He knows the daunt­ing down­side to a start-up.

The Washington Post Sunday - - BUSINESS - Thomas.heath@wash­post.com

There’s a scary re­al­ity that goes with be­ing an en­tre­pre­neur. It’s not just the huge re­spon­si­bil­ity of mak­ing a pay­roll. And the risk is not just won­der­ing how much your stock is worth and what the up­side might be.

There is some­times a very per­sonal risk, like: “How do I feed my fam­ily?”

Take Rob Wenger. The skilled soft­ware de­vel­oper was in his 30s and had al­ready made a cou­ple mil­lion dol­lars.

He was get­ting his third and cur­rent com­pany, an Ar­ling­ton­based soft­ware start-up called Higher Logic, off the ground when he ran straight into the Great Re­ces­sion. Wenger had to sell shares in his stock port­fo­lio at greatly re­duced prices to keep his busi­ness and house­hold afloat.

“Un­for­tu­nately, the stock mar­ket was tak­ing a beat­ing,” said the chief ex­ec­u­tive, now 50. “I had to sell stock all the way down, but I had to feed my chil­dren. I liq­ui­dated sev­eral hun­dred grand. It would have been more, but the mar­ket was go­ing down so fast that I sold one stock for $15,000 that had been worth $150,000.”

He had so lit­tle in­come one year that he paid zero taxes. The fed­eral govern­ment ac­tu­ally sent him a re­bate check for $600. Wenger didn’t give it back. “I just thought, ‘Oh my gosh,’ ” he said. “I was just liv­ing off the govern­ment.”

I have run into more of th­ese sto­ries that I care to count. Many busi­ness cre­ators fall flat on their face a few times be­fore they ever — if ever — hit a home run. You put in your own money. You sac­ri­fice, work out of the base­ment and hope some­day you get rich.

Wenger isn’t set-for-life rich. Not yet, any­way. But it looks like he may get there.

After years of spurn­ing out­side in­vest­ment, Wenger’s team last Septem­ber agreed to a $55 mil­lion in­fu­sion from JMI Eq­uity of Bal­ti­more. That’s a sign that the money men in ven­ture cap­i­tal think Wenger and his team have some­thing good cook­ing.

Higher Logic has 175 em­ploy­ees, $27 mil­lion in rev­enue and about 1,050 clients — in­clud­ing IBM, Mi­crosoft and Roche — who pay any­where from $1,000 to $15,000 a month for its soft­ware. It has cus­tomers across 42 states and 15 coun­tries. The firm has staff in 15 states, the District and Eng­land.

The com­pany is prof­itable but rolls most of that back into ex­pan­sion of its work­force.

Higher Logic man­u­fac­tures cloud-based soft­ware that en­cour­ages and en­ables mem­bers of as­so­ci­a­tions and em­ploy­ees at busi­nesses to in­ter­act, such as the North Amer­i­can Spine So­ci­ety, Dis­cov­ery Ed­u­ca­tion, the Amer­i­can Speech-Lan­guageHear­ing As­so­ci­a­tion and the In­sti­tute of Pub­lic Works En­gi­neer­ing Aus­trala­sia.

About 75 per­cent of rev­enue comes from as­so­ci­a­tions, and 25 per­cent from cor­po­ra­tions.

Here’s how it works. Take the New Jersey So­ci­ety of Cer­ti­fied Pub­lic Ac­coun­tants. Yes, there is an as­so­ci­a­tion for that, too.

“Let’s say you are an ac­coun­tant in New Jersey and have a ques­tion about Jersey tax law,” Wenger said. “You can send an email through our sys­tem, and it will go to vir­tu­ally ev­ery ac­coun­tant in the state. If some­one has an an­swer, you and every­one else will get that an­swer. Later, if some­one has the same ques­tion, they will find the thread.”

The on­line chats can veer into the light­hearted. SAE In­ter­na­tional, which cer­ti­fies me­chan­ics and en­gi­neers in the auto and aero­space in­dus­tries, talked about how to make driv­ing safer for the el­derly un­der the topic “Why do old peo­ple drive into shops?”

Some chats help de­mys­tify reg­u­la­tions. Mem­bers of the Amer­i­can As­so­ci­a­tion of Nurse As­sess­ment Co­or­di­na­tion, pop­u­lated with long-term-care nurses, use the web­site to stay cur­rent with the con­stantly chang­ing fed­eral reg­u­la­tions that gov­ern their in­dus­try.

