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War Stories: Diversify -- as long as it doesn't distract you too much
Thursday, July 20, 2000 By Marcus Ruscitto, CEO, Stargate.net
The bulk of my formal academic training and early career work life was spent in the finance and investment strategy disciplines. I know all too well the mantra preached by literally every investment advisor who ever lived: diversify your portfolio.
This familiar piece of advice is rooted in the fundamental principle that as a whole, the economy will grow, but to protect your investment portfolio against the decline in certain products, sectors or markets, you should adopt a reasonable diversification strategy.
I believe that you need to follow similar principles as your grow your business from idea through maturation. When we started Stargate, we wanted to capitalize on the Internet craze with a simple solution: provide a reliable dial-up connection to home Internet users and back it up with good service.
It wasn't a unique idea; an estimated 9,000 North American firms have given it a try over the course of the last five years.
The Strip District-based technology company provides Internet access, Web hosting and other services including computer security, e-commerce packages, managed application solutions and data center services.
In the early days, with just a handful of people and a limited supply of start-up capital, we were forced to retain focus on our core business, dial-up Internet service. But as an investment professional, I knew that "betting the farm" on just one product was a direct contradiction to my diversification training. So as we matured, we worked very hard at maintaining the delicate balance of diversification -- innovation in our industry -- while retaining proper emphasis on our core products. Maintaining that balance has been one of the biggest challenges we've faced in managing the rapid growth of Stargate over the last five years. I think we've been able to meet this challenge by sticking to three key principles: vision, innovation and discipline.
Vision - We've always looked forward to what might be next for our company. No idea was too far out or something we felt we couldn't handle. I decided early on that I was going to surround myself with proven people who were willing to take measured risks. But being willing to take risks also requires the guts to admit that you've lost and to move on to your next idea.
Our first diversification move was to provide a higher level Internet connectivity to business users. When we first started in 1995, most Pittsburgh based businesses hadn't realized the power of the Internet. But we were observing trends in more progressive markets that we knew would evolve in Pittsburgh, so we always built out infrastructure with the future in mind. We've since diversified our commercial offerings to include Web site development and hosting; value-added services like security and consulting; and most recently, our application services provision (ASP). ASP is actually an evolution of our server co-location business in which companies rent space for their servers in our facility in order to connect directly to our Internet bandwidth and have access to our round-the-clock expertise. We became convinced that the next logical step was to provide a "Level 1" hosting environment, where companies could outsource to us some or all of the software applications used to run their business. By allowing Stargate to administer, maintain and serve up these applications (either via private network or over the Internet), commercial clients can outsource their IT/MIS functions and concentrate on their core business.
Innovation - Even in the most challenging financial times, we found ways to invest in the best technologies to support the delivery of our products. We built and designed our solutions as platforms that could be used to deliver other products and services. From the beginning, we placed commercial-grade hardware and software into our network, even though we didn't serve a single commercial customer until a full 18 months after we signed up our first dial-up customer. In our customer-support call center, we invested in a high-end phone system so that we have the flexibility to manage multiple products, business sectors and geographic markets from a single environment. The phone switch provides us many tools that we use to measure the business and also provides us with the ability to perform expertise-based call routing to ensure that customers have a better chance for solving their problem on the first call. We are also in various stages of deploying new billing, provisioning and customer-relationship management (CRM) software that can scale exponentially as we continue to grow.
Finally, we keep all of our options open for data connectivity and delivery. We have formal partnerships with 5 different providers of broadband service over DSL and we are currently in concept discussion with a cable company and a wireless company to deliver other broadband alternatives.
Discipline - This is really where the balance part comes in. When you have a new company, you will definitely come across more exciting ideas than you can possibly pursue. You will always think to yourself, "Is this the idea that could give us the 'big break'?" Deep in your heart you know that the "zillion dollar" idea will never cross your path, and if it does, recognizing it would be pure luck.
Most businesses will succeed by sticking to a fundamental principle of providing solid products and quality support. This is not to say that we haven't chased our fair share of losers. But you have to have the guts and the discipline to throw in the towel, count your losses and not compromise the core business. On the other hand, you can't let the minor failures scare away your entrepreneurial spirit. We started this business taking risks and we will grow it by taking risks. However, as a business matures, the risks must be pursued without having a negative impact or distraction to the core business. "Remember who brought you to the dance," as the saying goes.
At Stargate most of our successful initiatives are the ones that were closely aligned with successes we enjoyed in the past. In our core ISP business, we were able to realize success in Pittsburgh because we modeled our approach after successful companies who had done it in more technically progressive cities like San Francisco and Boston. We now intend to replicate that model in secondary markets like Erie, Pennsylvania, and Hagerstown, Maryland, where we recently acquired ISPs. In Pittsburgh, we have a more mature Internet service network and customer-support infrastructure that we can now leverage as a platform for our ASP business.
So while we are expanding core products in new markets and delivering new products in developed markets, we always do it in a manner that allows us to retain focus on our core business. We found that the biggest losers we experienced were the ones that were the farthest stretch from our core business.
Unlike a lot of technology companies, our Management team thinks of the business as a marathon race, rather than a short sprint. We've used the lessons learned so far to maintain a swift, yet manageable pace, which will serve us best in what we hope is a long run.
Henry Wang of iventurelab.com on the 5 Ps of Pittsburgh start-up success
Yitz Francus of e-Cruise on surviving the struggles
Michelangelo C. Celli of CommerBuilder.com on the value of true networks
Astro Teller of BodyMedia on how Pittsburgh almost lost his business
Sanjay Chopra of Online Choice on finding investors sometimes means finding yourself.
Dave Nelsen of CoManage on the physical challenges of managing in the New Economy
Service center extends Stargate's offerings (6/16/00)
Forum: Let's not play monopoly (10/24/99)
Local Internet firms want a ride on AT&T's cable (10/12/99)
Long live the little guy (4/13/99)
Executive in the Spotlight: Marcus Ruscitto (2/16/98)
Have a question or comment about War Stories, or have one of your own you want to tell? Contact Ken Zapinski, New Economy columnist, at kzapinski@post-gazette.com.
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