CARY, N.C. – The $16 million “exit” for Covelight on Monday stands as an example for entrepreneurs building other companies.
Chief Executive Officer Spencer Snedecor, his management team, his investors and the company’s customers showed what he called “flexibility” in adapting Covelight to new opportunities. That ability to adjust led to the startup’s all-cash acquisition by Radware.
In less that four years time, Covelight transformed its focus and lead product that addressed online fraud detection into a broader service that still looks for fraudulent activity yet also provides its users with real-time, actionable information about consumers using services such as e-banking or e-commerce.
Entrepreneurs are often warned to avoid the “shinny penny” syndrome – i.e. being distracted from the main mission by a seemingly bright opportunity that isn’t a primary objective of the business plan.
In the Covelight case, however, management listened to customers such as BB&T and First Citizens. The result was development of “Inflight,” a platform that true to its name provides information during the flight of an online session.
“This was developed over time in part by our customers,” Snedecor explained. “They were saying ‘You are doing a really good job of telling me about fraud. What else can I do with this data? I have an opportunity to sell Rick more foods and services.’”
Covelight adapted to provide information not only about the 1 percent of fraudulent users but also the buying habits and other needs of the much more vast online audience.
“The whole value proposition is understanding what Rick is doing so the customers can make offerings to their users,” Snedecor said. “They can take data sets and feed them into real-time analytics for a positive rather than just looking for a negative.”
A “collective light bulb went off between us and our customers,” he added when they discuss the potential use of the data capture. It’s still very important to fight fraud because the bad guys can really hurt me. But everybody suddenly realized that if we touch 100 percent of our users to find 1 percent that’s a problem isn’t there an opportunity to do a lot of good with the 99 percent?”
So how could the Covelight case be used as a case study for others?
“Know your customers really well,” Snedecor said. “Strive for open relationships with your customers, maintain flexibility within your business planning process, and involve your customers in the transition.”
Covelight’s technology provided it with an advantage in a business niche – fraud detection. But sometimes that’s not enough to build a successful company, he added.
“We were able to leverage our core intellectual property and adapt it beyond the initially proof of concept,” Snedecor said. “That’s always a challenge for a small technology company – finding a niche in the market and then showing it has a solution for more than a niche. We’re at the leading edge of the next generation of business smart applications.”