Paul Lightfoot, Novare Solutions

nPost.com: I am here with Paul Lightfoot, Founder of Foodline.com, since closed and now of the Novare Solutions Mobile Wireless Group. What happened to FoodLine?

Paul: We ended it at the end of 2000. Foodline, was founded in the spring of '98 and it grew very slowly for about a year, very quickly for a year a half, and then we were forced to wound it up very quickly after that.

nPost.com: You weren't able to reach critical mass and support the business?

Paul: Actually, we reached critical mass very early. In fact, if you take the eight things you need to have to have a business, 6 to 7 were phenomenal.

nPost.com: What were the pieces that were lacking?

Paul: The revenue model we had was one of the mistakes we made, but it was a mistake that a lot of people made. We grew revenue too fast, and weren't able to support it without continued investment capital. We had made the assumption that the private capital markets would continue to fund companies like ours. We reached a certain level of maturity concerning our customers, products and our revenue.

We reached a certain point, and we brought in a lot of heavy weight investors: American Express, Ticket Master, Zagat Survey. We decided that growth at all cost was our primary focus. We literally went out from being in two markets in September 1999, by July of 2000 we were in 23 markets. The products were actually very good, but the business model hadn't been completely played out.

We had a very good product, a customer need that we were fulfilling, but our distribution strategy was one that proved to be flawed. As a two-market strategy is would probably have worked, but when stressed to the limit with 23 markets it didn't. We will try by going through this group of Restaurant Technology Resellers.

nPost.com: Give us an overview of what the business model consisted of.

Paul: The business model was to provide customer demographic tracking to restaurants. Restaurants are a very customer centric business, which have a ton of walk in customers, and compared to almost every business they take almost no data. The amount of data is minimal at best. Even the people information that they do take, they don't archive in a way that provides any value, and they never use it for anything good.

99.9% do a horrible job of mining data for anything useful. We then built a software system that was placed at the front of the restaurant that enabled them to take very similar information to what they took before, but keep it in a system that they could use.

They would answer the phone, they would capture name, phone number, etc. It was vital that we not up-end the business process by taking too much information too soon. Starting with incremental steps, allowed us to grow the information over time. If a customer comes in every 5 weeks over the period of a year, the staff may not recognize you, but with our system it enables the restaurant to recognize you and realize that they should pay more attention to you.

nPost.com: This software package, did they download it onto a PC, or did you place the PC's?

Paul: We would actually install the PC's. We also had a website where consumers could go and book reservations that would then appear in that restaurants database. There were no allocation problems, because it would synchronize on a real-time basis.

The business model entailed the restaurants paying upfront, $500 to start, and $200 a month service charge. We also charged $1 per online reservation booked through the FoodLine.com website.

We were very model centric when looking at our finances. We had everything modeled up very carefully. We would do a deal, dip into the red, and then come out of it 6 to 7 months later. We had a great time with that model.

The problem was that we were growing so fast. That model can only work if we can continue to raise additional capital to fund operations. We were able to raise $13 Million altogether, and our Series B in October of '99 was done by Founder and Chairman of TicketMaster, President of American Express, and others. We all came to the conclusion that this is the way that we should launch and operate this model.

Things changed faster than anyone had expected. The company had also been built in such a way, that the momentum couldn't be stopped fast enough. We were forced to wound it up immediately.

nPost.com: What would it have taken for that company to still be successful?

Paul: It is wonderful to have hindsight. When things fail, you have the ability to see everything with a better perspective than when things are going well. You can see the causal factors, the positive correlations, etc. If I could go back halfway, what we should have done is to focused on two markets. Taking what was a pretty good product in a market that is very slow to adopt new technologies, we should have focused on two markets and sold directly on a very small basis. We should have had only two or three direct sales people, and really used a network of restaurant technology resellers. This would have been a very slow proposition, we have seen other companies do it, and it would have taken a decade to reach full market penetration.

At the time, that was not an acceptable strategy for us or for our investors.

nPost.com: So your large initial costs would have been minimized.

Paul: Our largest upfront cost was sending in a Sales Person. Once we had made that decision, we were forced to move forward. We didn't have the option of growing slowly. We weren't going to give me funding to launch in just two markets, they had to be everywhere immediately to justify their investment.

nPost.com: A Catch 22 then.

