After School, It's Time To Make On-Line Profit
Teen Michael Krause sparks 5,000-client Internet firm
BOSTON — Michael Krause was 14 when he told his brother, Daniel, that they should start an Internet service provider (ISP) company, hooking people and businesses to the computer network.
Daniel, an investment adviser in his mid-20s, asked how much money would be needed initially. Mike was thinking big - a broadband link to the Net - and said, "about $100,000."
"Forget it," Daniel said.
Mike refigured the possibilities and came back 10 days later with a modest plan: Begin with one modem, costing several hundred dollars, that would serve 10 customers from their parents' home.
That's how they launched, in August, 1994. Today they have nearly 5,000 customers, including KeyCorp, a bank holding company in Cleveland with more than $6 billion in assets.
The Krause brothers' business, called Exchange Network Services Inc., now operates out of the Keith Building in downtown Cleveland and is worth an estimated $8 million to $10 million. There are 13 employees, half of them part time.
Under Ohio law, Mike can't be an officer of the company because of his age, so the brothers have an "informal" business arrangement that they say works well.
"Dan is president and the legal owner, and Mike is the assistant administrator," explains Kate Seitz-Krause, Daniel's wife and the firm's office manager.
"We do make a lot of money," she says with an embarrassed laugh.
Their company is a good example of how the Internet is creating local gold mines for those ready to jump into the churning growth.
"We've had offers in the range of $8 million to buy the company, but we don't want to sell," Mike says.
The company has no debt. "We plow a lot of money back into the business and grow with our own capital," Dan says, who also holds down a job at a money-management firm for pensions and endowments.
Exchange Network Services is a private company, and is not required to release a financial statement. But annual revenues are in the several millions, the brothers say. They make their money from monthly service fees, the cost to customers of being hooked up to the Net.
The firm adds about 20 customers a day, "because we are less expensive than the large, national services, ... and we are much quicker than they are to hook people up," Mike claims.
The KeyCorp account, he says, came "because MCI had told the bank it would take six weeks to do the connections, but we did the first ones in a day." The bank now has 89 Net connections through Exchange Network Services.
A spokesman for the bank's Internet department says the company was chosen because of its "flexibility and fine service, which continues."
Mike shows up at work about 2 p.m., after getting out of classes at Hawken High School in Cleveland, where he is a junior. He is sometimes beeped while in class if there is an emergency at the business.
"The school lets him out when he's needed," Dan says, "because we have the school hooked to the Net, and they know what it's all about."
Mike has two full-time technical assistants, but the details of business never cease. Sometimes the management trio must handle emergencies in the middle of the night. Mike tends to work 12-hour days on Saturdays and Sundays, Dan says.
Mike started using a computer when he was 6. His dad, Sheldon Krause, who sells insurance, had brought one home. Mike ran a local electronic bulletin board for about a year before he got the idea for the Internet business. After high school, he wants to give his full attention to the business for two years, then go to college, "perhaps majoring in music or psychology."