ROANOKE TIMES
Copyright (c) 1997, Roanoke Times
DATE: Sunday, January 19, 1997 TAG: 9701200015
SECTION: CURRENT PAGE: NRV-3 EDITION: NEW RIVER VALLEY
DATELINE: BLACKSBURG
SOURCE: SOOKHAN HO SPECIAL TO THE ROANOKE TIMES
The two Virginia Tech students knew the demand was there (they'd done their market research), but Ali Khazai and Steve Hole never dreamed the Internet business they started would take off the way it did.
When the two decided to launch Internet Connect last fall, they wanted to do everything ``by the book.'' They obtained a federal tax identification number and a local business license that allowed them to operate out of Khazai's Blacksburg apartment.
They spent the summer researching their idea for a business: a convenient ``one-stop'' service for Tech students who needed their computers linked to the Internet. Although installing an ethernet card and completing a series of keyboard exercises to establish the Internet link isn't rocket science, ``not many people want to deal with it,'' Hole said. The two did a break-even analysis to find out if the service would make money.
For capital, they pooled their Visa credit lines and gambled on besting the 30-day billing cycle. ``Our hope was to make enough money to cover costs before the credit card bill came in,'' Hole said. ``Our only scare was `what if nobody called, we would be stuck with this inventory.' But that didn't happen.''
Hole and Khazai tracked down suppliers of ethernet cards and cable needed for the connection using the Internet and arranged for an extra phone line to handle their hoped-for customer calls. As the fall term approached, they sent a letter to faculty pitching their service and offering to speak to their classes.
They hired four management science and computer engineering students as ``customer service personnel'' who would install the cards. They distributed fliers to residence halls (``No Waiting-No Call Backs-No Delays-No Problem'').
``We go to the students' residence with the ethernet card and the connecting cable, do the installation, and get them up and running on the Internet in under an hour,'' Khazai said. ``We offer complete installation and support if future problems arise.''
The company charges $69.95 for the service if a generic ethernet card is used and $139.95 for a brand-name card.
They had their own computers set up with special software to record work orders and print out three copies of each work order. (``one for the customer, one for the installer, one for our records.'') This system, however, was one of their first misjudgments - it was too slow for the deluge of orders during the first few days.
The solution? Strictly low-tech. They scribbled names and addresses on note pads.
While running a home-based business saves on overhead, Khazai discovered that it does require ``Advil ... lots of Advil.''
The calls would start at 7 in the morning, he said, and continue until 11:30 at night. ``I hate to lose a buck, so I keep answering. My friends get mad, my girlfriend gets mad. ... I'm losing hair.''
The two friends, both students at Tech's Pamplin College of Business, said their role models were Microsoft Chairman Bill Gates and their parents. Khazai and Hole attribute their entrepreneurial instincts to growing up in business families. Khazai's father owns a chain of video stores and bagel shops in Northern Virginia. Khazai, a finance senior, spent summers as a VCR technician and assistant manager in one of his father's video stores.
Hole, who earned a finance degree from Pamplin last year and briefly worked at Andersen Consulting in Blacksburg before returning to Tech for an MBA, calls his antique-mall-owner mother the ``wheeler and dealer'' in the family. ``I'd hear about how she found something at a flea market for 3 bucks and sold it in one of her shops for $500.''
In the first hectic days of their business, Khazai and Hole were pulling six to eight hour shifts at the telephone and juggling classes and homework. ``We also yelled and screamed at each other a lot,'' Hole said.
Only twentysomething, and already burned out.
The demand was heavier than they had expected. One would be on the phone with a customer for a few minutes, Hole said, and ``when we hung up, there would be about 19 new messages on the machine.''
On the third day, they encountered their first labor-relations problem. Their four student subcontractors, who were getting $10 per installation, demanded a raise. The following week, the company ran out of ethernet cards.
They sat down and ``hammered it out'' with their subs, Hole said. ``A little yelling went on back and forth.'' In the end, he said, he and Khazai realized what an asset the other students were to the company. Moreover, ``they were our fraternity brothers. We didn't want to lose a friendship over a couple of bucks.''
They gave their subcontractors a 35 percent raise but eliminated ``rework'' pay. The company had been paying an additional $5 per subcontractor to check on customers after installation and fix any problems they had, Hole said. With the pay raise, their installers agreed to follow up on their own with individual customers. ``So it was a win-win situation for everyone.''
The two partners also realized that they wouldn't be able to cope with the demand without more help.
``Our whole concept of how we would run the business changed after the third day,'' Khazai said. They hired on another dozen or so students to install the cards and to answer the phone. The extra help enabled them to remove themselves from the day-to-day operations to focus on the management of the business.
When their card supply ran out, the partners wavered a little before deciding to buy $7,000 worth of cards from a department on campus that was willing to sell part of its surplus provided they bought at least 100.
They managed to sell 50 cards, and break even on the purchase. Although they currently have about $8,000 worth of inventory left (including cables), Khazai and Hole are confident of selling these next year. ``We've paid all our bills - close to $10,000 worth,'' Khazai said. ``Many new businesses don't even manage to cover their costs, and we did it twice in two weeks.''
Demand slowed after those first frenzied weeks - to their relief, Khazai said.
In those first weeks, the partners figure the company earned about $9,000 in profit and employed 15 subcontractors.
With a new semester beginning, the two plan to gear up for business again. They're also casting an eye on other campuses and new markets.
The partners say that the financial rewards account for only a fraction of the dividends their business has bestowed. What has meant more has been the satisfaction, the ``sense of pride and ownership of making your ideas work and watching your business develop and become a success,'' Hole said. ``Everyone thought we were just two kids trying to make a little beer money,'' Khazai said.
And they've learned some valuable lessons about running a business they had not learned from textbooks. ``What you can't teach in class,'' Khazai said, ``is how to get a good deal out of your distributors. Haggling - they never taught us haggling.''
Also, ``You can't teach stuff like customer satisfaction,'' Hole said.
But they also found their classroom learning at Tech contributed to their success. ``We used almost everything we learned in class,'' Khazai said. They applied production and operations management theories to help them schedule work and track inventory. Their accounting and finance courses provided guidance in arranging for financing and setting up a payroll system. Total quality management theory became their compass for managing customer and worker relations.
Both students believe that their experience will help open doors in their career search. While they aren't ruling out the prospect of operating their own businesses, they'd like to work for others for now.
Sookhan Ho is coordinator of public relations for the Pamplin College of Business at Virginia Tech.
LENGTH: Long : 138 lines ILLUSTRATION: PHOTO: GENE DALTON/Staff. Ali Khazai and Steve Hole neverby CNBdreamed the Internet business they started would take off the way it
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