Sterling-Hoffman: Tell me a bit about the history of Allegis. Where and how did the concept originate?
Dennis Ryan: Allegis was announced publicly in December 1998. We began working on the technology about a year before that, and at that time, we simply announced us as a company, the type of business problems we were solving and notified the marketplace that we'd come back a year later.
The core premise of the company was that the most prevalent forms of selling, marketing and service products were when manufacturers performed these activities through indirect channels and distribution. Most commerce that occurs in the world at that time, as far as we could see, occurs by a manufacturer selling their product through indirect forms and distribution via a reseller, broker, agent and distributor. The core premise and belief in the company in 1998 was in building Internet-based applications that connect the manufacturer with their sell-side partners, we can enable companies to more effectively manage those relationships and gain analytical metrics in terms of how that business is performing.
Sterling-Hoffman: Were you a co-founder?
Dennis Ryan: The Company was founded by 3 or 4 software engineers and I joined about 9 months after that. They began working on the technology platform and the initial set of applications and I joined as CEO. We formalized the plan of attack, what the strategy was, and then we went out and proceeded to raise capital and put the whole company together.
Sterling-Hoffman: So it had not been financed yet?
Dennis Ryan: That's correct. It was self-financed by the original founding team and then I joined to help formalize the plan and go out and procure capital to take the company forward.
Sterling-Hoffman: Was there any personal history between you and the founders? How did you get to know them?
Dennis Ryan: One of the software engineers and I had met at an incubator we both worked at for a few months. Neither one of us decided to stay at that early stage company; we went off and did other things. He ended up teaming up with the other couple of software engineers that started Allegis and when they had a need to get someone with my type of skills they said "I met this guy, Dennis Ryan, at this other company I was thinking about doing. It didn't pan out so let's get in touch with him he might be a good fit here". We were both in the mode of trying to create a company and were in a circle of people in the San Francisco Bay Area that were experimenting with different ideas of what we could create a company around. Our paths crossed and the second or third time it stuck.
Sterling-Hoffman: Tell me about the thought process in the early stages just in terms of trust. If you didn't have any personal relationships with these guys was there any thought given to 'can I work with them?' 'What types of people are they?'
Dennis Ryan: Issues of character and ability to work together as a team is our core foundation and is why we ended up together. It's actually the reason why I am in the job that I'm in. I fundamentally believe in the value of teamwork, in terms of people getting together to produce something of value, whether that happens to be in the form of a business or a sports team or a music ensemble. So recognizing that shared principle was something that drew us together because those are values that weren't necessarily true at the incubator we came from and were some of the reasons that each one of us decided independently to leave.
Sterling-Hoffman: I noticed you did a stint at GO Corporation, of 'Startup' fame…how do you feel about the prospects of pen-based computing today?
Dennis Ryan: I was at EO, EO was the hardware and software company that spun out of GO, GO was the operating system provider. EO was an innovator in the Pen computer market. What Microsoft is doing today with the PC tablet is what we were attempting to do 10 years ago. The vision was right, the ability to deliver on the business value with the constraints, costs and otherwise that customer needed all the pieces were not entirely there yet at that point. Ultimately, EO as a business failed and the key reason for that was the technology in the pieces weren't in place to deliver what needed to be delivered to have the product be successful.
Sterling-Hoffman: This company (Allegis) was sort of born in the bubble, and a lot of venture partners have had to look at their portfolios and ask themselves if certain companies are still good ideas. How about Allegis - is it still a good idea? Would you have joined the same company in today's market had it been presented to you?
Dennis Ryan: Yes. The principle of Allegis has nothing to do with the bubble that started after Netscape Browser evolved to E*Commerce and Business-to-Consumer Commerce. The business models and the business propositions that were at the foundation of the bubble were very dissimilar to what Allegis does. For better or for worse, we never participated in the bubble. We are a more stayed business application provider in the model of how business application software has been done historically. The best indicator of that, at a macro level, is companies continue to sell products through indirect forms of channels and, in fact, that form of model is increasing in propensity rather than decreasing. We have also been able to grow our business 95% on a compounded annual basis in 2000 through this December time period. There are not many companies that you can say that.
Sterling-Hoffman: I had lunch with an ex-Broadvision exec. The other day and he commented that seemingly every process that could possibly be automated, at least at the enterprise level, has already been done. What do you think?
