Everyone works hard to ensure that investment deals get completed once they're agreed in principle - but a surprising number don't. What are the most common problems, and how can you head them off?
If you're worried about going through due diligence, spare a thought for some of the world's less mature entrepreneurial environments. A staggering 70 per cent of deals in emerging markets fall through after investors have conducted background checks, according to a survey of foreign investment executives by Deloitte - often, it seems, because company founders lack the necessary 'integrity' for their investment. In the UK, start-ups tend to feature more reputable management teams, but - depending on whose figures you believe - anywhere up to a third of deals can fall apart after the initial terms sheet has been issued.
It's the last thing anyone wants to happen after all the hard work that's put into pitching for deals, but the final negotiations in any investment can be a fraught time. Either side can get cold feet when they're confronted with the reality of the deal. So what are the most common causes of deals falling down after they've been agreed in principle?
The first cause is when due diligence turns up something unexpected. 'In our experience of working with one of the early-stage investment funds, one in four deals have fallen through in the past two years,' says John Foundling, head of corporate finance at chartered accountancy firm Morley and Scott. 'But our whole approach to due diligence on behalf of investors is about driving into any issues that emerge as soon as possible, getting prompt responses and feedback and suggesting how we believe a potential risk area can be mitigated against in some way.'
This approach is reflected in the due diligence report it produces, which the investee company may be shown and asked to vouchsafe as to its factual accuracy. Foundling says it's like an 'exception report', drilling into any potential issues that may arise.
Foundling gives the example of financial projections, which can cause problems but are usually not a deal breaker. 'We look at the mechanics and the structure, the assumptions behind them and check all the basics, and if we find a problem, in conjunction with the investor we may ask for a new set of projections.' Problems usually revolve around technical issues - such as a creditor or debtor not being factored in correctly, or some other discrepancy between the cash flow and the balance sheet. Morley and Scott may even recommend that a new management accounting system be introduced - it's that practical.
It will also look at the credibility of projections, running what Foundling calls a 'sensitivity test', and will flag up if they seem over-optimistic, although the ultimate say on believability rests with the investment manager themselves. A set of projections was highlighted in a recent deal because they appeared to be too linear, for example. 'That's not necessarily a problem, but it implies a simplistic approach. It depends how bullish they've been as to whether it's an issue or not.'
More likely to emerge as a problem in due diligence is the issue of Intellectual Property (IP) ownership, according to Ted Dewhurst, an associate at legal firm Nabarro. 'The area where most early-stage high-tech companies encounter problems is to do with IP, and the most common thing we find is they don't own their technology. If it's owned by the founders, that's quite simple to sort out. But if it's licensed from somebody else that can be a problem.'
Dewhurst says once you look into the licence, alarm bells start ringing if it's capable of being revoked at short notice, or if it's non-exclusive or ambiguous. 'If the business is built on licensed software you want that licence to be perpetual and irrevocable. If it can be terminated or it's not exclusive, then that's not good news.'
A third reason for a deal falling through - and probably the most common - is that the two parties fail to agree a price, or the entrepreneur has a better offer, otherwise known as gazumping. Dewhurst says this was more common last year and the year before when there were a lot of funds looking to invest in a relatively small pool of investment-ready companies.
It's not necessarily a bad strategy for a start-up to get to an advanced stage with a couple of investors - in fact, it can help push a deal through if you let it be known that another investor is waiting to step in. But the investment community is relatively small and deals that are done on trust can be soured if you don't play the game with a straight bat. 'We always assume that having got that far, the investee company will complete the deal,' says Dewhurst. 'But over the last two years there has been sufficient competition for good deals for gazumping to happen.'
Time, of course, is of the essence, and advisors are all too aware of the need for speed. Dewhurst says Nabarro is typically asked to have its draft assessment documents with the client within 48 hours and to complete the assessment in two to three weeks. Foundling, however, points out that for smaller deals, early-stage investors will be unlikely to want to expend too much time on a complex due diligence, given the associated opportunity costs. 'I would say that investors tend to be relatively risk averse,' he adds, 'by which I mean that if by waiting a few more weeks the risk in the investment becomes clearer, then they will wait. It's much easier to wait for the circumstances to change than decline an investment or rush forward with an investment they're not comfortable with.'
Which helps explain the next reason - a downturn in the company's fortunes. 'Poor results in terms of the current trading falling short of projections is a reason deals fall through,' says Dewhurst. 'It could be that trading has taken a turn for the worse or perhaps it's never picked up in the way they were projecting.'
The final reason is perhaps the hardest to guard against - the human factor. Dewhurst says that if an entrepreneur isn't used to dealing with VCs, they can be intimidated by the documents when they first see them. 'When they start talking to investors it's all very friendly, but when they see what they're asked to give in the way of warrants and assurances, restrictions on employment, service contracts, share transfers, putting in place share option schemes - they sometimes think it's outrageous. We can usually calm them down and it won't throw the deal.
'When VCs invest millions in a company, it's their duty to protect their clients' investment and they really have no power other than what's in the investment document.'
Foundling, whose firm also acts as a lead advisor to companies seeking investment, adds that it's important to think about the deal in the round from the very start. 'At the beginning, the focus in nine out of ten cases is on the percentage [of equity they are giving away]. It's only later, as they take legal advice and tie up the legal documents, that they understand the warranties they have to give - that the business plan is accurate and complete and not misleading, for example. What I try to impress on companies as a lead advisor is that they shouldn't be afraid to give warranties, because if they're asked to give a warranty they're not happy about, then there's already a potential problem between them and the investor.'
He concludes: 'At the end of the day it's about the convergence of interests between the investee and the investor. It's important that you choose the right investor, and what the deal means for you is often hidden in the terms and conditions and the details.'
By David Longworth, Webster Buchanan Research
For South African Business Invetment Opportunities and Capital check out SA Investors Network
Saturday, February 24, 2007
Saturday, February 10, 2007
Entrepreneurs & Technology
Most technology entrepreneurs are creative by nature - but they don't always know how to hire the other innovators they need. Management guru Dr John Sullivan has strong views on how to get that right
Dr John Sullivan isn't known for holding back on his opinions. A professor at San Francisco State University and a well-known authority on people management issues, he's a frequent fixture at conferences and in the media expounding his views on how poorly most companies handle their employees. And talking to him a couple of weeks ago, one thing that's particularly irking him today is how companies mismanage their innovators.
