June 21, 2005

The Nine Lives of Entigo:

After numerous name changes and shifts in focus, Entigo has returned as a player in the warranty chain management software market.

Entigo Corp., long closely identified with Warranty Week, had a life both before and after its two-year sponsorship of this newsletter began and ended. What's not generally known is how close Entigo came last year to closing. But like a cat with nine lives, the company rebounded just in time. Now owned outright by CEO Steve Layne, the company officially known as LS Holdings I Inc., dba Entigo, is back in the hunt for warranty claims processing customers.

Entigo traces its roots back to 1995 in Pittsburgh, when a Carnegie Mellon University graduate named Joseph Parker and a local entrepreneur named A.J. McKenna founded Signal Software Corp. From the outset, the company focused upon the development of software to help companies use the Internet as a dealer communications network. That eventually grew up into an operation that provided online catalog and parts ordering networks and eventually the automation of warranty claims submission and processing. But let's not get ahead of ourselves.

Once upon a time there was a tire manufacturer named Michelin North America that wanted to create a computerized dealer communications network. Signal Software, nominally based in Pittsburgh, opened up an office in Greenville, South Carolina to develop dealer communications software for what eventually became its first customer: Greenville-based Michelin.

Eventually, Signal Software became Signal Extraprise Corp., which became OpenWebs Corp., which then was acquired CarParts Technologies Inc. The latter still sells a product called the OpenWebs Commerce Server and another called the OpenWebs Trading Network.

A New Life

McKenna and Parker, meanwhile, sold all their interests in Signal and re-emerged as executives at the Karol Company, a marketing communications firm also based in Pittsburgh.

Entigo's second life began at some point in the mid-1990s when the parts of the company that were not sold off to OpenWebs were spun off into an entity named Signal Internet Technologies Inc. The official headquarters remained in Pittsburgh, but the importance of the office in Greenville grew in proportion to the success of the system installed for Michelin North America. Eventually, Signal Internet and Michelin North America jointly launched the Millennium Suite, a dealer support system for tire dealers.

Among the programmers contracted at the time to develop software for the Michelin network were John Estrada, Rob Baily, and Louis Rose, who were then doing business together under the banner of Sideout Technologies Inc. Later on they developed custom software for General Electric's Spacenet Division, First Data Corp., and WorldSpace, among others. Eventually, they began to focus more and more on the service aspects of warranty claims, and in the summer of 2000 they renamed themselves ServiceBench Inc.

Meanwhile, Signal Internet continued to expand. New customers included General Nutrition Centers, General Mills, Toro Co., and General Motors' AC Delco division. Toro would eventually prod Entigo to add warranty more functionality to their electronic commerce applications, which would eventually result in a shift of the company's focus. But again, we're getting ahead of ourselves.

In June 1997, the company released the Signal SegWay Suite, an electronic commerce software system that at the time seemed to be very much on top of the whole e- thing. More importantly in the long run, perhaps, the company registered the Web site segway.com for the marketing of its flagship product family. It also continued to use signalnet.com as the company site.

Signal Internet was backed by a group of venture financiers, including Advent International from Boston and Norway's Four Season Ventures. Soon they were joined by Boston Millennia Partners and the CEO Venture Fund of Pittsburgh. GE Information Services joins as investor late 1999. In the heady final years of the dot-com boom, they and other investors would pump more than $40 million in venture financing into Signal and its successors.

James Graham joined the company as president and CEO in 1998. Soon after he joined, Graham and chairman Terry Collison along with director Marcia Hooper were found guilty of failure to pay a sales commission worth $105,558 to R. Daniel Nero, Signal Internet's former business development manager. Somewhere along the line the state of Pennsylvania had passed a law criminalizing the non-payment of wages. The local district attorney in Pittsburgh proved all too eager to take it out for a test drive. Eventually cooler heads prevailed. Their jail sentences of 10 days in prison were appealed and ultimately, the charges were dropped.

The Segway Segue

In December 2001, the Segway Human Transporter appeared. Invented by Dean Kamen and manufactured by Segway LLC, the units looked like a cross between lawn mowers and exercise machines. Coincidentally, they use tires made by Michelin North America. The people movers carry a one-year warranty, but they have an even more immediate and relevant connection to the warranty industry.

