New start-up's owners hoping sky's the limit

THE BALTIMORE SUN

Greg Cangialosi weaved through the rooms of his new offices waving a wand of white sage that burned orange at the tip. He took long, braided strands of sweet grass and lit them on fire, too.

An aroma seeped through each room: the scent of an ancient Indian ritual said to cleanse the surroundings and produce positive energy.

It was just after 9:30 a.m. Cangialosi, and his partner, Richard Cruit, were moving into the office of their start-up company, Blue Sky Factory Inc., which designs and hosts Web sites, develops databases and provides marketing and other consulting and Internet services. Cangialosi was hoping the ritual would bring good vibes to their new venture.

"I just look at it as a reset button," he said. "It's like a blessing for our space."

But it will take more than a blessing to build success. A start-up faces formidable challenges. Building a new company takes a lot of time, and many circumstances, like the economy and the labor market, are beyond its control.

What's more, the market for Web companies is crowded, and many potential customers - Internet companies - have run out of money, said Tim Miller, president of Webmergers.com, a San Francisco-based company that researches Internet businesses.

"Their marketing challenge will be to find traditional companies that have cash," Miller said. "In addition, I think companies in general have cut back on spending in the face of an uncertain market right now. That only complicates things for them."

The Sun will follow Blue Sky Factory in a periodic series of articles. The stories will explore the company's successes and its failures, and chronicle how Cruit, 39, and Cangialosi, 27, pursue their dream at a time when the competition is fierce and the economy unforgiving.

Every year, more than 500,000 small businesses are formed. But the job is not easy: 34 percent of them shut down in the first two years, and more than half close within four years, according to the Small Business Administration.

"It is only a very, very small number of people that start their business today and are wildly successful tomorrow," said Monika Edwards Harrison, who oversees entrepreneurial development programs at the SBA.

But, as they opened Blue Sky Factory on April 25 with six employees, the two founders were confident.

They have worked with a start-up before. Each has run his own company. They have little debt. And they have a business plan: to make their new-economy company grow slowly and steadily - the old-economy way.

"We believe we know how to do this and we know how to succeed," Cruit told his employees during a pep talk at bar in Federal Hill before move-in day. "If we follow the plan correctly, there's no way we can fail."

The roots of Blue Sky Factory reach back to college for Cangialosi, when he was a student at the University of Maryland, Baltimore County. One evening, a fraternity brother arrived at Cangialosi's Catonsville townhouse with a floppy disc.

"He goes, 'This, my friend, is going to change your life,'" Cangialosi recalled.

And it did. The disc allowed Cangialosi to dial into the Internet from home. Soon, he was online day and night. "I became a professional Web surfer," he said.

After college, Cangialosi ran a one-man business organizing concerts at Baltimore bars and small concert halls. But a fascination with the Internet tugged at him, and Cangialosi began building Web sites for the bars as well as for other local businesses.

In January last year, Cangialosi accepted a job with a new Web company at the ETC high-tech incubator in Canton, 0280 (zerotoeighty.com) Inc. Three months later, Cruit, who had been working in technology for years, joined the same company.

The two sat next to each other at work, shared the same laid-back attitudes and became fast friends.

Cruit, who spent much of his childhood in Bethesda, had started his first one-man business in sales in the early 1980s. About 10 years later, he took his first technology job at Employee Health Programs Inc. in Bethesda, where he created databases. He dabbled in other jobs, from running a temp agency to working as a computer programmer, before landing in Baltimore last year. But he wanted his own business.

"Ever since I was young ... I wanted to have my own company," he said.

In February, Cruit left zerotoeighty.com partly to do just that, partly because the economic downturn left him fearful of being laid off, and partly because - like Cangialosi - the job at zerotoeighty.com wasn't going where he wanted it to.

When Cangialosi left zerotoeighty.com that same month, he was poised to take a job selling products, rather than services. But his plans changed in Cruit's Canton home one night. Cangialosi was on a black leather couch while Cruit sat across from him, proposing that they form a new company.

