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CEO Spotlight: Annrai O'Toole, Cape Clear Software Inc.

By Angel Mehta, Managing Director, Sterling-Hoffman Executive Search

In 1991, at just 26-years-old, Annrai O’Toole co-founded software firm IONA. Until earlier this year, he continued to act as CTO there, but he sold his shares and ventured out on his own. He now acts as CEO for Cape Clear. O’Toole recently talked to Angel Mehta, Managing Director of Sterling-Hoffman, about the trials and tribulations of starting over in the world of software startups.

Angel Mehta: Where did the inspiration for Cape Clear come from?

Annrai O’Toole: I have been in middleware for 20 years now and Cape Clear grew out of that early experience. IONA was the first company I founded, back in 1991. Around 1999-2000, I started reading the specifications of certain standards that subsequently came to be known as the Web Service Standards. I realized that this set of standards would lead to a whole new way of thinking about middleware, and how we build and integrate applications. Ultimately that has come to pass because those standards were the basis for the whole SOA revolution that’s been going on for the last couple of years. In order to take advantage of these standards I joined Cape Clear.

Angel Mehta: Why did you bother starting Cape Clear when you already had an influential role at IONA? Could you not have realized the same vision as a business unit at IONA?

Annrai O’Toole: It doesn’t matter whether you’re at IONA or BEA or IBM…no matter where you are, you approach every problem with a set of baggage. In the IONA land you’re focused on the set of technologies in CORBA. So to put it in a broader context, it’s like trying to come at the Internet revolution from a client server perspective. The Internet really forced everybody to re-tool and rebuild stuff differently and afresh. In the integration world for customers, it means that if you try and approach integration with a lot of baggage then you end up needing a lot more product, more skills, and a longer time for the customer to get their problems solved, because essentially what the vendor is trying to sell them is their old products that’s got new, shiny wrapping paper.

For example, at IONA there’s a lot of custom work that the customer has to do just to get the products to work. At Cape Clear, we have a single product offering. It’s all integrated; customers can take it out of the box. It comes in one CD and they can get started with it really quickly and they’re instantly into solving their business problem. They’re instantly into trying to integrate different systems together to solve whatever business problem they’re trying to address rather than trying to grapple with the product itself, rather than trying to figure out “how do I integrate all these bits of the product and get the product itself to work?” before you can even get going at solving your problem. Very often to solve a new problem you have to drop all the baggage, and the only way to do that is to start a new company that isn’t confined by the politics and interests of the past.

Angel Mehta: Was the experience of raising money much easier given that you had already participated in IONA?

Annrai O’Toole: Easier? Maybe. Easy? No. Raising money was my first job here and I had never done it before – IONA was self-funded. One of the major concerns was the place where I lived. I spend about half of my time in the US and the rest in Dublin. So I do a lot of traveling; however, a lot of people in the valley wanted to invest in a local company. The other issue was that as I’d never been a CEO before, I was ‘only’ the CTO at IONA. So everyone wondered how I would be able to make the transition from being a technology visionary to an operating executive. My response was, “I don’t need to be CEO” – I’d be perfectly happy if they found someone better and I’d be happy to step aside and I think I showed the right set of attitudes, a willingness to learn and an understanding what’s involved in building a business.

Angel Mehta: And what has the biggest challenge been for you as a first time CEO? What are some of the adjustments you’ve had to make to your own work style and what have some have the least pleasant parts of the job been?

Annrai O’Toole: Certainly, firing people is the least pleasant part of it (chuckles). When you’re just purely on the technology visionary side of the house, you don’t have to do too much of that. But as a CEO, that’s probably the most unpleasant, but that’s more than offset by all the things I’ve learned. However, I think it as an amazing learning process. I’ve certainly learned more the second time around about building a company than I did the first time, and from a personal fulfillment point of view, it’s just been great.

Angel Mehta: How does the fact that you’ve built a successful company in the past impact your ability to build the second company?

Annrai O’Toole: It’s obviously helpful in some ways; there is a lot of credibility that comes with having had a hit like IONA, so it’s easier to recruit people, secure customers, etc. But there are a number of mistakes you make due to hubris. When you move from a very successful company that you’ve built from nothing to a publicly traded entity, you’ve a natural tendency to think that you’ve got all the answers. So when you come into an environment like Cape Clear, where we’re trying to get going just after 2001, when there’s a little or no software being bought from small young vendors, you are into very difficult operating conditions, and divest yourself of all this hubris and really learn a lot of humility. That’s a very interesting process to go through. You also get focused crucially on exactly what the customers are looking for in the product and have to listen to them very carefully and make them super happy.

Angel Mehta: So tell me about the problem you’re solving for customers right now.

