Redefining Customer Care: A Q&A With Interpath CEO Joel Schleicher

Joel Schleicher, chairman and CEO of Interpath, wants his ASP to become his customers' ASP. So much so that he gives every client his home telephone number in the event that they run into an emergency and want an executive throat to choke.

So far, he boasts, no one has called.

Though the exercise in customer care may sound like little more than a marketing ploy, to Schleicher, it's the very foundation of what it takes to be a successful solution provider. In fact, customer service metrics are factored in as a major part of every employee's financial bonus.

"Our vision is to lead the customer service revolution to actually charge a premium price for what we deliver," says Schleicher, whose company provides clients with enterprise application development, integration and hosting solutions and services. "But customers will accept it because we are a partner with them and have the right attitude."

It looks like Interpath's message of customer service is resonating throughout the industry. The Research Triangle Park, N.C.-based company has a long list of established customers including Bayer, Carolina Power & Light, and Nortel Networks as well as strategic relationships with software vendors like Microsoft, Pivotal, BroadVision and Vignette.

And earlier this year, Interpath was named one of the world's 12 most successful ASPs by research firm IDC, Framingham, Mass. The ranking, which surveyed more than 75 large ASP companies, measured them on a number of criteria including reported revenue, number of customers, average contract size and pricing. And unlike many of its pure-play ASP competitors, Interpath has the luxury of strong financials, with $100 million in unencumbered assets and an additional $100 million in capital committed last year by Boston-based Bain Capital and CP&L.

"We're really a new company as of July of last year," says Schleicher about the investment.

Schleicher and CTO Tony McGivern, who joined the company earlier this year following the acquisition Australian ASP Alta, recently met with VARBusiness editorial director Robert DeMarzo and industry editor Rich Cirillo to talk about their company's value proposition and what they believe it means to be a successful service provider in today's market place.

VARBusiness: What's the key message for Interpath customers?
Schleicher: We want customers to be secure in the knowledge that they can focus on their core competencies and outsource their IT implementation to a company like Interpath, which has scalable support, scalable skill and scalable security. If you are in the manufacturing world, then that's your core competency. Implementation and execution of an IT strategy is not.

VB: In terms of Interpath's customer engagements, are you talking less to IT managers and CIOs and more to line of business managers?
Schleicher: I think up until maybe nine months ago, with anything to do with technology the CEO and CFO says, 'Let Mikey handle it because Mikey knows all about that stuff.' But now IT has become the third or fourth largest expenditure in the overall budget. Now people are starting to say, 'Hey, wait a second. I don't understand this huge amoeba that I've got there. How do I get control over that?'

VB: That's been a change you've seen over the last.
Schleicher: During the past year. I would say the CIO or CTO no longer has carte blanche to make the dollar decisions. It's a situation where they say, 'Gee we've seen so many of those projects that have come in over budget and taken longer, so we really need to understand and we need to get a control of this.'

VB: Were those predominantly e-business projects that were coming in over budget and not to satisfaction, or were they traditional IT projects?
McGivern: It's a combination of both. I think a lot of what we see--because of where we are focused and the space that we serve--are e-business projects, though with our CRM projects we do see a lot of that enterprise, internal-facing situations as well. I was at a roundtable a few weeks ago talking to prospective customers. They were talking about things they would be prepared to outsource and things they wouldn't be prepared to outsource. We had this classic situation where someone would be talking about CRM and how they felt it was a mission-critical application and they might want to keep that in-house. The simple analogy is that if you do that and get through the first CRM implementation, then your combined skill base in that implementation will be one. But If I do that for you, I can deliver it in a shorter time, for less money, less capital etc. And it will be my 15th or 20th implementation. Looking at this objectively, where do you believe you are going to actually get an outcome? From someone who's done it once, or someone who's done it 15 or 20 times?

VB: So your customers run the gamut from those wanting control and wanting to do it in-house to those open to outsourcing it and letting you guys manage it externally.
Schleicher: Exactly. What our focus groups are telling us right now is that the primary factor driving their decisions is security. But what does security mean? We are now hearing it's about financial stability. They don't want to go forward with you if they don't know that you are going to be around for a while.

