Network Hardware Resale President and CEO Mike Sheldon discussed the benefits and challenges of running a high-tech company in Santa Barbara during the CPA/Law Society lunch Thursday afternoon at the Canary Hotel.

Network Hardware Resale is one of the leading privately held sources for pre-owned, refurbished and new networking equipment. It recently expanded its headquarters to 99,000 square feet of office and warehouse space in Santa Barbara, but it also has offices in New York, Dallas, London, Amsterdam and Singapore that house 325 employees and 175 locally.

Sheldon said putting money back into a small business and growing the company will best predict success.

“Most small-business owners at the end of year, after they pay their employees and taxes, write themselves a big check and start the next year from scratch … it’s their downfall,” he said. “In this day and age, it’s not like you can borrow $10 million. You have to mortgage your children to borrow that kind of money. Refunding yourself is the best way to grow a business, but it means you won’t buy the Porsche Turbo this year.”

Santa Barbara’s young and “hard-charging” job seekers and NHR’s timing of going into business at the bust of the dot-com bubble both boded well for business, Sheldon said.

“Santa Barbara not only has a lot of businesses like us, but as the dot-com bubble burst and Somera crumbled, we hired a dozen people from them — we were just lucky,” he said. “It’s a business suited to young and hard-charging kids, and there are many in Santa Barbara.”

Sheldon and his family began selling IBM modems and mainframes out of his brother John’s garage and 200 square feet of his father Chuck’s house. NHR has grown from a $20 million company in 2000 to $225 million today.

“We’re a good case of high growth and a small company,” said Sheldon, adding that they plowed nearly every dollar back into the business. “Our No. 1 customer were other brokers in the industry.”

He said NHR is not only benefiting with its lower prices in a down economy, but the area’s dependence on smart phones and use of data that’s exceeding supply helps, too.

“It was good to be a lower-priced retailer in the economy,” Sheldon said. “When no one was buying, they still weren’t buying from us, but the fourth quarter in 2009 was the best we’ve ever had.”

He said companies fail because they invest in a struggling industry, utilize bad strategy or have poor execution.

“Kodak film took too long to get out of the industry,” Sheldon said, “and look at bad execution by telecom companies such as Somera, which would pay their salesmen a percentage of money spent rather than what they brought in.”

A current case could change the practice of resellers such as NHR. The Ninth Circuit Court of Appeals is deliberating the case Vernor v. Autodesk, which could outlaw the resale of most products. It would require resellers to separate the software before reselling the hardware, which doesn’t worry Sheldon too much because it’s a relatively simply process for what NHR sells.

He said Santa Barbara presents certain limitations to small businesses as well. There needs to be more development, according to Sheldon, and talent is hard to come by — if it wasn’t for UCSB and SBCC students, NHR wouldn’t find enough Internet engineers, he said.

Sheldon provided 10 tips to maintain a successful small business: Hire good people the moment you find them; think three years ahead; dog people love their pets more than their kids; no one is sick on Wednesday; use UCSB and SBCC as assets; don’t fly through San Francisco International Airport because 41 percent of United flights are delayed; learn to cover for maternity leave; keep your best people; hire the young and poor; and make the dress code clear.

For now, Sheldon is debating whether the company should spread itself thinner into new products or expand to Brazil or other Latin America locations.

But one thing is certain: NHR is not going public. Sheldon said the disclosure requirements and quarterly scrutiny aren’t worth it, even though LinkedIn decided to go public a week ago.

“We use LinkedIn every day,” he said, “but I still wouldn’t buy stock at 1,500 times a share.”

— Noozhawk business writer Alex Kacik can be reached at akacik@noozhawk.com. Follow Noozhawk on Twitter: @noozhawk, @NoozhawkNews and @NoozhawkBiz. Become a fan of Noozhawk on Facebook.