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sales, partnerships & outsourcing

going global

Anyone can go global,” says moderator Jim LeBlanc, President of globalization consultancy J. LeBlanc International, “the trick is doing it profitably.” At this Netpreneur Coffee & DoughNets event held April 22, 2003, a panel of entrepreneurs provided practical advice about two different approaches to making international business profitable: developing new markets and using international development partners. This event was hosted by the Washington DC Technology Council, and sponsored by Comerica, Ernst & Young, and Fenwick & West.

panelists:

John Malone, CEO, BizTelOne
E. Sanders Partee, CEO, Ecutel
Sundaresan Raja, CEO, Airbee Wireless
Matthew Voorhees, Co-founder and President, AnyBill

moderator:

Jim LeBlanc, President, J. LeBlanc International and Partner, York Group, International Technology Partners

 

 Copyright 2003 Morino Institute. All rights reserved. Edited for length and clarity.

Disclaimer: Statements made at Netpreneur events and recorded here reflect solely the views of the speakers and have not been reviewed or researched for accuracy or truthfulness. These statements in no way reflect the opinions or beliefs of the Morino Institute, Netpreneur.org or any of their affiliates, agents, officers, or directors. The transcript is provided “as is” and your use is at your own risk.

 

the hosts: welcome

 Mr. Sanders:  Good morning, everyone.  My name is John Sanders, Chairman of the Washington DC Technology Council.  We welcome everyone this morning to your nation's capital. I am going to introduce a couple of folks, and then we'll turn the program over to our panel.  First, I want to take a couple of moments to thank our companion councils, the Tech Council of Maryland, the Northern Virginia Technology Council, as well as Virginia’s Center for Innovative Technology, who, along with the Washington DC Technology Council, are hosting and continuing Coffee & DoughNets, as started by Netpreneur.  Now I'd like to turn the program over for just a moment to Mary MacPherson, Executive Director of the Netpreneur program, soon to be Vice President of Marketing at Blackboard in the District of Columbia.

 Ms. MacPherson:  Thanks, John.  I want to take a moment to bring you up to date on a couple of things that are going on.  When Netpreneur announced last year that it was going to sunset, the groups John mentioned came forward and said, “We have the infrastructure to do some of these events, if the entrepreneurs want to participate,” and that is exactly what has happened.  Over the course of the last three months, we have been very pleased to be supported by Comerica, Ernst & Young, and Fenwick & West, which sponsored these events so that we could have coffee and donuts, the videos, the transcripts, and everything else at no charge to you.  We appreciate the sponsors and the support of the councils.

           We hope to continue to produce these events monthly, working with the councils, but, as that moves forward, it will be without the involvement of the Netpreneur program at the Morino Institute.  Instead, our infrastructure will be replaced by a group of entrepreneurs who have stepped forward and said, “We found real value in what Netpreneur did, and we would like to continue it.”  There will be an entrepreneur hosting the website, there will be entrepreneurs working with the email discussion lists, and so on.  I'd like to invite all of you who are interested in and have participated in Netpreneur in the past to get involved.  There are lots of ways that you can that.  If you would like more information, send an email to webmaster@netpreneur.org, and we will connect you into this new network.

           Again, thank you for coming this morning.  Now, let me introduce Dean Susan Phillips of the Business School here at George Washington University where we are holding this morning’s event.

 Ms. Phillips:  Thank you very much.  I'm delighted, on behalf of George Washington University (GWU), to be able to welcome you to our campus. This is a busy time of year for us on the campus.  We are getting ready for the march to graduation and students are a little nervous about exams.

           Looking out over the crowd this morning, I was remembering that we had the kick-off for the Washington, DC Technology Council in this very room.  GWU has been involved with the Council since its inception, and we have been delighted with the relationship.  I have thought it particularly important because I think that technology and business should go hand in hand.  I suspect there are maybe a few people in the technology community who wish they'd had a few more accounting courses somewhere along the line, so I hope that my presence and our involvement reminds everybody to take a couple of courses now and then.  It may be very helpful to you.  We certainly value our relationship with the DC Technology Council, and we are delighted to see so many people here this morning.

Mr. Sanders:  Thank you, Dean Phillips.  I appreciate very much GWU’s support, especially this year when they were one of the first to step up and continue sponsorship of the DC Technology Council.

           Now I want to introduce our moderator, who will introduce the panel.  He is Jim LeBlanc, President of J. LeBlanc International, and someone with tremendous experience in international activities, especially with his political and public experience at senior levels with the government of Canada.  He is very active with the Canadian American Business Council as Vice President and Chairman of their technology group, with the Canadian Advanced Technology Alliance, and he is active with the Northern Virginia Technology Council and their international committee.  We welcome Jim this morning.

