Steven Lundstrom remembers the moment he knew his company was coming apart at the seams--technologically speaking. He was hovering peevishly over Aroma Naturals Inc.'s sole computer, one eye on the clock, the other on his accountant tapping away at the keyboard. "We've got to input this order," he snapped, trying to coax her off the machine. "UPS is arriving in an hour."
"Well, I've got to pay the staff," she replied tersely, focused on finishing the payroll. "They're leaving in an hour."
This sniping on a busy afternoon two years ago wasn't personal, but it did stem from a serious dysfunction in the Aroma Naturals family. Lundstrom and his wife, Tina Rocca-Lundstrom, had hit the limits of growth for their company, a manufacturer of aromatic candles based in Irvine, Calif. Until then, they had kept things moving by dividing tasks. She handled product development and marketing, he took on manufacturing and what Tina calls "the gadgetry." But one gadget was now killing productivity. As revenues neared $1 million, the Macintosh that had carried them from kitchen table to factory floor had become a bottleneck.
Steven knew what they needed: more computers on a local-area network (LAN). And once he had it, he was hooked. An initial purchase of five desktop PCs quickly mushroomed into an investment of more than $40,000. The Lundstroms now have three servers--one for E-mail, another for sharing files, and one more to host the company's Web site. They've also added a high-speed DSL phone line that connects the servers, 12 PCs, and three Macs to the Internet, and will support the company's impending move into E-commerce. This year, 25-employee Aroma Naturals expects revenues of $4.5 million on sales that doubled each of the past two years--a growth path the Lundstroms link directly to their spending on technology. "I only regret that I don't have more money to buy more things to grow my business even faster," Tina says.
It's a common sentiment these days, especially regarding networks. By the end of last year, 37% of companies with 10 to 19 employees had put their PCs on a network, says Raymond Boggs, head of small-business research at International Data Corp. A year earlier, only 30% had. Among companies like Aroma Naturals with 20 to 99 employees, the number jumped from 42% to 52%. No wonder such companies as Cisco Systems, Dell Computer, and Microsoft are racing to tailor corporate products for small business, while a startup like Ramp Networks Inc. finds a ready market for its easy-to-use Internet on-ramp. It also helps explain IBM's recent purchase of Whistle Communications, whose WhistleJet server simplifies E-mail and Web access for small businesses. The increasing number of inexpensive products helps fuel entrepreneurs' imaginations (page F.28). "After the LAN is in place," says Boggs, "small businesses are doing so much more than they ever imagined." Aroma Naturals added a digital-photography studio. Now, product pictures are kept on a server to update the Web-site catalog--shaving thousands from its marketing budget.
It's an ambitious network for a company of Aroma Naturals' size. You might need less. But a network's basic purpose is to let everyone in a company communicate with everyone else; share resources, files, and databases; and pass documents around effortlessly, or even work on them simultaneously. At the very least, it stops a lot of wheel-spinning. Ideally, it can sharply boost productivity.
So, does spending equal profits? Hardly. "A lot of what I hear is technology for technology's sake," says Michael Silver, a senior analyst with Gartner Group. "That's not a good way to make a return on an investment."
Unfortunately, gauging the payback from a LAN is nearly impossible. "There are ways to measure," says Silver, "but a lot is educated guessing." He suggests asking three questions before proceeding: What is today's technology costing you? How much will you pay for change? And how are you going to quantify the benefits derived from the change?
These deceptively simple questions mask the often maddening complexity of technology planning. Savvy entrepreneurs think about the answers ahead of time; others are forced to confront them as they arise. Mark H. Kreditor, owner of Get There First Realty in Dallas, a residential property management outfit, is in the foresighted camp. An early adapter to technology, seven years ago he connected nine PCs in a peer-to-peer network--one that lets any computer on the system call up applications and files from any other. Before long, Kreditor's own PC began grinding to a halt as his staff tapped into property records kept on his hard drive. When he wanted to use his spreadsheet, Kreditor would shout across the office to get them to log off his computer, disrupting their work. Obviously, the existing technology crimped productivity. Kreditor's solution was to add a then-$4,000 Dell server to his setup two years ago. "We've weaned ourselves off the local hard drive," he says. "Now, we save to the network." The database previously on his PC now resides on the server--which keeps the company hopping.
