HATTIE: Today, you will meet two men who invented a new ad agency.

Every week here, you meet a small-business owner whose story we tell. But in addition to that, you meet Jim Schell, our veteran entrepreneur. He has started and sold four businesses in his career, and today he writes about his experiences as a small-business owner. He is going to tell you today what your number one task is as an entrepreneur. And Stephen Jackson will show us how to manage database software to get customers and keep them.

A Master Class is an opportunity you don't have every day. As a music student, I had regular teachers, but a master class only took place when a professional musician would come to campus. We bring you a professional small-business owner. No gurus, no journalists, no academics in this special class, only people who are teaching you what they know because they've already done it. Join me now for master class.

With many high-profile Fortune 1000 customers, Jeff Gordon and Geoff Allen are building two compatible businesses. Jeff Gordon founded Image Communications, a high-technology marketing and communications and multimedia publishing company nine years ago. Three years later, when he met Geoff Allen, the two started Source Digital Systems, which builds the hardware needed to provide customers with a total solution. Located in the Washington, DC, area, the two companies will bill $10 million this year, and they employ nearly 60 people.

JEFF GORDON (Image Communications and Source Digital Systems): We function as a blending of an advertising agency and a multimedia software development house.

HATTIE: A typical project for Image Communications is this multimedia presentation they are creating for the pharmaceutical company Glaxo.

(Excerpt from presentation) Unidentified Man: An aspirin tablet... Unidentified Woman: Venom from a snake... (End of excerpt)

HATTIE: It will be housed in kiosks, and first be seen by the public in Atlanta during the Summer Olympics. Then it will travel across the country for five years.

JEFF: What we're looking at here on screen are a few of the three-dimensional interface screens from Edison's The Inside Story CD-ROM, and what we have done, as you can see here in the visuals, is we have recreated in 3-D one of the physical kiosks from the gallery, so the experience is very similar in that a consumer will be able to free-form navigate down through the hallways of our virtual gallery, approach a kiosk, and click on the touch screen. It'll bring the visual up full screen, and they'll be able to engage in a lot of content.

The important thing about building this as a virtual gallery is people can immediately and readily understand how to move through a three-dimensional space, because we all walk through our contextual properties all the time as it is. The expectation level for any corporation is really set more at a consumer level, in that we all watch television, and we all go to the movies, and we all get very enamored by the special effects and tricks that we see on television. And it really raises the bar of expectation for what we want to have happen, in terms of how we represent ourselves as corporations.

The other side of that is that if you look at a retention model for consumers, being able to incorporate visuals and audio and things that really extend us out of text....and being able to interact with it guarantees us that people will learn a little bit more, and in the case of Glaxo with an exhibit on medicines, it's very important that consumers do start to get acclimated to what does it take in the discovery process to create a medicine, and that most medicines, you know, most molecules never become a medicine.

(Excerpt from presentation) Man: Practically anything can be a medicine, a substance, a source of energy, as long as it can prevent, ease or cure a disease. (End of excerpt)

JEFF: We originated actually as a design and printing company, and that's what we saw as the differentiator was being able to provide an in-house service, a very high-level design married with very high-end printing capability. We sold all of that off to another printing company, because we felt it was more important for us to invest on the new media side of the house, because that's where the growing requirement was for our customers.

What is the cost of sending a salesperson out in the field to do a presentation and then how qualified was the presentation? And if we can use video or multimedia as a second- or third-tier qualifier, which will allow us to incent someone a little more to qualify themselves in terms of their interest area does ultimately save significant dollars out of a sales and marketing program. And if it turned out to be an unqualified lead, then they just lost a lot of time and the opportunity cost is very high, so if you can have a video do the next level of qualification to get you to that next step, then at that point, you may fly a salesperson out or at that point, a lot of times, our clients are able to convert sales directly off of that, because keeping in mind with video, you can not only bring some personality to it and not just show the marketing side of it, the benefits messaging, but also be able to show features and functionality supported by that.

