Keelvar Blog

The Origins of Keelvar

September 19, 2012

author:

The Origins of Keelvar

So Where Did The Keelvar Journey Start?

CEO and founder Alan Holland grew up in an entrepreneurial family in Ireland. Dinner table discussions rarely ventured far from business. Firstly, Alan absorbed the discussions, then grew confident enough to participate. One particular story resonated strongly. It related to a businessman operating in an industry with a small number of suppliers. Supplies were expensive, and when the businessman researched the market he noticed comparable products were significantly cheaper in the UK. Customers in Ireland were getting a raw deal.

Spotting an opportunity, the entrepreneur decided to set up his own business competing in the same space but focused on offering more competitive pricing and first class customer service. The entrepreneur worked very hard for years on end to build the business. It was growing well and grew steadily for about 10 years. It was also profitable and led to 10 local jobs which was no small feat in the town they were based.

By 2000, pricing was closer to that of the UK and his company had captured circa 20% of the market. Life was good. Customers were happy as they now had a competitive offering and were getting great service.

The Backlash

Then the backlash began.

The incumbent who had been charging higher prices prior to the ‘new entrant’s’ arrival had built up significant cash reserves over the years. The market leader started pricing aggressively in the region where the new business was based. Prices fell to a level below that which would cover operating costs, let alone enough to cover capital expenditure. The  entrepreneur soldiered on, letting staff go and working longer and longer hours. Every September as the contracts went out to tender the incumbent tightened the screws further. Appeals to government buyers fell on deaf ears. This was ‘the market’ setting the price after all. They knew what was going on but were powerless to intervene.

An Academic Solution?

At this time Alan was a PhD student in the Dept of Computer Science in University College Cork, Ireland. He was aware of research coming out of Harvard & Stanford primarily, that was focused on ‘mechanism design’ and ways to improve economic efficiency. This was achieved by designing the rules of markets so that agents bidding in auctions could share more information about ways in which they could benefit from efficiencies. Alan set about tackling the problem of devising better market designs for public procurement so that government bodies can gather richer information from suppliers.

This was an area that economists had studied in depth in the 70’s and 80’s but computer scientists were now dominating the field of ‘computational mechanism design’. The reason computer scientists rather than economists were researching this far more intensively was because it had become apparent that the key to unlocking efficiencies in trade (and procurement) lay in suppliers and buyers sharing far more information about their preferences and constraints.

There was one small problem however. When you collect richer information from suppliers, it makes it more difficult to compute the winning bidders and you need to rely on smart algorithms in order to compute the most economically efficient outcome. By focusing on this area Alan was building up expertise in the most difficult part of the jigsaw – evaluating complex bids with various parameters, and combinations.

Alan graduated with a PhD in Computer Science with research that focused on ‘combinatorial auctions’ and decided to set about demonstrating the efficacy of his theory by putting it into practise in his local city council in Cork, Ireland. The council saved €300k on a €6m exercise which was exceptionally impressive for a first run.

Starting Keelvar

As Alan got talking to various suppliers across a range of different spend categories it was clear that the experiences of this new business was far from unique. The vocabulary used was language familiar to any students of industrial economics. Words like; opportunistic behaviour, bid rigging, cartels, oligopolies, and price gouging, peppered conversations he was having. However, the burden of proof was of course significant, and no competition authority had the resources to tackle such a diverse range of industries.

As a result Keelvar was born. The goal was simple – seek to secure more efficient outcomes in procurement by supporting procurers design better lots (which encouraged competition), and to elicit richer bid information and discounts from suppliers contingent on certain events occurring.

Or in other words, facilitate increased competition and ‘keep the participants honest’.  And the market opportunity was global.

Image: Source Flickr Alan Cleaver