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Outsourcing: Fabio Rosati, CEO of Elance (Part 2)

Posted on Tuesday, Dec 13th 2011

SM: How much was each of these enterprises paying you?

FR: It ranged from hundreds of thousands a year to millions of dollars a year.

SM: So, typical enterprise contracts?

FR: Classic. Classic, and depending on the model, as a service, single division, multi-division, different prices. Very successful product, but again, it was a solution that belonged to a broader supply chain suite. The companies would have preferred to buy from an Oracle or an SAP. As the market of software was consolidating at the time, right in 2005, SAP and Oracle got into a war and started buying businesses left and right. Anybody who was small was really just hoping to be acquired and rolled up. And all the CIOs who were making these technology decisions, including our biggest sponsors like Gary Reiner at GE, would say to us, “Look, we love what you do, but if Larry Ellison calls and says, ‘I have a product coming out within a year,’ I would buy from them because I don’t want to have 10,000 software vendors. I really want to have five or ten.”

So, the whole context for us at the time changed, and I made the recommendation to the board to sell the business and utilize the outcome, the results of the sale to fund a new vision for the company. One way to think about is that the technology that we had built was really digitizing or paving the cow path. We were helping companies automate the way companies had always recruited and onboarded contract talent. It was kind of an incremental improvement of an existing process. That’s what companies wanted to buy at the time. That’s what we had created and delivered.

At the same time, the world had changed completely. By 2005, 2006, you had LinkedIn. You had Facebook coming out. You had Skype. You had PayPal, and the idea of working in the cloud, the concept of the human cloud started to be real. Our team was convinced that if we could create a system that enabled access to it, that enabled instant access to talent and provided the workplace for a good outcome, it was going to be transformational.

We convinced investors to let us do this pretty dramatic change in direction. We sold our business, and in 2007, we re-launched. We restarted with a team of 15 people, went down to a tiny team.

SM: How much did you get for the sale?

FR: I would rather not discuss it. It was not a huge outcome, but it had a component of cash and some shares.

SM: Was it, like, in the tens of millions?

FR: Yes. It was not huge.

SM: But you had a nice chunk of financing to do something.

FR: We had enough capital; we were able to keep enough capital to make this re-launch of Elance possible. Most important, all of the employees, all the team members who had worked with the enterprise product were offered a job by the acquiring company. All the customers were taken care of, the road map, all the commitments that we had, the moral commitments, were taken care of. The company that acquired was not interested in bringing me on board.

SM: Who acquired it?

FR: It was a company called Click Commerce, which was subsequently, six months later, bought and six months later, was sold. It was an unbelievable consolidation in the industry that was ignited in 2006 and 2007. Many, many companies merged, combined and re-combined. They were a mid-tier public company playing in the procurement supply chain management space. And they believed that they needed to have a solution to managed services because they had a solution to managed goods. They competed with companies like Ariba.

So, let’s fast forward to today’s Elance. Between 2007 and now what we focused on was first, making the virtual workplace a reality, and two, improving the marketplace. So, the Elance vision is instant access to great talent. In order to do that, we have to two components. One is a very effective marketplace that connects the employers, the clients with the talent in a very elegant way. We’ll talk a little bit about how it is changing and what’s ahead in the future. It’s amazing what we can do today, compared to what we could do in the past. And then there is another piece, which is the workplace.

We provide the infrastructure for people to work together. That infrastructure is instrumental to understanding how the work is done and creating incentives for good outcomes, the measurement of results, the feedback along the way. We’ve created a system to basically, reward all the good behaviors and penalize all the bad behaviors. We measure over 20 different performance measurements, and we have a form of social engineering that helps motivate all the right behaviors and rewards people who do great work.

This segment is part 2 in the series : Outsourcing: Fabio Rosati, CEO of Elance
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