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HR Technology Column

Authoria Enters Third Life

Authoria Enters Third Life | Human Resource Executive Online No, it's not a new virtual world, but the third stage of its 24-year existence. After bringing artificial-intelligence technology to HR, then becoming a talent-management suite vendor, Authoria has been acquired by a private-equity firm. It could be the best (or worst?) stage of its life.

Monday, December 15, 2008
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Back in the mid-'80s, Authoria founder Tod Loofbourrow was a whip-smart Harvard kid, who had grown up programming the discarded mainframe computers that filled his childhood basement, thanks to his father working at Bell Labs.

While taking the hardest social science major at Harvard (no computer science major available then!), Tod fell in with and helped grow the bleeding-edge artificial intelligence (AI) community in Cambridge, Mass. (including M.I.T.).

During a campus recruiting trip and after a three-and-a-half-hour interview, Steve Ballmer (now CEO of Microsoft) offered him a job as one of the then-young company's 200+ employees. Tod turned him down. Bad for him, maybe; good for us.

Instead, Tod started an IT consultancy called Foundation Technologies that more or less flourished for a dozen years. For eight of those years, he also created and taught three courses in expert systems and AI at Harvard's graduate school extension program.

Teaching simultaneously promoted his consultancy and honed his preternatural presentation skills, skills that later won him three Shootouts at the HR Technology® Conference. Moreover, teaching is what he still loves best.

Then he had his first child and everything changed -- in more than the usual ways.

"It was a difficult birth," Tod recalls, "four days in the hospital. And then we couldn't get any definitive answers on our medical benefits. The hospital told us one thing; the insurance company, another. It was maddening at the worst possible time."

Already facing the usual problem of growing a small consultancy without just hiring more experts so there were more hours to mark up and sell, Tod had been considering a handful of software ideas to increase revenues.

After the birth, he decided on benefits communication. Using profits from the consultancy, he built an AI product (always marketed as "knowledgebase" to avoid scaring anyone) that gave employees truly personal answers to their coverage questions. Not simply a page out of the company's summary plan description, but actionable information.

In December 1997, Foundation Technologies (later renamed Authoria) became a product company with Tod as chairman and CEO, and its first offering called Beneflex.

It was the right product at the right time, since benefit call centers and employee self-service were becoming the rage. With Beneflex, customer-service representatives no longer had to bend their minds around the details of the half-dozen health plans they explained to callers, or employees could get enough just-in-time information to do the job themselves.

After a demo in 1998, I had one of my rare "wow" moments in HR technology. Sure, I wanted fewer clicks to get to the answer, but it was the first use of AI in HR since Resumix in 1988. I said, "Authoria makes self-service work" -- a comment I think Tod may have used as a marketing line for a while.

For years, whenever he presented the product, Tod clung to using "having a baby" as the example of a life event that required lots of benefit changes. Until hearing his story recently, I never understood why.

Authoria grew as benefits expert Ganne Howard, among many, provided domain expertise and Larry Kurzner showed he was the best partnership guy in HR technology.

Back in 2004, Authoria shifted away from the communications product to join the steeplechase to become a talent-management suite vendor. Problem was, it came out of the gate with one big disadvantage: Unlike companies such as SuccessFactors, Taleo and Plateau, Authoria started without one industry-leading talent-management application.

On the charts that every consultant and analyst has drawn of the software sector origins of talent-management suite vendors, Authoria was always alone in its box.

Two smart acquisitions put Authoria into the race: A.I.M. in 2004 for compensation and some performance and Hire.com for recruiting in 2005. But then it faced the same challenge as all the wannabes building out their suites through acquisitions (rather than "organically" with internal development): getting these wildly different apps integrated onto a single technical platform and database. So they could really work together. That took Authoria longer than it should have, though not so long as some others have taken.

Despite some respectable sales and customers increasingly buying multiple products, the company went into terrible debt and Tod started looking for a buyer almost two years ago.

There had always been some internal grousing that Tod was too academic (surprise?) and not enough of a business person. Recently, he sort of admitted that was true.

"What I like to do is spend my time on strategy, future products and M&A," he says. "I'd rather have someone else make the trains run on time."

