From the Top
- Executive to Executive -

Recently, RealMarket caught up with Michael McCloskey, CEO of FrontRange Solutions. We took the opportunity to talk about why he decided to become more involved with day-to-day operations and why he is making big bets in voice over IP (VoIP), hosted applications and channel partners. Michael also gives us an inside view on how he has been able to replace Siebel and plans to take FrontRange public.

Michael McCloskey,
Chief Executive Officer, FrontRange


 
RealMarket: Initially you were a FrontRange board member, becoming CEO just recently. Why did you decide to make that change?
 
McCloskey: As a board member I watched the company enter into a state of atrophy. In a couple years time, the company racked up huge losses burning through $80 to $90 million. I felt the management team had no strategy and was not competent. On the board, we decided a move in a different direction was necessary. While the board searched for a new CEO, I told them I would help out a day or two a week since I had other commitments on other boards. So in my role as temporary CEO, I started making the moves that I saw were necessary which included hiring a new management team. I didn’t do it for the money because I had been involved with IPOs at KANA, Genesis and Network Appliance. Instead, my motivation comes from the belief that when you bring together a team it is important that you see it through as a leader to make sure it is successful. So I took the job full time.
 
People are looking for enterprise class functionality with different attributes than they find with monolithic solutions. They want low license fees, very low total cost of ownership, and very fast ROI. ROI has come back in fashion.

 
 
RealMarket: OK, you’ve brought in a new team. Have you been able to improve the bottom line?
 
McCloskey: We rebuilt the management team and I think we’ve got a fantastic team. And that team is now rebuilding the product lines. Right now, we are growing the company and we are very profitable. Last quarter, we saw 25% revenue growth and we are very, very profitable. Specifically, our operating profit is 10 – 11%. That is in the midst of new products and new partner development so next year, I expect it is just going to be better.
 
RealMarket: Recently, we’ve heard rumors that you are considering an IPO. Can you elaborate on your plans and why the move after all these years?
 
McCloskey: I mentioned that we are growing which makes us somewhat unique right now given the declining revenues of companies like Siebel. I see a lot of ways to grow this company. Getting listed on a U.S. exchange like NASDAQ affords us a greater marketing presence. With more notoriety as a public company, we hope to garner a bigger share of the market. We have plenty of capital but it certainly is helpful to raise more. Of course, being public gives us a very powerful security for small acquisitions. But the more important reason to go public is to be more recognized.
 
For us, we can get more publicity because we have displaced companies like Siebel. We are showing growth, and we have new products.

 
 
RealMarket: Are you looking to repeat the notoriety of a salesforce.com IPO?
 
McCloskey: Salesforce.com certainly has done a good job to raise their notoriety. Most of the money they raised is going to sales and marketing and very little is going to development. Few companies can do that. As they become a public company, they may have to utilize the resources differently. For us, we can get more publicity because we have displaced companies like Siebel. We are showing growth, and we have new products. To me, FrontRange is repositioned for even faster growth.
 
RealMarket: What do they see as the number one issue or opportunity facing the companies today?
 
McCloskey: People are looking for enterprise class functionality with different attributes than they find with monolithic solutions. They want low license fees, very low total cost of ownership, and very fast ROI. ROI has come back in fashion.
 
RealMarket: When you talk about enterprise class functionality, who do you sell to?
 
Our new solution has complete PBX and ACD capabilities with voice recording functionality. It has everything that a contact center needs including unified messaging. The great thing is that you don’t have to buy hardware so our price is about one-fifth to one-tenth the price of existing solutions.

 
 
McCloskey: We sell to small to medium size business as well as distributed enterprises, more specifically divisions of big companies. We have sold to over half of the Fortune 100 and half of the Fortune 500. We really span a wide range of companies. Our IT service management product (HEAT) goes into larger organizations while our sales force automation product (Goldmine) goes from very small companies to large ones like the Bank of New York with 2000 seats. It really is more a question of application and functionality.
 
RealMarket: Given that you work with companies large and small, what other vendors would you most likely compare yourself to?
 
McCloskey: The market associates us with SalesLogix and ACT from Best Software. That is on the Goldmine side. On the HEAT side, Magic or BMC’s Remedy products are most often mentioned. In the call center we have a brand new all-software VoIP solution. We have jumped out ahead in this market and we see very few or no competitors.
 
Think about this: Great Plains Software is smaller within Microsoft than when they were independent. All the power of Microsoft couldn’t grow that business.

 
 
RealMarket: Why do you think you are ahead?
 
McCloskey: One of my previous companies was Genesis and I learned a lot about big IP networks that can carry voice packets. Our new solution has complete PBX and ACD capabilities with voice recording functionality. It has everything that a contact center needs including unified messaging. The great thing is that you don’t have to buy hardware so our price is about one-fifth to one-tenth the price of existing solutions. That gives us a huge competitive advantage especially in branch solutions of less than 100 seats where hardware costs don’t make small implementation economically feasible.
 
RealMarket: What about Microsoft?
 
