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Webhire

January 30, 2002) - We spent the afternoon in the greenhouse with Marty Fahey, CEO of Webhire, the Boston based Applicant Tracking Systems Company that started it all 20 years ago. It was an interesting meeting, to ay the least. Long time readers will recall that, after the newspapers, Webhire has served years of duty as our favorite whipping boy. Coming from a large Irish-ish family, we've never confused sarcasm and amplified critique with dislike. That's not always true of our subjects and Marty's visit amounted to bravery of sorts.

We're glad he stopped by.

Chastened by the market and fresh from the same dusting everyone received last year, Marty is the closest thing to an elder statesman we've run across in the industry. Following oodles of experimentation, the sheer fact that there still is a Webhire is a feat that deserves a round of applause. Cash-flow positive and ready to dig in, the company appears poised to profit from the lessons it has learned.

We hit four main topics in the conversation: installation turnarounds, relationship management, experimentation and the company's future. Spliced in with our comments, we'll quote Marty's view.

A long string of high growth operations, doomed to failure in the market, have grown faster than their ability to install their products. PeopleClick, ISearch (now departed) and Recruitsoft all traveled (at different times) the same growth trajectory. As the number of new accounts grows, there are two choices: hire the required installation teams in advance of the order or allow the installation cycle to run on. We've heard of signed contracts that have installation schedules that begin three to fifteen months after contract award. Knowing that these contracts are doomed to fail, we asked Marty how Webhire handles the question of growth as it applies to installation schedule.

Marty: What we have found is that the first 90 days of a new customer relationship are critical. If we don't make sure that the customer is well on track with their use of the system (implementation, recruiting process changes and training), it spells trouble. This is a time frame when we utilize a great deal of TLC to insure the customer's satisfaction. It is also a time when it is very important to have proactively established and managed the proper level of expectations. In general, if three months after the deal is done things are not up and running, your account management issues increase dramatically! On the low end, our implementations run a week or two and on the high end, generally 8-10 weeks.

As we suspected, profitability involves balancing growth and customer satisfaction. There is an embedded warning to ATS customers: if your installation won't be up and running in 90 days, rethink the contract. Your installation is likely to fail.

Customer support costs are a funny thing as well. We giggle to ourselves when we hear a ATS company's strategy that is dependent on never tailoring the core software for the customer. The most challenging segment of the business is the middle sized customer who expects big company treatment and small account pricing.

Marty: Relationships in our industry are the key to long range success. It is reasonably straight forward to build relationships with larger organizations where significant contractual relationship exists. It is much more challenging in the mid market where the contracts are more numerous but more modest. We have found that customers of all sizes desire to have a personal relationship with us regardless of the price they pay. We have actively used technology to enhance these relationships without having to put people on airplanes. Getting the economics of relationships in balance is a key aspect of building a business beyond the Fortune 500. Companies such as Amazon.com are great technology-based service models for us to emulate.

Frankly, we had not taken much time to think about the range of experimentation in Webhire's recent years.

Marty: Another interesting angle on Webhire is the extent of our innovation in the industry. While unfortunately some of our efforts didn't work, you can't question our efforts to move the ball forward! e.g. first ATS, first intranet-based product, job distribution with Junglee, refer.com, integrating job posting within an ATS, services networks, integrated commercial database search (Yahoo! and Headhunter), tight relationship with a major portal (Yahoo! recruiter), financial relationship with a top-tier executive search investment (Korn Ferry), product extension to develop the mid and low end markets, etc.

More than impressive, it's the record of a company that has maintained its commitment to market leadership over the course of its existence. The lessons learned jackets in the Webhire files ought to be coveted by many in the industry. It appears to us that they've learned the limits of their capacities the hard way.

Mistakes are easy to talk about and harder to live with. While Marty seemed grounded in our conversation, you can imagine that life in his seat has been anything but easy. We know that wiser means learning what not to do the hard way. Converting that into business success takes real work on a very personal level.

Marty: We have learned many lessons and have weathered many storms. We have learned what we can be successful doing and what is beyond our scope. Having been at the top of the market, we were the first to encounter the problems of success (how do we successfully structure a company to deal with a large installed base?) as well as the challenges of continued growth (so now that we own 50% of the market, how do we sustain our growth?). We have been a scrappy start-up, a profitable private company, a dominant industry player, a profitable public company, a well-funded Internet darling, a fallen angel, a dollar stock, and now a cash-flow positive comeback kid. I think it is an interesting story and one that is far from over. While we will stick to our knitting to cement our foundation, you will see us exploit our ability to "knit" to expand our market over the course of 2002. We have learned much over the last 20 years and that experience will guide our growth. I think we will be around for a while.

In the end, we were impressed with the company's prospects. Webhire remains, after all of the fuss, the largest player in the game (by customer count). We bet they'll stick to their knitting and grow in logical incremental ways. These days, sexy and reliable may be the same thing.

- John Sumser

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