In the years before the transporter was launched, the company was called Acros LLC, not only because the inventor wanted to keep his product a closely-guarded secret, but also because he wanted to purchase rights to the name and the Web site from Signal Internet.

Signal not only changed the name of its product, but also the company. Entigo was born in 1999. The signalnet.com Web address was abandoned, and is now used by a porno/personals/credit report vendor.

For his invention, Kamen had chosen a name that played off the word "segue," which means to transition smoothly from one state to another. But first the company had to transition the rights to the name smoothly from the Signal SegWay Suite to themselves, and they had to get their Web site going.

The name Entigo doesn't seem to have any meaning beyond its use as the name of the company. In fact, the world seems to be equally split between those who pronounce it to rhyme with indigo, and those who accent the second syllable as in strategic. For the record, the current managers say it en-TEE-go.

Emerging Warranty Focus

Anyway, the warranty claims processing software grew out of the catalog and parts ordering system, thanks to the urging of customers such as Toro. All along, the company was developing Web-based applications for cataloging, order management, and warranty and claims management. It had struck partnerships with Cardonet, Primix, Crowe Chizek, Inforte, BEA Systems, and GE Global Services Exchange, among others. Clients included the Ford Motor Co., Michelin North America, GNC, Wabtec Corp., AC Delco, and Honeywell Avionics. The company was even considering an initial public offering in late 2000, before the reality of the dot-com bust took hold.

Entigo cruised along for almost two more years, continuing to service its catalog customers. Even before Steve Layne took the helm as CEO in June 2002, the company had already sold its first warranty claims processing software systems to Carrier Corp. and ArvinMeritor. So while its core offering was still the catalog and ordering product line, Entigo had already established a beachhead for itself in warranty software by the time of his arrival.

Layne, a veteran of both startups such as Soft-Switch and well-established companies such as IBM and Sprint, found himself in search of employment after his most recent startup United Messaging Inc. had imploded shortly after the NASDAQ took its swan dive. United Messaging was an applications service provider, founded on the theory that major companies would want to outsource their email operations to a service bureau.

In 1983, Layne founded a startup called Computer Access Software that developed a PC front end software package for telex networks, which were heavily used for business correspondence in those ancient days before fax and email. That startup was acquired by GTE Telenet, a company that was then making the transition from timesharing to packet switching and eventually email and Internet services. Meanwhile, Layne moved from software development to marketing and eventually to executive management roles exclusively within the electronic mail industry, in a string of companies that ended with United Messaging.

Ironically, in an eerie foretelling of the future, the ASP industry was heavily damaged by an accounting scandal in early 2001 at a then-market-leading company called Critical Path Inc. Months and even years before Enron, WorldCom, Tyco, and Adelphia set a new benchmark for financial scandals, Critical Path was caught cooking the books. Eventually, three Critical Path VPs plus their president/acting CFO plead guilty to charges of securities fraud. Other ASPs such as United Messaging tried to contain the spread of the fallout. But by then, both investors and customers were heading for the emergency exits. So was Layne.

"This was right in the middle of the dot-com bust," Layne told Warranty Week. "I had left United Messaging and was actively exploring other opportunities. I was looking for what I considered to be a fallen angel."

Finding Entigo

More specifically, what he was seeking was a company that had come across a market opportunity that was both broad and wide, and had enjoyed a large investment which had been used primarily to fuel software development (versus paying for Super Bowl ads and lavish parties). Don't laugh. There was one dot-com startup headquartered in midtown Manhattan that managed to burn through $30 million in 18 months, before closing its doors with nothing to show for itself. Another prided itself on its ability to deliver groceries at a price below the cost of the merchandise. Still another online storefront sold nothing but socks. And then there was that sock puppet...

Suffice it to say that in comparison to these punch lines of the millennium era, Entigo looked like a company that could be turned around. "When I was approached by Suresh Shanmugham of Boston Millennia Partners, it appeared that Entigo was very much that," Layne said. "This was a fallen angel that I believed in, and I still believe in."

