Current Issue

Market Facts

Archive

Contributors

Recruitment

Subscribe

The Case Study

PgaSoft is a small IT development company based in Dublin. The company is a member of the Filemakers Solutions Alliance. Paul Grogan is the CEO and has extensive experience as a management consultant in the development of bespoke database systems.

Over the last few years with the help of two other employees, the organisation has developed an integrated suite of Customer Relationship Management (CRM) and Industry  Specific Business Systems, which have been very well received in several vertical markets in Dublin. These include management suites  for the design sector, print industry and bespoke manufacturers, as well as an asset management system used by a large semi-state company.

Marketing to date has been mainly through word of mouth and referrals, but clients include several prominent companies in the  design industry, including one multinational and several medium sized print companies.

The products are  price competitive and can be readily customised to reflect a customer’s house style and the variations in their business models. They can accommodate from five to 200 active users, and typically would handle a range  of tasks and functions including prospecting, correspondence, estimates and quotations, order management and scheduling, time recording, job costing, margin analysis,  purchasing, and stock control.

Installed systems are hosted on a server and users access the database using Filemaker Pro  on a PC, Linux or Mac Network or a mix of all three. They can also be linked to popular accounts packages such as Sage or Quickbooks as well as to Oracle, SAP and other ODBC compatible systems.

The company faces several dilemmas:

1) The organisation needs to raise capital to enable it to expand out  of the local market and to build a long-term management team. (Paul Grogan is now 63 years old.)

2) The target market in the UK and Ireland for this type of system is very broad which can be difficult to market to.

3) Paul is undecided whether they might be better off looking for a merger with a UK company for example or trying to raise capital in Ireland with a view to going alone with a wider product launch in Ireland and in the UK.

Paul Grogan and PgaSoft have a decision to make on the future direction of the company and the methods employed to achieve that vision. There is a need to recruit and retain a dynamic management team, increase the product range, and expand into new geographical markets and raise the finance to do all of this in the short to medium term.

Few organisations have all of the resources or skills to tackle new market opportunities or other initiatives independently and may  require high investment leading to slower response to changing circumstances.

The danger is that, with limited resources, too much time is spent in sourcing the finance to fund the new operations while other areas of challenge are neglected. Even when ‘successful’ with venture capital providers, the problem remains of sourcing management to drive new products to existing markets and new markets in which to expand. Allied to this is the fact that companies can end up with short-term ‘partners’ with little or no sector- specific expertise, whose eye is firmly on the exit door.

On the other hand, strategic partnerships allow businesses to take advantage of synergies to collaborate in response to customers’ needs and spread the risk, join complementary skills, competences and resources and share privileged or confidential information.

Grogan should seek a merger or partnership with a complementary business which has existing management expertise, market penetration and access to finance. This would be the solution to many of the challenges facing him in one package as long as the fit is right for both businesses.

The initial step in this process is to carry out a SWOT analysis on PgaSoft to get an accurate picture of where the business is and what it offers as well as what it needs in the current and future environment. Look also at what comparable organisations are doing to compete in innovation, service and customer care.
It is also important that Grogan creates a clear vision for the future, identifying the key processes, skills and core competencies in which the business needs to be best of class. This exercise should assist in the initial search process for likely business partners. The partnership process can be vertical, horizontal or diagonal. Vertical collaboration is usually with businesses in the supply/delivery chain, such as distributors, marketers or suppliers. Horizontal partnership is usually with competitors and diagonal cooperation can be with companies from other sectors.
The selection of potential partners is mainly a question of information gathering and analysis, keeping in mind Grogan’s needs and vision before any tentative approaches are made. The two partners need to share a broad business philosophy and longer-term goals, which fit both of their overall strategic plans. On this broad platform, joint development of plans, structures and time-scales can be planned and cultural incompatibilities guarded against.

A successful partnership/merger option would seem to tick all the boxes on Grogan’s wish list and allow the company to tackle the next phase of its development. The devil will be in the detail.

PGA Soft seems to be doing well in the marketplace and has some strong success factors to drive the company forward through the extensive experience of its CEO and strong reference sites from some of its prominent clients. However, the company seems to be at a crossroads in terms of how to position itself to bring it to the next level in the marketplace.

Two of the key challenges the company needs to address are to build a strong management team and to have a stronger sales and marketing focus in the company, something which is not currently evident. There is an over reliance on the CEO and two other key members of the team who are involved in product development. If the company wishes to expand its product base and market focus, there needs to be a wider knowledge base and a resource of capabilities to manage their offerings.

