Craneware – racing across the chasm

(By Philip Carnelley, 8 Sep 09, 18:30) In our earlier note on Craneware’s prelims for FY09 (Craneware in rude health) we wondered: can it still be called a ‘little British battler?’ Well, British it still is, despite 100% of sales to the US: it has British top management and HQ, and its software is created in that well-known offshore development location, Scotland. It’s actually the “little” part of the description that is looking less appropriate, as it celebrates its 10th anniversary year. Craneware is a classic case of the route to success mapped out by the celebrated Geoffrey Moore (in Crossing the Chasm): it has defined its own niche and done a rather good job of becoming a gorilla in that niche. OK, it may only have revenues of $23m (c £14m) but it is the largest provider (by installed base) of “Financial Improvement Solutions” to US hospitals, with an installed base of over 1000 of the US’s 5700 hospitals.

That said, its nearest competitor, Med Assets, is around ten times bigger overall, across a more diverse product range. Yet Craneware looks well-placed to grow even in the face of such competition. It has rolled out new, related products that it can cross-sell/up-sell to its installed base, as well as continuing to target the other 4,700 hospitals. Currently it has an average of 1.4 products installed per hospital – it has five products to sell, so growth potential is there. Classic Geoffrey Moore stuff.

Near-term growth is almost guaranteed. It has an unusual, five-year contract arrangement for its software, so the revenue for this year only represents around one-third of orders taken – future revenues under contract have reached $60m, an increase of 51% from a year ago, so the growth rate is rising. It has just signed a VAR deal with McKesson, a $100bn healthcare supplies and systems provider. Meantime Craneware has also improved its operating margins from 19% to 23% in the year. The other side of the chasm is in sight.