How Small Integrators Become Big ISVs
By Matt Pillar, editor-in-chief, Integrated Solutions For Retailers
Integrator-turned-ISV ExtenData didn’t experience real success until the company put stock in its own intellectual property.
Steve Sager is first to admit he’s got bad timing. Sager is president and CEO of ExtenData, the company he co-founded in 2002, which he says was about five years too early for the business plan he and his partners created.
Back then, ExtenData was a VAR specializing in mobile workforce solutions for a variety of distributed enterprises. Unfortunately, the hype curve that preceded the actual adoption of mobile applications that connect workers beyond the four walls of the enterprise was a protracted one. For the first several years, the company met its initial growth expectations by selling Motorola and Zebra devices and third-party DSD (direct store delivery) and proof-of-delivery software, but margins were eroding and so was the control they had over the implementation and support of their solutions.
Then one day, quite by accident, Sager had an epiphany. The third-party DSD software his company was implementing did not meet customer expectations, it became obvious that the software company had lost it focus, and ExtenData was left holding the bag. “It took a couple of failures for us to realize what we had to do,” says Sager. “We realized just how critical the software component is, and how much better we could serve our customers if we have more control of it. So we set out to develop our own.” That was in 2005. The promise of mobile DSD and proof-of-delivery applications was growing, but industry adoption wasn’t yet matching the enthusiasm. What better time to hunker down and make an investment in the future? Today, sales of the company’s MobileConductor software — which launched in 2007 — account for 50% of corporate earnings. Here’s how Sager and company transformed the business from VAR to ISV, racking up new verticals, more than doubling its headcount, and achieving double-digit year-over-year revenue gains along the way.
Building Cloud-Ready Software From Scratch
When Sager and his team decided it was time to build a software solution in-house, the first thing it did was commit to retaining company earnings and investing every penny back into software R&D and personnel. It promoted from within a product manager, before he even had a product to manage. Then came a product architect and a development staff. “We started small, but our size ensured our agility,” says Sager.
With a dedicated team in place, ExtenData began thinking like a customer and consulting the experts in its space. “We weren’t about to create something and then hope we could sell it,” says Sager. “We were using a very consultative implementation approach for third-party software sales and implementations, so we used the same approach to determine our own business requirements and architecture before building our own software. We asked ourselves the same stuff we asked our customers,” says Sager.
To vet its software philosophy, Sager plugged in with industry veterans Dean Sanders, director of industry sales at Zebra, and Jim Hilton, senior director of industry solutions at Motorola and others. Sanders and Hilton shared their domain expertise and helped ExtenData ensure the software would not only be competitive, it would also provide next generation functionality and ultimately business advantage for their clients. Sager says they were also unabashed about telling ExtenData where they were getting it wrong, which helped assure they’d have it right by the product’s release.
Sager admits that he underestimated what it would take to build a software solution that’s both commercially hardened and agile enough to ensure ongoing relevance. “The platform had to be adaptable to things that were beyond our control — changes in device technologies, and operating systems for instance,” he says.
He credits his product development team with bringing that kind of foresight to the project, and he points to a very relevant and timely example. “When it became apparent that our customers were seeking to leverage the cloud for software delivery, I had a moment of concern. What would we need to re-architect to move this into the cloud? It turns out, my concern was unfounded. Our software architect and lead developers knew that the software would initially be premise-based but one day live in the cloud. So they built it with an architecture and framework that supported cloud deployment, and it’s been ready to go since day one.
Today, ExtenData strives for cloud-based subscription arrangements with its customers. He said moving from perpetual licenses to subscription-based sales took some planning, but it was our customers who really led the way. “It was a little bit easier for us to transition than it is for some, because we had three or four solid years under our belts acquiring customers and having them pay annual software support. That revenue, in addition to our earnings stream from the traditional side of the business, allowed us to bridge the capital gap from perpetual licenses to subscriptions.”
The result of all this development work — MobileConductor software from ExtenData — is a mobile data capture solution designed to improve the visibility into and information accuracy in the last mile of product delivery. ExtenData boasts MobileConductor customers from a wide range of vertical industries — from foodservice and hospitality to CPG and industrial clients.