Dennis Ryan: I think there is a lot of business process automation that has occurred inside a company's four walls, internal operational processes around human resource management, manufacturing management, financial management. Business processes that have NOT been automated are business processes that span the enterprise, the extended value chain of one company to another company to another company. So our focus is on the extended value chain and the business processes that exist between companies and that level of automation is still in the early stages.
Second, independent of the degree of automation business process, the key value that the company wants from automating that business process is two-fold. Certainly, they want the ability to become more efficient through that automation but they also want the ability to become more quantitative and analytic. What types of metrics and insight can one gain by managing business processes across the enterprise?
Sterling-Hoffman: What about a threat from companies like Siebel who are building extensions to their existing applications? How much have you found that to be a problem?
Dennis Ryan: That would be the third category of related competitors; internal build, best of breed providers like Channel Wave and then larger enterprise players in the CRM and ERP space that expand their solution to address issues of channel management. What's happening is customers are viewing what Allegis does as an extension to their core ERP systems and CRM solution and are integrating what Allegis does in terms of channel management with their existing stuff. In practically every deployment that we do there's at least one integration with an ERP system where there's often integration with a CRM solution.
A point of reference for Allegis within the enterprise is really the ERP solution. What we're doing in terms of managing channel-based business processes and channel-based metrics such as product sell-through, sell-through price, channel inventory levels are a logical extension of your internal ERP systems more so then they are a logical extension of your CRM solution. The most common reference point for Allegis in the eyes of the customer is back-office ERP solutions and improving their ability to manage their extended enterprise operations then it is as an adjunct to CRM. The best proof point to that is we integrate with an ERP system in practically every deployment at 90%; CRM might be closer to 50%.
Sterling-Hoffman: At least with CRM, there seems to be so much shelfware - partially because companies went out and purchased huge numbers of licenses and then downsized like crazy. Are you finding that that is a barrier to you in selling situations with CIO's where they say, "We just want to focus on what we have we're not doing any new projects." ?
Dennis Ryan: Seventy-five percent of our customers are active today with new phases of deployment compared to their original purchase. Our average initial deal size is somewhere between a ½ and ¾ of a million dollars initial commitment. Most of our companies have since doubled or tripled down that initial investment after the initial deployment for additional products or to expand the deployment to include additional geographies or business units. So the question one has to ask one's self is "Why has Allegis software not only got deployed but customers come back and purchase additional software and services?" It's because of the demonstrable ROI in that initial deployment.
One of the key contributors to shelfware is companies can motivate themselves (or did motivate themselves) to purchase a software license but couldn't find a value relative to the cost of getting it deployed. For us, the equation between software license and deployment is a lot more favourable then some of the companies who have bigger prevalence of shelfware. It's one of our core values to the customer is they can purchase software and we can get them deployed in a short time period within 90 days and demonstrate ROI within 6 to 12 months and doing that has lead to our customers, on average, doubling down their investment if not tripling or quadrupling down their investment in Allegis within the 24 months post the initial deployment.
Sterling-Hoffman: I read an article in Fortune Magazine about how poorly some of the venture funds are performing. Given the fact that so many portfolios are in trouble right now, are you finding that your Board remains as eager to help out day-to-day with different instructions as they were before? You guys are presumably past the stage of which your viability is the question. How involved does the board get nowadays?
Dennis Ryan: I would definitely say that compared to the early days starting up, the Board is less involved week in and week out operationally then they were 3 or 4 years ago and that's relative to introductions to potential customers, introductions to people we might want to hire and strategic opportunities. I think the week-in and week-out level of engagement of investors I would say your observation is definitely true that there's definitely less regular interaction with them on the operational issues of the business then there was when we started out. I think it's a function of two things. One, we're a little bit more mature then we were when we started. Second, people are working on a lot of issues in portfolios.
Sterling-Hoffman: Tell me about your earlier experiences. How did IBM and Apple contribute to your management style?
Dennis Ryan: IBM, Apple and Claris the first three companies that I worked at were strong contributors to my belief that teamwork is the core ingredient for success. Each in their own way those were strong elements of how these companies operate internally as well as how they operated with their external constituents. It was a core value, a core principle of those work environments; they were all very team-oriented.
Second, would be the types of people I had to work with whether it was from a peer group point of view or from a manager-superior point of view there were people who contributed ideas to me and helped in a very formative stage in my career. Leadership style and the inclusiveness of enabling groups of people to work together was a couple of key contributors in those early experiences.
I was at those companies during periods of time where they were all very successful. IBM's PC was coming out; Apple and MacIntosh were coming out. Apple backed Claris, from the day we were formed until we were purchased. I was fortunate to be at those companies during successful stints of those organizations. I think how employees worked with one another and the ethics that they held with people on the outside were two of the key things that were part of the success.
