Out on your own

A software CEO evangelizes entrepreneurship, preaching to prisoners that the way to be free is to start your own business.
By David Bailey
Under harsh industrial light, four guests file into the visitation hall. Guards command 160 young men in shapeless tan jumpsuits to stand, and once the visitors are settled, they’re ordered back into their seats. Many slump, disinterested. Scars and tattoos mottle their skin. Their eyes are distant, faces vacant. They barely notice the mechanical door slamming home, but some of the visitors flinch at its metallic bang. Polk Correctional Institution in Butner houses felons, ages 19-25, serving time for crimes ranging from larceny to murder. Brian Hamilton knows prisons, having conducted more than 100 seminars in them. “Heavy” is how he describes this one’s vibe.

Approaching the podium, he casually clasps it with one hand, thrusts his boyish face forward and talks about his father. William Hamilton worked in a factory 43 years only to die of cancer at 59. “How much of that company did he own when he retired?” the co-founder and CEO of Raleigh-based Sageworks Inc. asks. “I don’t know where you’re from, but in my neighborhood I didn’t run into people who owned businesses. As I got older and got exposed to the world outside, what absolutely blew my mind is there are people who get money for doing their work, but they also get to own something and build value.”

He is here as part of Inmates to Entrepreneurs, a program Sageworks created. “Another reason for starting a business,” he tells them, “is you get a fresh start — and I don’t mean a fresh start because you’ve been in a correctional institution.” When released, they’ll be ex-cons — an identity about as easy to erase as their tattoos and scars. It can make finding a job all but impossible. But if you have your own business, he tells them, that doesn’t matter. Suddenly, all eyes are on him. Many sit upright, and some crane their necks to see. He’s no Johnny Cash, but he has their attention.

“How many people like digging in the dirt?” A few hands go up. “I like dirt,” Hamilton says. The first business he launched was a landscaping company. “But it does bother a lot of people. Find something you like to do that other people don’t like to do.” Something that’s needed but doesn’t require startup capital. Borrow a bucket, a rag and a hose — you’re in the car-washing business. “It doesn’t matter whether I’m teaching this course to inmates or MBAs,” he tells them, “people get caught up in making things a lot more complicated than they need to be.”

Hamilton, 48, followed his own advice. He’s one of the Triangle’s most visible entrepreneurs. The Wall Street Journal, MSNBC and Fox Business Network tap him regularly as an expert on small and privately held businesses. Privately held Sageworks, which makes financial-analysis software, doesn’t disclose its numbers, though sales apparently exceeded $9.7 million in 2007, when it made Inc. magazine’s list of fastest growing companies. “We’ve been growing about 40% in recent years,” Hamilton says. He’s determined to sustain that through expansion of the product line, but it doesn’t prevent him from spending several hours a month with killers and thieves, rapists and arsonists, preaching that they can build new lives through entrepreneurship, just as he did. But he can’t shake the memory of one ex-con he never tried to reach.

 

Hamilton grew up in Milford, Conn. His dad eventually worked his way into management at Sikorsky Aircraft Corp. in nearby Stratford, but he remembers the lights being turned off for unpaid electric bills and wearing jeans so short he became the target of classmates’ ridicule. Relatives in Bridgeport had it worse. A cousin, Danny Riley, was rough, downright hateful. “Danny was a bad kid,” Hamilton says. “This is not The Shawshank Redemption here.” During summer vacations together on Cape Cod, he delighted in killing crabs, cracking them against the rocks. One day Riley, four years older, targeted Hamilton, chasing him down the beach. His father intervened, thereafter limiting their contact to obligatory holiday gatherings.

Riley would turn to drugs and crime; Hamilton got into money. He loved making it, mowing lawns, shoveling snow and daubing roofing cement on trailer tops in his neighborhood. But he hated school, pulling down D’s and F’s and playing the class clown. His parents sacrificed to send him to private, Jesuit-run Fairfield College Preparatory School, but he left after a year. “That was the first time I failed.” He dreamed of playing football at the University of Alabama, but an injury his senior year ended that. In 1980, while friends were getting acceptance letters from first-rate universities, Hamilton was “going nowhere.” Fishing with a buddy, he started reading the newspaper that wrapped their bait, and an article caught his attention: A master of business administration from The Wharton School of the University of Pennsylvania could command a starting salary of $40,000 a year. “And I’m like, ‘Whoa! Holy crow! I know I’m never going to be a great football player.’” But he could earn an MBA, he decided — if only he could get into college.

