ESP Services Sees Fortunes in Economic Downturns

Learn how the 2008 Home-Based 100 Best Financial Performer runner up made the most out of hard times.

Steve Phelan thrives during economic downturns.

The Houston resident lost his job at a telecommunication firm during the dot-com bust, but that ended up being a good thing, as it spurred him to launch ESP Services Inc., a company that installs fare-collection devices in public buses. That business has led to three other ventures in various stages of growth.

The funny thing is, the worse the economy seems to get, the better Phelan seems to do. That’s one of the reasons we’ve named him Runner Up in the Best Financial Performers category of the 2008 StartupNation Home-Based 100. The 34-year-old entrepreneur looks to bring in $5 million in revenues this year, up from $3 million in 2007.

It all started back in 2002, when the telecommunications firm that he worked for lost its biggest (and only) client and went under. Phelan, without a job, started temping. He ended up landing at manufacturer Cubic Transportation where he and others installed on buses the fare-collection equipment Cubic builds.

After some time temping, he saw that the work people were doing was sloppy, so he came up with a plan. Phelan realized that if a company specialized in installing equipment for firms like Cubic, they could do a better, more professional job than temps.

Phelan eventually built up a small team of former colleagues he knew in the telecom industry and convinced a manager at Cubic to hire the fledgling ESP Services as a subcontractor.

It worked.

Fast forward a few years later and his company today installs fare-collection devices in buses from Puerto Rico to Phoenix, 90 cities in all. He currently has 48 employees across the country.

His home office has gotten so big that it has consumed his entire house. Phelan’s family was literally crowded out, forced to move to create room for the company’s headquarters.

“All of a sudden it hit a boom,” Phelan says. “It’s such a niche market. After a while we became the entity for all of these companies. We’re at the point now where we’re busting at the seams.”

As remarkable as this sounds, Phelan has other home-based businesses budding. He now has his own temp firm, ESP Staffing, which counts Hewlett Packard as its main client. And following his past experience in the telecom industry, Phelan started ESP Telecom, which installs cell-phone towers around Texas. Not one to get stuck in a rut, earlier this year, he started up ESP Live, an event-planning enterprise that throws parties for corporate clients around the Houston area.

It makes sense that Phelan’s primary business, ESP Services, has taken off in a recessionary period. One of the things that caused the financial mess was exorbitant fuel prices. When gas goes up, more people take public transportation. When more people ride on buses, transit authorities need to put additional vehicles in service, which fare-collection systems in place.

Phelan sees his staffing business the same way. He started it in 2006, and now has about 100 temps working at HP. Ironically, he picked a great “only” client to have during a recession – the computer-hardware firm is posting revenue and earnings gains while other publicly traded giants are suffering. He plans to find other successful businesses and branch out.

Things didn’t always run smoothly, Phelan concedes.

“There were about two and a half years that I didn’t know if I could keep the lights on, but I was making $1 million in revenues,” he says

Part of the problem, as he sees it, is that most banks aren’t small-business friendly. Even though he had plenty of money coming in, few institutions were willing to give him the line of credit he needed. After a lot of heartache and shopping around, he finally found Frost Bank in Houston, which was willing to give him a $50,000 line of credit with no questions asked. Now that number has increased to $450,000.

To other entrepreneurs seeking funding from a bank, he has this advice: “If you’re a good company, your bank shouldn’t be telling you, ‘No.’ You need to shop around. There’s no reason to stay loyal to someone that isn’t helping you.”

Another lesson Phelan offers to fellow small businesses is to treat your employees right. One thing he learned from temping was that the better you take care of workers, the better they’ll perform. Though the recession is hitting everyone hard, ESP added benefits for employees earlier this year – and will continue doing so.

And he isn’t afraid to give employees big responsibilities. “Just let go,” Phelan advises. “Let your people be responsible. They may fall on their face, but you need to instill responsibility.”

If Phelan has it his way, he’ll have more and more people in the future to bring out the best in. He wants to grow each of his business entities into stand-alone companies and move more into creating products rather than just providing services.

“I don’t want to be a small business forever,” he says. “I want to be at least a medium business.”

At the rate things are going, Phelan’s wish should come true.

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