Early Release Abstract – Examining the Qualitative Attributes Used for Selecting Investment Worthy Ventures in the B2B IT Subsector

Examining the Recent History of Qualifying Investment Worthy Target Ventures in the B2B IT subsectors.

Alan D. Wilensky, Analyst
bizQuirk, LLC.

…”Don’t you know, don’t you know, the truth so long suppressed, must now be told….” From, The Book of Formation, the Underpinnings of the Kabbalah.

 

Abstract

Is the The B2B IT sector a difficult arena to source and place capital or, conversely, to harvest capital out of such deals? According to a diverse pool of analysts, including several specializing in the enterprise software and services sector, the past 15 years of high-profile B2B tech company consolidations driven by certain PE funds, has resulted in a reduction in overall availability of mid stage direct placement capital deals for well-established, maturing ventures poised for growth. This reduction in capital resources, and how it came about, is a troubling tale. The epilogue is even sadder as if that were even possible, describing the pollution that occurred in the aftermath of the B2B consolidations. The selection criteria and commonsense values became out of phase, upside down, leading to long-term damages. These are the wages of fear and doubt that reliably occur when sound targeting attributes are ignored. Applying the corrective selection targeting criteria  – no MBA required – when the next phase of capitalization restarts – and we shall see that these mature, well led, clearly innovative B2B ventures come to the surface, with long-established continuities of private ownership; these ventures have been overlooked en mass for the past 15 years in the B2B IT subsectors.

While it seems a bit  farfetched to state that, “better companies were deliberately ignored in favor of the now well-known, (even infamous) weeble-companies tagged by PE’s for toxic consolidation). They were all past their prime,  overstaffed, overstuffed, having long abandoned their founders drive and vision, and eschewing the technical staff’s architectural and system acumen.  The sordid mess. in a nutshell, stank of corruption, but there is still hope….

We all know that no one can stop a true inventor –  the Edison’s, the Teslas, the Jobsian leaders….these brilliant, hard-headed, are true to themselves (and to the very wordInnovators  –  they never go away, they continue to innovate and improve, and gain more ground. 

A simple rendering:

A shallow reservoir of early and mid-maturing stage capital vanished after a 15 year period of horrendously structured mega-deal rollups in the B2B sector. These roll ups created ‘zombie-like’ composite corporations that served no one at all well –  not the investors, the B2B Tech and Tools and Services industry, and certainly not the customers. These highly inefficient and byzantine experiments in direct capital placement showed with a grim finality that these particular PE‘s at the center of the B2B debacle, were ill-equipped to operate in the sector (a gross understatement)   – but mostly it was a massive stumbling by the PE’s in applying well-informed selection targeting criteria, with the result that some of the best researched, ready to scale opportunities in the sector were ignored. More will be said of such mature ventures, all having superior intellectual capital portfolios, and almost all harboring the even more important attributes of: ‘continuity of ownership, a well mastered design process, and fully and truly transmitted, ‘ethos of operations’.

As a result, discretionary R&D was reduced, delayed, and otherwise weighed down as a sense of palpable uncertainty settled over the market. Failed selection modeling caused rippling waves of sector-wide damage, and multi-year acquisition delays of systems and services. The damage has only been partially repaired, and for some it is a process that has not reached its conclusion – but the thaw has commenced one full year past the peak of ‘the great B2B wars of the mid aughts’. Interviews with companies that were directly in the line of fire at the peak of the debacle are coming back to level revenue, which nets out to a loss due to missed growth.

A properly illustrated diorama or tableau would explain – at a glance – the complex investment vs. risk strategy that was applied to gain such a poor result. This realization is just now landing on the shoulders of the culpable Fund’s, as an  industry-wide realization that their progeny, the “weeble corps” they have left us all, and their customers are wobbling, yet resisting gravity in not quite falling down. These are some of the best-known enterprise integration resellers and EDI networks – but the best known of all are now serial-tragicomic dramas reading like King Lear, but are neither compelling nor as interesting  when stripped of the ‘I told you so’ business lessons that will be covered in the following monograph. Such is the house that a certain type of PE built for the now somewhat stunted B2B Technology sector.

Now, post acquisition, the acquired knowledge of the founding engineering or operations teams, the IP champions, are long gone. The acquired company’s culture of collective knowledge and the skills of experienced engineers and operators, all were obscenely disparaged – – they were often the first slated for post-acquisition termination..

The B2B IT sector is in sore need of exactly the opposite selection model – a new model that is not the least bit mysterious, where a Founder’s clear vision and unquestioned expertise are just two of a multitude of attributes that grow out of the soil of ‘continuity of ownership’.

Have such reliable verities been altogether forgotten? Continue reading

Constancy of Vision – Clarity of Values. The Character of One Effective Leader

Loren Data Corp, a small, fiercely competitive VAN (a Value Added Network, operating under the ECGrid® Trademark), has emerged from a nightmare.

Todd Gould, President of Loren Data, successfully guided his company through the B2B IT sector’s most active period of consolidation, and emerged with the company intact. The increased visibility came unbidden to Todd, who simply persevered to resolve a high-stakes network routing dispute with GXS (now OpenText). The dispute became an issue of great concern to all companies depending on VANs for the reliable routing of electronic supply chain (EDI) transactions.

Competing against larger organizations is routine for Loren Data Corp; Todd had refined a reliable formula for delivering targeted EDI communications services for service providers and B2B cloud applications. One can appreciate the challenges of balancing the risk of meeting such a dispute head-on, while maintaining ECGrid’s operational standards of  near-perfection.

