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ONE-ON-ONE - November 2006
by Ed G. Lane
'Kentucky Is a Good Location for Technology Companies'
The founder and CEO of Exstream Software shares his thoughts on what it takes to create a successful technology company
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Davis Marksbury
Davis Marksbury is the president and CEO of Exstream Software, a company he founded in Lexington in January 1998. An entrepreneur since the age of 26, Marksbury is a pioneer in the document publishing industry, with Exstream being the third company he has successfully launched to address complex technology challenges in the industry. In 1984 he co-launched PDR Information Services, a national information consulting firm, and in 1992 he and business partner, Dan Kloiber, started PDR Advanced Technology. In June 2003, Marksbury was named Ernst & Young’s “Technology Entrepreneur of the Year” for the Southern Ohio and Kentucky region. He is also a two-time finalist in Inc. magazine’s “Entrepreneur of the Year” award. Marksbury is a graduate of the University of Kentucky, where he earned a bachelor of science degree in engineering. |
EL: You have been an entrepreneur for more than 20 years. What makes Exstream Software so unique, successful and profitable compared to other software ventures in which you have been involved?
Davis Marksbury: This is the third company in which I and my partner, Don Kloiber, have been involved. The first two companies had what I would classify as niche products. Obviously, they were big niches but neither offered the market opportunity that our current products do.
The first company was a challenge for us from a cash-flow perspective. We didn’t have another company to use for funding; and definitely, we didn’t go after private equity to get funding. So the challenge to us in starting the first company was just to get into a positive operational cash flow.
 The first company wasn’t really a software company as much as it was a service company to software companies. The second was a software company focused on a fairly narrow area of document processing. It was appealing to large enterprises that did lots of document productions – like insurance companies, banks or businesses sending out lots and lots of documents to their customers. Representative customers were companies like Fidelity, AT&T, and Merrill Lynch. We really built the second company out of the first company and so we were in a situation where the cash flow issues were still fairly tight and controlling in terms of what we could do. We sold those two companies.
Once we sold, the question really was “what can we create that could really be a home run?’ We identified the need for enterprises to be able to communicate with their customers more effectively, which meant the time frame and the cost of producing communications could be shorter and less expensive. Through the experience Dan and I had with the other two companies, we saw a significant opportunity in the technology marketplace.
In our view, there were lots and lots of little niche products like the one we previously had that were trying to address a market problem. The issue of integrating all those products was very costly.
If our new company could come forward and address the whole enterprise communication picture at a much lower cost, then we believed the company would do very well. So that is what we set out to do. Using the funds that we received from the sale of the other two companies allowed us to invest fairly significantly in the start–up. Because of our funding, Exstream Software has been able to have a bigger vision, to serve a larger market, and to remain privately held with no venture capital money.
EL: What is the size of the market Exstream Software is servicing?
DM: Right now, the market size opportunity is measured in multi-billion dollars. Exstream Software’s Dialogue is now recognized as the market leader in what we call enterprise communications.
EL: Is Merrill Lynch still one of your clients?
DM: Yes. So, if you are a client of Merrill Lynch for example, the statement that you get in the mail every month most likely is created with our software. If you go to their Web site and say show me the statement from several months ago, that is created with our software.
Think about all the different communications you get from companies, whether you get it through the Internet, mail or e-mail. What we like to see is for these companies to adopt Exstream’s technology as their platform and to use that to build all their different communications applications. Merrill Lynch is using our software for their statements, letters and several other initiatives about to come out.
EL: How would you describe Exstream Software’s major product?
DM: Dialogue is the main product. We call it enterprise personalization. Enterprise personalization has two strategic parts. Number one, to be able to allow the enterprise to create what we call “high value documents.” The fact that documents are personalized and high value will probably result in fewer turnovers in our client’s customer base.
The second pillar is enabling businesses to do business enterprise optimization. If you look within an enterprise, about 75 percent of an enterprise’s processes involve documents. Exstream Software is focused on making those processes much more efficient for our clients and their customers.
