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Entrepreneurial Spirit:
Sage Advice from a Start-up Venture

Dan Kardatzke is the co-founder of Frey Technologies, LLC, an entertainment software development corporation currently marketing SageTV, an intelligent television recording application for the PC. He graduated from the College of Business in 1996 with a degree in Finance.

 

Dan Kardaztke, co-founder of Frey Technologies.How did Frey Technologies develop?
About two years ago, my brother Jeff (electrical engineering '97), who's been a software engineer essentially his whole life (he's been writing code since he was a little kid), began writing an application for himself to replace TiVo. He said, "I have my own PC. I don't want to go out and buy a TiVo. I want to be able to have my PC record television for me, and then intelligently learn what I like to watch so that it goes out and finds other things of interest and records them automatically." He already had the hardware and he said, "I'm just going to write the software for it." At Christmas of 2001, we started talking and he said he almost had the application done. I said, "Get a copy of it. Let me try testing it out."

"Our whole lives we talked about starting a company together because he's an engineer and I'm a finance guy."

In January of 2002, I started playing with the software, and then I went out and bought a TiVo just to compare the two. I realized that he had smarter technology behind his software than TiVo did. I said, "We've got to try to see where this can fit, if we can license it or potentially just sell it outright." I tried focusing on the new business while still working at my other job, but I was the director of finance for a technology company [and] I was working until 8:00 or 9:00 p.m. every night. I didn't want to miss a window of opportunity because the personal video recorder market, even though TiVo came out in 1999 with the technology, is still kind of in the early stages. I thought if we would delay 6 months to a year, with me trying to write a business plan and not being able to devote a lot of time to it, we may miss an opportunity. So that was my decision to quit my job.

Our whole lives we talked about starting a company together because he's an engineer and I'm a finance guy. One of our common skills has really been math, but we've gone our separate ways from there. Last spring, we decided to jump in head first. I quit my job - he had already left his - and we said "let's try to blow a company out of this."

 

What exactly is the technology you're developing and how are you marketing it?
Initially, we decided to build the company around this piece of software that Jeff had written - within the personal video recorder market and also in the home theater/home entertainment/PC arena. This is the beginning point - the personal video recorder - the ability to record live television, pause it anytime, integrate a guide so you can select things to record on demand.

What we quickly realized is that we had the core already; it was just a question of where to fit in the market. Was it partnering with the cable companies? We quickly realized that was a 24-month sales cycle. Was it going into the PC industry and just delivering consumer-based software directly to consumers? Or was it trying to build our own hardware with the software and compete head on with TiVo? We circled back and said, 'We designed the software for the PC - let's focus on the PC and then try to blow it out from there.' We [decided to] be a software company delivering direct to the consumer for the PC, and then potentially licensing our software out to PC builders, OEMs, and others so they can build it into their own systems.

SageTV logo.When we started to release the software, we had been actively talked about in (online) discussion forums for audio/video/home theater aficionados. These guys are building their own systems and they're looking for this type of technology. If you're building your own home theater, and you want TiVo technology, but you don't want to use a TiVo, you've only got a handful of options and we're probably the best option. Most of our business so far has been word of mouth. It's the way we've positioned ourselves from day one.

Word of mouth is really giving us momentum. We've got customers all around the globe and students using it on different college campuses who are drawing more customers in. The college market is a focus for us. We've done some PR initiatives and we're trying to do a PR focus into the college market because you can set up a video server in your dorm room and share video with other college kids across the college network. A lot of my time is spent keeping up with the word of mouth activity - answering questions, fielding new calls, and dealing with customer inquiries.

 

How are you navigating growth and protection of intellectual property?
(We're navigating by) some of my own experience, and we've had to pay attorneys for advice when we couldn't get it for free. … We've found some good partners who understand where we are right now and want to work with us and structure it in a way that it meets their needs as well as ours. I know where I want the company to be financially and how we can license that technology to build a business around it. I'm very secure on structuring a licensing deal that will work for both parties. It's the legal side of things that I've had to call in people to help on, because I'm no lawyer! We just can't do it wrong the first time around; otherwise we've lost all of our legal protection. I'm sure at some point we're going to cross a path that we don't have an answer to, and we're going to have to find someone to help us with that.

The advice I've gotten is that we've got to get some other money in there, and not put too much at stake personally. And we've tried, and we've had to stake our personal lives on this because we didn't come from the industry. We knew it was a risk and we both have a personal desire to succeed.

