Rate the Startup Business Models

FRAMINGHAM (08/01/2000) - Startups come and go--like mom-and-pop coffee shops on fading downtown streets or oriental-rug outlets in tacky strip malls. They open with big banners and high hopes. Most don't last. But still they keep coming, with earnest, optimistic proprietors trumpeting their business plans to bargain-hungry investors and speculators. The trick is to know which business models have a good chance at success and which are likely to lead to dead ends.

We're all backseat e-drivers these days; either we're potential investors or we're on the alert for the next new idea or angle that might work in our own companies. Take a gander at Portera, a dotcom that hopes to make money by hosting basic applications and by providing outsourcing services to consultancies and other big-spending professional services providers. Read on, see what a couple of experts think, and decide whether this company is bound for easy street or the back alley of broken dreams. When you're done, visit webbusiness.cio.com/archive/052500_rate.html and tell us what you think of Portera's chances for success.

THE PORTERA DETAILS

THE STARTUP

Campbell, Calif.-based Portera Systems (www.portera.com) helps the professional services industry get wired. The 2-year-old company's product, ServicePort, combines Web-hosted applications with outsourcing services. ServicePort's hosted suite of applications automates business functions, ranging from project bids to invoice delivery, and features industry-configured applications from the Oracle E-BusinessSuite. Its outsourcing services cover such back-office business processes as staffing, accounting and document-center services.

While Portera's focus has been predominantly on IT and management consulting, it plans to move into other vertical functions, such as advertising and PR, and legal services. It also expects to reach the engineering and government services markets via the customer base of Invisic Software, a March 2000 acquisition that provides enterprise service administration and management services.

HUMAN CAPITAL

Gary L. Steele, CEO

Previous experience:

* VP and GM of Sybase Inc.'s middleware and data warehousing product group * Group manager of information management marketing at Sun Microsystems Inc.

Kevin B. McDonald, VP of marketing Previous experience:

* Senior VP of marketing and strategic partnerships at FirstFloor Software, since acquired by CalicoCommerce Inc.

* VP of sales and marketing at Pinnacle Systems Inc.

David Knight, VP and GM, consulting products Previous experience:

* Director for Internet transaction products at Sybase * Product manager at Oracle Corp. for Oracle7 DBMS Robert Quinn, CIOPrevious experience:

* CIO at eBay

* Head of the computer systems and IT group at Sun Microsystems THE BUSINESS MODEL VENTURE CAPITAL June 1999: $13.8 million from Weiss, Peck & Greer Venture Partners; Oracle Venture Fund; Chase H&Q; Spring Creek Partners; Kleiner Perkins Caufield & Byers; Institutional Venture Partners March 2000: $33 million from Van Wagoner Capital Management; Integral Capital Partners; Weiss, Peck & Greer Venture Partners; Oracle Venture Fund; Spring Creek Partners; Institutional Venture Partners; Kleiner Perkins Caufield & Byers; Chase H&Q; RRE Ventures Market: $1.2 trillion professional services industry (consulting firms, media agencies, solutions integrators) Customers: Portera has more than 140 customers, including Hewlett-Packard Co., Network Associates Inc., Vodafone AirTouch PLC, Inventa Corp., Asera, E.piphany Inc. and Invensys PLC.

How Portera Makes Money: Portera makes money through monthly subscription fees for ServicePort, through monthly fees and transaction-based fees for its back-office business services, and through commissions made on such marketplace purchases as corporate gifts.

The Competition: Portera faces competition from companies whose offerings compete with some aspect of Portera's overall offering. Such competitors include * Enterprise software vendors--such as Niku Corp., Evolve Software and Changepoint Corp.--that offer professional services automation * Enterprise resource planning software companies--like Oracle, SAP AG and PeopleSoft Inc.--that either currently offer or plan to offer software or applications for the professional services industry * ASPs that partner with enterprise software vendors or ERP companies * B2B procurement providers like Ariba Inc. and Commerce One Inc. that partner with enterprise software or ERP vendors * Outsourcers--such as ReSourcePhoenix.com--that focus on business-process outsourcing The Road Show: Recognizing that the market for its application and e-business services is competitive and subject to frequent change, Portera plans to stay ahead of the competition by remaining flexible, scalable and adaptable to changing market conditions. Portera claims that its core competencies are its understanding of the professional services industry, its ability to integrate Web-hosted applications and people-driven business services, and its power to deliver those services to end customers via the Internet.

RATING PORTERA

WebBusiness site visitors' rating

Rate the Startup is a monthly interactive series of CIO's WebBusiness e-zine that examines promising (and less-than-promising) dotcom startups. After peeking behind the startup's walls, we ask site visitors and industry experts to rate the company's chances for success. For more on the series, visit webbusiness.cio.com/startup.

THE CONFIDENCE SCALE

1 It won't get off the ground

2 It will lose in the long run

3 It will pay its bills but won't see big profits 4 It's a contender; I'll keep my eye on it 5 It's a winner. Where can I buy this stock?

How Portera Scored on Our Site As of June 27, 2000 AN EXPERT'S RATING JEFFREY SHUMAN Shuman is founder of The Rhythm of Business, a Newton, Mass.-based consultancy for early-stage Internet companies, and professor and director of entrepreneurial studies at Bentley College in Waltham, Mass. He has founded four previous businesses. He can be reached at jeff@rhythmofbusiness.com.

SHUMAN'S RATING 4 It's a contender; I'll keep my eye on it.

STRENGTH Portera is delivering to its customers a more scalable, timely, cost-effective and flexible suite of applications than they could otherwise achieve on their own. Its closed-loop solution works well because it provides both software tools and people resources in all areas beyond the professional company's core business.

WEAKNESS Scalability of the people resources required could be its Achilles' heel, since delivering a satisfactory customer experience is key.

LOOKING AHEAD Portera has to ensure it can grow with its burgeoning customer base and increasingly upgraded technological advances. Also, integrating with wireless devices and allaying security concerns will be critical issues to resolve and thus important partnerships to achieve.

AN EXPERT'S RATING ROBERT GLAZER

As associate director of New Ventures at Cambridge, Mass.-based Cambridge Incubator, Glazer evaluates potential member companies. He also cofounded BrandStamp Inc., an Internet-based company that provides warranty registrations for online purchases. He can be reached at glazer@cambridgeincubator.com.

GLAZER'S RATING 4 It's a contender; I'll keep my eye on it.

STRENGTH Portera provides a powerful set of tools to the professional services organization in a cost-effective manner. It also allows customers to scale functionality without the high costs of systems integration. The company has both a strong management team and strong financial backing.

WEAKNESS Given its ASP operating model, Portera will be able to attract clients that are technologically sophisticated and that operate on high-bandwidth networks. The company will need to build an extensive sales force and customer support function to properly service customers.

LOOKING AHEAD Portera's customer acquisition costs are its greatest risk.

Portera should develop strong partnerships with companies that have existing relationships with its target markets.

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