While Kreditor addressed his problem head-on, John Hartman, the 56-year-old owner of a Tulsa marketing outfit, didn't even realize he had one: customer alienation. At Hartman Communications, each of the company's 11 employees had a computer, but just one had a modem connection to America Online for E-mail. That meant client queries went unanswered for long stretches--and extended Web searches irritated colleagues waiting their turn.
Finally, 30-year-old Allison Radcliffe, who had come to Hartman from a major corporation, began beating the drum for the companywide Web access and E-mail she'd had in Corporate America. Her arguments amplified requests Hartman's customers made to E-mail him directly. So he listened to Radcliffe's plea and hired PC Computers & Software, a local PC manufacturer, to overhaul the existing PCs and add a network, a server, and an ISDN connection. Afterwards, Hartman saw his clients' enthusiasm for electronic communication--and how much they had yearned for his company to add it. "Frustration could have led them to move the account," Hartman says, relieved he acted in time.
While losses from existing systems are hard to quantify, the price of an upgrade generally comes with a number. Hartman invested $16,000 to install his new network. Silver, however, warns that you should also figure in such costs as lost productivity during training, downtime during installation, and time the staff loses making technology work rather than doing their jobs. In some cases, such costs can be crushing. Exhibit A: Deb McAlister, owner of the Dallas public-relations firm Holland McAlister PR.
Networking experts are split on whether McAlister should have even tried to host her own E-mail address when she added a LAN to the previously unnetworked business, but the consequences are clear. She was fired by a $250,000 account when she didn't respond to the client's E-mail. That's because she didn't get it. McAlister had her SoftArc FirstClass E-mail server configured to receive E-mail directly from the Net via a Southwestern Bell ISDN line. She claims the line worked only intermittently for months, bouncing back hundreds of messages. Worse, she couldn't resolve the problem. Although Southwestern Bell spokesman Chris Talley maintains that McAlister's situation is "likely a server issue," her Internet Service Provider (ISP), her systems consultant, and her software vendor disagree. Fault aside, McAlister and her staff spent many maddening days trying to correct the problem. "They all probably thought I was the biggest witch in the state," she says. "I was calling, screaming, four times a week." Eventually, McAlister let her ISP host her E-mail, which cost no more than doing it herself. Why had she tried it to begin with? As a PR firm for technology companies, she wanted to show she could--a classic case of technology for its own sake.
Maybe McAlister should have followed the lead of entrepreneur Bill Weiner, a purveyor of auto accessories in car-crazed Silicon Valley. Weiner could have added a T1 line and hosted his own E-commerce site, gaining some cachet among his high-tech neighbors in San Jose, Calif. But that would have cost his 23-year-old mail-order catalog business $800 a month. Instead, he decided to host the site with an ISP. "As a small business, you ask yourself if you want to spend money to have a T1 line in the office or let someone else host it who's in the hosting business," says Weiner.
And yet the most elaborate network imaginable can pay off in the right small business. Just ask Dr. Norman Anderson, who measures success in terms of saving lives--and his physicians' time. The network he set up last year ties all five offices of the Robert Boisenault Oncology Institute, based in Ocala, Fla., into a Wide Area Network via T1 lines. The rapid connections let doctors at each clinic download their patients' massive CT scan files from the Institute's server, which gets them electronically from CT scan centers over other dedicated clinic lines. This slices days off the time needed to develop a treatment plan. Doctors don't have to go to headquarters to see scans, and consulting colleagues can view the same data in their own offices. Sure, the T1 lines are expensive, but so are personnel in this business, and the increased efficiency is measurable: Anderson, for the moment, has been able to put off hiring another doctor.
With a payoff like that, who wouldn't want to gEt plugged in?
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