There comes a time in most people's lives - usually about 4.30pm on a Friday - when they become convinced that they could do a better job of running the company than their current bosses. Last year, the conviction became so strong for 360,000 Britons that they started their own businesses, many of them in IT.
'The growth in new businesses is mostly in areas such as IT and telecoms,' says Graeme Jones, head of the innovation and growth unit at NatWest Bank.
'IT businesses are pretty quick to get off the ground because they're based on knowledge rather than physical assets. They don't face greater barriers than any other start-ups, though they may come across them sooner.'
These barriers may not be immediately understood. Roger Jeynes, a director of London consultancy Interregnum which helps would-be entrepreneurs to establish and finance business ventures, says: 'The expressed problem of people wanting to set up a hi-tech firm is nearly always that they need money to develop their idea. But in practice, there's almost always something else they need to do first. Their knowledge of distribution, especially what the internet can offer, is often very poor. They think it's enough just to have a good product, but it's not.
'They are often short of experience in sales and marketing, especially to large corporates. Simple disciplines such as understanding cash flow are often lacking. And although it's common for more than one person to come along, it's unusual for it to be a well-rounded team. We tend to get a bias towards technical and engineering people.'
The three key factors for a startup IT business are the people, the product or service, and the technology. For the backers who put up the money, the people and not the idea are often the key. 'You may see several ideas that look alike, so the most important thing is not the idea but the people and their ability to implement it,' says Laurent Laffy, a partner in Arts Alliance, a venture capital (VC) firm specialising in internet-related companies. 'The right people can adapt and change their plan. Year one is usually quite different in practice from what it was on paper.'
'We never back anyone we don't believe in,' says Julie Meyer, assistant director of hi-tech VC firm NewMedia Investors. 'You assess someone's commitment very quickly.
With great entrepreneurs, when you meet them and see the drive and insight they have, you immediately want to back them because you know that whatever happens they'll be able to work it out. On the other hand, you see so many people where you ask them what their company is about and they can't really tell you.'
A whole mixture of qualities are desirable - confidence, drive, intelligence, energy; the analytical skills to assess the risks and issues; the management ability to recruit and retain staff; the financial acumen to run a tight ship; and the vision to see where the business will be in six months' time.
All these qualities will not necessarily be found in one person. 'It would be a stronger proposition if the founder had thought about building a team around them with the necessary skills,' says Jones.
OST Business Rules, a software developer set up in July 1998 to supply knowledge management products for the financial services sector, fits the bill exactly. Its three founders are John Allen, a trained accountant with a background in service and finance; Jeremy Wood, a former sales director; and Neil Thomson, an academic and technical expert who already had his own software development company in Wroclaw, Poland. Allen and Wood were former colleagues who had sold Thomson's knowledge management software as an adjunct to larger systems, so they already knew both the market and the product. Thomson and Allen had both founded companies before, so between the three, they had all the basic skills required to run a business.
Of course, such a comprehensive line-up is rare in start-ups, especially if those involved are young, as hi-tech and internet entrepreneurs usually are. So most backers are content with a general aptitude for running a business, combined with a track record in the general area - for example, electronic commerce - if not the actual product being sold.
If you ask people why they set up their own business, most answers will include the phrase: we saw a gap in the market. 'We spotted an opportunity in the market for synchronising communications between PCs and mobile phones,' says Fraser Harding, co-founder and operations director of Newbury company Paragon Software, founded in October 1996.
'The technical mechanisms to connect them were starting to appear - serial links, infra-red, GSM messaging - but no one had realised that there was significant demand for getting data from a PC onto a phone.' So Paragon developed its FoneSync package to do just that.
Finding a patch of 'white space' and getting in first can be a huge advantage, as Interactive Investor discovered. Launched in 1995, this internet-based company provides online financial information and share trading facilities.
Newspapers, ISPs and financial services companies are starting to follow suit, but Interactive Investor has stolen a march on them.
'The greenfield opportunity is immensely favourable,' says John Blowers, the firm's UK managing director. 'We have 238,000 users now, while our competitors have none. They might create more of a market for us rather than taking customers away from us.'