The First Few Customers: Sweetest, Or Most Nerve-Wracking?
ExtenData won its first paid MobileConductor deal by beating out established companies that were five times bigger than his initial team of 12. Its first MobileConductor implementation ever, on the other hand, yielded the company no money at all, only a legacy of doing what’s right for their customer.
“Our first MobileConductor implementation was for a DSD customer who saw their third-party software provider go off in another direction,” says Sager. “Motorola was pointing at them, they were pointing at Motorola, and ExtenData was ultimately responsible for the customer. We were a couple of months out from releasing the software. We asked them to hang tight for three months and promised we’d save the day with our own product — at no charge — so we could get our first customer out there.”
Since then, ExtenData has landed several significant wins, some of them through live demonstration of its software’s agility. To win Foster Farm Dairy (Crystal Creamery), for instance, Sager says ExtenData had to modify its software specs and demonstrate it would work. “That’s when we really arrived, when we showed up on the industry map as a viable alternative.” With that said, Sager is quick to advise against making modifications that are too sweeping. “We’ve had opportunities, some of them big, that we’ve had to turn down because they would have taken us away from our core offering,” he says.
Sager cites striking a balance between building out the product according to plan and refusing to get distracted by opportunities outside the core area of expertise. “It’s the classic start-up software dilemma. Had we chosen to feed ourselves in the short term, it might have resulted in longterm sacrifices. We had to get used to saying no when we considered opportunities that weren’t repeatable, and we had to learn quickly how to find the chemistry between our sales driven culture and our product development teams, who are passionate about quality and scalability,” says Sager. “In the software business, there’s a lot of competition. You have to do what you’re best at and be better at it than anyone else. Deep, deep domain expertise is the best differentiator for a software company.”
Getting Paid For Your Intellectual Property
Sager says equally important to knowing when to say no to new-product development is knowing when to say no to a potential customer. “Our consultation engagements are billable; they’re part of the implementation approach,” he says. “They’re designed to help our customers understand the business benefit and the tangible business value derived. We bill for that — the time we spend looking at the business, how they do things now, and helping them organize and prepare for incorporation of our technology.”
“Sometimes,” Sager says, “after all this assessment, the answer is no. We’re not going to move forward. They’re not ready, it’s too risky. That’s hard to do, but we do it because in the end we measure success by improvements in our customers’ productivity and profitability and to get these improvements, they must be ready. So that consultation is sometimes stand-alone.”
As for who ExtenData sells to, target stakeholders include the CFO, transportation managers and information technology decision makers. For the CFO, ExtenData demonstrates improved visibility into asset utilization, inventory control, and clean invoicing, which results in an accelerated order-tocash scenario. For transportation managers, the focus is on demonstrating increased productivity and customer service in the tracking and tracing of goods to their intended destination. “By measuring before and after, we have hard evidence that they’re improving productivity,” says Sager. On the IT side, Sager says it’s all about demonstrating that it doesn’t have to be painful or disruptive, and that DSD and ePoD implementations are no longer an IT-intensive project. “With the solution hosted in the cloud and our management of the deployment through support and help desks, very little is required in terms of client IT resources with the exception of making sure we’re integrating to systems they run on.”
Launching the MobileConductor product in 2007, right before the onset of the Great Recession, might look like another case of bad timing for Sager. In fact, that timing helped the company hone its business proposition and fully bake the underlying technology. “We demonstrate how the solution helps companies conserve cash, create operational efficiencies, and lower break-even points. Companies are still investing strategically, so we still sell on these value propositions — efficiency and getting cash and capital into the company faster. Even if the topline runs flat or declines, we can sell on bottom-line improvements and the capital preservation imperative.”
Sager says the transformative experience of moving from VAR to ISV has been more than just financially rewarding. “Before, when we implemented the third-party solution and the customer got its first wave of users using the technology, like many resellers we considered our job done. Now, we don’t declare success until the last mobile worker intended to use it is using it.”