The New Deal
Jeremy Davey, CEO of Pabulum Internet Advertising Agency, acquired nearly all of his company's technology by forging partnerships with companies that owned the equipment he needed.
Opportunities
Forging partnerships with other companies may be the smartest way to acquire or upgrade your technology. Just ask Jeremy Davey
The elevator opens directly into the seventh-floor suite, penthouse-style. The office walls are an eye-popping shade of neon chartreuse, and San Francisco's picturesque Nob Hill stretches for blocks outside a large window in the reception area. Workers sit before six state-of-the-art computers-cum-design-stations, busily adjusting the palettes and design elements that flash on their 15- and 20-inch screens.
Welcome to the nerve center of Pabulum Internet Advertising Agency Inc., an up-and-coming Web-site-design and Internet-ad company that lives up to the image of what a bold young high-tech business should be, and then some.
It's hard to imagine that only a short time ago this well-appointed brick building was largely vacant and in various stages of disrepair--and that the lean, energetic Englishman who runs the business, Jeremy Davey, was working out of an eight-by-four-foot converted closet with practically no capital to help him realize his ambition of breaking into the competitive domain of electronic commerce. The story of how Davey got from there to here--weaving together a series of partnerships that landed him posh office digs at well below the market rate and a costly high-speed telephone line free from a giant telecommunications company--is a compelling tale of the good things that can happen when a flair for seizing opportunity meshes neatly with the forces of serendipity. But it also provides a lesson for growing companies of all kinds: the smartest way to acquire or upgrade technology may be not by handing over cash or relying on credit and interest-accruing rental agreements but by forging partnerships with companies that have what you need.
Indeed, partnering to leverage technology investments may be the wave of the future. A 1997 survey conducted by Arthur Andersen's Enterprise Group and National Small Business United found that CEOs of small and midsize companies plan to invest 3.3% of their total 1998 revenues in technology. And the outlay will likely only get larger: ever-more-sophisticated (read: expensive) technologies, such as electronic data interchange and high-speed T1 telephone lines, are becoming the norm, and small-company owners are realizing they will have to provide for them in their operating budgets--somehow--to stay competitive.
Trading goods and services for technology is not as far-fetched as it might sound. According to John Harbison, a partner in charge of the Strategic Alliances Practice unit of the management-consulting firm Booz, Allen & Hamilton Inc., such arrangements are becoming increasingly attractive to technology companies as well. In exchange for providing small businesses with technology at reduced rates, says Harbison, those companies improve their chances of getting something that money can't necessarily buy: immediate access to a wider customer base and the opportunity to achieve greater market penetration in desirable business sectors. Bartering for technology, Harbison cautions, does require a good deal of stamina and resourcefulness on the part of a small-business owner (Davey's story is a case in point), and the bigger the company you're trying to court, the more layers of resistance you're likely to meet. But the payoff can be well worth the time spent wheeling and dealing, particularly if you're a cash-strapped start-up and getting wired is key to your survival.
Just ask Jeremy Davey. He founded Pabulum in March 1997, convinced that the brave new world of the Web was going to be the next big thing in marketing and advertising. Initially, the business was a one-man show: Davey would work with customers on developing promotional Web sites with his Pentium 133 notebook and then farm out the graphics-intensive components of the design, such as photo manipulation and streaming video, to subcontractors that had the equipment to do the job. It didn't take him long to realize, however, that the field of on-line marketing was crowded with entrepreneurs. If Davey wanted Pabulum to grow, he was going to have to be something more than just another digital-ad guy with bright ideas and a trusty laptop.
So he began to hatch a vision for a new kind of electronic-advertising venture: rather than simply designing Web sites by contract, he would develop whole blocks of cyberspace into centers of electronic commerce, the equivalent of selling virtual real estate. Here's how the five-step plan would work: First, Davey would register for a broad domain name in a popular business sector (say, www.webwines.com or www.bookshops.com). Next, he'd construct a Web site with that domain name. Then he would set up commerce on the site, contracting out space to suppliers of those goods or services, much like a developer of a strip mall leasing out units to individual merchants. As the site gained traffic he would solicit advertising to bring in additional revenues. Finally, he'd sell the site to an actual purveyor or manufacturer of the goods or services mentioned in the name (a wine wholesaler, for instance), retain a percentage interest in the business, and move on to another registered domain name (say, www.workouts.com) to begin the process anew. According to Davey's projections, the new and improved Pabulum could expect to generate $1.6 million in annual revenues in two years.
Big plans, but how could a tiny company with no cash flow possibly transform itself into a Web dynamo? To make his virtual-real-estate plan work, Davey knew, he was going to have to move heaven and earth. He would need a slew of computers equipped with top-of-the-line scanners and the latest design software. He would have to abandon that cramped cubicle and set up shop in a bona fide office. Most important, he would need a high-speed, full-time telephone connection to the Internet--a hookup requiring costly installation and servicing fees. Yet only a year after forming Pabulum, Davey was well on his way to making his vision a reality, not by hammering out financing deals with banks but by orchestrating partnerships with business interests that stood to gain from Pabulum's success.
