Mike of Onvia details his experience with a radical shift in business models, and how is company endured such hardships to become a much leaner and more focused organization.
Interview conducted by Nathan C. Kaiser on Thursday, November 13, 2003 in Seattle, WA.
<div class="IntQCont"> <div class="Bold StepFrom"> <a name="QA001195"></a><b>Thanks Mike, for being with us today. Can you give our readers an understanding of Onvia?</b> </div> <div class="IntACont">
The company today is very different company that it's original concept, and that probably holds true for most internet companies. Today, we are the leading provider of government business opportunities to businesses in this country. We aggregate using our technology and our direct relationships with local state governments about 40,000 requests for quotes per month and we match those with 25,000 paying subscribers. These are businesses that are looking for notification when government agencies in their vertical and their geography put out a request to purchase services and products that they provide. </div> </div> <div class="IntQCont"> <div class="Bold StepFrom"> <a name="QA001196"></a><b>What was your original model?</b> </div> <div class="IntACont"> The original model was an Internet computer company, that essentially was a reseller of computer products over the web that evolved into a B2B business. The idea was that we would use attracting businesses to our site to purchase computer products by selling them products at very low margins. Once they had purchased we would then attempt to convert them to the B2B exchange model, where they would buy and sell services through our network over the web. It was a very successful fund raising model and we sold over $150 Million worth of product, but mostly at a lost. We raised a lot of dough and went public. Of course, this is a very expensive model. To be successful, it requires some economies of scale, and with the Internet changing in 2000, where funding was not going to continue, it became obvious that we had to change our model. </div>
</div> <div class="IntQCont"> <div class="Bold StepFrom"> <a name="QA001197"></a><b>How did you identify your current model?</b> </div> <div class="IntACont"> Essentially, we looked around and one business that we already had, we really liked was a small company that was providing small businesses with government requests for quotes. We shut down and sold everything else we had and bought two more companies in this arena. </div> </div>
<div class="IntQCont"> <div class="Bold StepFrom"> <a name="QA001198"></a><b>I was would assume that this kind of transition was very traumatic for the organization. What were the key issues that the company faced with the transition of it's business model?</b> </div> <div class="IntACont"> No question. These kinds of things are definitely traumatic. The important thing, when you are in an environment like that is honesty, clarity, and communication. Having done this a number of times through giant mergers I realized that the most important thing to employees was that they knew everything you knew, or as much as you could tell them. We were very upfront, telling them exactly what we were going to do, and frankly that there would be a lot of jobs lost. Our goal was to retain as many jobs as this business could support. If we hadn't made these changes, everyone would have been out of work. Also, another key aspect was that whoever lost their job would be fairly compensated. That also helps the people who remain, knowing that their friends who lost their jobs were taken care of. The important thing for us was ensuring that we were very clear on where we were going, making sure that we communciated that extremely well to employees, shareholders, and to customers. </div> </div> <div class="IntQCont"> <div class="Bold StepFrom">
<a name="QA001199"></a><b>Were you able to leverage your originial client base, with the new business model?</b> </div> <div class="IntACont"> We had several hundred thousand businesses who had purchased computer products from us. Not all of those businesses either sell to the government or have products or services that the government would be interested in. In our business today, our focus is on construction, architecture, engineering, IT products, financial consulting, maintenance, and operations. Areas that the government spend money on. Quite a few of those companies that we had in the B2B model became customers of ours in the B2G model. We started with less than with a thousand customers, acquisitions, and farming grew to over 25,000 customers today. </div> </div> <div class="IntQCont"> <div class="Bold StepFrom"> <a name="QA001200"></a><b>When did you realize that you would need to change your company's business model?</b>
</div> <div class="IntACont"> The original model had a business plan associated that called for hundreds of millions of dollars to finance the growth. In those days, the slogan was to get big quick. It was really this giant horse race, in which he with the most money, spent the most money, and made the most money. The only ones that one were the ones that started very early, like Amazon.com. It was obvious, having gone public on March 1st, 2000 and NASDAQ's high on March 9th, and rapid decline soon thereafter that we weren't going to be able to do a secondary. We looked at out model, our cash requirements, and our promise for this kind of company and it's value. We came to the conclusion that the value we could achieve versus out of B2G was not as high. We wanted to be a market leader in our category, and to do so we had to change our complete focus. </div> </div> <div class="IntQCont"> <div class="Bold StepFrom"> <a name="QA001201"></a><b>What were your key goals then in identifying this new business?</b> </div>
<div class="IntACont"> We wanted a cash business, a recurring revenue stream, and where are margins are a lot higher. We don't create leads for people so much as creating a listing service that matches their capabilities and services provided. We facilitate our customers identifying which government entities have a need for their products and services. Unline most leads, we provide PO's that need a name at the top of them. </div> </div> <div class="IntQCont"> <div class="Bold StepFrom"> <a name="QA001202"></a><b>How did you go about developing your network of federal, state, and local governments?</b> </div> <div class="IntACont">