 

the panel: going global

 Mr. LeBlanc:  Good morning, everybody and welcome. I know that many of you may not be doing business internationally right now, but I think the great value of the Coffee & DoughNets program, that Netpreneur established a number of years ago, is that it helps you prepare.  Hopefully, Coffee & DoughNets will continue into the future, and there is real evidence of cooperation regionally, such as the three technology councils and CIT stepping up to the plate to organize this.

           We've got a great panel this morning to discuss going global, in whatever form that may mean to each of you, whether it is through increasing your revenue through sales and expansion or through outsourcing.  We are going to talk about both.  We are going to talk about barriers, challenges, and opportunities, and we are going to keep it as practical and as pragmatic as humanly possible.  We are hoping to touch on failures also, including what didn't work and how we learn from these lessons.

           Let me introduce the panel.  Matthew Voorhees is co‑founder and President of AnyBill, responsible for the day-to-day operations of the company, as well as brand development and client acquisition strategy and implementation.  I understand, Matt, that you just closed a couple of deals in Europe, so we'll be interested in how you pulled that off.

           Next is John Malone, Senior Vice President of Operational Support Systems (OSS) Services at NeuStar.  He was the CEO and founder of  BizTelOne, which was founded in February, 2001, and sold to NeuStar earlier this year. BizTelOne developed an OSS interconnect clearinghouse service, providing a faster, better, and cheaper method of exchanging OSS transactions between communications providers. Prior to BizTelOne, John served as President and CEO of MarketSwitch and as the President of the Commercial Systems Group of Universal Systems.

           Next is Sundaresan Raja, CEO of Airbee Wireless, an executive with proven success in positioning companies for worldwide growth.  He has expertise in technology management, product business development, startups, marketing, eCommerce, strategic planning, and process engineering.  A real renaissance guy.  He led a startup from zero to $10+ million in annual revenue in about three years and was recognized by Vice President Al Gore and the FBI for a realtime background check software solution that generated a couple of million dollars.

           Finally, we have E. Sanders Partee, CEO and President of Ecutel.  He has over 17 years of entrepreneurial and executive management experience in the enterprise network management software business.  His extensive experience includes technology sales and marketing, corporate strategic planning, mergers and acquisitions, customer service, and product management.

           We have a tremendous panel and they have lots of value to add. Let me start with a couple of overview comments.  I'll make the statement that anyone can go global, the trick is to do it profitably.  We're going to hear comments about that, whether it is through outsourcing or sales opportunities.  A study by Software Success, an organization based in Boston that provides a range of information and services for growing software companies, shows that companies that have more than 30% of their sales coming from international markets have a pre-tax profit margin almost three times higher than companies that are 100% domestic.  So, there is some incentive for going international, despite what you may think about the challenges.

           Companies take their first international step in a number of ways and for a number of different reasons. There is the route that starts with: “My cousin Vinny knows somebody at work who has a brother-in-law that runs a computer business in France...”  There is the one that begins: “I met someone at a trade show from Korea and he really liked my product,” or, “A company in Italy found my product on the Internet and wants to be my distributor,” or “We sold a license to Ford, and they want to install it at their plant in Brazil.”  There are many ways to do this, and many ways not to do this.  Some ways are reactive, meaning that they are not based on any strategy or plan, per se, for going international.

           Let me start with some questions.  Given the current political and economic climate—not a lot of international travel going on by Americans and a lot of anti-American sentiment around the world—what are the key things that a company thinking of going international should pay attention to for both outsourcing and sales channels?

 Mr. Raja:  I don't think we find problems with any anti-American sentiments.  The reason is that we are a technology company and what we do is going to help everybody around the world.  We have a lot of opportunities working with international firms who are interested in our technology. They are coming forward to say, “We like the technology and we are glad that you are an American-based company for a variety of reasons.”

 Mr. Malone:  To give you a little bit of background on BizTelOne, I started the company back in February of 2001.  I attended a lot of Netpreneur events back in 2000, started BizTelOne, and hired my folks through ActionNet, so we're truly a Netpreneurial-type organization.  I located my office right across the hall from Netpreneur's.  As a three-person company, we developed our product in Bangalore, India, and we had a burn rate of $15,000-$20,000 a month here in the States.  We had an outsourced R&D center in Bangalore where we were able to develop products very efficiently, very effectively, and, most importantly, with a minimal amount of cash.