While some of his views will be largely academic to smaller companies - his complaints about the inadequacies of many HR professionals make for entertaining reading, for example, but don't really matter if your workforce isn't big enough to hire one - much of his agenda drives to the heart of what makes a business succeed. Firstly, like a growing number of experts in the people management arena, Dr Sullivan believes recruitment is a sales and marketing activity rather than an HR discipline (see 'Candidate or Customer?' [TECHNICAL; 220035]). Good quality people are in high demand, and you need to adopt the same techniques to sign them up as you apply to winning a customer. While old school recruitment philosophy says candidates need to convince you to hire them, securing good people today is as much about convincing them that you're the best place for them to work.
So how exactly do you do that? To begin with, argues Dr Sullivan, you need to find out what factors they'll take into account when they decide on a job - what he calls their acceptance criteria. You can ask them direct when they put in an application or during the job interview - or you can be a little more circumspect and simply ask them to describe their dream job. Either way, it's unlikely that their goal is going to correspond exactly with the role you've created, so you need to adjust your sales pitch to hone in on areas where the two do cross over. In fact, if you've found a really good candidate, you might even change the role you'd mapped out - better to have a great person in a slightly different job than a mediocre operator who ticks all the boxes.
Secondly, you need to stand out from the rest of the people fighting for talent - so you've got to have what Dr Sullivan calls the 'wow' factor. In the technology field, companies like Google and Genentech have long attracted applicants by doing things differently. Google in particular has ripped up much of the employee rule book, famously shipping its Bay Area employees into work in limousine shuttles and providing free gourmet food at its campus restaurants. It also encourages engineers to work on their own projects one day a week, a policy that has helped spawn a huge number of its inventions. Likewise, biotech giant Genentech owes much of the success of one of its most successful therapies, Herceptin, to the 'underground' research culture it fostered, where scientists were encouraged to research their own projects. Breaking the rules to foster creativity creates a buzz and gets people talking.
Of course, 'wow recruiting' is easier to pull off when it's backed by the resource of an industry giant like Google, but that's not to say Dr Sullivan's philosophy can't be adopted by entrepreneurs. One advantage smaller businesses have, in fact, is that they can rewrite job roles much more easily than their large counterparts, which have to steer through internal politics and adapt complex hierarchies. Another is that, by their very nature, entrepreneurs tend to be trying something different - so if you're looking for an experienced software engineer, your ground-breaking technology concept could be the thing that woos them. The flipside, of course, is that new ideas don't do it for everybody - a great salesperson won't be excited by new technology, they'll be excited by new technology that looks like it will generate big dollars.
Thirdly, if you're going to 'wow' people, you need to target the right ones, and be clear about how to handle them. Dr Sullivan argues that companies need to distinguish between high performers, who've traditionally been the target for recruiters, and innovators, who are more likely to be the people driving today's companies forward. 'In a world that changes so fast, you have to innovate consistently,' he says. 'You've got top performers and innovators - the innovators are the critical ones. The top performer will make the wired phone better - the innovator will say 'Let's not have the wire'.'
The challenge with innovators, however, is that they're not just unconventional in their thinking - they also tend to be unconventional in their work habits. So you'll probably need to reciprocate by being flexible about your working practices. The reason Google offers employees breakfast, lunch and dinner on campus isn't just to keep them in the office for longer - it also knows that creative people work odd hours. In fact, some innovators won't want to be tied down to an office at all. Innovation has never been a nine-to-five job - so if you want to tap into someone's creativity, you might need to grab it wherever you can get it.
By Keith Rodgers, Webster Buchanan Research
Dr John Sullivan isn't known for holding back on his opinions. A professor at San Francisco State University and a well-known authority on people management issues, he's a frequent fixture at conferences and in the media expounding his views on how poorly most companies handle their employees. And talking to him a couple of weeks ago, one thing that's particularly irking him today is how companies mismanage their innovators.
While some of his views will be largely academic to smaller companies - his complaints about the inadequacies of many HR professionals make for entertaining reading, for example, but don't really matter if your workforce isn't big enough to hire one - much of his agenda drives to the heart of what makes a business succeed. Firstly, like a growing number of experts in the people management arena, Dr Sullivan believes recruitment is a sales and marketing activity rather than an HR discipline (see 'Candidate or Customer?' [TECHNICAL; 220035]). Good quality people are in high demand, and you need to adopt the same techniques to sign them up as you apply to winning a customer. While old school recruitment philosophy says candidates need to convince you to hire them, securing good people today is as much about convincing them that you're the best place for them to work.
So how exactly do you do that? To begin with, argues Dr Sullivan, you need to find out what factors they'll take into account when they decide on a job - what he calls their acceptance criteria. You can ask them direct when they put in an application or during the job interview - or you can be a little more circumspect and simply ask them to describe their dream job. Either way, it's unlikely that their goal is going to correspond exactly with the role you've created, so you need to adjust your sales pitch to hone in on areas where the two do cross over. In fact, if you've found a really good candidate, you might even change the role you'd mapped out - better to have a great person in a slightly different job than a mediocre operator who ticks all the boxes.
Secondly, you need to stand out from the rest of the people fighting for talent - so you've got to have what Dr Sullivan calls the 'wow' factor. In the technology field, companies like Google and Genentech have long attracted applicants by doing things differently. Google in particular has ripped up much of the employee rule book, famously shipping its Bay Area employees into work in limousine shuttles and providing free gourmet food at its campus restaurants. It also encourages engineers to work on their own projects one day a week, a policy that has helped spawn a huge number of its inventions. Likewise, biotech giant Genentech owes much of the success of one of its most successful therapies, Herceptin, to the 'underground' research culture it fostered, where scientists were encouraged to research their own projects. Breaking the rules to foster creativity creates a buzz and gets people talking.
Of course, 'wow recruiting' is easier to pull off when it's backed by the resource of an industry giant like Google, but that's not to say Dr Sullivan's philosophy can't be adopted by entrepreneurs. One advantage smaller businesses have, in fact, is that they can rewrite job roles much more easily than their large counterparts, which have to steer through internal politics and adapt complex hierarchies. Another is that, by their very nature, entrepreneurs tend to be trying something different - so if you're looking for an experienced software engineer, your ground-breaking technology concept could be the thing that woos them. The flipside, of course, is that new ideas don't do it for everybody - a great salesperson won't be excited by new technology, they'll be excited by new technology that looks like it will generate big dollars.
Thirdly, if you're going to 'wow' people, you need to target the right ones, and be clear about how to handle them. Dr Sullivan argues that companies need to distinguish between high performers, who've traditionally been the target for recruiters, and innovators, who are more likely to be the people driving today's companies forward. 'In a world that changes so fast, you have to innovate consistently,' he says. 'You've got top performers and innovators - the innovators are the critical ones. The top performer will make the wired phone better - the innovator will say 'Let's not have the wire'.'
