By Jessy Cavazos, Industry Manager and Juan Rosales, Research Analyst
JR (Juan Rosales): EdenTree is an emerging player in the Communications Test & Measurement industry. As such, some of our readers may not be familiar with your company. For those readers, can you please give an overview of EdenTree?
JO (Jay Oyakawa): EdenTree is a company based in Newbury Park, California, that develops test automation software. Our software helps to promote the automation of various aspects of testing. We consider our software to be off-the-shelf, meaning that there is very little customization. We believe that a cornerstone to our success is the ability to provide our customers with a solution that helps to address specific aspects of automating their testing, allowing them to prove out their automation purchase quickly and effectively. Today we have approximately 50 employees and continue to grow each quarter. Our core markets are comprised of network equipment manufacturers and service providers as well as enterprises. Our primary market that we serve today is the US but we are developing more customers abroad as companies discover EdenTree.
JR: Could you provide an overview of your product and service portfolio, and how do they meet today's key end-user concerns?
JO: Although the company was founded as a hardware and software company in 2002, we became purely a software company in 2004 and subsequently pioneered our product Lab Manager, which is a software solution that manages third-party physical layer switches, instead of manufacturing both the hardware and software. We felt that it would be very hard to be a master of all the different technology interfaces needed to be switched in the lab, so we decided to focus on software.
Our key product is one that helps to facilitate the automation of cabling. In many labs today, the sheer labor and the lack of enforceable reservation system means that the capital in many of these labs is very static and not shareable. Lab Manager seeks to help these organizations share their equipment better, eliminate much of the time associated with test set-up, and help to get visibility and transparency into these labs. Lab Manager was the cornerstone product that we first developed. We didn't have the luxury of venture capital, so we focused on making Lab Manager a premier product, for which we've recently received several awards. Today, this product is able to manage up to fifteen different physical layer switches. That allows us to go into most types of labs today and be able to provide them with a solution managed by our software. We believe that Lab Manager is a mature product that fits many of today's market requirements.
Another product that we have developed is our Configuration Manager product. Similar to the theme of Lab Manager, this product aims to eliminate another bottleneck in the testing process – computer configurations. Configuration Manager archives and restores computer images, taking snapshots of the entire hard drive and putting them on a storage array. We are trying to identify areas in which we can help customers maintain a high test velocity. In the beginning of 2008, we will be introducing Test Manager; this will allow us to manage a lot of the automated test cases that our customers are building. I think that most organizations today that do testing build many test cases that ultimately become automated so that they can repeat things in a cost-efficient manner. So, we've gone from helping our customers effectively share resources at the lab infrastructure level with Lab Manager and Configuration Manager, to helping them capture and replay many elements of their testing processes. We believe Test Manager will be a great complement to our existing products.
JC (Jessy Cavazos): What will be the main challenges for EdenTree over the next few years?
JO: I think the main challenge for any company addressing a paradigm change is the change itself. Today, while we can discuss the values and virtues of automation and test velocity, the reality is that most of the market still tests in a manner that is very engineering-focused and test equipment-specific. We have many customers who don't believe in sharing resources. There are many labs who don't want to work and share with other organizations. This is a mindset that will change over time, and part of what will drive this change already started several years ago with consolidation. This will force change to happen at a quicker rate. We sometimes have to work with a customer to convince their managers that this type of testing should be in their budget. This paradigm change will continue to be one of our main challenges.
JR: Do you foresee any other market challenges?
JO: Our challenges are primarily aimed at building a team of competent people who work well together, meeting our customers' expectations, and ensuring that our products meet and exceed our customers' expectations. We must meet the challenges of our growing customer base. This is a rite of passage in achieving success, and we're cognizant of the fact that an increased number of customers leads to more feature requests, as well as more service calls. This will require the team to function as a larger organization supporting more challenges as our company grows. For example, we have an upcoming deployment in Japan that will drive new requirements in support and potentially localization. With new success will come new challenges and ones that we will inevitably need to meet.
JC: In which geographic regions do you see significant growth?
JO: International markets, especially Europe, seem to hold immense growth opportunities. In some markets, the innovation and deployment rates are far more advanced than in the United States. It seems that they are more suited for new technologies and ideas. That's not to diminish our technological innovations in the United States. We have recently gained many new opportunities in Europe, however, and there seems to be much demand out there. I think this is the next logical area for expansion. There is a lot of room to grow in the United States, and this region will still account for a considerable portion of our revenues and growth. However, I think we will eventually service international customers at an increased rate. We must do this in a manner that is financially prudent.
JC: Can you give us an idea of how your revenues are currently split, geographic-wise?
JO: I would say that the majority of our revenues come from the United States. Similar to many companies in our space, the Northern California area makes up a good amount of our revenue. We are starting to grow our business on the East Coast, so that speaks to the progression of the maturity of those markets. We see every market picking up, and I think it's just a general reflection of increased recognition of the importance of automation.
