MadCap Offers a Lesson in Bootstrapping, and a Case Study on Offshoring
San Diego’s MadCap Software may stand as an exemplar in showing how a small American technology company can compete against rivals that take advantage of low-cost development offshore.
The startup, founded in 2005, specializes in developing authoring software that is used by technical writers and others to create owners’ manuals, user guides and other types of technical documentation. MadCap announced late yesterday the release of new versions of its mainstay Flare software for print and online publications, and Blaze, its alternative to Adobe FrameMaker.
The updated versions of both products support DITA, the Darwin Information Typing Architecture, which MadCap’s Mike Hamilton says is significant because the companies that have adopted the DITA standard tend to be Fortune 500 companies. “This opens up a whole new world to us in terms of gaining entry to enterprise-level customers,” Hamilton says.
The privately held company says it has more than 4,000 customers, and boasts that Microsoft Health Solutions Group, for example, is using Flare to streamline publishing for the just-released version of its Amalga Unified Intelligence System. The results were encouraging enough for Microsoft to allow MadCap to use the Redmond, WA, giant as a promotional case study on MadCap’s website—and to extend Flare across its entire Health Solutions Group. As Hamilton puts it, the introduction of Flare 5.0 and Blaze 2.0 also moves MadCap away from competing directly against Adobe and its RoboHelp software—and therein lies the lesson of MadCap’s origins.
Hamilton and MadCap CEO Anthony Olivier were both at San Diego-based eHelp, which originally developed the RoboHelp software, when San Francisco-based Macromedia acquired the little company for $69.3 million in 2003. Olivier had been eHelp’s CEO, and had stayed on as business manager following the Macromedia buyout. But Olivier says what Macromedia really wanted was RoboDemo, a Flash-based program used to create software simulations (which is now known as Adobe Captivate). Macromedia soon began to lay off members of the RoboHelp development team in San Diego and moved the work offshore, first to the Philippines and later to India.
Adobe, which acquired Macromedia for $3.4 billion in late 2005, was even more indifferent about RoboHelp and the rest of the eHelp product line. Adobe moved more software development work from San Diego to India, and according to Olivier, the products languished.
Seeing an opportunity to create a more versatile sourcing tool, core members of eHelp’s development team, including Hamilton and Olivier, founded MadCap in 2005 with less than $1 million in funding from angel investors who were former software industry executives. “We wanted the VC help without the VC strings attached,” says Olivier. Although eHelp had originated in 1990 as a bootstrapped business, Olivier says venture investors who invested later (enabling eHelp’s founders to cash in some of their ownership stake) had strongly supported the 2003 sale to Macromedia. “We were not interested in getting VC money because that was part of the reason why the sale to Macromedia took place,” Olivier says.
After launching Flare in 2006, Olivier says, “In our first month of sales we recouped all of our investment in product development.” Today, according to Olivier, Flare has almost 50 percent of the market in software documentation, competing against RoboHelp and such rivals as AuthorIT, Doc-to-Help, and WebWorks Publisher.
To Hamilton and others, starting MadCap also offered an opportunity to make a fresh start in terms of software development. At eHelp, “We had been pushing a 13-year-old code base forward as long as possible,” Hamilton says. RoboHelp had been based on the HTML format and switching to XML was an obvious change. “We had the chance to spend weeks on a whiteboard, just designing the infrastructure for Flare, before we wrote any code.”
Since then, Olivier says MadCap has had no trouble staying ahead of rival software developed overseas. “The people in India are pretty technically proficient, and they look at what features we have and they can copy those features, but they’re following our lead and they’re not really innovating,” Olivier says. “They don’t have the advantage of living and breathing this stuff. Generally, you get lower costs [by moving software development offshore] but you don’t really get innovation.”
The startup, which has less than 50 employees, generated almost $10 million in software sales in 2008. The recession “hasn’t been as bad as we expected,” Olivier says. “We still had double-digit growth last year—even with the economy. And our revenue last month beat the same month in 2008.”
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