11 Jun Pre-eminent, web-based companies owe success to corporate venturing
Milwaukee, Wis. – Since it was founded in 1998, EMSystem has grown to become one of the nation’s pre-eminent providers of web-based communications and resource management for hospitals and emergency services providers.
But the Milwaukee-based company might never have attained that stature or gotten off the ground at all had it not been for corporate venturing. EMSystem is, in the words of one of its founders, one of those ventures that required the support and nurturing of an established operating parent to become a viable, stand-alone entity.
“There is no question that EMSystem would not have been created as a pure start-up,” said Ed Barthell, one of the founders and currently the chief medical officer and a board member of EMSystem. “It would have been reckless for the founders to leave our medical profession and bet on the concept at that stage.”
Business within a business
That’s a common theme in corporate venturing, which I reviewed in my previous column. Corporate venturing includes a broad category of activities whereby an operating company deliberately and strategically develops and allocates funds and resources to new businesses.
We’ve seen the creation of several technology companies within corporations in this region. Those new ventures, many web-centric, managed-services companies, were started to fulfill a need identified by the enterprising parent corporations.
The resources of the parent corporations allowed the new ventures to be matured at a pace that would ensure their success and eventual independence. That was exactly the situation at EMSystem, which was developed within Infinity Healthcare, a Mequon, Wis.-based company that provides emergency physician and radiologist staffing as well as medical information systems and a variety of related services.
With their deep domain expertise in medical services, the doctor-owners of Infinity saw inefficiencies in emergency communications and suspected that the Internet might provide a powerful solution for transmitting real-time medical resource information as well as alerting and messaging. They secured a federal grant to study the potential of such a system, and carved out time for their staff to explore an Internet portal to facilitate region-wide emergency room communications.
“The product was conceptualized by doctors who were domain experts in the field,” Barthell said. “We were close to the problems of the status quo, with only one other known alternative being one that used cumbersome dial-up modems to disseminate information.”
After the grant was obtained, Infinity allowed time and resources for the development of EMSystem. Barthell called that incubation period critical to its successful growth, allowing the venture to leverage Infinity’s existing infrastructure.
The parent company’s connections and stature helped, too. “As ER doctors, we were able to discuss our idea at conferences and with other industry influencers who spread the word,” Barthell recalls.
The new venture slowly developed revenue and, at some point, reached a couple of inflection points. “First, we knew that to reach its full potential, it had to be completely spun out and run by a seasoned management team with capital to grow,” Barthell said. “Second, the independence of the company required good customer and employee communication. The corporate blanket created a lot of confidence in our backing EMSystem. As it moved toward independence, we needed to make sure that confidence would carry over to the stand-alone entity.”
That strategy was executed through an equity investment by the Marquette Golden Angels and the hiring of a CEO, Andy Nunemaker, who had been a healthcare executive at GE.
Parent as client
As mentioned in my previous column, Zywave also benefited during its incubation phase from the infrastructure and connections of parent company Frank F. Haack & Associates. But unlike EMSystems, whose clients are medical centers or units of government, Zywave’s first client was the parent company. From that point, Frank F. Haack & Associates leveraged its industry connections as a sales platform, offering the Zywave services to non-competing insurance brokerages.
It’s not surprising that Zywave was the outcome of corporate venturing when you consider the culture at Frank F. Haack & Associates – a culture which encouraged idea creation and which supported that cause with time and resources. Company management saw innovation as a way to differentiate the company and gain an advantage in the highly competitive industry. An entire department was created to deliver value-added services to clients.
From early on Frank F. Haack & Associates knew that Zywave would serve customers outside of its own client base and would one day stand on its own. The legal entity was created as a marketing strategy and as a legal necessity. Internal requests were considered not only for serving the needs of the internal customer but also for the broader appeal of the market. That meant features and functions added to the solution could be leveraged across a growing market base.
As the company grew and picked up momentum, owner Bill Haack brought in some clients that had a software background. He wanted to share his growth plans and see what laid ahead as the new venture landed more business.
“We were warned that transitioning our company and solutions from an internally supported solution to real customers was going to require a 9X factor of complication, resources and expectations., Haack said. “In the end, that proved to be about right, but we were ready.”
He advised others considering corporate venturing to be very aware of the costs and time required to develop the new business. “Those who are envisioning commercializing their products need to understand this,” he said.
The resources of the parent company give internal enterprises an advantage over independent start-ups, Haack said. “We were patient investors,” he recalled. “We could take measured steps not normally granted a venture-funded, early-stage company.”
Zywave, which became completely separate from Frank F. Haack & Associates 2.5 years ago, now has more than 650 unique customers, including more than 65 out of the top 100 U.S. brokerage firms.
Wisconsin corporate venturing successes are also seen in Trisept Solutions, and Mortgagebot — offering web-based managed services. In the life sciences arena, Promega promotes a similar culture of innovation and corporate venturing, as noted in a recent Wisconsin Technology Network article.
Large companies are more likely to put structure around corporate venturing activities. For example, Fortis, formerly the parent company of Milwaukee-based Assurant Health, promotes its corporate venturing strategy on its web site. Fortis feels that corporate venturing is necessary because “ideas are not only generated in the marketing and/or business development departments but can – and must – have their origin in each one of us.”
The corporation’s strategy is promoted internally to employees as well as to external partners or clients. The Fortis corporate venturing unit “provides the necessary support to transform that idea into reality.” That is backed up with a process that provides “initial evaluation, concept development, idea purification, development, and roll-out support.”
From each situation, we can identify best practices that other corporations in Wisconsin and the Midwest could engage as they develop their own venturing strategies.
Those best practices include the following:
• Strong corporate support is essential for pursuing new business or market ideas.
• Even if starting on a small scale, allocating time and resources to development. Participants in the new venture can have their feet in both operations early on.
• Looking for ways to leverage corporate competencies and areas of domain expertise.
• Tapping your accessibility to peer relationships and existing sales channels for initial product feedback and sales momentum.
• Being prepared for independence. While internal venturing can provide value to the parent operation, it may not fit inside of the parent and will create more value as a spin-out.
• Planning transitions thoroughly. Do you need to raise capital? Recruit key staff? Prepare your customers?
• Exploring formal corporate venturing structure and strategies to increase the odds that new ideas will be nurtured and the most value is realized.
Whether it stays inside or is spun-out, a new venture can add value to the parent and can create significant opportunity for leaders and associates of that business. Think about what Metavante, Trisept, EMSystem and Zywave have done for corporate shareholders and our region’s economy.
Previous articles by Geoff Bastow
• Geoff Bastow: Corporate venturing can nurture software success
• Geoff Bastow: Connecture’s Maynard finds IT business opportunity in adversity
• Geoff Bastow: Web-centric entrepreneurs find models that attract investment
• Geoff Bastow: New Silicon Pastures director envisions more home cooking for Wisconsin angels
• Leadership insights from co-founder of Yesmail
The opinions expressed herein or statements made in the above column are solely those of the author, and do not necessarily reflect the views of Wisconsin Technology Network, LLC.
WTN, LLC accepts no legal liability or responsibility for any claims made or opinions expressed herein.