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Help wanted, must know programming....

How two insurance guys helped build a software company on rented expertise.

The two conventioneers sat around a table, whining and dining: Richard Weber, a nationally recognized insurance expert from Tampa, Fla., and Jim Powers, a leading policy risk analyst from Albany.

Their industry had a credibility problem. Hundreds of unhappy customers were filing class-action lawsuits against insurance companies. Why? Policyholders who bought life insurance to avoid one kind of risk didn't understand that with some policies you can wind up with another risk. If underfunded, most policies can unexpectedly lose their cash value, lapse or become nonrenewable. Industry regulators tried to mandate more policy disclosures, but may have unwittingly added pages of confusion.

"A single compliant paper illustration can now run 20-plus pages," says Powers. Only a computer could give consumers and agents the information they needed to recognize, measure and analyze a policy's inherent risks.

Powers and Weber had a problem, too. They'd brainstormed a computer-based solution to this industrial dilemma, but they didn't know how to create or market it. They had no relevant computer experience, unless you count generic accounting programs, spreadsheets or flight simulators. No money. No national marketing experience, tech support or fancy physical plant (the women's restroom in Powers' office doubles as a computer room, trophy storage area and coffee pot cleaning corner). The entrepreneurs' only option, other than dropping the Dynamic Illustration System idea altogether, was outsourcing.

"Outsourcing, like greatness, can be thrust upon a guy," says Powers.

Powers and Weber called two industry experts: Martin Satinsky, a CPA and lawyer from Philadelphia, and Bob Littell, an Atlanta broker who specializes in difficult cases. Satinsky and Littell immediately recognized DIS's potential. The four formed Second Opinion Financial Systems Inc. and started outsourcing with a vengeance. By the time it was over, the partners would have more than their share of headaches, from dropped balls to crossed wires to astronomical phone bills. But they'd also achieved something they couldn't have any otherwise: a successful company that took just 12 months to get off the ground. And for that alone, Jim Powers says he'd do it all over again.

The first thing the partners did was put their vision into words. The program had to be easy to use and fast - able to calculate and regraph multiple policy illustrations in seconds. It had to provide serious information visually, using a fun and effective format. The goal was to educate rather than to sell; to show agents and their customers the effect of changing economic conditions on any policy.

"An educated consumer is a happy consumer," Powers says. "An agent who educates his clients is a secure agent. He's less likely to lose prospects to agents who pretend to have a 'better priced' policy or to be sued for policy non-performance."

Next the partners started looking for appropriate outsourcers. Bob Littell mentioned Buchanan & Associates, an actuarial firm in Kansas City that also did computer programming. It sounded like a good match. The partners met with the firm and within days brought the Kansas City crew on board.

Two months later, just before the demo beta version 1.0 was to be completed, Buchanan & Associates' principal programmer jumped ship. The Second Opinion partners were devastated.

"We had hundreds of hours invested in him and now nobody knew how the project would proceed," Powers recalls. He and his partners were plagued by ifs. If the programmer had been on our staff we might have known what was going on. If he'd been in our office we might have predicted (or prevented) his departure. If the programmer worked for us he might have had some project loyalty. Of course, Powers had to acknowledge, if we'd been forced to hire our own programmer we'd still be looking.

A new programmer entered the picture. Though also employed by Buchanan & Associates, he presented a completely different challenge, one reminiscent of the child's game of telephone. He outsourced much of the DIS design to a second tier of contractors, creating a communications and deadline nightmare. Second Opinion had even less control over the situation than it had before. "It was a challenge," Powers confesses. "We had to be extremely organized and clear about what we wanted."

People weren't the only outsourcing problem - technology also took a shot. The web page designer moved to Switzerland and took the Second Opinion's account with him. He also recommended that the partners sign up with a European distributor. That was agreeable to the clan; after all, they lived in different corners of the country and did virtually everything via e-mail and FTP. What's the difference between e-mailing a message four miles or 14,000 miles?

"All the difference in the world," Powers says. "The phone service in Europe is terrible. Communicating via phones was a $2-a-minute mess."

Some of Second Opinion's outsourcing, however, was pleasantly simple. Financial Profiles Inc. in Carlsbad, Calif., was an inspired choice to handle the national marketing and tech support. While the Second Opinion partners had tremendous visibility and credibility in the insurance industry, they had neither in the software field. Financial Profiles, which has thousands of software clients, many of them insurance companies, easily filled the gap.

"It takes time to create your own credibility," Powers explains. "We didn't have the time to spare; Financial Profiles had already made the investment."

Thousands of insurance agents who wouldn't have given Second Opinion a second glance were willing to take a flyer with a Financial Profiles' favorite.

All's well that ends profitably.

The Dynamic Illustration System software has been a financial and critical success.

"It's an incredible program," gushes industry guru Ben Baldwin, author of "The New Life Insurance Investment Advisor." "It communicates what has not been communicated well in the life insurance industry."

Second Opinion's outsourcing, though fast and expert-efficient, took its toll. "Thomas Edison said invention was 1% inspiration and 99% perspiration," says Powers. "If you're outsourcing your invention, you can count on 1% inspiration, 2% frustration, 50% coordination and 50% communication."

But that's over 100%...

"Don't I know it," Powers says with a sigh.

SECOND OPINION'S GAME PLAN

What the partners had

* A strong reputation in the life insurance industry

* Professional contacts

* Documented need for product

* Strong conceptual skills

What they needed

* Graphics expertise

* Computer programming

* National sales and marketing

* Technical support

* Legal services

THE BENEFITS OF OUTSOURCING

* Fast product development. Second Opinion completed its first software demo in six months.

* Access to expertise and the ability to specialize.

* Instant credibility and sales. Second Opinion was helped by Financial Profiles Inc., an established software company.

* Valuable industry feedback.

* Low-cost development. The first DIS demo cost less than one-sixth of what it would have cost to create in-house.

THE DRAWBACKS

* Communication with and between subcontractors can become muddled.

* Coordination. Sometimes the left hand doesn't know what the right hand is doing.

* Prioritizing. Second Opinion's No. 1 priority is only one of many for its subs.

* Deadlines, You have yours, they have theirs and seldom do the twain meet.

* Less direct control, Sometimes a boss has more pull than a customer.
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Title Annotation:Second Opinion Financial Systems Inc
Author:Tylczak, Lynn
Publication:Oregon Business
Date:Jun 1, 1998
Words:1179
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