Start Me Up :: The Reality of Starting a Tech Company in Baltimore

Posted on November 24, 2014 by Samantha Mitchell

Where Baltimore Works: Visualization Map by Dave Troy

The word “startup” is now fully absorbed in our modern parlance. Maybe you’ve even heard it out of your parents’ or grandparents’ mouths. As in “Dear child, can you help me turn my idea for _______ into a startup? You’re so good with computers!” (In fact, this is especially likely, since it was recently reported in a study by the Kauffman Foundation that 47.2% of small business owners are over 45 years old.) “Business start-up” was added to the Oxford English Dictionary in 2012, and the surreal successes of entrepreneurs like Mark Zuckerberg, Steve Jobs, and Elon Musk can make it seem like there is no limit to the money that people are willing to throw at technological innovation.

These now mythological tales of triumph, for many aspiring entrepreneurs appear to fall irrationally within the realm of possibility. A lot of them didn’t even finish college! They dress so casually! With pop cultural portrayals like HBO’s Silicon Valley and Banana Republic’s bizarre “The Startup Guy” clothing campaign, the trajectory towards entrepreneurial triumph seems more focused on the aesthetic and lifestyle stereotypes than actual work.

But that’s what being an entrepreneur is: work, and a lot of it. And though the winners win big, there are far more who fail to meet the challenge. 82% of startups fail in the first four years. And of the few who do succeed, 78% of their net worth, on average, is tied up in their business. The only way they can get a hold of their earnings is often through selling their business—a feat that only .5% of startups manage to accomplish. These statistics are pretty bleak, and may come as a surprise since the vast majority of tech reporting features the winners. But this is a very warped and misleading representation of a difficult and fiercely competitive field.

I sat down with three Baltimore-based tech CEOs to get the scoop on the startup climate in our city and hear about their experiences starting their businesses. They were all very enthusiastic to help dispell some myths about the culture of their industry.

First up was David Troy, a self-described “serial entrepreneur.” As a teenager Troy started his first company—which was generating a million dollars of business annually when he graduated from high school. He tried to continue running that business while attending Johns Hopkins, but ultimately had to leave school after a year and a half to run the business full time. Then “the internet happened” and Troy began working in e-commerce as well as internet hosting in the early 90s. In 2004 he sold his business to the parent company of the Weather Channel and started working in Brazil and then England doing voice over IP (think services like Vonage). He eventually tired of his jet set life and decided to settle in Baltimore for good, trying to foster a startup/tech community here through events and conferences in the days before Facebook. These activities led Troy on the path towards helping to found Beehive (a coworking space), TedX MidAtlantic, and Baltimore Angels. Most recently, Troy cofounded the product studio 410 Labs with Matt Koll. 410 Labs operates on the realistic principle that most startups fail. Therefore, it’s Troy’s philosophy that the best way to succeed is to, “have a lot of at-bats and one of them might turn out to be, if not a home run, at least a double.”

The next CEO I spoke with was Robert Wray, who has founded (and still owns) three businesses. The first is called Innovative Technologies, which he started shortly after graduating high school. This company filled a gap that he noticed while working at Comp USA: proving a service to set up computer systems for small businesses. After the success of his first company, Wray went on to create mp3car.com, which provides over 600 mobile computing products (aka computer gadgets for your car). After struggling to organize and ship all of the products for mp3car manually, Wray then founded WhiteBox, which is a service which automates the back-end details. He says WhiteBox allows “small and midsize businesses to have access to enterprise level logistics and accounting systems…[so that] the chance for human error is much lower.”

Finally, I talked to Jess Gartner, who at 28 is unlike these other tech veterans because she founded her first company, Allovue, just last year. Rather than starting a company straight out of high school, Gartner studied Education Policy at University of Pennsylvania, then went on to teach Social Studies and Language Arts in Baltimore City Public Schools through Teach for America. Following her teaching stint, she worked at a venture capital firm in downtown Baltimore doing marketing and social media, where she evidently “caught the bug” to try her hand at being an entrepreneur. Gartner used her knowledge of education finances and policies to create Allovue to provide school districts with a financial dashboard which tracks and analyzes their spending and makes it easier to allocate funds in order to achieve specific outcomes (such as student performance or teacher satisfaction).

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These broad career descriptions would have you believe that these three entrepreneurs found the process of starting their business(es) smooth and natural. That’s the problem with broad descriptions—the difficult moments and negative details are left out. 410 Labs, Troy’s product incubator, worked on several startup ideas before hitting upon Mailstrom, their email simplifying software. He says that when 410 put their other product prototypes in front of customers, “they didn’t achieve enough resonance to really make it worth pursuing.”