EL: You mentioned banks and insurance agencies. Does Exstream provide services to government agencies?
DM: Exstream sells to government agencies. The State of New York is using our product for income tax information. The government of Australia is using it for tax purposes and notifications. The equivalent of the social security and welfare office of Norway is using it for basic communications.
Generally speaking, our software is aimed at larger enterprises. Exstream’s technology can be implemented at any size and scale; it’s just that as an organization we have focused on larger enterprises because they are the biggest opportunities.
EL: You have been partners with Dan Kloiber in all three companies.
DM: We actually started working together before I founded the first company. When I got out of the University of Kentucky, I went to work with Shell Oil Company in research and Dan and I were working together in the same office for awhile. I was one of the initial founders of the first company and I recruited Dan a couple of years after that company was started. Dan was a co-founder in the next two.
EL: How would you describe a good working relationship with a partner?
DM: Well, one of the dynamics that is important in any company is active debate. It’s not such that we throw things at each other, but from a technology perspective, we often end in debate on the direction technology ought to be. We get pretty heated discussions in that sense. Once we get out of our discussions, then everything is wonderful. Having a good partner and relationship allows you to have those types of discussions. The sign of a very strong partnership is the ability to throw things at each other in a meeting, walk away, and say ok, let’s go have lunch now.
We look at all sides. No matter what I think, Dan takes the opposite position; and no matter what he thinks, I take the opposite direction. We tend to play that pretty well. Other than that, I think we all know our roles very well. He plays the technology role for the most part but has strengths in all the areas of business. I tend to play the business role with strengths in technology, so it’s a combination of talents and putting them together.
EL: In how many countries is Exstream Software operating?
DM: Twenty-three countries. We developed Dialogue in English then localized it for other countries. We’ve localized it in Japanese and are in the process of localizing it in French and German. It’s likely after that we’ll do it in Spanish. Exstream has offices in five locations in Europe and distributors in Japan, China, South Africa and an office in Australia. Obviously, when we sell we have to engage with our customers in their native language, so you can’t just use English. We have a translator Web site.
EL: How does your company interface with clients?
DM: Merrill Lynch, for example, basically is presenting a variety of financial data – funds, balances and interest rates, etc. So, the first application our professionals have to design and produce is a template for the statement document. What is this statement supposed to look like? Do you want pictures? Which section should come first, second and so forth?
The second thing we do is look at marketing communications – messaging the client wants to add. Where does that come from? Typically each customer has a relationship management system with which we integrate. Where does data come from? We reach out and build the connectors to those different data sources.
There’s variability by customers. Typically we build business rules next – defined by each specific customer. A lot of brokers have obvious interest in treating high net worth customers one way and maybe their low net worth customers a different way and so they will have different strategies.
A statement is a very complex thing and it could take anywhere from three months to a year to evolve into a final design. We have had applications where we’ve gone in and built a statement in a month.
Most of the people that develop these customized products are on our staff. We also have some service partners that we engage for special assignments. Most of the time it’s our people.
EL: Exstream recently announced a new worldwide headquarters building at the University of Kentucky’s Coldstream Research Campus in Lexington. What were the pluses of moving to Coldstream?
DM: First of all, Exstream is very excited about going to Coldstream. Really, what led up to selecting Coldstream was we were looking for a campus environment. A campus environment denotes a technology company or a software company - a lower density, a lot more trees, a park-like atmosphere. Exstream is looking for creative people and wants to provide the ability for those creative people to be able to relax if they want to.
The second thing we were looking for is the ability to expand. Exstream has been growing very rapidly and obviously it is important to us was to have a good working relationship with the University of Kentucky and UK President Lee Todd. Exstream could lease a particular lot and have rights to lease adjacent space as we grew, so that was also very appealing to us.
Coldstream is a great location that’s close to the interstate, to the Marriott Griffin Gate, Embassy Suites and just a few miles up the road is Hamburg. Coldstream is going to grow rapidly and we think we made a good choice.
