Blackbaud, Inc.

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Blackbaud, Inc.

2000 Daniel Island Drive
Charleston, South Carolina 29492-7541
U.S.A.
Telephone: (843) 216-6200
Toll Free: (800) 443-9441
Fax: (843) 216-6111
Web site: http://www.blackbaud.com

Public Company
Incorporated: 1982
Employees: 1,014
Sales: $166.3 million (2005)
Stock Exchanges: NASDAQ
Ticker Symbol: BLKB
NAIC: 511210 Software Publishers

Blackbaud, Inc., is a public company based in Charleston, South Carolina, that develops financial, fundraising, and administrative software for educational institutions and nonprofit corporations involved in such areas as religion, arts and culture, foundations, health and human services, environmental and animal welfare, and international and foreign affairs. The company also offers consulting and support services, ticketing software, Internet solutions, and prospect research solutions. All told, the company serves more than 15,000 organizations in 45 countries, including the American Red Cross, the New York Philharmonic, United Way of America, the University of Notre Dame, and Brown University. In addition to its South Carolina headquarters, Blackbaud maintains offices in Toronto, Canada; Glasgow, Scotland; and Sydney, Australia. Blackbaud's key products are The Raiser's Edge, fundraising management software; The Financial Edge, financial management software geared for nonprofits; The Education Edge, providing independent schools with finance and fundraising tools as well as admission and scheduling capabilities; The Information Edge, a business intelligence tool for nonprofits; and The Patron Edge, a ticketing management system to be used by performing arts organizations, museums, and zoos as well as for sporting events.

COMPANY FOUNDED: 1981

Blackbaud was launched by Anthony Bakker, a U.K. native who learned computer programming while studying physics in college. In 1979 he came to New York City where he was employed by Manufacturers Hanover Trust. He soon grew bored with his job at the bank and eagerly answered a newspaper help-wanted ad placed by a women's school, Manhattan's Knightingale-Bamford School, which was interested in developing a computerized billing system that could send out tuition bills and track accounts payable. Bakker won the contract and developed the program at night and on weekends while continuing to hold his job at the bank. His success with the task led to referrals and jobs with other schools. In short order he was able to quit his day job, and in 1982 he incorporated Blackbaud, a pun combining "blackboard," referring to schools, and "baud," the speed at which data travel over telephone lines. Bakker set up shop in Long Island in a one-room office above a storefront.

Blackbaud's first product was called Student Billing, an accounts receivable product customized for private K–12 schools. He peddled it to the many private schools that populated the New York City area and gradually added accounts payable and other capabilities. Out of Student Billing would grow Blackbaud's flagship product, The Raiser's Edge. A suite of accounting applications took the name Accounting for Nonprofits, which could be integrated with the fundraising package.

In 1989 Bakker, in search of a warmer climate and a less expensive place to operate than New York City, relocated Blackbaud to South Carolina, initially to Mount Pleasant. When the company outgrew its space, Bakker moved it to North Charleston. A key factor in Blackbaud's success was the changing conditions under which nonprofits operated. Money was tight and better accounting and fundraising tools became more important, but the kind of software developed for forprofit companies did not accommodate the fundraising, fund accounting, and charitable tax accounting concerns for nonprofits. Not only did Blackbaud offer software that was affordable and could serve the needs of nonprofits, it wisely made programs available on a microcomputer platform exclusively, banking on the increasing emergence of the microcomputer (personal computer) industry and the introduction of ever more powerful equipment. Indeed, nonprofits quickly began to drop their reliance on mainframe computer service bureaus and began buying microcomputers to create inhouse computer systems, which would then become potential Blackbaud customers.

BLACKBAUD EMBRACES WINDOWS EARLY: 1994

The next major step the company took in its rise to prominence was to embrace Microsoft's Windows 95 operating system in 1994. Until that time, personal computers relied on the DOS operating system, which required users to know, and type, a number of arcane commands. Apple computers, on the other hand, were employing a point-and-click graphic interface using a mouse. Windows 95 was Microsoft's bid to embrace this new kind of user-friendly operating system, but IBM was also making plans to introduce a rival system. Hence, software companies took a wait-and-see attitude. Blackbaud took a calculated gamble, betting on Microsoft, and as soon as possible converted its programs to Windows. The company's rivals were less decisive and soon virtually all new personal computers included Windows 95, and most DOS software would not run on it directly. As a result, DOS-based companies were left behind by Blackbaud, which experienced a sharp increase in sales, from $19 million in 1995 to nearly $26 million in 1996.

During this period in the mid-1990s, Blackbaud also began to swallow up some of its less nimble DOS-based competitors. They included ACOMS of Burlington, Massachusetts, which had developed a program called Impact; and Master Systems Inc. of Pinole, California, which developed Donor Master software. Then in 1997 Blackbaud swallowed its chief challenger, Indianapolis, Indiana-based Master Software Inc., and in one stroke doubled its customer base. Blackbaud wasted little time in pushing Master Software customers to move from DOS to Windows.

