Friday Rant: TradingPartners Trades No More; An Unavoidable Bankruptcy?

Earlier this week, Spend Matters UK/Europe broke the story that something was amiss at TradingPartners. The company's phone lines were dead. A supplier, which had not been paid, contacted us (he found us through a previous blog on TP). Other rumors (more speculative) circulated as well. Only hours later, we learned the company had become insolvent, shutting its doors, with accounting firm Baker Tilly taking over the orderly closure of the business. In our view, TradingPartners' bankruptcy was almost unavoidable for a number of reasons we'll explore in a minute.

There are many angles to exploring TradingPartner's ultimate decline and eventual closure. Over on Spend Matters PRO today, we explore, in detail, many of the supply risk lessons that we can learn from this example when it comes to evaluating smaller suppliers and professional services. The lessons are specific (e.g., what type of gross margin to look for in a vendor that can assure reduced supply risk levels, warning signs a smaller supplier may be over spending, etc.)

But there are specific lessons in the case of TradingPartners as well, something management and the investors should have seen previously (and learned from) but did not. Because the company failed to take action in these areas, one might argue that bankruptcy was unavoidable. I believe this to be the case.

As I see it, there are four key lessons TradingPartners should have heeded, but did not:

  1. Reverse auctions and reverse auction services quickly became commoditized (something FreeMarkets, eBreviate and others learned) while also capturing a smaller percentage of overall sourcing spend relative to other sourcing formats over time. Yet TradingPartners was not only not as operationally cheap and efficient as it could have been in delivering these services (e.g., by creating a Six Sigma, offshore sourcing factory), it also failed to diversify into other sourcing specialties (e.g., logistics sourcing using optimization) with any substantial traction. In other words, they were caught in a shrinking market without competing on the basis of what they should have focused 110% of their effort on: operational efficiency and a low cost to serve.
  2. Professional services firms do not exactly have a track record of delivering stellar results when they develop their own software to sell. And when TradingPartners finally attempted to shift its strategy to less commoditized software than reverse auctions, it was too late. Moreover, it was still reliant on services revenue. Professional services firms should go to school on the lessons of FreeMarkets, AT Kearney (eBreviate) and now TradingPartners in commercializing software versus developing it to use internally. Moreover, given the degree of what is available from software companies today at reasonable price points, professional services firms should scrutinize the buy/build decision even more closely.
  3. Don't believe that you have an asset that is worth something to others, even if you have a good customer list. TradingPartners expended much effort in trying to sell itself in the past year -- while also putting on a new "Spend Science" software face -- rather than focusing in on core operational transformation and efficiency. In this business, customers can depart far more quickly than they sign up, especially if they're not locked up with contracts that are painful to get out of. TradingPartners thought it owned a stock that could not go to zero given its customer assets and IP, but in fact it held an option that expired worthless, or near worthless.
  4. Don't change DNA midstream unless you have the capital to do so. If services was the core of TradingPartners originally, they should have stuck to their knitting and branched out from where they stood rather than trying to do a 180-degree transformation.

If you're curious about broader supply risk extrapolations from TradingPartner's closure as well as specific metrics and ways to evaluate smaller suppliers and professional services firms from a risk perspective, we encourage you read our Spend Matters PRO analysis on the subject.

Postscript: Looks like recent TradingPartners CEO Mark Barnekow announced his new gig already.

- Jason Busch

Voices (11)

  1. Chirag Shah:

    I’m sorry to confirm that TradingPartners is bankrupt after all. As a former CEO of the company and now running a competing company called MarketMaker4, I had attempted to contact the Board of Directors in recent months to explore an acquisition of the business but to no avail. It seems Kennet Venture Capital (who controls the Board these days) has preferred to ‘scuttle the ship’ rather than sell the company as a ‘going concern’ to a former Board member’s competing business. This is an incredibly irresponsible step which has resulted in the unnecessary loss of many jobs and left customers without access to their information. In the past week, together with my colleagues at MarketMaker4, we have attempted to piece things back together but regrettably certain critical information has been mothballed making the recovery of services to customers very challenging.

  2. Jason Busch:

    Thanks, Chirag. All the best. We look forward to any updates to follow.

  3. Chirag Shah:

    I appreciate your journalistic efforts. The situation is more complex than you might imagine. I promise to update you when I am in a position to do so. Hopefully on Monday. Have a good weekend all

  4. Peter Smith:

    Sorry, just to be clear, I’m Jason’s business partner and editor of Spend Matters UK/Europe.
    Peter Smith

  5. Peter Smith:

    Can I just add I have tried to contact the UK based MD by email and private mobile number without any success? I would have been very happy to publish a reassuring story if anyone had chosen to give me one. And this all started with a firm – nothing at all to do with us – raising the issue of unpaid invoices and the Trading Partners London office closing with "no-one knowing where they’ve gone". Hardly designed to give confidence. So Chirag, if there’s a more positive angle to this we’d love to report it, happy to work over the weekend to write something. Just let us know what you’d like us to say.

  6. Jason Busch:

    Spiteful? Frivolous? Are we missing something here Chirag? There is a lot we have opted not to share because we believe it was extraneous to the core issues (or not constructive). We are happy to publish any statements that any parties to TradingPartners or any of the associated entities may have. But all we received was a notice from Baker Tilly.

    Please note we tried to speak to Mark Barnekow earlier this week but ended up receiving a note from him stating that "You will be receiving a statement from Baker Tilly shortly which should provide you with all the information you need." We have reprinted that statement.

    In terms of clients and employees:

    – No phone lines are working
    – The CEO is still on the website but has since taken another position (announced via press release today)
    – Baker Tilly are overseeing the administration (i.e., bankruptcy/restructuring process) of the UK entity

    Our editorial around TP and lessons learned is a summary of the many things we’ve said over the years around professional services firms and software. Nothing is new. The two have a hard time mixing. I spent 5 years of my own career trying to make the two work together.

    Is there something else we can add? Is it not fair to report on or offer perspectives/lessons learned on? Are customers / competitors / observers not entitled to perspectives from those who are not potentially party to a transaction?

    We are happy to report on any updates or information as it becomes available.

  7. Chirag Shah:

    Sorry – forgot to make disclosure: Founder and former Board member of TradingPartners

  8. Chirag Shah:

    I think this commentary is frivolous and spiteful. I advised Spend Matters earlier in the week that discussions are on-going regarding the future of TradingPartners but I was under NDA and unable to comment further. Sending out a message like this is highly irresponsible and damaging to the many employees and clients of the company.

  9. Charles Dominick, SPSM, SPSM2:

    Any idea on the ownership structure of TP? One or a few individuals? VC & founders? All third-party investors? etc.

  10. Jason Busch:

    We received this email earlier today from a supplier …

    "I have spoken to my accountant and apparently the company is still active as per Companies House with around £200k in the bank from their last accounts. Trading Limited seems to be another company at the same address. The ultimate parent is Trading Partners Holdings Limited which had approximately £500k in the bank on the last set of accounts. Are you absolutely sure that the whole group has gone into liquidation? I would be interested to know what their reasons for the administration are. From the accounts there was no going concern issue so I look forward to the liquidators report for the reasons."

    Given the complex corporate structure, perhaps the entire company is not in bankruptcy. We will report any reorganization, asset sales, etc. as information becomes available.

  11. Charles Dominick, SPSM, SPSM2:

    Nice analysis!

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