Software firm's failure illustrates a solution in search of a problem
After two start-up successes, Al Davis thought Omni-Vista Inc. would be an entrepreneurial home run. The Colorado Springs-based company had developed software to sell to other companies that create software, to help them sort out the trade-offs between adding features in their product and getting it to market more quickly.
Launched in the dot-com boom in 1998, Omni-Vista failed four years later during the technology industry’s meltdown. The firm auctioned all of its assets except for office equipment that was peddled at garage sales.
Investors managed to recover about 15 percent of the $1.93 million they had pumped into the company over the four years it operated, during which it generated about $2 million in revenue from 130 clients and customers.
“It was a classic example of a solution in search of problem,” said Davis, now a professor of business strategy and entrepreneurship at the University of Colorado at Colorado Springs. “We got so entranced by the product, we lost sight of the customers’ pain that we were trying to relieve. The product worked and some clients still use it, but it didn’t gain enough traction in the marketplace to provide a return to investors.”
Patrick Bultema, a veteran software executive and former venture capital partner who is chief executive of Springs-based software start-up CodeBaby Corp., said technology entrepreneurs tend to make one or more of three common mistakes:
• They “get married to their own idea of what the business will be rather than identify the appropriate assumptions and thoroughly test them. You’re so close to your own ideas that you can’t continue learning and evaluate the business at the appropriate time,” Bultema said.
• They bring in the right people at the wrong time, often executives in marketing or sales, who won’t be needed until a later stage of the company’s development. That often leads to bad advice about pricing and other issues or sales strategies, Bultema said.
• They get “cocky or complacent,” Bultema said. It often takes five to 10 years to build what he calls an “overnight success.”
In a presentation last month to entrepreneurs, investors and even one former Omni-Vista board member at the Colorado Springs Technology Incubator, Davis described the failure of the company. Davis, a co-founder and CEO of Omni-Vista, said he and the rest of the company’s managers made several key mistakes — including all three Bultema outlined. He also said the company might have failed even if its management had done everything right because of the industry’s 2001-02 meltdown.
“We quickly learned that the market wasn’t ready for this product — few companies consciously select the requirements for a software release. The irony was that a company that was to teach people how to build a successful product itself failed,” Davis said. “The most common way software is developed is that companies decide they want to deliver all features at once and they deliver it late; then the development and marketing teams blame each other.”
Omni-Vista went through four marketing vice presidents and spent more than $1 million building its first product — a software license that sold for $3,000 that was later scaled down to a product that sold for $500. The turnover in marketing also led to the company lurching from a low-paid telemarketing sales force to a lengthy analysis of the market to a high-end sales team.
By the time the fourth marketing vice president was hired and was successfully selling the company’s software, Omni-Vista was running out money and couldn’t raise much more as the technology industry collapse was intensifying. The company was forced to move out of its offices along the Garden of the Gods Road corridor, lay off most of its 17-person staff, cut salaries of the remaining employees and halting advertising and most other discretionary spending.
None of those cost-cutting moves was enough to save the company. Before Omni-Vista failed, Davis and the board tried unsuccessfully to sell the company to six potential buyers.
Davis said he did a few things right: he split ownership in thirds between the founders, investors and employees; he recruited and retained a strong and independent board of directors; and he kept everyone informed about the company’s performance.
“The ultimate problem is that our software was a missionary sale. You were selling something to somebody who didn’t know they needed it. It took too long to make the sale for the price we were charging, and it required a culture shift by the buyers,” Davis said.
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