Four years ago Phillip Thompson flew
to Dallas for three months to help Soft Tech’s sole US employee get the operation off the ground.
Today, Soft Tech is major player in building software systems in the US, and Thompson its president, still lives there.
And he won’t leave Dallas “until we’ve achieved the world domination we want”, he says, bursting into cheeky grin.
Being there is the key to serious growth. “The reality is when we got up there we found it was much bigger job than we thought and required us to live there,” he says.
“We couldn’t do it from here. Anyone who thinks they can run an international business from New Zealand when the bulk of their revenue is driven from America or Europe is deluding themselves.”
The only way he’s made it work is by living there, and to all intents and purposes by being American.
“It’s myriad of things. When you’re from New Zealand and live in New Zealand, you exaggerate the differences between you and your American clients. But that only carries you so far. Deep down you need to reach clients on another level.
“For instance, you need to know who’s playing who in sport and you need to understand how important these things are to these guys. Most of our clients run or own large corporations and are successful self-made men. They can be rabidly political, so you need to understand Republican and Democratic politics and you need to know where your clients stand. These things matter to Americans and it’s difficult to understand the nuances when you live in New Zealand.
“Of course you need to be on the spot to deal with problems. Technology might be 24-hour open shop with significant component of support done electronically, but people still want to communicate in their time zones, and there’s small time overlap between east coast US and New Zealand. So there are significant disadvantages having New Zealand based operation, which can only be overcome by having local US operation.”
Setting up
After four years, Thompson can point to real results. recent US survey put them in the top five software developers in their industry group with 80 percent of their particular vertical under their belts. But it’s been tough going.
The main partners, John Ball, Chris Hopper and Thompson, used all the personal funds at their disposal, borrowed from family and put their houses on the line to get their software into the market, he says, pointing out that “in typical Kiwi fashion we estimated it would cost million and take two years. It’s cost us six million and it’s ongoing.”
But Thompson thrives on the challenge. He met Soft Tech owner John Ball five years ago, and the two became friends. Ball asked Thompson to look at the international potential for the business.
Soft Tech develops software that estimates manufacturing solutions for window and door manufacturers. It was major player in New Zealand, with good share of the Australian market also.
“They had couple of clients in America and half dozen in England, so we took trip around the world, looking at the market potential.” After this trip, Soft Tech decided to redevelop the product for the international market.
Powering up the V6
“V6 is essentially Graphical Configurator with E-Commerce capabilities. manufacturer uses it to estimate the cost of windows and doors by entering the different dimensions and options he wants and the software gives him 3D graphical model of what he has asked for. From the model he gets pricing, bills of materials and manufacturing information all of which can be transmitted electronically between the sales channels, the manufacturer and his suppliers.
“Our earlier DOS system was table and formula based, and was difficult to scale and customise.
“The new system Ñ branded V6 Ñ is based around what’s called 32 bit ?Intelligent Objects’. We programme in an object-based language and we add intelligence to the individual objects that are in there.”
From dimensions fed into it, the system will know range of variables such as how much and what strength glass is needed, how big the framing needs to be, or how many handles door or window will need.
Distribution
Understanding the complex American and European distribution structures was the key to getting under way in the States. “They are hugely complex, with multiple channels and layers. Major manufacturers produce more windows in year than the entire New Zealand economy.
“The obvious efficiency was to electronically connect these guys.
“We also saw we could add real value, by not only improving their manufacturing process, but we could actually sell business model.”
The challenge for the cash-strapped Kiwi was to find way of making the most impact for least money. “But that’s par for the course for Kiwis,” he laughs.
“We targeted the top six players in the industry to purchase our software, to drive their manufacturing, then disseminate it to their dealer channels.”
Revolving numbers
Once they put their heads together, Soft Tech realised the potential customer base was vast.
“The revolutionary part was that up till now we’d only sold software to manufacturers to drive their manufacturing operation. But sitting underneath the manufacturing operation were hundreds of thousands of dealers, distributors, remodellers, and glass shops, throughout America.
“We reasoned that if we had product every one of those sectors could use as well as product the manufacturers could use, we could control the electronic trading of the world in the business products market.”
“So we made dealer version that let small people talk to big people. Then we decided to work out how we could drive the market from two ends: the top players and the bottom tier.”
To reach the bottom tier, in 1997 they attached copy of the software to the front cover of the largest glass industry magazine in the world US Glass magazine which went to 20,000 people throughout America. The uptake was excellent and the publicity instantly made the Soft Tech brand the most recognised of software suppliers to the industry.
Thompson also approached the top players on personal basis.
“It turned out we were like manna from heaven to these guys. Every single one of them had been trying to build something like this themselves, and even though we only had product that was in beta, and wasn’t fully formulated, we got great reception.”
It took several years demonstrating and convincing to get everyone on board, but Thompson ended up with every major manufacturer he targeted.
Lessons
“The real issue is that it took us far longer to finish the product, and we spent three times more than we thought because the technology was far more complex than we estimated.
“So while we have ended up with an excellent world leading product, even now it’s still unfinished, it’s still in evolutionary process, and could still be characterised as immature software. Mind you, even this has its benefits, because the potential to grow the technology is huge.”
Setting up in Europe will be different, Thompson says.
“The age of trying to do this on our own has gone. We’re now actively partnering with people around the world. This includes joint venture with major customer in France, and partnering with variety of ERP firms in the US.”
Strathmore
Technology investment company, Strathmore bought 33.3 percent of Soft Tech for $5m in April. “Strathmore’s involvement in Soft Tech is watershed for us. Having outside investors put money into the company is very exciting for our staff. It places solid value on the company and provides us with the financial resources to grow the business quickly.
“While we’ve been profitable throughout the exercise, cash flow has always been problem so it’s nice to have that out of the road.”
Strathmore also brings Capital Markets expertise to the compan
