'Risky' Businessman

Kishore Khandavalli, CEO of global operations for Goldstone Technologies in Burlington, took his desire for wealth and his enthusiasm for risk and turned them into a software turnkey empire.

by Virginia Lindauer Simmon

Kishore Khandavalli, CEO of global operations for Goldstone Technologies in Burlington, finds stress relief in challenge and excitement. Going for his pilot's license fed that need.

Kishore Khandavalli makes no bones about it: Money is his driving force. Merely scratch the surface, though, and another, nearly equal, force emerges. Khandavalli loves the chase the challenge of risk. If it's not fun, he's not interested. What makes him interesting is that he has taken these requirements and turned them into a business that would be mis-served by calling it merely successful.

The founder of PrimeSoft, a company providing software engineers for development projects, Khandavalli is now the CEO of global operations for Goldstone Technologies, which merged with PrimeSoft in 2000. He works from an office at 1 Lawson Lane in Burlington, company headquarters for North America and Canada. His abundant energy and enthusiasm infect everything he touches.

Barely 11 years ago, a 23-year-old Khandavalli arrived in the United States from India to study for his master's degree in chemical engineering at the University of Akron in Ohio. He came from a small village in Andhra Pradesh, a state in southeast India.

In 1993, master's degree in hand, he heard that Enerfex, a recently formed Vermont company "with an interesting idea," was looking for a chemical engineer. "Enerfex makes the carbon dioxide gas that we find in Coke and Pepsi the fizz," says Khandavalli. "The company invented a new way of making that gas from boiler and exhaust gases."

"We did everything necessary to keep him in the country," says Richard Callahan, head of Enerfex and Khandavalli's friend. "He's a very competent chemical engineer, a dutiful and loyal employee, and very honest."

Things were hopping until the end of 1997 and early '98, when Enerfex became strapped for cash. By this time, Khandavalli had an equity interest in the company. To minimize overhead, they agreed to look at an exit strategy for Khandavalli.

In 1996, Khandavalli had married "an old acquaintance of mine when I was in India." He now saw himself at a crossroads. "I liked Vermont, didn't want to move, so I said, What do I do?"

Khandavalli learned that many of his friends and former classmates were moving into software engineering. "The Internet was coming up, Y2K issues were coming, there was a lot of demand in the software industry, and there weren't a lot of software people available. I was making a lot less a month than those guys were."

A one-semester evening software programming class convinced him he didn't want to do software engineering for the rest of his life. "Large companies were desperately seeking software programmers," he says. "They would go to these agencies and say, 'I need a software programmer for six months.' These agencies were doing very well, would make a decent-margin finder's fee for a contract position, and these salaries were very high $100,000 a year."

Ramana Peddu, a friend in Atlanta who had made the switch, agreed to form a partnership with Khandavalli. He would advise Khandavailli on the business and technology side while Khandavalli managed the business. They launched their software consulting business, PrimeSoft LLC, in February 1998 on a part-time basis.

PrimeSoft's first piece of business came about in a funny way, says Khandavalli. "A software engineer came to us and said, 'OK, guys, listen up. I have a contracting position at Delta Airlines in Atlanta, and they're going to pay me $60 an hour, but I need a corporate entity to do it. Now that you have a company, why don't you take the contract from Delta for $60 an hour and give me all of the $60.' Before he finished, I said, 'I'll do it.'" Now, we had Delta Airlines as a client and we were on the radar."

Before long, Delta was on the phone looking for another engineer. "I asked the first guy where to find another guy like him. He said, 'Sure, I know plenty of guys,'" says Khandavalli. He paid his second employee $40 an hour. "Now, I'm making $20 an hour overnight!" he exclaims. "I have two employees working for me and I'm making as much money as I'm making at the other place."

The business model was based on helping friends. "We told all our friends, 'Come to us, give us maybe $5 an hour.' If I get five or 10 of my friends and get maybe $30 an hour profit, that's good."

One of those friends approached him with a potential contract with MCI. Khandavalli agreed to take $2 of his $60-an-hour fee. "Two weeks later, MCI called looking for four more like him. This is March or April of '98," he says.

By June, Khandavalli had six employees and was making $100,000. He was still not confident enough to quit Enerfex.

What he did know was that he needed help keeping up with clients. He hired Andrew LaRosa, who had once worked for a sister company to Enerfex and had recently returned from Maine. "I said, 'Hey, while you're looking for a job, can you help me out?'" Within two months, the company had 10 employees.

Then he hired Bill Stafford, a part-time bookkeeper for Enerfex, to help with accounting. Evenings, they would sit on Khandavalli's couch talking business.

Khandavalli now felt comfortable enough to begin the process of leaving Enerfex. He proposed to Callahan that he split his time 50-50 between Enerfex and PrimeSoft. By the end of '98, PrimeSoft's first year of operation, the company had 25 employees and did $1.25 million in revenues with about 10 percent profit.

By then, Khandavalli had hired an administrator, "and all of a sudden, we're a real company. I was managing a software company without knowing anything about software," he says, laughing.

Neil Brogan (left), vice president/consulting, reviews a report with Jennifer Rensch, general counsel. Rensch works from her home office and commutes periodically to Goldstone's headquarters.

Adding staff created cash flow problems. "I needed to pay these employees. I didn't have any savings," he says. The banks wouldn't talk to him without a business plan or history. "I said, 'What's a business plan?'"

