From Bubble to Breakthrough
Reshaping a dotcom startup into an enterprise software powerhouse took focus and discipline.
By Josh Pickus, Computer Associates
Feb. 24, 2006
When you're running a company, it can be easy to get lost in the day-to-day. This was especially true during the Internet Bubble. Everyone knew that the business behavior of dotcom startups and Wall Street was unsustainable, but there was so much going on - and so many dreams of what we were going to become - that everyone continued to enjoy going through the motions.
Until the market fell out from under us, that is.
Many software CEOs are in a similar position today. There is an opportunity for most companies to reinvent themselves to better compete in the next software era. Yet there are so many day-to-day functions, strategic half-steps and false hopes distracting them, most executives will miss the window of opportunity to reinvent their companies.
This Bubble-to-breakthrough story shows how newfound discipline and focus were the keys to ensuring our company's future.
The Classic Bubble Company
Niku was founded in 1998. The premise was that the services economy was becoming real and needed to be automated. We planned to begin by providing automation to the booming sector of Internet professional services companies - remember Scient? Viant? not to mention KPMG, Accenture and so on? After conquering that turf, we would expand to lawyers, accountants, ad agencies, and so on.
We developed an enterprise software product which enabled consulting firms to better manage their resources and consultants. Wall Street bit. Goldman Sachs led our public offering on Feb. 29, 2000 - 10 days before the NASDAQ peaked. We raised $200 million and had a market cap of $7.5 billion. What did we have in the bank? Quarterly revenue of less than $10 million and not even a glimmer of profitability. Niku was a classic bubble company.
The NASDAQ crash was only the start of our problems. The reality was that the big, stable consultancies weren't buying. They suffered from "Not Invented Here" syndrome: "We help others automate and manage their resources. Why would we buy a packaged solution?" And of course, the rest of our target customers - the Internet consultancies - disappeared as a result of the popping "Internet Bubble."
In our worst quarter, we burned $45 million in cash. That wasn't expenses. That was actual cash burn. Even if we had more than $200 million in the bank, everyone was able to see the end of the runway as we burned $50 million a quarter.
The Turnaround
Niku's strength was being a first mover in the "Internet land grab" going on at the time (remember that?) When we realized that the gold rush was over and our claim was worthless, we had to figure out what to do to turn the company around. Looking back, there were 2 key parts.
1. A painful financial rationalization of the business. We had no option but to make some dramatic changes. We dropped from 1,000 employees to 200. We had to exit leases with obligations totaling more than $100 million. We completely stopped advertising and exhibiting at conferences. It took 18 agonizing months but we managed to get profitable based on future prospects and our rationalized business.
2. A new market focus. The financial rationalization was a success but it actually put us in an uncomfortable position: We were public but just barely profitable. The promise of the professional services market may have been our ticket to the public market, but the reality was that it wasn't substantial enough to be the basis for a sustainable business. We needed to rethink our mission from the ground up: Where could we redeploy the technology that we had built with our investors' capital?
When we examined the benefits of our products, we realized that we could easily expand our capabilities to include portfolio management. And in the process, we realized that we could focus specifically on the needs of IT management - a group that ran everyone else's systems but didn't really have any management technology of its own.
Niku then morphed into one of the earliest IT governance solutions providers. The product was immediately relevant to IT's needs. Millions - even billions of dollars were being invested in enterprise technology yet it was nearly impossible to determine the return on that investment for the company. Our system could answer that question for the CIO, who in turn could report concrete ROI data to the CEO. We had created one of the first CIO dashboards.
Until the market fell out from under us, that is.
Many software CEOs are in a similar position today. There is an opportunity for most companies to reinvent themselves to better compete in the next software era. Yet there are so many day-to-day functions, strategic half-steps and false hopes distracting them, most executives will miss the window of opportunity to reinvent their companies.
This Bubble-to-breakthrough story shows how newfound discipline and focus were the keys to ensuring our company's future.
The Classic Bubble Company
Niku was founded in 1998. The premise was that the services economy was becoming real and needed to be automated. We planned to begin by providing automation to the booming sector of Internet professional services companies - remember Scient? Viant? not to mention KPMG, Accenture and so on? After conquering that turf, we would expand to lawyers, accountants, ad agencies, and so on.
We developed an enterprise software product which enabled consulting firms to better manage their resources and consultants. Wall Street bit. Goldman Sachs led our public offering on Feb. 29, 2000 - 10 days before the NASDAQ peaked. We raised $200 million and had a market cap of $7.5 billion. What did we have in the bank? Quarterly revenue of less than $10 million and not even a glimmer of profitability. Niku was a classic bubble company.
The NASDAQ crash was only the start of our problems. The reality was that the big, stable consultancies weren't buying. They suffered from "Not Invented Here" syndrome: "We help others automate and manage their resources. Why would we buy a packaged solution?" And of course, the rest of our target customers - the Internet consultancies - disappeared as a result of the popping "Internet Bubble."
In our worst quarter, we burned $45 million in cash. That wasn't expenses. That was actual cash burn. Even if we had more than $200 million in the bank, everyone was able to see the end of the runway as we burned $50 million a quarter.
The Turnaround
Niku's strength was being a first mover in the "Internet land grab" going on at the time (remember that?) When we realized that the gold rush was over and our claim was worthless, we had to figure out what to do to turn the company around. Looking back, there were 2 key parts.
1. A painful financial rationalization of the business. We had no option but to make some dramatic changes. We dropped from 1,000 employees to 200. We had to exit leases with obligations totaling more than $100 million. We completely stopped advertising and exhibiting at conferences. It took 18 agonizing months but we managed to get profitable based on future prospects and our rationalized business.
2. A new market focus. The financial rationalization was a success but it actually put us in an uncomfortable position: We were public but just barely profitable. The promise of the professional services market may have been our ticket to the public market, but the reality was that it wasn't substantial enough to be the basis for a sustainable business. We needed to rethink our mission from the ground up: Where could we redeploy the technology that we had built with our investors' capital?
When we examined the benefits of our products, we realized that we could easily expand our capabilities to include portfolio management. And in the process, we realized that we could focus specifically on the needs of IT management - a group that ran everyone else's systems but didn't really have any management technology of its own.
Niku then morphed into one of the earliest IT governance solutions providers. The product was immediately relevant to IT's needs. Millions - even billions of dollars were being invested in enterprise technology yet it was nearly impossible to determine the return on that investment for the company. Our system could answer that question for the CIO, who in turn could report concrete ROI data to the CEO. We had created one of the first CIO dashboards.
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