A software firm that’s not paid ‘until the customer gets value’

A software firm that’s not paid ‘until the customer gets value’
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First Published: Tue, Oct 30 2007. 12 31 AM IST

Satisfaction cue: Trilogy president and chief executive Joe Liemandt.
Satisfaction cue: Trilogy president and chief executive Joe Liemandt.
Updated: Tue, Oct 30 2007. 12 31 AM IST
Austin, Texas-based tech consulting and services firm, Trilogy Enterprises Inc. is unique in the industry for the way it bills its customers: it bills them only if it generates “value” for them. Business value is defined in different ways, primary being enhanced sales, lower costs, and better productivity. In an interview, Trilogy president and chief executive Joe Liemandt says he thinks traditional business software model is dead.
Edited excerpts:
Your business model is based on getting paid only when a customer realizes the value of your solutions. How does that work?
During the 1990s, we were a classic enterprise software technology company. We would go into the biggest companies in the world, who would give us $50 million or $100 million (Rs197-394 crore) of funds for our technology, and say thank you. How business value could be derived from our products was their problem.
Satisfaction cue: Trilogy president and chief executive Joe Liemandt.
Then in 2001, we changed our model to focus it on where we wanted to give a guaranteed business value. We asked, are our customers getting a value? And the reality of the situation was, they weren’t. There was a study done those days, which said 75% of the IT projects did not give any value. When we went to our customers, we realized that while the IT departments were 90% satisfied with us, when you move over to business side, you get 10% satisfaction.
Now, our entire model is business value-guaranteed; until the customer gets value, until it’s signed-off by their CFO, we don’t get paid. It usually takes over a year till you have enough proof to start to bill a customer.
How do you help these customers achieve “value”?
For automotive companies, we can tell what production mix should they sell, how many high-end versus low-end, et cetera. In the US we can guarantee up to $1,000 per car in profits. Autonation (the largest US dealer for used and new cars) says Trilogy helped it sell its cars 10 days faster than ­earlier.
With Goodyear, their CEO said it made $35 million in incremental profit by using Trilogy. If you were selling, say 100,000 tyres for $50, we would look at the market, different stages, and if we could move it from $50 to $55—that’s a lot of volume. You can get extra $5 by doing that.
What kind of percentage of revenues does Trilogy take?
It depends on how big the scale is. We find... 50-50 is a good place that we start. And as time goes by, and people do more work with us, that percentage drops. Initially, everybody thinks that’s fair, but after you do this for a while, there’s not much risk involved, so this drops to around 25%.
It will take optimistically a year before we start sharing the profits. The downside of our business model is that you have to be patient. You have to be able to make investments upfront for a long time. Many management consulting firms have talked about pay-per- performance for years, but they will never do it.
What do you think of other larger vendors such as SAP AG and Oracle Corp., who promise business returns to their customers by selling the old way?
I think the traditional enterprise software industry is dead. It’s only being sustained by Oracle and SAP buying everybody, because your organic growth base is gone. Their stuff does not provide value. You are stuck with your maintenance streams... No one is excited about their stuff any more. They would still make a lot of money and it’s still a highly recommended stock.
Where do you see Trilogy 10 years down the line?
Our goal is to have every Global 500 company as a customer. And the way we are going to get there is industry by industry, country by country.
The reason we launched YourBillBuddy in India first is because the customers we want, the ones that are going to be the largest global companies, are going to be the Indian telecom companies.
YourBillBuddy was developed from scratch in India... We have around 300 engineers in Bangalore.
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First Published: Tue, Oct 30 2007. 12 31 AM IST