HATTIE: That's right. You couldn't possibly know Jeff as well by a picture than you do with video. You started a business nine years ago, but you've never locked onto one service or product. You just keep moving forward.

JEFF: Our business is like Gumby. We can only plan to be flexible. That's why Gumby sits on my bookshelf every day as a great representation of how we have to this. We have to be very flexible.

HATTIE: OK. And if you're a small business, if you're not flexible you won't stay succeed.

JEFF: In fact, if you're a small business I think you have to be flexible more this way, bending backwards for the client.

HATTIE: Bend over backwards for your customers.

JEFF: That's right.

GEOFF ALLEN (Image Communications and Source Digital Systems): This technology changes daily. I mean, we say we're on the bleeding edge, you know, because it's so sharp, we're bleeding because of it. But it's the truth. I mean, the stuff changes all the time. You've got to constantly be sifting through the news, you've got to be going to shows, you've got to be assimilating the information that's coming from all these different sources, especially somebody like Bell Atlantic.

They've got a telecommunications company, primarily. Yes, they do distance learning; yes, they do video this and that, but, you know, they're a phone company. And that's their bread and butter.

But what we're talking about is combining three discrete areas. We're talking about competing technology, computers and technology in that generation. We're talking about telecommunications, which is its own right, and we're talking about video. These are three very discrete areas. And the people that know video, just because you're a great analog video engineer doesn't necessarily mean the skill set that you've learned over the last 10 years is gonna transition into digital. It can, but it's truly a different discipline. It's a--you've got to relearn. Don't you think that for a minute not 5 to 10 other people in the country have the exact same idea that you do at one minute--at any moment in time, no matter how great or unique your idea is. But it's all in the value of implementation and desire and making it happen.

HATTIE: You don't just stay with one thing. You keep looking, and then if you pick the opportunity and you go after that opportunity, and now you're getting ready to go after a third one.

JEFF: We don't hedge, we diversify.

HATTIE: We don't hedge, we diversify. Here's a hard question. You're 31 years old. Where did you get all the money to buy all this stuff to do all this?

JEFF: Well, when we had started the business, we targeted Mobil Corporation as our initial customer. We've always come from a perspective that if we're selling intellectual property, then odds are that the bigger corporations are gonna have the more savvy purchasers, and therefore it would create a better sales opportunity for us. So we did create our first piece of business with Mobil Corporation. It was about $100,000 of business, and we could not get a single bank in this market to carry a Mobil Corporation purchase order.

HATTIE: So you had the contract in your hand and a bank wouldn't loan you the money on that contract?

JEFF: Yeah, because the banks were concerned about what if Mobil defaulted on the payment, which is kind of ironic, since Mobil owns a very large portion of this town.

HATTIE: So what did you do?

JEFF: Well, we had--I had been spending quite an amount of time--in fact, I spent about 80 percent of my time for two years meeting with bank CEOs, talking to venture funds, meeting angels and trying to figure out what might be the best solution for our organization, because we've always had the ability to grow very rapidly, but often when you grow, you do require the capital to be able to do that, and I identified an individual, Laurie Larsen, who is now a partner in both businesses, and she has personally bankrolled Source, which has allowed us to double our revenue every year.

HATTIE: Jeff Gordon wanted to grow his business and because it's so technology-intensive, that's expensive. When he went to a bank, they said no, over and over and over again. So what did he do? He found an angel.

JIM SCHELL (Veteran Entrepreneur): An angel is basically a rich person with money who is interested in helping you out, for whatever reason. Angels, they don't have any rules, they don't have any lobbies, they don't have any organizations. They're people, probably, mostly entrepreneurs, who want to stay involved and who want to, again, for whatever reason, help a small-business person.

HATTIE: Would an angel offer me either option, debt or equity?