The challenge with innovators, however, is that they're not just unconventional in their thinking - they also tend to be unconventional in their work habits. So you'll probably need to reciprocate by being flexible about your working practices. The reason Google offers employees breakfast, lunch and dinner on campus isn't just to keep them in the office for longer - it also knows that creative people work odd hours. In fact, some innovators won't want to be tied down to an office at all. Innovation has never been a nine-to-five job - so if you want to tap into someone's creativity, you might need to grab it wherever you can get it.
By Keith Rodgers, Webster Buchanan Research
Sunday, September 10, 2006
The Value of Patents
Technology patents have huge potential value - but how do you turn them into cash? As Keith Rodgers reports, San Francisco's first large-scale patent auction may provide a model for the future.
Despised by the conservative right and revered elsewhere as one of the centres of liberal thinking in the US, San Francisco has long had a reputation for breaking new ground. Home to the Beat Generation in the '50s, a stop-off for hippies in the '60s and the centre of the gay liberation movement from the '70s, the city has never been afraid of fighting the status quo. From the lawlessness of the Gold Rush years to Silicon Valley's heyday during the technology boom years, it's a place where the entrepreneurial spirit thrives, and where the experience of two devastating earthquakes in the last century gives everything an extra edge.
All in all, then, not the kind of place where you'd expect people to get too excited about technology patents.
That, however, is exactly what seems to be stirring among those who care about these things in the run up to what's billed as the world's 'first-ever live, large scale auction of technology patents'. Hosted by Ocean Tomo, a merchant bank based in Chicago that specialises in intellectual property, the auction is an attempt to bring greater liquidity to a class of assets that until now have been frustratingly hard to monetise. Sure, on the Richter scale of life-transforming events in San Francisco, it barely registers a murmur - but for tech entrepreneurs who want to extract some value out of their inventions, it's a model that's definitely worth keeping an eye on.
In their own right, technology patent auctions are nothing new. Along with physical assets, patents occasionally come under the hammer after company bankruptcies - most famously in December 2004, when a mystery bidder sent shivers down the spines of leading industry players by spending millions of dollars securing a clutch of significant e-commerce patents owned by Commerce One. (Rather than being an aggressive patent asserter, the purchaser later turned out to be Novell, which has put the patents to benign use in the open source community).
What's different about the Ocean Tomo event, however, is that it's an attempt to create an institutionalised marketplace where inventors of any description can put their patents up for sale. The event, due to be hosted at the San Francisco Ritz Carlton in April and broadcast over the Internet, is expected to bring together large corporations, early-stage companies, academics, and investors, all looking either to buy or sell. Qualified bidders will be able to carry out some degree of due diligence before the event and to contact sellers anonymously via the bank, while sellers can protect the value that they perceive in their inventions by setting a minimum sale price.
While it will be important to see how closely reality matches the hype, the event has been generating some positive feedback. Although unwilling to comment on the specific event, Dan McCurdy, chief executive of IP licensing and advisory firm Thinkfire, likes the concept, arguing that investors and inventors need new, convenient mechanisms to extract value from their IP. Too many companies, he says, are falling victim to patent 'trolls', the independent assertors who buy patents and then aggressively enforce them. The best way to see them off is by cutting off their source of supply - and patent auctions might be one way of doing that.
That said, McCurdy warns would-be sellers to bear a few salient points in mind. While it's great to be able to flag the fact that you've invented or possess something unique, the real purpose of a patent is to exclude others from using your invention without your permission. Whether you put it to offensive use by pursuing others, or secure the patent for defensive purposes to guarantee your own freedom to operate, its ultimate value is economic - so buyers will want to know:
� Is the patent valid? Are there any issues now, or during the prosecution of the patent, that could invalidate it?
� What's the current or future impact of the patent - or in other words, who's infringing the patent today, and who's likely to do so in the future?
� Assuming it's valid and infringed, who's already licensed it and on what terms? If the bulk of the potential population has already paid for a licence - or if licenses have been given away cheaply in the past - it's a less attractive option for those looking to assert it
If you can answer those three concerns, it'll be worth keeping an eye on how the institutionalised auction model pans out. The Ocean Tomo event may not be to everyone's taste - this is San Francisco, after all - but what's pioneered in Silicon Valley has a habit of being replicated elsewhere.
Despised by the conservative right and revered elsewhere as one of the centres of liberal thinking in the US, San Francisco has long had a reputation for breaking new ground. Home to the Beat Generation in the '50s, a stop-off for hippies in the '60s and the centre of the gay liberation movement from the '70s, the city has never been afraid of fighting the status quo. From the lawlessness of the Gold Rush years to Silicon Valley's heyday during the technology boom years, it's a place where the entrepreneurial spirit thrives, and where the experience of two devastating earthquakes in the last century gives everything an extra edge.
All in all, then, not the kind of place where you'd expect people to get too excited about technology patents.
That, however, is exactly what seems to be stirring among those who care about these things in the run up to what's billed as the world's 'first-ever live, large scale auction of technology patents'. Hosted by Ocean Tomo, a merchant bank based in Chicago that specialises in intellectual property, the auction is an attempt to bring greater liquidity to a class of assets that until now have been frustratingly hard to monetise. Sure, on the Richter scale of life-transforming events in San Francisco, it barely registers a murmur - but for tech entrepreneurs who want to extract some value out of their inventions, it's a model that's definitely worth keeping an eye on.
In their own right, technology patent auctions are nothing new. Along with physical assets, patents occasionally come under the hammer after company bankruptcies - most famously in December 2004, when a mystery bidder sent shivers down the spines of leading industry players by spending millions of dollars securing a clutch of significant e-commerce patents owned by Commerce One. (Rather than being an aggressive patent asserter, the purchaser later turned out to be Novell, which has put the patents to benign use in the open source community).
What's different about the Ocean Tomo event, however, is that it's an attempt to create an institutionalised marketplace where inventors of any description can put their patents up for sale. The event, due to be hosted at the San Francisco Ritz Carlton in April and broadcast over the Internet, is expected to bring together large corporations, early-stage companies, academics, and investors, all looking either to buy or sell. Qualified bidders will be able to carry out some degree of due diligence before the event and to contact sellers anonymously via the bank, while sellers can protect the value that they perceive in their inventions by setting a minimum sale price.
While it will be important to see how closely reality matches the hype, the event has been generating some positive feedback. Although unwilling to comment on the specific event, Dan McCurdy, chief executive of IP licensing and advisory firm Thinkfire, likes the concept, arguing that investors and inventors need new, convenient mechanisms to extract value from their IP. Too many companies, he says, are falling victim to patent 'trolls', the independent assertors who buy patents and then aggressively enforce them. The best way to see them off is by cutting off their source of supply - and patent auctions might be one way of doing that.
