Navigating Through Multiple Pivots: Convercent CEO Patrick Quinlan (Part 5)

Sramana Mitra: You also need the direct to get the reference customers before you can get the channel to accept to sell you.

Patrick Quinlan: I don’t agree with that one. None of the customers were turning on. The customers were paying us. This was late 2009. Nobody had to file till 2010. What I did was I looked at the landscape and looked who is in this filing business. I quickly saw that RR Donnelley is the company that owns the vast majority of the filing business. What the mandate said is people who used to file in print now had to be electronic and in an interactive format.

If Donnelley had an 80% market share, all of their customers were going to need the filing work. I called the President of Donnelley. He said that he was working with this publicly traded company. I said, “How is it going?” He said not really well. I got on an airplane and flew to New York. I uncovered quickly that Donnelley wanted a solution. They didn’t want a partner. Donnelley is a monopoly in that business. They just needed someone to solve the problem.

The other company was trying to act like they were the experts. There was a conflict. You have a publicly-traded company that thought they had a monopoly and another company that had monopoly on the distribution. I just walked in and said, “I’m willing to work for you. You get all the client recognition. We can brand this stuff Donnelley all you want.”

Sramana Mitra: Your deal structure is more akin to an OEM deal as opposed to a channel sales deal. My comment earlier was more inline with what an Accenture would do. If you want Accenture to sell your product, you will need reference accounts before they take you on.

Patrick Quinlan: Yes, it was the smartest and dumbest thing I’ve ever done. It was smart because it blew the company up. We ended up having nearly a 70% market share. It was an unbelievable 8 months. Because of the recession, we were literally one of the fastest-growing companies in the United States that time.

Sramana Mitra: You also got squeezed on the royalty.

Patrick Quinlan: No. We signed a long-term contract so the pricing was good. The mistake I made was the total addressable market was not very big. It was 5,000 publicly-traded companies at $75,000 a year. If you own 70% of the market, in 18 months, you have another problem.

Sramana Mitra: There is no headroom. You were probably not getting $75,000. You were paying channel fees.

Patrick Quinlan: We actually got a great contract with those guys. They marked our $75,000 up and we didn’t give them a fee. They were able to charge more than I could have charged. They were paying what we always charged.

Sramana Mitra: That’s fascinating.

Patrick Quinlan: The first mistake was small market. The second mistake was we had 70% of it. The third mistake was that all I had was the channel. We were never able to build a roadmap. Then I made a very dumb little mistake. Inside the partnership agreement, I gave them a right of first refusal.

Sramana Mitra: To buy the company?

Patrick Quinlan: Yes. To raise external money was impossible, because everybody knew the outcome. Some day, they were going to give us a reasonably fair price to buy the company.

Sramana Mitra: Did they?

Patrick Quinlan: They put in a reasonable price to buy the company. It was a nice multiple. The owner of the company wanted to keep the company private, so he bought a few of us out at that price. After we left, they ended up buying the publicly-traded company.

Sramana Mitra: Donnelley didn’t buy you. The company remained privately owned by the majority shareholder.

Patrick Quinlan: Correct.

Sramana Mitra: You guys all left?

Patrick Quinlan: Yes.

Sramana Mitra: What year are we in?

Patrick Quinlan: I started in 2009 and exited in Q4 of 2011.

This segment is part 5 in the series : Navigating Through Multiple Pivots: Convercent CEO Patrick Quinlan
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