He immediately cut costs by about a third, let almost half the staff go, and decided to narrow the focus of Entigo to strictly its warranty software product line. "We felt the catalog and order space had already reached the point of commoditization," Layne said, "and we had no significant competitive advantage." It wasn't the product; it was the abundance of the competition. So the product was also let go. However, Entigo held onto catalog customers such as Michelin, and in fact continues to do so through the present day.

In contrast to online catalog software, which was under development by virtually every HTML programmer on the planet, there was little in the way of commercial warranty software for sale. Most warranty-issuing manufacturers had long ago written their own claims processing applications, which ranged in sophistication from custom Excel spreadsheets on a desktop PC all the way up to enterprise-wide mainframe-based systems.

"Warranty had been virtually ignored in terms of software and business process optimization," Layne said. But in 2002 the economy was tight, and manufacturers were hungry for ways to reduce costs. Warranty costs, which consumed anywhere from one to five percent of sales for most manufacturers, was an obvious choice.

Competing primarily against the inertia of these existing in-house systems, Entigo Warranty found a welcoming environment among new customers such as GM's Allison Transmission Division, Caterpillar Finance Division, Eaton's Commercial Vehicle Division, and Volvo Mack Trucks. If the early history of Entigo was defined by tires, the middle years were all about trucks.

Layne said that although most of Entigo's customers were in the automotive space, what he quickly realized was that they shared the same warranty problems with manufacturers in other industries. "The questions were the same, whether you were dealing with a PBX manufacturer, a motorcycle manufacturer, a CD player manufacturer, or the builder of a home," he said. But there was no sense of community, no cross-industry focus, and there was no industry association. And there was nothing to read, or more importantly for Entigo, nowhere to advertise.

The Birth of WCM

And there was no industry acronym. Supply chain had SCM. Call centers had CRM. Purchasing had ERP. So Layne coined the term Warranty Chain Management in late 2002, and Entigo promptly became the world's leading WCM software provider. Today the term is used widely, not only by Entigo but also by IDC's Manufacturing Insights unit, ServicePower and KeyPrestige Inc., Imercius Technologies India Ltd., and of course ALG Associates, proprietors of the annual Warranty Chain Management conference.

The Birth of Warranty Week

Like Layne with his telex software, Eric Arnum came up through the email industry. After writing for the CMP Media technical publishing conglomerate on Long Island during an era that included both the launch of the IBM PC and the breakup of AT&T, Arnum made the jump to a twice-monthly paper-based newsletter called Electronic Mail & Messaging Systems. But ironically, the newsletter was sold to a publisher that declined to embrace the Internet -- a situation that became untenable by 1999.

Arnum left the company, moved to New York City, and vowed to never again kill a tree for the sake of raw materials, launching an electronic-only newsletter called Messaging Online, which quickly adopted a twice-daily format that ended up costing less to distribute than the postage did for the old twice-monthly paper format. But alas, by the spring of 2001 even that venture was too costly for the imploding dot-com industry.

Years ago, Arnum and Layne were both active in a group called the Electronic Mail Association, which for almost 20 years functioned as a cross-industry resource for all shapes and sizes of companies implementing or selling messaging systems and services. Nearly a decade before the Internet became commercially viable, the EMA sponsored one of the first multi-vendor interconnections of computer networks -- an event that was at the time compared to the driving of the golden spike in the transcontinental railroad. Ironically, by the time the Internet finally was commercially viable and email interconnectivity was taken for granted, the EMA was broke and the sheriff was auctioning off its tables and chairs. Brother, can you spare a dime indeed.

To make a long story short, Layne called Arnum in late 2002 and said there were no newsletters or magazines about warranty. Arnum said there was probably a good reason for that. After all, there were no magazines about LIFO or accounts receivable either. However, Layne continued to suggest that there should be a warranty newsletter, and more importantly, that he was willing to sponsor one if Arnum was willing to write it.

"We felt that there were hundreds of untold stories in and around the world of warranty," Layne said. So on Nov. 25, 2002, Warranty Week was born as an independent industry newsletter for warranty professionals, with Entigo as its founding sponsor. The Web site opened on Dec. 6, 2002, and the first weekly issue of the newsletter appeared on Dec. 23.