That said, McCurdy warns would-be sellers to bear a few salient points in mind. While it's great to be able to flag the fact that you've invented or possess something unique, the real purpose of a patent is to exclude others from using your invention without your permission. Whether you put it to offensive use by pursuing others, or secure the patent for defensive purposes to guarantee your own freedom to operate, its ultimate value is economic - so buyers will want to know:
� Is the patent valid? Are there any issues now, or during the prosecution of the patent, that could invalidate it?
� What's the current or future impact of the patent - or in other words, who's infringing the patent today, and who's likely to do so in the future?
� Assuming it's valid and infringed, who's already licensed it and on what terms? If the bulk of the potential population has already paid for a licence - or if licenses have been given away cheaply in the past - it's a less attractive option for those looking to assert it
If you can answer those three concerns, it'll be worth keeping an eye on how the institutionalised auction model pans out. The Ocean Tomo event may not be to everyone's taste - this is San Francisco, after all - but what's pioneered in Silicon Valley has a habit of being replicated elsewhere.
Thursday, August 24, 2006
Working with Foreigners
Many in the tech industry worry that tough US immigration policy is damaging the country's long-term prospects and benefiting emerging economies such as India and China. That could transform the face of technology entrepreneurship, writes Keith Rodgers.
If you've traveled to the United States recently and been photographed and fingerprinted at the immigration desk, you'll have sympathy for the concerns being raised in Silicon Valley about the future of the home-grown technology sector. Software vendors and venture capitalists alike are voicing fears that a combination of anti-terror measures and misplaced efforts to protect US jobs are keeping some of the sharpest technology minds out of the country - to the benefit of emerging tech economies in India and China.
The problem is partly political, partly bureaucratic, but the issue has become more prominent over the last year as fears over terrorism have started to be weighed against longer-term economic factors. Universities have complained that tough visa requirements and lengthy processing delays have deterred many foreign graduates from applying to US schools, potentially depriving the economy of the talent it needs to drive forward innovation in the long term. At the same time, the number of H1B visas - the type typically used by US companies recruiting skilled foreign professionals - has been restricted following a temporary increase during the dot com boom. Add to that delays in processing work-related green cards, which give foreigners permanent status in the US, and there's a powerful disincentive for people to settle.
At a recent investment conference in San Francisco, Rob Chandra, general partner at Bessemer Venture Partners in Silicon Valley, invited the audience to take a trip to a local office of the US Citizenship and Immigration Services and see for themselves what foreign applicants go through. Like many bureaucracies, the USCIS can be slow moving, and it's often time-consuming for foreigners to jump through the administration hoops required to get their spouse and children into the country. Not only does this deter people from coming in - it also encourages some foreign students studying at US business schools to leave the country rather than put their newly-acquired skills to use within the US economy. As Chandra points out, if you've attended one of the world's best business schools and carried out ground-breaking research that could create American jobs, you probably believe that you deserve a little better. 'Today, the US government has a policy of keeping the brightest people out of the country,' he says. 'Immigration needs to be separated between those who create jobs and those who do not.'
The clamour for a more flexible immigration policy has not gone unnoticed. Only last week, the Senate Judiciary Committee agreed to increase the number of work-related green cards by 90,000 and H1B visas by 30,000. But the debate is much broader than a numbers game, and becomes embroiled in more politically-charged controversies over the treatment of legal and illegal immigrants. Opinion in the US is sharply divided, for example, as to whether undocumented labourers should be offered amnesties and work permits. Within California - where an estimated 2 million to 3 million illegal immigrants prop up the economy in sectors such as leisure and agriculture - the large Hispanic community plays a big role in ongoing debates over whether undocumented aliens from Mexico and elsewhere should be allowed to carry drivers' licences (a road safety measure that would allow them to get vehicle insurance). These debates, which can swing elections, are unlikely to be resolved in the short-term.
In the meantime, Chandra and others believe that the US VC community needs to reach out to the many talented individuals who in the past might have moved to Silicon Valley, but are now helping grow economies elsewhere. 'In our opinion, entrepreneurship is shifting in a dramatic way - we're looking for those entrepreneurs that the [USCIS] is keeping from Silicon Valley,' he says. Instead of looking to emerging economies as a source of cheap labour through off-shoring, he argues that tech companies should seek out the best talent from these markets and see how they can best be harnessed to help Western companies grow. 'The worst way to leverage this is to turn bright people in India and China into hired help,' says Chandra. 'We think about getting the brightest people.'
If you've traveled to the United States recently and been photographed and fingerprinted at the immigration desk, you'll have sympathy for the concerns being raised in Silicon Valley about the future of the home-grown technology sector. Software vendors and venture capitalists alike are voicing fears that a combination of anti-terror measures and misplaced efforts to protect US jobs are keeping some of the sharpest technology minds out of the country - to the benefit of emerging tech economies in India and China.
The problem is partly political, partly bureaucratic, but the issue has become more prominent over the last year as fears over terrorism have started to be weighed against longer-term economic factors. Universities have complained that tough visa requirements and lengthy processing delays have deterred many foreign graduates from applying to US schools, potentially depriving the economy of the talent it needs to drive forward innovation in the long term. At the same time, the number of H1B visas - the type typically used by US companies recruiting skilled foreign professionals - has been restricted following a temporary increase during the dot com boom. Add to that delays in processing work-related green cards, which give foreigners permanent status in the US, and there's a powerful disincentive for people to settle.
At a recent investment conference in San Francisco, Rob Chandra, general partner at Bessemer Venture Partners in Silicon Valley, invited the audience to take a trip to a local office of the US Citizenship and Immigration Services and see for themselves what foreign applicants go through. Like many bureaucracies, the USCIS can be slow moving, and it's often time-consuming for foreigners to jump through the administration hoops required to get their spouse and children into the country. Not only does this deter people from coming in - it also encourages some foreign students studying at US business schools to leave the country rather than put their newly-acquired skills to use within the US economy. As Chandra points out, if you've attended one of the world's best business schools and carried out ground-breaking research that could create American jobs, you probably believe that you deserve a little better. 'Today, the US government has a policy of keeping the brightest people out of the country,' he says. 'Immigration needs to be separated between those who create jobs and those who do not.'
