Blackbaud is booming

Success is nothing new for Blackbaud Inc., but there's plenty going on at the software company that is new.

One of Charleston's biggest business success stories, the Daniel Island company had a $65 million public offering in July in a lackluster market, and its first quarter out of the gate was better than expected. Blackbaud shares are now trading on Nasdaq at around $13, about 63 percent up from the IPO price. Every stock analyst who covers the company currently advises picking up some BLKB.

New products are pouring out of Blackbaud's development pipeline, too, and there's also a new push to add bigger clients to its customer base. All of those developments followed in the wake of the biggest change: new ownership and the handover of the company's top executive position.

Since British entrepreneur Tony Bakker launched Blackbaud in 1982 to develop software and services that help nonprofits raise funds, it has grown steadily and negotiated a series of hurdles, including the advent of Windows and the Internet. In 2000, Bakker sold his controlling interest to two venture-capital firms, Hellman & Friedman and JMI Equity Fund, and Robert J. Sywolski stepped in as the new chief executive officer. Since then, Sywolski has pushed his team to develop and roll out new product offerings. He's also aimed more of his sales staff at the industry's 800-pound gorillas, nonprofits like the American Red Cross.

Early this year, the company started doing business with the United Way, an organization that gets more than $4 billion a year nationwide in donations.Ultimately, Sywolski has helped generate new growth opportunities, branches of revenue that will win bigger clients and keep paying off big in the days ahead as competition heats up and more companies try to lay claim to the territory of nonprofit software.

STYLE SHIFT

Sywolski brings a new style to running Blackbaud, one that's more suited to a company that has moved past the startup stage. "Tony's a brilliantly successful entrepreneur, and I'm a brilliantly successful professional manager," he said. "It is different. It's totally different."

Sywolski gives Bakker much of the credit for where Blackbaud is today. "He avoided the classical pitfall, which is trying to be all things to all people," he said.

Bakker developed Blackbaud's foremost software product, "RaisersEdge," which organizes and processes data about nonprofit donors, potential donors and gifts. It remains Blackbaud's core offering, but now the company has a host of software applications that dig up more information, slice and dice data a number of different ways and thoroughly account for all philanthropic activity on the books.

In early 2001, Blackbaud bought a competitor and started offering ProspectPoint, a data-mining research service that turns up names of people likely to donate money. About a year later it rolled out FinancialEdge, a program for nonprofit-specific accounting. And early last year Blackbaud started selling "WealthPoint," another research service that drills personal records such as real estate filings to identify high-rolling targets for nonprofits.

Three more Blackbaud products hit the market this year: EducationEdge, which organizes school admission and registration data; PatronEdge, which links philanthropy to box offices, connecting giving patterns with ticket sales; and NetCommunity, which links donors and potential donors in an Internet forum and builds profiles of them through their Web actions. All of these products are built on the original RaisersEdge base and are designed to work in concert with it.

Sywolski puts it simply: As a package, the software tells a nonprofit very clearly who should receive a brochure asking for funds and who should be taken to lunch. It also helps nonprofits avoid common missteps, like telling a top-level donor that the show is sold out when he asks for a couple of extra tickets. "I've been around the software business for about 1,000 years, and this is interesting," Sywolski said of the company's recent changes. "It's so significant in terms of redefining the company and sort of interesting and cool."

PEOPLE POWER

Sywolski came to the Lowcountry from a Baltimore-based, venture-capital firm and previously headed North American operations for Cap Gemini, a giant multinational consulting firm. He said he didn't come to Blackbaud with a blueprint or grand vision for all the recent changes. "I was just scared to death," he explained.

Rather, Sywolski relied on a long-developed management style that focuses on hiring and cultivating "high-performance animals." He came up with the rest as he went along. "That's been my philosophy throughout my career, to spend a huge amount of time to acquire a small number of really terrific people," he said. "We have what I call a really low jerk-factor."

The pace that Sywolski has set and the controls Blackbaud managers put in place under his watch have alienated some employees. Annual turnover is more than 20 percent. Sywolski is not happy with that. And when asked his downfalls as a manager, he readily conceded that he is impatient and has a "tendency to impose multiple priorities simultaneously."

One former Blackbaud employee, who asked that his name not be used, said the CEO switch from Bakker to Sywolski was "like night and day." "It just became an extremely stressful place to work," he said. "I would go in thinking, 'Jeez, am I going to get fired today?' because my stats weren't up." Bonuses and raises became much smaller, time was more closely monitored, and happy hours became sessions to gripe about work, according to the worker, who was at Blackbaud for five years. But the former employee also noted that there was a sense of excitement about developing new products and ramping up to become a public company.

Sywolski said he is a stickler for data and procedure, but he also tries to cultivate passion. "In my opinion, it's really important that we not lose that entrepreneurial spirit that each individual has," he said. "That's sort of the magic potion."

Turnover aside, the approach Sywolski and his team have taken is working. In the most recent quarter ending Sept. 30, Blackbaud swung to a $7.6 million profit from a $52,000 loss in the year-earlier period. Thanks in part to its new product offerings, it reported $36.2 million in revenue, 19.2 percent more than in the third quarter of 2003.

GROWTH POTENTIAL

The company has about 12,500 customers, and there are about 360,000 nonprofits in America alone that raise money, offering Blackbaud plenty of room to grow. Sywolski said Blackbaud essentially "dwarfs" the sector in terms of market share. But nonprofits have lagged commercial businesses when it comes to investing in technology, a trend that has hamstrung Blackbaud somewhat.

"Unfortunately, people have kind of squished the funnel and not allowed them to spend the kinds of money that they need to spend on infrastructure," Sywolski said. "Because the first question you ask after you give $50 is how much of it goes to feed hungry people."

Sywolski argues that nonprofits should operate more like traditional businesses instead of taking a "simplistic view" of costs. It takes money to make money, something that more nonprofits are realizing based on Blackbaud's books. The company's revenue has grown at an average annual rate of 13.6 percent over the past five years.

The road ahead for Blackbaud is not without risks. Though well-known among nonprofits, Blackbaud still doesn't have the name recognition of a Microsoft, Oracle or PeopleSoft. If one of the big software companies invades its market with similar products, Blackbaud might take a big knock. It's also concerned that some of its data-mining products, ProspectPoint and WealthPoint, might run afoul of privacy laws and lead to lawsuits. And employees -- including Sywolski -- are still sitting on millions of stock options. Those could take a heavy toll on the bottom line when they are cashed in, especially if Blackbaud's market value keeps climbing.

For the time being, Sywolski is keeping his nose to the grindstone. He's looking for complementary companies to snap up. And, as always, he is focused on hiring top-notch businesspeople (especially sales staff) and cultivating a professional environment. "This is not a religious experience," he said. "We don't drink the Kool-Aid. That was the dot-com era, and we all know how that turned out."