Out of Control
Travis Parsons was tired of sitting on the sidelines. He had spent six years dispensing money and management advice as a venture capitalist. Now, he was itching to run a company himself -- not only to prove he could do it, but also to build something that would truly last. "I really wanted to try my hand at it," he says.
He was convinced he had the right idea: an Internet-based software application that would enable clients to coordinate their shipping and delivery activities across multiple warehouses and destinations. And so in late 1999, in a tiny one-room office in Charlotte, N.C., Elogex was born. Within two years, Elogex had a solid product, customers from the top ranks of corporate America, scores of employees, and millions of dollars of venture funding. "We were making progress," Parsons says. "We had momentum."
But he wasn't the only one to notice the company's success. Just three years after Elogex was launched, a Dallas investment group, flush with cash and packed with tech-industry heavy hitters, offered to buy a majority stake in Parsons's company. Parsons couldn't deny that the deal seemed like a smart strategic move; a merged company would be able to get a more robust product to market much quicker. But selling meant surrendering key decision-making power. Was Parsons really ready to climb into the back seat and let another CEO take control?
The deal seemed like a smart strategic move. But was he really ready to let another CEO take control?
After all, the 32-year-old entrepreneur was having the time of his life. In fall 2001, he had scored his first big sales coup when Kroger's, the national grocery chain, signed on for Elogex's software, which allowed it to manage and track shipping and delivery of thousands of products to some 2,500 supermarkets in 32 states. More grocery giants, including Safeway and Publix, soon followed. Every day brought new challenges, and Parsons pretty much forgot what having a personal life was like. Not that he was complaining. "This was his life," says William Donner, Elogex's chief information officer. "He was totally submerged."
By December of 2002, Elogex had seven customers, 100 employees, anticipated revenue of $15 million, and $34 million in venture capital from New York City-based Fenway Partners. Parsons's plans were only growing more ambitious. Specifically, on top of the company's core transportation-management software, he wanted to begin providing inventory tracking and other services that would make Elogex attractive to industries besides supermarkets. He assigned a group of engineers to work on the new, expanded software and began lining up potential customers.
And then everything changed. Early this year, Parsons learned that another start-up was moving forward with a nearly identical concept. And this wasn't just any competitor. It was Greg Brady, former CEO of Dallas-based i2 Technologies, one of the world's leading suppliers of logistics software and a huge name in the industry. Brady had left i2 in 2001 with a mountain of cash from stock-option sales. Now his investment group, Transcend Partners, was poised to invest millions in the new start-up that was challenging Elogex. Even worse, Transcend was talking to one of Elogex's existing competitors about a partnership.
The prospect of going up against somebody with Brady's track record and resources definitely wasn't appealing -- especially since Brady's software was closer to market. So Parsons and his VC backers decided to explore the idea of striking their own deal with Brady. In early February, Parsons put out the call. A week later, he and Brady met at Fenway's Manhattan offices. Right away, it was obvious that Elogex would be able to go further faster with Brady and his team on board. "It was awfully compelling," says Fenway partner Greg Smart.
Brady also wanted a deal. But the terms he laid down -- his fund would take a majority stake in Elogex, and Brady would be CEO, based in Dallas, with his own team of senior managers -- were tough to swallow. Parsons, after all, had only gotten started at Elogex three years earlier. And he had accomplished a lot. While he'd still have a top management and decision-making role, Elogex was definitely going to change, and there was no way of telling what that would ultimately mean. He didn't have much time to think it over. "They wanted to move fast," Parsons says. "We needed to say whether we were interested."
In early May, the two sides struck a deal. For an undisclosed amount, Brady's group got 51% of Elogex's stock. Parsons, they agreed, would become Elogex's executive vice president and CFO and retain a seat on the board. He remains one of the company's four largest stockholders. The way he sees it, he's got a piece of a company that's far better equipped to exploit a potentially huge market supplying retailers with software to handle all aspects of getting consumer products to their shelves. Thanks to the merger, Parsons says, Elogex could well become a multibillion-dollar operation. To be part of that, he says, it was worth it to take a less exalted role.
Despite his new title, Parsons's day-to-day responsibilities pretty much remain the same. He still spends most of his time on the road talking to customers and prospecting for new sales -- although Brady hired a longtime colleague, Steve Minisini, as the company's head of sales. "We see [Parsons] as a key evangelist for the company," says Robert Humphrey, a Transcend partner who now serves as Elogex's executive vice president of marketing. And what about the fact that he and Brady are based in Dallas, while Parsons and the rest of the company work out of Charlotte? No problem, insists Humphrey. "All of us spend so much time on the road," he says. "Where you live is less important."
Just to be safe, Parsons did ask for and receive a four-year employment guarantee from his new partners. But he claims he doesn't have much time to worry about job security, anyway. Elogex plans to roll out its new expanded software product in September, and Parsons has been busier than ever drumming up customers. Indeed, Parsons says it almost feels like he's at a brand-new start-up again. "There's a whole new excitement to the business," he says.
The Experts Weigh In
Corporate Technologies Communications, Chicago
My No. 1 concern is that Parsons's role in the company is unclear. To me that's a disaster waiting to happen. It could still work if both sides have a commitment to fix it. But that's going to mean clearly defining Parsons's role, so he feels that he still owns something and believes that his contributions are important, and he stays emotionally invested in the company. When I sold my company [to Ketchum Communications in 2001], I tried to be very conscious of what it meant to sell; you have to realize the final decision is no longer yours. Parsons needs to make a very deliberate decision to do that -- or it won't take long for his ego to step in, and he'll say to hell with this.
Babson College, Wellesley, Mass.
Professor of management
In most cases I've seen, having two entrepreneurs at one company doesn't work. It's the unusual entrepreneur who wants to work for someone else. I think Parsons is running a risk, especially since his role is ambiguous. Experienced people know that sort of thing needs to be negotiated, that they have to be proactive about shaping the terms while they still have cards in their hands. Otherwise, the risk is that you'll end up in a role you don't want and don't do particularly well, and before you know it, you're moved out the door.
Mentor Media Group, Norwalk, Conn.
CEO and founder
I sold my company to PSINet in 1998 and bought it back three years later. My bet is that Parsons is gone in six months to a year. In the early days of a deal, everything is rosy. But it's not going to go as planned. Things go wrong, and all of a sudden, everybody's pointing fingers. The fact that Brady's in Dallas and the rest of the company is in Charlotte makes it tougher. It doesn't make sense for a small business to be separated by that kind of distance. You've got the ex-CEO with all the employees. Do they still report to him? When the trials come, who are the employees going to stand behind? The whole thing could be chaos.