THE LITTLE COMPANY THAT COULD (AND DID)
Few start-ups can boast a 180-degree turnaround like this one.
This past June, when Lancet Software celebrated ten years since opening its doors, the founders toasted more than an anniversary milestone. The Burnsville, Minnesota, company, which provides business-intelligence services to companies large and small, by all rights shouldn't still be around, let alone boasting 20 percent year-over-year growth, low employee turnover, and numerous awards for business and workplace excellence.
But early crises, if survived, can spawn valuable lessons for longevity. Lancet's first brush with extinction came only a year into life, testing the start-up's mettle well before the dot-com debacle. In 1998, the company lost its biggest customer, which had been delivering 90 percent of its revenue, and suddenly found itself with only enough cash for one more payday. It was the sort of crisis that management usually tries to keep quiet until they have a solution. But Lancet President Tom Niccum and his three cofounders were big believers in open-book management. All four had previously worked for a company that had been "circling the drain," while the senior staff tried to keep the news from employees. "Hiding it was virtually impossible because everybody could see the signs, but they decided not to discuss it, and it was very demoralizing," Niccum recalls. Sensing a dire situation, employees abandoned ship in a hurry. "We felt that we had learned the lesson that when there's a crisis or bad news, getting it out in the open…and engaging everyone in working on a solution is far better," says Niccum, 50, who applied that lesson to Lancet's trouble by leveling with employees about the customer loss. He adds that they weren't concerned about a shakeout. "We knew we'd be a stronger company if the people who were left were risk-tolerant."
But in the end, everybody stayed on. Lancet managed to secure another large customer that got the company through the crisis - and immediately began to diversify its customer base. "We've been very observant ever since to keep any one customer from being too big a part of our world," says Niccum.
That first scare also reinforced a long-held mantra: Have no debt. Lancet was originally founded on an advance from its first major customer, which paid for the first month's office rental and some sturdy, if not overly stylish, furniture from a local store, which the staff assembled themselves. "We started out frugally because we didn't know any better," says Niccum, pointing out that the company's founders - or "flounders," as they call themselves in a humble nod to their own inexperience -were hardly serial entrepreneurs. "We really didn't know how to build a business. We didn't know we were supposed to go out and borrow a bunch of money and build a big conference room and all that," he says.
Even in the late '90s, when capital flowed freely from banks, venture capital firms, and other investors, Lancet made no move to grab its share. "We were too afraid," says Niccum, who recalls scratching his head along with his fellow flounders as they watched their peers feed on the dot-com largesse. "We could do math - that was our handicap. Two plus two still added up to four for me, and these guys were saying it adds up to 172. I didn't get it - and as it turned out that was a lucky feeling."
In the spring of 2000, when so many of Lancet's beleaguered IT consulting brethren began to struggle, Lancet was able to hunker down and wait out the storm. Likewise, after business ground to a halt post-9/11, delivering a fatal blow to many a scrappy start-up, Lancet was able to squeak by, thanks to three months of cash reserves and a debt-free balance sheet. And though it still keeps an open credit line, Lancet rarely borrows more than 20 percent of receivables. "If you have no debt, no outside person or entity - no bank, no credit card company, no outside investor - can come in and turn off the lights. You're in control of that decision," says Niccum.
Today the company is on solid footing. It has seen consistent revenue growth of at least 20 percent per year since 2002 (outside of a 46 percent spike last year, thanks in part to having added another senior partner to the ranks), and it has been profitable every year since 2001. The company amply added to its space last year by buying the building next door, both to accommodate a growing staff and to make room for a new customer-training facility.
The lion's share of Lancet's revenues still comes from building and installing complex Business Intelligence software for Fortune 500 customers, including Best Buy, Land O'Lakes, GE and NBC, and several large banks. Three years ago, in an effort to diversify further and add a new income stream, the company launched a new venture that builds, hosts, and maintains Web sites for small businesses that lack in-house IT support. Lancet borrowed a strategy from Starbucks and developed the LancetCard, a prepaid account customers can access to pay for an hour here or there of Web services. "We figured we could give clients a discount for prepaying and we wouldn't have to chase them around for a one-hour work invoice," says Niccum, adding that the card has built a stronger relationship with customers. To raise its profile further, last year Lancet kicked off an annual contest to crown the worst Web site in the Twin Cities metro area. The winner took home a LancetCard with 40 hours' worth of Web design services, and Lancet earned a free PR boost and a roster of potential new clients. The new Web business now boasts more than 200 customers and is responsible for a small, but growing share of revenue.
Thanks to innovative growth strategies like these, Lancet has been named this year to the Minneapolis/St. Paul Business Journal's list of 50 fastest-growing private companies in Minneapolis. But Niccum seems prouder that Lancet has placed on the newspaper's "Great Places to Work" list for four years and has consistently held employee turnover to no more than 5 percent every year. More than 60 percent of employees have a tenure of seven years or more, a stat Niccum credits to a smorgasbord of employee benefits that Lancet's management, despite its frugal approach, put in place at the outset, including health and dental benefits and a 401(k) with a company contribution. "We see benefits as a strategic tool, not just an entitlement," he notes.
Add to that a practice in which employees appraise the boss annually; work/life balance initiatives like flex-time and telecommuting; and tuition reimbursement, and you have the profile of a not-so-typical small-company culture. Then again, Niccum is not your average entrepreneur. Unlike the 20-something, garage-based impresarios of the late '90s, Niccum took the long way round. He dropped out of the University of Minnesota in his sophomore year with a 2.5 GPA and spent a decade at various software development and consulting firms. He returned to school - "with a vengeance," he emphasizes - in 1987, earning a BS and then a PhD in computer science. Though a "techie" by trade, Niccum is unusually fluent in vernacular English. (He can, for example, easily distill his doctoral thesis, titled "Declustering Aware Parallel Join Algorithms and Their Optimization," into this: "Basically, it was investigating how to make databases run faster.")
Ultimately, Niccum hopes to continue to grow Lancet, but not at the cost of its hard-won culture. Describing his company as "more tortoise than hare," Niccum says its founders were never driven to make millions and sprint toward an IPO. "Our goal was to create a place of work that we wanted to come to every Monday morning. And I still feel that way ten years later."