A relatively new school in Fairfield, Sacred Heart University, accepted him. He thrived there, serving as student-government president, graduating with honors and getting accepted to Duke University’s Fuqua School of Business. But he needed some seasoning before starting, the school told him, so he got a job as a commercial-credit analyst at Connecticut Savings Bank in New Haven. “It was a completely stifling environment, where you’re in a cube and you’re working on spreadsheets all day and everybody comes in at 8:29 a.m. and everybody takes a one-hour lunch and leaves at 4:45 p.m. It was terrible.” His nemesis was Rose, a supervisor. “She had me reformat a balance sheet seven times, left alignment here, right alignment here, blah, blah, blah.” On the final round, when he made a clerical error, she said, “You know, the balance sheet is supposed to balance.” He stuck it out a year — the worst year of his life, he says — because his dad told him to. And because he had Duke, and the wealth its education promised, flashing in his future.

On his last day at the bank, with nothing else lined up, a vice president pulled him aside and offered him work raking leaves at his house. So he read up on landscaping, enrolled in a master-gardener program and opened a lawn-care business, targeting an affluent, university clientele. It was hard work and, at first, difficult to get customers. He put fliers in mailboxes and went door-to-door, selling personalized services. He specialized in ripping out cheap shrubs planted when a house was under construction and replacing them with trees, flowering bulbs and turf. His goal: earn enough to pay his way through Duke. At its peak, Residential Care Co. had seven employees and cleared $75,000-$100,000 on revenue of $400,000-$500,000. “It was the best three years of my life because I actually learned how to run a business.”

But business school wasn’t what he had expected. In fact, it felt a lot like Connecticut Savings Bank. “Everything at Duke at that time was oriented toward a corporation. Every conversation was, ‘How will I get a job at an investment bank? How will I get a job at IBM?’ And I’m, like, ‘Good heavens, I don’t want to do that.’” He wanted to start and run his own company, he realized. After getting his MBA, he drifted from 1990 to 1996 in Durham under the banner of Hamilton & Associates Inc. “I had worked in banking and I had run a business and I’d seen a lot of loan packages, so I started a consulting business to help people prepare business plans.” But it was the landscaping company, not Fuqua, that gave him an edge. “The only thing that’s really important is customer service and getting sales. The rest is just sort of conversation.”

To boost his income, he took contract jobs, lectured at small-business-development centers and taught college courses, picking up clients. “Being candid, the years between 1990 and 1998, when I started Sageworks, I felt sort of embarrassed. There was no integrated plan. The plan was to get enough money to try the big thing.”

A few years earlier, during one of his small-business-success kit courses in Durham, he bemoaned that, time after time, he had to work with business owners who couldn’t or wouldn’t read their financials. It wasn’t that they were stupid; they were too busy, drawn out, distracted. “Wouldn’t it be nice to have a report that translated a bunch of numbers into English so people could understand them? But I guess I’ll have to discard that idea.” One of his students, 20 years his senior, didn’t think so. She asked him to lunch. A software whiz, Sarah Tourville had worked for the Environmental Protection Agency and Unisys Corp. before setting up Sagrelto Enterprises Inc. in Durham to develop website applications. They became friends, often taking walks across Research Triangle Park.

She came to realize that when Hamilton said “big” he meant it. He wanted to be rich, idolizing Andrew Carnegie, the self-made steel baron who used his fortune to affect social change. And he was forever championing the small-business owner. Of course, small businesses provided a market that could make him rich. As Scott Ogle, who is now Sageworks president, describes it, “Fifty percent of the private sector’s gross domestic product in the U.S. is driven by privately held, small businesses, 65% of job growth.” The nation’s 6,000 or so public companies, he says, pale before the 27 million private ones.

This is how Hamilton planned to tap that market: “Let’s make it so in the first five years you don’t have four out of five going out of business. This sounds hokey and self-congratulatory, but I don’t know how else to put it. I’m a dreamer.” And he was dreaming big, wanting to create an artificial-intelligence program that could generate a monthly strategic plan for small-business owners, an electronic mentor dispensing expert, industry-specific advice.