Sterling-Hoffman: In your mind did the people make the market or did the market make the people?
Dennis Ryan: When you say the 'market'…
Sterling-Hoffman: Success. The way you almost framed that is there's a difference from some of the other people that I've interacted with that would take credit for the success the company created versus they were fortunate to be there when the company was successful.
Dennis Ryan: I happened to be there when those companies were going through successful periods in their history so the learning that you were able to see derived in those environments I think was a positive experience.
Most long-term successful companies are based on the ability of the people. In the broader context of looking at companies that are successful for a very long period of time there are very few companies that make it with a hit product because of the timing being right, the market being right and being able to continue over the decades thereafter. The important thing is having people adapt to the market situation and the depth of business to discover the right opportunities and to grow the company in the right way. It's all about the people transforming events in terms of accelerating growth driven by hitting the market at the right time. Certainly, a company that is successful for a very short period of time, a few years rather than 10 or 20 years, could be based on hitting the market right. Really those long-term companies that build value in a marketplace through ups and downs are ones that have the right people.
Sterling-Hoffman: Sounds like you are a fan of "Built to Last"….Do the concepts presented in "Built to Last" still hold water? Are they relevant to companies at your stage?
Dennis Ryan: Jim Collins who wrote, "Built to Last" and "Good to Great" yes I am a fan of him; the research that he's done at looking at what makes companies successful over the long-term. He co-authored another book before Built to Last with Jerry Porras where they talked about core values. I think one of the interesting observations they make is that you can't create the culture, you cannot create the values of company - it is what it is. The values of a company are based on the people that are there very early on and that's not something that you can change. You can make it more explicit, you can expose it more effectively and make it more prominent and those are all good things to do but you can't create the culture, you can't create the values because it's inherent to the people that are there.
Sterling-Hoffman: So is an implication of that then, in your mind, is that the larger a company gets the more the values can be diluted?
Dennis Ryan: It can, although I think that's why it's important to expose them and make them explicit because what happens is it almost becomes a self-selection process of potential new employees. If you make them explicit then people and what you talk about with potential new employees, what they read about the company….then I do believe there's a little bit of self-selection that happens. People say, "Do I really identify with those people?" "Do I want to go someplace else?" The exercise of defining your core values as a company and what the culture is, is not important from the point of trying to manufacture what it is but it's important in terms of trying to expose it and make it explicit so that the people that you deal with, including potential new employees, can help you in deciding whether or not it's a place they want to join.
Sterling-Hoffman: How high a priority are maintaining and enforcing organizational values today? Don't you have bigger problems to deal with from a time perspective?
Dennis Ryan: I would say it's a strong priority and something that we've built enough momentum around that it takes care of itself; I'm not the shepherd of that. In the beginning, we didn't place a lot of focus on defining our values. When the four founders hired me they didn't say, "Here's our values do you want to join?" Even when we're 15-25 people, we didn't do that. It was probably when we got to around the size of about 40 or 50 people that we said, 'We're going to be going through this hiring spree let's go through this exercise of writing down what it is we believe our core tenets for people who are here'. We ended up defining or discovering what the core values were and so we put effort into that to make that happen. It's taken care of itself since and now we have quarterly awards based on who exhibits the values most effectively in the company.
Sterling-Hoffman: Was there anything in particular with the 50 people that caused you to step back and pay attention or was it just standard management?
Dennis Ryan: One, we realized we were starting to hire a lot of people and went beyond hiring a person with a specific skillset. So the prospect of bringing a lot of people on without having any guidelines as to what are some of the principles are to that selection process beyond the professional skillset was a little scary. It was the hiring spree that motivated us to say, 'How do we do this other element of the selection beyond professional skills?' 'What does it mean to be the right fit in a way that's fair and open?' Someone brought in this book, "Beyond Entrepreneurship". They said, "Maybe we can use some of the techniques in this to define what our core values are and use that in the hiring process". So we formed a taskforce of about 6 or 7 people cross-functionally to go through this discovery process of defining the core value, the core purpose of the company and then we wrote them down and we launched them at a big annual company meeting in January one year. From that point forward whenever anyone walks in the door here as a potential interview candidate, they're handed an Allegis binder with company information that you'd expect as well as a sheet that explains our core purpose and core values.
Sterling-Hoffman: Was life different at your first startup experience (Claris), than it was in the early days of Allegis?
