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June 15, 2004 

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 Q&A: FastRoot CEO Terry Howerton on Blended Chicago Approach 6/15/2004
The mission of Going Global is to educate and inform Midwest technology companies on what local technology companies are doing internationally so other firms can learn from the successes of like-minded peers.

CHICAGO – ePrairie international columnist Michael Muth debuts Going Global, a new ePrairie Q&A column bringing global perspective to the Midwest and the Midwest to the global scene, by interviewing FastRoot CEO Terry Howerton.

FastRoot is a technology provider with headquarters and a hosting center in Chicago and a software lab in Kiev, Ukraine. FastRoot built its global team over the past four years and uses a blended approach to support entrepreneurs, bring new ventures to market and deliver dedicated support solutions for a variety of mid-market clients.

Michael Muth: How did you get into offshore outsourcing?
Terry Howerton: FastRoot was born out of the experience I had during the end of the technology boom with working to get a product to market before the limited capital ran out. To have any chance of winning that race, we had to cut our staff (most Java developers could command $100,000 salaries at the time) and outsource. After a brief stint with some of the high-priced hired guns of the consulting world, I turned overseas.

At the time, it was all about finding cheap labor that would stop the hemorrhaging. I worked with probably 20 different vendors in at least a dozen different countries including South Africa, Israel, India, Canada and really anywhere I could find a low-cost alternative to send very small parts of my projects with hopes for success.

Nearly all those projects could be judged a failure, and while the budgets were mostly small (about $2,500), the process took far longer than expected and had a definite opportunity cost. These projects were failing for lots of reasons: trust and communication problems, lack of discipline and documentation, the cohesion of the “team,” failure to understand the underlying business goals of the project and mostly just my impatience.

I wanted – and the product needed – immediate results. It didn’t take long for me to realize we had to find a small partner overseas and grow up together if we were to be successful in this effort. That would give us a chance to instill our own business culture and build really trusted relationships.

In the end, the most valuable byproduct of my efforts wasn’t the product we were developing but the process that resulted. After a couple years of building relationships, putting processes into place and finally having some success, it was clear to me that process had real value.

Though we set out to find cheap labor, what we discovered was something far more valuable.

We built an affordable, scalable team with an advantage even our largest competitors couldn’t claim: we now had the ability to carry a large team “on the bench” and spend that downtime to perfect internal process. We were able to leverage that into building FastRoot into a top-notch firm that could compete with the best providers in town.

MM: How much time do you spend abroad? How active are you in managing the organization there?
TH: I originally thought I’d have to go over there monthly, but with constant communication, we have built strong friendships and working relationships that have resulted in a pretty tight team. We run two shifts overseas and there’s a good deal of overlap in our schedules.

MM commentary: I saw this in action for myself, as during our interview, Howerton had to take a moment to confer the Kiev lab’s lead manager via instant messenger. The manager usually works a schedule that mirrors Howerton and they were having an end-of-the-day chat about the need to add some depth to the Kiev team’s PeopleSoft expertise for an upcoming project.

I was there last year during the 10-year anniversary of the break up of the Soviet Union, which was really surreal for me. Before September 11, 2001, the fall of the U.S.S.R. was the big historical event of my lifetime and had always fascinated me. Now I was there working with good friends.

MM: How much have you invested in your Ukrainian operations? How much risk do you feel attached to that investment?
TH: From the ground up and in our fourth year, we’ve invested between 25 percent and 30 percent in building our team there. We’ve only lost two out of 18 team members there over the past four years.

In many ways, Ukraine is still the wild wild west. Parts of the government are still very corrupt and the legal and banking structure can be interesting. Even so, we’re mostly unaffected by all of that as our team is made up of the first real generation of free-market entrepreneurs there.

Our safety net is that we’ve built a “blended” team between Kiev and Chicago instead of too much reliance on any one location. That safety net has also proven to be one of our competitive advantages.

MM commentary: The U.S. Department of Commerce says: “The legal basis for corporate governance is weak and minority shareholders have almost no legal ability to protect their interests. Allegations of unfair rulings or poor enforcement of decisions in commercial cases are common. Dispute settlement in Ukraine can prove difficult, expensive, time consuming and ultimately unfair to investors. Foreign investors express little confidence in the Ukrainian court system.”

I agree with Howerton that it’s the strength of the relationship that should carry the day. Still, it’s easy to minimize the risk if you don’t see and touch it daily. I’m not saying don’t work there because it’s too risky. I’m simply saying be aware of all the risks, know how to deal with them and have a good lawyer there if you need one.

MM: What’s different about working with Ukrainian developers?
TH: Nothing at all.

MM: What are their qualifications?
TH: My team stuns me with their creativity each day. The truth is that an average developer overseas is the same as an average developer in Chicago. Likewise, an awesome developer is the same regardless of his or her location. We try to recruit only the awesome teammates.

In the beginning, we found ourselves documenting everything like crazy, which takes a lot of time. After years of building a working relationship, we’ve finally broken through that barrier. Our guys just “get it” now. It has made accomplishing tasks together much easier.

Most of the team in Kiev has college degrees (we’ve even had people with doctorates in artificial intelligence working on projects) and all of them speak and write English fluently.

MM commentary: Though Howerton may see nothing different about working with his team in the Ukraine and technologists may work more similarly worldwide than workers in other industries, there are differences you should know about.

I spent seven months in Poland (just west of the Ukraine) and they definitely work differently than we do. The Ukrainians he works with might not start the work day with shots of vodka as some of the Poles I worked with did but working in a newly free-market country is not the same as working in Chicago.

MM: Are there specific technologies where Ukrainians are or are not qualified?
TH: Not realty. In the beginning, there were things we just couldn’t do remotely, but those barriers are mostly all gone now.

MM: How much do you pay them?
TH: They earn a nice living in the Ukraine that’s well above average for the country. A number of the teammates are sending money home to help support their families.

MM: How long have you been working there? How has the Ukraine changed since you started working there?
TH: In the last four years, a lot has changed. Wages are up and the standard of living has really gone up.

The city has changed (especially consumer goods). On my last trip over, I discovered that Coke was now the strongest brand and there’s a McDonald’s on nearly every corner. The U.S. is doing well selling into the Ukraine. We pay their wages and they buy our products, which spurs our growth.

MM: What’s beyond Kiev?
TH: We’re focused on building a good team there from the ground up. It’s the only way you can succeed overseas.

MM: How is Kiev’s technology infrastructure?
TH: It was poor at first but has improved significantly. We now have a broadband wide-area network. The prices for broadband and some infrastructure are actually higher there than here because of the lack of competition.

Tune in next Tuesday for part two of Muth’s Q&A with
FastRoot CEO Terry Howerton for a glimpse into bribes in Kiev,
foreign due diligence and the virtues of being based in Chicago.

Michael Muth is managing director of Gata, an international business development consultancy that helps technology companies build international partnerships. He can be reached at mike@intlalliances.com.
Click here for Muth’s full biography.

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