VB: That's been a big problem in the ASP and hosting segment.
Schleicher: I think it's unfair just to put it in the ASP or hosting area, because it has been a big problem in the whole area of technology. Cheap money allows flawed business plans to come to market. But security is also, 'What are you doing to ensure that I don't get hacked?' 'What are you doing to give me security that there is a 24-by-7 facility?'

VB: So it cuts across both the places you manage--the technology side of having a secure network and then the secure business?
Schleicher: Correct.

McGivern: And a lot of it comes back to the same issue of control. Security is another aspect of control--controlling the environment, controlling the delivery paradigm. We believe our customers can be secure in the knowledge that we provide better control and a better security interface than their existing IT departments.

VB: Are you making headway in getting that message across to potential clients?
Schleicher: We have the benefit of being a second- or third-generation ASP. Though Interpath has been around since 1998, our new ownership structure with Bain Capital leading $100 equity round into us--we're really a new company as of July of last year. We purposely went into stealth mode from July to September because we wanted to look at what was going to distinguish us from other competitors. Our vision is a back-to-the-future customer care axiom. In other words, we want to lead the customer care revolution in the industry so that we really put the 's' back in ASP.

VB: How do you do that?
Schleicher: I think customers will pay a premium for good customer care, and that's part of what Tony is developing--pillars of success, established SLAs that are more than just uptime. That's really where we are driving for the future. The first generation ASPs and customers had a problem, because they were billed as the cure-all for all IT problems. I would argue today that it actually is a cure-all for most, but it only works when you have an established SLA and an established outcome and define the project up front. Then at least you have a goal to measure from.

VB: How do you measure customer satisfaction?
Schleicher: We start looking at uptime, cure tickets and customer surveys. We have a program now where we survey the customers once a quarter, and then we actually have meetings with them. We tell them how we are doing. We go over the reports, monitoring and everything with customers and say, 'Here's how we've been doing against the established benchmarks we have. Now you tell us how you think you're doing. And by the way, here are some things you might not know are coming down the pike that we can help you with.' That way it allows us to get in front of the customer.

VB: What's your bandwidth in terms of the overall 'solution?'
Schleicher: We are a full-service enterprise focused on e-commerce through Vignette, Microsoft and Broadvision and on CRM with Pivotal. For e-procurement we've got a new partner we are announcing soon. I've got it narrowed down to two. We've been through an analysis for about three months.

VB: Take us through that analysis.
Schleicher: Number one, we serve the mid-market--which we define as $100 million to nearly $1.5 billion in revenue or autonomous divisions of Fortune 500 companies. So we look for whoever has an ISV solution that we don't think is overkill that actually works for the midmarket. There are some solutions that actually work great for the Fortune 100--Oracle and Siebel. They're great ISV solutions, but is that the right solution for a $100 million company? Have they been proven that they can scale down? We would say no. Two you look for a company that has the right attitude of dealing with partners and customers and is at the forefront of where the evolution is going to be. Three, do they already have an ASP strategy? Because if they don't, we don't want to create it for them. Four, are they ASP-able? Some software is not thin-client-able, so it's not an ASP solution. And lastly, our belief in a partnership is that you have to have CEO evangelism.

VB: As you look at vendors out there, who's doing a good job? Who's not ready?
Schleicher: On the CRM front there were other companies that we felt were good players. For example, I think Onyx is a good company. But we felt that Pivotal was probably a little more in tune with where we felt the world was going. Sure you enter into partnerships today for what you can sell, but if it is going to stand the test of time, then you want to have concurrence on where you think the market is going. Everything we saw behind the scenes with Pivotal suggested that was there. You will also find that with Siebel and Oracle, because they're also great companies, out there on the cutting edge. They just don't fit the middle market. As much as they claim they are coming down, it's equivalent of IBM saying they are going to serve the middle market.

VB: But for Siebel and Oracle, doesn't their future, particularly in this environment, hinge on understanding that middle market?
Schleicher: I think they are going to buy into it. Siebel and Oracle give you everything you need--a full platform and all the functionality. But if you are a $100 million company, two-thirds of what you are paying for you don't need. I think it's easier for a Siebel, Oracle or Microsoft to buy somebody that has that functionality and then use it with their own brand name.

McGivern: And one of the great things about the ASP market is that it gives everybody the ability to sell down. Buying an application like Siebel as an enterprise customer with all of the infrastructure and implementation--there is clearly a threshold, a barrier to entry. The ASP model gives all of the ISVs the ability to sell down.

