Making it in the US

28 Aug 2003

The number of multimillion dollar deals recently won by Irish software companies can be counted on one hand, so Paraic O’Toole, chief executive of Automsoft (pictured), has reason to be very pleased with his company’s new contract with Genzyme. Not only has Automsoft clinched one of the biggest deals of the year but it also has done what few enough Irish software firms have been able to do: successfully sell to the US market.

Genzyme, a US biotechnology firm, is an existing Automsoft customer and will deploy Automsoft’s Rapid Pharma database software across a number of its manufacturing sites. The US accounts for over 80pc of the company’s turnover and most of the big US biotech and pharmaceutical blue chips, including Wyeth, Pfizer and Schering-Plough are Automsoft customers. So far this year, Automsoft’s revenues are running 250 to 300pc ahead of last year.

O’Toole knows the American market well. He divides his time between the company’s headquarters and R&D centre in Lansdowne Road and its US base and international sales centre, in Princeton, New Jersey. Before joining Automsoft two years ago, he ran the Irish office of Cambridge Technology Partners, a US-based IT services business acquired by Novell in March 2001.

A lot has been made recently of Irish software companies’ poor performance in the sales and marketing area with the Irish Software Association, among others, identifying it as a key obstacle to breaking into the US market. It is a view that O’Toole shares. “Sales and marketing is not seen as being as valuable a discipline as engineering,” he observes. “Frankly that’s dumb because great engineering alone is not going to build a successful business.”

O’Toole’s formula for doing business in the US is based on several very simple rules. First, if you are going to do business there, you need to have a base there; don’t try to build a business by shuttling to and fro across the Atlantic. Second, hire Americans to sell to Americans; being Irish might open doors if you’re dealing with Irish-Americans but on its own it probably won’t win you any business. Third, quality costs money, so be prepared to pay your salespeople well. If this means that the CEO is paid less than the sales team – as O’Toole claims is the case in Automsoft – so be it. He concludes: “At the end of the day, [US firms] will do business with you if you satisfy their concerns. Their concerns are: how are you going to support me, what sort of comeback do I have, does your technology work, are you going to be around in five years time. They are really the kind of questions you need to be able to answer.”

These are the practicalities of doing business in the US but sustained success also requires something else: having one or two directors on the board with the experience and reputation to counsel on strategic matters. Here O’Toole pays tribute to Donal Geaney, the former chairman and CEO of Elan, who was appointed chairman of Automsoft in January. “Donal Geaney brought huge value to us simply because he’d been there and done it,” says O’Toole. “He’d been the chairman of another company, and he knew the industry we were focused on. That has saved us so much time and effort.” He adds that while venture capitalists and technologists have a valuable role to play on the boards of tech firms, the input of successful entrepreneurs with a unique insight into a particular market is critically important.

The US represents a great market opportunity but it is also a threat – a competitive threat to Ireland. O’Toole believes that Ireland has become an incredibly costly place to live and to do business and it is an issue that needs to be urgently addressed if recent levels of inward investment are to be sustained. He goes so far as to say that he has not ruled out moving the headquarters to the US if it becomes a more cost-effective location. “We look at the US on a continuous basis and keep it under review as to where our HQ should be. The corporate tax rate is much lower here and it’s a major benefit but you’ve got to offset that against the general cost of doing business.”

As a private company, Automsoft does not disclose its revenue figures but with a typical installation costing between $200,000 and $500,000 per manufacturing unit, plus maintenance contracts, the business is clearly turning over several, perhaps tens of million dollars a year. The immediate future is looking healthy but O’Toole is already looking further ahead.

“The question is always going to be what sort of exit can investors expect? Are we an appropriate for an IPO? We won’t know until we expand the business and see if it has sufficiently high profile to be attractive. The other option is some sort of trade sale. We have proprietary technology and a substantial customer footprint which will make us an attractive acquisition target.”

By Brian Skelly