Several things must drastically change at Envivio in order for shareholders to have a chance of realizing the latent value inherently tied to its technology. The core issue facing Envivio is excessive spending in pursuit of growth initiatives that will not yield results for years to come. I believe now is the time for the Board to take decisive action to address the alarming cash burn and hold management responsible for making substantial improvements to the Company's overall operating performance. To address these issues I have outlined several opportunities that I believe will best position the business for long-term success.These include:
- Cease hiring until the Company has control over its excessive spending practices . When hiring commences again, selectively hire only essential technical and engineering talent in France (a country notorious for complications related to workforce reduction) to maintain the flexibility necessary to right-size the business in the future.
- Reduce overall headcount to better align the Company's bloated overhead structure to better match its realistic revenue generation capabilities to ensure cash preservation. The ultimate goal is for a profit-oriented discipline to take hold throughout the organization.
- Shift the Company's sales structure to focus primary selling activity through a well-established distribution network. Except for a few sales executives necessary to maintain and sell key customer accounts (almost entirely in the USA), this strategy will eliminate the need for much of the existing direct sales force. It also enables maximum geographical coverage while maintaining a flexible, variable cost structure appropriate for Envivio's size.
- Implement a cost restructuring plan to reduce G&A expenses to a level closer to their pre-IPO amount . While some incremental costs are required simply because Envivio is now a publicly-traded entity, G&A expenses have swelled to more than $2.3 million following the IPO. As someone who has managed a business both before and after an IPO, I see no conceivable reason why these costs cannot return closer to their historic levels.
- Eliminate non-core engineering activities (such as participation in standards committees) and develop a market-driven incentive program that ties R&D directly to the commercialization and monetization of new products.
- Thoroughly examine the Company's cost of goods for opportunities to improve the gross margin to a level north of 75%, a realistic target for a software-oriented company like Envivio.
- Develop a robust vendor-specific objective evidence (VSOE) methodology to enable the Company to accelerate the recognition of revenues.
- Implement a new investor relations program to rebuild credibility with Wall Street. Craft a new message for shareholders (current and potential) highlighting financial transparency, superior cost-management and a metric-driven plan toward achieving long-term, sustainable value through the careful implementation of key strategic initiatives.