Can three guys with virtually no business experience leverage a good idea and nonprofit management know-how into a successful software company - one that creates a national standard for the market it aims to serve?

It's a question Steve Butz and his partners have set out to answer.

They're convinced their idea of selling software tools to human services agencies, tools that allow case managers to track the progress of their clients at a level not currently possible, is one that has the potential to transform the nonprofit sector. But they admit they have a lot to learn about building a successful for-profit enterprise.

"I'm going to be brutally honest," says Butz. "I'm not a business person. I recognize I've got some shortcomings in my game."

One such shortcoming might be that candor. If he and partners Adrian Bordone and Vince Griffith hope to attract the kind of investment that would allow their Baltimore company, Social Solutions, to move from local shop to national power, they'll need to stifle the brutal honesty and stick with the sugar-coated kind.

For now, though, the three men, all in their early to mid-30s and all acquaintances from their days working for nonprofit agencies, aren't certain they're in the venture capital market. In fact, while they know the kind of company they want Social Solutions to be, they aren't sure yet how to get there.

Like many novice entrepreneurs, they have a vision for the business - Social Solutions will sell the software all nonprofits need to demonstrate the efficacy of their programs and generate new grants - but they lack nuts-and-bolts knowledge.

They don't know, for instance, if the company is an appropriate candidate for venture capital, or some other form of investment or none at all. Or how the company would be valued in a negotiation. How much capital do they need, and how much equity should they cede to get it?

Tough questions, all. And those barely scratch the surface of what the three partners don't know.

That's why they were grateful for the "scrubbing" they received May 15 from a roomful of business executives and experienced consultants who spent 90 minutes listening to them make their pitch, grilling them with questions they hadn't considered, and hammering them with everything they had done wrong.

It's a little painful but nothing personal. Every fledgling business that comes before the Baltimore Venture Mentors Group gets the same treatment.

"We've told many people to keep their day jobs. And they have, and then they'd come back to us a year later and say, 'I'm glad I kept my day job,'" said John Casey, who founded the original Venture Mentors in Northern Virginia in the late 1990s and is involved in the Baltimore franchise.

The Mentors invited The Daily Record to sit in on the process.

High-level bull
The Baltimore Venture Mentors is the brainchild of John Kirby, co-founder of the former reachNET, a Baltimore wireless telecommunications firm that was sold last year to Annapolis-based TeleCommunications Systems.

Recalling the difficulty he had in locating helpful resources in Baltimore as he was building reachNET, Kirby wanted to do something to help develop the area's technology business community, so he decided to launch a branch of Casey's organization, to which he had turned for advice. The two had met at one of a series of tech company mixers run by the Washington-area Netrepreneurs program.

"There was nothing up here," Kirby said of Baltimore. "And that's what led us to start this group. The resources here in Baltimore are pretty thin compared to Washington."

Casey said he started the Washington Venture Mentors for reasons he called "selfish altruism": He wanted to help the area's tech businesses and himself simultaneously by assembling the kinds of entrepreneurs, investors and others with whom he could strike deals for his own endeavors.

"But in Baltimore, it's not like that," Casey said. "It's much more pure altruism."

Businesses often die for lack of good advice, Kirby reasons. And some stick around longer than they should, costing investors money, for the same reason. So by gathering experienced entrepreneurs once a month for what amounts to a high-level bull session, he figured he could add to the level of sophistication of Baltimore's tech community.

"When we went before the Venture Mentors," Kirby recalled of his days with reachNET, "we were looking for money, but we were way ahead of ourselves, and we got that message loud and clear. … The feedback we got was: 'Focus yourselves; don't try to be all things to everybody.' We were thinking of being a middleware developer, a vertical player. We were thinking about a lot things, but in the end we decided to focus on developing technologies for the deaf and hard-of-hearing community."

That's the kind of advice the Baltimore Venture Mentors dispense. While many for-profit business consultants and nonprofit mentoring activities tend to focus on a specific event in the life of a business, like preparing a company to seek venture capital, the Venture Mentors' advice, which is given free of charge, is more general.

There are about 14 mentors who show up for most of the monthly meetings, which are held at the TidePoint offices of real estate developers Struever Bros. Eccles & Rouse, and another four or five who make it when they can. They include John Fini, executive director for technology initiatives for Baltimore's Emerging Technology Center incubators; Mel Soule, a veteran biotech CEO who now heads a Baltimore consulting firm; and Herb Frerichs, a partner in Piper Marbury Rudnick & Wolfe's Corporate & Securities Department.

And many others. Paul Mauritz, co-founder of the Baltimore Venture Mentors, brings to the table the unique experience of having co-founded a promising tech firm, TidePoint Corp., which received funding but later folded.

Mauritz has long been anguished by the downfall of TidePoint and thinks of his involvement in Kirby's group as a way of making up for it.

"If I were Catholic, they'd call it penance," he said. "The whole TidePoint experience was difficult in ways it shouldn't have been. There weren't enough people to ask questions of. … In a sense, it is a way of giving back, partly to help me feel better, but also because Baltimore is a great city."

