Tuesday, August 12, 2008

The Up-and-Coming 800-Pound Gorilla of Construction Operations Technology: HCSS Founder Shares His Growth Secrets.

Mike Rydin, president and founder of HCSS, a leading developer of estimating, field management, and dispatching software for heavy highway contractors, sat down with Fred Ode for a one-on-one discussion about the world of construction-specific software development. Rydin and Ode both launched their own software companies back in the mid-1980s, when most construction companies were utilizing little, if any, technology solutions.

Fred: Tell us a little about your history, Mike, such as your background and how it relates to HCSS and your founding of it.

Mike: I started HCSS in 1986 in the bedroom of our home, which was also the nursery. So it was the bedroom, the nursery, and also HCSS. I thought I could make that work, but after two weeks it was clear that it would not. So I had to drop the baby off at daycare during the day.

Fred: You were a one-person shop...and a programmer?

Mike: Yes. I left a construction company that had gone out of business, for which I developed estimating software. I had worked there for five years.

Fred: So that was really a customized system that you designed for them?

Mike: Yes, I developed the system for them, on mini computers, and then I rewrote it in the evenings for the PC.

Fred: How long did it take you to get it off the ground?

Mike: Well, I thought it would be easy, that all I had to do was advertise I had a product and people would buy it. But the first customer I signed was someone I knew, and I got $7,000 in revenue. And I didn't get my second customer for a year and a half.

Fred: Sounds like me. Took me a year to sell our first system.

Mike: That's how I would've been except I was a joint venture partner of my previous employer, so I already had a connection.

Fred: When did you hire your first employee?

Mike: After about a year and a half. Total revenue for the first year and a half was $7,000 plus about $20,000 in credit card charges. I didn't pay that off for about seven years.

Fred: So it took you a while. How long before you think you were legitimately profitable?

Mike: Oh it was 8 years before I was profitable.

Fred: How do you see that the construction industry has changed, particularly in software development? Overall, how has it changed since you've been involved, since the early 80's right?

Mike: When I started, the IBM PC with a hard disk was just coming out. And it wasn't even clear that the PC was going to make it.

Fred: Yeah, I didn't think it would ever catch on.

Mike: I agonized over whether to rewrite the software for a mini computer or PC. That was a very difficult decision in those days.

Fred: And ultimately you decided the PC.

Mike: I did and I ultimately chose right.

Fred: So, in your opinion, how have things changed over the past 15, 20 years?

Mike: Well from our standpoint, it's so much easier to sell software now. In those days, it was hard to convince people to use a computer.

Fred: That's right. In the early 90's, 50 percent of the companies that bought our system owned a computer, and 50 percent didn't. It was almost down the middle. Of the 50 percent that owned one, the vast majority did nothing on it, or they might have had a spreadsheet or two and that was it.

Mike: Spreadsheets had just come out so a lot of people in the engineering world were now given computer power for the first time. They were giddy with computer capability and what they could do with a spreadsheet so they weren't looking for packaged software.

Fred: Obviously people are much more receptive to technology, it's an expectation now.

Mike: In the next year and a half, I sold about five systems per month so I was on my way. But the next major point was a year later when I could bill them for annual maintenance, and the question was: Would they pay? Fortunately, they all did, indicating the software had value to them. Today everyone knows they need software. The only question is who to buy it from.

Fred: HCSS has experienced accelerated growth in recent years. What do you attribute that to?

Mike: Probably our users group meeting is the biggest factor. When we held our first users group meeting, we had six people attend.

Fred: What year was that?

Mike: It was 1989 and six people came. We sat around a table all day long and figured out how to improve the software for those six people. This year we had 977 attendees.

Fred: That's a huge difference. But I guess I don't see the direct correlation to where it has taken you, to where you are now in sales.

Mike: At these meetings, the customers help us improve the product so they're all really happy with it. They meet all the employees, they strike up friendships, they learn who's doing the support with them, and they talk to each other. When we come out with our new products, the users' group meeting attendees are the vast majority of people who initially buy them.

Fred: Okay, so your first program was HeavyBid and then your next one was HeavyJob and you indicated it took a full five years for that to bear any fruit, so to speak. And then you introduced Dispatcher. Those are your three product lines, correct?

Mike: Well we have two more now: Equipment Maintenance and a fuel tracking application called FuelerPlus.

Fred: How are those doing?

Mike: Our Equipment Maintenance application is new and still in beta. FuelerPlus was released earlier this year, which was very timely given current fuel prices. We are getting good feedback from our early customers.

