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2001 Small Business profiles
Thursday, Oct. 11, 2001
Software seller Aventail expands, becomes service provider
By Tricia Duryee
If IBM tells you that you don't understand what business you are in, you better listen.
"They slapped us upside our head," said Chris Hopen, chief technology officer and co-founder of Aventail, a Seattle technology company.
Aventail did listen, and in the past 18 months has transformed from selling software that connects employees and partners remotely to their computer networks to managing a service that does the same and more. The switch, which is what IBM had been indirectly suggesting, also allows Aventail to collect revenue in a steadier stream, a path many companies are finding more predictable.
As a result, Aventail has, in a sense, defied gravity by gaining high-profile investors and customers during one of the roughest economies the high-tech industry has ever seen.
Its customer list includes heavyweights such as IBM, BP, Deloitte Consulting and FMC. Last week, it closed a $55 million round of venture funding, the largest amount this year by any private company in Washington state in an environment venture capitalists are calling "nuclear winter."
Aventail's transition from software company to service provider may be the best explanation for its recent successes and may be instructive for other tech start-ups trying to navigate difficult times.
For three years, it sold software to companies such as Hewlett-Packard, Aetna and Kodak, but the company hit a wall. Its customers would take 10 to 12 months to get the systems in place to run the software and because Aventail's revenue was tied to how many people were using the product, many times a sale would be fruitless for months.
"We started asking ourselves if we could do (the preparation to operate the software) in advance," said Evan Kaplan, chief executive and co-founder of Aventail.
Dave Pool, an early investor and board member, said Aventail couldn't survive selling its software that way. The board suggested the company put together a team that would install the software and get the users up and running, thereby gaining both software and consulting fees.
"Evan took it a step further," said Pool, who knew Kaplan from Spry, an Internet service provider he founded and sold to CompuServe. Kaplan wanted a continuous revenue stream. "I felt like we had been dealt a good hand, and so you want to bet more money," Kaplan said. "I upped the ante and took the risk."
In January 2000, Aventail secured $48 million in funding and made the switch to its Aventail.net service by March.
Now, the way Aventail works is this: It comes to a company, evaluates the technology and its security needs and then installs a cabinet of hardware behind a firewall. It then manages the system around the clock from its data center in downtown Seattle. Within 10 weeks, Aventail guarantees its customers that employees and business partners will have access to applications, such as their e-mail or procurement programs, from remote locations.
The three co-founders, Kaplan, Hopen and Derek Brown, who started the company in 1996, said it was hard to change course.
"I think we definitely underestimated the size of the bite we were about to take," said Brown, who is the company's engineering manager.
In one year, they hired 100 employees and built a data center that now occupies the fourth floor of the company's headquarters. Employees who took a job originally thinking Aventail was a software company were turned off by the new customer-service role; many quit.
"The big eye-opener was the difference between software and service companies," Pool said.
Time was also a big factor. Engineers who once focused on how long it took to complete projects now focused on how long it would take to activate a customer after the software was installed.
The company also struggled with technical glitches. The first customer for Aventail.net was General Electric, a company with a complex system of users and servers around the world.
"We thought we had it, but we really had some more work to do, and they understood that," Kaplan said.
Today, the vast majority of the work has been standardized, making installation streamlined.
With $55 million in the bank, and an uncertain economy going forward, Aventail knows it must not only build the product but make the necessary sales to take the 220-employee company to profitability. The company would not disclose sales figures, but service sales make up 85 percent of its revenue.
"They've got the technology developed, now they have to get the customers," Pool said.
Brown said after raising money for the fifth time, Aventail doesn't want to do it again.
"We've drawn our own line in the sand," he said. "That's a pressure we are putting on ourselves more than anything."
Kaplan says for now, the majority of change is over, and the company has to bring the company to profitability.
"The next step is to use this period of time to improve the product and dominate the market segment," he said. "It's not a time for brilliant ideas or for giant new things."
Tricia Duryee can be reached at 206-464-3283 or firstname.lastname@example.org.
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