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ENTERPRISE–It Took More Than Smarts to Teach CFOs How to Draw

What does a contract software developer who’s bored with his job do when he turns 40?

If you’re Paul Stannard, you decide to write a unique drawing software program and then launch a company.

That’s basically how SmartDraw.com got started. The 6-year-old E-commerce firm offers Windows-based tools to help people draw everything from flow charts to organizational charts to floor plans and other diagrams.

What began as a fun and challenging project for Stannard has turned into a multimillion-dollar success.

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Stannard had written a few drawing programs from scratch before he launched SmartDraw.com.

“I always enjoyed writing those programs,” said the self-taught software developer, who was a contractor for companies like Microsoft Corp., Broderbund and Intuit before launching SmartDraw.com. “But I always had the itch to start from scratch and do a better job.”

Stannard tested the idea of developing a drawing program for Windows on a friend and colleague who said, “Why would I need one?”

“This guy was a CFO who was used to dealing with DOS-type applications,” Stannard said. “He had just started using Windows. It set me back on my heels a bit. I just assumed everybody would want to put drawings in documents.”

So Stannard put himself in a CFO’s shoes and thought the first thing he would want to draw would be a diagram.

Fast Seller

“They don’t want a picture of a seagull in there, but they might put in a flow chart,” he said.

Stannard spent a year writing the first SmartDraw program in his spare time.

The first SmartDraw order came 12 hours after the company’s Web site was launched in November 1994. Four months later, SmartDraw.com was selling $10,000 worth of software.

“I was expecting it to take months,” said Stannard, who launched SmartDraw.com with $2,000 of his own money.

He and his wife, Janet, ran the business part-time from their home, taking orders from the Internet and then shipping the software.

“Janet and I would sit on the floor and put the disks in these envelopes.”

While vacationing in Hawaii in 1995, the Stannards won a Shareware Industry Award for best graphics program.

Since the business was growing, Stannard hired a part-timer to help pack and ship orders. He soon decided he needed a full-time employee to help manage the Web site.

A Real Office

A “real” office was the next logical step.

“When we needed a permanent employee, my wife said, ‘That’s it. Get an office,'” Stannard said.

December 1996 marked the opening of the first SmartDraw.com office.

Stannard realized he needed to dedicate all his energy toward SmartDraw.com, and by the end of 1998 he was running the company full-time.

SmartDraw.com, which had two full-time employees a year ago, now has 12.

In January, the company moved from an 800-square-foot office to a 4,000-square-foot headquarters. Stannard is in negotiations for another 1,000 square feet of office space in the same building. SmartDraw.com’s revenues have grown, too, nearly doubling from 1998 to 1999 to $1.3 million. Stannard expects at least $3 million in revenues for 2000.

The name of SmartDraw.com, which used to be SmartDraw Software, was changed last September.

“Our business model has changed from a software company to more of a solutions company,” Stannard said.

The dot-com name was logical, he said, since SmartDraw has always sold its products over the Internet.

When he launched his company, Stannard knew the Internet was only a sliver of the market for selling software. But he predicted one day all software would be sold over the Internet.

E-Prediction

“People thought this didn’t seem like a logical idea at the time,” said Stannard, who holds a Ph.D. in chemistry.

By looking at him, you can tell he’s grinning inside , as he predicted, E-commerce has become mainstream.

He pointed to Time magazine’s 1999 Man of the Year, Jeff Bezos, CEO of Amazon.com.

“If Time magazine picks an E-commerce mogul to be on the cover, then you know E-commerce has arrived,” Stannard said.

Ken Olson, an angel investor and former CEO of San Diego-based Topaz Inc. and Proxima Corp., credits Stannard with being one of the first people to sell software online.

“I think the market is growing very fast. The reason why it’s growing fast is there are now a number of people out there like Paul who are showing that you can sell online,” said Olson, who partnered with Stannard on a Macintosh-based software firm in San Diego called Megahaus in the early 1980s.

No Magic In E-Business

Olson, who teaches a class at UCSD called “Starting and Financing Technology Companies,” said there’s no magic involved in running a successful business like SmartDraw.com. It’s all about hard work, he said.

“One thing Paul does is he’ll chain himself to his computer and write a program for 20 hours. The guy is a real hard worker,” Olson said. “It’s astounding how much stamina he has and how he can put out high-quality work by working for a long period of time.”

Tony Patterson, president of San Diego-based HNC Telecommunications Solutions, commented on Stannard’s brilliance and ability to simplify complex technical information.

“He is an excruciatingly smart guy,” said Patterson, a good friend and colleague of Stannard’s. “He has this way of speaking to mere mortals like me and you that doesn’t disclose the full power of his intellect. He has no ego. He has built a very substantial and thriving business based upon that very premise.”

Back in his office, Stannard demonstrated how easy the SmartDraw software is to use. Before the demonstration, a comment is made about his computer screen , a hip, grayish-purple digital panel display.

“I bought it because I thought it’d look cool on the desk,” the English-born Stannard said.

The SmartDraw.com software gives customers a pictorial menu for the type of drawing they want to use. Stannard compares it to a McDonald’s menu.

Subscription Service

The 6-foot-3-inch Stannard and his SmartDraw.com staff have spent the last nine months designing tens of thousands of new symbols, which will be released this spring. The new symbols were created using suggestions from existing customers.

The company also has plans to introduce a subscription-based service later this year. Under the service, users will pay an annual fee, a similar model used for virus protection software.

The new subscription service is part of SmartDraw.com’s goal to become an applications service provider, or ASP.

“Anyone can go out and sell a product using E-commerce,” said Stannard, co-founder and current chairman of the San Diego Software and Internet Council. “The trick is to use the Internet medium in a new and unique way.”

HNC’s Patterson said the ASP concept will quickly catch on.

Vertical Portals

“What could really emerge from SmartDraw.com and its ASP strategy is vertical portals of Web communities,” he said.

Another business model SmartDraw.com has used is offering a free trial version of the company’s software over the Internet.

The trick is to not only have a trial but a good trial, Stannard said.

“If you’re a restaurant and hand out free food and it’s not that good, people won’t go to your restaurant,” he said.

Stannard said 2 percent of the people who download a free trial of SmartDraw.com buy a copy of the product, which sells for either $49 or $99, depending upon the version.

In building SmartDraw.com, Stannard has also learned the value of working with other Web sites.

SmartDraw.com’s first listing was on a private Windows 95 site, which featured SmartDraw.com’s new product release. That list caused traffic to SmartDraw.com’s site to go through the roof, Stannard said.

That’s when Stannard decided to do banner advertising on other Web sites. SmartDraw.com even netted an online marketing campaign award in 1998.

While marketing has helped fuel SmartDraw.com sales, the 46-year-old Stannard has found that word-of-mouth is the way to go.

“Even if you have $45 million in venture capital that word-of-mouth takes a long time to develop,” he said. “Even two years ago when I told people about my company they said, ‘Smart what?’ Now the reaction is, ‘Oh yeah, someone in my office uses that.’ ”


SmartDraw.com

CEO: Paul Stannard

Year established: 1994

Employees: 12

Revenues: $1.3 million in 1999; $3 million projected for 2000

Headquarters: 10085 Carroll Canyon Road, Ste. 220, San Diego

Business: Develops software for drawing flow charts, business forms and other diagrams

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