Editor’s note: Many of the most promising high-tech, biotech and pharmaceutical firms will be presenting at the annual venture capital conference sponsored by the Council for Entrepreneurial Development. The event will be on April 27-28 in Chapel Hill. As it has in the past, Local Tech Wire will profile presenting companies that wished to participate in a Q&A.If just-in-time manufacturers are to survive, they must meet the challenge of sometimes rapid changes in demand. After all, “just in time” implies rapid response, keeping inventories and expenses low, and then being able to deliver finished goods quickly.

Datacraft Solutions, an application service provider, addresses the needs of so-called lean manufacturers, says Chief Executive Officer Matthew Marotta.

“Lean manufacturer’s who are practicing Kanban replenishment techniques (a just-in-time delivery methodology) have a daunting planning and communications challenge on their hands,” Marotta says. “Typically, on a regular weekly or bi-weekly basis, production managers are asked to respond to fluctuations in market demand.

“Because they have little or no inventory on hand, they have to quickly calculate the new purchasing requirements for perhaps hundreds or thousands of items, and communicate those requirements to the scores, or hundreds, of their most trusted suppliers. They quickly need to either get delivery confirmation from those suppliers, or hustle to put in place contingency plans.

“The consequences for getting this wrong, is stopping the manufacturing line because of a shortage of parts. Today, the vast majority of these lean manufacturers are performing these calculations in home grown Excel spreadsheets and communicating with their suppliers via fax and phone. We automate this entire process and bring it to the web.”

Marotta, who is one of the investors in the firm, has set a lofty goal: “To be the world’s leading communications services provider for the Lean Manufacturing Supply Chain.”

Here is the Q&A with Datacraft:

Given the difficult investment climate, have you explored or used other means of getting funds than venture capital?

To date, funding for Datacraft Solutions has come from several sources. The founders have personally invested in the company. All of the early employees have traded portions of their targeted earnings for equity. We’ve solicited the financial support of our friends and families. Our early successes, and demonstrated commitment eventually led to a round of outside angel funding.

If so, please explain why you remain interested in venture capital.

We’re interested in both the financial and strategic value that raising venture capital brings us. We certainly need the capital to scale up the sales momentum that we’ve developed over the last several months. However, we recognize that we can turbo charge our growth by tapping into the right VC’s built-in network for business relationships and key talent.

Are investors telling you that the climate for making deals is improving? Please explain.

I don’t think it’s in the investor’s best interest to tell us that the deal making climate is improving. So we haven’t really heard those words form them. However, we are getting quite a few inbound calls and invitations to present which says something positive about either our company, the investment climate or both.

If you had only one chance and one paragraph to convince an investor, how would you answer this question: “Why should an investor choose your company?”

Money. We know we have a winning money making concept.

Our customers and prospects have been waiting for a solution like ours to hit the market. Our targeted segment of the manufacturing market, Lean Manufacturers, have invested heavily in process reengineering and are now ready for automation. They see our product and immediately see its value. Our sales cycle is short and our licensing scheme insures a recurring revenue stream. The value of our solution grows the more suppliers our customers bring on board, which makes our marketing viral. Once data is loaded into our system, the switching costs are high, and our development and support costs are low because we are an ASP. Lastly, we’ve already demonstrated our commitment and ability. It’s taken us three years, but we now have a shipping product, paying customers, enthusiastic employees and loyal investors. We’ve validated the business model which was the riskiest part, from here on in it’s scaling it up.

What is the “pain point” (or points) you address for your customers?

Lean manufacturer’s who are practicing Kanban replenishment techniques (a just-in-time delivery methodology) have a daunting planning and communications challenge on their hands. Typically, on a regular weekly or bi-weekly basis, production managers are asked to respond to fluctuations in market demand. Because they have little or no inventory on hand, they have to quickly calculate the new purchasing requirements for perhaps hundreds or thousands of items, and communicate those requirements to the scores, or hundreds, of their most trusted suppliers. They quickly need to either get delivery confirmation from those suppliers, or hustle to put in place contingency plans. The consequences for getting this wrong, is stopping the manufacturing line because of a shortage of parts. Today, the vast majority of these lean manufacturers are performing these calculations in home grown Excel spreadsheets and communicating with their suppliers via fax and phone. We automate this entire process and bring it to the web.

