Friday Rant: Celebrity Marriages Don't Last

Spend Matters is pleased to welcome an inaugural Friday Rant from our lead analyst, Thomas Kase.

...and we're not talking Kim Kardashian here. This is about SciQuest and their acquisition of AECsoft USA, which took effect on Jan 1 this year.

Per SEC filing on Oct 31, Tom Ren, one of the founding partners in the dynamic duo behind AECsoft (the other being his wife Lily Xiong) has now left SciQuest to pursue other interests. Tom clearly left on good terms, as SciQuest agreed to remove the revenue-based performance clauses (aka earn-outs) from his contract -- likely in return for a lengthy lockout period. Tom is also agreeing to make himself available as a pro bono fractional consultant (10 hours per month) to SciQuest in case his services are needed.

Tom Ren is well known for his boundless energy and sales enthusiasm. In many ways, he's the person who single-handedly built AECsoft's market presence as a top provider of supplier diversity solutions to the Fortune 500 -- with his equally energetic and technologically talented wife Lily handling R&D and operations. Lily, on the other hand, remains with SciQuest to continue her work as the key developer for their AECsoft-related product line -- which is clearly good for SciQuest clients in the short term, but one can't help but wonder how long this duo will remain split up. In any case, Tom's departure will likely impact SciQuest's ability to hang on to the Fortune 500 clients added to their book when they acquired AECsoft: especially those with diversity-focused applications.

Regarding supplier diversity, I spent all of Monday working the business expo floor at this week's NMSDC (National Minority Supplier Development Council) conference in Atlanta. I talked to the remaining technology providers in the diversity field, and supplier diversity professionals from the many Fortune 500 firms exhibiting. It was a substantial business expo this year, with over 800 exhibitors. While speaking with several AECsoft-originated SciQuest clients, a fairly strong pattern emerged over the day, one that says that SciQuest is not giving the former AECsoft clients anywhere near the level of attention they were used to receive from AECsoft. In fact, two or three firms confided that they have already put plans in motion to switch to other providers -- not because they don't like the software solution, but SciQuest's unresponsiveness makes the relationship untenable. Fortune 500 firms can be quite demanding of their vendors, and have different expectations of vendors than what perhaps is customary in the higher education vertical that SciQuest dominates.

This has been a busy week for SciQuest; other than Tom Ren departing, they have announced a partnership with Ralph Moore and his team at RGMA. Ralph is an old hand at affirmative action and equal opportunity activities, with over 30 years of experience and substantial political connections among the old civil rights guard. However, supplier diversity as it is conducted these days has moved past the old ways and is both more inclusive (women, veterans, small companies etc.) and highly technology focused, so it remains unclear what RGMA's approach will add to SciQuest's arsenal. At Spend Matters, we wouldn't be surprised if the engagement with RGMA evolves into a resale arrangement so that SciQuest's diversity solution clients can continue to enjoy the spend classification reporting benefits from tracking dollars spent with RGMA as diverse spend.

As a final piece of SciQuest news, they have just announced to their clients that Equifax will take over their supplier data cleansing and classification efforts -- previously handled internally by AECsoft staff out of the Houston office. This piece of news has been received with great skepticism by supplier diversity professionals as the big names (i.e. D&B, Equifax) have not done a good job of delivering accurate data cleanse results in the area of supplier diversity. The low quality of vendor record data cleanses by the big name providers was a major driver behind AECsoft's sales success -- their foot in the corporate door.

To conclude, at a minimum, the above activities suggest that SciQuest has underestimated the level of attention and support needed to keep Fortune 500 clients happy -- alternatively that the "commercial" sector is not proving as attractive to SciQuest as their core higher education clients. Regardless, with the rumblings heard in Atlanta this week, if changes are not made soon, it is likely that SciQuest will see attrition in their Fortune 500 client base.

- Thomas Kase

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