• October 13, 2008
  • By Marshall Lager, founder and managing principal, Third Idea Consulting; contributor, CRM magazine

Gamer-Influenced Design Games the System

The crisis around Entellium, a Seattle-based vendor of CRM and sales force automation (SFA) software, continues to unfold. Founder and former Chief Executive Officer Paul Johnston has been charged with one count of wire fraud and remains in custody this week, after U.S. District Court Judge Mary Alice Theiler ruled that Johnston -- a citizen of the United Kingdom -- was a flight risk. Federal prosecutors are still trying to account for $9.6 million in corporate funds that were supposedly transferred to Entellium's operations in Malaysia over the past four years. These are the latest developments in a story that, like the company itself, has been unwinding for the past two weeks.

Entellium has previously been the subject of more positive coverage, both here and elsewhere. Most recently, Entellium's Rave suite was named a Leader in CRM magazine's 2008 Market Awards for the SFA category. While most analysts felt the product was functional enough, the most positive reviews were for its revolutionary user interface. Johnston coined the phrase "gamer-influenced design" (GID) to describe the look and feel of Rave, which uses a highly interactive layout to engage users.

Word of trouble first surfaced on October 1 when it was reported in the Seattle media that Johnston and Parrish Jones, the company's primary financial officer, had resigned. Their resignation, which, according to the authorities, was communicated in an email from Johnston to two members of Entellium's board of directors, indicated that Johnston and Jones had overstated revenues to the board "since 2004 with a delta of approximately $400k a month." This puts the total difference between reported and actual revenues at approximately $11.7 million.

This information was communicated on October 3 to the United States Attorney's Office in Seattle. Managing Editor Joshua Weinberger posted preliminary reports to destinationCRMblog.com after investigating rumors that nearly the entire staff of Entellium had been fired. Based on reporting by Seattle Times journalists, as well as by business-tech bloggers including John Cook, a picture began to emerge of a company in peril. Entellium's sales and marketing staff had been let go, Johnston and Jones were under arrest on charges of wire fraud, and investors -- including venture-capital firm Ignition Partners, which had sunk at least $19 million into the company -- were wondering where their money went. (Unlike Johnston, Jones has been released on bail.)

The revelations of financial impropriety, the resignation and arrest of top corporate officers, and the sacking of sales and marketing staff have led to Entellium being eyed as a possible opportunity for other CRM vendors. (Entellium's customer and partner support personnel are reportedly still employed.) Small-business specialists, including Avidian, Infusionsoft, and Salesboom, have expressed interest in picking up Entellium's customers, and possibly acquiring the company outright. CRM industry heavyweight Paul Greenberg says he has fielded calls about this topic, and believes it might be the best way to save the good parts of Entellium. "An outstanding interface plus an average CRM system is still a better-than-average product," Greenberg 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."

In response to the original destinationCRMblog.com post, but prior to the arrest of Johnston and Jones, CRM consultant Brent Leary wrote a blogpost of his own, in which he compared Entellium's status to that of another company named in the SFA category of CRM magazine's 2008 Market Awards. "So this year Entellium was viewed as a leader and Landslide [Technologies] was ‘one to watch,' " Leary wrote. "It's not a stretch to see a reversal of fortune here. Landslide looks like it will be a serious player in SFA, which could potentially take the top spot some day. Entellium, on the other hand, looks like the one to watch...for all the wrong reasons."

News relevant to the customer relationship management industry is posted several times a day on destinationCRM.com, in addition to the news section Insight that appears every month in the pages of CRM magazine. You may leave a public comment regarding this article by clicking on "Comments" at the top; to contact the editors, please email editor@destinationCRM.com.

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