Part 1: Strategies for success and chasing tornadoes

Tell us about the founding of KCG and its mission in the marketplace.
The reason I founded KCG is because, after being in the software and business solutions marketplace for eighteen years, it dawned on me that there was no single place to go to get a lot of the knowledge and information that I needed to help make my own organizations successful.

As a senior executive at many different software companies, I saw an opening or niche in the marketplace for a company to come in and provide the kinds of services that people like me need to help their people make their company successful.

Software execs usually don't have the resources they need to help them to figure out high-level vision, strategy, marketing position and messaging. They don't have a fundamental understanding of the whole nature of influence and the role influence plays in a business' success. And, last but not least, just getting some of the best practices and advice that will help people be successful at business development, operations, etc. is very tough.

And in regard to tough, what do chasing tornadoes and selling software applications to companies have in common?
Great question, it actually has a lot in common! The best analogy I have for the business and tornado chasing metaphor is that tornado chasing is months and months of planning at a macro level, combined with days and days of advance planning to try and put yourself at the right point, at the right time, to be within fifty miles of a forming storm. Otherwise you're not going to catch it.

And guess what? It's the exact same thing in business. You typically spend years planning and building and putting yourself in the right position to be near an exploding marketplace when it takes off. You're trying your best to predict when it happens. Because there is a very strong time element involved, you have to be able to predict and forecast working within the pressures of the time element.

Speaking of the time element, what about those who say that software's time is past? Does software still reign supreme?
One of the things that I don't buy these days is all this discussion about how the technology industry is dead and software is dead. Technology is going to drive the global economy for the next hundred years and guess what, it's driven it for the last 175 years.

On the other hand, I really hope it does not come back to the level it was at. That would be a bad thing. We were way out of whack with expectations of value, growth, sustainability, etc. But, it will come back.

Technology has driven a pretty much sustained, one hundred and seventy five-year boom starting with the Industrial Revolution. If you look at what drove each wave of this boom, it was some new aspect of technology. I think we have recently left the age of hardware and we're in the age of software. And I think that will last at least another twenty years.

So the marketplace is simply evening itself out right now?
Exactly. Now, I'm just as pragmatic as the next guy, and I think everyone knows now that we got way overboard on the marketplace in terms of valuation and numbers. But at the same time it's going to come back a lot from where it is now.

Part of the reason technology stocks, even before the big run up, had high valuations is because technology markets grow at a faster rate than the underlying economy.

Oracle is always going to grow faster than Proctor and Gamble. The fundamentals that are powering the global economy are not toothpaste and soap. Those are commodities that everyone needs and certainly at a bad time I admit to having Proctor and Gamble in my portfolio. But the fuel for the economic engine of the whole global economy is technology and it's going to be that way through all of our lifetimes and probably our kids' lifetimes.

And will new technology, specifically software always put old technology out of business?
Yes, I believe that today's software marketplace is in its infancy; it's 20% percent of what it's going to be, as far as its effect on our lives goes. It's already in everything you do. There's software in your toaster, in your sewing machine, there's tons of software in your car. There's more software in most 2001 cars than that was in an entire company's MIS departments in 1980.

It's had an incredible run-up and software as a market is just going to continue to grow. It has historically grown somewhere between twenty and thirty five percent per year. These figures are for B-to-B software, the stuff that drives relationships between businesses, and people and things.

Part of what we're seeing from the prognosticators, like Gartner group and DataQuest, and investment banking firms is that the software sector is still going to grow twenty percent even in a downturn market. Now, that ain't too bad.

Providing what people and businesses need to make their lives better and drive more value to the things they do requires software. From that perspective, software is a driving force in the economy and absolutely reigns supreme.

And in regard to buying or investing in software, is money getting smarter as the market is throttling back?
From my observation I don't necessarily think it is getting smarter. In some cases, yes there is a triage going on within the public and private investors. Asking good questions like, "What's worth hanging on to, and what you need to let go of.." or as we say in Texas, "This dog don't hunt." You have to triage those investments.

But what we see really happening is investors are throwing good money after bad. They're still throwing gobs of money at these bad ideas and despite the money, many of these companies are still not going to make it.

The one that really rips my heart out are investors that are not spending good money after good products. They're letting the good stuff die, simply because it's not as sexy, it's not as cool etc. A lot of these software vendors aren't being funded and withering off because their own investors aren't giving them any money. I think a lot of this is being driven by the hope that someone will come along and buy the technology.

Continued...