           We brought our product to market and started looking for a round of funding.  One of the first concerns from potential financiers was, with 9/11 and everything, “How are you going to assure that you have this effective development organization in India with all of the negative things going on around the world?”  The thing that made this simple was that we weren't the only company using Indian development centers.  Most corporations around the world today are looking for faster, better, cheaper ways of performing certain types of activities.  We were using it for software R&D.  As long as we could prove that there was a steady stream of services that were going to be provided to us, we were protected from any of the terrorist activities.  We were insulated from the activities going on around the world.  We weren't using a shop in India that was just supporting us; they were supporting a number of other entities around the world that were much larger than BizTelOne.  They were able to ensure that they had all the redundancy, the backup and recovery, and all the plans in place so that if there were threatening events going on in parts of the world we would still be able to perform our R&D activities.

 Mr. Voorhees:  We were approached on the Internet just like you described it, Jim.  We are a small company and a young company, and we had no business plans for going abroad with our product, which is an outsource platform by which companies can process their accounts payable.  Our main channels of distribution are large and medium-sized accounting firms around the United States.  We were approached by a large accounting firm, conveniently enough, headquartered in Spain, so we didn't have an alliance problem with the current global issue.  Their client roster is made up of Fortune 100 companies, the majority of which are headquartered here in the United States, so they weren't going to have any problem using our product either.  We haven't seen any pushback at all.  We have labor issues in this country—our labor is expensive—but our technology, from what I've seen and heard from my customers abroad, is second to none, and that is why they come here for the idea.

Mr. Partee:  Ecutel has a number of international components to it.  We make wireless security software that allows users of PCs and Palm-type devices to roam across wireless networks.  While we have a lot of foreign nationals in our development staff, we do our development here and we sell over overseas.

           You mentioned that a lot of these strategies are reactive.  This is my fourth software company that has had significant international sales components, and every single one of them has had a reactive international component.  In some cases it has been a negative experience, as you mentioned, but in most cases it has been positive. The keys to that are bigger than the current global situation; they involve a strategic interest and a strategic alignment with the overseas organization.  Specifically, at the first company I started, we were sought out at a trade show, which is what happens a lot of times, and the people from one organization said, “We are a European sales arm and we can sell your product all across Europe.”  We invested a lot in that endeavor, and it was never very successful. Following that, we were approached by small consulting firms in individual countries that said, “We know what your product does.  This is what we do.  Can we please rep it for you?”  At Ecutel we have much larger partners, but the key thing in looking at international sales relationships is that the strategic interests are aligned with your company.  That will solve a lot of problems.  It will solve the economic and political challenges if their business really needs your business, and vice versa.

Mr. LeBlanc:  Raj, before I ask the next question, do you want to give a bit of an overview of your company and your international activities?

Mr. Raja:  At Airbee Wireless, we develop software applications for a wireless base.  Basically, it's media access control where we develop the software and hardware that can enable two devices to communicate data in a way very similar to Bluetooth.  We compete in the same space.

           Being a small company, we had to find ways to minimize our costs.  As with most entrepreneurs, you always have the problem with funding and trying to raise money.  We had to cut our costs, and we worked with companies in India where I have built relationships over the years.  I had been a service provider myself before I knew the benefits of using outsourcing.  We identified companies that could work with us at the right cost and that were able to transfer the process of software R&D to an outsourcing unit so we could concentrate on raising money and marketing and building the infrastructure for the company.  That was our core experience.

           When you do outsourcing, you want to be very careful because, as with all entrepreneurs, we want everything done yesterday.  Outsourcing is not going to be an easy process, but it can be relatively simplified if you know what you are getting into.  You want to identify companies and become familiar with how they do things.  Once you are familiar with the process and you identify the companies that can do it, remember that there is a big difference between outsourcing and contracting, where we keep control and we tell the vendor what we need, when we need it, and how we need it.  That is how the contract is written.  When you do outsourcing, you are asking them to deliver something, and they are responsible for the delivery, so you want to have a contract that is very flexible, that you can modify as you go.  That’s because you are an entrepreneur in startup mode and things can happen.  You want somebody who can go along with that.

           At Airbee, we identified a couple of companies rather than going to just one company, handing over the technology, and saying, “Develop!”  We spent the time writing all the specs, so we had complete documentation.  We knew exactly what we wanted.  We broke that into multiple modules and had a standard contract for the business.  We call it the “Constitution of our business relationship.”  It highlights our relationship with each vendor, and we had multiple subtask orders that we issued with these vendors.  We basically split it into multiple pieces, worked with multiple companies, and finally integrated it as a single product.  One reason is that we didn't want to give away the whole architecture of the technology to one company, since it was outside the country and we didn't have control.  We shipped our Chief Technology Officer off saying, “You have to be here, here, and here on these days, and you have to integrate it all.”  We found a guy who could do that.  That is how we got the integration done.  We knew what we were getting into, and that made it easier for us to get the outsourcing done.  One thing that I would suggest to all entrepreneurs who are trying to do outsourcing is that you get the right attorney to draw up the contracts.  Don’t assume that what you hear is exactly what you are going to get.  It is a great cost, and entrepreneurs do not want to spend that money on attorneys.  Luckily, we had an inhouse guy who could draw up those contracts.

