He knows the daunting downside to a start-up.
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.
Rob Wenger, chief executive of Arlington-based Higher Logic, manages online community sites for associations and corporations.