Sramana Mitra: Right now, we don’t have any visibility into how you built the business. I understand that you opened offices here and there, but I need mechanics of how you built the business. You built your product on top of SAP. Was SAP helping you generate leads in the oil and gas industry or were you generating the leads? What was the sales and pricing strategy? What was the competitive landscape?
Jory Lamb: When we first entered the market in Canada, we did a series of toolbox practice. We invited people from the industry to come see what our product could do. We had about 80 to 100 attendees. We closed 17 clients in 2006. 17 clients in the early days would be a week-long engagement. When you’re putting in SAP, these engagements can be months. What happened to us was we never anticipated the success we might have. 2006, in particular, was our best year and was followed by our toughest year ever. What we took away in 2007 was, it’s really important to have the staff before the business. In that particular instance, we had the business way before the staff. It was painful for everyone. But we got through it.
In 2007, we were selling direct. We were a license maintenance model. I made a conscious decision in 2007 that we needed to get into the US market. The opportunity in the US was a magnitude of the opportunity in Canada. I really felt exposed. Knowing the cyclical nature of the industry, if things didn’t go well in Canada, we would really suffer. Not knowing everything about entering the market, we decided to enter into Denver. We set up shop in Denver in late 2006 and began marketing the product. We had some success. We had SAP supporting us both in Canada and the US. We had our own lead generation activity. At that time, cold calling was the way we were generating leads. By mid-2007, we had five US clients. But that wasn’t fast enough for me. I felt like it was taking too long. We went out and bought some other SAP partners and took over their practices. Specifically, we bought out SAP partners in Denver and in Dallas. We did that in 2007.
Sramana Mitra: How did you do that? Where did the money to do that come from?
Jory Lamb: By selling out these other businesses. Everything was self-funded. $12,000 turned into, over the course, a few million. The few million allowed us to pay for the development of the software. That also allowed us to transact on some small businesses and take over their SAP practice.
Sramana Mitra: These were one or two-people shops that you basically brought under your umbrella. It was, what we have come to call, acqui-hiring in the Silicon Valley terminology.
Jory Lamb: That’s right. The acqui-hiring had clients. I don’t know if that’s also part of acqui-hiring.
Sramana Mitra: It could be.
Jory Lamb: We had instant momentum and instant credibility. We had reference clients and we were off to the races. In the US, we were successful in 2010. We had entered in 2006 and did $60,000 top-line. In 2007, we did $600,000 in revenue and by 2008, we did $1.5 million. We were growing pretty rapidly.
Sramana Mitra: These guys that you acqui-hired, were they also experts in the oil and gas area?
Jory Lamb: No, they weren’t. They were more experts on ERP. We have the expertise in oil and gas back in Calgary. Things have changed since then. In the early days when we hired them, what we really wanted was the clients because we needed something to help pay for the infrastructure of moving in to the US.
Sramana Mitra: These clients that you got out of the acqui-hire were not oil and gas clients. They were random generic SAP clients.
Jory Lamb: We had some oil and gas services clients. That was part of the catalyst for buying them. We had everything for a period of time. It didn’t last too long. We had furniture manufacturers, dog food makers to guys who sell beads online.
Sramana Mitra: When you brought these guys into your company, the outbound sales process became focused on oil and gas.
Jory Lamb: That’s all we’ve ever focused on with this product. Once we built enough critical mass, we sold off back to the SAP partners of these other clients. For the one in Dallas, we spent $120,000 for a handful of clients and staff. We made it back in seven months. It was literally good fortune to go into the US because prices for labor, steel, and manufacturing products in Canada were getting out of hand due to the boom in the oil and gas industry. During 2007 to 2008, capex budget for Canada was cut from $3 billion to $750 million. All the air came out of the balloon in Canada but we continued to grow because we were in the US. The US business continued to pick-up. We were able to diversify our risk. Because we were so focused on a vertical, our risk portfolio was all around that industry. We were able to divert our risk through geography.