Trevor Davies is planning to become a multi-millionaire when he floats or sells his software firm Logical Water in three years' time. So how can he turn a good idea into a worldwide success story?
Trevor Davies enjoys dangerous challenges - in August he climbed the Jungfrau in the Swiss Alps, and later this year he plans to scale the Eiger. But mountaineering holidays aren't enough to satisfy his desire for risk. That's why 18 months ago he gave up a well-paid job as head partner for computing and electronics at management consultants Coopers and Lybrand (C and L), to start a software business. It was a big gamble, but Davies, 42, is convinced he has a winning idea. He expects to become a multi-millionaire when his company, Logical Water is sold or floated in three years' time.
Davies's idea was to develop and sell an innovative software tool that would help managers understand their businesses much more clearly. The concept had been evolving at the back of his mind since the early 1980s, when he had been hired by Guinness to shake up its management information systems. Attempting to unravel the chaos, he became increasingly dismayed at how badly software was adapted to business needs. 'It tends to legitimise the mess you're in rather than get it sorted out,' he says. Nor were IT consultants much help, because outsiders, by definition, couldn't maximise the expertise held within the company. 'I soon realised that the ideal solution would be for staff to work out better ways to do things for themselves,' he says.
When he moved to C and L, he discovered that Guinness's problems were not unique. 'Almost every company I saw experienced the same difficulties, caused by the fact that their management information systems were based on IT methodologies, rather than on concepts that business people could understand.' Davies was convinced it must be possible to design software from the opposite viewpoint, starting with how managers and business people think.
His solution, Quesheet, asks managers three simple questions: what are they trying to do, why and how? This clarifies their objectives and makes it much easier to identify whether there might be a better way of achieving them. Davies is not the only person to have had such ideas. Management guru Peter Drucker outlines a similar approach in his book Managing for the Future. The easiest, and perhaps the greatest, increases in productivity, Drucker says, 'come from redefining the task, and especially from eliminating what needs not to be done'. Davies, however, is unusual in having put the idea into software.
Other software just automates the way people work already, says Davies. 'We want to help users find new ways of working so that they can shed the burden of unnecessary activity. So many people don't understand why they are doing things.' Take the task of managing customers, for example. The reason for managing customers might be to maximise customer profitability. But there are many ways of doing this: by ensuring further orders, maximising order values, or keeping selling costs down, Davies points out. So, 'managing customers' is the wrong objective.
Another example might be product development.
If a manager asks himself how he develops products, the answer tends to involve producing a design, developing a plan, or allocating resources. 'But you need to ask why you are developing a specific product in the first place,' says Davies. It could be to ensure a competitive position: you might achieve that by understanding market need, understanding technical opportunities, establishing a product outline, or developing a proto-type. The Quesheet approach almost forces employees to come out from behind departmental barriers, Davies says. It also greatly simplifies the task of communicating goals and methods to everyone in the business so that they know and understand what they are trying to achieve.
Davies had not designed Quesheet to this level of detail while still at C and L, but he was convinced that the theory was right. Meanwhile, although he enjoyed the intellectual stimulation of colleagues at C and L, he longed to put some of his own business ideas into practice, rather than continually advising other people.
At the beginning of last year, judging that the market was ripe, he resigned. 'I reckoned that even if the idea failed, I would learn so much that it must be a worthwhile move.' By May, Davies had set up the business with his long-standing friend and former colleague Steve Wooding, in a room over Wooding's garage. Neither went so far as to put up his home for security, but each invested his life's savings and decided to draw no salary for a year. Their strategy was to avoid calling on venture capitalists for as long as possible on the basis that they would get a much better deal once they had a demonstrable product.
Davies adopted a text-book approach from the beginning. He even hired a panel of experts to help choose names for the company and the product. More than half the panel members were based in the US, his key target market. He also used US specialists to advise on legal protection for the idea, spending around 10% of his £450,000 start-up capital on patents.
It was essential to use US specialists because they have so much more experience of the software market than their UK counterparts, Davies says. 'There are very few successful software companies coming out of Europe - all relevant experience comes from the US, and we have to make use of that or we will always be at a disadvantage.' His aim is to identify the best people in the world for specific activities, and to convince them that his company is worth helping.
Davies and Wooding worked round the clock for weeks developing and honing the product. Davies focused on the design and Wooding wrote the computer code that made it work. By August, they were ready to start hiring Cambridge graduates to work on sales, and they moved into an office in Cambridge. Manufacturing and distribution was subcontracted to the Dublin subsidiary of Doneally, a respected Chicago-based company specialising in the software market.
