Here are odds that only a Las Vegas croupier would love. Spend two years writing a 2.5 million line software development environment that involves the knitting together of technologies including full distributed processing, object orientation, and messaging. Price the resultant product at the very high end of the market’s expectations. Weather expectations that would crush lesser technologies – and have. And two and a half years after the launch of commercial product be the market leader and still be a nice guy. Impossible? Yet that’s what Forte Software Inc, of Oakland, California, has managed.
By Gary Flood
The company, fresh from announcing that its eponymous Application Environment is to be made available on IBM Corp’s OS/390 mainframe operating system (though don’t expect even beta product until the first half of 1998), is using its third international user group meeting in San Francisco this week as a means to reinforce its message that ‘Forte is the company to beat.’ The company seems to have persuaded the 1,000 attendees at the conference that it really can be the object-oriented development environment that lets them develop business functionality, not thrash in the details of making all the plumbing work. And though there has been an element of luck – for Forte’s claimed advantages of portability and scalability for multi-tier application development that must also be built quickly and be easy to modify was almost ghost- written for the internet/intranet, yet appeared two years before that really started to matter – much of the credit must go to having real software and dependable leadership. Indeed, Forte is an entirely enviable position – the one where journalists and analysts really have to strain themselves to think what could go wrong. And you know how much professional cynics like us hate to admit that.
Hariscupy on Wall Street
That admission may come as a surprising one given that the high-end application development tool supplier’s stock price took a haircut recently following some unfavorable harispucy by Wall St on its fourth quarter and fiscal 1997 results last month (CI No 3,148). Harispucy, for those of you who are unable to recall your classical Etruscan history right now, is the name given to ancient soothsayers’ practice of attempting to divine the future through the examination of the entrails of slaughtered fowl. In much the same way, according to puzzled Forte management, including president and chief executive officer Marty Sprinzen, the market seems to be reacting on less than scientifically validatable data to Forte’s prospects. Forte closed its fiscal 1996 in March of 1996 as a company still losing money after five years of existence, $2.0m net loss on revenue of $30m. But it closed its fiscal 1997 on revenues up 110%, to $63m, with net profit of $7.2m. In the same time frame it was able to grow its customer base by 76%, from 136 organizations to 239, more than double the number of value added resellers writing applications based on its products, 50 instead of 24, and it has grown its headcount to keep up with all that by 59%, from 221 to 351. Sprinzen says candidly that the company’s paper probably wasn’t worth the $81 it hit post IPO (March 1996), but that it also sure wasn’t worth the $7 it hit after the unfortunate post- results conference call last month. But what is the right share price for an $80m company that is market leader in a market where competitors have either crumbled (Seer Technologies Inc, Dynasty Techologies Inc) or have yet to emerge (Oracle Corp’s Sedona, perhaps)? That $80m comes from the fact that the company’s sales last quarter was $19.6m, compared to only $2.5m in its first quarter selling product, third quarter ending September 1994.
Dangerous habit
One of the reasons given for shorting Forte stock these past few weeks is the suggestion that the company may have slipped into that dangerous habit (compare Informix!) of relying on mega deals to make its numbers, instead of a more reliable pipeline of repeatable, predictable business. And it is true that Forte was lucky with a big deal $5m sale to a US telecoms company in early 1997 that did do nice things with its revenue balance. So Forte has turned into a hit record sale junkie with a murky pipeline? Sprinzen, very politely, wishes to demur. He points out that the average sales cycle for buying Forte software is a long, cautious six months, and the first deal is typically not all that humongous anyway – $400,000 (admittedly, up from an average of $340,000 last year, but still not that crazy). This means the company has the data to feed its systems in place to make good, reliable sales forecasts, he suggests. And the company’s shares have bounced back somewhat anyway from their low point of $7.25, to just under $16. So what could go wrong with Forte? First, it could get bought, and if someone were willing to make a very high offer Sprinzen’s obligations to his shareholders would be to sell – but he and his team have no intention of doing so, though we hear that Oracle’s Larry Ellison did try and make an offer for the company at least twice when it was still privately held. But that possibility exists for all public companies, at all time. Second, it could fail to manage its growth. Sprinzen says he is very aware of this and the company has decided to invest more in the company internally to prevent this. Budgets for sales, marketing, and engineering are all to be upped from plan these next couple of quarters. Plus, to retain sales talent, the company has raised the average compensation for sales staffers by 40% and even slightly decreased their quotas as incentive moves, while engineering salaries have gone up by between 10 to 20% in addition. Those moves could fail, obviously, but at least Forte is aware of the danger and is doing sensible stuff to head the troubles off at the pass.
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Credible competitor
Thirdly, Microsoft or some other competitor could start luring its heavy hitters away to make, say, Visual Basic a more credible competitor (though Forte is adamant the only real competition is Global 2000 enterprises trying to build the kind of distributed applications Forte gets selected for by themselves). Sprinzen admits that rivals have approached his team… but claims Forte engineering personnel turnover is 5%, something of an industry record. The only conclusion, very much against one’s inclinations, is to conclude that harispucy has failed us a little here. Forte Software is a well-managed company with very bright technical and executive talent at the helm, has a product that despite a $75,000 entry point is winning customers and system integrators (over 100 such firms now), is beautifully positioned as simultaneously the Rolls Royce of high-end application tools and also an excellent integration framework for stitching together legacy and distributed apps, is loved by its customers, and is not even arrogant to boot. Ho hum. Thank heaven there are just so many screwed up computer companies out there, who are so wrong-headed that if they were people they wouldn’t be put in charge of more complex machinery than electric shavers, to keep us journalists – and professional harispucists – busy for a few lifetimes yet. For if everyone on the tech stocks index of Nasdaq was as competent at executing a well-planned vision as Marty Sprinzen, what would one have to write about?
