How a little solution came out of its Shell to take the world by stormStefan Stern looks at the software start-up that outgrew its UK roots to become a global darling This is a tale of the unexpected: a made in Britain software company doing great things in the US, an entrepreneurial start-up that began life inside Shell of all places, a hi-tech business winning the approval of venture capitalists, and already whetting the appetite of investment bankers who, Google aside, have not exactly been rushing to float IT companies recently. Oh, and this firm charges to see a demo of its kit, converting 78 per cent of those triallists into long-term contracts.
The business is Kalido (pronounced like the first half of the word kaleidoscope), a 110-strong outfit with bases in both London and Boston. The story begins almost 10 years ago. Shell was wrestling with a classic business problem that faces most multinational corporations: they wanted to compare the profitability of a range of products (in their case various oils and lubricants) in different European countries. The tricky part was that the data was held in separate country-specific IT systems. And when they wanted to get a consolidated view of their performance across Europe it proved very difficult.
Now the world is not exactly under-supplied with software vendors who claim to be able to sort out most of your data sorting and retrieval problems. But even after contacting all the usual suspects, Shell could not find anyone who could deal with their problem. So they took the only other option of trying to create the software themselves. A guy called Andy Hayler, part of Shell's in-house IT consultancy group, came up with a prototype, which worked. And, as often happens in these organisations, word soon spread that one of the company's divisions was on to something. Shell Retail (petrol stations and the like) started sniffing around, asking if they could get hold of the prototype. And so between 1997-98 this software, now a programme called Genie, was winning more and more admirers internally.
A new version of the software was written, and in 1999 Shell let its fellow Anglo-Dutch giant Unilever get its hands on it. The Genie operation became a separate business unit within Shell, spun out of the IT department. It took its own floor in the Shell centre. And by 2001 it had started behaving like a real IT company, appointing a head of sales, a head of marketing and so on. They started hiring more people in from the industry. It was around this time that the name Kalido was chosen - like a kaleidoscope, the software allows you to get an all-round, dynamic view of reality. Other customers, such as Philips, expressed an interest. And even though the dotcom "correction" had by now turned the word "incubator" into something of a turn-off, Kalido was in fact being very effectively incubated by Shell. But Mr Hayler was clear that Kalido had to come out of its Shell, as it were. The company would only be useful to customers if it became a standalone company. If it stayed within the Shell umbrella it would have been like any other IT project - it would run its useful life and then stop. And the really ticklish point was that other oil companies wanted to get their hands on it. BP was interested as early as 2001. But BP was not about to buy from its biggest competitor. And Kalido software is not cheap, costing in the £100,000s. These developments all came together in 2002, at a time when Shell was looking at refocusing on the oil and gas business, and slimming down its IT interests. So Shell packaged up its IT assets and went out to the venture capital community to see who was interested. The only asset that truly appealed was Kalido. By this time Kalido had been used in 70 countries by many companies. It was a real business with a real product that worked, and it was growing fast. Two VC firms, Atlas Venture and Benchmark Capital negotiated the deal to spin the firm out of Shell. Originally Shell had planned to maintain intellectual property rights, and have a seat on the board. But the VCs persuaded Shell - who by that time had invested $30m in the business - that Kalido would be a more robust entity if it were fully independent.
After 12 months of negotiations, the deal was done by June 2003. And Bob Potter, a senior IT executive, came in as a new CEO to lead the standalone firm. As Mr Potter explains: "The VCs said - Andy [Hayler] is a great guy. He's an IT executive from an oil and gas company, but he's not a software leader. Let's go and hire a real software executive to run it. But let's keep the character of the business." Mr Hayler remains at Kalido today as head of strategy. So what is it exactly that Kalido does for its customers, and why is it so clever? This all has to do with what is known as "data warehousing" (see box). Mr Potter explains: "We give firms the ability to take data that is spread out over an organisation and bring it together in a 'data warehouse' solution.
The software presents the result to executives quickly, enabling them to make business decisions, but do it in a "changing environment" As any boss will tell you: you cannot manage what you cannot measure. Most organisations, whether it's a corner shop, Sainsbury's or the NHS, struggle with their data at some time or another. Mr Potter says: "The data business is a very good business to be in, whether you're a hardware vendor or a software vendor. We are seeing an exponential increase in data - whether it's RFID in retailing, or the need for greater security.
Today you need very, very good intelligence about your business and the whole supply chain." Sarbanes-Oxley legislation in the US and other corporate governance issues also mean that executives need a better handle on data than ever before. The Kalido effect is gathering momentum. "When I joined we had 15 major corporations using the software, today we have 31." Mr Potter says. "Each one is a major name. [BP, Labatt, Cadbury Schweppes, HBoS are examples]. By the end of the year we'll have 45. We're already at the 50/50 stage in terms of customers based here [UK and Europe] and in the US. The rate of customer acquisition is faster in the US. In essence this company has already transitioned to being a successful US company.
We will grow 100 per cent this year. We are talking in terms of many tens of millions of dollars in revenue - with 70 per cent growth next year. We're on the kind of trajectory that companies were on in the late '90s." Kalido is now raising a further $15m from VCs to bring the total investment to $60m since the spin-out from Shell. (The VC firm Matrix Partners came in last year with $10m.) But when an IPO or sale comes, those investors will be rewarded. "There are not a lot of successful British software companies in the US." Mr Potter says. "We will be the most successful one ever. It's not our graveyard, it's where we are succeeding."