To drum up public awareness, Davies hired Andy Miller, a PR guru, who had worked on the launches of Lotus, Compaq and Intel. Miller arranged a US press tour prior to the Quesheet's completion, to demonstrate the product to journalists, industry commentators and analysts. 'The US view is of paramount importance in the software industry,' says Davies. 'If you can't impress US analysts and opinion formers, you will be hit everywhere.' Their comments helped produce the final version.
After experimenting with direct mail, off-the-page advertising, and telephone sales, Davies concluded that one of the best ways to sell Quesheet was with consultancy. Most customers were not looking for individual shrink-wrapped copies of the software, preferring to buy it together with some advice on how to solve their business problems. A typical example is Thyssen (GB) - the parent company being the German engineering giant - based near Pontefract in West Yorkshire. Having grown up working for British Coal, Thyssen is now turning its attention to a much wider client base. The problem is identifying the best potential customers and how to target them.
Keith Jessup, assistant to Thyssen's managing director, spotted Quesheet in an advertisement. It seemed to offer the answer the company was looking for. 'The first attraction is that it gets everybody's minds geared to what we're trying to do and why,' Jessup says. 'We have been able to discuss everyone's ideas, reject some as unfeasible, and prioritise the markets from which we expect the best return.' Previously, Thyssen focused its sales and marketing on individual companies, but Quesheet highlighted the need to get down to key contacts within those companies, their buying patterns, and other anecdotal information that might help sales staff. Most of this information already existed in the company, but in a very fragmented form. Quesheet made it possible to collate it.
The system also improves efficiency by highlighting duplication, for example, when more than one division targets the same client. And it pinpoints information gaps such as key players in the market on which insufficient data is held.
'The other advantage is that it sits on top of the new IT system and provides us with management reports by client, by market, or by individual contact or segment,' says Jessup. This is useful for planning business strategy and for allocating resources and budgets. Like conventional spreadsheets, Quesheet can be used for financial modelling and 'what-if?' experiments, but is much simpler and can easily be updated as the business situation moves on.
For Jessup, a relative newcomer at Thyssen, Quesheet is proving invaluable in providing an objective measure of whether or not a particular activity is worthwhile. 'This helps enormously if you are trying to get people to change what they've always done,' he says. He plans to extend Quesheet to cover project management soon, and views it as an extremely powerful tool. 'It could mean the difference between business survival and failure. I wish I owned the rights to it. This is a way of putting on to a computer a logical thought process not just for your business, but for anything in your life.' Quesheet is an effective vehicle for staff training because it explains the business in simple terms. 'By answering questions such as what, why and how it imitates the instinctive way that children learn about the world,' says Davies.
It also helps conform to ISO9000, the quality standard, which requires that all business processes should be documented.
During its first year, Quesheet generated around £1 million in sales, representing some 2,000 users in 150 organisations. The feedback has been extremely positive, says Davies. Indeed, a reviewer for the US publication PC Magazine, writes: 'If all software were designed in this way life would be a lot easier.' However, transforming a good software product into a worldwide success is a tough challenge. Hence Davies's plan to use third parties such as computer suppliers, training companies, consultants, and other software houses, to sell Quesheet. This will release his staff to focus on marketing and establishing the brand image rather than dissipating their efforts on sales. 'If you want to grow in to a sizeable business and reach out to big markets from nowhere, you have to create the demand and get other people to fulfil it,' he says. 'If we tried to do it all ourselves we would fail. There is just too much to do.' Conquering the US is crucial - it has been a graveyard for so many UK computer pioneers. Davies's role models are Microfocus, the UK's largest software company, and Madge Networks, a Buckinghamshire-based PC networking business which has won the Queen's Award for Exports for the past two years, and last year floated on the US stock exchange. Both companies have large offices in California where they adopt the convincing appearance of local companies. Davies plans to base at least half of Logical Water's business in the US. 'There's no question that the Americans are prejudiced against British software houses,' he says. 'They tend to think we don't have first-class products.' He is keen to resist venture funding for as long as possible, being convinced that billions of dollars are not essential to start a software company (Lotus spent $3 million on the launch of its spreadsheet, 1-2-3.) However, the US is almost certain to be the source of any venture capital he does use. 'US venture capitalists have more understanding of software markets than the UK, and are better able to add value. I'd rather have clever money than uneducated money.' A number of offers are already on the table.
Davies is confident he can succeed where so many of the UK's high-tech entrepreneurs have failed, by combining an innovative product with text-book management skills, and by thinking globally from the beginning. 'We're using Cambridge for what it's good at which is providing lots of experienced technologists. But we have no special interest in being a British company,' he says. 'At the end of the day, you have to go where you get the best support. Otherwise, you're not likely to succeed.'