Mr. Malone:  When we looked at founding BizTelOne and entering the marketplace, there were existing competitors who had raised $50 million from blue chip venture capitalists on the West Coast.  One competitor had a service offering in the marketplace, and we decided that we were going to bring the next generation platform to bear.  We were changing the way we were delivering the service, and we were entering the market as a low-cost provider.  Low cost was one of our key strategic planks which drove how we put the company together and how we brought our service to the marketplace.  When we looked at lowering costs, there were two major components of what we needed to build.  One was the software R&D, and that is what we outsourced to India.  I had never personally been involved in outsourcing software to India before.  I had run companies where we built software inhouse and I knew what it cost me to do it inhouse. I knew I'd never be able to raise enough money to build what I needed from scratch, doing it the way we always had done it before.  The second area that had a significant expense associated with it was our communications infrastructure—connectivity to all the RBOCs and the communication service providers around the country.  We were fortunate in that we were able to enlist a local company here in Reston, Virginia, that probably has the lowest cost network infrastructure in the country to provide our network connectivity to all the communication service providers.  So, on both fronts we made aggressive steps because it was the only thing we could do.  It was the only way we were going to be able to compete against these four- or five-year-old VC-backed companies that had raised $50+ million.

           How did we do the software R&D?  I put a listing on ActionNet and got a tremendous amount of responses.  We hired a gentleman who had done outsource software development for CyberCash for seven years using Bangalore and Indian development centers.  He came to BizTelOne with a tremendous amount of knowledge day one.  He knew how to get as much benefit as possible out of an outsource relationship while minimizing our pitfalls and the associated challenges.  That was extremely beneficial.  One of the things he taught me very quickly was that by having an outsource development organization, we had to have everything extremely well-defined since we didn't want people in Bangalore making assumptions about our ambiguous design specs.  By having that discipline imposed upon us when we were going through the design phase—asking what the market needs and translating that into business requirements and technical design specs—we were able to ensure that we knew exactly what we were going to deliver to the marketplace, what value it was going to bring to our customers, and how it would allow us to compete with the other software companies in the marketplace.  We sent over extremely well-documented specs, we also had our man go over there quarterly, at a minimum.  He spent something like two weeks at a time in Bangalore, and that proved to be a very efficient method for us to enter the marketplace as a low-cost provider.

Mr. LeBlanc:  From an outsourcing point of view, Sundaresan, you hit on two topics, IP protection and due diligence.  John, did you do anything in particular on those fronts?

Mr. Malone:  We didn't do anything extraordinary.  Our man had some preexisting relationships and I knew some people who had offered the services.  We got some competitive bids and went with the company we thought would best fit with us from a culture perspective, we didn't go with one of the top three Indian outsource companies.  We were a three-person company, so we matched up with a company that was a $30-$50 million business.  They were an Indian-owned company with a strong presence in the States, and they were looking to get a more robust outsource development organization established in India.  They matched up well with us because they were able to work closely with us and treat us as though we were more than just a three-person company to them.

Mr. Raja:  There is a common saying that if you want to get the work done well, find a busy man; the other guy has no time.  I'm very process-sensitive and, since we were doing it offshore, I wanted to make sure the company we chose had a process in place.  We selected companies that had gone through a process identification at the ISO and CNM level.  Yes, it is probably going to cost us a little bit more, but, if you compare the cost with doing it in the United States, it makes a lot of sense to select a company and pay them a little bit more because there is a process already established in that company, and you can sleep at night without getting any calls. 

           The other thing, as John mentioned, is that we made sure that we had all the specifications in place, and we knew exactly what we were getting.  We even came up with our performance matrix so the vendor could validate what is introduced.  We made this offer before we signed the contract with the vendors, and said, “This is what we want.  This is the performance matrix.  If you guys can meet this, we have a deal.”  We selected companies that had a process and that had been certified in that process.  We also knew what we were getting. 

           How did we find the company?  Word of mouth, then we checked out the references of those companies.  They have a presence in the United States and in India.  It is not only Indian companies we worked with.  We selected an Indian company to do our software development, and we went to Singapore to do hardware development for us.  We established a relationship with a Korean company that can do the integration, so we actually went global rather than just going to one company.

