By Steve Rosenbush Companies spent so much money on software during the tech boom of the late '90s that many of them can't even remember what they bought. Today's chief information officer has come to resemble an avid music collector who can't keep track of the thousands of titles in his collection. Is that obscure recording of William Shatner singing sea chanties on the Isle of Man buried somewhere in the pile? Maybe. Who knows?
Troux Technologies, an Austin (Tex.)-based startup, is helping such businesses make sense of the clutter with a somewhat surprising solution -- more software. The four-year-old firm has developed a software tool that allows corporations to catalog, analyze, and manage their own IT albatrosses. "There are companies that spend $400 million to $500 million a year on information technology," says Hank Weghorst, Troux's founder and CEO, "and they don't even know where the money is going."
FIRST ACQUISITION. Catering mostly to large corporate clients like Boeing (BA) and Warner Bros., Troux has grown to 150 employees and expects to post $30 million in revenue this year (the privately held concern declined to give its 2004 numbers). With budgets tighter and businesses keeping a closer eye than ever on their technology, Weghorst believes that his venture-funded startup can become a major player built around the new concept of "IT governance."
Dennis Gaughan, an analyst with AMR Research in Boston, says Troux has positioned itself well in a growing market. "Inquires around IT governance are the No. 1 or 2 query we get from our clients," he says. "Troux is one of companies out there trying to address this market. And they have a well-developed product."
Troux has made its first acquisition, BusinessWeek Online has learned. It has bought Computas, a privately held software maker based in Oslo, in an all-stock deal worth an estimated $30 million. The move will expand Troux's product lineup and extend its reach into Europe -- allowing the outfit to grow more quickly than it could on its own. While Troux helps corporate clients manage what they already have, Computas makes software that allows companies to analyze and project their future IT needs.
COAST-SAVING AUTOMATION. But shouldn't businesses at least be able to keep track of the technology they purchase themselves? "You'd be surprised. You'd be very surprised," says Douglas Rousso, vice-president of technology architecture and planning at Warner Bros. Entertainment Inc.., a unit of Time Warner (TWX).
Warner Bros. runs about 300 business software applications, plus additional management and infrastructure programs. It has 600 servers at data centers in Burbank, Calif., Britain, and satellite locations around the world. The IT department serves the needs of some 8,000 employees. "At Warner Bros., we've got a very large, complex, and heterogeneous environment," Rousso says.
Warner Bros. needed more software to manage its software, and Troux stood out in a field of big-name rivals, according to Rousso. He says the Troux system is more than just a catalog -- it can help analyze software from multiple perspectives, such as which business processes a program supports, or what skills are needed to use a piece of software. The product also automatically generates graphic representations based on the data that it generates.
The program saves money by automating data-collection tasks that were previously handled by employees and consultants, such as creating catalogs of all the software programs that a company runs. Rousso estimates that his department avoids about $1,500 in labor costs every time it runs a query on Troux.
HIGHER BAR FOR IPOS. Weghorst, who launched several successful tech startups in the '90s, didn't have much trouble raising funds for Troux -- at a time when fundraising for tech concerns was near impossible. Using his reputation and past connections, he landed $38 million from venture-capital investors Austin Ventures and Greylock Partners in 2001.
Weghorst's strong track record includes the launch of three ventures called Question Technology, Ventix, and Acuity -- all were sold for a profit, the first two to Motive and the last to Quintas. The investors say those past accomplishments were the driving force behind their commitment to his latest go-around. "I funded Troux largely because I had a lot of faith in Hank Weghorst," says Chris Pacitti, a general partner at Austin Ventures. "He has a great sense of what I call product intuition. I think he can build a major new company."
Although the vast majority of smaller tech innovators end up being acquired by larger organizations, Pacitti says Troux has a chance to remain independent and go public. First, it would need to show a profit, which is expected by the end of this year. Then it would need to be solidly in the black for two or three quarters. "The bar for IPOs is much higher than it was in the '90s, Weghorst says. "If a company was at this stage of development four or five years ago, it would have gone public already."
FACING LARGE RIVALS. He says his primary goal is to build a profitable and sustainable company, but he believes that there's a good chance the business will be acquired a few years down the road. He acknowledges that an IPO would be nice, but that it will be difficult to achieve given the high hurdles that the financial markets have erected.
AMR Research's Gaughan agrees: "If I had to put money on it, I would say they would be a good acquisition candidate." He explains that Troux is poised for continued growth but will encounter tough decisions as time wears on, noting, "To remain independent, they would probably have to expand further, and they will face very, very large rivals."
Whether or not Troux stays an independent outfit, it certainly has growth on its mind. And with companies just starting to realize that they need to manage their IT resources just as they manage their people, the startup is trying to help more and more get their houses in order. Rosenbush is a senior writer in New York