We took it as a challenge. I talked to people at VC's, consulting companies and other contacts who said, 'until you can show me a return, licensing deals, some accounts receivable, and some sales growth or constant sales, we can't have a conversation. I'm not going to give you money based on a business plan.'

It's been tough - especially in this economy. You don't have too many options. Yes, companies are getting funded, but they're getting funded based on prior business experience and relationships, or they've shown growth and licensing deals. The licensing deals will produce the cash flow that we need to hire one or two people, and we'll go from there.

 

How has the entrepreneurial experience impacted you psychologically?
It's tough. It's been a strain on my life the last year. I haven't had a salary, I left a comfortable paying job, was ready to buy a nice house with a good savings set aside a year ago. My wife and I knew what we were getting into … she supports us. My brother has had to postpone his wedding until this has gotten to a (more solid) point. Where we were living comfortably, we've now started watching our money.

I've tried to keep things separate, where when I'm running the business I'm not worrying about my personal (life), and I'm trying not to let my personal situation influence the business decisions. I want our strategy to be what's best for the business - not what is going to give me some funds quickly that may hurt the business. But, it's tough..

I'm a biker, so I go mountain biking amongst the forest preserve trails, and get out and blow off steam that way. That's my getaway from work.

 

"What would I do if this were my company?"

How did corporate experience prepare you for this venture?
When I graduated from the U of I, I took a job with a small company of about 10-15 people. It was a position where I was in a little over my head - had to learn things a lot of things on the fly. I essentially learned how not to run a company. One year later, the company was running out of cash. I saw decisions that I would have made differently, but that wasn't my role within the company. Even at the marketing agency I just left (an 800 person company at its peak) we had to cut it down to 400 people, me working with the CFO looking at expense cuts, how we could cut staff, how we could streamline areas, make things more efficient. Then the technology division I went to was a company that was losing money, and my role was to find where we could save money and increase sales and limit our losses.

I've had my hands in all these different things that have been at some level entrepreneurial - seeing decisions made that helped me learn. It's been all of those experiences combined that have allowed me to look before I leap. Every decision that we make, I have in the back of my head all of the past decisions that were made at the other companies I've been at. It's been my real world experience that has allowed me to do what I am doing today. The education at U of I gave me my finance background and gave me my first opportunities with my financial analyst job - it gave me my core, which I needed to add work experience to - to get me where I am today.

If I had a piece of advice to give future entrepreneurs, it's to learn as much as you can from your current jobs, see how decisions are being made and how those decisions are effecting the company, and try to think entrepreneurially in your current job. What would I do if this were my company?

 

What advantages did your education in Finance from the College of Business provide?

"The education at U of I gave me my finance background ... finance gave me the core."

When I initially enrolled at the U of I, I thought I wanted to be an investment banker. In high school, my interest was investments and investment banking. I put myself into different roles that could let me see where I wanted to be. I swayed away from investment banking, and realized that was not what I wanted to do. I wanted to go into corporate finance and be a CFO. I took corporate finance classes that I really enjoyed. That experience helps you down the road.

U of I helped set the base for confidence in myself and my finance capabilities. Understanding finance helps you because, in the end, you have a business to make money. If you don't make a profit, then you don't get paid and you don't have a company.

Finance gave me the core to look at strategy, and it's the strategic experience that helped me write a business plan for our current company. I also owe a lot to my previous managers and the CFO for helping me build the confidence to be able to run off with my own company.

 

Where does the entrepreneurial spirit come from?
My parents planted the seeds in our heads by telling us we should combine our strengths to create a company. We both learned from our old jobs and the mistakes in decisions that were made, which essentially fueled our fire. When Jeff came to me with the software, I thought that this was what we had been talking about for the past 10 years.

If we can't make it work, we'll figure something else out. We've already talked about other technologies we want to get into if this doesn't work out. Or let's say we sell this technology to someone who buys it outright, we'll move to the next thing. We want to keep going down this path. If it completely failed, I would see myself in a small growing company that wanted to take it to the next level, because that's what all my experience has led me to do.


More insights from Dan Kardatzke, along with Todd Miller of The Revere Group and Michael Krasny of CDW, will appear in the next issue of Illinois Business Perspectives.

--Tracy McCabe
July 2003