Dennis Ryan: Yes. The thing that was different about Claris was my role, even though I was the tenth person who helped start the company; my role was as an individual contributor not as a manager or executive. Second, Claris was a spinout of a business that existed already at Apple. We already had products and revenue, so the company was started. On Day 1 it probably had $25 million dollars of revenue and a handful of products that were already on the market. It was more of a spinout start-up starting with ten people with an existing product family, existing revenue stream and capital, then it was of the Claris variety, so the combination of the things were very different.
Sterling-Hoffman: What component of your role do you enjoy the most nowadays?
Dennis Ryan: The clear one is 'customer'. Talking to customers who have worked with our people and our product that's the most motivating. If you look at our customers, we have a great list: Charles Schwab, Dell, Corning, HP, Microsoft, Janis Capital.
These are large companies…very large market organizations that have dealt with lots of different vendors. To be able to go to an event where I get to meet one of the executive sponsors of the Allegis Project at one of those companies and get a chance to talk to them privately on how things are going, what their experience is with Allegis, the product and the people. The most common question asked of me is "How is it that you get such great people at the company?" We met a lot of different people that's probably the most motivating and the most enjoyable part; it's the most common question I get. We've had a couple of account managers and product managers and, at first, we were very concerned with changeover and then after awhile my team and I have been amazed that no matter who we get, the quality of the professionalism of the domain, knowledge and space is so high. In terms of what I enjoy the most is interacting with customers and hearing the comment, 'our people first' and second, 'our product'.
Sterling-Hoffman: What do you enjoy the least?
Dennis Ryan: The hardest part is making people changes, changing members of the team. I think that's something that I've learned to do better and continue to learn to do better. Early on I put so much focus on trying to make the team successful and sometimes lose sight of the fact that maybe some of the ingredients weren't exactly right. I think one of the key lessons for me, especially when you're in an environment as dynamic as a new company creating a new marketplace, I think it's safe to assume that there needs to be a similar amount or a commensurate amount of volatility and the make-up of the team at some level. You can't assume that you're going to get it right and having all the right people and all your people making the right decision to come here.
One of the things I've learned is to be more willing to make people changes in a position or whether or not they work here if it's not a right fit and that's one of the more difficult things.
Sterling-Hoffman: When do you know that someone needs to change? Have you defined a pattern yet in terms of seeing danger signals in seeing when someone needs to go?
Dennis Ryan: My experience is that you know a lot earlier when you actually decide to act, versus a question of 'is the person in the wrong job within the company or are they in the wrong company?' Sometimes they're in the wrong job and moving the person to a different job remedies the situation so even just making that change is enough. However, sometimes it's not a person in the wrong job it's the wrong person in the wrong company and I think you know pretty early on at least if there's a problem with one of those.
Sterling-Hoffman: Is it a gut feeling?
Dennis Ryan: There's an element of it in terms of the feeling that you have. My experience is the feeling is based on something that is not produced or not delivered right, so it's almost a bit of a surprise. I thought that team, that group, that individual would deliver differently here and it's often convenient for you to internally rationalize, maybe the direction wasn't clear enough or maybe there are too many competing goals that that individual or team had so that's the reason why that project, that deliverable or that result didn't turn out the way it was supposed to.
I certainly had a tendency to over rationalize why something wasn't the way I expected it to be.
Sterling-Hoffman: You would assume it's everything but the person doing the job, essentially?
Dennis Ryan: Yes, or they're in the wrong job.
Sterling-Hoffman: What keeps you up at night right now?
Dennis Ryan: We're still a small company and we're selling million-dollar software to large companies and so increasingly there's been a question, on behalf of customers, what's the profile of the company we want to purchase from? So there's the question of 'viability'. Is that company going to be around in the long-term and, therefore, fit the profile of someone we want to make a multi-million dollar investment with? One of our concerns is doing what we need to do to overcome the questions of viability based on the profile of who we are and the value of the solution we're selling to customers. There's no easy answer for that not at all and that's a tough challenge. We have not lost the prospect or a customer based on that 'viability' question but we've worked VERY hard to prevent that from happening in a couple of specific cases. It's myself, our VP of Field Officer, it's our CFO and if necessary Board members get involved to help the companies. Often our business sponsor at the customer but some of whom in the organization a signature is needed to get them over the hurdle of purchasing from a vendor of our profile.
Sterling-Hoffman: Do you have any advice for the early stage start-ups that are facing similar challenges? I know you said there's no easy answer but what could they do to deal with that kind of sales situation?