Recognizing his situation as a make-or-break one, he gathered up his "six or seven credit cards" and took a cash advance of $60,000, his entire available credit limit.

He and LaRosa approached the Small Business Administration's Small Business Development Center to learn how to write a business plan.

Khandavalli now had to arrive at projections for the following years. "We knew we'd made $1.25 million for 1998, so I looked at the numbers. I said, 'I'm probably going to hire two people in a couple of months, so I projected $3.75 million for '99."

He says Stafford started laughing when he saw the projection. "He said, 'Kishore, let's be realistic. Maybe $1.75 million, maybe $2 million.' He said, "How much is it for 2000?' I said, 'Probably $9 million.' Bill said, 'How are you going to do this?' I said, 'I don't know. Something tells me we can do it.'"

In January 1999, Khandavalli finally left Enerfex. He and Callahan parted on good terms, and to this day, Khandavalli serves on the Enerfex board of directors.

By April of that year, PrimeSoft had 35 employees and Khandavalli's $60,000 was all gone, so he and LaRosa started visiting bankers again. "My balance sheet looked great. We were making $20,000 to $30,000 profit, but I didn't know how to pay my employees," says Khandavalli. "All the banks said, 'No, you don't have enough experience; you're a startup; your personal credit doesn't look great because your credit cards are all maxed out.'"

They had nearly given up when LaRosa called Joe Kronin, vice president of small business development at Key Bank.

"Joe Kronin said, 'Tell me one thing. Look in my eye and say, 'We can make the projection,' and I said, 'Joe, look into my eye and tell me I cannot make the projection. If I came in four months ago and told you I would grow 50 percent in four months, you would not believe it.'" Kronin lent him $50,000.

At the end of 1999, when Khandavalli and Stafford reviewed the year, the company had 60 employees and had made $3.7 million, just $50,000 shy of the projection. "This was so much fun," chirps Khandavalli. "I said, 'I like this so much, as long as I'm paying my bills, I don't care. I'm enjoying this, because the more risk I take, the more money is coming in and the more the business is going to grow."

Always looking ahead, Khandavalli surveyed his clients, asking what would make them continue to give him business in the future. The key was a fixed-bid project, which might last one or two or three years, followed by maintenance contracts.

He needed infrastructure to implement the next step, but he didn't think he could go to another bank and ask for more money.

Khandavalli knew that clients' costs were escalating as software engineers demanded more money; that 40 to 50 percent of the software engineers in this country come from foreign countries about 60 percent of those from India; and that companies were seeking offshore opportunities, where labor was less expensive.

He contacted Goldstone Technologies, an Indian company. "I said, 'I want to be a strategic partner with you.' They have about 100 employees doing software development for companies in the U.S. and Europe. I said, 'I don't want to develop infrastructure, but I have the clients who can give me projects. I will take the projects and we share the profits.'" Goldstone agreed and signed a memo of understanding with PrimeSoft.

Two years later, the chairman of Goldstone's board of directors called Khandavalli and offered to acquire 50 percent of PrimeSoft. "Before he finished the sentence, I said, 'No, I'm enjoying this and don't want to sell.' The next day, he called and said, 'I want to acquire 49 percent of your company.' I said, 'No,' He said, 'Fine.'" Two weeks later, the chairman called and said Goldstone wanted to acquire 100 percent of his company. "I said, Let me talk to my partner.'"

PrimeSoft's revenues were greater than Goldstone's at the time, so Khandavalli and Peddu agreed to the offer on two conditions: that no cash would change hands; and Khandavalli would manage both companies. The deal was made.

Eric Kennaugh, who does business development for the northeast region and South America, and Gail Workman, payroll specialist at Goldstone Technologies.

By November 2000, Khandavalli found himself heading a multinational company. "I'm heading a company that has 300 employees and operations in five countries on three continents. Now I'm really scared.

"When the merger was announced, Goldstone's stock went up three or four times," says Khandavalli. "And the chairman and directors tell me, 'This is why you didn't want any cash!' and I said, 'Yes, because I knew it was going to bring value.'"

These days, of course, like the rest of Wall Street, it's at pre-merger levels, but Khandavalli isn't worried. "The slowdown has affected us, but we're still growing." Clients include Sun Microsystems, AT&T, Delta, General Electric, Accenture, IDX, Bombardier, Husky and IBM. With engineers here and in India and a 10-hour time difference, Goldstone can offer a 24-hour development cycle. "Our guys come here at 8 o'clock in the morning in Virginia or Vermont and by 5 or 6 in the evening, they're done. Before they go home to sleep, they send an e-mail saying, 'OK, this is what we have done, why don't you take over?' In India, they go to work for another nine to 10 hours, and before they go home, they ship it back here. Our line is, 'We work while you sleep.'"

This hybrid approach is especially appealing to large companies that might be nervous about shipping their entire software work offshore but seek economy.

Somehow, Khandavalli manages to find time for what he calls "my stress-relieving techniques," which include playing tennis four times a week and going flying, a newfound challenge.

He sees no end to the need for his company's services. "All the software written in the last 20 to 30 years has to be rewritten to be compatible with the Internet and the World Wide Web. We do that: rewriting the existing applications, streamlining it so the software we write is going to be good for 20 to 40 years. We have customer accounting applications, building, human resources management, pure upgrades. All we do is custom solutions, but we specialize in the technologies."

"And by the way," he says with a grin, "I still don't know much about software."

Originally published in September 2002 Business People-Vermont