Story of a Start-Up

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Unlike many who go into the custom home systems business, Jamie Sasser, founder of Digital Home Inc., in Raleigh, N.C., is not an audiophile or home automation fanatic. Nevertheless, he has succeeded where many fanatics fail. In just one year, he has built a thriving custom installation company that employs six (including himself and his wife, Heather) and competes successfully with more established businesses.

A disciplined and methodical entrepreneur with a background in mechanical engineering and economics, Sasser always dreamed of owning his own business. He spent two years researching different types of businesses before settling on custom home systems, which he did for two main reasons:

• He thought he would enjoy the " technical challenge" of integrating products. Note that that gives him a different perspective from, and perhaps a competitive advantage over, people who go into the business strongly favoring one particular system, e.g., security or audiovisual.
• He saw custom home systems as a business " that you could grow to whatever size you're comfortable with." He knew he didn't want to remain a mom-and-pop shop.

His market research - conducted mainly at the local library, on the Internet, and through the local branch of the National Association of Home Builders (NAHB, www.nahb.org) only confirmed his choice. Raleigh, with its high growth rate, abundance of new construction, affluent population (lots of golf course-type communities), and tech-savvy population, is, in many ways, an ideal market for custom home systems. (Raleigh's population is tech-savvy because the town is part of North Carolina's technology corridor, Research Triangle Park.) While there was some entrenched competition, Sasser felt that there was more than enough work to go around.

Deciding a Strategic Direction

Sasser's original plan, when he incorporated DHI on July 1, 1999, was to purchase a Smart House Inc. franchise. As a first-time entrepreneur, that route seemed safest.

His research indicated, however, that Smart House was experiencing financial problems. Moreover, in order to distinguish his company, Sasser decided to emphasize custom service and systems integration. "We decided to use the fact that we were a small, service-oriented company to our advantage, and not become part of a large national group that would offer cookie-cutter solutions."

Sasser spent the summer and early fall of 1999 writing a business plan and researching the technical and operational aspects of the business. He and his wife, Heather, found the educational sessions at the 1999 Expo of the Custom Electronic Design & Installation Association (CEDIA, www.cedia.org) extremely helpful. (Note: CEDIA's next annual meeting will be held in Indianapolis September 6-9. Click here for more information.) Sasser also read several books on small-business planning and management.

The hardest part of putting together the business plan was determining how much to charge. "Your competitors won't tell you, so it's hard to figure out," he says. His pricing model has changed several times in the past year, and he's still refining it. "Initially, the model I came up with was that we would charge $60 to $70 per hour for labor, which is higher than we charge now. Today, we charge $50 per hour for basic installation services, but more for design and programming time."

Getting Financing

Once the business plan was done, it was time to convince a bank to give him a loan. He went to a regional bank known for helping entrepreneurs, thinking that his well-researched, well-thought-out business plan would impress the loan officers. In the end, however, he reports, " it came down to the collateral." A junior loan officer was enthusiastic about Sasser's plan, but the senior officer who needed to approve the application barely reviewed it, just asking about collateral. The Sassers put up some rental property they owned, and even still, Sasser reports, "the banker assured me that that only reason he was lending me the money was because I was young and could get a job if the business failed."

Sasser says his loan application was complicated by the fact that much of the money he was asking for would go for salaries rather than inventory. "I thought they would like the fact that we weren't going to carry much inventory, but as it turned out, they were uncomfortable with the lack of fixed assets." This contributed to the larger problem of the bank having no idea how to value such a cutting-edge business.

Shortly after the Sassers received their loan, their bank was acquired by a larger bank. Sasser is convinced that if he had tried to get the loan from the larger bank, he would have failed.

Sasser's bottom-line advice for others seeking to get financing for a start-up custom home systems business:

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