If you want to be the next Yahoo or Sun Microsystems, hard luck - you're too late. 'You need to be in the race for being the first company to build the brand,' says Laffy. 'The cost of acquiring customers is much lower when there's no dominant brand. If you're one of the first two or three players and have something that differentiates you, it's OK. But if you wanted to be the second Amazon.com, then no.'
If you just want to work for yourself, finding a niche may be more a matter of spotting an opportunity in your own back yard. Andy and Audrey Hynds founded Abacus from their home in Ely, Cambridgeshire, in 1998.
With his partner, Paul Young, Andy began providing all manner of PC services to local homes, small businesses and education users from software and Website development, consultancy and training, to assembling PCs and designing security products.
'I was developing software and doing computer work for Neighbourhood Watch, and a lot of people asked me for advice about computers,' says Hynds. 'Many home and small business users are frightened of big computer companies. They prefer to come to our house, and know they won't be charged for a helpline. We spotted a niche and went for it.'
Although a company's business plan will probably change during the first year or two, it's important to have one. This includes conceptual things such as what makes the business different, as well as more practical considerations. Where will you find customers or who will you steal them from? How will you market the product or service? How will you support it? Who are your potential partners? Can you maximise cash flow by launching the most profitable part of your offering first? What is your strategy for the future - for example, will version two of your software be in beta by the time you launch version one?
The popular perception of a hi-tech start-up is of a couple of geeks in a garage with a great product but no idea how to sell it, so the 'tech' bit is usually taken for granted. This is a big mistake, since often the technology is the core of the business and it may be virtually impossible to bolt it on afterwards. It needs to be scalable and implementable quickly.
Nick Denton, chief executive of Moreover.com, says: 'There's a temptation to set up the company as a marketing operation and try to outsource the technology, but that's the last thing you should outsource. US companies always try to integrate the technology.'
Moreover.com, founded in August 1998, is an internet news hub offering headlines from, and links to, about 1,000 news sources on the Web. Although influenced by US ideas, Moreover.com claims to have far more feeds than rival sites.
It harvests technology, developed in-house, which Denton says can add a feed to Moreover's site in less than 10 minutes.
The money-men are well aware of the importance of technology. 'You can't allow the technical side to become a black box for you,' says NewMedia Investors' Meyer. 'You have to be hands-on and figure it out. We don't back technophobes.'
The technology men are equally aware of the importance of money, and one of the prime pieces of advice from experts such as Jeynes is not to under-fund a business. OST, for example, raised £750,000 from VC firm 3i, in return for which 3i got a 20 per cent stake in the company. 'We wanted a good solid cash foundation to the business and we needed someone behind us with a good name in the market,' says OST director John Allen.
'If we didn't have equity from 3i, we'd have found it a lot more difficult to sell our software to corporates such as banks.'
In today's acquisitive market, cash-poor businesses are at risk of being taken over. 'It's very easy for a company like us to get gobbled up, so we need cash behind us to stop this if we didn't feel it was appropriate,' says John Blowers of Interactive Investor, which is funded by Arts Alliance, Hollinger Digital and some smaller private investors.
'It's a stamina race, and one of the key things that gives you energy is money.'
Now that it's successful, Interactive Investor is almost having to fight off potential VCs. But in the early stages, funding can be difficult to obtain. Moreover.com had to go abroad to find its funding - from international VC firm Atlas Venture and two executives of Amazon.com, Ricky Carter and Simon Murdoch.
'In general, British VCs just don't get it,' says Denton. 'Atlas is almost the only international VC firm. That was one of the things that appealed to us. Ours is a global market and Atlas is a bridge to the US.'
How soon a start-up should become profitable depends on the nature of the business. An offline business with a product ready to sell can be in the black almost from day one. OST estimated it would make a loss during its first six months, but actually turned in a small profit because its software had already been developed and it was able to make some early sales.
