Recently, I had a chance to visit the XDimensional offices in Brea, California. Craig Fuher, CEO, was kind enough to spend a day with me talking about the history of the company and what's special about Nexsure, their next-generation agency management system. I had a chance to look at Nexsure in some detail and ask lots of questions. What follows is an interview write up of our discussion of the business. A separate article on page 9 describes and reviews Nexsure itself.
JA: Where did XDimensional come from? What's your background? What kind of comfort can you provide agents and brokers who don't know you and your qualifications for being in the agency management system business?
CF: Well, first of all it's important to know that we've been providing a variety of technical infrastructure, software, and consulting services to agencies for more than twelve years. Because of my experience with my father's agency in Santa Barbara, I knew early on that agents really struggle with technology. When I left the Air Force in 1989, after receiving a wealth of technology training, I decided to apply some of that experience to agencies and their technical needs. My first customer led to ten and before we knew it, we were providing technical services to approximately 1,500 agencies across the country.
By the way, as we worked with agencies we could see that sometimes their "technical problems" weren't technical at all, they were operational. So we put together a consulting group that could help agencies straighten out kinks in their procedures. We also saw that agents often needed to integrate software packages from several different vendors. And we found that agents sometimes needed custom software to provide functionality not available in package software, so we built a custom software division. Over time we learned about agency technical and business needs in excruciating detail. We really know the territory.
It's important to add that until two years ago, the business was called Fuher and Associates. We changed the name to XDimensional Technologies to capture the change in our business from primarily a consulting/technical/custom software services company to an Internet infrastructure and software company.
JA: That covers your background, but how did you get into the agency management system software business? And why the transition into a space already filled with well-established vendors? From my point of view you've set yourself up for a real struggle. Why bother?
CF: Let's go back to 1998. Because we were so close to the realities of agency operations on a daily basis, we could see first hand what agents were dealing with and it was getting worse and worse. Their technical environments were becoming very complex, fragile, and expensive. We began to feel our customers' pain and it was obvious to me that the solution wasn't more of the same but rather something entirely different.
Before the term ASP became common, we already knew that agents needed to be able to outsource their technical infrastructure to a knowledgeable and competent third party. We saw that we could host agents' systems and then provide access through a private network (and then as it grew, the Internet). We could centralize technical efforts to a data center and achieve some economies of scale for agents. It became obvious that agents needed ASP solutions and because we had technical, software, and operations domain expertise, we decided we were the people to provide the service.
We did a great deal of research into data center requirements, solutions for hosting Windows software, broadband connectivity, private networks, and so on. Many of our agency customers used Applied's The Agency Manager and we knew how to host the software. We proposed to Applied that we'd provide a hosted solution to their software and share revenue. We got a green light from Applied and then put together a first-class data center. We went about perfecting our TAM hosting, agency set up, and support processes.
By the summer of 2000 we were underway and having good success selling and supporting agents with the service. And since we knew that a hosted management system was only part of the solution for agents, we began to look at other ancillary software we might host and integrate into the agency offering. Along the way we acquired Veri-Cert, an online certificate service. (To jump forward for a second, we later sold that business to ConfirmNet when we decided to develop our own management system.)
Unfortunately, in August 2000, Applied changed its mind and decided they didn't want us to host their software. They decided they'd go into the ASP business on their own.
Though initially a discouraging turn of events, we quickly saw that this change paved the way for us to do something much better than what we had originally imagined. TAM and other Windows-based agency management systems were never designed with the Internet in mind. Sure, you can host them on the Internet, but to do so you need to use some additional software like Microsoft's Terminal Server and/or Citrix. That overhead consumes server resources and the licenses aren't cheap. Consequently, hosted traditional solutions are much more expensive than they would be were they written from scratch for the Internet.
We knew the ASP idea was a very good one, we knew that existing software wasn't really appropriate, and as far as we could see no major vendor was interested in writing a made-for-the-Internet solution from scratch.
We saw an opportunity to create a new management system specifically for the Internet age. We had already moved beyond our traditional business focus into the ASP area and needed only to ramp up our software group to move from custom software and integration projects to a complete management system focus.
By the way, we were definite early on about wanting to make the system highly scalable, something we believe no other management system in any form can do today. What do I mean by highly scalable? The ability to handle at least one million users. That may seem excessive, but not when you begin to think about how agent and broker systems will be used in the future. In the past the industry thought only about the number of in-agency users. In the future, with customers also using the agency system for self service, you'll have to multiply each agency user by 1,000 to get an idea of how the system needs to scale. So a 1,000 user organization could well have 1,000,000 potential customer users and we can support that — today.
Again because we knew so much about agency operations and issues, we knew that traditional agency management systems, because they were designed a decade ago, tended to aim at and solve agency problems of the early 1990s. But those systems no longer fit the operation of a good number of agencies. We saw that we could provide a native IP-based system but we could also do it differently and address agents' needs of today and tomorrow.