Annrai O’Toole: For each of our customers, there’s a different business problem. This is the thing about middleware. Middleware is not a vertical application solution, so I do not solve telephone circuit provisioning problems. We’ve a horizontal product that can be used in a whole variety of scenarios. However, there are a couple of distinguishing factors about all the problems that we solve for customers and I think they fall into three general buckets.

One, they’re trying to build solutions that enable them to automate how they interact with our customers or with our partners.

Second, in order to build those solutions, they’ve got to integrate some internal applications to make that happen.

Third, the solutions that they’re building; they want to be able to build them very quickly and without a huge amount of development cost, but they want them to be very reliable because it’s essentially mission-critical type solutions that they’re building.

You can then relate these to specific customer examples. One could be Pearson Education. Pearson own a huge amount of well-known academic textbook publishers in the U.S., like Addison Wesley, Prentice Hall and so on, and they provide an application for students, so that when they go back to college in the fall, they can log on, see what courses they’re have and buy the textbooks. So the whole solution that Pearson built where you can automatically see your courses and buy those books is built around the Cape Clear product, because in order to implement that solution they’ve got to integrate three different applications that actually fit in three different locations: one in Connecticut, one in Boston and one in Virginia. Hence, they needed to be able to integrate those three big applications together into a single unified portal that the students can use. The great news is that Pearson were able to get that solution built in a record amount of time. It took four months to get that solution built and it handled very large volumes during the fall when you’ve got literally millions of students hitting this thing.

It’s a very significant application and, it has all those things that we’re facing automating interactions with our customers and they built it quickly. It’s very reliable, and it needs to integrate a lot of diverse applications together. You’ll see the same story repeated, such as Channel 4 doing their video on demand service, which is kind of an iTunes solution for video content, through to Land America for their finance customer and their kind of finance portal they’ve been building, so right across a whole range of up to nearly 300 customers at this stage. We solve very similar types of problems, but in each case the business problem is slightly different.

Angel Mehta: What do you anticipate the most difficult challenge as being over the next few years?

Annrai O’Toole: It’s a very dynamic market…very fast moving, with big vendors trying to obscure the picture and tilt the playing field. The whole SOA space is the main engine of growth for enterprise software over the next several years. The sets of trends that we’re right in the middle of are along the core strategic lines of many of the big vendors in the software business today. In all web services, be it IBM, or BEA, or Oracle, you’ll find SOA and all of their offerings plastered all over the place. So we live in a very competitive market and the way that we view it is that the strategies that a lot of the bigger vendors are trying to do has stifled some of the innovation in this space, because the real innovation doesn’t allow them to compete. They want to slow this market down and make it a much more lumbering, big product solution and we here at Cape Clear are trying to do the exact opposite. We tell our customers that this is all about getting the work done rapidly and one doesn’t need to buy millions of dollars of software from big vendors. One can get a much better solution, a much more innovative solution from someone like us.

So competing in this fast-moving and very competitive market is a lot of hard work, and that certainly occupies a ton of time just in sheer execution capability. In order to compete well we’ve got to execute in terms of how well we treat our customers and how responsive we are. We’ve got to be much better than the big companies, but we’ve also got to be smarter. We’ve got to think smarter about how we approach this space and have a much more different creative approach to the market and a much more different creative product offering over the long haul.

Angel Mehta: Between 1999 when the company was founded, and now, the industry has just been broken down and built up again, it’s just evolved tremendously. How have the changes in the industry required Cape Clear to make changes in its own strategy and tactics?

Annrai O’Toole: As I think back on it, it’s a story with many turns in it. The first thing I want to say, though, is that we’ve been very consistent about our core mission, which is to radically change the technology and economics of integration. Today, integrating systems is probably one of the top three problems that CIOs talk about all the time, so it’s a massive problem. It’s still a very expensive problem for people to solve because, in essence, the way that people solve integration today is through a huge amount of custom coding and that is the reality of what people are doing today. So integration remains this enormously complex, very expensive problem, and what we set out to try and do in 1999 and 2000 was radically change the economics and technology of that, and that is exactly what we’re doing today, but along that road there’s been quite a set of twists and turns.

So in the original version of this market it was all about web services and we were web service pioneers. We did a lot of work in that space, but then a couple of years into it all of that changed into this whole area of enterprise service bus and I think we did a good job of jumping on the whole ESB bandwagon reasonably early on. But the advent of the ESB changed a lot of our marketing just to grow the product in a very specific way.

Then a couple of years into that, the ESB morphed into a bigger entity that is all around this more nebulous concept of service-oriented architecture. SOA has become, and is, a very big thing at the moment, and that required us to do a certain amount of jumping and hopping to position all our stuff into that SOA wave. Now I think we’re coming onto the final stretch of this whole marketplace and recently the way that we see the whole SOA world evolving is that it’s really evolving hand-in-glove with the whole notion of software as a service. II don’t think we have time to jump into that right here, but we believe that essentially the future of SOA is aligned with the whole movement towards software as a service and ultimately that’s what SOA’s about. I mean, it’s a service-oriented architecture.