The clamour for a more flexible immigration policy has not gone unnoticed. Only last week, the Senate Judiciary Committee agreed to increase the number of work-related green cards by 90,000 and H1B visas by 30,000. But the debate is much broader than a numbers game, and becomes embroiled in more politically-charged controversies over the treatment of legal and illegal immigrants. Opinion in the US is sharply divided, for example, as to whether undocumented labourers should be offered amnesties and work permits. Within California - where an estimated 2 million to 3 million illegal immigrants prop up the economy in sectors such as leisure and agriculture - the large Hispanic community plays a big role in ongoing debates over whether undocumented aliens from Mexico and elsewhere should be allowed to carry drivers' licences (a road safety measure that would allow them to get vehicle insurance). These debates, which can swing elections, are unlikely to be resolved in the short-term.
In the meantime, Chandra and others believe that the US VC community needs to reach out to the many talented individuals who in the past might have moved to Silicon Valley, but are now helping grow economies elsewhere. 'In our opinion, entrepreneurship is shifting in a dramatic way - we're looking for those entrepreneurs that the [USCIS] is keeping from Silicon Valley,' he says. Instead of looking to emerging economies as a source of cheap labour through off-shoring, he argues that tech companies should seek out the best talent from these markets and see how they can best be harnessed to help Western companies grow. 'The worst way to leverage this is to turn bright people in India and China into hired help,' says Chandra. 'We think about getting the brightest people.'
Thursday, August 3, 2006
On Selling and Sales
If you've already made the move from R&D to commercialisation, you're probably generating a host of information about your customers and prospects. But how effectively are you managing it?
Just as every business manager's wardrobe needs a minimum number of outfits for different occasions - from client dinners to casual weekend meetings - so certain business software applications are all but compulsory on a start-up's IT systems. Applications for fundamental tasks such as financials and payroll top the list, but one that doesn't always get a look in is the one that could ultimately make the most spectacular impact - sales management software.
Sales automation applications were around long before the much-hyped arrival of 'Customer Relationship Management' suites in the late 1990s, which were supposed to usher in an era of customer-friendly service and marketing. In fact, sales automation has existed for decades, although early incarnations tended to focus more on the administrative side of storing contacts and tracking interactions with customers. Until relatively recently, the business case also tended to be a little defensive - it was as much about keeping your business running if your top salesperson walked out with their contacts book as it was about selling more effectively.
Today, while those fundamentals are all still valid, the focus tends to fall on improving efficiency and information management. Sales management applications arm employees with information about a customer's preferences, purchasing history and previous interactions, all of which help during negotiations and closing. They also provide managers with a better insight into all levels of sales activity, from high-level meetings run by the CEO to pitches made by the most junior employee. That includes information about where prospects are in the sales cycle, how sales are doing against forecast, and what proportion of leads are being converted and by whom.
As well as helping companies monitor individual performance, over time this data can be pulled together to provide trend analysis to help with future sales and marketing activity - what kind of campaigns generate the most valuable leads, which vertical markets are proving most responsive and so forth. As such, for any business that's moved beyond R&D and early pilots and is starting to sell in volume, it's as much about business intelligence and performance management as it is about automating processes. Even if you only have a handful of people actively selling, this kind of trend analysis can bring powerful new insights, telling you not just what's been sold (which you probably already know) but how - what product or marketing campaign triggered the initial enquiry; what objections were raised and how they were overcome; whether pricing was a stumbling block and so forth.
The software industry has gone through something of a revolution over the last few years in providing this kind of capability at an affordable price. While specialists have long targeted smaller businesses, the leading midmarket and high-end software vendors have also shifted some of their attention to start-ups and small businesses, bringing new capability with them. They include the likes of Siebel, one of the top CRM vendors which was recently acquired by Oracle, as well as SAP, Microsoft and Sage. Users also enjoy different purchasing options, with the likes of Salesforce.com and many other leading vendors offering a hosted service for users to 'rent' applications on a monthly basis. As a result, setting up doesn't have to be expensive - prices for hosted applications start as low as �45 per user per month.
Like any software project, of course, there are a number of challenges associated with implementing and running these applications. If the experiences of larger organisations are anything to go by, one of the most significant issues will be tying together customer-facing applications with software in the 'back-office', such as financials or warehousing. Many companies look to give salespeople read-only access to information about stock levels and delivery schedules, either from their PC or via a remote device, and this requires some integration work. Others have gone as far as to link their sales application to credit control, so that the system triggers an alert whenever a salesperson pulls up a record for an overdue customer. Not only does this prevent a salesperson wasting time with a customer who's on credit hold, it also adds valuable extra resource to the cash collection process.
In each case, it's useful for organizations to have thought through in advance how they want to link these applications together. Some will be content using pre-built integrations offered by packaged software vendors or building their own: others will prefer to have as much of their sales, marketing, service, engineering and other customer-related information in the same database, so that they can easily access it from one place.
By Keith Rodgers, Webster Buchanan Research
Just as every business manager's wardrobe needs a minimum number of outfits for different occasions - from client dinners to casual weekend meetings - so certain business software applications are all but compulsory on a start-up's IT systems. Applications for fundamental tasks such as financials and payroll top the list, but one that doesn't always get a look in is the one that could ultimately make the most spectacular impact - sales management software.
Sales automation applications were around long before the much-hyped arrival of 'Customer Relationship Management' suites in the late 1990s, which were supposed to usher in an era of customer-friendly service and marketing. In fact, sales automation has existed for decades, although early incarnations tended to focus more on the administrative side of storing contacts and tracking interactions with customers. Until relatively recently, the business case also tended to be a little defensive - it was as much about keeping your business running if your top salesperson walked out with their contacts book as it was about selling more effectively.
Today, while those fundamentals are all still valid, the focus tends to fall on improving efficiency and information management. Sales management applications arm employees with information about a customer's preferences, purchasing history and previous interactions, all of which help during negotiations and closing. They also provide managers with a better insight into all levels of sales activity, from high-level meetings run by the CEO to pitches made by the most junior employee. That includes information about where prospects are in the sales cycle, how sales are doing against forecast, and what proportion of leads are being converted and by whom.
As well as helping companies monitor individual performance, over time this data can be pulled together to provide trend analysis to help with future sales and marketing activity - what kind of campaigns generate the most valuable leads, which vertical markets are proving most responsive and so forth. As such, for any business that's moved beyond R&D and early pilots and is starting to sell in volume, it's as much about business intelligence and performance management as it is about automating processes. Even if you only have a handful of people actively selling, this kind of trend analysis can bring powerful new insights, telling you not just what's been sold (which you probably already know) but how - what product or marketing campaign triggered the initial enquiry; what objections were raised and how they were overcome; whether pricing was a stumbling block and so forth.