So, for instance, we've got good Employee Benefits handling built right into the system. In fact, our policy building engine lets us put up a new policy type in one day so it's not a big deal to broaden Nexsure to address the broadening in agents' product offerings — into Life, Warranty, Loans — you name it. We've also done some things to make the system very easy to learn and use, especially relating to the common kinds of insurance transactions agents handle. We think that most agency management systems don't support a very rich CRM (customer relationship management) environment. They simply don't collect enough information. Nexsure does. We've had the benefit of studying what agents need firsthand and we've had the luxury of starting with a clean sheet of paper in designing a solution. We think we've brought a good deal of creativity to the design process, making Nexsure different and we think better than anything out there. Our policy life cycle functionality is a good example. Who are our competitors today? Applied, AMS, and ebix.
JA: I've been through the management system design, coding, testing, sales, and support process several times, bootstrapping the process without much outside investment. I know it can be very stressful — not so much in the technology area, which is lot's of fun — but in being able to make payroll before the bucks roll in, if they ever do. Are you going to run out of gas before you get to the point of positive cash flow?
CF: The answer is no, we're not going to run out of gas. But I have to admit that early on I was a bit concerned about the prospect. I knew from the beginning that creating the system was a big project and that it would take 24 months or so. I spent about a year hunting for venture capital, unfortunately after the collapse of the Internet bubble. When you have 30 minutes to explain how a whole industry works and how you intend to make an impact to VC people who don't have extensive knowledge of the insurance industry, you're likely to get blank stares and that's what happened to us time after time.
Along the way, though, we got connected with The Hartford and their e-Business ventures group. They understood what we were up to and why it was special. They had capital and were looking for ways to invest it that would both bring a return and bring value to their agency partners. They're behind us 100%, and lend a good deal of credibility.
JA: Are you concerned that The Hartford will want to use you for their specific purposes? Are you worried that they'll push their agenda over yours?
CF: Of course, I can't predict the future, but so far they've been a phenomenal investor. The Hartford is a first class company and they know what they know and what they don't. They know we understand how to solve in-agency problems with technology and that's what they want us to do. They know they do better when their agents do well, and that's why they're behind Nexsure and the better solutions it offers agents. And though they have put in capital, they're not like the typical VC who wants to flip their investments in a short time. The Hartford is taking the long view.
JA: If I remember, Nexsure was designed to use hosted accounting software to be supplied by Microsoft. Now you're writing your own accounting system from scratch. What happened? You're planning on selling your service and bringing agents on to the service without an accounting system. I don't quite understand how you can do that.
CF: It's true that we had planned to use and modify one of the .Net Microsoft accounting software products. When we came up for air in our development effort and were ready to begin connecting up the Microsoft solution, it wasn't ready and it wasn't clear when it would be. So we bit the bullet and began developing an accounting module ourselves. We'll begin testing it this fall and we'll be ready to go live first quarter next year. We were disappointed that the Microsoft solution didn't work for us, but that's happened before. On the other hand, they've been a great development and marketing partner and I can't say enough good things about that.
To answer the second part of your question, you're wondering how we can sell a management system without accounting. Well, actually we can. The system does include direct bill support today, so it's appropriate for smaller agents who do all direct bill and then use something like QuickBooks for their conventional accounting. And at the upper end, some large brokers want to use their own accounting, perhaps from someone like Great Plains. Our software was designed to integrate nicely with third-party accounting packages, so we're a good fit for large complex organizations with freestanding accounting systems.
JA: What's your position on interface, SEMCI, and all that. What are you supporting today and what do you intend to support in the future?
CF: Of all the areas in insurance technology, interface seems to us the most volatile. We think the area needs to settle out for a while before we invest heavily in any particular approach. We'll support AL3 download of course, but we think the upload and real-time areas are very unclear. We're convinced that carrier Web sites are here to stay and we'd consider finding some way to integrate with them through bridging — what you call hybrid interface. But we're not ready to commit ourselves just yet. There's just too much turmoil out there.
JA: So how are you doing? Is anyone interested? Are you making any sales?
CF: We're addressing the high and low ends of the market right now and we're having success in both places. We've done virtually nothing to advertise or do aggressive marketing. The prospects hear one way or another that we're doing something interesting and they call us. We're doing Web-based demos for smaller agencies and that's working well. Later on, we'll pick up the marketing and sales efforts, but right now we're on target.
We're on schedule with our development efforts too and we feel good about that. We spent a long time designing and planning before we did any coding and that's paying off. We know we're a small company, but we think we've got some better ideas and we're going after established competitors that don't seem to be innovating at a rate that their customers really need.
JA: I wish you lots of luck. You're certainly earning your dues. You face a very conservative industry that seems to have a hard time appreciating the value of new ideas. I'm glad it's you, not me, who's developing a major system and competing with the big boys.
CF: Thanks for coming to visit. We've enjoyed the chance to show you what we're doing and explain why we think it's special. Come back in a while and we'll show you a dandy integrated accounting system.
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