BY LESLIE BROOKS SUZUKAMO
Pioneer Press

Nothing tests conviction like a crisis, and in 1998, only a year after it was founded, Lancet Software found itself tested in the most dire of straits.

The Burnsville company, whose software lets businesses sift though their own data for insights, lost its largest customer — the one that brought in 90 percent of its revenue. Soon there was only enough money to guarantee everyone one more payday. When a crisis like this hits, companies sometimes get closed-mouthed with their workers.

"We said no — we've been through that before," Lancet President Tom Niccum said, recalling the end of the last company he and the company's three other co-founders worked for, LifeRate Systems of Edina. LifeRate made software to evaluate medical data, a kind of predecessor to Lancet's products, but it was "circling the drain" when they left, Niccum said. It closed operations because of continuing losses in 1999 after going public in 1995, he said.

Lancet's four original founders — Niccum, Chris Holton, Rick Thorp and Jaime Plante — established Lancet in 1997 on the ideal of "open-book management," where financial information and profits are shared with employees. So they leveled with the troops, who numbered about a dozen then.

Amazingly, no one quit, Niccum said. "There were no unfounded fears. There were a lot of well-founded fears, but at least they could be calibrated" based on fact and not fear alone, he said.

The company held on and turns 9 years old in June. Now it is striving to grow and diversify so it can insulate itself from the kinds of financial ups and downs that it weathered during its formative years.

Lancet escaped premature death in 1998 by finding another large customer in North Carolina. Annual revenue grew and reached just shy of $3 million in 2000 before the tech bust, and then Lancet had to scrape by.

By 2004, revenue climbed back to $3 million. Last year, Lancet claimed sales of $3.6 million, a 20 percent improvement over the previous year. The company has been profitable except for the end of 2001, when the Sept. 11 terrorist attacks brought business to a halt for several months, Niccum said.

Lancet has 30 employees, and Niccum said it wants to expand to about 50.

Nearly all its revenue comes from building and installing complex business intelligence or BI software for Fortune 500 customers, among them Best Buy and Supervalu. Another major Twin Cities customer is Patterson Cos., ranked 770 by Fortune.

The need for business intelligence software has grown in the past 10 years, Niccum said. Large companies spend a small fortune collecting vast amounts of data on their operations and finances, and they need software filters, pattern recognition algorithms and visual "dashboard" displays to help their workers make sense of it all, such as generating sales reports daily instead of monthly, or telling a retailer whether a big weekend promotion worked.

Additionally, the cost of those features is starting to drop, so boutique firms like Lancet, as well as giants like Oracle Corp. and SAP, are beginning to market the sophisticated technology to medium-size businesses, he said.

To diversify, Lancet started a service that builds, hosts and maintains Web sites for small businesses without their own tech support.

The 2-year-old Web side of the business has about 150 customers, but provides only 10 percent of Lancet's revenue so far. To boost the Web business, the company created the "Lancet card," a prepaid account that clients can dip into to make changes to their Web sites and get other Web services.

The card itself looks exactly like prepaid cards from coffee shops and cell phone companies, and it saves Lancet the expense of sending out small invoices for each job. The savings get passed along to the customer, Niccum said.

Lancet's latest marketing gimmick is running a contest that asks companies to send in screen shots of their ugliest business Web sites. The winner, to be announced in April, will get a free Web makeover.

The early financial crisis also taught the company to have a cash reserve of about $1 million, or three months worth of salaries.

"If you can offer services for about three months, business is going to pick up again eventually — 9/11 taught us that," Niccum said.

Although the founders like to call themselves the "flounders" in a light-hearted effort to acknowledge that they are techies at heart, they believe they passed their first big management test during that crisis years ago.

They were joined by a fifth founder in 2004 — Randy Mattran, the former leader of Best Buy's Customer Centric Enterprise Data Warehouse. Before joining Lancet, Mattran helped consulting firm Accenture absorb Best Buy's information services staff when it was outsourced. Mattran said his experience working with Lancet as a customer at Best Buy persuaded him to join instead of striking out on his own.

"This was the kind of company I wanted to build myself," he said. "It would have taken me two or three years to build what Lancet already had."

Leslie Brooks Suzukamo can be reached at lsuzukamo@pioneerpress.com or 651-228-5475.

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Company Specs Name: Lancet Software Business: Builds and installs software to let companies sift their data for insights and helps businesses create and host their Web sites. Address: 11980 Portland Ave. S., Burnsville. Phone: 952-230-7360 Web site: www.lancetsoftware.com Founded: June 1997 2005 revenue: $3.6 million Employees: 30 Owners: Tom Niccum, Chris Holton, Rick Thorp, Jaime Plante and Randy Mattran. Competitors: Business software giants like SAP, Oracle and Lawson Software, IT consultancies and boutique software makers. Challenges ahead: To grow the business so it's not overly dependent on any one customer.

Lancet Software co-founder Tom Niccum recounted how the company's managers decided not to hide early difficulties from their employees. "There were no unfounded fears. There were alot of well-founded fears, but at least they could be calibrated" based on fact and not fear alone, he said.

Drew Covi, foreground, a graphic design consultant and web designer with Lancet Software, works on a web design. In the background is Serena Myers.