Going Global on a Shoestring – The Dataco Case Story
Some of the “unfair” advantages of coming from a small country with its own language are:
1. you are forced to speak foreign languages,
2. you are forced to look beyond your own borders for business growth, and
3. you don’t have a lot of money to play with.
When I received “the” phone call in the spring of 1986, I was country sales managers for Control Data Corporation in Denmark.
It was my job at Control Data Corporation to sell Cyber mainframes, software development projects and Cybernet data services in Denmark. It was also my job to introduce new Control Data businesses to the Danish market.
In those days, Control Data Corporation was not doing well in the US. If you could deliver your revenue numbers, “corporate” would leave you alone and give you a lot of freedom. We used this “freedom” to start and grow businesses that had virtually no roots with our owners in the USA.
The Danish market was and still is a very small market – approx. 0,36% of global demand for IT-related products and services. Selling US products into this tiny market was my job and it was a job I did very well (made it to the 100% Club every year!). I was on the list of “promising potential” for a career in the Worldwide Headquarters in Minneapolis, Minnesota, USA. I was doing well, but the prospects for Control Data Corporation didn’t look great in those days.
Then the phone rang.
On the line was Michael Mathiesen from “Scandinavian Dataco.” (Never heard of him or them!)
They were looking for a VP (sales & marketing) to take their new line of LAN/WAN products to the market.
After interviews, tests and what have you, I was offered the job and took it.
I left mighty Control Data Corporation and the prospect of a career climbing the corporate ladder step-by-step to the executive dining room at the top of the WHQ building on Route 101 in Mendota Heights in Minneapolis. Instead, I was propelled directly into the “top executive team” of Scandinavian Dataco, a startup with 15 people, with offices in a shack by the harbor, hardly any revenue, but a pretty impressive “burn rate” (a term invented much later).
From 0,36% to 100%
From one day to the next my potential market had increased from 0,36% to 100%. That’s an 278 fold increase!
I felt like a child in a toy shop.
To the Dataco Executive Team, it was clear from day one that the success of the company depended on our ability to take shares of the 100% and not only of the 0,36%. It was also clear that the funding for penetrating the 99,64% would have to come from the 0,36%. We would need to build a solid position in Denmark first and then go global next.
All resources (and I mean all!!) were thrown in to generate traction in Denmark. Everyone in the company was out selling to people they knew and who knew someone who knew someone. The most important deal was landed by our VP of R&D, Peter Videcrantz. He managed to get one of the four Danish Telcos (Jydsk Telefon) interested in replacing their entire internal data communication infrastructure with our system. If we could close that one we would be blue-stamped and jump the chasm (that book wasn’t even written by then) in one elegant leap.
Choosing the channel
During the process of getting me on board we obviously discussed “how” to grow revenue fast. I don’t remember who made the suggestion, but we all agreed that we needed to build a channel of resellers. The reasons for making this decision were very simple:
- We didn’t have the resources to scale the business as fast as our ambitions demanded by doing direct sales only.
- We didn’t have the resources to grow market penetration as fast as the window of opportunity demanded by doing direct sales only.
I didn’t have any experience with operating through a channel when we made that decision. I just thought it made sense on the “logical level.” With Control Data I was the channel partner of other vendors, so I had that experience!
Having the channel decision in place before launching the products should prove to be a gigantic advantage.
We won the business with Jydsk Telefon and signed up their Business Services Division as a reseller. Seen from the outside this wasn’t exactly a clean channel partner setup, but it proved to be an extremely powerful cocktail for the next phase.