We’ve been talking recently about this whole concept of on-demand integration, which is how do you take the concepts of EAI that were prevalent in the 90s and update all those concepts so that they’re pertinent to a market where what I need to integrate are not only applications that are sitting locally in my organization, but also hosted applications such as Salesforce.com.

Angel Mehta: You mentioned early on that you’d be happy to step aside if your investors want you to. What are the major competencies that you had to hire to make up for weaknesses that you had. What were the most important functions, you feel, to the evolution of Cape Clear?

Annrai O’Toole: The most important is, on the whole, sales. I grew up as a technologist, I didn’t grow up as a sales guy. Bringing in just the raw kind of competence and experience to run a sales organization and run a field organization, that’s been the key hire for the company, and getting the right person who’s going to do the right job in that space is very tricky. So I would see that as really the core area. In terms of the other aspects of marketing and product management, they were areas that I had a reasonable amount of experience with and it was easy enough to bridge into them. So the sales one has always been the hardest one to fill.

Angel Mehta: When you come into sales situations, do you find that you are required to educate customers as to what the different offerings are, or the different techniques for solving the problems they have, or do they already have a sense for the direction they want to go and it’s just matter of showing why you’re better, faster, cheaper?

Annrai O’Toole: Yeah, it’s much more the latter. I mean, at this stage the market is pretty well educated, so I think people are very aware that SOA represents a new approach to solving their integration challenges, and it’s much more on how it makes Cape Clear a better solution for the customer. Therefore, a lot of our effort is on either explaining that or demonstrating to customers why we are a better option.

Angel Mehta: Where does your time go, and in particular, how much time do you spend sort of keeping the Board appraised of what the situation is and dealing with their questions? Can you tell me about the role of the Board in terms of Cape Clear’s day-to-day operations?

Annrai O’Toole: I’ve got a great relationship with my Board. I really feel lucky in that regard and it’s been a real pleasure to work with these guys. They are all men, they’re not involved day-to-day in what I do, but they’re certainly involved in a lot of the strategy setting and a lot of just advice on some things. So working on detailed financial plans, or thinking about strategic options for the company, or what areas we should be investing in, they’re really good to work with on those issues and I don’t need to spin the problems in any way. I just come with a very truthful, honest exposition of the challenges we face. I never try to sugarcoat anything. I give them a really clear-eyed view of all the issues and challenges that face the company, and start working on the right strategic options to address those things over the long-term, and again, they are a set of investors who are focused on building long-term value, so we never have discussions about what’s the most expedient way to address these problems. We always try to think about how to address these in the context of an overall strategy that’s going to build value for everybody.

Angel Mehta: You mentioned that the whole SOA space is really what’s going to drive the growth in software over the next few years. Do you see that as you’re out talking to customers and you get a sense of what their priorities are, that there is still white space left, that there’s still room for software startups in general? Or do you think we really have reached a point where software is just never going to be the growth industry it was?

Annrai O’Toole: The short answer to that is that there’s a huge amount of growth left in software and the data points. If you just look at the huge number of IPOs that have been going on recently, it’s very different. So I think there isn’t a lot of room for traditional enterprise software vendors and I don’t know that there’s a lot of space left for new middleware guys to come along, but certainly if you look at the area of appliances, which is really software bundled and packaged in a very different way, you look at the open source stuff and you look at the on-demand world, there are huge areas of growth. What’s interesting about those is that they are really areas that a lot of the traditional vendors can’t get at because those areas don’t play to the strengths of the big, traditional enterprise vendors. I think there’s a lot of opportunity out there. You have to pick very carefully the sector that you’re in.

Annrai O’Toole is CEO of Cape Clear Software Inc. As the leader of Cape Clear, he drives the overall vision and corporate strategy for the company. Annrai joined Cape Clear in November 2000 to participate in the major opportunity being created by the emergence of the Web Services technologies and the massive benefits they could bring to the challenges of creating and integrating applications. Prior to joining Cape Clear, he founded and served as Executive Vice President and Chief Technical Officer of IONA Technologies. Annrai began his career working with many European and international standards bodies to develop standards for software interoperability. With these and other initiatives, he has helped define the direction of the computer industry. Annrai holds an MSc in Computer Science and an Electronic Engineering degree from Trinity College, Dublin. For interview feedback, contact Annrai at annrai.otoole@capeclear.com

Angel Mehta is Managing Director of Sterling-Hoffman, a retained executive search firm focused on VP Sales, VP Marketing and CEO searches for enterprise software companies and lead investor in www.softwaresalesjobs.com , the #1 site for software sales jobs. Angel can be reached for feedback at amehta@sterlinghoffman.net

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