Shuja Keen, 25, is the grandson of a lifelong, serial entrepreneur, has a management science degree from the Massachusetts Institute of Technology and was offered a job at J.P. Morgan upon graduation. Brent Habig, 32, is the son of a biochemist and nurse, majored in Chinese literature and piano performance at Oberlin College, and was offered a job in textbook development at Princeton University. Both started Internet-based businesses. Today, Habig presides over a profitable company and Keen is in the process of liquidating his.
To hear Keen's story is to understand why some venture capitalists prefer to fund entrepreneurs whose companies have failed over those who have never had a chance to see, firsthand, how a business can go wrong. Keen seems to have learned a lot -- about what not to do -- during the two-year life span of HauteDecor.com, which closed on Aug. 1.
Although Keen had taken the job at J.P. Morgan, he realized that being an entrepreneur, not an investment banker, was what he should be doing. In the summer of 1999, he called a mentor at MIT -- Ken Morse, who heads the Entrepreneurship Center there -- on the same day that another alumnus, venture capitalist Kevin Kinsella, also called Morse. Kinsella was starting HauteDecor.com and was looking for a bright young graduate to write the business plan.
GOOD TIMING, BAD TIMING. Keen called Kinsella and was part of his team before the day was over. The company, which opened offices in the Flatiron District of Manhattan, already had a CEO: Tony Dunne, an interior designer who had worked on residences and movie sets. HauteDecor would give the average consumer access to high-end furnishings that otherwise could be obtained only through a designer or architect. At the same time, it would give the professional designer a streamlined way to order such furnishings without having to schlepp through "to the trade only" showrooms.
In late 1999, as Keen and company were hammering out their business plan and gearing up the technology to execute it, Living.com and Furniture.com had already launched as home furnishings retailers. By May, 2000, when HauteDecor got its second round of financing, $12 million, Living.com had just gone out of business and Furniture.com had just pulled its initial public offering. Keen thought that by targeting mainly designers he could differentiate HauteDecor. By the time HauteDecor was open for business in January, 2001, the Internet economy was in a serious slump and company execs who had been expecting another round of financing were told to stretch available cash instead.
At that point, the staff, 50 employees and 15 consultants at the high point -- was cut. Marketing plans shrank, too. When no more financing was in place by Aug. 1, the shutdown process began.
What went wrong? "I could write a whole book on that," says Keen, one of a handful of the HauteDecor team spending the next few weeks dealing with leases and inventory they no longer need.
Some of the chapters in his book might be:
"Know your audience." Interior designers are the least Web-savvy people in the world, Keen now believes.
"Technology doesn't always deliver on its promises." The business plan had relied on optimistic forecasts about growth in the number of Internet users and in the availability of high-speed connections. "Nobody's going to zoom in on a furniture detail with a 56k connection," Keen says.
"Keep a narrow focus." HauteDecor should have marketed only to the professional design community and, at least at first, kept its inventory small. That way, the company could have spent much less time and money on technology and inventory, Keen says. It could have added products and customer niches as revenue grew.
"It's all about the team members." Too many people in the company were first-time entrepreneurs, which meant the learning curve was longer than it should have been. Also, not everyone had the passion and perseverance to put in the long hours and hard work it takes to create a new business. "Very few people on the team had a sense of urgency," Keen says. Some of those who signed on from the banking and consulting sectors, looking to make a lot of money quickly, are now back to banking and consulting.
Brent Habig, working a few blocks further north on Fifth Avenue, would agree that having the right team is crucial. At Tigris Consulting, which he founded in 1996, the company culture is so important that job candidates are screened as much for their values and work ethic as for their technological and business know-how.
How does someone proceed from a degree in Chinese literature to becoming founder of a technology company? By way of China.
After graduation from Oberlin, Habig spent a few years in China and Taiwan on a fellowship, where he studied Chinese medicine from a social/cultural standpoint. He had no idea he'd be starting a computer-technology company. Studying a difficult language and learning about a foreign culture seemed like a practical way to broaden his understanding of the world. Says Habig: "It wasn't a career thing at all."
As it turns out, studying the Chinese culture was a good way for Habig to prepare himself for business. When he returned from China to the job of textbook development at Princeton, Habig realized the academic environment wasn't for him. He had been teaching himself computer programming and went on to programming jobs at New York Life and GE Capital in the early '90s. His learning-by-doing route was common in programming.
Rather than simply doing what he was told as a programmer, Habig became proactive in using technology to solve business problems, which he did for GE Capital and as a consultant to Bristol-Myers Squibb. At the latter company, he ended up leading the transition to a global purchasing system. He then decided to make a business out of using technology to develop enterprise systems that would solve a company's problems, from purchasing to packaging to inventory control and beyond.
TRADITIONAL WISDOM. Habig stresses that Tigris, named after the Mesopotamian river whose waters nurtured one of the ancient's seminal civilizations, was about providing measurable savings for companies by designing better systems for them. "We weren't selling Net expertise," he says. "We weren't e-consultants."
In the late '90s, the mantra was: Raise as much money as possible, open offices, make some money, take the company public. "There was lots of pressure to follow that formula," said Habig, who started Tigris with advances on his credit card and has built it on profits. "We endured the storm around the e-commerce boom...those who survived are adopting our model -- ROI for their customers."
Today, Tigris has 70 employees and is working in South America and Europe. It has a satellite office in Chicago and expects to open a West Coast office next year. This is a tough climate for tech-related businesses, including Tigris, which recently hired its first chief marketing officer. Still, Habig says, the company has a solid base of Fortune 500 clients and expects revenue of $12 million this year, up from $8 million last year.
How has Tigris prevailed where so many others failed?
Shallow pockets. Having to make money in order to grow helped focus the company's mission, which was producing measurable money savings for its clients, Habig said. "Attracting and managing investors is a whole different ball game. I could focus on quality over quantity because we didn't have to please the VCs."
Timing. Tigris was started slightly before "the hysteria" of the Internet boom, so Habig was able to build a client base prior to facing competition from deeply financed, overnight e-wonders.
The founder's vision and discipline. He didn't take management or finance courses in China, but Habig says what he learned about the culture has served him well as an entrepreneur. On his list are self-reliance, which made it natural not to rely on someone else's money, and humility, which allows the company to truly listen to its clients with "no attitude, no posturing." Also on the list are discipline and perseverance, which lead to solid business plans rather than pie-in-the-sky strategies. Habig also thinks his study of a foreign culture makes him adept at establishing common ground, which is important because "clients have many different ways of describing a problem."
In the aftermath of the Net meltdown, Habig and Keen seem to be of like minds on what it takes to have a successful startup. The fact that one learned it by way of his company's success and the other learned it by watching his company fail might, in the long run, be less important than the lesson itself. By Theresa Forsman in New York