The 1M1M Deal Radar 2010: BlackLine Systems ,Los Angeles,California

BlackLine Systems creates and sells enterprise software designed to automate and control the entire financial close process. This is the basic monthly accounting process wherein a company reconciles its books. In April, Gartner named BlackLine in its 2010 “Cool Vendors in Risk Management and Compliance” report.

BlackLine CEO Therese Tucker founded the company, which is headquartered in Los Angeles, eight years ago when she decided to merge her two talents, technology and finance, into a business endeavor. Tucker has more than 25 years in finance and technology development, having previously served as CTO at SunGard Treasury Systems, where she headed product development for SunGard’s five corporate treasury systems, managing over 200 people in six locations and in four countries.

Tucker was originally focusing on providing a wealth management solution to First National Bank of Nebraska when a contact there expressed frustration over the company’s manual process of reconciling its books. From this initial conversation, BlackLine was born. Tucker went to work developing an automated solution for account reconciliations and re-shifted the company’s focus to address the need in this previously unserved market.

BlackLine claims to be the first financial close software system that virtually eliminates Excel from what has been a laborious manual process. The software automates and centralizes all close activity and documentation in a single repository, integrating with most common ERP systems, such as SAP, Oracle, and PeopleSoft Financials. Whether a company’s internal staff handles its close activity or they contract an outside firm, BlackLine’s software can help to streamline the process.

Tucker estimates that surprisingly enough, “probably 99 percent of the companies out there do their balance account reconciliation in Excel,” which she says is an inefficient and inexact approach: “[Say] you want to validate the balance in a bank account, someone opens up a spreadsheet and does work on it. A company might have 10,000 accounts, 50,000 accounts, which means you might have thousands of spreadsheets. People don’t have control over the Excel processes. For example, they don’t know when new accounts come in, when balances change, and there’s very little control and visibility.”

BlackLine’s SaaS solution is delivered through modules integrated into a single platform. These modules include Account Reconciliation; Task Management (which includes tools such as calendars and checklists); Transaction Matching; Variance Analysis; Journal Entry; and Integrity Manager (which helps with the validation step of the financial close process). The company also offers training and advisory services and has partnered with companies such as Deloitte for clients with large implementations that may need to overhaul their ERP systems.

The company estimates its total TAM in the United States alone to be between $1 billion and $1.5 billion. The methodology and key assumptions are:

• Virtually all companies over $50 million in annual revenues could benefit from an automated financial close system, so the company started with the total universe of U.S. companies in that revenue range.
• Using U.S. Census Bureau Economic data, it calculated the number of employees in all U.S. companies over $50 million.
• Then, the company segmented the market into three categories by revenue, and based on past experience, estimated that 4%, 3% and 1.25% of the total employees in the various size companies will end up using BlackLine, on average.
• Finally, BlackLine used its standard volume discount pricing to calculate the total potential market by month and year, arriving at the $1.5 billion figure.

Tucker argues that virtually all companies (big or small) need financial close software to close their books. BlackLine’s primary target is the Fortune 500. The thinking is that it is easier to sell down, rather than up. In BlackLine’s case, for instance, the company has deals with AT&T, Sprint/Nextel, and Verizon. Having the “Big 3” already on board makes it considerably easier to pull in a lot of the smaller players in the telecom space.  BlackLine does this over and over in different industries.

Traffic to the BlackLine website has more than doubled in the past year, with the site currently receiving more than 10,000 visitors per month, on average. The company’s more than 200 clients, across a range of industries, include Costco, AT&T, eBay, Northrop Grumman,  United Health, United Airlines, General Mills, Land O’ Lakes, Boeing, The New York Times Company, The Associated Press, and Cal Water.

Initially, Tucker funded BlackLine and to this day has not accepted VC money (though it has been offered).  She has managed to grow the company by bootstrapping, as necessary, with personal loans from family, friends, and mentors. BlackLine is profitable and had 2009 revenues of about $6.9 million.

Competitors include companies’ own homegrown systems, Tritnech Group, and Tagetik, whose product is enabled by Microsoft SharePoint and combines performance management with financial governance. Oracle and SAP also offer solutions, but Tucker says that they are transactional systems whereas BlackLine takes an operational approach and is a management system. As discussed above, the biggest competitor would seem to be Excel.

BlackLine competes on time and cost. Because the solution is deployed in a SaaS environment, it eliminates the need for capital expenditure approval, saving customers a great deal of time and money upfront. BlackLine also touts “no-risk” implementations because the occurrence of technical issues is small to negligible. In many cases, says Tucker, IT doesn’t even have to be involved.

BlackLine customers say the software has drastically cut costs (anywhere from 20% to more than 50%) while providing visibility and bringing to light many often not-so-welcome surprises.

On top of selling an increasing number of seats to existing customers and increasing recurring revenue, Tucker intends to continue with the primary growth strategy of “selling down” within vertical segments. Last year, BlackLine opened an office in Sydney, and Tucker plans to penetrate the Asia Pacific region more aggressively. The government is also a segment under consideration. But since it’s a difficult nut to crack, BlackLine is progressing cautiously.

Ideally, an IPO would be in the cards for an exit. Tucker doesn’t want to be “gobbled up” by one of the big players because she fears that in that case she would lose some control, and more important, many of the great people she’s hired over the years.

Recommended Readings
Deal Radar 2010: Webyog
Making SMEs Run Smoothly: René Lacerte’s Cashview

This segment is a part in the series : The 1M1M Deal Radar 2010