THEY JUST KEEP ON KNOCKING DOWN CUSTOMERS and so the board and investors thought it would be wise to open up the third round, give them more cash—an add-on, if you will—to continue sales and marketing efforts and continue to push,” says Steve Vivian, a partner with the Prism Opportunity Fund, which provided seed funding for the firm and has participated in all three rounds. “Their burn rate is de minimis, or so minor as to disregard,” he says.

Not just Vivian, Deborah Farrington, an investor with StarVest Partners in New York, the famed Mohanbir Sawhney at Kellogg, and others confer high praise for Chicago-based startup, Fieldglass. Recently the company signed up insurance giant Allstate for a three-year contract. Christa Degnan, a research director at Aberdeen Group, says she was not surprised to learn of the Fieldglass funding, given the promising opportunity represented by the sector at large.

“The segment has never really been adequately addressed by large corporations, but it represents an area of significant expense, with one-third to one-half of all purchasing dollars devoted to its costs,” Degnan says. She adds that the opportunity is large and worth the ongoing attention by venture capital investors. Only 128 companies implemented Web-based procurement services last year, she observes, “but when the market starts to take off, this will be huge.”

Jai Shekhawat takes the praise and interest in his stride. “Fieldglass almost didn't get started. When we first studied the space, there were five or six firms already offering pretty good products. But their business models didn't appear sustainable. They were either too closely affiliated with a supplier or tried to entirely disintermediate the supplier via an exchange,” says the co-founder and CEO. A break-away from a family that served traditionally in the Indian armed forces (Admiral Shekhawat was the Chief of the Indian Navy a few years ago), Jai Shekhawat started off with Tata Burroughs (now Unisys) as a programmer. One of his stints brought him to Atlanta, Georgia in the late Eighties. A business degree from Northwestern’s Kellogg School followed and Shekhawat joined McKinsey & Co in Chicago.

“At McKinsey, we consulted for large clients who were often contracting temporary staff in big numbers. There were many supplier-side procurement software applications, but the buyer-side was minimally served or the learning curves were steep,” recalls Shekhawat. The buyer could perceive the enterprise's problems—on one end, the company would have different projects and on the other end, different groups of contract resources. “Two very similar projects would be contracted out at different prices from the same company, and the project managers wouldn't even know,” recalls Shekhawat. One of the company’s initial insights was that the procurement methods then in use—largely paper-based, manual processes were riddled with inefficiencies. E-procurement was the obvious answer; however, people can’t be described by simple attributes such as a part number, weight or other dimension. Therefore, an entirely different approach than that applied to the e-procurement of products was needed.

With close friends Anil Kumar and Udai Kumar, Shekhawat founded Fieldglass in November 1999, initially calling it “b2bpeople.” While venture funding was in abundance, Shekhawat was careful about beginning big. “We had done a couple of successful startup companies in the services industry between the three of us, and were interested in leveraging that potential,” says the CEO. Using the offshore unit as a strong base, the team was careful in managing its spend, which has stood the company in very good stead today. “Many think that offshore development makes sense in non-core areas only, but here we have been able to develop our core product offering right out of India,” comments Shekhawat.

Built from the ground up to handle the complexities of the human capital supply chain, InSite®, Fieldglass’ marquee product, helps to fill the service procurement gap left by legacy systems, enterprise resource planning (ERP) applications and e-commerce platforms. Fieldglass’ vendor-neutral, Web-based application creates a secure, private marketplace that includes only the service suppliers the buyer selects and operates according to the organization’s unique business rules. The highly customizable system lets the organization define individual user roles, set permissions, create vendor tiers, assign accounting codes and build approval chains. The application handles the procurement of all types of services from traditional temporary workers to deliverables-based projects, consultants, offshore, legal services and a variety of business services.

“We have driven many modifications into our product from client feedback,” says Shekhawat. Two years ago, Verizon Wireless in Bedminster, NJ, selected the InSite system from Fieldglass. Verizon Wireless, which spends more than $100 million annually on contingent labor, is a PeopleSoft Inc. user, but PeopleSoft had no comprehensive product for temporary-worker procurement at the time, says Cheryl Rowden, director of IT finance.

Verizon had clear criteria for choosing an automated system. First of all, the solution had to cover contract labor from “birth to death”—it had to automate the entire process from the start of the candidate search to the final payment-a complete requisition-to-payment (“req to check”) solution. Management did not want to cobble together a partly manual and partly electronic process. “We didn’t want to have to touch a piece of paper,” says Rowden.

Second, Verizon wanted a true contract labor e-sourcing and e-procurement platform; therefore the system had to be supplier neutral. A number of contract labor supply vendors had purported to have automated procurement systems, but they were, in fact, more customer relationship management solutions to help clients access their own workforce candidates more easily instead of true sourcing tools.

