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In the first installment of a two-part conversation, Captiva Software President and CEO Reynolds Bish describes the company's evolution toward providing a single-platform
for managing multiple streams of incoming data and documents.

The evolution of Captiva Software (San Diego) parallels much of the evolution of document imaging and forms processing software. As capture software has grown — in terms of both functionality and vertical market reach — so has Captiva's line of products and solutions. Of course, Captiva is not unique in expanding its feature sets and niche vertical packages as technologies evolve. But, what sets Captiva apart from many of its competitors (Captiva might argue all of its competitors) is significant acquisition-driven growth. In just the last two to three years, Captiva CEO Reynolds Bish has catalyzed increases in annual revenue from the $50 million range to the $70 million range. Bish now has his sights set on $100 million in annual revenue, a threshold he expects the company to cross in the next three to five years.

Much of the past growth — and, presumably, future growth — can be attributed to expansion by acquisition. I recently caught up with Bish at Capture 2004, Captiva Software's annual input management technology conference. During a lengthy conversation, Bish traced the company's history, pointing to key events that reveal a pattern of aggressive expansion of its solutions sets and market reach.

Tom: With recent releases, such as Digital Mailroom and InputAccel for Invoices, Captiva Software seems to be broadening its offerings by targeting niche applications. Is this consistent with the way the company has traditionally brought new products to market?

Reynolds: Actually, when we started, in the late 1980s, the market need we now refer to as input management was handled by proprietary systems from a slew of vendors. There must have been a hundred thousand or so of those proprietary systems out there. They were used by data entry operators to input information from documents into computer systems. These input systems were efficient, yet they were limited in their applicability and portability to particular vertical market needs. So, our initial goal was simply to provide similar capabilities but on a more flexible, non-proprietary platform. We set out to design software that could run on PCs connected to LANs. Once you provide software running on an open platform, you have a system that can be used for data entry but also for other applications, including word processing. We experienced some good early success in migrating some of those systems over to our products.

Then in the early 90s, a customer asked us to develop the ability to key from images. We did that. Then, for another customer, we developed the ability to key to the image so they could key exceptions back into the images to correct them. That piece of functionality complemented inline recognition capabilities built into high-end production scanners. The solution essentially relied on hardware-based OCR [optical character recognition], which was very expensive.

Did you continue down that path, working on solutions that were compatible with high-end scanners?

No. At around that time, we surveyed the competition and saw a host of newcomers taking a different approach to input. They weren't taking the data entry approach, they weren't relying on key from image, and they weren't integrating inline recognition capabilities on large scanners. Rather, they were applying forms processing technologies.

We saw that we would have to know how to scan forms and apply image-processing technologies, both for character recognition and for viewing. And, we would have to be able to extract the data and deliver it to a variety of systems. And, oh by the way, we would have to be able to do that for under $100,000 and not be reliant on million-dollar high-end scanning equipment.

Companies who were already doing forms processing back then included Microsystems Technology [now AnyDoc] and Datacap. We realized that, if those companies continued to have success and we didn't adapt, they would eat our lunch.

So, we took all the expertise and technology we had developed doing image data entry and working with large page scanners. Those efforts resulted in the release of FormWare, which was our entry into the forms processing software market.

Did FormWare immediately make you a player in the forms processing market?

Well, it did make quite a splash. We introduced it at AIIM in Chicago in 1996 and won the AIIM Show Stopper award for the most interesting new product. I'll never forget that. We win awards all the time now, but that was the first time we had ever won anything. We were so proud of that. Later that fall, we partnered with Lockheed Martin to do the 2000 Census. At that point in our history, that was the biggest deal we had been involved in. So, we definitely felt as though we were gaining momentum with the release of FormWare.

At that point, did you feel as though Captiva's core areas of expertise had been established?

Yes and no. We certainly knew there were aspects of input we needed to get better at handling. We felt we understood how to do data entry, and we were gaining confidence in doing forms processing. But, we also knew that character recognition technology wasn't our strength. So, in 1997, we made our first acquisition. We acquired Symbus Technologies, which had expertise in character recognition technologies rooted in neuroscience. Not only did we pick up character recognition expertise but we also picked up niche market expertise in processing medical claims.

Did that whet the appetite for additional growth via acquisition?

Oh, sure. Suddenly, we thought we were mergers and acquisitions experts. So, the following year we acquired a company called Wheb Systems. As with the first acquisition, our primary incentive was to rapidly get bigger. And, again, we picked up some vertical market expertise — in particular, expertise in state tax processing, direct marketing, and banking. We also picked up Wheb Systems' professional services group. At that time, a lot of IT departments were overburdened and wanted to outsource their imaging.

