Yoke Har Lee: Life's a bit of a DAG for hi-tech firm

Mike Riley says there is no substitute for having a well though-out marketing plan. Photo / Martin Sykes

At a time when many companies are losing staff through attrition, or are even considering layoffs, one New Zealand firm is happily expanding.

High-tech star Endace has developed a business that appears to be recession-proof. But it's not just good luck - it has also been good management that has enabled the company to become a global leader in its field.

Endace technology has the capacity to track "the enemy" or security threats by providing a system to capture data passing through the internet highway.

DAG or Data Acquisition and Generation technology can encapsulate and transfer data to a computer's host memory; time-stamp data for accurate measurement of information exchanged; and help balance the load of traffic exchanged over a network.

Born out of a research project in the School of Computing and Mathematical Sciences at the University of Waikato, DAG has stormed the world with its application and high reliability. It counts global giants among its clients, including financial information company Thomson Reuters, and foreign government agencies.

Endace was formed in 2001 after Dr Ian Graham, a researcher from the University of Waikato, realised he was on to real advances in data-tracking technology when he started presenting his research to audiences around the world. The initial investors were Graham, entrepreneur Selwyn Pellett, and Waikato management professor Neil Richardson.

Within five years, the company managed to make its way into the Alternative Investment Market (AIM), a submarket of the London Stock Exchange aimed at smaller high-growth companies.

A year ago, Endace delivered the world's first 40GB network monitoring card from its R&D centre in Hamilton and secured a key deal with Thomson Reuters to monitor the efficiency of its network for its trading partners. Thomson Reuters is the company created last year from the merger of newspaper company Thomson Corporation and financial information company Reuters. It operates in 93 countries and has over 50,000 employees.

Chief executive Mike Riley says there is only one other company in direct competition with Endace that deals in similar hardware. "We are confident our hardware is a market leader."

Even during a recession, companies need to keep their networks secure. They also need precise financial information, and banks with deep pockets are still spending to acquire Endace's system. Its hardware ranges from between US$20,000 ($29,860) and US$100,000.

Financial analysts expect its revenue to grow by between 15 and 20 per cent this year. Last year, the company's revenue was up 26 per cent year on year.

While Riley acknowledges the market is tough, there is still demand, he notes.

A strong institutional shareholding (50 per cent) is an endorsement of the company's business success. BlackRock and Merrill Lynch are among its institutional shareholders.

The founders hold 30 per cent and employees the rest.

Riley is confident nearly a decade of developmental growth puts Endace way ahead of its competitors. Entry barriers are high because of the complexity of the technology.

"It is complicated stuff. The technology is based on complex programming built in a silicon chip. Engineers in this field are few and far between and have a very specialised skill set. We have learned a lot of know-how over such a long way."

The company's latest offering, the NinjaProbeT, offers a "black box" solution and can be plugged into an existing network.

"Although our core technology is hardware, we are layering our offerings, incorporating more software," Riley says.

Endace has more than 115 employees around the world with offices in Auckland, Hamilton, Singapore, Britain and the United States, and it exports to more than 40 countries.

Historically, the company has found its path to market by directly engaging with customers. But to scale up its operations, the company will need to boost its ability to reach more and more customers, either by engaging distribution channels or leveraging its close-knit relationship with large system integrators.

High growth comes with its pitfalls. The company's biggest challenge is trying to balance the constant tension of having to meet the needs of large customers spread around many countries, Riley says.

"We only have so many people with so much cash. The market's extremely large. We don't want to waste too many resources trying too many markets - we are trying to stay balanced."

Another challenge is finding and retaining good people, to build a sustainable pipeline of skilled workers.

Endace recently expanded its Hamilton laboratory floorspace in KPMG Tower by 50 per cent. This will allow it to house more software and system engineers, lab technicians and network test analysts.

Wayne Norrie, chairman of the PricewaterhouseCoopers New Zealand Hi-tech Awards, says Endace has a bright future given its strong management team, its high-quality marketing and market-leading product. With big telcos and large organisations as clients, and Endace's industrial-strength internet security offering, the company should continue to perform to expectations due to demand for internet security, Norrie says.

Riley has some advice for Kiwi companies wanting to go global: there is no substitute for having a well thought-out marketing plan. "It is hugely costly and risky to go offshore. Make sure you are extremely focused. Have well thought-out plans to identify the beachheads you want to attack. When you go overseas you can burn time and money easily."

While abroad, it is also crucial to have a New Zealand-based marketing function, he believes.

He admits his biggest oversight, when he first became CEO, was to transplant marketing to the US. "It didn't work for us. The marketing team needed to understand and feel the pulse [in the innovation centre in New Zealand]. They were too remote from the IP [intellectual property], from the conversations around the water fountain that made them part of what the New Zealand company reflects."

For now, he says, Endace wants to extend its industry leadership by setting benchmarks for monitoring network security and stability.