JR: What are some of the growth strategies that EdenTree has employed over the past few years that have helped you move into untapped markets?
JO: Our growth strategy thus far has focused on building a direct sales organization in the United States, and focusing on the test labs. We have found that a direct sales organization was the best way to acquire new customers, due to the fact that it was somewhat of a visionary sale. We invested in a direct sales organization and a local support model believing that we needed sales representatives in the regions that we cover. We have expanded our coverage by partnering with a lot of the physical layer companies, and we have a symbiotic relationship wherein we help each other out. This is synergistic because we are able to focus on our core competencies. Our relationships with the switch manufacturers will lead to other markets that will go beyond the test and measurement market. These relationships will lead to incremental business, as well as insight as to how our product can grow into data centers and other areas we're not focused on currently. This is a great way that we can leverage off one another's resources and help each other in different markets. These partnerships will pay off as these markets develop. As people who follow EdenTree know, we signed a reseller agreement with Spirent Communications last quarter. This speaks to how we're trying to pursue other markets, primarily geographic markets, we don't have access to. Through this partnership, we now have many global opportunities. The more relationships we develop, the more opportunities we will have to deploy our products.
JR: Can you brief us on EdenTree's supply chain management system? What is your strategy from this perspective?
JO: We really don't have what we consider a supply chain management system. The closest thing we would have to such a supply chain issue is to really work with our hardware switch partners, which is critical. Most of our switch manufacturers go through technological innovation. They have to stock inventory of the various blade types or chassis types. I think it's more partnering from a technology perspective, and managing volumes. But, in the sense of supply chain, it's not what people would traditionally see in manufacturing as a supply chain.
JR: How do you train your end-users on EdenTree's value proposition?
JO: There is an ongoing process in any sales setting that requires an education phase. In terms of pre-sale support, we're giving our potential customers demonstrations, references, and proof of concepts to show them the benefits of our solutions. Once the sale takes place, there is a training process that occurs with the engineers in which the customer is able to internalize the value of our products. There are generally consulting services with the initial deployment in which we articulate various product features and inform our customers of the ways in which they are able to meet their testing needs. The key is that not every customer uses the product in the same way, so we're always mindful of ensuring that we're training our customers to use the product in the ways that suit them best.
JC: Do you receive feedback from customers regarding product enhancements?
JO: We rely heavily on customer feedback, and I think that, like most companies, you have to listen to your customers and be responsive to what they want. We have the flexibility to modify our software to meet our customers' needs. We believe strongly in listening to the market and not fully imposing our vision on the market; we want to remain open to what the customer requirements are. This is a large driver in our product development.
JC: What are some of the initiatives that EdenTree is taking from an environmental perspective?
JO: There are a lot of companies that are pushing for green initiatives. However, as a smaller company, most of our focus is on our products. The ability to do more with less has helped many different industries, and customers are able to utilize technology to use capital resources more efficiently. Along that same vein, we manage power, allowing our customers to remotely manage things like power cycling. Power consumption in laboratories is a big item a lot of our customers are concerned about. In general, the ability to use resources more efficiently transcends into more productive labs. I can't say that we have a purposeful green agenda, but customers do look at how such initiatives affect their return on investment.
JC: Have you noticed any test and measurement companies undertaking any initiatives from this perspective?
JO: I can't tell you that I've seen something specific as it relates to green initiatives in this space.
JR: How would you rate your company's revenue performance over the past few years? What are some of the reasons for such performance?
JO: Since we're a private company, we don't disclose specific revenue figures. However, from 2006 to 2007, we achieved over 100 percent growth. We believe that in 2008 we will continue with another doubling of our growth. We're interested to see how the prospects of international expansion will play to that. We're in a growth phase, and in general that is good. The fact that we can grow in this space is a testament to this category having some legs.
JR: What do you, as the CEO of EdenTree, wish to accomplish in the next couple of years? How would you define success for yourself and for EdenTree?
JO: Realistically, I would like to continue to build on our success and to be a market leader, as well as to build a better development team and have better and more products. It's hard to point to one silver bullet as being the fundamental criterion of success. We've built this business one customer at a time, doing better than the previous quarter. This leads to success over time. I don't think it's realistic for me to believe that our revenue target would be the main indicator of success. Success is a journey, not an end goal. We, as a company, are proud to see what we're doing for our customers. New customers that we acquire and awards that we receive don't happen just out of the blue. I would like to keep the entrepreneurial spirit alive in EdenTree. We're a start-up, and that requires a lot of hard work from our team. We will focus on continuing to improve. I don't have any goals of where I think the pinnacle of success is for the company, but I can continue to hope that things will keep growing. Creating a culture of people who are entrepreneurial is crucial for EdenTree. By doing so, everyone within EdenTree can internalize their level of success. All of these things will come by focusing on executing the day-to-day objectives.