An internet business may have to play a longer game, not because it doesn't make any operating profit, but because of the pressure to re-invest all its cash in growing the business - everything from advertising, PR and recruitment, to product development and expansion into emerging markets.
Amazon.com is famously said never to have made a profit, despite its undoubted success. Interactive Investor has not made a profit in three-and-a-half years, though it hopes to start doing so by the end of the year. Moreover.com, which has lower overheads, hopes it may be profitable in two years.
Ultimately, though, founding and running a business is like crossing the road - to be safe, you must never stop looking and listening. 'You have to constantly look at the opportunities and where the industry is going,' says Paragon Software's Harding. 'You can't just sit back and watch the product sell.'
FROM BANKS TO BUSINESS ANGELS
Unless your rich uncle dies, there are two main ways of funding a new business venture: loan or equity. Loan funding - for example, a bank loan or a simple overdraft - has the advantages that it is straightforward to arrange. You know how much it will cost, and once you have paid it back your business still belongs to you.
The downside is that a loan must be serviced - that is, the interest paid - from an early stage, so if your business has no product or turnover for a while, loan funding is less suitable. Banks do grant unsecured loans to start-ups, and the DTI's Business Loan Guarantee Scheme underwrites bank loans to small businesses. But more risky enterprises seldom appeal to banks, so equity funding may be more appropriate.
Equity funding means selling a slice of your business in return for cash.
Established businesses can float on the stock market, but start-ups usually rely on venture capital (VC) - see box page 39 - either from a VC firm or from an individual investor, often called a business angel.
There are an estimated 18,000 business angels in the UK, investing £500 million in 3,500 new companies every year. They usually remain involved for between three and five years, and can be reached privately or through 'dating agencies' such as the National Business Angels Network (www.nationalbusangels.co.uk).
Because they are investing their own cash, they may be prepared to take more risk than a VC firm and wait longer to see a return.
Many angels want a seat on the board and a hands-on role in building and running the business. 'Most are self-made, high-wealth individuals,' says Susan Krantz, general manager of the National Business Angels Network (NBAN). 'They're entrepreneurs people who want to spot winners and help them move forward. They can be crucial in helping a company become more realistic.' NBAN's angels usually invest between £20,000 and £100,000 in each business.
NOTHING VENTURED, NOTHING GAINED
For large sums - often £500,000 or more - entrepreneurs turn to venture capital (VC) firms. Large VCs such as 3i invest in all kinds of business, including IT. Others, such as NewMedia Investors and Arts Alliance, specialise in hi-tech or the internet.
VCs frequently provide the first round of funding to start-ups - typically £500,000 to £1 million - and then help organise the second round, which may be between five and 10 times larger and involve more established businesses such as strategic partners. Second rounds are often used to fund expansion plans, for example into Europe or the US, and there may even be a third round, before an eventual flotation.
'As an intermediary, we try to take a lot of the burden off the shoulders of the entrepreneurs,' says Julie Meyer, assistant director of NewMedia Investors. 'You don't want your company to take a nose-dive because you're too busy trying to raise money.'
In return, VC firms usually want a seat on the board to safeguard their investment. They may also help with finding staff and non-executive directors. They usually like to partner with other VCs when funding start-ups - partly to spread the risk, partly for moral support. Two or three backers is a common number.
The downside to equity funding is that it means selling off part of your business before you even begin. A 25 per cent slice is common for the first round, with perhaps 10 per cent (of, hopefully, a much larger cake) for round two. British entrepreneurs used to be very reluctant to part with equity, but they seem to be realising that it can enable their company to grow much faster.
Equity and loan funding can be combined in a single venture. Some start-ups use a bank loan to fund the preliminary stage - formulating their business plan, etc - then equity funding for the serious money.
Chief exec Jens Montanana claims Logicalis performed well despite 'currency headwinds'
All the photos from last night's event, which saw over 600 people congregate at the Hilton London Bankside
Five year deal with Essex NHS Trust will cover 400 sites, including hospitals, clinics and GP practices
18 individuals and three companies walked away as winners at CRN's inaugural Women in Channel Awards last night