Turning An Idea Into A Business

How do you finance a business when your product is still only an idea? That's the question Ricardo de Senna asked himself in 1994 when he started his company, Visual WEB Solutions, Inc. (New York, NY) (WEB is an acronym for ‘worldwide electronic banking'). With 20 years of banking experience and one company start-up in 1984 already to his credit de Senna was certain his idea for new electronic banking and trade finance transaction software was a good one. Without a completed product, however, bank financing was almost out of the question. So, where would de Senna get the money to develop his product? Read on to learn how this ex-banker-turned-entrepreneur transformed his idea into a growing software development/systems integration company.

Chasing A Dream
"I was just tired of marching along," says de Senna about his 20 years of working in the banking industry. He made a good living as director of operations for a Midwest-based bank in New York. However, he wanted to be in business for himself. "If I stayed in banking, I would never know if I could build a business of my own," he says. In 1983, de Senna embarked on his first business venture. While still working in banking, he helped develop a new software product for electronic banking, known as CATS (credit application transfer system). He and three partners/investors pooled their funds and formed Computer Catalyst, Inc., a software development company. De Senna's first customer was his former employer. The business prospered. Less than three years later, in 1987 with sales exceeding $2.4 million, de Senna engineered the sale of the company. De Senna stayed at the company until 1989, through its transition to its new owners. He then worked for another software development company until early 1993.

By 1994, de Senna was eager to get back into business for himself. He felt the technology was ripe for new ideas in banking software products: an integrated electronic banking platform expandable to support multiple applications and an object-oriented client/server-based suite of integrated systems for processing back-office trade finance transactions. However, unlike his first venture into business, de Senna had no developed product to sell. "It was much easier the first time around," says de Senna. "I was selling a developed product to a virtually untapped market." This time, he would have to hire programmers to develop the software. De Senna predicted product development would take at least eight months.

Don't Bank On A Business Loan
De Senna estimated that his start up costs, including software development, would exceed $500,000. Even though de Senna was an ex-banker, approaching a bank wasn't his first choice for financing. He had approached banks for financing, unsuccessfully, with his first company in the 1980s. "Entrepreneurs are the ones taking the risk, not the banks, when it comes to business loans," says de Senna. "I understand that banks can't lend money for everything, but it's especially hard for entrepreneurs, starting out with an idea, to secure financing.

"Banks ask you to secure a loan with personal assets, such as a house. That doesn't guarantee you'll receive a good interest rate in exchange," de Senna explains. While not averse to taking on a certain amount of debt, de Senna says he does not believe in "hocking himself" to secure bank financing.

Partnering For Start-Up Funds
Determined to start Visual WEB Solutions without plunging deep into debt or dipping into his own assets, de Senna considered other options. He didn't want to fund the company on his own. Venture capital was out of the question, since it, too, would involve debt. De Senna decided to once again looked for partners with investment money to start the company. Four partners, all people he'd known from banking and his former business, and de Senna pooled their funds, totaling $250,000, to start the company.

Keeping Expenses Down
However, the partners had raised less than half of the money de Senna estimated was needed to get started. "To start up comfortably, we would have needed at least $1.5 million," says de Senna. Working with a limited budget, de Senna's goal was to keep the company as debt free as possible. Realizing he would have to spend money to eventually make money, de Senna streamlined operations from the start.

Rent - Buying office space in New York City was out of the question because of the cost. Renting in the city was the less expensive option. "We needed to rent office space with 24-hour access," says de Senna. He found space in an office building on West 42nd in New York that caters to smaller companies. Visual WEB Solutions started in 800 square feet of space, enough to accommodate eight desks. De Senna was able to expand to an additional 400 square feet of adjacent space earlier this year. "I asked for minimal renovations to the space to make it work for us. All I needed was nice carpeting, good lighting, and a door," says de Senna. He pays about $20 per square foot per month. A more "prestigious" New York address would cost 30% -50% more per square foot, says de Senna.