At 18, Wray struggled a lot to get Innovative Technologies running smoothly, or at all. He recalls, “There were many nights where I would over-promise and not necessarily be able to deliver on that and have to offer large credits or work through the night to solve problems, or even bring in some experts at my expense to support commitments that I had made.” Wray even confesses, “I was terrible about tracking finances and would regularly forget to file tax returns, [then] get notices from the IRS that we’re coming to seize your assets…they might have even said [I would] go to jail if I didn’t pay my taxes.”

And Gartner had no background whatsoever in programming or computers before she decided to quit her job and launch a software product. That decision obviously didn’t come without its own challenges. Though she had a clear vision of what she wanted Allovue to accomplish, she quickly ran into serious data problems. As she explains, “With the exception of a couple states that have a universal chart of accounts, every district has its own chart of accounts for finance, which means that all of that data is totally non-standard…education finance data has multiple segments, all these nested hierarchies, and all these different codes that are unique to every district…it’s basically like the perfect storm of a complete nightmare for a database.” Being as stubborn as she is in her vision, Gartner persisted, despite being told over and over again that it would be impossible.  She just kept thinking, “In 2014 how can there be a data problem that we can’t solve?” Luckily, she hired folks who agreed with her and now they have built and are in the process of patenting what she describes as a “proprietary importer especially designed for extracting, organizing, and storing this type of data.”

And, this year—on Gartner’s birthday, actually—the software they built was able to extract data from a whole state in just five hours. That’s a process, that if done manually would take six to nine months. This feat was huge for her team, especially so because Gartner thinks, in retrospect, if she had fully understood the nuances of the problems her software needed to solve, “I would have been too afraid…and the obstacles would have seemed too complex to jump into it.”

Another challenge that Gartner—and many other women—face in the startup industry is sexism. From the weird and condescending portrayal of female programmers in children’s books to the statistics which show that only 3% of venture backed businesses have female CEOs, the industry’s inequality problems are glaring. Gartner finds that though the sexism she experiences is not always overt, it is no less damaging. She says, “When I go to a pitch event with my team and people come up to me and say, ‘Can I get another drink?’…you just get some glimpse of what was inside this person’s head where he looked at [me] and thought: ‘cocktail waitress.’”

All of these anecdotes show that even the most experienced entrepreneurs run into challenges and failures—but that’s not what gets reported. Troy laments that in the tech press, “Everybody focuses on the winners. When you go to a tech conference they put the big guys up on stage who have won for whatever reason, whether through persistence or luck, you end up with this survivor bias that goes on around the discussion…I think that kind of thing does a real disservice to the entire endeavor, and as a result, there’s a lot of people with unrealistic expectations around what it takes.”

Wray adds, “It’s easy to look at a headline [that says] ‘This Person Just Closed a $15 Million Dollar Contract’—you can go browse the newspaper and see dozens of them—and then all of a sudden think…’Boy they must be rolling in money, right?’ But until you look at the underlying numbers of what it takes to execute that contract, you can’t make those assumptions.” There can be infinite fees, from legal to staffing to accounting to marketing failures, that must be paid out of that sum. And then, many people who execute large contracts end up screwing it up in some way—-but that rarely makes the same headlines. For example, Wray’s mp3car business may ship hundreds of products internationally every day, but every single dollar made from that is currently being reinvested in the business and he doesn’t actually make much personal income from it at all.

With the struggles that Troy, Wray, and Gartner have faced in their own businesses and noticed in the industry in general, all three were very adamant about one thing: deciding to create a startup is not for the weak of heart or stomach. For Wray, a successful entrepreneur must have “willingness to learn and to work hard.” Tying in with this, both Troy and Gartner cited “dogged persistence” as an important quality that a person must have before they even consider starting a company. Gartner reflects that if she had given up every time someone questioned her abilities, she would not be where she is, remarking, “I don’t know if thats tied into stubbornness, arrogance, narcissism…I don’t know exactly what cocktail of characteristics that makes a person be told ‘no’ a hundred times and have that person say ‘no, I really think I’m right!’ and keep going.”

Correlated here is the ability to build up a thick skin. Troy warns that too many entrepreneurs conflate their identity with that of their product, so that the highs and lows of success and failure weigh too emotionally. He says a key skill is “to value the business as a business and still have a valuable personal life no matter what.” This is something that Gartner struggles with, saying that when she meets an investor who isn’t interested in her product, “it’s like somebody calls your baby ugly.”

All this is certainly not meant to paint a portrait of a startup climate completely inhospitable to n00bs, but rather to be realistic. Just because you (or your grandparents) hear it over and over in the news about the most inane tech companies being sold for millions, it does not mean that your inane idea is also worth millions. These people are by a very large degree the exception, rather than the rule. Starting a business is exhausting. Those who attempt it will experience failures, obstacles, and unexpected roadblocks. But with the right amount of persistence, arrogance, and talent, there is still a chance that your entrepreneural vision can be realized.

If you’re still interested in participating in the world of startups, here’s a list of valuable resources available in Baltimore:

 

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