Entrepreneurial Dominion

       Paul Sparta

New Peaks for Plateau

Plateau Systems didn't interest dotcom-addled venture capitalists back in 1999. But profitability and four years of triple-digit growth make the learning management company one of Northern Virginia’s hottest IT performers today.

In 1999, at the height of the Internet bubble, Paul Sparta set about raising venture capital for his company, Plateau Systems. As a developer of “learning management systems” software, the Arlington-based company seemingly fit the sector profile that venture capitalists were looking for. What’s more, Plateau had signed up solid clients, including two Fortune 500 companies, operated at a profit, and projected that its revenues would grow 100 percent per year for several years running.

But the venture capitalists weren’t interested. “People were asking, ‘Why can’t you get to a billion-and-a-half valuation in two years?’” says Sparta, Plateau’s chairman and CEO. “We weren’t making promises of all this growth. … Our plan wasn’t based on bubble economics. We didn’t put something on paper just to get the VCs juiced.”

It was particularly galling to see competitors like Saba, Click2Learn and Docent raise a combined $670 million from venture funding and Initial Public Offerings. But in 2000 Sparta finally did raise $18 million in financial backing from untraditional venture sources, and Plateau went on to meet its goal of doubling revenues for four years running. The company may not be worth billions today, but it is worth a lot more than the hundreds of dotcom marvels that have since bit the dust – and it’s certainly been a better investment than Saba, trading around $4 per share, down from a high of $164, and the newly merged SumTotal Systems (a combination of Click2Learn and Docent), trading around $5 down from a pinnacle of $104.

The experience was frustrating, but not altogether unrewarding. By accepting a “slower” pace of growth – one that anyone but a dotcom-era venture capitalist would envy -- Plateau developed new business organically. The company didn’t get ahead of the market, ramping up sales and overhead expense for business that never materialized. “If a market develops at a certain rate,” Sparta says, “you can’t make it grow any faster.”

With revenues somewhere between $25 million to $40 million, Plateau Systems now makes a plausible case for being the leading player in the emerging LMS (learning management systems) space. In an March 2004 research report, Gartner Research displayed Plateau as the best positioned company in a scatter graph of two dozen learning management system companies, as ranked by their vision and ability to execute.

The size of the LMS market is about $400 million a year currently, Sparta estimates, but as the Next Big Thing in enterprise software applications, LMS should grow exponentially. “Look at the value that enterprise software has brought to business,” he says. “We manage supply chains this way. We manage manufacturing this way, sales this way, call centers this way.” The next frontier is to use enterprise software to manage human capital, and learning management systems should follow the same growth curve as the others.

Plateau’s enterprise software allows decision makers of large organizations to systematically manage what Sparta calls “knowledge readiness.” Organizations need to know what their people know, identify what they need to know, and then deliver the knowledge to meet those needs. Say, for example, a company wants to launch a new product. A learning management system tells the top brass if they possess the right people with the right skills to undertake the roll out and, if not, what skills employees need to acquire.

Or, to take another example, say the Securities Exchange Commission issues a regulatory change. An LMS automates the process of collecting 5,000 read-and-understand signatures. Whether it’s used for regulatory compliance, project management or succession planning, says Sparta, a learning management system “keeps track of the totality of the knowledge of the individual and the organization.”

Paul Sparta served eight years in naval aviation before leaving the U.S. Navy in 1988. He worked five years for General Physics Corporation, a training services company, and then moved to MRJ, a government contracting firm serving the defense-intelligence community. Sparta led the MRJ team that developed the first iteration of Plateau’s enterprise software.

Commercial software products require a very different corporate organization and culture than the government contracting business, however. MRJ spun off Plateau Systems in what Sparta describes as “a friendly divorce.” At the time, he says, the company focused narrowly on training management. But as the possibilities of the Internet became more apparent to all, top management saw a need to evolve in a more “holistic” direction.

Plateau Systems crafted a merger with a company, Sensory Computing, that had developed sophisticated online learning capabilities. Sensory contributed a number of ideas – and key personnel, including Brian F.X. Murphy, who came on board as president. The two teams clicked, Sparta recalls. “It was a wonderful merger. It was the best merger ever.”

The combined company pooled talents to re-think the concept of knowledge readiness and how enterprises might approach it. By 1999, Plateau Systems had developed a product that resonated with blue-chip clients like Motorola, Bristol-Myers Squibb and the U.S. Air Force. The real-world business model and financial projections didn’t appeal to most venture capitalists, but Plateau did find expansion capital in late 2000, first from General Electric’s private equity group, and then AIG and Euclid SR Partners.

After several years of rapid growth, Sparta now wants to push the company in two new directions. First, he wants to widen the company’s product suite, following the logical evolution of the software. One of several planned extensions would cover “performance management,” helping organizations and employees set goals and objectives for improvement; a related extension would help supervisors with administering performance evaluations and intelligently scheduling their workforce.

The other initiative is to expand outside the U.S. “We didn’t go overseas before those markets were ready,” notes Sparta. But the market now appears to be receptive to learning management systems. Plateau Systems already has a track record setting up a global LMS for General Electric – in 11 languages. Sparta expects more U.S.-based multinationals to follow, and aims to sign up foreign clients as well.

While most signs are positive, Sparta does have worries. There are just too darn many competitors in the LMS market. Confident that Plateau can survive a shake-out, he’d like to see some of the marginal players drop out. “But they’ve raised so much cash,” he grouses, “they can go on losing quarter after quarter after quarter. It’s a challenge -- and very irritating.”

Also, the global economic picture – “the times we live in” – make him nervous, Sparta says. The conflict with terrorists can whipsaw oil prices, business confidence and even the technology market. Large businesses don’t like making large, strategic investments – Plateau’s average deal size is about $500,000 – in the face of so much uncertainty. “I’d like to see some more global and economic stability so the economy can do its thing.”

But in the final analysis, Sparta says, he’s confident that Plateau has a great future. As corporations realize that their competitive advantage lies in the skills and knowledge of their employees, they will seek to manage their human resources with the same intensity they manage their financial resources. And no one is better positioned to help them, he says, than Plateau Systems.

-- September 8, 2004

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