Fewer than 5 percent of startups will make it to their second year of business, according to data from the U.S. Bureau of Labor Statistics.
For many Americans, such figures are daunting — but for some entrepreneurs, the risk makes the reward even sweeter.
One such entrepreneur is Vance Brown, the co-founder and board chair of Colorado Springs-based tech firm Cherwell Software.
The IT services management company has taken in $75 million in venture capital and now employs nearly 500 people at its three offices in Colorado and England, making it the region’s most successful tech firm.
But that hasn’t always been the case.
Brown met his business partners, Arlen Feldman and Timothy Pfeifer, when the three worked together for FrontRange Solutions, which in the ’90s was one of the region’s most successful tech businesses and one of the first in the country to specialize in what was then known as “help desk” software.
“I think Colorado Springs was the birthplace of the help desk industry,” Brown said.
In 2004, after the three left FrontRange and the dot-com bubble had burst, the former co-workers reconvened at what they considered an opportune time for a joint venture.
Brown said that when faced with the revolutionary advancements companies such as IBM and BMC were making in the field of information technology, the three partners looked at each other and said: “Well, if they can, so can we.”
“The three of us are very different,” Brown said. “That’s what made it work — we’re very complementary. I think the three of us are a force to be reckoned with together; otherwise I don’t think it would have happened.”
The consequent formation of Cherwell was informed by a series of buyouts, name changes and restructuring the founders had witnessed while working for FrontRange. Rather than devise another get-rich-quick Silicon Valley startup, Brown said they started Cherwell with a singular goal in mind: to stand the test of time.
“We set out to achieve a mission first,” Brown said. “When you do that, you make decisions in a certain way. … We would have been able to grow faster early on if we would have taken early money, but we would have lost the control that has made it possible for us to achieve our mission. We bootstrapped it so that we could retain ownership.”
Brown and Pfeifer continued to work full-time jobs to help support Feldman as he began to build the framework of what would become Cherwell’s product platform. Then, in 2007, the company finally became operational and took on its first client — finally becoming self-sustaining.
That’s when, according to Brown, Cherwell transitioned from its status as just another startup to becoming a viable business.
“Given that we could pay our bills on our own sales, I would have called it a business,” he said. “In fact, it was kind of a thriving business.”
‘THE TEST OF TIME’
Staying true to its mission, the company continued to support itself without outside investment as it began to grow internationally. But in 2012, the time came to take the risk.
Since then, the company has undergone two rounds of venture capital investments that have totaled $75 million, which Brown said the company has used to acquire companies and technologies that would give it an edge on the competition.
And it seems to have worked.
Last year, the firm saw its highest number of bookings and new customers and hired nearly 200 new workers.
Brown, who was replaced last year by Craig Harper as CEO, said that the company’s future will either come down to an initial public offering or a sale — although no timeline for either exists.
“To truly stand the test of time, you have to do one of two things: sell or go public,” Brown said. “But we don’t have a definite time frame. We’ll do that when the time is right.”
On a whiteboard in Brown’s office is a crudely drawn graph depicting a circuitous route between two extremes: One side is weighted by the desire for money and the other is weighted by dreams and martyrdom. The ideal, Brown explained, is to walk a road that runs equidistant between the two, which would allow a company to both make money and find meaning.
That’s the way Brown explains Cherwell’s business model: A balance between the mindset of a mercenary, and that of a missionary.
“You want to be able to do both: swing your sword and live from your heart,” Brown said. “I think the fact that we’re still here — that we’ve been able to withstand the test of time — shows that we’re a thriving company. That doesn’t mean it won’t sell or that it won’t go public — because ultimately one of those things has to happen.”
Around a similar whiteboard, UCCS students Connor McCormick and Preston Hare spent their spring break working out the kinks in a new algorithm designed to better their business.
McCormick and Hare are COO and CEO (respectively) of a company called Lot Spot, which for three years has been working to design and develop an app that would allow its users to find parking spots in real time.
“A car traveling less than 10 mph is the least efficient,” McCormick said. “And we’ve determined — and these are probably conservative estimates — that the average student spends three additional minutes looking for a parking spot.”
For those reasons and more, the Lot Spot team has found its mission in attempting to solve parking-related problems for higher-ed counterparts throughout the country.
Lot Spot already won a $7,500 grant from UCCS and received $80,000 for winning last year’s California Dreamin’ Entrepreneurial Competition at Chapman University, in which the team competed against students from prestigious institutions such as the University of California-Berkeley, the U.S. Air Force Academy and Cornell University.
Since then, Hare and McCormick have focused on streamlining the technology by writing a new algorithm that runs the hardware more efficiently. That would allow Lot Spot to offer its product at a much more competitive price.
“We just developed Version III of our algorithm, which is really big for us,” Hare said. “It improves our accuracy, it reduces the cost of our product and it reduces processing power — that essentially means that we can do the same thing with a much cheaper hardware setup. That is what differentiates us in price from our nearest competitor.”
Lot Spot uses specialized processors to analyze video streams for traffic flow. Because of the newly developed algorithm, Hare and McCormick have been able to reduce the cost of the necessary processing hardware from $800 per unit to $70.
“Cost is a big deal,” Hare said.
Hare said that the company’s product would also do much to help institutions such as UCCS, given that it costs an average of $20,000 to build each additional parking space.
So, rather than spend $80,000 for four new spaces, Hare said the university could install enough product to effectively monitor and utilize the spaces it has — which he said is enough to accommodate the campus’s on-campus student population.
“By providing them with this data, we can help to offset costs significantly,” Hare said. “It’s just a matter of information.”