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Rising Star Buy: InnerWorkings

Sean Sun
February 8, 2011

This article is part of our Rising Star Portfolios series. Sean is co-manager of the Dada Portfolio.

One of my favorite philosophical traditions from which to draw eternally relevant aphorisms is Daoism. Perhaps not as well known to the Western world as famous names like Zen or traditional Buddhism, in Chinese, Daoism is simply known as "the way" and espouses a philosophy of attaining harmony with the universe. But a key nuance is recognizing that harmony is not static and unchanging; harmony involves understanding that everything is forever in flux and that as the universe changes, so must the individual.

The Dao of printing
While you ponder that spiritual insight, let me now argue that we may find investing and business wisdom in that truism as well. Take the printing industry: While it's become fairly standard business practice to outsource a company's payroll management to ADP or website hosting to Rackspace, a lot of companies still haven't recognized the efficiency of outsourcing their printing needs. On the surface, it seems simply arcane: Why keep such a specialized operation in-house? That's anachronism No. 1: The universe has changed, but outdated printing practices have stubbornly remained.

Anachronism No. 2: Those organizations that have brought themselves past the 19th century have, on the whole, refused to enter the 21st. Back in the glorious 1990s, for instance, if I bought a book it'd be from the local bookstore. I didn't know if I was getting a decent price, but I didn't really have much of a choice. Fast-forward 10 or so years: I now buy books from because I know it'll aggregate and find the cheapest suppliers and give me, the customer, the absolute best price anywhere. Makes sense right? Yet again, the printing industry and its customers have steadfastly refused to acknowledge the myriad efficiencies that having this sort of centralized, aggregating network can deliver. Joe Company goes to Jane Printer for no other reason than, well, that's just the way it's always been done.

Disruption: An act of delaying or interrupting the continuity
With two major Luddite holdovers, the printing industry has been in need of a disruptive savior for a long time. InnerWorkings (Nasdaq: INWK  ) may just be its Moses. The company commenced operations in 2002 and has grown revenue from $5 million to $460 million. At the heart of this miracle growth has been PPM4, InnerWorkings's proprietary software platform that aggregates the company's supplier network, figures out who in this network can do a given job at the best price, then passes on the savings to its corporate clients.

To be clear, InnerWorkings doesn't do any in-house printing. But unlike other print brokers, the company doesn't rely on just an old boy's network. InnerWorkings consolidates information on more than 8,000 printers – their equipment, their capabilities, past jobs that they've run, and the prices they ran them at. When an organization comes to InnerWorkings for a print job, a procurement manager can search through this