When Equifax, a U.S.-based multinational that is a major provider of business information, first contacted AxonAxis, the Chilean company, Equifax said it wanted to investigate why its small Latin American rival was doing extraordinarily well. AxonAxis was not totally surprised by the call. What’s more, the Chilean firm sensed the real reason behind it. Thus began a conversation between two companies. Over time, their contacts turned into an extensive negotiation that culminated in the sale of AxonAxis to Equifax in May 2010, transforming AxonAxis into a major success story for Chile’s IT sector.
AxonAxis began in 2005 as a technological undertaking through knowledge gained at universities, the vast technological experience of its partners, and contributions from public- and private-sector capital. In just four years, AxonAxis emerged as a leading provider of data integration solutions via Web services, as well in Service Oriented Architecture (SOA). But AxonAxis’ greatest achievement was to capture the attention of Equifax, a major global player, by becoming a threat to the multinational within Latin America.
AxonAxis faced significant challenges along the road being acquired by Equifax. In an interview with Universia Knowledge at Wharton, Marcos Almendras, an engineer who became managing director of AxonAxis, talked about the valuable experience his company acquired in Latin America. Almendras, who earned a master’s degree in information technology, has been awarded the “Successful Youth 2010” prize by Diario Financiero, the Chilean newspaper.
Universia-Knowledge at Wharton: How was the business concept behind AxonAxis born? And what role did the environment at Adolfo Ibáñez University, where you earned your MBA, play in the birth of the company?
Marcos Almendras: The idea was born in March 2005 when I shared a lunch with my partners, Roberto Musso and Hernan Orellana. The three of us had been inspired by a book called Out of the Box: Strategies for Achieving Profits Today and Growth Tomorrow Through Web Services [by John Hagel III and John Seely Brown]. We were convinced that Web services were going to turn into a strong market trend, the way Cloud Computing is right now. We saw a business opportunity and we decided to set up a company. I remember that as the conversation flowed, we were writing down our ideas on a napkin.
Our vision was to turn ourselves into a superhighway of information that integrated suppliers of data with those who demanded business information, by using Web services. The value of the business would be that the entire process of buying and selling business information would be completely online, automatic, low-cost and secure.
Adolfo Ibáñez University [UAI in Spanish] played a very important role in all of that because I was just finishing up my MBA there at the time. This was an excellent opportunity to take advantage of my courses as a tool and to structure the enterprise in the best way. Later on, UAI would be transformed into an extremely valuable bridge that would enable us to access key partners such as the Fundación Chile – a Chilean foundation designed to promote innovation and technology transfer that can add value to the economy of that country.
UKnowledge at Wharton: Many entrepreneurial adventures never wind up working out. What were the main obstacles you had to face and how did you overcome them?
Almendras: Financing is always a difficult road to go down. In fact, when Fundación Chile decided to enter the business as a partner, I first had to deal with a series of committees on technical matters and investment in order to unveil our business plan and get approval for allocating funding.
UAI played a crucial role in the development of our business. One day, the Fundación Chile came to UAI to introduce its financing ‘track.’ This was a program of cooperation between UAI, Fundación Chile and the Inter-American Development Bank, which was trying to identify and provide resources to new entrepreneurs. One of my professors at UAI excited me by proposing that the AxonAxis project get on the financing track so we could acquire capital and new partners. That way, Fundación Chile became interested in our venture, transforming itself into a business incubator and, later on, into an important partner and investor.
Clearly, Fundación Chile opened doors by helping us get our initial financing. I recall that in January 2006, we brought our proposal to CORFO – the Chilean government agency that promotes the development of new companies – with the goal of obtaining seed capital for our business. When CORFO saw that we were going to be working with a partner as large as Fundación Chile, CORFO immediately agreed to give us financing, which was successful for us.
We also faced barriers when we began to offer our value-added service to customers. Starting in March 2006, we underwent a complex process known typically as “the valley of death.” It involved going to visit potential customers and attracting our first suppliers of information. We realized that most of our future customers could not buy data online because they had not automated their applications to interact with third parties; especially with Web services. This was a problem so we created a consulting group within AxonAxis, which was in charge of automating the technology platform of each of our clients; thus, implementing the SOA. This technology makes it possible to hold “conversations” and transact data in real time.
That way, we became experts in SOA. The point of the story is that even though we had not proposed doing so, we went into the business of integrating data through SOA; something that we had not thought about doing at first. But thanks to that, our service acquired even more added value.
UKnowledge at Wharton: What do you believe was the key reason your project succeeded?
Almendras: First of all, there was the team that managed the enterprise. In those days, Hernan Orellana – the founder-partner – had the role of general manager of Microsoft Chile. He contributed the entire business strategy that the new company needed. Meanwhile, founding partner Roberto Musso contributed technological vision about the potential of the business. As for me, I was the right person to execute the project, taking advantage of the knowledge I acquired at UAI. All these synergies came together in our favor, and propelled us to work together on a business plan that served as an important guide from the outset.
A second key factor was our business model. It was very powerful and comprised several different themes. On the one hand, we told our clients, ‘We offer you timely information for making business decisions.’ On the other hand, we said to them, ‘We provide you with everything you need to make the adaptations that connect you with us online so you can buy exactly the right information you need in real time, and in the places where you need it.’ This was something that no other player in the market was doing. We offered the same value proposition to our suppliers, who were joining our information superhighway; explaining that we offered something they too were looking for: A [new] way to interact with their clients completely online, without any mediation through physical means such as mail, archives, and so forth.