Cangialosi agreed to first find out if they could land potential clients, but "when he said he was willing to do the feasibility study, in my heart I knew it was a done deal," Cruit said.

Instead of making calls to pique interest, Cruit and Cangialosi said that many of their contacts in the business community called them, saying they wanted to work with the pair.

"There was a lot of interest, and we knew it," Cruit said.

They chose the name for their company, Blue Sky Factory, because Baltimore is known as a town of factories and the blue sky indicates their company will not be held back. "It literally depicts what we do," Cangialosi said. "There's no limit. Blue Sky is vast and wide."

They planned Blue Sky Factory from rowhouses and coffee shops in Canton and Federal Hill. Last month, they moved to the Tide Point complex in Locust Point.

"It's strange to be sitting here in these offices, to have employees," Cruit said. "And we're doing it on a shoestring, so it's kind of tough."

Cruit and Cangialosi are hoping to make Blue Sky Factory profitable this year, with sales of about $600,000, according to their business plan. The goal is to reach sales of $1.8 million next year and $2.5 million for 2003.

Both partners consider the estimates reachable but tough.

"Am I at all worried? Yes," Cruit said. "Because of the economy? No. I'm worried because this is a scary venture."

On the Wednesday they moved into their offices in Tide Point, Cruit and Cangialosi sat side-by-side behind a wood table from Ikea. Until then, their business was a concept. This was different. "I just realized all of the sudden, this is real - we're in business," Cruit said.

For Cangialosi, that moment came the next week, as he worked on his laptop from home late one night and it became clear how much work he had. "I was just like, 'Wow,'" he said of the responsibility. "I definitely got that fatherly feeling - like a family with kids."

But as Cruit and Cangialosi launch their venture, experts say forces are working in their favor: Internet services remain in demand, and the Internet is not going to disappear. With only a handful of employees, the small company is nimble - making it easier to deal with financial constraints without affecting clients.

Also, history might be on their side. "Historically, it's investors and entrepreneurs who have been willing to go into the lion's den of a bad business climate," Miller said, "who have been successful in the long run."

The founders of Blue Sky Factory are not alone in their venture. Miller of Webmergers.com said that several new companies are rising from the dust of the dot-com shakeout.

Surviving is the hard part. At least 435 Internet companies have closed since January 2000, almost half of them folding in the past four months. When Cruit and Cangialosi launched their Web company in April, 55 other Internet companies in the United States shut down that month, according to Webmergers.com.

"Does it pose a challenge?" Cangialosi asked. "Yeah, it definitely poses a challenge. No one said it was easy, but there is interest for these [information technology] projects."

The hardest parts of making any new company a success, experts say, are finding financing and battling the competition.

Cangialosi and Cruit pooled about $7,000 of their personal savings to form Blue Sky Factory. By last week, that figure had nearly doubled.

They signed three clients before the company opened, and have added eight since. The deposits from those clients total about $60,000. But the company is spending between $40,000 and $50,000 to cover rent and pay employees.

Cutting expenses is important. Cruit doesn't treat friends to meals or drinks anymore. And he tries to go home for lunch. Both men are drawing salaries only to cover bills and $50 a week for food.

"We realized going in that we were going to have to humble ourselves," Cangialosi said. "It's just an investment in our dream. So it comes with the territory."

Such sacrifices are not uncommon for a new business. "Any start-up, you have a lot of things to do and very much a resource-constrained environment," said Michele Pelino, an analyst and director of the Internet Market Strategies Group at the Yankee Group in Boston. "In general, there are probably some sacrifices that are made in time as well as financial backing and salaries."

Cruit and Cangialosi spend nearly all of their waking hours on their new company. They're in the office at 8:30 a.m., bolting in and out of meetings, sending e-mails and making phone calls until 6 p.m. But their job does not stop there. They often work until 11 p.m. wrapping up business from that day and strategizing for the next one. Sometimes work spills into their weekends.

"This is as much my work as it is my hobby as it is my wife," Cruit said.

They try to land clients, get their name out and build their business. And they are optimistic that Blue Sky Factory will be successful.

In fact, they're counting on it.

"This is my retirement plan," Cruit said.

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