VB: Where are your biggest technology challenges today?McGivern: We annunciate a concept that we call the four pillars of our SLA, which is designed to create a meaningful outcome for customers. It's about moving the measurable metrics from simple network availability to a metric that means something to the customer. That goes back to our mission statement: When our customers, shareholders and communities win, we win. So we look to the applications as to how we can make them fit into the four pillars of the SLA. That's the only technical challenge.

Schleicher: I would say there is another technical challenge which is more strategic. Maybe it goes back to the first generation versus today's generation. Understand what your bandwidth availability to serve a customer well is, and then allow that strategic focus to bend but not break. When our sales people go out into the marketplace and there is an opportunity we simply are not able to serve, we back away from it. So if a customer comes to us and wants us to host an SAP application, we say no.

VB: But will you say, 'No, but we have a partnership with SAP or somebody else.'McGivern: We will facilitate the process of moving it to somebody we believe can provide them an effective outcome, integrating them with any systems that we do do. It's all about being a partner to your customers.

Schleicher: Tony's talking about an existing customer relationship. But if sales people bring in a new account, we'll just say, 'No, we don't handle that.' On the other hand we have some expertise on Edwards and Lawson, so if somebody brings us a pure managed hosting opportunity with Edwards and Lawson we understand the applications and can incorporate them. So we can actually take managed hosting. But if somebody were to bring us an Oracle situation right now we'd pass on it because we don't have the expertise.

VB: Where are the opportunities for partnering?
Schleicher: There is still confusion about what an ASP is. We are really a solutions provider, but 'solution' is an overused term like anything else. Our deliverable is that service promise. We [will be announcing] a partnership with one of the multi-national business process outsourcing firms. They have a lot of knowledge in systems integration and they have knowledge in doing accounting backroom, compliance and things of that nature. But they don't understand technology. So what we've done is say we can take BPO, add ASP and turn it into solution service provider. Our task for our customers is not to turn away business, but to proactively bring them solutions that they might not normally have or to find a solution for them.

VB: How scalable is the delivery model?
Schleicher: Right now I don't think anybody knows for sure exactly how scalable the model is. We don't know if this is going to be a 60 percent growth margin business, which is where recurring revenue businesses should be, or whether it's going to be 30 percent. We don't know because nobody has gotten to scale yet, partly because there is an overcapacity of space. Fortunately for us, we are very financially stable in that we've got over $100 million of unencumbered assets and $100 million of committed capital on top of that. So we're actually going counter to the cycle right now in that we are looking for additional infrastructure investment. We're ramping our sales force as others are cutting back. And we are on the acquisition trail. If someone's got two data centers that are 20 percent utilized and they are about to go out of business, we'll pick up those customers and leases and move them into our center and increase our own capacity.

VB: Is there a lot of that out there right now?
Schleicher: There's a lot.

VB: So what's the mindset of the midmarket customer? What are they coming to you for? What are their major concerns?
Schleicher: I think it's important to always look at things in a continuum. If we take a look at the economic markets, one has to take out the period from say November 1999 through May 2000. If you do that, you actually have the financial markets going at a relatively stable level. Everybody is measuring business compared to a spike [last year] that was unrealistic. But we're sitting here saying that business isn't that bad. In fact if you take a look at what was ASP'd last year, Gartner and IDC will say there were more dollars spent in the ASP model than they originally thought. But what was originally a three- to six-month sell cycle three years ago--that compressed itself to a three-week sell cycle last year--is now back to a three- or four-month cycle. So you've really just gone back to a normal environment. Are people more cautious? Yes. We have a major account right now that was going to make a decision the last week of March. Then the decision was pushed to the last week in June.

VB: Is that at the higher end of your midmarket customer?
Schleicher: Yes. The mid-tier is still going about doing their business because they are always looking to catch up. Mid-tier in my experience is not necessarily the early adopter, and they are not necessarily the fast follower either. They are waiting for something to be proven. So now while the dot coms and Fortune 500 are doing some retrenching, the good entrepreneurs are saying this is a chance for them to catch up.

McGivern: So if you have a solution or an offering built around efficiency and cost savings and ROI, in a time of economic downturn, that is always a good traction argument.