Bowstreet and Groove: A Tale of Two Ventures
Whatever happened to Groove Networks and Bowstreet? Both were founded in the late 1990s by industry veterans, and backed by smart investors. Groove Networks created collaborative software for workgroups under the direction of Ray Ozzie, the brains behind Lotus Notes. Bowstreet introduced web services for accessing applications over the web – long before the era of cloud computing – under the leadership of Frank Moss, the founder of Tivoli systems.
Yet 7 years later, both companies were still struggling to gain traction. Each was stuck on its first S-Curve, with sales of $20M or less. (See “Why Growth Companies Stop Growing”). In 2005, Groove Networks was acquired by Microsoft and Bowstreet was acquired by IBM.
Stuck on the S-Curve in 2005
What are the barriers to growth for companies like Groove Networks and Bowstreet? Each had a great idea and vision for growth, but couldn’t scale revenues. We may never know, but in my view there are five areas where things can go wrong: market, product, business model, team and capital. Any one of the five can keep a growth company from reaching its potential.
Finding the Groove.
On the surface, Groove Networks had a lot going for it:
Team? It doesn’t get better than a team led by Ray Ozzie, now the CTO of Microsoft. √ Capital? With $155M from Accel Partners, Intel Capital, and Microsoft, Groove was well-funded. √ Product? Groove’s collaborative workgroup software went on to become the foundation of Microsoft’s successful SharePoint product line. √
Here’s where things may have gone off track:
Market. Groove was too early for the market. X In creating a new market, Groove had to find customers willing to take on the risk of something new. The problem with innovators as customers is that there aren’t enough of them to generate meaningful revenues. The rest of the market has to be educated on the new solution and convinced of an ROI – a lot of work for an early growth company. To avoid overspending on product and market development, a growth company needs to gauge the timing of broader market acceptance.
Business model. Groove couldn’t close Fortune 500 deals. X Groove’s product was most useful when installed on every desktop, but Groove didn’t have the distribution and support to make large, complex sales with corporate IT departments. Ray Ozzie confirmed this point:
“It’s very difficult for a small, independent vendor to make headway in today’s buying environment. Corporate I.T. buys from the big incumbents—Microsoft, IBM, Oracle.” – Ray Ozzie, Baseline Magazine, 5/4/2005
In acquiring Groove, Microsoft knew it could solve this business model problem with its dominant channel to desktop computers.
Like Groove Networks, Bowstreet was led by an all-star executive team. √ It had $140M in capital from over 25 global venture capital firms, investment banks, and corporate investors. √ Bowstreet’s biggest problem was explaining its product to its customers and developing a market. X
Can you make sense of its positioning statement?
“The Bowstreet™ Business Web Factory is a web services development and assembly platform that automates the creation and maintenance of complex web applications on demand. The Business Web Factory enables Fortune 500 enterprises to form dynamic, distributed networks that leverage the strengths of the entire value chain while providing rich, streamlined web experiences for their employees, partners and customers.” – Bowstreet Website, 2001
Maybe they could have called it a simple approach to building information portals.
Another challenge was making money with a business model based on the XML open standard that Bowstreet championed. X Since any vendor could implement XML solutions, Bowstreet had to out-execute all of them in creating interoperability tools. This approach requires heavy lifting, with significant upfront investment and lots of arms and legs to make things happen. At its peak, the company had 350 employees.
There wasn’t much of a stand-alone market for Bowtstreet’s developer tools but these tools did make it easier to turn an application server into an information portal. It was no surprise when IBM acquired Bowstreet and bundled its tools with the IBM Websphere application server.
The Five Barriers to Growth
Like Groove Networks and Bowstreet, every company has its unique challenges. However, these barriers to growth generally fall into five categories:
- Market: There’s no market, the market is too early or the market is too small.
- Product: The product doesn’t solve a problem (technology-in-search-of-market), or its benefits are simply nice-to-have’s.
- Business Model: Pricing, margins and operating costs are such that the business won’t scale to profitability.
- Team: The business outgrows the leadership team.
- Capital: The company is unable to attract growth capital and assemble a growth stage board.
Overcoming these barriers is the subject of another blog.
Follow Dave on Twitter: @WDavidPower