The task was daunting, with no eureka moments, just a slow, halting crawl. Tourville wrote code; Hamilton scripted conclusions. They began work in early 1998. “I thought it would take us a month to develop the product,” he says. A year and a half later, he was still composing thousands of pages of text. An early version had George Washington’s dollar-bill portrait smiling or frowning, depending on how the company measured up. “When the accountants got hold of it, they said that’s too silly,” Tourville says. Hamilton realized that interpreting data without comparing it with other companies in the industry would be meaningless. So he spent months gathering data for benchmarks. Still, the software could only make simple conclusions, which were obvious and boring. “You say I’ve got to increase cash flow?” Tourville, taking the persona of a potential customer, told him. “I already knew that.”

The program had to be much more sophisticated, the calculations more complex. Yet the analysis had to be easy to understand. “What was really difficult,” says Tourville, now retired and living in Jacksonville, Fla., “was taking two to five formulas with two to three possible results each and combining them so that they generated the right paragraph.” The program had to “think” about multiple factors and make a conclusion. If he devised a formula that looked at five measures of performance, Hamilton discovered, he could really say something. One formula takes profit margin, net profit, sales, ability to meet short-range debt (current ratio) and liquidity (quick ratio) to make conclusions about how the company is doing. But first the formulas had to work. “Suppose a company has current assets of $10 but has liabilities of zero. A computer cannot divide by zero, so there were all these exception rules.” Some took weeks to formulate and test.

Another problem was translating results into simple English. There was no model for this. “Big problem,” Hamilton recalls. “We’ve got to write thousands of pages of text.” Looking back on the experience, he says, “It’s one of the great things about entrepreneurial education that has not been discovered, and I can’t explain this to most MBAs. Most of them are input, output. If you do this, you get that. And I go, ‘No, you’ve got to go at the problem a thousand ways, incrementally getting better all the time.’” He had to write 10,000 single-spaced pages of advice for the program. “If you combine them, there are over 32 trillion unique reports that can be generated,” he says, which means the chance of getting a report that reads remotely like a previous one are slim to none — which is the point. Finally, the program had to be tested again and again. “If we don’t get the report right, nobody will buy it. You can’t say something wrong.”

After almost two years of development, they had Financial Information into Narrative Data — FIND ­— the technology that drives their ProfitCents software. Then Hamilton realized he had no idea who would buy it. Initially, they envisioned business owners snapping it up online, where the program had been designed to operate. “Between 2000 and 2001, I had personally tried to sell to small businesses by direct mail, to chambers of commerce, to franchise companies, to small-business centers. I think we even tried trade associations.” New York-based CitiBank Inc. and California-based Intuit Inc. licensed it, which was exciting and validated the software. “The truth of the matter is that CitiBank was a false positive,” he admits. “Intuit was a false positive.” Both paid annual license fees, but there was no potential for growth.

In 2001, Hamilton hired Ogle, who had worked for Merrill Lynch’s digital-development division and IHarvest, an Internet startup in San Francisco, and Drew White, another Duke grad and entrepreneur from Knoxville, Tenn., who was Sageworks’ chief financial officer nine years before leaving in 2010. “They came aboard and said, ‘What do you want us to do?’ And I said, ‘I don’t know. Sell something.’”

“We found the place where it really caught fire was the CPA and accounting market,” Ogle says. “CPA and accounting firms were looking for ways to help their small clients. They were looking for ways to differentiate their practice and not just be bean counters. They would take our technology and, in a matter of seconds, create a narrative, plain-English report that they could give to their clients.” Instead of just offering a commodity service such as tax preparation and audits, they now could “bridge the communications barrier that naturally exists between an operations, entrepreneur type and a numbers-oriented accountant.” In other words, accountants presented the reports as if they — not a computer program — had prepared them. (Now Sageworks is trying to expand past accountants, selling its software directly to small businesses and marketing a credit-analysis package to banks and credit unions.)

“We started getting a couple of checks for $5,000 and $8,000 in 2002 from accounting firms, and I said there are a lot more accounting firms than Intuits,” Hamilton recalls. “This company started in 2001 because that’s when we found the market.”

 

In April 2005, Hamilton got a call from his mother. Danny Riley was dead. He had hanged himself with a pair of socks in a jail cell. “I’m not typically emotional, I’m just not, but I’m floored because he’s getting his life straightened out and he’s got two kids.” Though they had never been close, Hamilton’s mother had kept him informed about his cousin’s lengthening rap sheet. “Danny wouldn’t show up for parole hearings, just stupid stuff.”

