Survival instinct tightens focus on customers

At a management session, Emerick Woods sounds more like the quarterback of a football team than chief executive of a tech start-up.

“We need to go deep and very wide,” Woods tells his team, drawing out his offensive play. “We’re going to go vertical.”

By Matt Marshall
Mercury News

He isn’t talking about beating a competitor, or even grappling with technology. Instead, he’s orchestrating an attack on his corporate customers.

In a sign of the times, the Palo Alto start-up is managing its way through the downturn by shifting from an obsession with its technological prowess to a fanatical focus on customers.

Gone are growth strategies like “build it and they will come,” because corporations have frozen their spending budgets. So before Coherity tinkers any more with its product, Woods is making sure his 11-person team drills prospective corporate customers about their business problems and what they need to buy to fix them.

The future of Coherity’s success, says Woods, depends on one blunt metric: “What kind of customer traction do you have?”

That focus drives everything Coherity does, including how it refines its business model, the demands it makes on its venture capital backers, and where it looks to spend money and cut costs.

Coherity was founded in 1999 by two former Hewlett-Packard employees, Joe Ellsworth and Chetan Patel. They built a software platform based on the hot new XML standard. But customers were holding off on buying the cutting-edge technology.

“Nobody was interested in buying it,” says Ken Tsai, director of product marketing.

Then they started to realize they needed customers, but they still didn’t want to give up their focus on deep technology.

Their contacts at HP told them the company needed a way to create a unified profile for each of its thousands of customers — spread across the company’s disparate databases, which number up to 30 for a single division. So Coherity built an application to run on top of its platform.

With a commitment from HP to buy the product, Coherity won $4 million in venture backing last year from investors, including Mobius Venture Capital and Accenture.

Problem was, Ellsworth and Patel spread themselves too thin. They tinkered away at their platform product, making ever-better refinements on it, and resisted a full-scale switch to focus on the new application. “We were searching for our identity,” recalls Tsai.

Meanwhile, the hopes for an economic recovery in 2002 had vanished.

Help arrives

Seeing Coherity spinning its wheels, Mobius’ Rex Golding, a board member, helped recruit Woods to take over the company. Woods had led Sunnyvale’s Vicinity through an initial public offering in 2000, and had built a reputation as a fix-it man.

When Golding and other board members first pitched the Coherity job and technology, Woods caught them off guard. “Who are you going to sell it to?” he demanded.

Woods, relishing the chance to build a new company, took the job in August. (Ellsworth, the CEO of Coherity at the time, also recognized the need for the change, and switched to chief technology officer.)

But Woods hasn’t stopped asking the question. Which is why, in the management meeting last week, he directed his new team to search high and low for other customers. He’s demanding three to six new customers within six months. His team scours a list of 18 companies to target first; they pledge to make 40 sales calls a day.

Woods asks everyone to rack their brains for contacts at companies on the list. For starters, Woods offers to mine his own contacts at Cisco, Intel and Schwab.

Briefly, the session loses focus: Tsai notes that a Japanese company has expressed interest in the original XML platform. Two Coherity employee want to put time into closing a deal. Woods agrees, but cautions not to let them waste time on it: “I don’t want them to knock themselves out,” he says.

Getting in doors

Coherity is also asking its venture backer, Mobius, for help getting its foot into customer doors. Mobius partner Scott Russell, a former Wall Street executive, has formed a “CIO Council,” or a round-table of 10 chief investment officers from mostly Wall Street firms. The council meets periodically to consider technology needs, and Mobius hopes to have Coherity to pitch to the group.

Customer focus is also driving Woods’ spending. He’s keeping a close watch on expenditures, making sure that jobs like public relations, payroll, legal work and accounting are outsourced. The cost of such professional services has plunged in the downturn. They’re still falling, Woods says, some of them to less than half of what they cost two years ago.

Lower costs

In 2000, start-ups needed to pay as much as $25,000 a month to get a PR agency interested, he says. Today, a budget of $5,000 to $10,000 is enough.

Lease costs are a bargain: Coherity is subletting offices at the Accenture building in Palo Alto. And salaries are down 20 to 40 percent, depending on the position. “I’m already one big overhead item,” he jokes. “There’s no need to add any others.”

But there’s one area in which Woods hasn’t cut back: He’s shifted two more people to sales. He’s about to hire another, “a player” sales rep, and plans to hire more in the future as the company gains traction.

He’s not spending too much time searching for engineers. Silicon Valley has great technology, but customers aren’t interested in technology alone, Woods says. They want to buy products that solve real problems, which, Woods says, is “something that we in Silicon Valley are less good at.”

http://www.siliconvalley.com/mld/siliconvalley/3986228.htm