Learning from mistakes brightens future
Blame it on the application service provider market. FutureLink has a nice, profitable business as a reseller and integrator of Citrix Systems software for server-based computing. It attracted enough customers in 2000 that revenue multiplied more than nine times.
Unfortunately, FutureLink also has $900,000 per month in costs related to data center space it built to accommodate a wave of hosted application service customers that never materialized. With its meager cash reserves running out and a market capitalization of less than $14 million, this former high-flyer is in danger of crashing unless it can find more money.
"This is a sound company from an IT [information technology] resource standpoint, but our current cash position is the question we have to answer quickly," said FutureLink CEO Howard Taylor. The Foster City, Calif., company received $5 million in bridge financing from investor Pequot Capital in late April, and hopes to garner enough additional funding to survive through 2002, when the infrastructure will be paid off. "Beyond that, were free and clear," Taylor said. "Im comfortable that the company will get funded, and in the long term be a major force in this marketplace."
Building data centers seemed like a good idea at one time. "We had some wild estimates from accepted sources, but volumes are nowhere near where we anticipated," Taylor said. According to market projections, FutureLink would be able to leverage its skilled workers across a large and easily accessible customer base by building data centers. "The current environment is built for 10 times todays volumes," Taylor conceded.
While the ASP business in general has vastly underperformed expectations, FutureLink made some mistakes in the way it marketed server-based computing to potential customers. "We approached it wrong. We made a fundamental mistake in the ASP segment by saying, You have got to use my system and do it my way," Taylor said. "We tried to replace the CIO [chief information officer] system, and that set up a confrontation. We should have said, This will let you put up applications sooner, without as much IT cost. Instead, we scared the hell out of the CIOs."
Meanwhile, the Citrix integration business remains sound, and Taylor is counting on that to save the company. "We will be able to answer the question of our capital structure if people truly understand that our core is profitable and growing," he said. Longer term, Taylor still believes in the ASP model because it addresses real issues such as the ongoing shortage of IT talent and the high cost of software support.
With more than 300 engineers, more than 100 salespeople and large integration customers such as The Walt Disney Co., FutureLink is no dot-com start-up. With its legacy Citrix business and a decent shot at becoming a player in the midsize market for ASPs, the future certainly has possibilities if only the present werent so bleak.