JIM: Probably. Probably, but they favor equity. I'll give you an example. We were a seasonal business. Christmas was a big time of the year. We had a lot of receivables and a lot of inventory around Christmastime. We had reached our--filled our credit line with the bank, filled it up. The banker said, `Well, Jim, I've got an idea for you. I know of an angel. Maybe he can help you out over the Christmas crunch.' Called him up, the guy came in, never heard of him before. His name was Cy. Cy sat down in front of me, sized me up for a half an hour, didn't even go out and take a look at my business, sized me up. Next day, he called me and said, `Jim, come on over and pick up a check for $300,000.' It was a short-term loan. He charged me 4 percent over prime, which is a good deal for him, but there's a fair amount of risk involved in something like that, too. He was one of us, he was an ex-entrepreneur, he understood my problem. There's venture capitalists. Venture capitalists are kind of sexy. You've got to have a high-tech business. You've got to be willing to settle for a lot of involvement from outsiders and you've got to be willing, at some point in time, generally--probably go public, and plus you've got to understand they only take a look at--or they only approve 2 percent of the deals they see, so the odds are against you.

HATTIE: Did we leave anything out?

JIM: Credit cards.

HATTIE: Really? Really? I mean, people really do that?

JIM: Lots of people do it. You have a $10,000 line of credit, right?

HATTIE: Exactly.

JIM: And it's expensive, but you don't have to sign any bank guarantees. It's pretty easy.

HATTIE: What do you mean, bank guarantees?

JIM: Bank guarantees are where you guarantee to the bank with the backing of your house, your car, whatever, that you will pay off the loan.

HATTIE: So what you're saying is, if a banker makes me a loan, I have to sign my name on that.

JIM: That's right.

HATTIE: ...that my personal stuff could be taken. So if I'm not willing to do that?

JIM: If you're not willing to do that, if you're not willing to take the risk, why should a banker?

HATTIE: Absolutely. All right, now we've talked about banks, venture capital, angels. My family did mine, which is a fourth way. Anything else?

JIM: I would guess that 90 percent of small business is probably started by bootstrapping. Bootstrapping is finding your money wherever you can find it, in a savings account, on a second mortgage, credit cards, whatever, starting your business that way, building it, and then from that point on, building your business on retained earnings. If you make it, you invest it. If you don't, you stay right where you are.

HATTIE: So if I'm not willing to do that...

JIM: If you're not willing to do that, then you're probably not ready to start your own business. Your motives must be something else other than to create a business, and I don't know what they are, but you probably belong--keep your day job.

HATTIE: Your vendor wants you to be as successful as you want to be. They may have straight loans available or lines of credit they can open up to help you grow. Also here on this program, you learned about small-business investment companies. Jeff and Geoff are small, but their customers are big. Paul Nelson explains what we as small-business owners need to do business with big corporations.

PAUL NELSON (Consultant): What a lot of large companies are insisting upon and requiring for people to do business with them is that they need to be hooked into them electronically. They need to be sharing data, they need to be sharing information with them. They need to be submitting purchase orders and sending invoices electronically, and that is a `meets requirements' to even get in the door to do business with those large companies. So you need to be using technology the way a lot of larger organizations are using technology, only there's ways to do it smarter and in the budgets of small businesses.

HATTIE: OK. So let's say, for example, I'm a food broker and I land--and I'm a five-person office--and I land Wal-Mart as a customer. Are they going to tell me what I need to have to communicate with them, or do I have to go out and find someone like you to help me with that?

PAUL: They oftentimes give a set of requirements and they oftentimes have standard packages developed to allow you to do that. So any time you're working with a large organization, you need to be communicating directly with them. And a lot of times, they have the standard packages available, and they'll offer the services and the programs and the hardware necessary to go ahead and communicate with them and do business with them electronically.

HATTIE: And don't you think this is an interesting growth opportunity for a lot of small businesses, and that is to look for their customer base among the big corporations.

PAUL: Oh, it's a fantastic opportunity, and oftentimes a smaller business with less baggage from legacy systems, it makes it easier for them to do it than some customers that have been using information technology in different capacities throughout the years. So oftentimes, a start-up business has a competitive advantage in regards to the start-up time that it takes them to get hooked into those large organizations electronically.

HATTIE: Database software has been critical to the success of my business. Stephen Jackson is here to show us some new software that will help you get and keep customers.

