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August 21, 2005

An U-turn at i2?

Sanjiv Sidhu founded supply chain software i2 Technologies seems to have emerged back from the brink, says this BusinessWeek article, providing a lot of credit Michael McGrath, who took over from Sidhu as CEO.

Sidhu moved up to chairman of the maker of supply-chain-management software, and McGrath went into Bob Vila mode. For starters, he stopped picking up the tab for cell phones for the entire staff. Then he cut all corporate travel unless it was billable to clients. And he laid off 13% of employees -- most of whom were in upper management. "In the past, layoffs were all done at the worker level. We had way too many VPs and higher-paid executives," says McGrath.

In a little more than a quarter, McGrath has managed to get i2's stock relisted on the Nasdaq, raise nearly $40 million to shore up its balance sheet, and dramatically cut costs -- by $20 million in the second quarter alone.

...Some of i2's recent tech improvements have been helping companies predict how different products will sell, in real time and even at the store level.

...But McGrath isn't just counting on big supply-chain-management packages to boost the top line. He has completely changed how i2 sells software. Under McGrath, salespeople are no longer swinging for the fences. Simply put, he has admitted something analysts have said of struggling business-software companies for years: They can no longer live on big multimillion deals. Because software purchases were so large, companies were dragging their feet.

...To get that price point down in the hundreds of thousands per deal, McGrath is selling software in chunks that address specific parts of the manufacturing or fulfillment process. The idea is the lower price point will lead to a shorter sales cycle, and it'll build more trust, bringing the customer back for more chunks of software.

It's a very gutsy move, and one similarly beleaguered software companies have been loath to make. You have to close more deals to make the same amount of money, and the software has to perform as advertised, or customers won't come back. Much of i2's salesforce, which relied on hefty commissions from these deals quit. Many more were fired.

McGrath didn't sweat it -- he'd rather sell through third-party consultants anyway. That lowers the cost of sales even further, he argues. "He's swapping the potential for huge, hockey-stick growth for less volatility," O'Marah says. "But it's probably the most important thing he has done."

Arun Natarajan is the Editor of TSJ Media, which tracks venture capital activity in India and Indian-founded companies worldwide. View sample issues of TSJ Media's Venture Intelligence India newsletters and reports.