The first business that we had in this area was providing an opportunity for women and minority owned businesses to know about different government projects that were available. They provided a contract to us to distribute government bids from certain municipalities to these businesses. This was the core business that we had when we changed our model. We then bought a company out of Florida that had built a similar business by going out to government agencies and getting them to agree to put their request for quotes through their system. They had a couple hundred agencies signed up. </div> </div> <div class="IntQCont"> <div class="Bold StepFrom"> <a name="QA001203"></a><b>That can only be a drop in the bucket.</b> </div> <div class="IntACont"> That is. While we have grown that over to 400 today. We get about 1,400 requests per month from those agencies. That is not very much to service 25,000 businesses. Right after acquiring that company, we acquired another company here in the Seattle area that had the technology that went out to government web sites and picked up their posted requests for quotes. </div>
</div> <div class="IntQCont"> <div class="Bold StepFrom"> <a name="QA001204"></a><b>Similar to a webcrawler.</b> </div> <div class="IntACont"> They had some unique applications that enable it to provide high quality, and being able to acquire a high volume of requests. Between the two, we grew the requests to 15-16,000 requests per month. We have grown that 15,000 to over 40,000 requests for quotes to our 25,000 customers per month. It is a heavy infaces on technology, plus the relationships with over 400 government agencies across the country. </div> </div>
<div class="IntQCont"> <div class="Bold StepFrom"> <a name="QA001205"></a><b>How many government agencies are their within the US?</b> </div> <div class="IntACont"> There are about 80,000 buying agencies, and we cover about 50,000 of those with our crawlers and relationships. </div> </div> <div class="IntQCont"> <div class="Bold StepFrom">
<a name="QA001206"></a><b>What size of businesses do you target for your service?</b> </div> <div class="IntACont"> We try and not limit our products by size of customers. At the very low end, you can subscribe to information from one government agency for about $30 per year. So almost anybody can afford that. We can also provide you a metropolitan area for $400 per year. If you are a large company, and you want them all to find out about opportunities across the US, that would potentially run $4,000. We have products that fit the need of almost every company, but they need to be within the areas and verticals that we focus in. In addition they need to be interested in doing business with the government. We have also spent a lot of time going through minutes of different governments determing projects that may be coming down the pipeline. </div> </div> <div class="IntQCont"> <div class="Bold StepFrom"> <a name="QA001207"></a><b>What is the biggest lesson learned for businesses working with government projects.</b>
</div> <div class="IntACont"> I would say that it is not as difficult as people imagine. A lot of people are afraid of government business because of the buraucracy has historically been very high, the difficulty in getting approved has been high, that they have been late payers. All of these traditional concepts or views are no longer true. The government has sped up a lot of these processes, and pay a lot on credit card. Hundred thousand dollar purchases on credit cards. That is the common misconception, how difficult it is going to be. </div> </div> <div class="IntQCont"> <div class="Bold StepFrom"> <a name="QA001208"></a><b>What is the annual dollar amount of the open request for quotes?</b> </div>
<div class="IntACont"> Well, it is estimated when you take away defense, medical, social security, that they spend $600 billion per year. </div> </div> <div class="IntQCont"> <div class="Bold StepFrom"> <a name="QA001209"></a><b>Which verticals have you seen the most growth recently?</b> </div> <div class="IntACont">
We are experiencing a large numbers of requests in the homeland security area. Emergency medical equipment, hazmat products, protection services, etc. Construction continues to be a huge area of spending. The spending may be a little less, but the number of opportunities remain the same. </div> </div> <div class="IntQCont"> <div class="Bold StepFrom"> <a name="QA001210"></a><b>How many companies could provide services within the verticals you mentioned, but currently do not target this area as an incremental revenue source?</b> </div> <div class="IntACont"> It is estimated that about a million plus businesses work with the government out of 25 million businesses within the US. I would have to estimate that about five million businesses could potentially target government projects, and yet only 20% actually do. There are a lot of businesses that are missing an excellent opportunity. </div>
</div> <div class="IntQCont"> <div class="Bold StepFrom"> <a name="QA001211"></a><b>Is that the opportunity you are targeting at Onvia, or do you see additional opportunities as well?</b> </div> <div class="IntACont"> We want to continue to focus on helping businesses grow their revenue line. We get a lot of testimonials from people who were able to reduce their staff by one, because we are able to do for $400 what they were paying someone $20,000 to do. It is a tremendous about of work, but our real corporate goal and focus is to help people grow their topline. If we can help people grow their topline and reduce their expenses then we are doing a great job. </div> </div>
<div class="IntQCont"> <div class="Bold StepFrom"> <a name="QA001212"></a><b>Very easy to help people determine a good ROI along those lines.</b> </div> <div class="IntACont"> A lot of good businesses are very, very good at keeping their expenses under control. People who have been around for more than five years know how to spend money and weather the business cycles. </div> </div> <div class="IntQCont"> <div class="Bold StepFrom">
<a name="QA001213"></a><b>Do you plan to open up your system as a B2B as well?</b> </div> <div class="IntACont"> We are currently testing products that are in that area. One area we are targeting are grants, which are from government agencies to other government agencies, who then have to find someone to service that business. We have a product that notifies folks in the subcontracting world which contractors get government opportunities, which they can then contact. We are looking at expanding to people who don't work with the government directly, but are affected by government nonetheless. Also, city, county, state, and federal committees deal with approval of projects that aren't related to direct government spending. When someone receives approval for a office building, we can capture that information within our system and provide it to our customers. </div> </div> <div class="IntQCont"> <div class="Bold StepFrom"> <a name="QA001214"></a><b>Your service is also beneficial to governments as well.</b>
</div> <div class="IntACont"> We open up their requests to companies they wouldn't otherwise have worked with, and just by definition, where there are more people there is more competition, means better value. </div> </div>
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