Third, Verizon wanted to pay for the solution in a straight-forward manner, not charging suppliers to participate. The firm was wary of creating a situation where the suppliers would end up passing any automated solution costs they incurred to participate back to Verizon in the form of inflated rates.

Verizon chose the InSite solution from Fieldglass, as it best reflected the “req to check,” vendor-neutral approach it wanted. The company also priced the solution like a typical enterprise application, although it hosts it as an application service provider (ASP). Verizon Wireless committed to a 60-day pilot of the system with the IT/Finance department with Verizon’s New Jersey headquarters region in May 2001. Within 30 days, the company signed a permanent contract to work with Fieldglass.

InSite replaces inefficient and error-prone procedures driven by e-mail, phone calls and paper. It creates worker requisitions for hiring managers, circulates them for approval and then sends them to staffing companies. It routes the resulting bids—there must be at least three—and resumes back to the appropriate departments at Verizon Wireless. When the selected workers arrive, they are issued passwords so they can enter their time into InSite.

Verizon managers approve the resulting electronic time sheets and InSite sends them back to suppliers, who use them for billing. The electronic billing is routed for approval, before being uploaded to the PeopleSoft accounts payable system. Just the automation of the invoice payment process-for some 500 invoices a month-is a tremendous benefit, Rowden says.

The system saved Verizon Wireless some $6 million last year by eliminating over billing, reducing overtime and unauthorized spending, and making bidding more competitive, she says. Those savings don't include efficiency gains that resulted from “replacing a whole lot of people and a whole lot of paper,” Rowden adds.

Research firm Aberdeen Group of Boston identifies this software sector as fairly crowded, with venture-backed firms such as IQ Navigator Inc. of Denver and Elance Inc. of Sunnyvale, CA, active as well as publicly held companies such as Computer Horizons Corp. of Mountain Lakes, NJ, with its Chimes Inc. division, and PeopleSoft Inc. of Pleasanton, CA, and Ariba Inc. of Sunnyvale, providing competition as well. In all this, Shekhawat remains unfazed. “In 2002, for example, more than $250 billion in temporary services was purchased worldwide, with the U.S. accounting for 40% of the total, or $100 billion. By the year 2007, that total is expected to triple to $300 billion,” observes the CEO. “There is enough room for us.”

The Fieldglass system was chosen for several reasons, explains Allstate Procurement Specialist Greg Hopkins. “It most closely matched our vision of an automated system. It streamlines the hiring process, decreasing the time required to bring a quality resource on board. Importantly, it also has the potential to handle other types of contract labor beyond IT.” It was deployed in two phases. The application’s Requisition Module was first used to automate processes related to procuring and managing Information Technology contractors, including requisition creation and distribution, enforcement of negotiated rates, and onboarding.

The second phase started in March 2003 with timekeeping functionality. Time sheet information will then be electronically fed into the accounts payable module of Allstate's SAP system. “This will mean fewer inquiries for Allstate staff to handle regarding time submitted, fewer problems with reconciliation and more accurate payment to suppliers,” Hopkins says.

Shekhawat feels that this is a true reflection of his company’s expansion plans. Contract labor occurs in every facet of business, says the founder. “Large businesses—from waste management companies to oil rig outfits—use contract labor intensively. We see our product being easily adaptable for specific needs, and by being vendor-neutral, there is transparency in our data capture and information presentation.” The Fieldglass solution is based on the Java 2 Enterprise Edition (J2EE) standard, with an architecture embodying best practices from Web and client-server development as well as software patterns. The solution has been designed to either stand alone or be integrated into enterprise systems such as ERP, procurement and legacy systems. The managed solution provides service in a hosting facility with redundant Internet backbone connections, security, complete system redundancy, disaster recovery plans and 24/7 monitoring.

“At the heart of the solution is the business layer, which captures the complexities of the industry while retaining the ability to adapt to your company's particular demands. The data layer is built as a data warehouse with a normalized, open data model. The integration layer ensures that your enterprise systems have prompt, real-time access to your data,” says Shekhawat. He has raised $5 million in an add-on to the firm’s third round of funding, bringing the total raised in the round to $17 million. To date, the three year-old company has raised $28 million in venture investment.

“Clients, while hungry for results-driven products, are skeptical of claims,” says the CEO. “We take at least 9 months to close a deal and we accept this reality of today.” Non committal client-side trials have been good entry-into-the-door strategies for Fieldglass. In less than six months, the cost of the product is recovered in savings,observes an industry expert.

As Shekhawat poses against the Sears tower, he carefully chooses his vision for the company. “There are numerous opportunities out there. We are not in a rush. One client at a time,” he smiles.