HATTIE: These two companies employ 55 people. Jeff Gordon will look at 300 applications, talk to 100 people on the phone, then see 30 in person before he hires one. You're kidding.

JEFF: No.

HATTIE: You said you'll sift through 300 resumes before you end up hiring one?

JEFF: That's correct.

HATTIE: As you might expect, he approaches the people side of the business creatively.

JEFF: In that sense, we've been working as a virtual corporation for several years and that a lot of our people have home offices as well as offices here, have the opportunity to telecommute. As long as everyone meets their deadlines, that's great. I think we have built a team of self-starters, so there isn't a requirement for micro-management. We incorporate very much a Hollywood model, where we want to be able to plug in the appropriate talent for the opportunity, so we will build up teams for particular projects, and then as the projects are completed, we may break that team down and put them onto different assignments.

HATTIE: Geoff Allen learned from his first three jobs how not to handle high achievers.

GEOFF: I started working when I was 14. I snuck into McDonald's, I told them I was 15 the next month.

HATTIE: So you lied to get a job.

GEOFF: I lied to get a job, yeah, because I wanted to work, you know. This is great. In fact, I remember when I was working McDonald's, I had probably eight or nine weeks of paychecks I didn't even cash, because I didn't need the money. I'm 15. What the hell am I gonna do with the money? I just thought it was great, going to work, you know, and going in there and competing with these people that are 20 and 30 years old, and like, you know, doing a better job and learning the ropes, and you know, eventually I wanted to--this was the turning point at McDonald's: I got to be so quick that I was doing the inventory ratios and was actually doing cash flows and doing the books and counting out, when I was 15. Then I realized that I was making $3.35 an hour, and these loafs were making $3.85. You know, 50 cents an hour is a lot of money to a 14-year-old. It's the principle. And I said, `This is crazy.' So I said, `I want $3.85.' And they said, `Well, you can't have $3.85. You're not a full-time employee.' So I said, `I'm out of here. I'm moving on.' That was the turning point for me. You know, 50 cents an hour for paychecks I wasn't even cashing. But it was the reality. It was the mental thing. I'm working hard, I'm doing cash flow, I'm doing inventory...

HATTIE: Sure. And is that when it turned for you?

GEOFF: That was the first one.

HATTIE: That you knew you had to work for yourself?

GEOFF: That was the first one. I said, `You know what? This is crazy. Why am I doing this?' Right? So I went to work for another company, and the same thing happened. I worked for a big company, W.W. Grainger. They were at the time were about a $3 billion distribution firm. They make the lamps and the HVAC equipment, pumps and stuff that are in all these buildings. Great company to work for. Same thing happened, though. I progressed all the way through. I was the youngest person ever in Grainger's to do inside telephone sales. I started doing the cash flow, I did the books, I did some salary-to-sales ratio programs for them, spreadsheets so that they could find out how much contract labor they need to hire during the busy winter months, real simple Lotus 1-2-3 stuff, simple stuff. It sounds better than it was. But anyway, same thing happened. You know, I was making like 18, 19 grand a year as a, you know, 16-year-old, and I'm like, you know, I find out these people are making 27, 28. I'm like, `I'm doing more work, I'm working longer hours. I want to make 26 grand.' They say, `You're 18. You don't need the money.' That was basically what it was. And I said, `I'm out of here.' So I worked one more company. It took me one more company to bang my head against the wall till I figured out, this is crazy.

HATTIE: Somebody watching this thinks that starting their own business is going to give them overnight wealth.