Fred: Part of the reason you turned a profit, I'm guessing it's a combination of getting the name out, the marketing, but also the product development. I'm assuming it's really easy to underestimate what's involved to make a product really work.

Mike: Oh, it sounds very easy, but it never works the way you expect. You think you have this product that will meet the customer's needs, and you finish it and send it out there. And you put in things he doesn't care about, and you're missing key things that he has to have.

Fred: Which is what I always experience when we add a new module or something it's like "Oh my god, did we miss the boat?" And then you spend two, three or four more years getting it to where it needs to be.

Mike: Exactly! But that's just part of it. The other thing is simply market recognition, and that's why the users' group meeting is a way to get the entire market excited. For example, we introduced our Equipment Maintenance product at this year's users' group meeting, and there was so much interest in it that we had to hold an impromptu users' group meeting for two hours during happy hour.

Fred: You can't take away happy hour!

Mike: Well, that's what I would think, but they wanted to talk. It had been introduced in a class for ten or 15 minutes on "what's new and what are we working on." And they wanted to get into it in-depth. So a bunch of people skipped the happy hour reception we had and spent two hours in a meeting on it.

Fred: To summarize in a sense, one of the reasons for your accelerated growth is you've been obsessive about listening to your customers. You've been absolutely obsessive and proactive, not just waiting, but proactively going after them.

Mike: Yes. We're trying to fix our customers up and there are still so many things that are manual or under-computerized in our industry.

Fred: Exactly. So how do you see the construction industry in general, as far as technology goes?

Mike: Well it's clearly behind. Part of the problem is there are so many companies that aren't big enough. They just don't have IT people. They outsource their IT.

Fred: And you said they're behind, how do you mean?

Mike: They just haven't automated anything except basic accounting. The vast majority of the stuff the Operations people do day-to-day is not automated. Most people are filling out something that they can give to the Accounting department to enter, or they enter it themselves into their own personal spreadsheets.

Fred: What do you think are the greatest benefits your products offer to your clients? I realize you have multiple products.

Mike: Well, HeavyJob is an innovative product in that we're trying to turn the foreman into a knowledge worker. We started that concept back in 1998 partly because we’re an ESOP company, and we're trying to make our own employees understand how money is made so that they can help figure out how to do that.

Fred: Do you want to define knowledge worker for us?

Mike: Workers on the front line using information to make better business decisions today. People who really understand. They're not just told what to do; they understand what the objectives are.

Fred: Regarding the project manager, for example, how does HeavyJob help them become a knowledge worker?

Mike: Well, HeavyJob shows you the original estimate and how you're doing on a daily basis compared to the estimate. Because it is estimated payroll rather than actual payroll, it's not accurate to the penny. But it's close enough to tell you when you're operationally doing something wrong, and if you keep doing it wrong for another week you’re going to lose a lot of money. Project managers are usually already knowledge workers; what is unusual is giving that kind of information to foremen.

Fred: That makes sense.

Mike: Because most of our HeavyJob customers also have HeavyBid, we have the estimate to show them. In the estimate they can see not only the dollar amounts and the man hours but also what the crew makeup of the estimator was, any notes he had, and what he had in mind. All of that is available to the foreman, the superintendent and the project manager.

Fred: How do you get that information into HeavyJob?

Mike: When our customers win bids, they export summary information into their accounting system and at the same time very detailed estimate information into HeavyJob for retrieval by anyone working on the project. Then we send payroll and equipment time card information from HeavyJob into their accounting/payroll system.

Fred: Okay that makes sense. What I'm getting at is you just don't want people to be entering information twice. If your field people are entering labor it makes sense just to push it into accounting, if they're entering equipment, quantities completed I assume also?

Mike: Right. If I'm the foreman, I enter my stuff, and I check my stuff today and I see how I did today. And then I send the information in to the office, and everybody else in the office can see tomorrow how I did. And then it goes into the payroll system. And some people do their payroll daily, most people wait weekly, and it doesn't matter because we already know what the situation is. And then we just have to make sure when we get the final accounting numbers that they're reasonably close or find out why not.

Fred: So basically what you're doing is you're making your project managers and superintendents businesspeople.

Mike: Down to the foreman. Back in 1998, the idea that your foreman is going to be a businessman was unbelievable to most people. We call it knowledge worker, but businessman is also correct.

Fred: You're giving the field people an appreciation toward dollars, the numbers they have to meet, production they have to meet, timetables, etc.