Office furnishings - "While mahogany desks may look nice, they aren't a necessity in most businesses," says de Senna. He was able to purchase plain wooden desks from IKEA (a large furniture store chain) at a cost of about $200 per desk. "Of course, we had to put them together for that price," he says.

When making any business purchase, always ask for extended payment terms, advises de Senna. "Ask to pay over 30 or 45 days. That's the same amount of time your customers are waiting to pay you," he says. Office equipment - Regarding office equipment, de Senna says, "Don't buy everything at once." One of his biggest expenses was computers, both for office use and software development. De Senna timed his purchases. "One month I would buy two PCs for $3,000. I would wait two months to make any additional major purchases," he explains.

Employees - Hiring programmers to develop the software line was one of Visual WEB's biggest expenses. De Senna estimates that hiring a good programmer costs at least $80,000 a year in the New York City area. "I needed to hire at least four people to develop one product line and we had to develop two lines," says de Senna. The cost of employees for one year alone would exceed the company's initial investment. De Senna's solution: start this portion of the company overseas. One company partner is an Indian national who facilitated opening an office in Bangalore, India. Operating this office (2,400 sq. ft. of space) in Bangalore costs about $600 a month. De Senna estimated Visual WEB Solutions could hire skilled programmers in Bangalore for about 20% of the U.S. cost. The overseas office meant de Senna had to travel approximately every four weeks. Another U.S.-based partner was sent to Bangalore to design and train the local staff in the object-oriented technology and to build the back-office products. Most of the necessary communications between the two offices was handled by phone and e-mail. Within six months, eight programmers had developed a demo that de Senna could sell. (See sidebar on page 88 for a description of Visual WEB's products.)

Managing A Short-Term Cash Flow Problem
Buying equipment, paying rent and hiring staff strained the company's budget. Visual WEB would not realize any income until a first installation was completed approximately nine months later. Facing a short-term cash crunch, de Senna decided to try his bank one more time. "I wanted to borrow $50,000. The bank wanted all my personal assets as collateral. I said ‘no'," says de Senna. The bank also offered him a time deposit loan, whereby he put the same amount of money in the bank as he was borrowing. "That didn't make sense. If I had the money to deposit, I wouldn't need the loan. And secondly, I would only be earning about 4% interest on the deposit while paying up 8% interest on the loan," says de Senna.

He decided to use his own assets, this time in the form of credit cards. The advantage of using a credit card, de Senna explains, is that you have a period of time, usually a month, in which to pay the full amount without incurring any additional fees. De Senna uses a credit card to make business purchases whenever possible and then pays the bill in full each month to avoid an 18% annual interest charge. "My bill averages about $2,500 a month. The highest it's ever been was $11,000. That was the month we purchased the Oracle database management system," says de Senna. He advises VARs to take advantage of as many credit card offers as they can manage, especially ones that offer a rebate for using them.

Reaping The Rewards
De Senna began the process of selling his first product (Eagle 4.0), while it was still being developed, by revisiting his contacts in the banking industry. The development of the product began in September of 1994 and was completed in February of 1995. "The first sale came in June of 1995. The second sale didn't happen until five months later," de Senna explains. He says the pricing of the system is based on the size of a bank and the number of branches it has worldwide. One sale to a large bank can keep Visual WEB operating until the next sale. Visual WEB's customers include banks such as ABN AMRO Bank, Royal Bank of Canada, and the Canadian Imperial Bank of Commerce.

Facing The Future
The company has grown to include 48 employees at five locations worldwide. Today, four years after starting Visual WEB Solutions, de Senna says he is constantly thinking of new products and ways to improve his business. With several large bank installations to its credit, Visual WEB continues to develop products for Internet-based banking solutions. De Senna also is looking to tackle the banking market in Southeast Asia, a market he considers very ready for his trade finance and back-office software. And, while he enjoys seeing this company succeed, de Senna admits he also likes the challenge of starting new companies. Is this de Senna's last company? Business Systems Magazine asked. "Don't bank on it," de Senna says.