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Chris Frothinger
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Today,
Christopher R. Frothinger, CEO of
InfoCentricity, Inc. will tell how he built his team and
products, and acquired marquee customers with a very modest
amount of funding.
I worked closely with Chris and his team soon after the
formation of InfoCentricity in 2000. It’s my pleasure to be
able to share their interesting story in this issue.
Anthony: What brought about
the formation of InfoCentricity?
Chris:
There was a group of smart and talented people who
had known each other and worked together for some time. And
there was a concept of a software analytical product and
methodology that didn’t exist in the marketplace. We felt
that this was the team that was going to put it all together
and get it to market.
The climate at the beginning of 2000 was not favorable
for venture capital funding. So we decided to start a
consulting company and push the consulting revenues towards
the development of Xeno®, our flagship hosted (ASP based)
software. When the consulting activity fizzled 6 months
later due to tough market conditions, we refocused the
company on building Xeno, which was solidified by what we
had learned from our first consulting customers.
We concentrate on 2 markets right now: financial services
and specialty retailers. Both markets build predictive
models. In the cataloger space, our customers use Xeno to
build response models, lifetime value models and attrition
models; ie. anything that will help them make better
decisions by knowing their customers’ behavior in advance.
For example, if you knew that your customers are unlikely to
respond to direct mail, you wouldn’t waste resources mailing
to them. In a way, predictive models are akin to scientific
fortune telling.
In the financial services space, our customers use Xeno
to build predictive risk models. Who’s a good/bad credit
risk? Who’s likely to revolve on a credit card? Who’s likely
to attrite or transfer balances from their card to another
credit card issuer?
The other side of Xeno is a general purpose analytic tool
that allows people to better understand their business
beyond predictive modeling. This is possible with Xeno
because the process of model building is similar to the
process of understanding your customer. Many of the
profiling steps and techniques applied before the model is
built are similar to what people use to understand their
business. So Xeno is more than a modeling platform; it’s an
entire analytic platform.
Anthony: Do you have a
particular philosophy with regard to building the team?
Chris: When we started the
company in early 2000, it was hard to find funding. And
customers were reluctant to spend money. It was going to be
a very hard road and we could not afford to make hiring
mistakes. Our philosophy was to get people who had worked
well together in the past, understood the problem we were
trying to solve, and realized that it may take years to
reach success. Getting discouraged after a year or two was
not an option. Luckily the core founders had a rich network
of people matching our criteria to draw from.
This approach enabled us to know how people will react to
certain situations: highs and lows, compensation,
recruiting, product development, etc. In an early stage
company, you have 10 or 15 different things to work on
instead of one. You don’t get to specialize. If you
understand who your employees are before they come on board,
you have a better chance of them working out in the long
run.
I should add that many senior people in the company were,
from a financial standpoint, either retired or in a position
to take the risk. So they were willing to work for sweat
equity, which as you can imagine was tremendously
advantageous to our cash flow.
Anthony: At which point did
you become confident that customers will buy Xeno?
Chris: We got the most
traction about this time a year ago. Prior to that, we had
released version 1.0 and shown it to a lot of people. We had
some initial success in the catalog and retailer space.
However, the product wasn’t mature enough for the financial
services industry.
In Q1 of 2003, we launched our version 2.0, Xeno Pro™,
which was a reflection of having listened to our customers
and prospects, and implementing the features they had asked
for. It’s when we started showing Xeno Pro to people early
last year that we knew we had something. We were getting
invited back, and customers were paying to evaluate the
software. That’s when momentum really kicked in. The
significance of this is that we were 3.5 years into the
company.
Anthony: Who are your
customers?
Chris: We have 12 customers in
financial services and retail. They range from $1B to
hundreds of billions in assets and include one of the top 5
consumer banks in the country, and two of the top 10 credit
card issuers.
Anthony: Describe your sales
process.
Chris: One of the things we
have focused on in the last 12 months is our sales process.
This is a 3-phase process that I think is unique because of
the risks involved.
In the first phase, we meet with prospects and tell them
about InfoCentricity. We then show them Xeno on a generic
data set. We’re actually showing them the real software, not
a canned slide show. It’s like live TV - anything can
happen. That’s usually enough to impress them.