The software industry has gone through something of a revolution over the last few years in providing this kind of capability at an affordable price. While specialists have long targeted smaller businesses, the leading midmarket and high-end software vendors have also shifted some of their attention to start-ups and small businesses, bringing new capability with them. They include the likes of Siebel, one of the top CRM vendors which was recently acquired by Oracle, as well as SAP, Microsoft and Sage. Users also enjoy different purchasing options, with the likes of Salesforce.com and many other leading vendors offering a hosted service for users to 'rent' applications on a monthly basis. As a result, setting up doesn't have to be expensive - prices for hosted applications start as low as �45 per user per month.
Like any software project, of course, there are a number of challenges associated with implementing and running these applications. If the experiences of larger organisations are anything to go by, one of the most significant issues will be tying together customer-facing applications with software in the 'back-office', such as financials or warehousing. Many companies look to give salespeople read-only access to information about stock levels and delivery schedules, either from their PC or via a remote device, and this requires some integration work. Others have gone as far as to link their sales application to credit control, so that the system triggers an alert whenever a salesperson pulls up a record for an overdue customer. Not only does this prevent a salesperson wasting time with a customer who's on credit hold, it also adds valuable extra resource to the cash collection process.
In each case, it's useful for organizations to have thought through in advance how they want to link these applications together. Some will be content using pre-built integrations offered by packaged software vendors or building their own: others will prefer to have as much of their sales, marketing, service, engineering and other customer-related information in the same database, so that they can easily access it from one place.
By Keith Rodgers, Webster Buchanan Research
Monday, July 24, 2006
Selling Your Business
What's the perfect takeover target for the world's largest tech companies? And why could your choice of VC funding put them off? Keith Rodgers reports from San Francisco
If your long-term game plan is to sell your tech company to a vendor like IBM or Oracle, you've got to think big - but not too big.
For seasoned corporate acquirers, the profile of the ideal tech target seems to be 'small but imperfectly formed'. What the likes of IBM are really looking for is solid technology and the first vestiges of customer acceptance: what they don't want is a company that's spent time and resource building a large manufacturing and sales infrastructure which is only going to get dismantled when the deal's done.
This was one of the conclusions from a panel of corporate acquirers at the 16th annual Venture Capital Investing conference in San Francisco in early June. In a discussion peppered with pointed attacks on venture capitalists from one speaker - 'you can't believe [the worst of them] actually function as humans' was the choicest remark of the afternoon - five senior representatives from acquisition-hungry vendors mapped out the factors that can make or break a deal.
One of the more sedate voices belonged to David Johnson, worldwide head of corporate development at IBM. The company recently analysed the performance of 25 acquisitions it's made over the last two years, determining that in the last twelve months half of them far exceeded the targets laid out in the original business case for acquisition, with a further 25 per cent hitting target and the final 25 per cent falling short. Johnson pointed out that IBM's success rate has been highest at companies where the product was proven and there were two or three customers on board to demonstrate proof of market acceptance (or more if sales are made through partners). But 'if they've developed manufacturing, sales, and G&A [general and administrative expense], quite frankly that's somewhat redundant to IBM. It's the development team we want, the product, the technology.'
That view was echoed by Doug Kehring, senior vice president of corporate development at Oracle. While the company's acquisition record is dominated by its controversial, 18-month long hostile pursuit of rival PeopleSoft, it can also point to this year's takeover of Oblix, a relatively small IT developer specialising in identity management and web services management, as proof of its taste for smaller businesses. Kehring identified tech companies with revenues of $2m to $20m as the 'sweet spot' for Oracle. Over $20m, there's a danger that the company will be over-investing in sales because it doesn't have the scale of distribution that a vendor like Oracle has or may be chasing a mature market where similar companies are up for sale.
Similarly, Adam Spice, vice president of business planning at Broadcom, a $2.5bn turnover communications semiconductor company, pointed out that of the 30 acquisitions he's been involved with, only one had significant revenues (of over $100m). The rest had turnover of less than $10m, or in some cases none at all. One thing they did have in common, however, was working product.
Other key criteria identified by the panellists for acquisition targets included:
� Culture. IBM identifies this as a significant part of its due diligence process
� Choice of platform. The right fit will minimise integration issues, while the wrong fit will usually rule a deal out
� Ownership of intellectual property. This is a particular concern in the open source environment
� Importance of speed to market. This will influence their decision whether to buy product or build their own
So what about the vitriol poured on the VC community by one of the panellists? In some respects, it's simply a question of different objectives: IT vendors have strategic motives for investments and are prepared to pay a price, while VCs focus primarily on the financial outcome.
But for Broadcom's Spice, there's more to it. 'I've rarely seen VCs add value,' he said. 'When we acquire, typically they get in the way.' He believes many VCs fail to talk to customers, get caught up in CEOs' sales stories and fail to manage the earn-out expectations of tech companies' senior management. Similarly, he's experienced conflicts where one VC sits on the board of two prospective targets that Broadcom's looking at in the same sector. Perhaps not surprisingly, of all the investments made by the company over the last five years - including two companies in Cambridge - not one was brought to Broadcom by a VC; rather, its own customers or engineers flag up potential deals. 'We've worked with some very reasonable [VCs],' Spice concluded, 'but at the other end [of the scale], you can't believe they actually function as humans.'
There's little technology companies can do to temper any friction between their VC partners and potential purchasers, but it's worth bearing in mind some of the possible fallout. IBM's Johnson, while not commenting on Spice's views, pointed out that technology acquisitions are all about simplicity and speed - so the moment you have multiple VCs in a deal, each with their own sets of lawyers poring over contracts, you're likely to have a problem. Get more than three VCs in a deal, he says, and it will add three to twelve weeks' delay to the completion process.
Keith Rodgers is content director of Webster Buchanan Research (www.websterb.com)
If your long-term game plan is to sell your tech company to a vendor like IBM or Oracle, you've got to think big - but not too big.
For seasoned corporate acquirers, the profile of the ideal tech target seems to be 'small but imperfectly formed'. What the likes of IBM are really looking for is solid technology and the first vestiges of customer acceptance: what they don't want is a company that's spent time and resource building a large manufacturing and sales infrastructure which is only going to get dismantled when the deal's done.
This was one of the conclusions from a panel of corporate acquirers at the 16th annual Venture Capital Investing conference in San Francisco in early June. In a discussion peppered with pointed attacks on venture capitalists from one speaker - 'you can't believe [the worst of them] actually function as humans' was the choicest remark of the afternoon - five senior representatives from acquisition-hungry vendors mapped out the factors that can make or break a deal.