Social Solutions makes a pitch
The Social Solutions team took about 30 minutes to make their case to the 10 Mentors assembled May 15. Their main point: Social service agencies are fraught with inefficiencies and are in desperate need of tools to help them better manage the progress of their clients, whether they are charged with tutoring adults in reading, getting drug addicts clean or reconnecting the Godless with faith.

"If you walk into one of these organizations, you'll see a wall of file cabinets stuffed with handwritten notes" that serve as the agencies' records, said Bordone, the company's vice president of operations. "They're unauditable, and there's no way to know what's actually happening."

Yet such agencies are collecting more money than ever from donors, Bordone told the Mentors. Nonprofits specializing in human services raised $76 billion last year, up 22 percent from two years prior, he said.

But as their revenues increase, so do the demands being placed on them to demonstrate results, he said, with government and foundation funders "pushing [them] … to prove that they have a more businesslike management model."

Social Solutions software allows case managers to create individual profiles of each client, tracking how clients are doing on long-term and intermediate goals.

The mentors were impressed with the idea but said the founders had a lot of homework to do. For one thing, said Timm Johnson, former chief financial officer of MasterMind Technologies, "you never gave any indication of your pricing model - what do you charge for this? You have to explain that to validate your numbers."

Moreover, he told the founders, they failed to realize that the size of their market isn't, as they had suggested, the total number of nonprofits in the human services sector, nor is it the amount of revenues those agencies have. "It's how much they'll spend on case management software," he said.

That may be a difficult figure to pin down, but Social Solutions already has 26 clients in 12 cities, so they ought to be able to work up a rough estimate, Johnson said. Mel Soule told them to consider pitching their idea to charitable foundations, convincing them to insist that their recipients incorporate case management software as a condition of their funding.

Other Mentors reminded the trio that the United States is only one part, and perhaps a small part, of a nonprofit human services industry that is in fact international. They could put their software on the Internet and collect licensing fees from agencies all over the world, they said.

"With an [application software provider], it's not that hard to deploy it internationally," said John Fini. "I mean, it's the Internet."

The Social Solutions founders had considered many of these suggestions already, but haven't decided yet how to proceed. Johnson dissuaded them from seeking venture capital at this point. He puzzled at their suggestion that they need $500,000 in startup money.

"What do you need $500,000 for?" he asked. "You could get a government contract worth $500,000, and that would take care of that. Perhaps it's better to wait a couple of years, get a few years of [revenue] run rate, and then go out for $5 million."

For now, he said: "Keep the VCs out of it."

On the spot
Vince D'Onofrio received similar treatment. The chief operating officer of ProxySource, a company that has developed technologies designed to change the way software is developed by allowing developers to find existing components that can be reused for new purposes, impressed the Mentors with his idea.

But not so much with the presentation. They were uncomfortable with D'Onofrio's acknowledgement that the software development industry would have to undergo a cultural shift before the ProxySource method would be widely adopted, and they took issue with his request for $5 million in venture capital, among other things.

"What tells me that $5 million is going to build capital?" wondered Bob McKisson, a serial entrepreneur who has launched several information systems companies. "Where is that?"

Johnson suggested ProxySource, based in Falls Church, Va. (the company presented in Baltimore as a favor to the Washington Mentors), might want to consider finding seed capital of about $250,000, and build the company from there.

D'Onofrio took all such suggestions in stride.

"I thought it was fun," he told the group. The comment broke them up with laughter, but he went on: "I went out a year ago and tried to get venture capital, and I got about a dozen meetings. I gave my presentation, and I got more chewed out by them than by you guys."

McKisson is the founder of yet another Venture Mentors Group, in Tidewater, Va. Plans are in motion to launch franchises in Boston, New York, Pittsburgh, Denver, Phoenix and perhaps Tokyo, according to Casey.

Each of the franchises will be nonprofit. The Mentors aren't running a business; they're offering a service, and they bear whatever costs are associated with it out of their own pockets. (In fact, the cost is primarily in the time they donate.)

Sometimes the Venture Mentors, who find their charges through various sources - mostly their own networking, but the group also has a Web site where young companies can apply - find a company whose prospects are more advanced.

Such was the case with Columbia Technologies, based in Catonsville. The company has developed software that aggregates and analyzes environmental testing data. Columbia Technologies presented to the Mentors several months ago, and recently the company was selected to pitch at Capital Connection, the mid-Atlantic's signature venture capital event that was held May 29.

John Sohl, Columbia's founder, said the company was looking for help in focusing its business plan, and it got it. Not only that, he said, several of the Mentors have stayed in touch and have offered advice on key new employees and several other issues.

"They groom the companies and help them develop their business plan, and they can also open a lot of doors for you," Sohl said. "What we're all about is taking an old-style [environmental testing] service company and transitioning to a technology company. As we built the business plan for that transition, that's where we got a lot of help from Baltimore Venture Mentors. ... And I have to tell you, it's an ongoing relationship."

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