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Surfing the Software Wave
Local software start-ups
thrive by carving out unique
market niches
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Business New Haven
9/20/1999
By: Susan Banfield
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It's not Route 128, and it's not Silicon Valley. Still, greater New Haven can boast a growing number of successful new software companies. Part of a statewide trend (software is Connecticut's fastest-growing industry), the firms attribute much of their success to having identified and exploited unique market niches in this highly competitive field.
However, the principals of these companies generally agree that they, and others like them, could do even better if our area were more high-tech oriented and thus able to attract the highly educated and skilled people - the so-called human capital - which are the cornerstone of this industry.
Metaserver
In 1996 some people at Scientific Computing Associates in New Haven devised a new product idea with great market potential. The only problem was, as Richard Schultz, then an employee at Scientific, puts it, “We were looking at an opportunity very different from [our] business model.”
Scientific Computing specialized in high-end computational software. Happy with the growth path the company was on and not wanting to tamper with that, Schultz and several others decided to spin off a new company.
In November 1996, with technology contributed by the parent company, a feed investment from Connecticut Innovations Inc., and additional capital from private investors, Metaserver was launched.
The central idea behind Metaserver is to provide companies with software that will enable them to create virtual Web applications that utilize and connect existing systems and applications in order to enhance such things as customer service. An example of a situation which could benefit from Metaserver software might be one in which a techie who received a call from a customer for technical support had to make several follow-up calls to different departments - to see if the customer's maintenance was current and if his bills had been paid. Metaserver would enable the same techie to instantly access the databases containing such information via an intranet.
“We're really working on some leading-edge technology,” says Schultz, now the company's president. “That makes us pretty unique in this field. We like to view ourselves as one of New Haven's cutting-edge technology companies.”
In fact, Metaserver's ideas are original enough to have enabled the company to apply for a patent on its software and to have secured copyright protection on many concepts.
Although the Metaserver concept is relatively distinctive, the company does have competition. In fact, it has been up against several very big players. Netscape has a product called Kiva, acquired eight months ago, that is similar to Metaserver. Net Dynamics, acquired just two months ago by Sun Microsystems, is another competitor.
Although Metaserver claims its software is significantly cheaper and faster to implement than that of the competition, Netscape and Sun are obviously formidable foes.
“This is a $5 billion market,” says Kathy Garlasco, Metaserver's vice president of marketing. “Our biggest challenge is getting our name out into the market, creating market recognition.” Garlasco was brought on board specifically to identify the market the company is targeting and to position the company. The new marketing VP is optimistic, though, about Metaserver's future. She cites the success of four pilot sites (which include the Mashantucket Pequot Museum) and a number of referenceable accounts.
The greatest challenges facing Metaserver, in Schultz's view, are those of managing growth and of finding the people to keep up with the growth. “It's always hard to find quality people,” he says, but notes that he has actually had “quite a bit of success” when it comes to staffing.
The reasons he and Garlasco cite for this triumph include Metaserver's New Haven location (they can draw on Hartford as well as New Haven and Fairfield County) and the fact that what the company is doing has intrinsic appeal to the Yale computing community (in fact, Metaserver's chief architect, Ashish Deshpande, is a Yale Ph.D.). “The opportunity to recruit from Yale is very beneficial,” says Garlasco.
With ample initial success in meeting challenges of development and staffing, confidence at Metaserver is high. “We're looking at an exciting opportunity in a very high-growth industry,” says Schultz.
Meca Software
While Metaserver's seed idea was one that got the company involved in selling direct to consumers, Meca Software was “reborn” when it decided to bow out of the direct-to-consumer market.
Formerly owned by H&R Block, in 1995 the company was sold to a group of large banks and financial institutions (US Bank, Citicorp, Bankcorp, Nation's Bank, Bank of America, Bank of Canada and New England Financial). Along with the changing of hands came a complete overhaul of Meca's focus.
After having had trouble competing with the likes of Microsoft in the direct-to-consumer market for Internet-linked financial software, Meca “decided to sell to large financial service-providers and allow them to give the software to their customers,” says Paul Harrison, the company's president and CEO. Today, Meca custom-builds software packages for customers such as Fleet Bank. Fleet's “Managing Your Money” is a typical Meca product, customized so that it has interconnectivity with all other relevant Fleet systems and applications.
In addition to building software, Meca also specializes in providing support back-up for its products. Currently, the company fields approximately 800,000 calls a year for support, and nearly half (110 out of 260) its employees are in the phone-support department.
“We feel we have a very unique niche,” says Harrison. “Everyone else is selling to consumers directly.”