One of the more sedate voices belonged to David Johnson, worldwide head of corporate development at IBM. The company recently analysed the performance of 25 acquisitions it's made over the last two years, determining that in the last twelve months half of them far exceeded the targets laid out in the original business case for acquisition, with a further 25 per cent hitting target and the final 25 per cent falling short. Johnson pointed out that IBM's success rate has been highest at companies where the product was proven and there were two or three customers on board to demonstrate proof of market acceptance (or more if sales are made through partners). But 'if they've developed manufacturing, sales, and G&A [general and administrative expense], quite frankly that's somewhat redundant to IBM. It's the development team we want, the product, the technology.'
That view was echoed by Doug Kehring, senior vice president of corporate development at Oracle. While the company's acquisition record is dominated by its controversial, 18-month long hostile pursuit of rival PeopleSoft, it can also point to this year's takeover of Oblix, a relatively small IT developer specialising in identity management and web services management, as proof of its taste for smaller businesses. Kehring identified tech companies with revenues of $2m to $20m as the 'sweet spot' for Oracle. Over $20m, there's a danger that the company will be over-investing in sales because it doesn't have the scale of distribution that a vendor like Oracle has or may be chasing a mature market where similar companies are up for sale.
Similarly, Adam Spice, vice president of business planning at Broadcom, a $2.5bn turnover communications semiconductor company, pointed out that of the 30 acquisitions he's been involved with, only one had significant revenues (of over $100m). The rest had turnover of less than $10m, or in some cases none at all. One thing they did have in common, however, was working product.
Other key criteria identified by the panellists for acquisition targets included:
� Culture. IBM identifies this as a significant part of its due diligence process
� Choice of platform. The right fit will minimise integration issues, while the wrong fit will usually rule a deal out
� Ownership of intellectual property. This is a particular concern in the open source environment
� Importance of speed to market. This will influence their decision whether to buy product or build their own
So what about the vitriol poured on the VC community by one of the panellists? In some respects, it's simply a question of different objectives: IT vendors have strategic motives for investments and are prepared to pay a price, while VCs focus primarily on the financial outcome.
But for Broadcom's Spice, there's more to it. 'I've rarely seen VCs add value,' he said. 'When we acquire, typically they get in the way.' He believes many VCs fail to talk to customers, get caught up in CEOs' sales stories and fail to manage the earn-out expectations of tech companies' senior management. Similarly, he's experienced conflicts where one VC sits on the board of two prospective targets that Broadcom's looking at in the same sector. Perhaps not surprisingly, of all the investments made by the company over the last five years - including two companies in Cambridge - not one was brought to Broadcom by a VC; rather, its own customers or engineers flag up potential deals. 'We've worked with some very reasonable [VCs],' Spice concluded, 'but at the other end [of the scale], you can't believe they actually function as humans.'
There's little technology companies can do to temper any friction between their VC partners and potential purchasers, but it's worth bearing in mind some of the possible fallout. IBM's Johnson, while not commenting on Spice's views, pointed out that technology acquisitions are all about simplicity and speed - so the moment you have multiple VCs in a deal, each with their own sets of lawyers poring over contracts, you're likely to have a problem. Get more than three VCs in a deal, he says, and it will add three to twelve weeks' delay to the completion process.
Keith Rodgers is content director of Webster Buchanan Research (www.websterb.com)
Friday, July 21, 2006
Keys for managing business risk
Why would a large, well-established company gamble everything by purchasing business-critical technology from a start-up?
When Christopher Crowhurst signed a contract with a specialist software developer in the fast-emerging field of web services, it was the end of an exhaustive selection process and the beginning of a slightly unusual supplier-customer relationship.
Crowhurst's company, computer-based assessment provider Thomson Prometric, had spent 14 months assessing its technology options before deciding to put its faith in the start-up software vendor, Actional. As vice president and principal architect, Crowhurst knew Thomson's fortunes - and the success of a strategic $5 million IT project at his company - would become inextricably tied to the vendor's viability. Success wouldn't just be down to functionality, implementation skills, technical prowess and the other factors involved in making any IT system operational - it would also be down to the supplier's ability to sell the same system elsewhere and so stay in business. And although Actional, a specialist in Service Oriented Architecture technology, has since notched up multiple live customers, at the time he began the selection process no referenceable customers were in production.
Crowhurst's informed gamble on Actional was an extreme but telling example of the factors that come into play when companies purchase strategically-important technology from small, relatively young vendors. In any market where much of the pioneering work is being carried out by venture capital-backed specialists, organisations that require bleeding-edge technology have to take two tightly-connected risks. Firstly, they need to be sure that the technology is stable and does what it's supposed to do - and secondly, they need to know the vendor will be around for long enough to keep on developing it. Larger vendors inevitably seize on this issue, so helping purchasers take steps to mitigate risk could be the difference between a start-up clinching and losing a sale. That's one reason why two staple components of any specialist vendor's marketing presentations are updates on the latest round of funding and a run-through of new customers.
What Crowhurst and others have done is push back the boundaries of the research process typically undertaken by customers prior to making a purchase. Beyond addressing features and functionality, most tech start-ups would expect their sales prospects to do some kind of financial due diligence prior to making a strategic investment. But it may not stop there. They may also want to meet the supplier's finance director and its venture capital backers, and check the composition of the board to ensure it's got the right balance of VC, strategic, financial and operational input. One customer that made a similar purchase to Thomson also drilled down into its vendors' middle management and engineering capability. This should all connect back to a strong visionary - getting a company with committed founders and a CEO who's passionate about the organisation, not just treating it as their next job. In addition, the start-up's technology and marketing partners will also be a factor.
Crowhurst suggests that the level of commitment shown by key individuals within the vendor company can be measured in several ways. He believes in spending face time with key players from the CEO down - in fact, he spent three days at Actional's headquarters, part of what he believes is a vital process to get beyond the salesperson. 'I developed a relationship with the CTO of Actional and have managed to influence development of the product - with some other organizations, we couldn't get beyond the sales folks,' he says. 'You need to get to the engineers, feel you can trust them.'
But he also argues that suppliers give much away by their own actions (or lack of), pointing to standards bodies as a good example. It's not enough for an organisation to be in a standards body - it's about being engaged in the body. Crowhurst subscribes to a number of standards bodies' newsgroups, which gives him insight into which organisations are active within the body, rather than merely taking up membership because they feel they ought to.