What makes your company unique?

Our product is unique because of its laser focus on automating the Kanban process and nothing else and because of its deployment model.

First of all it is highly tailored to address the unique philosophy, and business processes, of the manufacturer using kanban. They have an aversion to big, complicated, multifunctional, all-things-to-all- people, and expensive solutions.

Our products are designed to be simple to get started with, flexible enough to handle all Kanban implementations, and scalable to accommodate even the largest of manufacturers.

Because we are an ASP, our customers require little to no investments in hardware, software or technical skills.

Do you have a proprietary and/or a patented technology? Please explain why it is unique and what the status is of any patent filings.

We have no proprietary or patented technologies at this time..

What makes your product(s) and/or services unique vs. your competition? (Who is your competition, and what do they offer?) If you have no competition, why not?

Currently, the number one competitor in the eKanban market space is the homegrown solution. Manufacturers are relying on Excel, faxes and telephones to get the job done. They have rejected the complexity and expense of the solutions offered by the ERP vendors such as SAP, JD Edwards, and PeopleSoft. Standalone Lean Software vendors such as Pelion Systems and Factory Logic require an investment in dollars, setup time and technical infrastructure that is way beyond what is required to simply migrate to eKanban. Companies like SupplyWorks are much more interested in selling their Supplier Relationship Management functionality which is irrelevant to the lean manufacturer.

The lean manufacturers have typically already established trusted relationships with their key suppliers and are just looking for simple ways to collaborate with them. Our solution is positioned as a best of breed, low investment platform to pragmatically automate the current homegrown solution.

Does your company already generate revenue? If so, how much? Are you cash flow positive?

We are generating revenue. We are signing up new clients every month and the existing ones all provide a recurring and growing revenue stream. We will furnish our revenue to interested investors and our current projections are that we will be cash flow positive from operations within the year.

What is your target market? What is the size of that market in terms of dollars? What share of that market do you believe you can win?

We are a supply chain execution (SCE) services supplier. According to a recent report published by the ARC Advisory Group entitled “Total Forecast for Supply Chain Execution Including Software and Services”, the market was $3.3 billion in 2003 and is forecasted to be $5.2 billion in 2008, which represents a compounded annual growth rate of 9.7 percent. This is a highly fragmented market with the 18 market leaders each contributing $65M or more. We believe that we can easily capture 2% of the 2008 forecasted $5.2 billion market.

What will you do with the invested funds? What is the timeline for product delivery? If you have existing products and services, how will additional funding help you expand your company, if that is the intention, or will you develop new products?

We are looking for funds to capitalize on the early sales momentum that we’ve established. Our version 3.0 product is already in production. Part of the funds received will be used to accelerate the delivery of our product roadmap. However, we believe that our most pressing need is to gain awareness for our successes and simplify the training and adoption processes. We’re ready to scale up our customer base.

What do you want from an investor other than money?

Initially we would like access to their network of experts and business contacts. As we continue to the scale the company, we’ll definitely like to tap into their experiences as well.

Why will investors be impressed with your management team?

First of all, over the last three years, this management team has gotten the company to where it is today. We’ve raised our seed capital, launched our product, acquired several loyal customers and assembled a dedicated team. We’re enthusiastic, determined, passionate and committed to our shareholders. We’re starting to learn what it is that we don’t know and are filling those gaps by bringing on board more seasoned entrepreneurs and managers.

What is the exit strategy for the investor from your company? Are there potential strategic alliances with larger companies? Do you wish to take the company public? Or do you wish to grow the company and either sell it or acquire other companies?

From this vantage point, the most obvious exit is to be acquired by a larger company. Our customers all eventually ask us to integrate our solution with other hardware and software solutions that they’ve invested in. Either it’s their ERP system for demand and financial information, or warehouse systems to update inventory, or wireless devices for access. Any one of these companies would be great strategic partners for us, and potential very synergistic suitors.

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