SunCommerce Corp., that designed E-commerce sites. Ballman, Ayer, and Eden Clark, a third principal, found clients by keeping abreast of new sites. They would then approach companies' competitors and offer to get them up on the Web in 60 days. All SunCommerce's proceeds went back into MegaDepot, often within the hour -- especially on payday.

Their biggest challenge was building a customer base with no marketing budget. The entrepreneurs urged customers to promote the company to friends via E-mail. They got clients to share customer lists and ran contests for PalmPilots.

By January, 1998, five months after the site went up, revenues reached $100,000 a month, and kept growing by 30% to 40% a month after that. "That's when we knew it was a viable concept," says Ballman. They weren't rich yet, though. They lured top job prospects using founders' shares, not salaries, as bait. They were constantly angling for ways to get cash. Even new hires were fair game. "'How much open balance do you have on your credit cards?' isn't a standard interview question, but when we had lunch, and they took out their wallet, we'd think, 'Hmm, a gold card,'" Ballman says with a chuckle. "Every day, we had to be so creative and come up with new ideas to stretch dollars," recalls Clark, now public-relations director. "It was stressful, but at the end of the day, we'd say: 'We're going to look back and laugh at this someday, because we're all going to be millionaires.'"

In June, 1998, they moved the company to Seattle -- their plan since Day One -- to be closer to the vast U.S. market. Last November, six angels pitched in $50,000 each, enabling the company to develop an investment plan. At that point, the site listed 25,000 products, as well as services such as payroll outsourcing, marketing tips, Web design, Internet access, long-distance phone services, debt collection, and recruiting. In January, 1999, Ballman finally started looking for venture capital.

Investor appetite was whetted by market research predicting that the business-to-business markets online will far outstrip cyber consumer markets. Onvia.com received term sheets from five VC groups over 10 days in February. The company closed a deal with Mohr Davidow in 23 days. About 70% of the funding will go to marketing, advertising, promotions, and partnerships, the rest to equipment upgrades and staff.

But Ballman didn't give away the store: He still has 20% equity and other employees have 60%. The penny-pinching continues: Employees share hotel rooms on trips and eat take-out food. They still work in an open room without dividers. They have permitted themselves a few perks: Ballman's new car, a 13-year-old Honda Accord, is worth $2,000 -- twice as much as his Renault was. And the company did finally buy those three leather sofas from the furniture store. "At a good price, of course," says Clark with a laugh.


Second in series on penny-pinching startups.

By Meg Lundstrom in New York

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