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Bowstreet and Groove: A Tale of Two Ventures

April 24, 2011

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.

Positioning Bowstreet.    

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.
  • 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

 

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2 Comments leave one →
  1. July 25, 2011 10:00 am

    Interesting topic and comparison — sorry I missed it back when you published. Having been fairly deeply involved in both Lotus Notes (progenitor of Groove) and Bowstreet (CMO during their hypergrowth phase) I’m naturally keen.

    You do miss one key point: Bowstreet “founders,” including Moss but also Bob Crowley (now of Mustang Ventures) and Jack Serfass (a restaurateur in Florida) set a goal for the company which ultimately limited their decision-making ability. In their tulip-fueled zeal to create a dominant player in the software industry, they completely lost sight of reality. They actually set out to create an “East coast software company that would balance Microsoft’s dominance on the West coast.”

    When their CMO (you figure it out) saw the bubble burst, the pipeline evaporate in 45 days, and suggest we trim our ambitions a tad… let’s just say that met with blank stares and a new search for marketing leadership.

    Groove was ambitious, certainly — Ray had made many many millions in the strange but lucrative deal he cut with Lotus for Notes. But he was far more prudent in publicly expressing his goals.

    Thanks for the memories!!

  2. Megatron permalink
    March 13, 2012 4:13 pm

    So, the Bowstreet CMO who spent obscene amounts of money on double page fold out ads in the WSJ, Business Week and other expensive media and threw a $2M launch party in San Fran plays Monday morning quarterback as to why the company failed. Isn’t a CMO supposed to explain cohesively to the market what is being offered, the value proposition and why the customer should care? Maybe he should have spent less time messing around with his subordinates and more time studying the market. The company actually did sell $46M in software in 1999-2000 due to an amazing salesforce of ex-Tivoli people who could literally sell freezers and ice cubes to Eskimos. Were other senior managers responsible? Absolutely. So was the board.

    Ultimately, Bowstreet succumbed to a systemic failure to admit what it really created… an application servers. Larger players like BEA, IBM, Oracle, Sun, ATG, and others made Bowstreet irrelevant. The real crime is how the re-capitalization process ‘cancelled’ certain key executives’ stock options and refunded their money while others, who dug deep to invest lost it all.

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