ON FAITH: Inspiration Software's Don Helfgott revamped a 14-year-old product and entered a new market, and his company took off.
The Brandts moved purposely out of their comfort zone and reaped the rewards they had hoped for. But more often, change is thrust on you by the kind of adversity that tests not only your resilience but your ability to catapult back. Such was the case for Bob Lokken. The CEO of ProClarity (#59), a software developer in Boise, Idaho, vividly recalls the day he first learned that Microsoft might soon enter his marketplace. "There was a feeling deep in my gut that my whole world was about to be turned upside down," he says. Lokken and his eight employees had spent two and a half years creating software that helped companies store and analyze sales and marketing data. When Lokken founded the company with four partners, in 1995, the Redmond giant hadn't tapped the analytic-database market. By late 1997, ProClarity had won such customers as Hewlett-Packard and the Veterans Hospital Administration in Seattle. Lokken was feeling good.
But in March 1998, Microsoft announced that it had acquired an Israeli company whose technology would compete directly with Pro-Clarity's. "It took me about three seconds to realize that this was going to change everything we had worked on," Lokken says. He briefly considered adapting his own product to a specific industry, such as health care, but quickly concluded that no matter what he did, Microsoft would eventually dominate the market.
Within 48 hours, he and his partners decided not to compete with Microsoft. They would exploit the company's entry into the market instead. But to do so, they would have to scrap the fruits of ProClarity's labor and develop an entirely new product, a front end that would work with Microsoft's back-end analytic database. "At that point, many of us weren't even drawing a salary," Lokken says. "And we took our first revenue-generating product and threw it away."
| For Fast Growth, Sell Smart |
| Percentage of Inc 500 CEOs surveyed who said that one of their growth strategies was to |
| Actively and systematically search out new products or services |
45 % |
| Actively and systematically search out new markets for existing products or services |
71 % |
| Concentrate on selling "more of the same" to existing customers |
38 % |
| Seek growth through an acquisition or merger |
12 % |
Still, Lokken didn't even think of closing his doors, and he refused to lay anyone off. He finagled another $2 million for product development out of his original group of private investors, and he put his customer-service staff out on the street as IT consultants. "We made payroll out of consulting revenue," he says.
Eighteen months later ProClarity had developed new software. Next, Lokken needed to persuade Microsoft to help market the new product. So the company's spartan sales force went back to a handful of their old customers and offered them ProClarity's product free when they purchased the Microsoft database, hoping for a little promotional help in return. They got it. Their satisfied customers agreed to become subjects in case studies, which ProClarity produced, showing the ways in which they were using ProClarity's software with Microsoft's technology. ProClarity then presented the case studies to Microsoft.
It wasn't an easy sell. The world is filled with tiny companies like ProClarity that are eager to breathe the rarefied air of a Microsoft alliance. But ProClarity's case studies provided Microsoft with a marketing tool for its own customers. "We didn't ask them for anything," says Lokken. "But we added value to what they were doing in the marketplace." The upshot: Lokken says that five other companies tried to execute a strategy similar to ProClarity's. Today four have gone out of business and the fifth has stopped selling software that competes with ProClarity's offerings.
ProClarity, which will break even this year, has in five years grown 2,641%, to $12 million; Lokken expects revenues of $18 million this year. "If we were going to change, we needed to change completely and focus every bit of energy we had on the new product," he says. Was the transformation disruptive to his company? Sure. But, says Lokken, "we wouldn't be in business right now if we hadn't done it."
Lokken could find a resilient compatriot in Greg Hasley, who had a similar experience. Back in 1994, Hasley had a brilliant idea. He would start a traditional business -- a courier company -- but eschew the industry model of using contract drivers. By hiring drivers as employees, he reckoned, he'd have better control of them and of his company, EagleOne (#316).