McCloskey: From our point of view, they have created a huge amount of interest in the market. We find Microsoft is doing a very poor job with the channel. Many of our partners are also with Microsoft. Partners get leads from Microsoft but implement with FrontRange. Finally, and very importantly, they don’t have product. Microsoft doesn’t understand real applications like CRM. That is not Microsoft’s strongpoint. Think about this: Great Plains Software is smaller within Microsoft than when they were independent. All the power of Microsoft couldn’t grow that business.
 
RealMarket: In a crowded market, how does your company differentiate itself?
 
McCloskey: We are focused on small medium and distributed enterprise. We see companies like BMC, Primus, and Siebel missing their numbers. They are blaming their shortcomings on a slowing market. To me they have the wrong business model which includes a very costly sales force. We use over 1,100 partners worldwide. We have a business model based on high velocity of lots of transactions rather than a few big deals. We have technology equal to or better than companies like Siebel and we are less expensive, easier to use and easier to deploy. When we have the opportunity to compete, we do well.
 
Recently, we were invited into a Siebel shop. The company was spending a half a million dollars in annual maintenance fees. We replace the Siebel functionality for $200K and a fraction of the on-going maintenance fees while offering the same or better functionality. And we deployed in two months.

 
 
RealMarket: If you have such a competitive advantage, why aren’t you growing faster?
 
McCloskey: Our batting average is high. We just need to get to bat more often. I have great confidence in our strategy. Getting more notoriety and our new products to market will accelerate our growth as we get invited to participate in more deals.
 
RealMarket: Let’s talk about notoriety. Many people know you as Goldmine. Others know you as HEAT. The company name, FrontRange is another brand. How do you reconcile the multiple faces you present to the world?
 
McCloskey: When you talk to the IT service management people, they know HEAT. On the sales automation side, everyone knows Goldmine. Many don’t know FrontRange. People know the company through the product brands. We have strong brands so we would lose a lot if we would dispense with those brands. So we are not changing our brands at all but we have been doing more FrontRange branding via advertising.
 
RealMarket: Much has been made about CRM failure rates. How do you balance delivery versus expectations?
 
On the technology side, we are building a product that is multi-tenant and ASP-able so we will have the ability to offer license and hosted solutions. In October we will have an ASP version that can be sold by our partners.

 
 
McCloskey: That’s always the challenge in this industry. People are looking for a lot of functionality and, at the same time, low cost and fast deployment. People are smarter today. Four or five years ago, people thought about enterprise-wide implementations. People tried generic solutions for many divisions even when the individual divisions had specific functional needs. Recently, we were invited into a Siebel shop. The company was spending a half a million dollars in annual maintenance fees. We replaced the Siebel functionality for $200K and a fraction of the on-going maintenance fees while offering the same or better functionality. And we deployed in two months. Today, people are smarter - they won’t bet on the future. Gartner and other advisors have done a good job of helping people define process first before selecting a tool to automate the processes. In addition, people are less likely to bite off big deployments. That plays to our strength.
 
RealMarket: You see quite a few implementations. What best practices can you share that would help other organizations achieve higher levels of ROI?
 
McCloskey: I would say the first thing to do is to really define the needs. Define your own best practices and how you want to run the specific applications. Talk to a series of vendors and look for partners that can help with the deployment. Bring in a partner or VAR that has expertise. Some of our VARs have done two to three hundred implementations so they have lots of good ideas. External VARs can validate your needs and they can actually help tune the application better than the vendor.
 
RealMarket: What does it typically take to implement a FrontRange solution?
 
McCloskey: Generally, a small Goldmine implementation is a couple of weeks. A more significant implementation might be six to eight weeks. HEAT is generally between two to four weeks. Implementation costs typically range from 30% to 70% of license fees. It can go higher but that is the sweet spot.
 
RealMarket: What keeps you up at night?
 
McCloskey: We just had a great year and we did it because we hired a better management team. We also had good product successes. We have a huge number of products coming out. While we are confident in our new products it is important that we execute properly. Another thing that is important is the care and feeding of the channel because we are dependent on our channel. We have to make sure that we have the best channel on the planet.
 
RealMarket: Looking to the future, what is the biggest change you see on the CRM and contact center horizon?
 
McCloskey: There certainly was a bubble effect in the 2000 – 2001 timeframe. People talk about that as the good times. Those were the aberration times. The other companies always had to prove ROI with long sales cycles and they got spoiled when everything was hot. Now we are back to basics. That means creating a relationship with the customer, proving ROI and solving real problems. Enterprise deals are the exception, not the rule. Smaller implementations and more pilots are being driven by budgets that have been slimmed down. IT is not necessarily king. What we see now is more permanent behavior. The big guys will become extinct. They are missing their numbers by a big amount. No one is shelling out large amounts of money for 12+ month implementations. Companies like salesforce.com have done well by offering easy-to-use applications that require little IT involvement and don’t cost an arm and a leg. That is something the big guys just can’t do. On the technology side, we are building a product that is multi-tenant and ASP-able so we will have the ability to offer license and hosted solutions. In October we will have an ASP version that can be sold by our partners. This hybrid approach allows companies to start in ASP mode and matriculate to a premise model if they want using the exact same piece of software. Siebel can’t do that. We will be one of the few . . . actually the only company that can offer the same technology platform by turning on or off specific pieces of the application. This is our technology advantage.
 
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