By Olga Kharif iRise, a three-year-old software company that could make the world of pricey custom software a whole lot cheaper, got its start in programmers' hell.o-founders Emmet Keeffe III and Maurice Martin had spent five years helping various Los Angeles-area businesses create some 300 custom-designed software packages.
At the end of every project, customers demanded tweaks that sent costs rocketing overbudget. "We lived the pain over and over again," says Keeffe, CEO of Los Angeles-based iRise. Instead of giving up, the two shifted gears from consulting to software development in 2001 to create special programs that would solve one of the classic "pain points" of information technology.
SAVINGS THAT ADD UP. The results are compelling. iRise's simulation software has the potential to revolutionize the custom-built software field the same way computer-aided design (CAD) programs transformed the creation of airplanes, bridges, and semiconductors. Just as CAD software allows engineers to design a plane and take it for a ride right on their computer screen, before the aircraft is even built, iRise lets programmers and businesspeople see and test-drive software before it's actually created.
That can lead to billions in cost savings. Back in 2002, about 15% of software projects failed outright, while 51% ended up with cost overruns or less capabilities than promised, according to a study by the consulting firm Standish Group. But when simulations are used, cost overruns -- often reaching 30% of a project's original cost -- can be cut in half, Keeffe claims.
With $100 billion worth of custom-built software designed in North America each year, according to tech consultancy Forrester Research, those savings can add up. The cost-cutting potential should turn the young requirements-management software sector that iRise is part of from a $150 million market in 2003 to a $400 million in 2008, figures Matt Light, an analyst with the tech research company Gartner.
REDUCING SUSPENSE. Why the fuss? Consider iRise a flight simulator for software. Imagine that a company's marketing gurus get a mockup of an e-tailing site. They can shop on the site as though it were live -- picking out products, submitting orders, and receiving confirmation numbers. It's a great way to catch glitches before customers run into a problem.
"iRise shaves off months of suspense," says Wing K.Lee, director of IT strategy and research at telecommunications concern Sprint (FON) and an iRise customer for a year. Better yet, folks on the business side can propose changes to the software before a programmer has spent many billable hours creating those features.
Corporations also see savings because iRise is designed with a nontechie in mind. The simulations can be built by a businessperson in less than a day. That frees programming hours and helps reduce a project's overall cost. "Now, we don't have to rely on our technical resources to create prototypes," says Carter Hansen, director of user-centered design at Wachovia's (WB) e-commerce division, responsible for online banking services. "We're able to test more applications more often."
More important, the software helps enterprises more effectively outsource programming development. In the past, Sprint used to send contractors like IBM (IBM) and EDS (EDS) hundreds of pages of requirements for software being built. It was an easy recipe for mistakes.
POWERFUL BACKERS. With iRise, the businesspeople using the software and the programmers writing it see what the end product should look like up-front. As a result, at Sprint, iRise paid for itself in less than a year, says Lee. He now requires the use of the software, with a starting price of $250,000, on all of the outfit's custom software projects. Other iRise customers, including aerospace giant Boeing (BA), forestry-products maker Weyerhaeuser (WY), and Bank of America (BAC), are following suit.
No wonder iRise's investors are a Who's Who of the technology world. Dean Witter III, a nephew of financial whiz William D. Witter who now manages his uncle's investment firm,is an early investor. "I'm really betting on Emmet and Maurice," he says. "I got a really positive feeling from meeting them."
Investor Brooke Seawell used to be chief financial officer of chip-design software maker Synopsys (SNPS) and is now board member of graphics-chip maker Nvidia (NVDA). "Today, you wouldn't dream of building a semiconductor without simulating it first," Seawell says. "This is basically the software equivalent of that.... I'd predict that, over time, any company that does custom software development would want this simulator."
COMPETITION AHEAD. Riding on a wave of such optimism, iRise raised $15.8 million in late-stage funding on Jan. 19, lead by Morgan Stanley Venture Partners. And an IPO might eventually be in the cards, says Keeffe.
iRise isn't alone in trying to conquer this market. Sofea, a Canadian concern with a simulation program called Profesy, is trying to do a lot more than simulations. It gets all information ready for use by software developers, end-users, and business analysts. The outfit, which began to focus on this market last year, expects sales to increase eight times in 2005, says Paul Smith, Sofea's senior vice-president for strategy.
Large companies whose software helps facilitate interactions between business customers and developers -- including Telelogic, IBM, and Borland (BORL) -- will likely eventually zero in on this promising market as well, says Light. Today, the big players simulate only the inner workings of a software package but not the interface people see on a PC, and their product's use requires good programming skills. Still, it could take some time for competitors to flood this market.
They're all chasing the same goal: A not-too-distant future, when corporate tech managers wonder how they managed to design software before simulations came along -- just as engineers already can't imagine designing planes without their CAD programs. Kharif is a reporter for BusinessWeek Online in Portland, Ore.