Surviving the tech bust

Adam Dennis (right), co-founder and president of XI Group Inc., listens as Brian Burns gives an update on XI's business-development strategy.
Adam Dennis (right), co-founder and president of XI Group Inc., listens as Brian Burns gives an update on XI's business-development strategy. (SunSpot photo by Todd Beamon)
By all accounts, Adam Dennis should be in Washington running campaigns for mayoral candidates or working to shape national public policy.

And he would have been, had it not been for fate allowing him to take a hard look at his life.

" I met my wife [Nicole] -- and she said I was going to have to do something else if I wanted her to marry me, so I started re-evaluating my life," said Dennis, 38, who instead started XI Group Inc., a Web-solutions firm in Fells Point, four years ago with his wife. "Since I wanted her to marry me, I made a change."

The XI Group is one of the few companies that survived the high-technology bust of the last few years. Why? Because the millions of dollars in venture capital that backed many of the firms that crashed did not fuel XI.

And if Dennis's business strategy keeps working, XI will not be among the dot-com companies that are expected to fail this year, suggests Webmergers.com, the San Francisco-based site that follows activities among Internet companies. More than 210 dot-com firms closed last year, according to Webmergers.com.

The company, with 12 employees, provides content-managing and security services. It also develops online application programs. Its clients include the U.S. Chamber of Commerce in Washington, as well as the Catonsville-based Antwerpen Motorcars Ltd. Last year, XI Group did slightly more than $1million in revenue.

"Not all dot-com companies fail because they have incompetent young people working," said Dennis, the company's president. XI Group was started in the basement of The Baltimore Times Newspapers Inc. "They failed because they could not reach the margin that investors required.

"I have survived because I am an 'old school' guy -- meaning that I just believe you build the company in stages," he said. "When you take risk on and overextend it, it has to be predictable, reasonable risk."

Joy Bramble, who owns The Baltimore Times, suggested that Dennis not back XI Group with venture capital.

"I strongly encouraged him not to borrow money, because I don't believe in it," said Bramble, who also is Dennis's aunt. "You need to hunker down when you don't have any money and work harder. He is very bright and likes to take chances -- and I knew that he had a good head for business."

Companies like XI Group are considered more of a service firm, which rarely receive venture capital, said Jason Calacanis, editor of Venture Reporter magazine. "These service firms are usually funded by the founders."

And that's exactly what Dennis, the firm's president, and his wife did, spending the first year carving out XI Group's niche in a crowded Web design market. The company forever was evolving -- especially with its name. The original name was "The Exchange," meaning that any transaction, in business or in life, is a successful exchange, Dennis said.

Then, as the firm defined itself with providing interactive-database services, it added "I." The word "Group" came after Dennis realized that, like other companies, XI Group works with other vendors to serve its clients.

Costs were kept down because of the free space in his aunt's basement. Bramble also helped with expenses, so Dennis could focus on shaping the company and getting clients. He was doing this while still working on Capitol Hill.

In 2000, XI Group, with nearly 18 employees, was developing on-line applications for the U.S. Chamber, Profund, a money-management firm based in D.C., and Antwerpen. Its overall client base spanned from Maryland to New York to West Virginia.

Business was going extremely well. During this period, the company moved to its current location at 1400 Aliceanna St. in Fells Point. But then came Sept. 11, and things changed -- dramatically.

"When the collapse occurred, we felt some pain because we had a lot more employees than we have now," Dennis said. "We lost clients that went out of business. We had a lot of shifting to do. Some of the changes were going to happen anyway, like reducing the amount of programmers we had.

The good thing was that we were sitting around with no debt, while other companies had millions of dollars in debt," he said.

The experience also bonded XI's employees. They decided to take pay cuts until business improved.

In fact, Calacanis of the New York-based Venture Reporter magazine said that because XI Group served the automotive industry -- with its record sales after the attacks that were prompted by heavy financial incentives -- it survived 9/11 and the dot-com bust.

"Many service firms have failed over the last couple of years, mainly because they became too big -- and when the market downsized, they couldn't downsize fast enough," Calacanis said. "This firm found its niche with autos, which is one of the few industries that has done well in the down market."

Dennis added that he modified XI Group's strategy after Sept. 11 to focus on tightening its base before implementing expansion plans. The company's motto, "Here today. Here tomorrow," was weighing on his mind.

So far, Dennis's slow-growth strategy has worked. Today, XI Group has 200 to 300 clients, half of them recurring customers.

"I really like XI Group because it is a small company that offers personalized service," said Jody Husser McKitrick, senior Web producer for the U.S. Chamber of Commerce. "I know them all really well."

For Profund, the money-management firm, the XI Group redesigned its site and developed a way to provide its customers with quarterly statements electronically, thus reducing its costs.

"I have a great deal of respect for the XI Group," said Kurt Oberfeld, a Profund vice president. "I wanted to work with someone who could handle our flexibility."

Other plans for XI Group this year include BaltimoreArea Cars.com, a new initiative with Infinity Broadcasting Corp. that allows customers to buy the car of their choice online. The site has 25 dealers on board.

"If it goes national, I will be very happy," said Dennis, a graduate of Lawrence University in Appleton, WI.

Dennis has the entrepreneurial spirit in his genes. One of five siblings, he is among four who own businesses.

Although starting the XI Group involved risk, this was not the entrepreneur's first stab at being a business owner. In graduate school at American University, Dennis helped develop a national health plan for students, and after volunteering with teen-agers in Washington, he created an organization called Youth Links, which adapted "life skills" to learning situations involving the Internet.

"I did not walk into this blind," Dennis said of XI Group, "but I still have had a lot to learn."

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