Without investment in sales and marketing analysis, planning and execution, the company will remain unfocussed in the marketplace and run the risk of not being a market leader in any of the vertical markets in which it operates. In the longer term, it will make it more unattractive for a merger as its unique selling proposition is unclear. It needs to define its target market, tailor its proposition to each market and increase its marketing drive and cannot afford to rely on word of mouth or informal channels. There are a number of excellent references sites that the company can use to help in its sales process in Ireland and the UK particularly by using the multinational and semi-state customers.

PgaSoft is no different to many early stage businesses in that it has reached a point in its life cycle where investment is required to take the business to the next stage. As the company is a technology based business there will be little or no assets available for security purposes, therefore raising bank debt at this stage will prove difficult. Options available to the company include: raising funds from the existing shareholder base; taking investment from new shareholders (individuals, government funds or venture capital funds): or part disposal or merger with a larger strategic partner or UK company.

Given the size of the current shareholder base it is likely that external investment will be required. A part disposal or merger with a strategic partner at this time may be of benefit, but this could result in a significant dilution of the founder’s equity (possibly up to 50 percent) and given the position of the company in its life cycle, such an approach may be premature. The merits of being part of a larger entity and what it brings to the business should be fully explored prior to any agreement being concluded with a potential strategic partner. There is merit in considering whether alliances or distribution arrangements may better serve PgaSoft in its next stage of development.

The challenge for PgaSoft is to source the right type of funding in the right time and at the right price. A number of Irish/UK private investors and venture capital funds focus on investments of this type; therefore there should be an appetite for this investment opportunity in the market. The fact that the company has existing customers, an initial sales track record and an experienced (although small) management team will be viewed positively.

PgaSoft should prepare a short to medium term strategic business plan that sets out the business value proposition. The plan should cover key areas including: history and background including milestones achieved to date; product/technology description, intellectual property and R&D roadmap; profile of promoters and management team; the market opportunity, sales and marketing strategy; and the historical and projected financial performance for the next three years. The company should seek guidance on the preparation of the business plan and projections from its accountant/ financial advisor. The financial projections will dictate the level, nature and timing of funds required.

As the current valuation on the company could be expected to be relatively modest, it would be unwise to try to take on a large amount of funding at this stage as it could result in a significant dilution of the existing shareholders equity, which can be de-motivational. PgaSoft would be better suited to seek initial funding through a mixture of investment from the likes of Enterprise Ireland (EI) and private investors with industry knowledge rather than through a venture capital fund which can be time consuming and costly. Private investors and EI in addition to providing a source of capital can also provide a valuable source of experience and guidance to PgaSoft during its next critical growth phase.

Further funding will most likely be required at a later stage however these initial funds will provide the company with an opportunity to further develop in target markets and to make some key hires.  This should drive current valuations higher resulting in less of a dilution to the existing shareholders in a later funding round, ensuring their continued commitment to the future growth and success of the business.

Paul Grogan has very successfully combined his wide experience as a management consultant and developing bespoke database systems to develop PgaSoft’s integrated suite of CRM and business systems software products.

PgaSoft is also in the good position of having a number of reference customers of various sizes in a variety of different vertical markets. This will greatly assist it to assess and clearly articulate ‘the fit and value proposition’ in each of the various verticals, as a generic one size fits all CRM system would be a hard sell.

Based on this assessment the company can then decide on the one or two verticals to prioritise first, and ideally prepare a specific product marketing plan as to how it will approach each. The teams own sector experience and recent business won in the sector will also be an important factor in that decision.

The target verticals it selects might also be a consideration in deciding what type of person is most suitable and needed in expanding the management team. Before looking overseas to the UK it is important to ensure that the systems offered by the company are also fully productised, as Paul Grogan will be fully aware of how time intensive and costly it is to sell bespoke services abroad and provide the ongoing support needed even with an overseas presence or an experienced local partner.
With priority verticals chosen,  it may also be a worthwhile initial step before looking overseas to  focus on increasing penetration in these verticals in Ireland both in Dublin and into other regions outside Dublin, and try to build some critical mass and a broader customer base in the chosen sectors.

This would then form a better platform to look to the UK and it may well be possible to leverage selected reference sites in Ireland to secure sales with related companies in the UK, either directly or through a suitable distributor or chosen partner.

In raising capital,  the more focused and clear the company’s plan is regarding its target market verticals, value proposition and its competitive product offer, the greater its chances of securing funding, either from private or suitable trade investors.

The Investor Magazine and Broker CRM in association with IMAF, PIBA & IBA proudly presents

The Mortgage & Insurance Broker Conference ‘07