Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Strategies & Market Trends : Gorilla and King Portfolio Candidates -- Ignore unavailable to you. Want to Upgrade?

To: rel4490 who wrote (11551)	11/30/1999 7:39:00 PM
From: Mike Buckley	Read Replies (2) \| Respond to of 54805

This Month in the Front Office: The Front Office Gorilla Game This is the first month of the new reporting format in which I discuss an appropriate subject(s) in greater depth than the old format allowed. With the help of Bruce and others we're handling the news stuff on a day-to-day basis in the folder, allowing for what I hope is a helpful discussion each month on something worth pondering. Let me know your reaction to this new format. What can we learn from Remedy? Remedy Corporation, one of the two remaining stocks in the Front Office Gorilla Game, is probably the least discussed stock in this folder of any stocks I follow on a regular basis. That's fine. My feelings aren't hurt. :) Though I don't recommend stocks to buy, I do recommend companies to follow and this is one of them. You want to know why? Thanks for asking. :) 1) Because Remedy, by example, shows what can go right and wrong for a wannabe gorilla; 2) Because Remedy is the leading chimp in a niche market; and 3) Because we'll no doubt learn from watching Remedy as it expands its offerings. Now, the details about those three items. When I first began following Remedy a couple years ago it was going like gangbusters. It was growing rapidly and already owned about 25% of the help desk software market. Perhaps most important is that it owned more marketshare than many of its next strongest competitors combined. Soon after, a serious problem at Remedy came to light: growth slowed dramatically. Sales cycles were getting longer and longer, making it more and more difficult to close sales in time to meet management-guided estimates. Finally the CEO came out and said his sales staff wasn't the quality needed to deal one-on-one with the CFOs and CEOs of potential customers; it had been a fairly recent development that the top dogs were becoming the decision makers about the purchase of help desk software. Though management addressed those issues and things appear to be getting back on track, I have to believe the company would be in much better shape today than if all that hadn't happened. That's what went wrong. What went right? What went right is that despite such fundamental problems, we learned this month, after a couple years of missing data (at least I couldn't find it), that Aberdeen continues to herald Remedy Corporation as the leading vendor by a significant margin in the $550 million help desk software market. We all know that management teams of gorillas can mess up for a few years without significantly harming their company, a privilege most non-gorillas don't enjoy. But execution is hugely important for a wannabe gorilla -- which is what Remedy is -- that has not claimed its stake at the top of the mountain. Clearly, Remedy's management team is executing. The company has come back strong. That leads us to item #2. Not only is Remedy the leading help desk software maker with more than 60% of the Fortune 100 companies as its customers, we learned this month from Aberdeen that it continues to own more than double the market share of its next closest competitor. If this was a royalty game we'd settle for crowning Remedy the King. But it ain't. This is a gorilla game in which Remedy is the dominant chimp in a niche market. "Big deal," you say. Indeed it is. The founding authors of our gorilla compound remind us that the chimp which dominates a niche market is second in strength only to a gorilla. And that takes us back to item #1, which really requires that I build a case. Follow me point by point: Management teams of gorillas can screw up for awhile without dramatically affecting the long-term prospects of the company. A chimp that dominates a niche market has almost the power of a gorilla. Remedy is a chimp that dominates its market. We witnessed the severe fundamental problems Remedy had and overcame. Using Remedy as one example might lead us to the conclusion that chimps which dominate their market are so strong that their management teams can also screw up for awhile, maybe not for so long as a gorilla, without killing the long-term prospects of the company. Onto item #3. Though Remedy's primary success has been in the help desk software business, it's been expanding to other markets. It now offers CRM products above and beyond the help desk products. The company is even going beyond the realm of the front office with its online procurement software called Purchasing@Work, which just won kudos (contracts) from Great-West Life & Annuity, Humana, Mercer Consulting and KPMG. (The product is used only for procuring products used in the day-to-day aspect of running their business, not for supply-chain purchasing.) How will the decision by the management team to expand from help desk solutions to other front office solutions to solutions beyond the front office help or hurt Remedy? Heck if I know. But just as we've learned all the other stuff from watching Remedy, I'd be willing to bet that we'll continue to learn. Watch this market-dominating chimp. There just might be more gorilla lessons to be learned. ---------------- For the details highlighting the performance of the Front Office Gorilla Game, see my next post using a fixed font for easy viewing of the numbers. --Mike Buckley