• December 1, 2008
  • By Marshall Lager, founder and managing principal, Third Idea Consulting; contributor, CRM magazine

The Rave Is Over

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The CRM industry received a shock in early October when news of trouble at sales force automation (SFA) vendor Entellium began to surface. (We blogged about some of those early happenings at www.destinationCRMblog.com.)

Founder and Chief Executive Officer Paul (“PJ”) Johnston and head of finance Parrish Jones abruptly resigned, and rumors—soon substantiated—of mass layoffs began to circulate. Johnston and Jones were arrested on charges of wire fraud, having allegedly misrepresented the company’s revenue to secure larger investments from its backers.

How could this have happened? It had been a year of note: The Seattle-based vendor had received several awards and commendations, including one from this publication, and had been garnering the kinds of reviews for its new Rave product that lived up to the brand name. And yet Entellium went from industry darling to fire-sale candidate almost overnight.

Brent Leary, a CRM consultant with particular interest in small businesses, recalls his reaction. “When I first heard about it, my concern at the time was that maybe the economic crisis had shut down their revenue stream,” he says. “Entellium’s been around a while, and their software has been getting rave reviews—no pun intended—so of course I was surprised at what I heard coming out in the news. How is it that nobody had ever completed an audit of Entellium? It reminded me of what happened to the housing market: lenders throwing money at people without checking whether they could pay it back.”

Customers aren’t sure which way to turn. “We were on a conference call Friday morning [October 6], talking about going further with Entellium and moving our plans along, and while flipping through Twitter I found mention of Entellium and scandal. I thought, hey, I wonder what that’s about,” says Dave Whelan, founder of Bespoke Strategy, an Entellium customer since January 2008.

“We thought we’d be much further along in our own business plan by now…and wanted to have CRM in place,” Whelan says. “We’re in a unique situation—only in the past month or two have we really started to add contacts and data, and there are only two months left in our contract. To some extent, we feel fortunate that we haven’t invested much time and money in the Entellium product. I’d hate to be one of the people with two or three years in.”

The revelations of financial impropriety, the departure of top officers, and the sacking of the sales and marketing staff (some customer and partner support personnel are still employed) have led to Entellium being eyed as a possible opportunity for other CRM vendors. Some small-business specialists—Avidian, Infusionsoft, and Salesboom, among others—have expressed interest in picking up Entellium’s customers, or possibly acquiring the company outright.

CRM industry heavyweight Paul Greenberg says he has fielded calls about this topic, and believes it might be the optimal way to save Entellium’s best parts. “An outstanding interface plus an average CRM system is still a better-than-average product,” he says. “Rave is a legitimate product with real capabilities.”

Separating the technology from the stigma of cooked books, however, is crucial in Greenberg’s assessment. “I hate to say this, but the company should close,” he says. “The taint is too great.”

For now, Whelan and Bespoke are riding out the news, waiting to see what happens with Entellium’s products and operations. “I think we’ll remain cautiously optimistic, keep working in Entellium—but look for a backstop solution just to serve as contact management,” Whelan says. “Entellium Rave—that’s really what we want.”

As users contemplate life after Entellium, many in the CRM industry are doing the same: What does one company’s plight mean for the rest of the market? “My early thought was that small businesses might think maybe this is the start of a trend for [software-as-a-service] businesses that aren’t as established, and stick with something more traditional,” Leary says. “That’s still a concern, but I think they’ll realize you have to make sure…the company you’re working with is trustworthy.”

Leary says that bigger CRM companies will have an advantage under these circumstances, since many of them are publicly traded and have a paper trail. “It’s hard for startups to establish that—prove they’re viable and honest—without the transparency. It’s very hard in this environment.” (See this month's cover story for more on the trend toward transparency; see this month's "CRM on Twitter" report for some of the reaction to the Entellium situation.)

Every month, CRM magazine covers the customer relationship management industry and beyond. To subscribe, please visit http://www.destinationcrm.com/subscribe/.

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