In the second phase, we demonstrate the product using
their data. Other companies are reluctant to do this because
of the costs, risks and uncertainties associated with this
kind of a demo. Xeno is built to thrive in this sort of
environment.
The third phase is what we call Xeno Boot Camp. In
essence, it’s a paid evaluation of our software involving a
significant amount of money. When you give someone a trial
account, they tend not to test it out if they haven’t paid
for it. Boot Camp lets them try the product out for a month
including a week of in depth training at our offices. Xeno
may be easy to use but it’s solving hard problems. By
bringing people in and immersing them in the product for a
week, they go away for the rest of the 4 weeks knowing how
to evaluate it. We have almost 100% conversion rate. In
fact, most of our current customers have gone through Boot
Camp.
Boot Camp also allows us to focus on the right prospects.
If someone isn’t willing to pay for a Boot Camp, they’re
probably not going to buy the product. This brings me to our
approach with respect to prospect selection. When we were
showing Xeno initially, we were careful to target the early
adopters. If in the first phone call or the first meeting we
didn’t see their faces light up, we would put them on hold
until the following year. This year, we’re going back to
some of those prospects. Now that we’ve secured 12
customers, prospects in the later stages of adoption are
more likely to start taking a look at what we have.
For an early stage start-up, it’s critical to focus on
picking the right customer from the start. If you get the
wrong customers early on and spend too much time convincing
and selling to them, they are not going to help your cause.
Anthony: How did you
validate your products?
Chris: When we took version
1.0 to the market, I’d say it wasn’t validated. What we
heard was: it’s a good start but there are some definite
areas of “must haves” before people will take it seriously.
So we took all that feedback and used that as a driving
force for version 2.0.
Beyond validation, a lot of it was instinct. We were the
first judges of the validation process. Did the product pass
our test? We knew with 1.0 that for a serious risk
management shop or a bank, it was a little bit light. The
real validation came when we got our first large financial
services customer.
The one thing that got us in the door with 1.0 is that it
wasn’t a slide show. Everything that is in 1.0 is in 2.0. So
it wasn’t that we put things there that customers didn’t
want. They just wanted more. If we had done it in a vacuum,
it’s possible that we may have gone in the wrong direction.
When we came back to those prospects with 2.0 including
everything they asked for, it was hard for them to say no.
There’s probably 3 or 4 instances in the case of versions
2.1, 2.2 and 2.3 where prospects had asked for explicit
features and within 6 months, when they saw them in there,
they bought it. That’s another advantage of being an ASP. We
can do the round of development and deploy functions and
features very quickly.
We’re a market driven company. People who are going to
buy the product are the ones who will tell us what the
product needs to have. We have our own ideas, but we look
for a champion in our current customers or prospects before
that new feature makes it on the list. Our analytic services
professionals are our power users and they definitely
influence or drive the product. However, they still need to
find a customer sponsor to get a new feature on the list.
Anthony: How are you
different from your competition?
Chris: First and foremost it’s
our product and technology. Xeno has the advantage of
delivering analytics at a very high speed. It also takes a
lot of the syntax and coding out of advanced analytics, so
statisticians and analysts can really focus on looking at
the numbers and the analysis instead of having to worry
about writing programs. The analogy our customers use is:
we’ve taken advanced analytics from DOS to Windows®.
We’re also different in the way we deliver the product.
Our customers access our software via the internet using a
web browser. This delivery method helps a great deal in
lowering the deployment and IT support costs. We are able to
turn customers on for $0 cost on our side and very little
cost on their side, other than buying the product itself.
Finally, we take a hands on approach and are easy to work
with. We are open with our technology and how it works. We
don’t take a black box approach.
Anthony: How have you funded
your operation?
Chris: Initially, consulting
revenues helped pay the rent. The founders also dipped into
their own pockets. After we built Xeno 1.0 and secured a
beta customer, we raised around $0.5M in a series A from 3
of the 4 Fs (friends, families and founders, no fools). That
money was used to hire our first salesperson, an analyst,
and cover other operating expenses. It lasted us 2 years.
