We sat recently with Darrell Heaps, CEO and founder of Q4 Systems. Darrell is a serial entrepreneur and on the forefront of the corporate side of financial communications. His firm, Q4 Web Systems, has created a publishing/work flow optimization platform suitable for the financial communication needs of publicly-traded corporations and is on the verge on a major release coming up this spring. Darrell shares his insights on the future of financial communications, investor relations, and how Q4 is positioned to leverage these changes.
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Can you give us a brief history of Q4 and your background?
DH: I founded Q4 with co-founder, Chris Vickerson, our CTO, in 2006. Prior to that, I ran a couple of web development companies beginning back in 1994. I sold a chunk of one, built it up and took on dot com clients. I founded a new company in 2001 as an integrated communications firm. Because we were doing a lot of corporate work, we gained a lot of exposure and insight into disclosure issues (right around when Reg FD was introduced and CCBN took off). Our initial vision was to harness our expertise in building IR websites and put it into a product.
Who was your first client?
DH: Barrick Gold was our first client – the firm requested the ability to document and backup everything on its website. We created a prototype that tracked every change happening on site (data, content, video, and documents). The system tracks deltas, every asset is assigned a time stamp and we can shift though time to view and report on the site at any given point in history. Barrick liked what we were doing and they agreed to fund the rest of the project, which we finished in 2005 and entered the market in 2006.
A lot of our early work was based on the assumption that Barrick was forward thinking (we had Bill 198 introduced in Canada which mirrors much of Sarbanes-Oxley). All of a sudden, Canadian directors and officers were being made liable for errors in disclosure. So, this need for a record of everything was early in the market. It wasn’t legislated – it was more “best practices”. Firms can use our platform to point to what was done right and learn how to correct errors, reducing liability and illustrating a certain level of due diligence and evidence of their compliance efforts.
So, tell me a bit about the product.
DH: Q4 WEB is a niche focused content management system (CMS) capable of running part of an IR/Corporate Responsibility corporate website or even broader, running an entire site on the Q4 platform. Our focus has been to incorporate ways to increase the efficiency of content dissemination by using public data feeds, regulatory files, and email alerts. Anything material. Q4 PRESS (our 2nd product) is like Google Docs on corporate steroids with enterprise-quality workflow, collaboration and tracking all built in.
What’s happened recently is that we’ve seen an increased interest in our products. With the SEC focusing on corporate websites, the website is increasingly becoming the centerpiece of company disclosure. For this to happen, firms need the ability to keep accurate records and publish according to pre-assigned approval processes.
Our product originally handled up until the last step in the approval process as collaboration happened internally. The end piece of content was then posted on a website. The feedback we got was that there was pain and inherent risk as to how information was drafted and shared in the workplace (which is primarily via Word and email).
Some firms wanted to retain records of iterations of earnings releases while others wanted to dispose of records but most firms were merely looking to maintain records and to tie up loose ends. We layered in workflow, tracking and reporting so our clients don’t need to worry about who’s involved and maintaining record sets.
Let’s drill down on the product.
DH: We spend a lot of time understanding and tracking everything 
happening in a company and hence, we’re totally focused on security – our data center is SAS 70 Type II certified. What we’re enabling through our content management system is the creation of an audit trail – tracking the beginning of content life, every iteration, and then save for review/submit/approve. Our preview state is live and gives a truly full preview across the site – you can test everything including navigation. Like archive.org, we’re a sort of corporate website time machine and more than just taking a snapshot at predetermined points in time, Q4 tracks all deltas of the assets we’re working with.
Currently, Q4 Press is not connected to our Publishing product – the next release we are working will connect these and allowing publishing out to the open web and client web sites. Via our system, our clients have complete control of the system and can allow 3rd party partners (typically, PR/IR agencies) to participate in process. A lot of workflow systems are ‘fixed’, meaning that they require users to work in a very fixed and defined way. We know that the more fixed a workflow system is, the less likely users are to actually use the system. Our products are very easy to use and allow customers to work in a flexible way at all times.
It sounds like you’re trying to compete in the platform game. So what about enabling 3rd party software applications?
DH: If you look at WordPress, it was originally a blog platform and has matured into a full-fledged content platform. From there, they’ve opened up to 3rd party plugins – we’re thinking about stuff like this for 2009 and beyond. Because of differing requirements of our customers, we have a library of about 40 modules running on top of our core product to help specialize (managing reports, presentations, etc.) usage to meet requirements. That said, disclosure standards are becoming similar across industries and we’re seeing a convergence of requirements as a whole.
Chat about your product pipeline and the launch next quarter.
DH: Over the last 6 months we have been focusing primarily on the theory of web disclosure. Starting in Q2 this year, we are going to be releasing the final steps in executing on this theory. The key is that disclosure via the web is not just about cost but also about transparency and the dissemination of information through social media and networks. As dissemination increases, which is defined as “content being written about, repeated, and shared by people”, research has shown that stocks see more volume, a tighter bid-ask spread, and less volatility. The social web is how info moves on the Internet today. Companies embracing web disclosure will enjoy greater dissemination and more efficient markets.
What’s Q4’s revenue model?
DH: We charge for subscriptions via an ASP model, on demand software, on a per seat and features basis. Typical clients pay a couple of hundred dollars per month to a couple of thousand dollars – we think that value can be delivered to the market this way to enable disclosure.
Who are your competitors?
DH: Regarding competitors, because our solutions focus on the end to end process of creating and disclosing information, we compete primarily with Word and email on our workflow and collaboration product side and primarily with IR template solutions like Thomson Financial on the corporate/IR website. Regarding CCBN, it’s a service business where clients occasionally call to make changes. We’re focused at Q4 on self publishing solutions. Think of us as WordPress tweaked for the needs of a publicly-traded corporation.
I understand how distribution is changing. What about the nature/content of financial communications?
DH: I like to address the content embedded in the disclosure separately from dissemination. What we are seeing is that the market is pushing for more disclosure and transparency. Look at the fallout from the fiasco surrounding how Apple’s CEO Steve Jobs sickness was made public. The market is demanding more transparency and disclosure – we are focused on developing tools to enable the creation of content and subsequent publishing/dissemination. We are working to remove the barriers that make it difficult to disclose and then make it efficient and free to disseminate.
Where is the industry headed?
DH: The web is continuing to evolve at a significant pace and the evolution of social media and social networks are changing the way that information is disseminated throughout the world. When you look at these trends alongside of the dramatic changes happening to financial media – with the growth of financial blogging and investing 2.0 trends we see a lot of opportunity for companies involved in the financial side of the Web and a great deal of innovation yet to come.
The next step that we see in our specific market is the evolution of the corporate web site and its ability to become a recognized channel of disclosure. We are focused on the corporate site, RSS, social media and social networks to get content disseminated through the market.
What is required at this point is tools/information in the market to help companies ensure that they are creating good quality RSS feeds. From there, we need to aggregate them and know where to find that aggregation. I know this may sound vague, but our next iteration is coming out in March. In March, we’ll be introducing our first application into the market to see if it matches our theory about how web disclosure can work.
As more and more companies better incorporate their websites into their communications, we see the demand for our products increasing as companies require more efficient ways to draft, approve, and disseminate their corporate information to the market.
Thanks, Darrell.
DH: My pleasure, Zack. Keep up the great work at New Rules of Investing. I’ve been enjoying your coverage of investing 2.0 sites lately. Great stuff.
For more information on Q4 Web Systems and how they enable a transition to the new guidelines for web disclosure, please see the presentation below:
[slideshare id=758774&doc=q4webreg-fd-2-1226887461920735-8]
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