Paul: I was willing to take the risk as well, so no regrets. We had such an enormous burn rate because we had grown so large. This was directly because of customer growth; we were extremely frugal. Our initial cost structure was extremely high because of the direct sales force and placing of a computer at customer sites. What I would have done differently is to halt all growth, withdrawn to the four largest markets with a direct sales force, and let resellers focus on the rest of the country.

nPost.com: What was driving this investment craze and what caused the subsequent market crash?

Paul: There are three ways to value products; what the market will bear, what it cost to make, and what the competition is doing. In this case, I believe that pricing, investments, and the market were driven by fear about what the competition was doing. People were afraid of being conservative because there was the fact that they could lose so badly if they didn't do what everyone else was doing. Which was to focus on growth at all costs.

The pendulum has swung completely to the other side. No one is getting funded, and I have not received any funding for what I am doing now. Inversely, I feel that I have a stronger organization because of it.

nPost.com: After closing FoodLine.com, what has happened to the clients that were using the FoodLine.com services?

Paul: I would be surprised if they are still using them. We ended up selling the assets to a partnership that has relaunched in Boston. Between when we closed down and the relaunch, there was a huge gap in support, and I seriously doubt that any of our old customers are still using the service.

nPost.com: So then, what are you doing now?

Paul: Well, as a little background, I spent about six months doing independent consulting. I was helping people build their business model, unit models, etc. This was extremely important in assisting people in creating pricing, projecting growth. This is an area that small companies are usually not very good at. Helping companies determine which product lines they should focus on, helping them figure out which products are best suited to which market. It was basically growth and capitalization strategy consulting for small businesses. I had four clients who were all small software companies based here in New York City.

Through one of those companies, I met my current business partner. One of my clients was a soft software company that made point of sale software for the retail industry. We almost did a deal with a guy by the name of Jim Iverson who is now my partner. We were looking to have Jim invest in this company, which we ended up trying to sell to a large public company (which didn't happen either).

Through this I had gotten to know Jim, whom I also knew threw FoodLine.com, he owns four companies, and used to own a company that was trying to sell something to FoodLine.com. We got to know each other pretty well, and decided that we should keep our eyes open for opportunities to do something.

As I grew weary of independent consulting, which was a great way to spend a few months while I was winding up FoodLine.com, I realized that I wanted to jump back into something, but not from a mercenary basis. I am the kind of guy that needs something to attach my loyalty to.

nPost.com: You need something steady to keep your focus.

Paul: Not exactly that, I used to be a lawyer and one of the things that I didn't like about being a lawyer was that sole project based. I am more of a consensus builder, a team leader, I like selling; these are all things that companies that make widgets do.

I started speaking with Jim again, and considered a few different things. At the time he owned three different companies, now it is four, and we talked about a number of different options; coming on as a partner and growing the holding company, doing venture investing, etc.

We talked about all of these things, when the next opportunity just kind presented itself. A person who had worked for Jim before came back and presented himself to Jim with this idea, who was immediately impressed.

He immediately called me and we started to move forward. Two months ago we launched, what is in essence a fledgling consulting firm, which is called the Mobile Strategy Group at Novare Solutions.

nPost.com: So it was back to consulting?

Paul: True, but it is different in that I am starting consulting company, and all that entails. Our widgets happen to be services vs. hardware or coffee mugs.

nPost.com: What is it exactly that The Mobile Strategy Group is doing?

Paul: We are a company focused on using services and technologies to improve the business processes of our clients. Our clients are medium size companies.

nPost.com: What exactly does that mean? That is what everyone says when they are selling their consulting services.

Paul: True. That is probably what Accenture would say as well. We differ from the large consulting groups in that we focus on medium size companies, whereas Accenture and the others are focused on the large, public companies. We are also focused on mobile technologies. We approach clients with $25 to several hundred million dollars in sales, and we help them figure out how their processes can be improved by using handheld computers, wireless devices, or other mobile technologies in a way that would either lower cost or increasing productivity.

nPost.com: What expertise then does your organization bring to the table in this area?

Paul: Well, we are very fortunate in that we are starting within one of Jim's other companies. Not only do we have full infrastructure support, which saves considerable amount of time. One of the greatest resources we have is that Novare Solutions is one of the existing companies. It is a small business process improvement consulting firm that focused on distribution. Now it focuses on distribution and mobile technologies. In another nine months, it will again focus on distribution, because we are moving out from under its wing.

nPost.com: You will be spinning out.