To this point, Blackbaud sold its products directly to customers using a small sales force spread around the country. It relied on onsite demonstrations, invitational seminars, and some direct-mail advertising. The company also realized some foreign sales by setting up offices in the United Kingdom and Australia. Although sales were growing at a fast clip, in March 1998 the company began using value-added resellers (VARs) because it came to realize that many nonprofit organizations did not buy direct and dealt only with VARs, almost all of whom employed certified public accountants. In this way, a nonprofit could deal with a local sales representative who possessed the accounting expertise it needed in setting up and using the accounting and fundraising systems. Blackbaud was able to gain a foundation of VARs when Kenrick Technologies went out of business and its personnel began representing Blackbaud products. Blackbaud soon realized that Kenrick had been making sales to clients that it did not even know of. As a result of this shift, Blackbaud's business continued to soar. Sales reached $65.6 million in 1998 and the company realized a healthy profit of $21.7 million. Those numbers would grow in 1999 to revenues of $92 million and earnings of nearly $25 million.

COMPANY PERSPECTIVES

Blackbaud is the leading global provider of software and related services designed specifically for nonprofit organizations.

After 20 years in business, and five years of explosive growth, Blackbaud was ready to enter the next phase of its growth, transforming from an entrepreneurial environment to one that was more structured. Bakker decided to sell a controlling interest in the company he launched and nourished and step away from active control. In late 1999, San Francisco-based Hellman & Friedman LLC acquired 62.5 percent of the company while JMI Equity Fund, L.P. took a smaller stake. Bakker and his family retained a 14.3 percent interest, and he continued to serve as a director on Blackbaud's board. Very quickly there was talk of making an initial public offering of stock, but in light of market conditions that step would be delayed.

In May 2000 a new chief executive officer was installed at Blackbaud, Robert Sywolski, a JMI general partner. Prior to that time he had been the chairman and CEO of North American operations of the international consulting firm of Cap Gemini SA. His personality was unlike that of the laid-back Bakker. According to the Charleston newspaper the Post and Courier, a former Blackbaud employee it interviewed said that the office "became an extremely stressful place to work. I would go in thinking, 'Jeez, am I going to get fired today?' because my stats weren't up." The paper added, "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."

Regardless of the cultural changes that took place at Blackbaud, under Sywolski's leadership the company filled out its slate of VARs and began supplementing its software packages with Internet and other capabilities, and rolling out a steady stream of new products. The Raiser's Edge received an electronic "dashboard" to provide immediate fundraising information, and Internet features that allowed an organization to manage volunteers online and conduct fundraising. Moreover, Blackbaud used the Internet to deliver three web magazines and a pair of e-newsletters to provide information to nonprofits as well as VARs and consultants. Blackbaud also added to its offerings through the 2001 acquisition of a competitor that brought with it ProspectPoint, a data-mining tool that helped an organization determine who was most likely to donate money. Blackbaud then in February 2002 introduced the latest suite of financial software programs, called The Financial Edge. A year later the company offered nonprofits another tool to locate possible patrons in WealthPoint, which analyzed real estate filings and other personal records. In 2003 Blackbaud unveiled three more products, all of which could be integrated into The Raiser's Edge program. The Patron Edge could not only manage an organization's ticketing needs, but also mine the data to get a better picture of donors, members, and visitors to help boost attendance or raise more funds. The Education Edge allowed schools to organize and share admission, registration, grading, billing, and fundraising data online. Another product taking advantage of the Internet was NetCommunity, which offered an online forum where donors and potential donors could interact and thus create a loyal network of support for an organization.

PUBLIC OFFERING: 2004

With sales reaching $118 million in 2003, Blackbaud was finally ready to tap the public market. The company's initial public offering (IPO) of stock was completed in July 2004. None of the proceeds went to the company. Rather, shareholders and executives used the offering to cash in some of their investment to the tune of nearly $65 million. Hellman & Friedman, however, elected not to participate, pulling out because market conditions were not to its liking. The company had hoped to sell 9.1 million shares at $10 to $12 a share, but in the end had to settle for 8.1 million shares at $8 each.

Having successfully navigated Blackbaud through its IPO, the 67-year-old Sywolski announced in November 2005 that he planned to step down as CEO, telling the press, "I really love this place, but at this point in my life I want to have some flexibility and contemplate other things. You've got to pack it in sometime, right." He was prepared to stay for several months while the company searched for a replacement but just a week later his successor was named, 50-year-old Marc Chardon. He was an attractive candidate on a number of levels. He was a seasoned executive, having spent 14 years with Digital France and served as the chief financial officer of an $11 billion Microsoft unit in France. Born in the United States and a Harvard graduate, Chardon also held French citizenship. His international background was especially important to Blackbaud because it wanted to expand its global business, especially in Europe.

KEY DATES

1982:: Blackbaud is founded in Long Island by Anthony Bakker.
1989:: Company relocates to South Carolina.
1994:: Company commits to Windows 95 platform.
1999:: Bakker sells company.
2004:: Company is taken public.

Chardon took over a company that produced $166.3 million in sales in 2005 and net income of $33.3 million. Business continued to improve in 2006 and Blackbaud became a favorite of Wall Street's institutional investors, its price topping $25 per share in October 2006 and continuing to climb. There certainly appeared to be plenty of opportunity available for further growth. Each year U.S. nonprofits lost about $100 billion a year due to operational inefficiencies, according to research conducted by the consulting firm of McKinsey & Company. Moreover, 20 cents of every dollar raised was consumed by fundraising. Blackbaud offered a host of solutions to alleviate these shortcomings and was likely to attract a number of new clients. Also boding well for the company was the renewal rate of its clients, which hovered around the 94 percent mark. Moreover, Blackbaud claimed to have identified additional opportunities with the nonprofit sector to keep its momentum going with new products and services.

Ed Dinger