An Entrepreneur’s Tale: Diego Borrego and the Twists and Turns Behind Networkfleet
To a large extent, the story of San Diego-based Networkfleet is also an intriguing tale about co-founder Diego Borrego. The privately held company, which currently has more than 100 employees, is one of the nation’s largest providers of technology and services for monitoring the location and status of company-owned vehicles.
Borrego, a Mexican-American who says his first language was Spanish, helped start the company in 1999, quit when he realized he had lost his ownership stake, and rejoined Networkfleet before the business entered a period of double-digit growth. The 42-year-old engineer says his name is on about 10 of 30 patents issued so far to the 10-year-old company.
While wireless fleet management systems are what my Xconomy colleagues politely refer to as “mature” technologies (as opposed to our usual focus on the sweet spot of emerging tech), Networkfleet maintains that not all fleet management systems are alike. Many systems simply use global positioning satellite technology to monitor the locations of company-owned vehicles. Networkfleet’s technology also helps customers reduce their fleet operating costs and vehicle emissions by using the computerized sensors in every vehicle to monitor the vehicle’s performance and engine efficiency.
“There are processors now that control the brakes, the engine, transmission, airbags,” says Borrego, Networkfleet’s vice president of engineering. “There’s a rich set of information that we call diagnostics.” He views the technology as more of an IT challenge, because nowadays there is essentially a local area network (LAN) in every new car and truck that links together an average of 25 different computers. “Extracting that data from the vehicle, and somehow transmitting it (in conjunction with GPS) and turning it into information that can be used by fleet vehicle managers is the innovation,” Borrego says.
Networkfleet provides its Web-based service to customers that range from plumbing companies with 10 trucks to the state of Delaware, which operates more than 2,400 government vehicles. Networkfleet installs a piece of hardware that connects to the LAN in every vehicle, gathers information about the vehicle’s operation and transmits the data via cellular links to a data center operated by Networkfleet. Each customer’s fleet manager is given a login to Networkfleet’s website, where he or she can monitor the location of the company’s vehicles. Data about each fleet also can be converted into reports that fleet managers can use to schedule maintenance, optimize operations, and monitor driver behavior.
The company generated about $30 million in sales last year, a 45 percent gain in revenue growth over 2007 that made Networkfleet the second-largest company in the business (based on number of subscribers), according to Keith Schneider, Networkfleet’s president. (The largest is Trimble, a Sunnyvale, CA-based GPS technology company that acquired rival @Road in 2006 for $496 million.) Schneider says many of their competitors tend to specialize in narrow segments of the technology-based business, such as GPS-based vehicle location, advanced routing applications, and workforce management—and he sees the technologies converging. “The industry is poised for massive consolidation,” Schneider says.
The Networkfleet president indicated during our conversation that Networkfleet, which has been owned by the New York private equity firm Apollo Management since 2006, aims to take an active role in that consolidation.
Still, Networkfleet has taken a winding road to get this far—after beginning more than a decade ago on a strategy that came out of a business plan competition at MIT’s Sloan School of Management. Borrego says he went to MIT for joint masters’ degrees in business administration and computer science on a fellowship from General Motors, where he was working in the mid-1990s. He worked on the business plan, which was the runner-up in the contest, with a fellow MIT business student who had taken a similar leave from SAIC, the San Diego defense contractor. Together, they agreed to return to San Diego to start a company based on their plan.
Borrego tells me his journey to entrepreneurship had an unlikely beginning. He was born in El Paso, TX, to migrant farm workers, and grew up mostly in New Mexico. When he was a high school senior, Borrego says, “I didn’t really have aspirations for college or anything.”
He says he had intended to skate by, enrolling in just one course his senior year. But that changed when a vice principal more-or-less forced him to take a full course load—including a physics class taught by a teacher “who just kind of opened my eyes.” Borrego says the science and calculus teacher prepared him for college, saying, “The way to be successful in college is to work harder than anybody else. You have an advantage, though, because nobody else you’ll meet in college has ever picked onions before.”
Borrego attended New Mexico State University at Las Cruces on a National Merit Scholarship, studying physics with kids whose parents worked at the Los Alamos and Sandia national laboratories. He started working for General Motors as a student, and eventually joined the company full-time.
Borrego tells me the original idea for Networkfleet had nothing to do with GPS technology. Instead, the concept came to him in the 1980s, after U.S. automakers had introduced electronic spark control, one of the first computerized automotive technologies. Over time, as automakers added more and more computers and sensors, Borrego says their idea was to create software that would take auto sensor data and use it to see if vehicles were being driven properly.
“It sounds pretty simple today, but 10 years ago, it was advanced technology,” Borrego says. In 2000, their startup got $4 million from angels and other investors, including 10 percent from Reynolds and Reynolds, a company that provided information technology and forms to automotive dealers. Two years later—when Reynolds and Reynolds was acquiring the rest of the startup—Borrego says he learned that his trust had been misplaced. “That’s when I found out I really didn’t have ownership any more. I kind of left in a huff.”
When I later asked Borrego if there was anything, in retrospect, he could have done to protect his ownership stake in the company, he replied by e-mail: “I am always tempted to be very cynical and say things like, ‘I learned to trust no one!’ But after much internal deliberation I have come to believe that my mistakes were the basic lack of common sense brought about by youth and enthusiasm and the lack of a strong business mentor. As an engineer who was seeing his idea grow into a business I became very focused on the nuts and bolts of engineering development and manufacturing. But common sense should have told me that as an entrepreneur I also needed to focus on the biz side. I should have never signed docs without clearly reading them but my ‘enthusiasm’ was elsewhere at the time.”
What was a sad story for Borrego came to an equitable conclusion, however. He says the prospective buyers viewed his unhappy departure as what the lawyers described as “a dangling liability” that jeopardized their acquisition. “In the end,” he says, “I ended up being in a good negotiating position for the deal.”
Borrego says a new CEO persuaded him to return in 2006, a move that made the company a more attractive acquisition for Apollo Management. “To come back and want to make [the company] successful wasn’t really a hard decision,” Borrego says.
As Networkfleet continues its rapid growth, Borrego maintains that plenty of innovation remains to be done in several areas:
—Companies that operate larger fleets are coming under increasing pressure to become “greener.” Under a pilot program with California environmental agencies, Networkfleet is using diagnostic data to continuously monitor vehicle emissions—fulfilling the same requirements as the state’s biannual smog test (and making such tests unnecessary for those vehicles).
—Automakers are now making Vehicle Identification Numbers, or VINs, available electronically on the vehicle LAN, and establishing a unique ID number for each vehicle built. As the data available in vehicles becomes “richer,” Networkfleet is developing more products and services, such as pay-as-you-go insurance and driver safety programs.
—As GPS and cellular technology improves in robustness and efficiency, Networkfleet can expand its capabilities, providing fleet managers with data that enables them to more precisely determine fuel usage and total miles driven for each vehicle.
As for the future of Networkfleet, Borrego sees a looming period of consolidation following the economic shakeout of the past year. “It’s a typical new technology cycle,” he says. “A lot of new players have emerged in the space over the past 10 years. What’s going to happen is that a couple of giants are going to rise from these consolidations”—and he view Networkfleet as one of them.
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