Mr. Voorhees:  We are more on the distribution side, so the international parties are coming to us for our products.  Nonetheless, I echo a lot of the same points from a legal perspective and an SLA language perspective.  It is incredibly important to protect yourselves in these instances when you don't have the ability to get in the car and drive out to a client and fix the problem.  You have a lot of contingencies that need to be deployed to protect both sides.

           The other thing that I will say on the distribution side of this is: Relationship, Relationship, Relationship.  We won this business, and we were narrowed from a field of 10 down to a field of four.  We were by far the smallest entity, but it was our relationship with the large accounting firm that awarded us the contract that won it.  That is a leg up for a small company abroad more than it is the United States.  People look at value in terms of size, in terms of how big your offices are, and how stable you are to that end.  Abroad, they just want the product, so we had the luxury of a leg up on the competition.  The relationship is really, really important.

           One other thing: don't preach a lot of international stuff if you are trying to raise money with VCs.  It is one of the things that they just tick off as they are sitting across the table from you.  “Oh, okay,” then they zone off into their glassed-over phase.  As a young company, they think it is too distracting to administer all of these things.  It's always a great kind of back pocket conversation item, but it's not something they want to see a business built upon in a formulaic way, unfortunately, but I think one can be built.

Mr. Partee:  I'll compare and contrast two of our relationships and what they mean to us.  One is with a company called Matsushita, the parent company of Panasonic based in Japan.  They found us at a trade show and said, “We'd really like to distribute your product in Japan.”  That relationship started with them pursuing us.  It involved an investment—actually, it's not an investment, but a payment for having the exclusive rights to distribute through a certain set of resellers that they bring to the table, as well as prepayment of royalties on the software.  That relationship started up with them putting money into our pocket so that we could help fund our growth.  The second thing is that we have a corner of our testing lab where they have all the Japanese equipment that they're going to run it on.  When we do a new release of our software, they fly over, sit in our labs, test it all on their equipment, and make sure that it works.  That is a very high investment on their part, and, conversely, we get a lower percentage of the sales when they do that.

           In Europe, we have a different scenario.  Hewlett-Packard actually found us over the Web, and said, “We need your solution for our customers, so we'd like to have a relationship.”  In that situation, we go over there, we train their people, we host, and we put a lot of energy into that relationship, so we get a higher percentage of the sales. 

           Both relationships are good for different reasons.  As a small software company, the Japanese relationship has helped us shake out our software.  They have a very rigorous testing regime, and that is a big bonus for us.  With Hewlett-Packard, they are selling in multiple countries.  We have deals in Poland, Italy, Germany, the UK, and Sweden.  We couldn't possibly have that kind of coverage otherwise.  It's all about leverage and that strategic alignment.

Mr. LeBlanc:  In our experience, distribution is key.  You can have the best product in the world, but, if you can't get it out, you are not going to go very far.  I don't want to mention, for example, a certain company on the West Coast that has had somewhat flawed software at some points, but has a great distribution process.  Is that your experience with going international?

Mr. Partee:  I think that the key to selling internationally often is having a local presence.  While I think that European companies are happy to buy American technology, they don't want to buy from an American.  They want to buy from someone locally.  Having that connection is the key to selling in Sweden.  We are selling to the Swedish government in multiple deals, and I just can't imagine that we could get that done by shipping an American over.

Mr. Voorhees:  Along the same lines, we had no intention in our business plan of going to Europe or Mexico, where our product is used by accounting firms, but it was a huge leg up on the competition to give our client those territories for their distribution.  They were looking at buying a similar product from our competition, but that competitor could not give them exclusivity.  We were able to give them better technology and exclusivity that didn't cost us anything, because we hadn't intended to go there in the first place.

Mr. Raja:  Since you are talking about the Japanese market, what do you think the sales cycle is there?

Mr. Partee:  These guys are the most methodical I've ever seen.  Like I said, they have been a super partner from the technology standpoint of wringing it through.  They have very strong relationships with their partners, so the process doesn't take long for them to get introductions.  In my pipeline they take longer, sort of “slow and steady wins the race” with those guys.  It is happening, but it's taken a lot longer.

Mr. Raja:  That has been my experience as well.

Mr. Voorhees:  We deal with accounting professionals, which is a conservative bunch to sell to, anyway, and even more so today.  That is ironic because the product we offer could help from a veracity perspective for financials.  Selling in Mexico and in Spain took no longer than our larger American contracts, but don't be naive, we're talking about a six-month minimum sales cycle to bring this through, in our experience.

Mr. Raja:  That is probably what the VCs don't like.

Mr. Voorhees:  Yes, you have to build that into the equation.

[continued]

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