The dot-com deflation looked like it would take the company with it. But then came a change of model and new profitability.
By JEFF HARRINGTON
Published October 25, 2004
TAMPA - Until now, the story of CommerceQuest sounded achingly similar to the up-and-down journey of many of its dot-com brethren:
Hot Tampa software company swells to 500 employees during the tech boom, builds a national customer base and settles into high-rent digs near International Plaza. After the tech bubble bursts in 2000, it eventually scales back to fewer than 100 employees, slips into a pattern of losses and relocates to much smaller, less ostentatious north Tampa offices next to a Home Depot training center.
It's the chapter now unfolding in which CommerceQuest breaks away from the pack: The majority investor steers the software company in another direction with a different core product and brings it back into the black.
The company's current quarter "will be a profitable quarter for the first time in the last three years." predicted Mike Forster, an executive with CommerceQuest's majority owner, Internet Capital Group, who was brought in as chief executive in January to revive the company.
Forster has no plans to move to Tampa; to him, CommerceQuest is a temporary gig. Every week, he slips into the pilot's seat of his single-engine, six-passenger Beechcraft Bonanza to make a flight between Tampa and his tiny Mississippi hometown of Louisville.
Forster says he'll keep making the trek "until I'm satisfied the company is comfortable with this next phase of development in its evolution. ... I probably won't be running the operation five years from today, but I am here to oversee this company's transition."
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Founded in 1991, CommerceQuest already has endured its share of transitions.
The company's heritage lies in software designed to link separate computer systems within an organization.
Amid the tech boom, the company shifted its business model in 1999 to provide software and services to companies that were bent on creating Internet markets. Internet Capital Group, a publicly traded company, provided millions in venture capital financing to bankroll the transition.
At first, the shift went well as it peddled its software to upstart companies that hoped to earn commissions by building and operating online exchanges. The company grew so expansive, taking 80,000 square feet on the sixth floor of International Plaza's Corporate Center One, that employees used a Segway to scoot around the office.
But demand dropped off sharply starting in late 1999 after those startups ran out of cash and the stock market plummetted.
After Ulysses S. Knotts was tapped as CommerceQuest's CEO in March 2002, several senior managers were let go. Knotts declared a mission to go from boutique to major business software player, but his tenure lasted less than two years.
Internet Capital then sent in one of its own, Forster, to return CommerceQuest to profitability. Forster, 62, had spent more than 20 years at IBM before helping run a California software company. He became a managing director at Internet Capital in 1998.
When Forster took the reins, CommerceQuest still was focused on its software to help companies integrate different computer systems, a reliable business given the ongoing popularity of mergers.
CommerceQuest's rebirth has its roots in the 2003 acquisition of KMG Solutions, a small Sarasota company that was marketing software to help companies manage their business processes.
Suppose, for instance, a company wanted to better manage the process of opening dozens of stores around the country. KMG's software allowed it to bring all the steps of the process together - securing land; taking out building permits; construction; staffing; etc. - and run a simulation to pinpoint where the process was being slowed down.
KMG was using the software on a limited basis in retail. CommerceQuest executives saw untapped potential in an array of industries.
What really sets the software apart - the "secret sauce," as Forster puts it - is that it allows companies not only to simulate a process but execute each step without missing a beat.
Consider one recent customer, a financial services company that hires dozens of brokers a year. The company found its hiring process was taking six to eight months, a backlog that meant many of its best prospects were hired away by the competition before they could make it through the arduous process.
CommerceQuest's software revealed that several steps in background checks were taking three weeks but could have been handled in three days with improved communication. Once installed, the software integrated different computer systems in human resources and other departments to expedite each step of the process. Weeks were cut out.
"Business process is work flow on steroids," Forster said.
The business process software accounts for about one-third of CommerceQuest's revenues, Forster said, and two-thirds of energy and money invested in the company. Within two years, he predicts, the business process software will account for 50 percent of revenues.
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Today, CommerceQuest has about 400 customers, including Home Depot, Wal-Mart and Publix. It also recently expanded a longstanding partnership with IBM.
It's still a bit player, however, in a nascent industry.
Internet Capital Group counts on CommerceQuest for about $20-million of its annual $200-million in revenues.
Internet Capital does not break out profits and other financial details of subsidiaries such as CommerceQuest in its filings with the Securities and Exchange Commission.
Forster indicated, however, that he expects CommerceQuest to become profitable in this quarter and remain in the black through 2005. He projected revenues growing about 30 percent next year on top of a 20 percent to 25 percent growth this year.
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Information from Times files were used in this report. Jeff Harrington can be reached at 813 226-3407 or harrington@sptimes.com
