Gas utility industry veteran Tony Banks thought he knew opportunity when he saw it, and, frankly, he wasn’t so sure about the newly deregulated residential market for gas.
In fact, as the company he worked for, now part of Atlas America, decided to test market gas to a community in 1997, employees quietly kicked off an office pool, making bets on the number of residential customers the company could land. Banks says he “embarrassingly” bet on a marginal 1,300.
The effort yielded about 13,000 customers. And it opened Banks’ eyes to what he considered perhaps a great opportunity for becoming an unregulated residential gas marketer. But he realized the company would have to find a way to effectively manage those customers, particularly when it came to billing.
Enter Angelo Pasquale, who had been growing his systems management consulting firm Frontier Systems for 18 years.
Together, the pair developed a plan for the creation of an Internet-driven customer relationship management system that not only would bill customers, but would also keep track of mountains of demographic information about each customer and open the door for gas companies everywhere to turn their customers into vast distribution channels for selling other products and services.
Certainly, the planned system would solve the immediate customer management problem facing the Atlas America subsidiary and its residential gas marketing efforts. But it didn’t take long for the entrepreneurial Banks and Pasquale to realize that, while residential gas marketing offered a certain level of opportunity, their entrepreneurial futures — and the real opportunity — were in the customer relationship management system they created and could sell to other gas utilities and marketers.
The Atlas executives to whom Banks answered weren’t so sure, Banks says, but they were willing to trust his judgment and gave a reluctant go-ahead.
“They said, ‘Go ahead and do this, but don’t let it get in the way of the other things you’re doing,'” Banks recalls.
So Banks and Pasquale did. And they’ve never looked back.
“When Tony came to us with these 13,000 customers, we saw a real opportunity there, and I danced around starting a company,” Pasquale says. “We really went out on a limb.”
As a result, they created a company now called Optiron Corp., which is expected to employ as many as 80 people by year’s end and generate at least $3 million in revenue this year, even in the testing phase of the business. As far as they’re concerned, they haven’t even begun to drill yet.
Dog days of development
Their timing couldn’t have been better. Their vision is being fueled by three key market factors: gas utility deregulation, convergence of industries looking to maximize the value of their customer relationships as a broad retail distribution channel and the proliferation of the Internet as a business tool.
Still, development of the product took more time and perseverance than the decision to take the entrepreneurial leap. In the earliest days, Frontier Systems’ programmers labored to create the relationship management system with guidance from Banks, who contributed his 26 years of marketing and management experience in the gas utility industry. In 1998, they formed Atlas Technologies.
With an early prototype, dubbed the Readi System, Banks headed for his first trade show to measure interest in the product.
“Tony went to a trade show with a laptop and projected the product onto a piece of cardboard and really got a heck of a response,” Pasquale says.
They got the attention of Atlas America executives, and the parent company contributed an undisclosed amount of investment capital in a private-placement stock offering to support development of the product.
Says Pam Schriever, an investor relations executive at Atlas America: “With the deregulating energy industry, customer care solutions and Internet service for billing seem like a good opportunity.”
Banks left his position at the Atlas America subsidiary to serve full time as CEO of what was renamed Optiron Corp. Pasquale merged his Frontier Systems into the new venture and became its president.
The product
The partners created an Internet-driven product that keeps track of names, addresses, ages and other vital demographic information for online billing purposes. But it also includes other modules with massive depth and breadth that keep track of buying habits, energy-related household maintenance information, energy usage and other individual information.
The product, the partners agree, will allow gas marketers to manage their customer relationships like never before, at the click of a mouse.
Asked if they overdesigned for a market that is just beginning to accept the use of such a database management system to manage billing, Pasquale says, confidently, “Three years ago, we said that we believe deregulation [would open up lots of market convergence opportunities that need a large customer relationship management system], so if we believed in it, we designed for it.”
For companies that don’t want to manage databases in-house, Optiron offers an application service provider-based product through Internet service provider RSL.com, which will manage the system at its own facilities.
Operations
Banks and Pasquale run Optiron from a plush office space on the 52nd floor of the Mellon Bank Building downtown. Pasquale says the original tenant subleased it to them cheaply after vacating it under its current lease.
That tenant left most of the upscale furnishings and decor, giving them an atmosphere enjoyed by few start-ups. Most of the system development work is taking place at a remote facility on the South Side.
Financing
Banks says the initial start-up funding, which has carried the company and its development efforts for three years, totaled roughly $3 million, thanks to a private-placement stock offering. Initially, Atlas America absorbed much of the cost, with support from Pasquale’s Frontier Systems.
To a large extent, the funding paid for what Pasquale describes as “45 man years of development in this.”
Sales to date
The company reportedly generated about $1.8 million in revenue last year, mainly from customers that agreed to test the product during the latter stages of development. This year, the founders expect that to climb to about $3 million. But they believe they’re barely scratching the surface of what they estimate is a $5 billion market in the energy industry.
Banks believes that at least 50 percent of the industry is ready for the kind of customer relationship changes Optiron is marketing.
Sales and marketing strategy
Optiron has a couple sales and marketing employees, not including Banks, its chief salesman. But by the end of 2004, the founders hope to develop a national sales force of about 40, which will begin by going after the 130-plus potential gas industry customers with annual revenue of more than $100 million.
Banks estimates Optiron has a target market of at least 5,000 potential customers.
A license for its complete management system sells for about $5 million, with a scaled-down version selling for around $1 million.
The company recently hired a vice president of sales and marketing to drive the effort, and built an extensive Web site that showcases the company and its product. In addition, it has teamed up with RSL, which is growing its stable of ASP offerings as part of its own product/service mix.
On the public relations side, the start-up has hired marketing communications veteran Burson Marsteller to develop its media relations, trade and Internet-based advertising and public relations and help it launch a major communications campaign.
Market outlook
Banks says his company maintains at least a nine-month technology development lead over emerging competitors, including America Online and IBM, both of which are entering the Internet-driven customer relationship management/billing systems arena.
He says quick thinking and an emphasis on development made the Readi System one of the first large-scale applications to hit the deregulated utilities market.
“When those other guys were out getting customers,” Pasquale adds, “we were in the lab developing a product.”
Greatest challenge
While most deregulated gas marketing companies see the need and value in a comprehensive customer relationship management system that provides billing services, many aren’t ready to adopt aggressive convergence strategies, Banks and Pasquale say. Many potential customers aren’t set up to handle the marketing of other products or services through their retail customer channels, so Optiron must sell its target audience on the value of in-depth demographic information collection and how to use it to make more money.
Fortunately, Banks says, the biggest challenge for the start-up’s customers is retaining customers who otherwise will leap from provider to provider on little more than a price-driven whim. He believes the Readi System will improve customer retention dramatically.
“We have a motivated market,” he says. “We just have to make sure we’re in front of them when they’re ready to make a decision.” How to reach: Optiron, (412) 467-2350 or on the Internet at www.optiron.com
Daniel Bates also contributed to this article. Fran Aiello is an intern from the University of Pittsburgh.
