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archTIS (ASX:AR9) has been pitched as a consulting company which spotted an opportunity and is now a product company — but the journey getting there hasn’t been as succinct as that.

The ASX-listed company announced this month that flagship product KojensiGov was ready for commercial sale, after listing in September last year.

But the journey to get to this point has taken 13 years, with each year offering new lessons and insights that CEO Daniel Lai says have been invaluable to the company.

“Hindsight’s 20-20 and of course we could have always done things better,” he told Star Investing, “but I can honestly sit back now and say those experiences have made archTIS a better company.”

It all began with a solution he can’t tell you about.

They were the best of clients, they were the worst of clients

Lai, together with fellow archTIS founders Bruce Talbot and Phillip Dean left multinational company CA Technologies in 2006 after spotting a market opportunity they thought they could execute on.

“CA was great at what it did, but it didn’t do system integration or big delivery programs, or stitch together programs that fit together,” Lai said.

That market opportunity was providing a secure information architecture platform for the Department of Defence by integrating a number of products to build a solution.

It worked, and it worked well.

But they couldn’t tell anybody about it.

“Unfortunately for us, they were the best and worst client in the world,” Lai said.

“We delivered a world-first in the space, but because it was Top Secret, we couldn’t really use them as a reference or a case study for anything.”

They also sensed that the broader market wasn’t really ready for the kind of solution archTIS had created, and the prospects for a company with one client aren’t really that great — so archTIS began life providing consulting services.

It advised clients, notably in the defence and government space, about how to best protect their information and facilitate the sharing of it.

It provided two main benefits for the company:

  • It provided nice, stable cash flow it could use to keep the lights on and;
  • It gave the company intimate insight into the market

“Being engaged as a consultant, you’re a trusted advisor and you hear what the business problems are from the companies themselves,” Lai said.

“The other area that we were encouraged by was that we were seeing tenders put out to market for solutions to the problem we were solving.”

One of these tenders would get the company closer to its ultimate aim of creating a product — it just had to take a slight detour first.

“We had a lot more Red Bull and V in the fridge”

The next evolution for archTIS was to become a systems integration company — the type of company which got all the products off the shelf and made sure they played nicely together with whatever system the client already had.

It partnered with multinational KBR, which had won a tender to sustain and support Landing Helicopter Docks for the Department of Defence.

archTIS got wind of the tender and thought it could play a role in it — namely building a management system for the management of parts and procedures, and bringing it all into a single system.

“To do that, we had to become a systems integration company, which meant changing the way we operated again,” Lai said.

“The first thing was that we had a lot more Red Bull and V in the fridge”

archTIS had to go on a hiring spree, bringing in developers and programmers — all while managing cash flow in a new way.

“Just because you have a multi-million dollar tender doesn’t mean you’re rich,” Lai lamented.

“With systems integration, you get paid upon milestones — but you still need to pay staff who, rightly, are only as loyal as the first missed paycheque.”

But because it was busy with systems integration it had to scale back its consulting business, which brought with it more stable cash flow.

But it still had an ear to the ground, and its evolution to a systems integration company was paving the way for its next evolution into a product company.

“We had seen what the competitors were doing, and as a company we had used their products to see what we liked and what we didn’t like, and where we can differentiate ourselves,”

And all the staff needed to build a product were on the payroll, so when archTIS handed over the keys to the Department of Defence, it was time to pull the rip-cord.

“We had all the developers and testers and all the post-it notes needed for agile,” Lai said.

“We had it all there, so let’s move on and become a product company. Let’s commercialise what we’ve got and prepare for the market.”

A whole new ball game

Being a consulting company provides nice, stable cash flow and systems integration offers the carrot of milestone payments.

There are no such guarantees with being a product company.

“All of a sudden where you are being paid a large sum on a systems integration job, you’re being paid nothing and you have to make sure you have capital to fund the runway to sell the product — and enough of it to get enough of a return to manage your finances,” Lai said.

But this is where the founders of the company had wanted to be since it launched in 2006.

“We started out because we thought that we could provide a better solution than we had seen in the market,” Lai said.

“We were part of large multinationals that are headquartered in the US and didn’t necessarily understand the Australian culture or business landscape, or partner with government — and government had most of the more exciting IT problems to solve.

“But at the same time, we saw that the problem of trusted sharing of sensitive information would provide a global opportunity — and being a product company offers the best shot for investor returns.”

READ: From Xero to archTIS, Leanne Graham on creating scale

That last point is something Lai is especially sensitive to — as he’s literally staked his house on archTIS being a success.

For 13 years the founders’ houses have been on the line. You mortgage your houses to the hilt and do whatever it takes to get the money in and pay your people to keep them there,” Lai said.

“It’s interesting when you have conversations with shareholders about their concerns, I just reiterate back: ‘Nobody’s more invested than me’.”

Now, with KojensiGov commercially launched and a pipeline of deals on the way its journey as a product company is underway.

But Lai can’t help but think about the 13 year journey to get to the start line.

“Our journey and the relationships we’ve built along the way has put us in a great position to leverage the rest of the industry to promote our product into the market and to sell it,” Lai reflected.

“So I have no regrets in doing it the way we’ve done it, but could we have done it better? Absolutely.

“Hindsight’s 20-20.”

 

This content is produced by Star Investing in commercial partnership with ArchTIS. This content does not constitute financial product advice. You should consider obtaining independent advice before making any financial decisions.