Riley’s final arrest came after his girlfriend accused him of taking her ATM card and emptying her bank account. After his suicide, she told a reporter he battled addiction much of his life and was enrolled in a drug-treatment program but relapsed. “Danny fits the perfect profile of a prisoner,” Hamilton says. A high-school dropout, someone who gets off to a bad start and never recovers. “My mother was telling me that she was talking to Danny the month before any of this happened, and he was saying, ‘I can’t go back to prison. I can’t go back to prison,’ and he was crying. I feel bad that anybody would have such a bad life that they would literally go out and do something like that — that they’d go kill themselves.”

Hamilton was no stranger to prisons, first lecturing at one in the 1980s. He was under contract with the Small Business Administration, helping guide participants through a minority set-aside program. One client was the Rev. Robert Harris, who owned Mabel’s Headstones & Monument Inc. in Creedmoor, which Hamilton helped transition from a one-man operation making concrete headstones into a larger company manufacturing granite headstones for the military. Harris asked him to join his prison ministry by preparing a program on entrepreneurship. “I’d talk about how you put a business plan together,” Hamilton recalls, “and he’d bring in Jesus Christ.” Harris, pastor of Raleigh Road Baptist Church in Oxford, saw something else happening: “Brian was searching for something larger. God has a way of using people.”

Hamilton started Inmates to Entrepreneurs in 2008. He based it on his small-business seminar, distributing a seven-step handout covering marketing, sales, customer service, accounting, finance and staffing. Inmates fill out a questionnaire that’s used to make an informal business plan, and they are paired with a mentor who has experience in their desired field. Graduates have gone into home cleaning, car detailing, T-shirt screening, landscaping and barbering. An Internet startup is in the works. More than a hundred are enrolled, though thousands have attended seminars like this one. “Brian’s pretty much selling hope to people who don’t believe in hope,” says Tonia Dixon, Polk Correctional’s assistant superintendent of programs. “A lot of times inmates can’t hear you. You have to show them. They got to see it.”

Which is why Lawrence R. Carpenter Jr. is here. After Hamilton finishes his spiel, he takes the podium. “I grew up in the worst neighborhood in Durham.” By 11, he was selling drugs. By 17, he was locked up. “I went to prison the first time for robbery, the second time for drug dealing. I knew entrepreneurially I was gifted at making money, but I was in the wrong game.” After his release in 2001, he started Durham-based Superclean Professional Janitorial Services LLC. Today, fully insured and bonded, it employs 63 and has contracts in two dozen North Carolina counties, Virginia and South Carolina.

After Carpenter finishes, A.J. Ware of A&N Painting LLC in Raleigh admits he had a penchant for going into grocery stores and leaving with things he hadn’t paid for. “So I donated five years to the state of North Carolina.” Now, his contracting company brings in nearly $3 million a year. Neither Ware nor Carpenter, who serve as Inmates to Entrepreneurs co-directors, is an alumnus. They believe in its mission and are case studies for its potential, but even they won’t reach many inmates. “Out of all of these people,” Ware says, “I’ll get 10 letters, and then maybe five will sign up for the program.”

When Ware is done, he and Carpenter head to the parking lot, but Hamilton stays behind, talking to inmates individually. After he has shaken every hand that is extended, he finally leaves, passing through heavy steel doors and retrieving his cell phone at a security station. Outside, the sun seems especially bright, but driving back to his office, he is quiet.

“That was a very heavy environment to me,” he says later. “The air was heavy. Did you feel it?” Around him, some of Sageworks’ more than 100 employees stream into and out of the kitchen, grabbing coffee and making snacks. Some lounge on couches, watching the news on a high-definition TV. They wear campy T-shirts, faded jeans, sports jerseys and shorts. No tan jumpsuits. They come and go as they please. This life, this place he has made for himself, is a world away from the stricture of Connecticut Savings Bank, which failed in 1991, and a universe distant from the confinement of a New England jail cell or Polk Correctional Institution. Then again, maybe it’s not so far. “My point is, you can never separate yourself from that. You can never separate yourself from it, and it gives you incredible energy. You’re helping the very people who were marginalized as you were. Yes, that could absolutely be me.”