Considering bringing a substantial technology project in-house? First read how Market Insights' founders fell victim to poor planning, bad advice, finicky technology, and unready clients.
Market Insights' founders thought they could implement a sophisticated technology project--a data warehouse--themselves. Their optimism almost cost them the company
One spring day in 1997, Rick Louie got a phone call that would change not only his future but the entire direction of Market Insights, the health-care data-analysis company that he and his partner, Anthony Milano, had founded. On the other end of the line was Marc Bandt, who had once worked for a former client of Market Insights. Bandt presented an intriguing idea. He had recently helped a large hospital in Houston set up a data warehouse--a highly sophisticated computer database for storing and analyzing billions of bits of information. Bandt wondered whether he could team up with Louie and Milano to build a data warehouse for their company.
Louie couldn't believe his ears. Just one year earlier, he and Milano had been debating that very idea. For the previous four years Market Insights had been compiling and analyzing vast quantities of health-care data and selling those analyses, quite successfully, to its clients--hospitals and health-care consultants. But the founders knew that their business was on the cusp of real change. Paper was on the way out, digital files were in, and the Internet loomed. To take on more clients and service them more efficiently, Market Insights needed a faster path to its data.
"I knew we needed to move to something more sophisticated, some kind of technological change that could better position us to attack the marketplace," Milano recalls. "But I wasn't confident about which one was right yet." Still, he was convinced of one thing: what Market Insights needed was a supercharged, highly specialized--and highly costly--data warehouse to handle the massive amounts of health-care-industry data that it routinely processed.
His partner was less confident. While he valued Milano's opinion, Louie was uncomfortable spending hundreds of thousands of dollars on technology. Market Insights was a self-funded company that had turned a profit every year--and Louie planned to keep it that way. "We had both come to the decision that to grow, we had to become a technology company with an Internet presence," he says. "We were both in agreement for the vision. But some of the expenses, I wasn't excited about." And then came Marc Bandt's phone call.
The idea was sound enough: using a data warehouse, the company's analysts could more quickly and efficiently churn out the complex, custom benchmark reports that were Market Insights' specialty. But more important, the company's clients could be connected to the warehouse through the Internet and peer for themselves into the massive reserves of public data that Market Insights had stored there. The result? A do-it-yourself information service. In exchange for an annual subscription fee, clients could rustle up quick answers to questions about, say, the costs of hip-replacement surgery or emergency-room protocols.
Of course, clients would still need Market Insights to produce in-depth, full-blown reports. But when a simple analysis or a limited amount of information would do, buyers could get it cheaply and quickly through the new service. With the boom in health care, there was no telling who among insurers, researchers, students, journalists--you name it--might want to dive into Market Insights' pool of data if only they had easy access. For its onetime investment to build the system, Market Insights would reap recurring revenues--the Holy Grail of small business.
For his part, Milano felt he had found a kindred data-warehouse spirit in Bandt. Not only did Bandt understand data warehouses, he had built one as well. "Marc spoke in a polished language from working with others in the field, whereas I was the only one here who really knew the kind of database I envisioned," Milano recalls. "Sometimes when people tell you what you already know in a polished manner, it's very powerful."
Bandt's suggestion for a data-warehouse investment resonated with Louie, too, as it added coherence to the ideas that Market Insights had been batting around. Louie respected Bandt's industry experience, and he liked the fact that someone who had known Market Insights from the client side now wanted to join its ranks. What's more, after conferring with Bandt, Louie worried that if the company didn't move right away, it would lose its window of opportunity to be an industry leader in this area. "We saw the industry was moving to the Internet, and we didn't want to be in the position two years from now of saying, 'We need to be there," he says.
The three agreed that command of cutting-edge technology would boost Market Insights' corporate value if the founders were ever to sell the company or go public. "He [Bandt] said, 'Let's grow Market Insights and take it to the next level; to do it, you need to buy the technology and invest in the future," Louie recalls. "We thought it would be tight, but we could buy the equipment, hire Marc, and go for it." Besides, 1997 was turning out to be a good year for Market Insights. "When we brought on Marc, who said this was a worthwhile investment, I was swayed."
Today, just about two years later, Louie and Milano have poured nearly $1 million--not to mention buckets of sweat--into hardware, software, and resources. The project has swallowed up the business's cash and employees. And it has yet to return any real money.
How could this have happened to a company like Market Insights, a business with revenues projected at up to $2.4 million this year, one that's run by two smart guys with plenty of business and technology savvy? It's a cautionary tale, one to be heeded by any small company that is even considering bringing a substantial technology project in-house. A canyon-like chasm lies between off-the-shelf technology and a major custom implementation: experience with small, homegrown systems is no guarantee of success on a larger scale. Even Market Insights, despite its sophistication, fell victim to poor planning, bad advice, finicky technology, and unready clients.