Throughout this extraordinary time, Loren Data never faltered in its technical operations, providing critical network messaging services for a professional subscriber population composed of supply chain service providers, enterprise software OEMs, and virtual VANs. The Company maintains very collegial inter provider relationships with its interconnected peers; such relationships are critical for keeping EDI message traffic flowing around the globe. ECGrid processes tens of thousands of EDI messages daily, the Netops team covers three shifts of support, and Todd, in the role of CTO, pushes forward on delivering the next generation of transactional messaging and supplier community management. Reason enough for Todd to enjoy a fleeting moment of industry recognition? In a busy, lean operation, there might be exactly one minute to reflect. If community is any indicator, a brief read of the forums covering the industry indicate that Loren Data Corp’s founder is respected as a competent and multifaceted leader. A visionary perhaps? A Thought Leader, most definitely.

Here are a few of my notes and observations about the company, Loren Data Corp, and its President: Continue reading

Industry Announcement – Loren Data Reaches an Agreement with OpenText – No Disruption

The following has been reposted from the Loren Data Corp President’s Blog:

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OpenText has agreed to continue exchanging data with Loren Data and has rescinded the disconnection.

The ability to set up new partnerships will resume immediately and data will continue to flow uninterrupted.

Industry and Customer First – Always

Regards,

Todd Gould
President & CEO

 

Editor’s Note: A great deal of credit and recognition must be accorded to Todd Gould and his counterparts at OpenText for persevering through these issues.

New Court Ruling places FCC in the regulatory catbird seat – what? Weren’t they already? Apparently not.

Court Strikes Down Net Neutrality Rules but Grants FCC Sweeping New Power over Internet

Today, the D.C. Circuit struck down most of the FCC’s 2010 Open Internet Order, rejecting rules that required broadband providers to carry all traffic for edge providers (“anti-blocking”) and prevented providers from negotiating deals for prioritized carriage. However, the appeals court did conclude that the FCC has statutory authority to issue “Net Neutrality” rules under Section 706(a) of the Communications Act and let stand the FCC’s requirement that broadband providers clearly disclose their network management practices.

 

http://techfreedom.org/post/73327053584/court-strikes-down-net-neutrality-rules-but-grants-fcc

EDI Communication market up in the air, up for grabs, consolidation notwithstanding

My analytical writings for lawyers and regulators have covered the dynamics of interconnections between networks in general and VANs in particular. To say, “The VAN industry was built upon collegial and permissive interconnection policies, in order to create and sustain its nascent sector”, is an ex-post facto spin. The facts are more raw.

I believe that this industry sector called “EDI Value Added Networks”, is in potential jeopardy unless it regains a unity of purpose. That is the sum total of the client satisfaction surveys aggregated from 3 major investment banks, plus my own focused telephone survey of GXS hub class clients, over 800 in total. All of the normalized results point to a damaged and deflating sector. Meanwhile, the transactional volume climbs, which is an indicator  the health  of the underlying technologies – however, there is ample room for improvement even in the tech space of EDI systems.

The EDI Comms industry, writ large, is the beneficiary of a vision, but finds itself running on reflexes, reactions, which will not allow the market to continue forward. If my colleagues do not consider the outlook quite so black, it makes the situation worse – as an institutional blindness may be setting in amongst analysts, and it’s our job to watch things closely from afar, to point out missing elements, while taking the temperature of the customers. With that all said, I don’t like what I see, and if GXS’ track record is being swallowed whole by savvy Opentext, this is just more fodder for negative speculation. Additionally, the endemic weakness of SPS Commerce in its back-end services infrastructure, counterpoised against its stock price and market cap, seem disconnected from the standpoint of critical reality….this baffles me, but at least SPS has created efficiencies in the market for the SME suppliers. I can’t see one good thing arising out of the GXS PE funded rollups. I can say there are many ex-Inovis customers that were thrown onto the GXS heap, and they are a very unhappy user population. Take that one to the bank with the previous generation of ex-IBM IE customers. Never has a 100% functional and robust VAN property been intentionally broken by its new owner, like IE was by GXS. Awful bloody awful, it was.   Continue reading

With VAN Consolidation rampant, are B2B message routing exchanges the answer to total reciprocity and delivery assurance?

Author’s note:

The most fecund source of utter baloney can be found at many places on the GXS website, that basically states, “a one vendor network is the only way to insure EDI messaging reliability”. Bull-oney. I think we have all learned an indelible lesson that multi-vendor, multi-provider markets (including messaging networks) which includes routing networks (like the internet) are the best architectural model to arise in the universe of IT, from both a reliability and economic perspective. I’m sure that the old GXS would like nothing better than to have its customers get everything from its network based services – messaging, translation, applications, maybe your medical insurance too. Maybe GXS would like to arrange marriages?

This article is about an access and routing model that was born in the early Internet years, when setting up routing gateways was a black art – and telcos late to the Internet game started to get hungry again, formed a land rush, buying up many of the first mover IP backbone providers; this is when MCI bagged UUNET, leading to another  antitrust case.

Now, we have a tremendous amount of VAN consolidation with the OpenText deal, and this could be a good time to talk about the CIX, or Commercial Internet Exchange Model. CIX was formed as a shared peering exchange point, a membership organization, that allowed companies to get their foot in the Internet’s door – while the FCC was struggling to come to terms with the Telecom Reform Act of 1996. Ok, that ends my intro – on to the EDI Messaging Exchange Model:

Continue reading