It’s not the most scin­til­lat­ing busi­ness, but the idea here is to cre­ate use­ful con­tent that builds up over time, build­ing a real-time li­brary for mem­bers. For in­stance, Google any­thing about ar­chi­tec­ture and you are likely to land at the Amer­i­can In­sti­tute of Ar­chi­tects web­site, packed with hun­dreds of thou­sands of pages of in­for­ma­tion. The goal is to make your as­so­ci­a­tion more rel­e­vant, which helps drive new mem­bers to the group, helps re­tain cur­rent mem­bers and ul­ti­mately makes them money.

Wenger grew up in Columbia, Md. Be­fore he hit his teens, he was writ­ing soft­ware for ro­bots that his com­puter sci­en­tist fa­ther brought home from his job at the Na­tional In­sti­tute of Stan­dards and Tech­nol­ogy.

“It comes nat­u­rally,” Wenger said. “I like be­ing able to sit down a cou­ple of hours. Logic is the most im­por­tant piece.”

After grad­u­at­ing from the Univer­sity of Mary­land in 1989, the com­puter-sci­ence ma­jor worked for NCR for five years. At 22 years old, he was earn­ing $30,000 writ­ing soft­ware for the sav­ings-and-loan in­dus­try.

He then worked for Thom­son, the Cana­dian-based pub­lisher, work­ing on fi­nan­cial projects. He and some friends from Thom­son started a tele­com con­sul­tancy in 1994 called WaveFront. They sold the com­pany in 1998.

Wenger earned his first mil­lion and bought a house in Bethesda. Then he launched an­other com­pany, called Ac­tive Mat­ter, which cre­ated web­sites for as­so­ci­a­tions. He made an­other mil­lion when they sold Ac­tive Mat­ter in 2003.

The idea for Higher Logic came to Wenger in 2006 after he join LinkedIn, the ré­sumé site now owned by Mi­crosoft.

“You have a 50,000-mem­ber as­so­ci­a­tion of peo­ple who have the same job,” he said. “The idea was to make sort of a pri­vate LinkedIn and give them a way to com­mu­ni­cate with each other.”

He founded the com­pany with a for­mer client who worked for the Risk and In­sur­ance Man­age­ment So­ci­ety.

The com­pany was founded eight years ago in a first-floor of­fice in his home. Its mis­sion was to take the next step from build­ing web­sites at Ac­tive Mat­ter and cre­ate soft­ware to sell to as­so­ci­a­tions.

He built the com­pany me­thod­i­cally and or­gan­i­cally, stay­ing away from out­side money un­til Higher Logic was up and prof­itable. As word got around about his lit­tle project, he saved the con­tact in­for­ma­tion from ven­ture cap­i­tal in­quiries un­til he was ready to take their money.

Wenger was also de­lib­er­ate in the fo­cus of his busi­ness. He didn’t try to boil the ocean by hyp­ing Higher Logic’s tech­nol­ogy. In­stead, he started small, work­ing Washington’s fer­tile as­so­ci­a­tion mar­ket, which he and his busi­ness part­ner knew well.

“The smartest move we made was stay­ing fo­cused, mak­ing a cer­tain prod­uct and stick­ing with it,” Wenger said. He stayed away from the easy Washington path of fo­cus­ing on govern­ment sales. He also stayed away from cus­tomiz­ing for clients. That al­lowed him to scale the busi­ness and im­prove mar­gins.

The $55 mil­lion in­vest­ment gives him run­ning room to make ac­qui­si­tions and grow the busi­ness-client side. Only re­cently has the com­pany be­gun to make ac­qui­si­tions.

Wenger, mind­ful of his vul­ner­a­ble days when he had to cash out his nest egg, has tried to in­cor­po­rate some good ben­e­fits for Higher Logic em­ploy­ees, in­clud­ing 15 va­ca­tion days, health-care cov­er­age and a match­ing 401(k) pro­gram.

Al­most all the em­ploy­ees have amassed stock in the com­pany, which they can­not sell yet — even if they were to need a res­cue on a rainy day.

EVELYN HOCKSTEIN FOR THE WASHINGTON POST

Rob Wenger, chief ex­ec­u­tive of Arlington-based Higher Logic, man­ages on­line com­mu­nity sites for as­so­ci­a­tions and cor­po­ra­tions.

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