And that's exactly what happened this fall, when private-equity firm Bedford Funding acquired Authoria for $63 million and a month later put in a new CEO, Jim McDevitt, leaving Tod as chairman.

Bedford Funding in White Plains, N.Y., is comprised of former GEAC executives. GEAC was a public Canadian company that, for 20 years, was an aggregator, buying more than 40 legacy software companies and leaving their aging products more or less alone.

Those included what were the largest HR mainframe vendors -- after our world largely moved on to client/server -- Dun & Bradstreet Software (DBS), which included MSA and McCormick & Dodge. Other familiar names at the time were Collier-Jackson and Comshare.

Not many new licenses to sell for those applications, but great maintenance revenue, especially from those DBS Series E and Series M payroll packages still being run by large companies today.

But GEAC did more than milk its cows. It developed an enterprise performance-management suite, with a heavy emphasis on business intelligence, which almost made it into the upper right box of the Gartner Magic Quadrant and took first in a Ventana Research study.

President and CEO Charles S. Jones sold GEAC to a private-equity firm in 2006 and soon started one of his own, Bedford Funding.

Private equity is a weird duck: It comes in lots of different colors hard to identify from a distance. Each one is structured differently, and their models and public image have been changing.

Bedford is hardly the first private-equity firm in our world. General Atlantic Partners was investing the fortunes of several wealthy families and select institutions when it started the first HR BPO provider Exult (which, after going public, was acquired by Hewitt) and also invested in payroll service bureau ProBusiness (acquired by ADP).

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Warburg Pincus probably used a combination of corporate pension-plan money, private capital and other sources to start Workscape, which it still largely owns (with other investors) nine years later.

Doesn't sound much like the VCs of Silicon Valley, right? Venture Capital firms often invest in early-stage companies and need fast returns because their investment funds have short lives. They are the classic "impatient investors" who have forced so many founders to cash out by selling their companies before they wanted to.

Traditionally, private-equity firms have been seen as "patient investors" with longer time horizons because of their source of money. The 64-year-old Jones is the most unlikely financial shark. He is rumpled and affable without a custom-made British-tailored suit or Hermes tie in sight. He spent two years investigating HR technology companies before picking Authoria, including attending the last two HR Technology® Conferences. So naturally, I liked him.

He says his $400 million fund, all from Canada's federal government, has a 10-year term. Plus the government is co-investing alongside him, effectively doubling the size of his fund.

But Bedford will not necessarily be HR's Daddy Warbucks in 2009. Jones has devoted a "significant" but unstated portion of his fund to trading large blocks of stock. About 70 percent of the remainder is devoted to investments in healthcare automation, the last green field for IT, and just 30 percent to HR technology investments.

That said, there's always leverage ("borrowing," to us common folk), and Jones says he is looking at a $3-billion healthcare investment. So who really knows what Bedford will do but Jones?

As for Authoria's future, the new CEO McDevitt (another GEAC veteran) is a self-described "operations guy," and the company does need a better train schedule.

Certainly he will cut Authoria's costs and also try to grow it into profitability. The question is whether he will rip it, rev it up, apply some financial black magic, and flip it for a quick profit.

McDevitt says, "No, Bedford is not an aggregator like GEAC, but a patient strategic acquirer of companies."

No surprise there, so does Jones.

Call me a naïve fool (wait a year or two, please), but I believe Bedford will invest in Authoria and make it grow. Certainly sometime there has to be a "liquidity event": taking it public or selling it.

But for now, Jones wants to update the original communications product, which Authoria had back-burnered (unfortunately, in my view). And he agreed that acquiring a core HR vendor might fit perfectly with Authoria's talent-management suite. Tod will continue as Authoria's visionary, while also advising Bedford on new HR investments.

So this may indeed be Authoria's third life, rather than the beginning of the end. And we'll all be around to see which way it goes.

HR Technology Columnist Bill Kutik is co-chairman of the 12th Annual HR Technology Conference & Exposition in Chicago, two weeks earlier than usual next year, from Sept. 30 to Oct. 2. He is also host of The Bill Kutik Radio Show . He can be reached at bkutik@earthlink.net.

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