Acqusition Update: Architel and SevenLayer
December 9, 2008
Over the past month I have been working on a deal that has the potential of making Architel (our IT services business) into a very interesting company. As a result (not to mention Big in Japan/ShopSavvy stuff, Whitebox fund raising and even some pending ServiceGuy news) my SpringStage activities (i.e. this blog) have suffered. Of course, that being said I don’t expect that to change until January. In the meantime I thought I would share with you the details of the SevenLayer business (I wrote the following as a blog post on the Architel blog).
On Friday we completed the purchase of SevenLayer™, an enterprise application support business based in Seattle, Washington. The company’s primary assets are a) its Onboarding Team - highly skilled software/infrastructure engineers who specialize in ‘onboarding’ software and b) its proACT and reACT software platform.
The Need: More and more companies are able to secure the services of highly skilled software developers at more and more reasonable prices. Agile development techniques have brought the cost of onshore development to very low levels with offshore development costs being even less. Development outsourcing to India, Philippines, China and Eastern Europe have been a boon to productivity here in the United States and in the West in general. Business owners can use software to solve complex business problems that ‘off-the-shelf’ software can’t handle. More and more companies are using these custom applications to create a competitive advantage. The problem, these applications are orphans.
These orphan applications have lots of parents (developers, internal IT, third-party integrators, external IT and business users). The original developers may be onshore or offshore, but if they are worth their salt they have moved on to new projects. Keeping a developer around for a custom application is very expensive and very frustrating to the developer. However, most are willing to keep their toe in the water, but it is usually very difficult to engage them. Specifically, the internal IT department is filled with highly skilled engineers and technicians who have no idea how and why software functions the way it does. They understand servers, operating systems and off-the-shelf applications like Exchange and SQL, but they don’t necessarily understand HOW they work. They install complex and sophisticated monitoring tools, but rarely do these tools have visibility into whether or not the application is actually functioning correctly. The server may be up, but the transactions it is generating may be getting lost. Third-party integration specialists may understand how the application works, but only at a very highly hourly cost. Business users often become very frustrated because no single party will take responsibility - internal IT suggests, “We didn’t write this thing.” - the developers suggest, “It is a problem with your SQL cluster.” - the third-party resource suggests, “This is going to be great!”
In the past most companies hired their own ‘onboarding’ person ($100K+) who was responsible for purchasing an application monitoring system - usually costing more than $100,000 and $25,000 per year in licensing and support costs. This ‘onboarding’ resource would then ‘onboard’ the application and recruit two or three ‘help desk’ people ($30K+ each) to answer alerts related to the software. Typically these alerts are generated more by the infrastructure than by the application itself and the resulting ‘application’ support is still a frustrating and expensive proposition for the company. Costs approaching $300K year one and more than $200K each year after that.
The Solution: SevenLayer has developed a two-stage model for supporting custom applications. The first stage is called Onboarding. SevenLayer’s onboarding team works with the developers, business users and internal IT to understand how the application works. Once it has a firm grip on the application’s function and purpose the next step is to determine how and where hooks can be made within the software. These hooks are used to connect to SevenLayer’s proACT system. The onboarding team then writes knowledge articles for each ‘hook’ explaining a) what has happened if the ‘hook’ is triggered and b) what to do about it once it as been triggered. The initial target is to have complete knowledge articles for 20% of all possible alerts. The remaining 60% are written over the first few months of engagement. Finally, we build SLAs for various aspects of the application.
SevenLayer’s reACT system becomes key for determining who is responsible for which alerts as well as how quickly (per the SLAs) issues need to be resolved. The onboarding team determines which alerts and tickets are the responsibility of the developer, in house IT and Architel’s support team. reACT allows multiple parties to have varied levels of responsibility over a certain application and avoids much of the finger pointing and blame associated with traditional support. reACT organizes and distributes inbound alerts and user generated tickets based on rules created during the onboarding process. Once an alert or ticket is sent to the appropriate team the agent is then presented with live access to the proACT monitoring system so they can see in real-time how the application is functioning. They are also presented with the knowledge article related to the issue they are dealing with. In many cases the agent can simply confirm the issue and follow the instructions in the knowledge base to resolve the ticket or alert. In the event an issue isn’t covered in the knowledge base, the agent is requested to create a knowledge article related to the resolution or to escalate the issue to our tier three team who will then resolve and document the solution.
Conclusion: More and more companies are building custom applications and these applications are becoming more and more integral to the competitive advantage of these businesses. Architel’s new SevenLayer business can help enterprise clients safeguard these ‘application’ assets at a significantly lower cost. Typical cost for onboarding is $10-20K per application and $5-10K per month for proACT/reACT plus tier 1&2 support - total first year cost between $70K and $140K, with future costs between $60-120K.
