A Bedtime Story: A Napkin, Venture Capitalists, and the Future of Contract Life Cycle Management Solutions

Daniel Barnes ????

"Crazy valuations, unsustainable growth, loss making, mass layoffs. I can only imagine what it is like behind the scenes or for their customers losing out on support.

Be curious to hear some thoughts from some of my trusted procurement sources and pros: Tom Mills Jon W. Hansen Rees Thomas Hannah MacDonald Andra Fola Natalia Pilipchak Dave Jones MCIPS Dr. Elouise Epstein ??? ?? "

At 64, it is nice to hear from one of the up-and-coming procurement superstars that you are a "trusted source." - Thank you for the tag Daniel Barnes

As there isn't enough room to comment directly on your share of Patrick O'Connor's post because of character limitations, I am offering my humble opinion by way of this post.

In answering your question, I will provide some context.

During the dot-com boom, I created one of the first algorithm-driven web-based procurement apps for the Department of National Defence. Unlike most high-tech companies, I had a steady revenue stream and high profitability. Our balance sheet showed we were "cash rich," making us a takeover target. In short, not only would a buyer or investor acquire great tech, but they would also gain access to a proven and stable revenue stream. As a side note, on top of our revenue, the government's Scientific Research & Experimental Development (SR&ED) program funded my research into building solutions using an agent-based versus equation-based model.

During this time, a VC expert told me that for every ten investments, they expected to lose money on seven, break even on two, and profit from one. They invested in the tech's speculative promise versus a sound balance sheet with tangible profits. That was 1998 to 2001 – sound familiar in 2023?

Of course, I wondered how they chose the companies to fund without sound economics, e.g., PROFITABILITY. I pondered how speculative the market was and what type of companies would garner investments from VCs and traditional institutions.

Over dinner at a fancy steakhouse with the CEO of a publicly traded company on a major exchange, I found my answer.

During drinks, the CEO told me that he went to bed one night, and his stock price was X. The following day, he woke up, and it was 20 to 30 times higher. He then admitted that he "wasn't quite sure how they got there, but all he wanted to do was stay there." He then wrote on a fabric napkin – which I still have to this day an offer that grew to $12 million for my company, with $10 million payable in cash. Think about it for a moment; he was leveraging the increase in his stock price – not a real, hard currency, in your mattress money, to go on a buying spree. He wasn't alone, as industry giants such as Nortel, JDS Uniphase, and countless others were doing the same thing – playing the market. To determine this strategy's success, consider where these companies are today.

Now some of these were very good, even well-established companies. For example, Nortel was founded on December 7th, 1895 – that’s right, 1895.

JDS Uniphase was founded in 1979, so we are not talking about new, catch-the-wave companies – although there were plenty of those. At the height of its power, JDS stock traded at $1,227 a share. The company’s market cap in the late 90s was more than Cisco and Intel’s combined market cap in 2010. When it all came crashing down, investors lost $18 billion.

Regarding Nortel, between 2000 and 2002, the company’s market cap fell from $398 billion to less than $5 billion. Regarding stock price, it went from a high of $124 per share to $0.47.

So, why am I telling you this story?

Because – at least in principle little has changed in 2023. From my standpoint, most successful companies start with a clear vision of what they want to do and what client problems they want to solve, and with laser focus, they move mountains to help their clients succeed. Money and success are a byproduct.

Like the CEO of the publicly traded company that gave me such a generous offer over dinner and drinks, somewhere along the lines, the focus shifts from serving clients to making money. Now, making money is completely fine if it results from delivering value to the clients you seek to serve. However, when your focus changes from serving clients to gaining market share to drive stock value or service debts for valuations based on flawed economics and speculative values – well, that is what sunk many a great company and business leader in the early 2000s and may do the very same to some great companies in the early 2020s.

I am familiar with some of the companies on your list, and for the most part, they have great tech. But great tech alone isn't enough. The laser focus on serving clients and helping them achieve their strategic objectives at this level and stage of the game must be the priority. Unfortunately, the financial vulnerability resulting from what you call the "grow at all costs" mindset can derail the longevity of even the most promising companies.

I am not saying it will happen with these companies. What I am saying is that in 2019 a Deloitte global survey reported that most CPOs were not satisfied with the results of their digital transformation strategies.

In 2023, reliable access to clean and usable data is still a significant challenge.

If we focus more on addressing these and the myriad of other challenges clients face, growth will happen for providers and practitioners.