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A dramatic shift in focus and major layoffs can be the only way for startups to survive when capital dries up Curt Cherewayko Colligo Networks nearly hit the same wall in 2003 that Marqui and Ascalade Communications hit earlier this year when they realized their businesses weren’t sustainable. But while Marqui and Ascalade are today concluding asset fire sales, Colligo has just recorded its first profitable quarter – the culmination of a three-year turnaround in which it reinvented its technology and customer base. Colligo cut its staff to five from 30 in 2003 and shifted its technology from one collaboration software – IBM’s Lotus Notes – to another, Microsoft’s SharePoint. Colligo was ready for its second venture round, after burning through the $5 million it raised in 2000, its founding year. But recalling the venture climate in the years following the technology bust, Barry Jinks, Colligo’s president and CEO, noted that “you couldn’t raise a dime.” Colligo spent its first years developing software that allows Lotus Notes users to replicate the program’s databases through a local exchange and without an Internet connection. By 2003, however, sales of Colligo’s Workgroup suite had plateaued. The product hadn’t found a market beyond accounting firms whose audit teams used it at client locations. Colligo scrounged $1.2 million in venture capital in 2003 to keep the doors open, but Jinks said the writing was on the wall. After laying off most of its staff, Colligo examined other collaboration programs similar to Lotus Notes, in which Colligo could build off its customer and knowledge base. It discovered SharePoint. The browser-based program was even more dependent on an Internet connection than the desktop-based Lotus Notes, which requires only a local server. The company hired Rocket Builders, a Vancouver technology consulting company, to survey the market and engage partners and customers. It validated Colligo’s shift to developing software that extends SharePoint’s reach to the desktop and e-mail. “Our business is completely different today than it was four years ago,” said Jinks. “But the initial problem that we solved allowed us to see that there were other problems out there that needed solving,” Today, SharePoint has become Microsoft’s fastest-growing server product. Unlike the narrow customer-base of Colligo’s original suite, Colligo for SharePoint is used by companies in telecom, financial and professional services and even biotechnology. Albeit with varied success, other companies are attempting to execute similar turnarounds after the original business models or technologies they were founded on fizzled. Like Colligo, Contec Innovations (TSX-V:BUZ) felt the hangover following the heady dot-com days at the turn of the new millennium. The Port Coquitlam company had developed a flexible, but bulky platform that mobile operators could use to build cellphone applications. Don Lay joined the company as CEO in 2005, which he said was “a terrible time to be selling big pieces of solutions to operators of any type.” Instead of continuing to sell the platform, Contec moved it “into the cloud,” where Contec now uses it to build mobile phone applications for carriers and media publishers. During the transition, Contec had to let go of the “hang-ups” it had with its previous business model. “In this type of marketplace, you have to be inherently more flexible,” said Lay. “If you’re selling a big solution, you’re up against your competitor and you’re battling it out for $5 million and $10 million contracts. Now Contec negotiates revenue-sharing deals that fit it and its partners. Lay said the company survived because it was able to raise money on the public market. It has struggled, however, to maintain shareholder confidence during a year-long transition in which consumers have only recently started to use its partners’ application. One Person Health Sciences changed its name to HealthPricer Interactive Ltd. (TSX-V: HPC) in 2006, signifying a drastic shift from supplements manufacturer to comparison shopping search engine. Wrapping up the old business cost-effectively so that it could pursue its new business plan was a major challenge. On a more emotional level, it had to assess the skill set of its staff. The result: 27 of its 35 employees were laid off in 2006. Today, the company has 18 employees. The transition stemmed from a realization that it would have to invest millions to scale production to the point where its supplements were profitable. “I wouldn’t say that going from manufacturing supplements to all of a sudden building a search engine … is a completely natural thing to do,” said Michael Brown, HealthPricer’s president and CEO. “But as a company we had a certain amount of expertise that helped us go in that direction.” •
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