With Jydsk Telefon as a customer and a reseller, all doors were now open. Banks, insurance companies, manufacturing companies, retailers and everyone else wanted to talk to us. “If it is good enough for Jydsk Telefon, then it is also good enough for us.” And we took those meetings, but we never fulfilled a direct sale. We closed the deals and asked the customer who he preferred as the implementation partner. Then we took the deals to the resellers. Using this approach we could pick and choose our resellers and I don’t recall a single one rejecting to accept an order. The rumors spread and now resellers were knocking on our doors. We signed up all the big names and we rapidly approached the so-called tornado (we didn’t know this concept in those days) and the tipping point (also unknown to us). The only real defeat I remember was when the Danish Parliament chose a solution from Digital Equipment Corporation delivered by Datacentralen (a company owned by the Government) over a solution from Norsk Data based on our system. Being slapped by your own government hurts, but what doesn’t kill you makes you stronger. We persevered and continued to grow our market share in Denmark nevertheless.
Things were going well in the Danish market, so we brought in Jan de Blanck as sales manager to take responsibility for all the sales activities here. This released me to start penetrating global markets.
Where should we go first?
I looked in the SAS timetable and saw that it was fastest and cheapest to fly to Oslo and Stockholm, so that’s where we went next. I think we also took Finland at the same time.
There was no Internet in those days!!!!
There was no email in those days!!!!
You couldn’t look up the players in a country by searching on Google and LinkedIn.
We went to the local IT exhibitions and we got in contact with the local trade organizations to get the lists of their members. Then we called them and made appointments.
First we took the Nordic countries, then the Benelux, then the UK, then Germany (difficult!!!) and then Southern Europe (not so difficult).
The business proposition
I am not an engineer. I didn’t know anything about how the stuff worked, but I knew what the stuff did. I was intimately familiar with the ideal customer profile, the benefits for our customers and the RoI our systems could deliver. I was intimately familiar with how the resellers could build a business based on our products.
I did carry a big suitcase with product samples that were passed around as we discussed the business potential. It was a gimmick. What can you read out of looking at boxes and printed circuits that will be stored away in a closet anyway? Well, in those days we still believed in the future of the thick yellow cable. We believed that our boxes would be placed into the office environment. As Danes we had paid attention to design. Our products were pretty where our competitors’ products were ugly. People just loved to look at them and have them in their hands, and it made us look more real than had we relied on our overhead foils only.
So while products were passed around I was presenting the reseller P&L and supporting the messages with current customer and reseller logos.
The disadvantage that became the advantage
We could not repeat our home-plate advantage outside the Danish borders. We could not invest in selling directly to the customers and then take the deals to the resellers. We had to enable the resellers first and then sell through them. Anyone working with resellers knows that this is the toughest part.
We had that suspicion too and designed a partner program which required substantial investments from the partners. By signing the reseller agreement they were to place an order for a starter kit. They should pay for a training package that included sales and technical training. They committed to develop a joint sales and marketing plan.
Our assumption was that the more they invested up front, the more committed they were to move fast.
What did we put into the equation? We were not without competitors. Why should the resellers go with us?
We gave each reseller a grace period where we didn’t appoint competing resellers and then we allocated people to help with sales and pre-sales. Resellers that showed genuine commitment were awarded with extensions of the grace period and even more attention from our side.
Instead of appointing resellers left, right and center, we focused on those who were prepared to make commitments. It was not only strategy. We also desperately needed the money to fund our international sales efforts, so we had to help our resellers protect the investments they did in the business with us.
Sales took off like a rocket and we entered 10 new countries in Europe within just 12 months.
What made Dataco so incredibly successful? How could we launch a complete LAN/WAN product line and achieve global coverage in less than two years and reach a position to sell the entire company in just four years?
The Dataco team was incredibly talented. Critical product strategy decisions had already been made before I joined the team. It was decided that we should not move into application software. Our products should support software from Novell and other network operating systems and application stacks. It was “in the air” using a reseller channel although the final decision was left with me. Michael Mathiesen and Bent Henrik Madsen were co-CEO’s and had provided most of the funding through personal loans. Peter Videcrantz was VP R&D and had a fabulous team of engineers working day and night. Allan Koch was in charge of production and logistics. Later Mogens Hansen joined me as support manager and after an internal financial crisis Steen Bergholdt joined as CFO.