We closed a Series B angel round at the end of Q1 2004
for just over $1M.
Anthony: Are your cash flow
positive?
Chris: We have been cash flow
positive for the last 3 quarters. Some of that was due to
deferring salaries (as we weren’t all receiving full
salaries). Since January 1st of this year, the entire team
is near market salaries, and we are still cash flow
positive.
Anthony: Do you anticipate
ever needing VC money?
Chris: If we decide on an IPO,
we’ll do a series C. Even though we went the friends and
family route, we have established connections with the VC
community. We keep those relationships alive. They were very
friendly and very encouraging as we were working on the
series B round. They basically told us what the state of the
union was, ie. they were taking care of their portfolio
companies. We were doing well enough, and they were kind
enough to tell us: you don’t want our money.
As long as we stay on the current path, which means
staying private or looking for partners, there really isn’t
a motivation for a Series C round of VC money.
Anthony: Can you share a war
story?
Chris: We were waiting for
data from a prospect. They were supposed to send it on a
Friday so we would have some time to look at it, load it
into Xeno and get ready to show it on the following Tuesday.
Friday rolled around and we didn’t have any data. Jeff the
COO and I got on a plane and flew out to New York. By the
end of business on Monday, there was still no data from the
prospect.
We get in the car and start driving to the presentation
on Tuesday morning when we get a call from the head of our
Analytic Services group in California. The data had just
come over at 6 am PST and our meeting was set to start 2 pm
EST. She was up, got the data, processed it and put it on a
server where I could grab it. I had just invested in one of
these high tech cellular modems for my laptop. While
crossing a bridge going over to Long Island, I was
downloading this sample test data onto my machine. This was
quite unnerving as the dataset was large, and the signal
could have dropped at any moment, losing the data transfer.
Luckily, we got the data loaded.
We then found a café and spent the next hour looking at
the data, processing it and performing the analysis using
Xeno on the dataset until my battery died. At this point we
had to go to the customer site to see if we could find some
power. We got into the conference room a little early and
finished up the data analysis by the time everyone came to
the meeting. The first thing they said was: we really
apologize for getting the data to you so late. We were
looking forward to seeing you demo with it. When we told
them that we’ve got it and we’re ready, they were blown
away. We showed them the level of the analysis that we had
performed – in literally a 2-hour window, we had developed
12 or 13 versions of a model, done a segmentation analysis,
a series of validations, and showed them 4 or 5 things they
didn’t know. Everyone left the room silent. We now have a
great prospect.
Ironically enough, we told that story to another
prospect. They tried to see if they could simulate it, and
succeeded. We had their data for only 12 hours. It was with
much more complex data and a much more complex problem, but
we were able to do it again. I want to be careful not to
promote this. The reality is that there is no other product
out there that would take that challenge. One of our tag
lines is Analytics at the Speed of Business. You need to be
able to analyze data this quickly if you want to impact your
business decisions.
Anthony: Do you have any
words of advice for your fellow entrepreneurs?
Chris: Make sure you’re
committed. Do your homework. Make sure you know more about
the market you’re entering than the people you’re selling
to. You need to have domain expertise and know the market
you're serving. Xeno is a horizontal product that can be
used in a variety of industries including telecommunications
and healthcare. We aren’t going after these markets yet.
Instead, we are focusing on financial services because this
is where we currently have the most domain expertise.
Bio
Christopher R. Frothinger
CEO and Chairman, InfoCentricity, Inc.
In February 2000, Christopher Frothinger co-founded
InfoCentricity to solve the business intelligence problems
that businesses face when transforming their data into
actionable information. As Chairman and CEO, Frothinger
leads the organization, sets its entrepreneurial spirit, and
provides the driving force behind its business, marketing,
and product development strategies.
Frothinger has over 12 years of experience in solving
business intelligence challenges in retail and financial
services industries. Prior to co-founding InfoCentricity, he
held relationship marketing, advanced analytics, technical
sales and project management positions at Topica, E.piphany,
Charles Schwab, Nations Bank, and Fair, Isaac. Frothinger
holds a BS in Statistics from the School of Mathematics at
California Polytechnic State University.
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