A third important variable was the support we got from Fundación Chile, a partner in the project. Fundación Chile not only contributed capital but also took the administrative reins of the company, performing their role impeccably. That enabled us — the people who were heading the company — to focus on the business, to go on attracting new clients and satisfying the requirements of suppliers at the same time that we were expanding the range of our [software] applications.
UKnowledge at Wharton: Based on your experience, what recommendations would you give to other entrepreneurs who want to establish a company in the technology sector in Chile and other Latin American countries?
Almendras: My recommendation for entrepreneurs is that they not look at entrepreneurialism as a means in itself for making money. The most important thing is to have passion and conviction about what you are building. The rest comes by itself.
The other important thing is that when you undertake a project, you need to get support networks and valuable partners to come along with you. That last point is very important. Financing exists in many places – for example, the banks – but finding partners who make a valuable contribution to the business and become your allies – well, there aren’t a lot of those people around. Trying to create a company entirely by yourself is very risky; it is not impossible but is a great deal harder. I wouldn’t do it.
UKnowledge at Wharton: Once the project gets going, what is the formula that enables you to continue to add more customers, and double your sales year by year?
Almendras: Clearly, it is the fact that we have become the industry standard in SOA. For us, it was a natural process to provide SOA architecture on our own technological platform since that would enable us to automate the entire process for entering and retrieving information; generating services that were as fast as our customers demanded.
The key to our distribution model is that, on the one hand, we integrate information services into the applications of our clients, such as Web services; and also through the SOA platform, which automatically transforms a client into a “captive client.” That’s because if the client wants to change itself in order to [take advantage of] our competencies, he has to modify his applications.
On the other hand, by offering to implement SOA infrastructure for our clients, we solve all of their problems involving access to and administration of information.
UKnowledge at Wharton: What would you say has been the main challenge for the company’s management?
Almendras: There was a critical moment for me. At the beginning of 2006, Fundación Chile entered AxonAxis as a partner-investor, but with certain conditions. One of them was that I, as an entrepreneur and general manager, had to focus 100% of the time on the business. This put me between a rock and a hard place, since up until that time I was also working as a consultant for Soluziona, a Spanish company providing technology and information services. The request by Fundación Chile meant, essentially, that I had to quit Soluziona. Then, as we Chileans say, “I had to decide whether or not to dive into the swimming pool.” On the one hand, I had a lot of faith in our venture. I was convinced that our business model was going to be a hit in the market. On the other hand, however, quitting Soluziona to take control of AxonAxis meant I’d be left with nothing in my hands… I’d be starting from zero. But my partners sympathized with me and encouraged me to make that decision. In addition, I had the unconditional support of my wife, which was critical for me.
UKnowledge at Wharton: What motivated Equifax to be interested in AxonAxis to the degree that it would want to buy the company? And how did you evaluate that interest at first?
Almendras: In 2009, during the global crisis, we achieved significant growth in our sales. Curiously, the economic debacle did not affect us. On the contrary, it acted like a balm that catapulted our sales even higher. That’s because during crises, information acquires even more value because loans are granted as a function of the business information that you have about your clients. We were the ones who provided that information, and demand for that kind of information actually increased. Then, based on this track record, we started to make noise and attract the attention of the other players in the market.
That’s how Equifax got focused on us. At the time, their sales business had been quite stagnant. When they called us in July of this year, their initial intention was to check why things were going so well for us, and ask what we were saying to our clients. Equifax wanted to know our formula for success and our financial results, and to discuss if we were interested in entering possible talks for acquiring our company. For that reason, we decided to set up a specialized team inside AxonAxis for dealing with the process of selling [our company].
UKnowledge at Wharton: What obstacles did you have to overcome during the sales process? What personal and professional lessons did this chapter in the history of AxonAxis leave you with?
Almendras: When the sales process began in September 2009, it created division among the board members of AxonAxis. Some supported the initiative, while others argued that this was not the best time for us to sell. They said that it was better to wait another three years, so that the company would get a better price on the market. So we decided to negotiate the sale, starting from the value that AxonAxis would have in three more years.
By October, we had already reached an agreement with Equifax regarding the price of AxonAxis. So we began an extensive process of due diligence to dig up all the financial information that Equifax had asked from us, but those requirements took us several more months. This process is usually very exhaustive, and if it isn’t done properly from the outset, it can turn into torture. By chance, thanks to all the administrative support that we had from Fundación Chile, we were a very well-organized company from the outset, which enabled us to deal with this process very well. We were very impressed by how much information needs to be presented and validated when these kinds of sales take place.
In addition, it is a very slow process that never seems to end, and it can put the entire transaction at risk. Inevitably, these merger processes cause the business to lose its focus. It becomes a gigantic risk if the company is not well administered or if the transaction doesn’t wind up taking place.
Finally, the deal was closed on May 13. Without doubt, AxonAxis was a valuable experience that I am never going to forget.
UKnowledge at Wharton: In your view, what is the current condition of the IT sector in Latin America?
Almendras: I believe that very significant development is taking place in the supply of software applications for mobile telephony. Cellular telephony has a high level of penetration, especially in our region, and practically every user has a mobile device, providing access to a series of valuable services that include the Internet. This represents an unprecedented opportunity for business development in Latin America.
In addition, all of the Cloud Computing initiatives are definitely lowering the technological and infrastructure barriers, making it possible to set up any platform within the reach of anyone. This technology makes it possible for entrepreneurs to operate without making great investments in the latest generation of infrastructure. Finally, I believe that Latin America is a very fertile region for entrepreneurialism in IT. Any value proposition that is based in the service sector, and which uses information technologies, can become a success. I believe that conditions are getting better and better for IT companies that are trying to move forward.