EL: You graduated magna cum laude from the University of Kentucky with a BS in engineering. Has your continuing relationship with UK been beneficial during your business career?
DM: Our company’s relationships with UK’s College of Engineering and the College of Business are very good. Exstream tends to work with lot of individuals on a co-op basis. The people we are trying to recruit at Exstream are the crème de la crème of the graduates. Having access to UK, professors, and placement executives is very valuable to our firm. Centre College is also a very good source of graduates. Some of our most talented people come from Centre and UK.
EL: What about recruiting people that are not from Lexington? What kind of response do they have to Kentucky?
DM: Quite a few people move here from out of state. Some are ex-Lexingtonians or ex-Kentuckians that want to move back home, but the majority are not. Generally speaking, they have a very positive response to the environment. They always comment on the quality of life here. One of the concerns our recruits have is there aren’t enough technology companies in Lexington. If something happens – what am I going to do?
We talk on and off with Lexmark. Lexmark is in the printing business, Exstream is in the document creation business, so there should be interplay between both companies. A lot of our customers use Lexmark to print documents created by Exstream. Exstream has a very strong relationship with IBM. Not here locally; it’s more with IBM’s software and printing divisions in New York and Colorado, respectively. I think Exstream Software is considered one of IBM’s top partners.
EL: Where, in 10 years, do you anticipate Exstream Software will be in regard to the number of clients, total employees, and annual sales?
DM: Right now Exstream Software is No. 200–250 in the world in terms of software companies. Our ranking depends on who you count as a software company. We definitely expect to continue on our growth pattern and be in the top 100 in the next five or six years. So the question is, what are we going to do from there?
Are we going to go public? The public markets are not a good place to be these days, so it’s not likely we will go public. We’ll continue to grow and be a strong provider of enterprise software.
Our 2006 annual sales are projected to reach about $80 million. We have about 275 employees. In order to get into the top 100, we will have to get to $220 million in sales.
EL: Would the major benefit of going public be more capital for expansion?
DM: Presently, having adequate capital is not something that’s hindering our growth. Another reason Exstream Software might want to go public is to create liquidity for shareholders and to provide better stock programs for its employees.
EL: What does Kentucky need to do to make the region more attractive to technology companies?
DM: In some ways, I don’t really want any other technology companies to come because Exstream would like to have all the good people working for us. But assuming that we want other technology firms to come, the No. 1 message is that Kentucky is a good location for technology companies. This is the message that should continually be stressed. The stereotypical view of Kentucky is that it is not a technology place.
If you’re an existing technology company but not in Kentucky, why would you want to come to Lexington, Louisville or anywhere else? Companies will come here because they can either recruit a talent pool to help in development, or hire qualified people in sales and marketing, or they have existing local customers they want to sell to. So, continuing efforts to enhance Kentucky’s education system and to build a base of talented people are important.
The third thing – what is going to attract technology business to Kentucky? Really, it has to be economic incentives. I can say for sure that Kentucky is a little bit behind in terms of the incentives that other states and counties give to technology companies.
Look at Ireland for example. Ireland is now one of the strongest technology locations in the world because of its tax program. Ireland eliminated taxes on royalty income. This program has attracted companies and investments and created a lot of momentum for Ireland.
EL: How does the future look for Exstream?
DM: Exstream Software is a company that has enjoyed very strong growth. Over the last year, we have grown about 50 percent. Over the past four years, we averaged pretty close to 50 percent. To get that growth requires a strong commitment by our employees to deliver world class products and to compete every day with lots of companies across the world that have very smart people as well.
It’s a testament to our employees that they can continue to reinvent the product. It takes a talented group of people as well as a ‘can-do attitude.’ Being able to continue to grow requires us to adapt our process in a continually changing environment. Exstream Software is always changing, so having a talented group of people has certainly paid off for us.
Ed G. Lane is chief executive of Lane Consultants Inc. and publisher
of The Lane Report.
edlane@lanereport.com
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