The flipside of managing the risk associated with a start-up is that there are many positive reasons for buying from a smaller business. For one thing, it's the smaller specialists that tend to set the pace in emerging technology sectors, leaving larger vendors playing catch-up. In addition, they can offer a different kind of purchasing experience. James Brewis, managing director of expenses management vendor Signifo Expenses, points to a deal his small London-based company won against a large US rival. 'On our side there was the usability, the greater speed and lower cost of implementation,' he says. 'On their side was all the bells and whistles functionality and the fact they were an established player with significant revenues.' The customer believed that the former offset the risk. 'As a business owner and an entrepreneur, you've got to be prepared to get in there and ask the customer to take a chance on you - to tell them you'll do everything in your power to meet their needs and ensure the highest level of satisfaction,' says Brewis. With local, London-based sales and support, he also believes he can provide a level of service and focus that some global players may struggle to match.
Inevitably, the process of winning over customers is time-consuming. Even after selecting Actional, another six months passed before the deal was signed as Thomson's internal team set out to convince the corporation that it was the right decision and developed the financial justification. During that time, several other Actional customers went into production, which helped boost confidence. Crowhurst's team also documented a back-up plan during its internal capital approval process in case of problems: because Actional uses a standards-based platform, the team was able to demonstrate that it would be fairly straightforward to take the Thomson configuration and implement it on another platform.
Ultimately, however, winning over this kind of customer may have benefits that go beyond mere revenue. 'I have an interest in [Actional's] success,' says Crowhurst. 'I promote the project quite ferociously - I need other people to buy into the technology. I'll gladly be an advocate - they're a great organization and I've worked with them extensively.' Deeds speak as loudly as words, and the fact that customers have tied their fortunes to a particular vendor for strategic projects is an important vote of confidence.
This article is developed from a feature that originally appeared in 'Loosely Coupled's Monthly Digest', a subscription-based newsletter offering in-depth reporting and analysis for early adopters of SOA and business process automation.
When Christopher Crowhurst signed a contract with a specialist software developer in the fast-emerging field of web services, it was the end of an exhaustive selection process and the beginning of a slightly unusual supplier-customer relationship.
Crowhurst's company, computer-based assessment provider Thomson Prometric, had spent 14 months assessing its technology options before deciding to put its faith in the start-up software vendor, Actional. As vice president and principal architect, Crowhurst knew Thomson's fortunes - and the success of a strategic $5 million IT project at his company - would become inextricably tied to the vendor's viability. Success wouldn't just be down to functionality, implementation skills, technical prowess and the other factors involved in making any IT system operational - it would also be down to the supplier's ability to sell the same system elsewhere and so stay in business. And although Actional, a specialist in Service Oriented Architecture technology, has since notched up multiple live customers, at the time he began the selection process no referenceable customers were in production.
Crowhurst's informed gamble on Actional was an extreme but telling example of the factors that come into play when companies purchase strategically-important technology from small, relatively young vendors. In any market where much of the pioneering work is being carried out by venture capital-backed specialists, organisations that require bleeding-edge technology have to take two tightly-connected risks. Firstly, they need to be sure that the technology is stable and does what it's supposed to do - and secondly, they need to know the vendor will be around for long enough to keep on developing it. Larger vendors inevitably seize on this issue, so helping purchasers take steps to mitigate risk could be the difference between a start-up clinching and losing a sale. That's one reason why two staple components of any specialist vendor's marketing presentations are updates on the latest round of funding and a run-through of new customers.
What Crowhurst and others have done is push back the boundaries of the research process typically undertaken by customers prior to making a purchase. Beyond addressing features and functionality, most tech start-ups would expect their sales prospects to do some kind of financial due diligence prior to making a strategic investment. But it may not stop there. They may also want to meet the supplier's finance director and its venture capital backers, and check the composition of the board to ensure it's got the right balance of VC, strategic, financial and operational input. One customer that made a similar purchase to Thomson also drilled down into its vendors' middle management and engineering capability. This should all connect back to a strong visionary - getting a company with committed founders and a CEO who's passionate about the organisation, not just treating it as their next job. In addition, the start-up's technology and marketing partners will also be a factor.
Crowhurst suggests that the level of commitment shown by key individuals within the vendor company can be measured in several ways. He believes in spending face time with key players from the CEO down - in fact, he spent three days at Actional's headquarters, part of what he believes is a vital process to get beyond the salesperson. 'I developed a relationship with the CTO of Actional and have managed to influence development of the product - with some other organizations, we couldn't get beyond the sales folks,' he says. 'You need to get to the engineers, feel you can trust them.'
But he also argues that suppliers give much away by their own actions (or lack of), pointing to standards bodies as a good example. It's not enough for an organisation to be in a standards body - it's about being engaged in the body. Crowhurst subscribes to a number of standards bodies' newsgroups, which gives him insight into which organisations are active within the body, rather than merely taking up membership because they feel they ought to.
The flipside of managing the risk associated with a start-up is that there are many positive reasons for buying from a smaller business. For one thing, it's the smaller specialists that tend to set the pace in emerging technology sectors, leaving larger vendors playing catch-up. In addition, they can offer a different kind of purchasing experience. James Brewis, managing director of expenses management vendor Signifo Expenses, points to a deal his small London-based company won against a large US rival. 'On our side there was the usability, the greater speed and lower cost of implementation,' he says. 'On their side was all the bells and whistles functionality and the fact they were an established player with significant revenues.' The customer believed that the former offset the risk. 'As a business owner and an entrepreneur, you've got to be prepared to get in there and ask the customer to take a chance on you - to tell them you'll do everything in your power to meet their needs and ensure the highest level of satisfaction,' says Brewis. With local, London-based sales and support, he also believes he can provide a level of service and focus that some global players may struggle to match.
Inevitably, the process of winning over customers is time-consuming. Even after selecting Actional, another six months passed before the deal was signed as Thomson's internal team set out to convince the corporation that it was the right decision and developed the financial justification. During that time, several other Actional customers went into production, which helped boost confidence. Crowhurst's team also documented a back-up plan during its internal capital approval process in case of problems: because Actional uses a standards-based platform, the team was able to demonstrate that it would be fairly straightforward to take the Thomson configuration and implement it on another platform.
Ultimately, however, winning over this kind of customer may have benefits that go beyond mere revenue. 'I have an interest in [Actional's] success,' says Crowhurst. 'I promote the project quite ferociously - I need other people to buy into the technology. I'll gladly be an advocate - they're a great organization and I've worked with them extensively.' Deeds speak as loudly as words, and the fact that customers have tied their fortunes to a particular vendor for strategic projects is an important vote of confidence.
This article is developed from a feature that originally appeared in 'Loosely Coupled's Monthly Digest', a subscription-based newsletter offering in-depth reporting and analysis for early adopters of SOA and business process automation.
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