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Small Business Profile: Going Small

Small Business Profile: Going Small Like many before it, Data Systems Worldwide had to think quickly in order to boost sales after it got burned in the dot-com debacle. By CARLOS MARTINEZ Staff Reporter Woodland Hills-based Data Systems Worldwide Inc. has what sounds like a familiar story. The information technology provider began its rapid growth in 1990 with revenues topping what seems now like a modest $2.4 million. Two years later, revenue nearly doubled and, by 1995, had reached $9.3 million. But that was just the beginning. In 1997, the company embraced the dot-com market as it became the latest thing, serving as IT specialists and Web site hosts for a number of online startups. By 2000, the hot sector made up 40 percent of the company’s $35 million in total revenue. “We thought dot-coms were the way to go, so we got heavily involved in that market and it just took off,” said company founder and chairman Frank Mogavero. But a year later, the market had all but disappeared and DSW was faced with a huge revenue shortfall and some tough choices. When the dot-com boom went bust, the IT specialist saw 40 percent of its business go with it. Revenues dropped to $23.4 million last year as the dot-com market disappeared. “We took a chance and we got burned,” said Mogavero. That should come as no surprise, said Stephen Lane, research director of IT services for Boston-based Aberdeen Group Inc. “You saw 20 to 30 percent of IT companies disappear during that time and a lot of the ones left are mere shells of what they used to be,” Lane said. “And there aren’t many that are recovering.” After losing scores of customers like Commission Junction Inc., an online advertising firm, and Clicktex.com, an e-commerce business for the apparel industry, the company realized it would have to rethink its business strategy. “Or we wouldn’t be in business for much longer,” said Mogavero’s son Phil, DSW’s CEO, who took over company operations from his father in 2000. Two years later, DSW is regrouping by lining up as clients small businesses not generally considered the traditional IT service users, along with a few larger firms that no longer can afford or feel they need their own in-house staffs. DSW’s revenues are still well below those it recorded a couple of years ago, but Phil Mogavero believes it is slowly recovering market share by aggressively pushing its Web hosting service and offering its IT packages for small business. DSW expects 2002 revenue to reach about $22.4 million, pick up significantly in 2003 and reach $32.7 million in 2004. Meanwhile, just to survive, DSW cut its staff of 110 to 70 and went to work aggressively marketing to smaller firms that so far didn’t know what the Internet could do for them. “Our goal really is to help companies use technology to operate more efficiently,” said Phil Mogavero. “We give companies ways to keep track of their sales and inventory and keep track of what is selling and what isn’t.” For instance, a company can track trends and buying patterns and make automated purchases of needed products to keep up with the demand, Phil Mogavero explained. Santa Fe Springs-based office equipment maker Accuride International Inc. last year eliminated its own servers and is now hooked up to DSW’s as part of a business-to-network business, resulting in a $250,000 annual savings. “We were on Oracle’s 10.7 financial application and they told us that they weren’t going to support that version in 2001, so we needed to upgrade… but in the end we felt outsourcing would be the best solution,” said Trang Nguyen, financial analyst for Accuride. “There is an upsurge in some segments like retail and manufacturing and health care, and that’s helping IT,” said Arun Gollapudi, CEO of Glendale-based Systech Systems Inc. “Owning and maintaining all that hardware just isn’t cost-effective.” “We see tremendous potential out in our (business-to-network) business as we continue to develop it,” said Phil Mogavero. It was 1971 when Phil’s father, Frank, founded a small typewriter repair shop in Beverly Hills that would later sell the first IBM personal computers. Eventually, the company would move to Sherman Oaks, offering computer repair and IT services, becoming DSW. SPOTLIGHT: Data Systems Worldwide Inc. Core Business: Information technology Revenue in 2000: $34.7 million Revenue in 2001: $23.4 million Employees in 2000: 110 Employees in 2001: 70 Goal: To grow client base through diversified information technology services Driving force: More companies seeking to reduce the costs of information technology services

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