Coincidentally, the National Highway Transportation Safety Board was then writing the rules requiring automobile manufacturers to file details about their warranty claims under the TREAD Act. At the same time, the U.S. Securities and Exchange Commission began receiving Form 10-Q and 10-K financial statements containing the warranty tables filed under the Financial Accounting Standards Board's Interpretation Number 45 (FIN 45). Suddenly, the world was awash in never-before seen warranty information, which Warranty Week began to report.

The Near Death of Entigo

Entigo continued to gain customers, and warranty chain management continued to increase its mindshare, but in the second half of 2004 the company seemed to lose momentum. By year's end it was literally struggling to keep the lights on. Investors, who so willingly had ponied up more than $40 million when times were good, were suddenly unwilling to provide any more money. Instead, they wanted the company sold.

"Our primary investors were quickly shifting their investment portfolio mix from software and technology to other areas such as life sciences and biotech," Layne said. "They basically put the company in play to be sold."

Layne said there was lots of interest from a wide variety of suitors, but nobody took out their checkbooks. Those who did make an offer made one that was so low as to be unacceptable to the investors. Fundamentally, he disagreed with the decision to sell, he said, but in the end there really wasn't anybody to sell it to anyhow.

"At that point, it was pretty bumpy, because the investors were unwilling to put any additional funds into the company," Layne said. "Nor were they willing to allow any outside investors to come in and recapitalize the company."

As the end of 2004 approached, with nothing but several lowball offers on the table, it looked as if a shutdown was the most likely outcome. In November, the ProQuest Co. bought the assets related to an unnamed catalog software customer. Other Entigo customers simply disengaged and switched to other vendors. Once again, it seemed like both investors and customers were heading for the emergency exits.

Last-Minute Offer

But then Layne himself jumped into the bidding, and made an offer to buy the company himself. On Dec. 30, 2004, a deal was struck that resulted in Entigo being acquired by an entity called LS Holdings I Inc. A press release was issued on March 1 to announce the deal, on the opening day of the first annual WCM conference.

Layne says he's now looking forward to the eighth life of LS Holdings, dba Entigo. The product line remains more or less the same, although the headcount is barely half as large as it once was. LS Holdings/Entigo still maintains offices in Pittsburgh and Greenville, but the headquarters is now officially in Exton PA, in the suburbs of Philadelphia.

What's changed more than anything are the expectations. Layne said he's now quite aware that it takes the large Fortune 1000 manufacturers two or even three years to choose and implement a new warranty system. It's typically a seven-figure investment, so the long sales cycles aren't entirely surprising. Heck, even an entry level Entigo Warranty system is $250,000. And that doesn't even include installation.

Therefore, he's restructuring Entigo so it can make money even if the sales cycle is two to three years long. Basically, he's going to hire staff only as needed for specific engagements. Where possible, he's also going to look offshore for consultants and systems integrators. He's going to keep costs low, plan for long sales cycles, and spend only when there's revenue whenever possible.

"We are also now free to adjust our pricing and licensing terms," he said. Now that he's the sole owner, he will entertain offers to sell the Entigo Warranty source code to large customers who want to do their own custom software development. He might also consider selling source code to one of the large suite vendors who might want to incorporate it into their existing product lines. And he might entertain the concept of ongoing monthly licensing charges rather than one single payment up front.

Another option he's considering is to begin offering Entigo Warranty as the basis of a hosted service rather than solely as a licensed software product. The roadblock he sees is the fact that many companies perceive warranty as an essential and integral connection to their customers -- one they might not be so willing to outsource.

Still, companies such as ServiceBench have been highly successful persuading white goods manufacturers to outsource at least the dispatch function of their warranty process, and companies such as Best Buy seem unperturbed as they outsource the entire claims management process to third parties. Among the airlines, not only maintenance and overhauls have increasingly been outsourced but also de-icing and cleaning. So perhaps the outsourcing of warranty operations is the wave of the future.

Layne said he might even allow Entigo to slip back into the parts and logistics sectors that it left behind three years ago. There might even be an opportunity to jump into telematics or quality metrics in some shape of form. Perhaps there is an opportunity to develop a warranty best practices consultancy. But that may require another round of venture financing.

And finally, the idea of an acquisition isn't completely off the table. In fact, Layne said he's once again entertaining offers from a wide variety of suitors, although now that the desperation of last year is gone it's more like flirting than a shotgun wedding.

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