Edell met Jones through jeTech's corporate attorney, Leib Orlanski, who'd already worked with the company for five years and had sat on jeTech's board. He had seen the company grow nearly 600% since 1994. Orlanski's firm had connections in the venture-capital community, and it was quick to make introductions for Edell (with an eye, no doubt, on doing the company's IPO if everything worked out).
Even with the Brentwood money -- which jeTech burned through in 13 months -- Edell found himself in need of a larger credit line. He inquired at his bank, but it was from the old school, too, and wouldn't expand jeTech's then $2-million line, which was based strictly on accounts receivable. Eventually, Edell landed a $6-million line at Silicon Valley Bank in December 1999, just as the $7.5 million from Brentwood ran dry. The line easily tided the company over until its next cash installment: $16 million from Lehman Brothers and Brentwood Venture Capital, which came in March.
For such a heretofore penny-pinching soul as Edell, raising and spending money at that rate might have seemed foolhardy. But the dollars involved in turning jeTech into eLabor.com were comparable to what other companies have burned through in doing their entire ASP makeovers. Art Williams, a director and analyst with Giga Information Group in Cambridge, Mass., says that Edell's figures are not only typical -- they're necessary. "You're giving up your front-end revenues for an annuity stream," he says. Williams estimates that it can take a company up to two years to recoup the front-end revenues it loses during the transition.
But that hardly spells doom for small software vendors that don't raise mountains of money, says Katherine Jones of the Aberdeen Group, in Palo Alto, Calif. Jones says some vendors take an outsourcing approach: rather than executing an ASP model by themselves, the vendors simply form a partnership with companies that already have an ASP infrastructure, such as Breakaway Solutions or NaviSite, to name two. Essentially, Breakaway and NaviSite license application software from vendors, host it on their own servers, and act as de facto value-added resellers (except in this case they're actually renting, not selling).
Edell, however, was intent on turning eLabor.com into a stand-alone ASP. He saw it as the company's best chance to close the gap on competitor Kronos (which had yet to offer an ASP option). After all, the capital he raised could do more than just smooth over cash flow. It could also fund the staffing requirements for rapid growth, allowing the company to add salespeople, programmers, developers, and security gurus. So far, in fact, 85% of eLabor.com's capital has gone toward hiring personnel.
But the hiring hasn't always gone as planned. The company has actually had two separate recruiting binges in the past two years. The first ramp-up -- bringing the total number of employees to 180 by the end of 1999 -- was followed by a "scale back" to 130 when Edell opted to outsource some support and implementation services he had previously planned to keep in-house.
The retrenchment was also prompted by what might be termed "technocultural" issues, workplace tensions created by technology changes the company had to make as it switched course. Since 1997, jeTech's programmers had written software mostly in Java code, with a Sun Microsystems-based architecture. Most members of one of the product-development teams saw no reason to change when the company converted its software from installed to Web-based.
But a faction of that team believed -- rightly, as it turned out -- that jeTech's software would run faster on Microsoft architecture. They also thought key parts of the system should be written not in Java but in the programming languages C++ and Visual Basic. When those workers persuaded Edell to scrap more than a year's worth of Java coding -- about $1 million in labor, Edell guesses -- some of the Java programmers revolted and left the company.
Other programmers had grown accustomed to an environment in which they sometimes spent more than a year developing products for which time-to-market rates weren't crucial. Now the treadmill was accelerating. The structure of the product-development segment was changed, and the company's development teams were whittled from 20 members to 5, yet the teams -- faced with the same workload -- were expected to produce faster. "We took 18 months of work and crunched it into 3 for a development cycle," says Dave Mikelonis, vice-president of product development. Mikelonis says the company hardly misses the departed workers. "In my opinion, 20% of us were doing 80% of the work anyway," he adds.
Edell saw turning his company into an ASP as its best chance to close the gap on the competition.
Edell estimates that he lost 50 employees, between the disgruntled Java programmers and workers who resigned or were fired for their inability to adjust to the faster pace. And like Mikelonis, Edell thinks the business is better for the exodus. "No one left that we didn't want to leave. We lost 50 people, and production doubled," he says. Whether the jettisoned workers share Edell's view of their inefficiency is another matter. Edell refused to provide contact information for his ex-employees, saying: "I don't think trying to find out why they were left behind is appropriate. I don't want to rub that in anyone's face."
Although the ASP ramp-up began nearly two years ago, the company didn't change its name to eLabor.com until January, five months after it began pushing the ASP model. The belated switch symbolized Edell's biggest regret to date and another cause of employee defections: poor communication with the rank and file. When the company was still known as jeTech, confusion reigned among the staff. The ASP offering seemed like just another new product from jeTech -- not a complete change in corporate direction.