It was a committed and powerful team capable of making fast and bold decisions and getting them executed.
Incentive schemes were in place aligning ambitions for the company with remuneration for key staff members. If we could make the company rich we would also get rich. We were motivated to put in long long hours.
We didn’t have much money and we were constantly short of cash. Lack of funds makes you more innovative.
We wanted to exhibit at the CeBit Fair (Hannover, Germany) in 1987. We got floor space in hall 12 and Jan de Black made a booth of unplaned boards painted gray (our company colors) with a slightly elevated floor hiding the cables and a meeting room with an overhead projector.
It was the ultimate low budget booth, but it made us look different and entrepreneurial – we were clearly the new kids on the block. We had big posters on the walls explaining what the products did and a big white board where we could take visitors to discuss his particular issues and how to solve them.
Potential big ticket customers and potential resellers were allowed to sit down in our small meeting room.
It was a huge success and we returned with tons of leads and potential reseller opportunities.
The timing for the type of products, which Peter Videcrantz was the architect behind, was exactly right. Combining PC networking with IBM 3270, 31xx and 34xx, DEC VT100 protocol conversion in an affordable ethernet based product line hit a need in the enterprise market. Using the ISO/OSI label to make it appear as based on official global standards helped big enterprise IT executives (with notorious risk aversion) decide in our favor.
Moving packages with data and converting data transmission protocols is the same all over the world. Moving into a new country didn’t require any other changes to the products than a translation of the control program and the documentation. The advantage of starting in the Nordics is that you can use English as the common language. It was only when moving into Germany and Southern Europe that the language become (a small) issue.
Our channel approach was successful in many ways. The starter packages generated cash that we desperately needed to fuel further expansion. My focus on the partners’ P&L and Mogens Hansen’s focus on helping our partners master our products accelerated the learning curve.
Against all odds
Starting and growing a company is always a race against cash flow, but there were also other obstacles on the road. Not all obstacles were imposed upon us from the outside.
We were not particularly interested in 3rd party funding. Getting diluted and having to deal with external investors was not something we embraced. However, we were burning cash too fast. Sales didn’t grow fast enough in the beginning and we slowly, but surely, ran out of cash. With shortage of cash you cannot pay your suppliers which then require up front payments. We introduced factoring to accelerate cash flow. We had meetings with the bank to get a credit line. When you are short of cash you have to invest time and resources in all sorts of activities, which takes your focus away from dealing with your resellers and your customers.
It is a vicious cycle.
With our back against the wall we took a round of private equity funding. Getting funding with your back against the wall is [insert the most negative word you can think of]. Investors don’t want their money used paying old bills, they want to invest in the future. Eventually we got the funding, diluting primarily Michael and Bent Henrik, while the rest of us chipped in on top with our private savings. A week later the money was gone, but operations were now generating positive cash flow and we were in the clear.
Board of directors
With external funding comes new members of the board. That can be really helpful, but it can also be [insert the most negative word you can think of]. I will claim that we were unfortunate. The first thing the board did was work on “normalizing” incentive schemes. First priority was now (new) shareholder value. Staff were to be paid on normal (Danish!) market conditions. The board started an internal fight to take our incentives away. Hurrah!!
The board also declared that the company could not have two CEO’s but they didn’t pick one immediately. Instead several months passed where internal political games flourished building support for the two candidates. What a mess and what a waste of time and attention.
Germany proved to be much more difficult than all other markets. The German resellers in the data communications market were used to dealing with US vendors. They were obsessed with getting exclusive rights. Sitting in the US and looking at Germany, that may not be such a big deal. But for us it was out of the question. None of the resellers we signed up were capable of covering the German market (which is 15 times bigger than the Danish market and very fragmented). Why should we give a reseller in Frankfurt exclusivity in Munich? After lengthy meetings with unreasonable resellers we decided to give Germany low priority for the time being and focus on other markets.
That was a wise decision.
Dataco was founded in 1985 and released the first product line in 1986. In 1990 Dowty acquired the company.