Dennis Ryan: I think it's a difference between very early stage and a little bit further along where we are today. As a small company, we have a lot more to prove then we have already proven. In a very early stage of a 25-person company, looking for your first customers I think the reality of the market today is there needs to be 'shared risk' in the whole purchase and deployment decision for your offering. In order to procure your early reference customers, what is the proposition that you could put on the table for those lighthouse customers that removes as much as the risk from them as possible - whether it's financial commitment or how they can pursue alternatives if your solution doesn't turn out. I think you have to be aggressive in removing risk on behalf of your early customers. Then when you do procure customers like we have, the critical thing is making those customers as happy as possible so that they have a personal and professional interest in making you successful and to help you by directly speaking with your next set of customers.
Sterling-Hoffman: Let's talk about leadership. Everyone talks about how important it is - especially in this market. So how much time do you spend worrying about what kind of leader you are?
Dennis Ryan: I don't spend any time worrying about how good a leader I am …and maybe I'm a fool for not thinking about it. I don't think about that in terms of trying to measure myself against some leadership metric. I do have principles that are important and those principles are believing in what you're doing and the ability to impart that belief to others. That passion an entrepreneur has about their idea needs to be unfaltering. The commitment to your passion and your ability to impart that passion to others is a key ingredient for any person or group of individuals that is going to successfully help create a company. In terms of leadership, passion is critical with an unwavering belief in that passion.
Second, is realizing that it's not about YOU, it's about the team of people who are going to go out there and build that product, market it and sell it resulting in your customers coming back to you as a manager, executive or CEO saying, "I hope you give a special reward to this engineer, marketing person or this sales person because they were really good at what they do.". I think realizing that the success of the company is not about you….it's about the team of people. It keeps your head on straight because any kind of manager has a responsibility for the outcomes.
Sterling-Hoffman: What do you think about the ruckus being made about CEO compensation packages? If the CEO is going to be the person blamed every time something goes wrong, shouldn't they be able to reap the rewards? Where would you place yourself in the debate?
Dennis Ryan: I would say there is certainly some examples on the extreme where compensation does seem out of the line with what appears necessary or right. However, for the most part, I don't pass judgment on the compensation that any particular individual gets because the compensation an individual gets is not a unilateral decision. It's a decision that their manager or their Board make with them. For whatever combination of reason, those group of people decided that was the right compensation for that CEO, engineer or sales person. In the long-term I think the right compensation decisions are made because it's the right balance. Will there be exceptions when you let things be handled by those market dynamics where some exceptions seem extraordinary? Yes there will be, but I think that's fine because there is something good enabling that market-driven dynamic to happen…ultimately, the market balances out.
Sterling-Hoffman: If you could wake-up tomorrow having gained more strength or quality, what would it be?
Dennis Ryan: One quality that would be helpful is to not sweat the difficult decisions as much. Making difficult decisions is hard enough and having that translate into internal apprehension and angst doesn't appear to add any value other than preventing you from sleeping as much as you should. I think the ability to make tough decisions without feeling it internally as much would be something that would add value without detracting much.
Sterling-Hoffman: Do you worry about exit strategy? I mean, you're probably not going to want to do an IPO anytime in the near future.
Dennis Ryan: The only thing that we're focused on is making the company profitable. If we're not profitable this year I want us to be profitable next year. From a financial standpoint, building a sustainable business is predicated on delivering a product or service that has value to the customer but you could do it at a profit and today we're not there. We're fairly close and have a clear path on how to get there based on the strength of our business model but we have some work to do to get to profitability and that's the key accomplishment we're shooting for as opposed to any type of capital event such as public offering or a acquisition. For us it's all about being a sustainably profitable company.
Sterling-Hoffman: Do you think the employees, in general, revised their expectations based on what the market is like now? The memories of the bubble are still so distinct and so clear that it almost seems like their expectations have not scaled back the way they should have. What is your sense?
Dennis Ryan: Using Allegis as an example and other companies I've interacted with by now I think anyone with their head on straight has realigned any expectations they had relative to financial reward of that start-up company that they've joined specifically relating to public offering. There's no one here that comes to work on Monday and thinks about public offering and, to a certain extent, that's based on the fact that by and large we never really thought that way to begin with. In fact, that wasn't a key driver for any of the people that came here. People believed the business problem they were solving they believed in the importance of enabling companies to work together more effectively and deliver innovative solutions that made that possible. I think people believe more in that and have been motivated more by that then they were if and when Allegis would have a successful public offering.