GEOFF: Ha! Not even close. I went from making more money than I knew what to do with when I was a kid, because remember I was 14, 15--I bought two BMWs in high school because I had nothing to spend my money on. I mean, why would you need that kind of money? I was making great money. I went from making, you know, 20 to 30 grand a year as a 17-year-old, to making nothing, virtually nothing, like six grand, for three years, living at my parents', working from 6:00 in the morning till 8:00 at night, and then going home and driving for Domino's till 1:00 in the morning, because I needed money for my play time, to go see the movies and take my girlfriend out to eat and stuff like that. You're running a business, big business owner. You know, I was broke. I was flat broke, but I knew, I knew I would succeed. I risked the best times of my life that everybody said: college, the girls, the partying, whatever, you know, you know? I mean, I didn't risk a lot of money, but I basically gave up the time that I was 17 to 18 to the time I was 23, and I'll tell you, it sucked sometimes. When I was 21 and all my friends are coming home, they're all fraternity brothers, they're all sorority sisters, they're all partying and talking about the most incredible things they've ever experienced in their entire lives, and I'm going, `Yeah. Got to go to work tonight. Got to deliver pizzas tonight. See you later.' You know, one of my favorite sayings that I have is I'm just as squirrel trying to get a nut. There's a story that says a cold winter's coming, all the squirrels are playing, and one squirrel's saying, `You know, come on, there's a cold winter coming. You got to put your nuts away.' `Nah, nah, we're gonna be fine.' And boom, don't you know it, big winter, they're all freezing, and the squirrel's sitting there, he's got his lot of nuts. And I'm not saying that I'm trying to make all kinds of money and pile it up and laugh at people. I'm just simply saying that I know I can do this when I'm young. I don't have a wife, I don't have children. I don't want to go through this and know that--I don't ever want to come to the choice that says, `Is it my family, or is it my business?' because that's not fair to either of them, because when it's your business, it's other people's families, you know. I mean, you know, if I make a poor business decision, I may have to let a lot of people go. And that affects them. I mean, there are people like that. And the same thing if I make a poor family decision, I might lose my wife or my children or whatever. And I'm not willing to do that. So I took the--I recognized that this is what I want to do, I am young, I've got the energy, I've got the work ethic, and this stuff's fun anyway. It's great. I mean, what the hell? There's not that much--I mean, it's work, it's a lot of work, and sometimes it's terrible.

HATTIE: Have you ever wanted to jump out the window?

GEOFF: Yes. Yes, I have. Yes. Yes. In fits of rage, you know, you're going, `What am I doing? My friends are right. This is crazy.' You know, sometimes I feel like, you know, like I'm 40, and I've got to deal with these things, which it's not bad to be 40...

HATTIE: Thanks a lot! I'm 45.

GEOFF: No, my dad's 52. But I mean, I find myself having to deal with situations that if I wasn't thrust into it, I would walk away from.

HATTIE: Right. Right.

GEOFF: And those are the kind of things that.

HATTIE: But you have to solve it.

GEOFF: I have to, that's the thing. They make you stronger to deal with it, but if I had the opportunity, I'd say `No way, give it to somebody else.' But because you're the guy, you know, the buck stops there. You have to deal with it. And that's the one thing about being in business. You make a commitment that's so deep that you have to deal with it. And the very fact of dealing with it makes you stronger. And that's the kind of rhythm that comes around.

HATTIE: Success breeds success.

GEOFF: It does. And when you come around, and you've got faith and you do the things that scare the hell out of you, the next time, they're not so scary, and the next time, you're really good at it, and the next time, you don't mind doing it.

HATTIE: I asked Jeff, since you work such long hours and for so many years, how do you stay energized?

JEFF: I think part of keeping the mental energy is running around with guys that are doing the same thing, you know, identifying other men and women that are entrepreneurs as well, that are working the, you know, 60- to 80-hour work weeks consistently, that do the weekend working all the time, that really push it to the edge, within the context of that trying to create some sort of balanced lifestyle, although I think that my personal life and my business life are really one and the same in that this is really what I think about full time. I would say that our business is on the brink of failure every day of the week and I operate from that perspective, that there are no guarantees. You never have arrived, success is a moving target, and I think that if you're not attentive to that and really don't pay attention, that you'll end up losing your business. There is a direct relationship to, at least in my mind, in terms of how hard to have to work. You know, I had thought that going into business, you know, if you're bright, it's easy, and the fact is it's an incredible amount of work. And it's a constant.

The Closing of the Show.