Mike: And it's getting even better. The foremen were copying time cards and playing what-if games with them. But then they would forget to delete them. So we created a "what-if" capability so the foremen could experiment and see what would happen if they changed their crew or production. They could see what would happen with dollars in black and red. In the past you wouldn't know. You would say, "Well if I brought another piece of equipment in here, I might get this done faster." Which is true, but if that piece of equipment costs $200/hour more, you might get it done faster, but did you make more money on it? You wouldn't know that.

Fred: Okay, let's shift gears here. Ever since I could remember, I remember in the early 80's you would have these little round table discussions: "where is the future of technology in construction going?" The holy grail has always been the complete enterprise package - one end to end system that does everything. And to this day that hasn't happened. But have you ever considered creating an end to end enterprise package, like a one stop shop? What are your views on that concept vs. best of breed, for example?

Mike: We want to be the one-stop-shop for all the operations people and then we want to integrate with the accounting software.

Fred: So you want to be the one-stop-shop for the field side, in a sense?

Mike: If you're an estimator, foreman, superintendent, project manager, dispatcher, equipment manager, anybody who deals on a day-to-day basis with the running of the business where you just want to get the job done, then you're our guy. If you deal with numbers and you want to get those numbers to the penny or anything like that, you're not our guy. It's my belief there's a mental difference between the people who run jobs and the people who administer and account for stuff.

Fred: Right, they both serve a purpose.

Mike: The field guy says, "I've got to get this done today, and don't stand in my way with paperwork and procedures." And then there's that other group of people who have to make sure everything is done properly to deal with the IRS, investors, etc.

Fred: Yeah they have to worry about the surety and things like that - the insurance, liability. What about scheduling, for example, you don't really have that. Is that something you're considering? I mean, there's Primavera out there, and that would cover your end.

Mike: And Microsoft. We would never compete with Primavera or Microsoft on scheduling, so we make our stuff tighter and integrate with them.

Fred: So in a sense there's still certain parts that you're going to integrate with, as opposed to developing your own?

Mike: If there's something that's truly best of breed, and not just marketed as such, then we're going to work with them because we can't do everything better than everyone.

Fred: So actually you're pretty consistent with my philosophy which is that the total enterprise package, one stop shop for everything, end to end, including the field and the office is just not a realistic possibility.

Mike: Probably not realistic, although the customer doesn't care. The customer just cares that the stuff integrates and it all works. And they typically call us because of our reputation for support. We'll get calls for all kinds of things that are not ours. We'll get calls to help with spreadsheets, we'll get calls for their printer setup, for the network when they can't get their network guy on the weekends. It's 24-hour support, so we'll help them with their network.

Fred: I understand your industry needs 24-hour support, as opposed to our clients, the accounting side, who typically work a normal workweek. Now and then they might work an evening or weekends, but estimators might be up all night, right?

Mike: Very likely, if the bid is due the next day. If a state bid is due at 10:00 in the morning and your bid comes in at 10:01 a.m., it is ignored. So if you have a problem, if there's anything at all that's not working, you've got to call. If you got up at 6:00 in the morning or if you're still up at 3:00 a.m. and you're having a problem, you need help now because the state doesn't accept any excuses.

Fred: Can you explain how your calls are handled?

Mike: Twenty-four hours a day someone answers the phone. The phone rings in the Support department, and a support tech answers the phone.

Fred: Right, not a receptionist.

Mike: Nobody screens the calls. There are 40 people in the support department.

Fred: Which is pretty heavy. Some of them have multiple duties because there's not 40 people talking at once obviously.

Mike: No, there are not 40 people there at once. We have an implementation center on the floor above us where some of those people will be working with customers.

Fred: Is training ever an issue for you? Is it difficult to bring people up to speed even if you would consider your software easy to use?

Mike: For HeavyBid, it would typically be three days of training and you're up and running. Now, HeavyJob is a different issue because it affects everybody in the company. You have a lot of people with conflicting interests on HeavyJob implementations. So the product itself is not difficult. You just have to get everyone involved on board.

Fred: Yeah, I would compare, from our perspective HeavyJob parallels our issues more than HeavyBid. HeavyBid is, there's a certain structure to bidding and estimators know about estimating.

Mike: It's one department too. You just deal with a few guys normally, and you figure out how everybody's going to do it in three days. And you show everybody what to do, and you're done.

Fred: But with HeavyJob, you're dealing with different departments in the company, different agendas, different personalities, different attitudes.

Mike: Agendas and attitudes are the important part.

Fred: Once last question. Where do you see HCSS five, ten or fifteen years from now?

Mike: We expect it to be the 800-pound gorilla that helps construction companies improve the operations side of their business.

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