Meca's uniqueness has translated into impressive financial success for the company. Approximately half a million consumers are now using Meca products, Harrison says, and Meca's market share has grown from five to between 20 and 25 percent. In just the last two years the company's revenues have increased by a factor of four.
Harrison does foresee challenges in the months and years ahead. “As technology advances, it's very expensive to keep up,” he says, noting that “Price points continue to go down when competitors like Microsoft are willing to give product away.” His solution: Meca will work to identify market segments where there are no big players.
Another challenge Harrison outlines is that of attracting qualified personnel. “The value of our business is the intellectual capital our employees bring to the table,” he explains.
Meca so far has been lucky, Harrison says. He sees the company's Trumbull location as helping in attracting staff from a number of locales: the Naugatuck Valley, Danbury, Westchester, as well as New Haven and Fairfield County. However, Harrison feels Yale has not proven to be the kind of asset that institutions like MIT and Stanford have been to Route 128 and Silicon Valley, respectively. “If the software industry is going to grow in Connecticut,” he says, “we have to attract this level of people. This has to start at the university level.”
FlexiInternational Software
FlexiInternational is neither a spin-off nor a re-invented company, but a brand new company that was founded in 1991 in an attempt to capitalize on a promising idea.
Stefan Bothe and Jim Schenck both had computer backgrounds. They noticed that about every ten years there was a significant technology shift in the computer industry. First there were mainframes, then mid-range computers, then PCs. The latest shift had been to client-server technology.
The two men saw that there was a need for accounting software that took advantage of the new client-server technology. Bothe and Schenck teamed up with Jennifer Cheng, who had a background in finance. With a combination of personal funds, and support from friends and private investors, the three founded Flexi.
There had been complaints about the old Legacy systems, in which changes could take two or more years to make. Older vendors of accounting software also tended to be very proprietary. Flexi seized as its goal the development of software that offered the heightened productivity made possible by client-server technology, combined with greatly increased flexibility and the opportunity for much improved control on the part of MIS people.
“There isn't a day goes by, that somebody merges with somebody else,” says Bothe. Mergers frequently mean that companies with different types of computer systems and/or different databases must be able to communicate with one another. Flexi systems are designed to be able to run on a number of different databases and types of computers. “This gives a tremendous amount of flexibility,” Bothe points out.
Flexi systems are also written in C++ language, a language developed by Microsoft that is now the standard computer language of choice and familiar to any computer science graduate. This makes it possible for the MIS people in a company to make their own changes to Flexi programs.
Flexi applications are easily Internet- or intranet-enabled.
Finally, Flexi systems use object-oriented and component-based technology. This breaks an application down into smaller components, which means that a needed change in one of the components involved can be made without the other components being affected.
FlexiInternational produces about ten core products that cover most standard accounting needs: ledger, accounts receivable, etc. These are marketed primarily to large corporations in the financial field. The company does have competitors. Firms such as Oracle and PeopleSoft also make client-server accounting software.
However, Bothe points out that Flexi products have distinct advantages over the competition. These include being the only systems written in a standard language, being able to make use of a multiple databases and, as a result, less expensive to use. “We can demonstrate significantly lower cost of ownership over a five-year period,” says Bothe.
Bothe's claims of a clearly defined market niche are supported by his company's performance. Flexi has demonstrated over 100 percent growth every year since its founding. Between 1996 and 1997 the company's revenues grew from $8.3 million to $21.6 million - with Wall Street analysts predicting a figure in the mid-$40 millions for 1998. Last December FlexiInternational went public, and more recently became a truly international corporation with the acquisition of the Dodge Co., based in London. Flexi now has offices in the UK, South Africa and Australia, as well as in the U.S.
Part of the company's recent expansion has included the opening of a development on Route 128 in Massachusetts. “Connecticut just doesn't have enough of the talent we need,” says Bothe. “I don't have factories. The value of my company is the people.”
Bothe points out that in Connecticut workers in the software field tend to be much more concerned with getting steady pay increases and nice benefit packages, less interested in taking a risk with a promising start-up than they are in Silicon Valley or the Boston area. “In California, people grow up with an entrepreneurial mentality. In Connecticut people have a traditional manufacturing mentality,” he says.
Bothe also faults the state's universities for not doing more to help the software industry. “Yale could do a lot more to make itself the Stanford of the East Coast. I'm disappointed Yale isn't more aggressively in the forefront of the computer software industry.” And in general, he says, Connecticut's university curricula are not very technology-oriented.
Flexi has managed to flourish in Shelton, despite difficulties with recruitment, however. Bothe does concede that the area has some advantages. He has praise for Connecticut's quality of life, and notes that in Shelton, junior people can find affordable housing, while the Fairfield County residences that appeal to more senior people are still close by.
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