So, had Captiva in fact become a mergers and acquisition expert?

Well, that second acquisition turned out to be more difficult than the first, primarily because of timing. At that time, the industry was in the early stages of the Internet bubble. Until that point, we had been getting 70% of our revenue from the VAR and system integrator channel, and only about 30% from direct sales. We had a vision of doing 90% through the VAR and integrator channel.

Unfortunately, during the Internet bubble, there was a lot of hype about paper going away. Consequently, few companies were interested in automating paper-based processes. In fact, a substantial number of our VARs and integrators abandoned us in favor of deploying e-commerce applications for their customers. We necessarily had to re-invent ourselves as more of a direct sales organization, and that made the timing of the Wheb Systems acquisition difficult to accommodate.

Of course, the company survived the transition. Obviously, we're at a well-attended conference that shows clear signs of Captiva having a sizable customer base and steady product development.

Yes, we struggled through the Internet bubble but we made it through to the other side. When the bubble finally burst, we started selling again and quickly returned to profitability.

And, Captiva doesn't seem to have hesitated to get back on the mergers and acquisition path.

Right. In July 2002, we effected our third acquisition, which was ActionPoint. From a legal standpoint, what actually happened was that ActionPoint, a public company, acquired my private company and changed its name to Captiva Software. My management team and I then assumed control of the overall organization.

That was a defining moment in the history of the company. We nearly doubled the size of the company overnight. Our private company revenues were $24 million the previous year. ActionPoint came in as a $22 million company.

Was it simply the immediate leap in size that made the ActionPoint acquisition a defining moment? Or, was there something equally or even more significant about the technology involved?

It was a definitely a defining moment in terms of the technology as well. The ActionPoint acquisition signaled the true beginning of our emergence as a single platform input management provider. Between 1996, when we introduced FormWare, until 2002, we watched other companies — principally ActionPoint and Kofax — develop products along parallel technology paths. Rather than emphasizing forms processing, where the goal is to get business critical information out of forms and documents and into a computer system, ActionPoint and Kofax were emphasizing document capture. Compared to its significance in forms processing, the data in a capture application is less important because all you're capturing is metadata for indexing purposes. What you really want is the image. The forms processing vendors' products were optimized for capturing data. ActionPoint and Kofax were optimizing their products for capturing images. We were determined to be a single vendor with a single platform that could do both. That's what drove us to the merger with ActionPoint. It gave us the ability to bring both capabilities onto a single platform. Secondly, we got a lot larger a lot faster. We always felt that becoming a bigger and bigger company and gathering more resources for product development and support would increasingly distinguish us from others in the market.

Most recently, in January of 2004, Captiva acquired ADP Context. Compared to ActionPoint, that was a much smaller company. So, I'm guessing the "get bigger faster" motivation wasn't the driving force in that acquisition. What particular capabilities or niche expertise possibilities attracted you to that company?

Coming out of ActionPoint merger, we developed our initiative on input management, which combines document capture and forms processing. We wanted to give customers a single input management platform that can handle incoming forms and documents in both paper and electronic formats. For example, a credit card application is a credit card application whether it's being submitted on paper, by fax, through a call center, or through an Internet application. Why should an organization invest in redundant systems to manage those various input streams, when ultimately it's the same form, document, or transaction? We continue to pursue that broad vision of input management, and ADP Context helped us with a particular vertical application. ADP Context's expertise was in processing medical claims submitted electronically. We already had significant vertical market expertise in the insurance arena, with about 20% of our revenue in 2003 coming from that market segment. A significant portion of our work in insurance involved automating paper-based medical claims processing.

You mentioned that the goal all along has been to build a single input management platform. You've gone through several acquisitions in an effort to build and expand that platform. What's the next piece, in terms of functionality, that you feel you'll need to add, either by development or by acquisition?

We have and will continue to grow our business organically, in addition to growing it by acquisition. As for acquisitions, we will be seeking additional consolidation in the input management segment. In the process, we'll pick up additional geographic coverage, additional vertical market coverage, and/or technologies to augment our existing technologies. I want to be clear on one thing, though. We will make no efforts to move over into other segments in the enterprise content management market. We have no interest in competing with vendors of workflow, document management, records management, Web content management, collaboration, and so on. We want to remain agnostic to them and partner with them.

Tom von Gunden is chief editor of Doc Management Online, Content Mgt Online, and IT Storage Online