Start-Up's Epitaph: One Product Beats Three
THE BUSINESS: Software developer
CLOSED: May 1999
PRIMARY CAUSES OF DEATH: Resources spread too thin by simultaneous development of several products; failure to retain a revenue stream to finance shift to new strategy
In 1998 and early 1999, Jinny Crum-Jones made the rounds of venture capitalists, dangling the promise of her trailblazing Internet software before their eyes. The CEO of Persimmon IT, based in Durham, N.C., could hardly have picked a more opportune time. Funding for Web-related software companies was readily available in 1998, says Steve Robins, a senior analyst with the Yankee Group, a Boston-based information-technology consulting and research firm. Last year, he adds, investors' interest in those companies went "through the roof."
Crum-Jones courted the VCs by presenting her UnifyIT software as a blessing for the pharmaceutical industry. It would streamline the task of managing clinical drug trials, she explained, saving the companies untold millions of dollars. But Crum-Jones didn't have just one software product under development. To hedge her bets, she had three, which turned out to be too much of a good thing. "We always advise start-ups to focus on one thing," says Robins.
At first, Persimmon's focus had been modest. Crum-Jones, formerly a computer-science instructor and consultant in England, and her husband, Ian Jones, started Persimmon seven years ago. They were among the pioneers in the Web-site-development industry. Most of the business originally consisted of designing Web sites and writing and customizing interactive software for such customers as ABC News and the Times Mirror Co.
In 1996, however, Crum-Jones persuaded the German technology giant Siemens to invest in Persimmon in return for a 20% stake. Seemingly flush with cash, she embarked on an ambitious program to develop software products that could be mass-marketed. That approach represented a "better revenue model," she says, "because you could sell multiple copies." Many software companies, including HAHT Software Inc., based in Raleigh, N.C., and Art Technology Group Inc., based in Cambridge, Mass., have reinvented themselves in that way. But Crum-Jones plunged whole-hog into her new strategy, scrapping her other business and thereby cutting off her revenue stream.
That's money that could have financed part of the steep cost of developing Persimmon's three new products. The number of programmers and other employees at the company quickly swelled from 20 to 85. The outflow of cash eventually hit a "total burn rate" of $500,000 a month, according to Crum-Jones. Persimmon was stretched thin, and neither UnifyIT nor a customer-relationship-management tool called TargIT was ready for market. Although both products were well received at their debut, in the fall of 1998, they arrived too late to provide cash flow when it was needed most. Persimmon also completed the development of Artifact, an underlying code base intended to enhance both UnifyIT and TargIT, but never offered it for sale.
When Crum-Jones looked for fresh capital, she discovered that Persimmon's status as a multiple-product company only soured potential investors. "We had calls from funds investing only in health care and calls from funds interested only in developing tools for financial services. But they didn't want both," she recounts, explaining why she came up empty-handed. Crum-Jones, along with other company executives and members of her family, pumped nearly $10 million of their own money into Persimmon to keep it afloat -- for a while.
By April 1999 the company owed $297,500 in back rent. Evicted from her office in Research Triangle Park, Crum-Jones gave notice to her remaining 45 employees the next month and folded Persimmon. But TargIT and UnifyIT may yet succeed as products of two new companies created by a group of Persimmon's secured creditors. Market Insights was the buyer of TargIT. The other company, PharmaCentric Technologies Inc., acquired UnifyIT. Each company says it's sticking to a single product.