Paul: Exactly, it works out well for both companies. They get to share the cost of operations in a very slow consulting climate. You had asked about our value add to this space. It is not that we are hiring value; it is that we already employ value. We already have a handful of Big-5 experienced consultants to staff our projects.

Our value really comes from understanding well the domain of certain vertical markets. What I mean by that, is that one of our other sister companies builds warehouse automation for business. They build everything from the conveyors to the control software that automates the whole process.

Through them, we have a very deep understanding of a lot of industries.

nPost.com: As well as a client list that you are going to be able to target immediately.

Paul: Yes. One example is that we are currently selling into the liquor distribution industry, which is a huge industry. It is the kind of industry with companies that do from $200 Million to $1.5 Billion in sales. They are very sensitive to economies of scale and have extremely large systems with lots of trucks, and sales people. These are the kinds of businesses that need mobile technologies, but don't have them yet.

nPost.com: You are currently targeting an established client list, through one of your sister companies. Once you have exhausted that avenue, how do you plan to go out and market your consulting services?

Paul: When we started, the first thing we did was doing a lot of market research so that we understood where to go, and what to do when we got there. Essentially, what we have right now is that there is a lot of hype in this market. Numbers are thrown out there with a staggering number of zeros attached. We are not interested in that aspect of the business. First of all we are not targeting consumers, and we will not build applications for companies that target consumer. We are solely focused on the enterprise and business process improvement markets.

We will not be selling devices, network services, or software. We will do custom development when we need to, but only as needed. We will be buying software from other producers, and prices have significantly decreased lately.

nPost.com: From a strategic standpoint, are the Big 5 getting into this market?

Paul: Oh yes, all of the Big 5 have practices that are targeting this market. Right now, they are not very experienced, but they do have the resources to target this strategic market.

nPost.com: But the middle market is your key to success.

Paul: Exactly, we are contacting customers that don't have entrenched relationships with the Big 5.

nPost.com: The large consulting firms also need to go after the big fish, which bring in significantly more revenue per client.

Paul: To some extent we do believe that we can compete head to head with the Big 5, but we won't be able to do a deal for GM. Nor will we be pitching to them either. This market is not really all that competitive. I can think of three companies that are doing something similar.

One of the companies secured funding before the market downturn, and subsequently blew through a lot of their money. I am a firm believer that this is the time to start a company. You start out very, very lean, you don't grow very quickly, and until you deal flow justifies and enables it. By then you are so strong and lean, and so far ahead of your rivals that you will be a market leader.

nPost.com: What are the main issues then facing your organization in this current economy?

Paul: Certainly there is nothing easy about starting any company. Even when it was easy, it is still very difficult. Raising money is always very difficult. We do have it easy comparatively. We are starting within another company, we are self funding, which is great, because it is next to impossible to raise money in this market. Some of the challenges are challenges we share with all companies that are all selling large capital intensive projects.

Our main challenge is to get the initial conversations started. Particularly if you look at our early chronology, we will start by wrapping up our research and strategy by early August, and start hitting the streets in mid to late August. Of course, no one was doing business in August, which is one of the worst years for IT consulting sales. We had then re-evaluated and said that we will start truly selling our service on September 15th, which with the tragedy on September 11th, has made that impossible.

nPost.com: When you spin out the company, what will you name it?

Paul: We haven't decided. Also, we really haven't determined when we will be spinning out the company, and based upon the current economic environment and circumstances it will be later rather than sooner.

It is the people that already know Novare that are taking our calls. For now it is best to remain under the Novare umbrella.

nPost.com: For the products that are currently on the market, how viable are they for meeting the needs of your clientele?

Paul: That is one question that we identified as the key question during our market research. There is so much noise about all the different technologies, but we are able to meet our client's current needs with currently available products. We have gone out and seen what our client base needs. They don't need any of these really fancy technologies to solve their business issues.

We provide solutions for technology that is currently available. Our clients need a mobile solution versus a wireless solution. They don't really require a system by which these devices are always in contact with their corporate systems, they may just need the ability to enter information while in the field and synchronize it at the end of the day.

We do not believe in selling what is coming next, our solutions include the ability to incorporate the next incremental technologies.