Big money bets on business intelligence

• Reprints
• 3

Mu Sigma, which crunches data for Fortune 500 companies such as Wal-Mart, Dell and Microsoft, has raised $108 million in venture capital, marking what experts believe is one of the largest investments ever in the data analytics industry.

The Northbrook-based company, with 2010 yearly revenues of $41.5 million and 1,500 employees worldwide, will use the money to buy back shares from existing shareholders and accelerate its growth in giving data insights to its business customers.

For popular online retailer Gilt Groupe, for example, Mu Sigma crunches data to figure out who is shopping, how they shop, how many purchase goods and where they shop.

The investment brings to $150 million the total amount that the eight-year-old company has raised. The latest financing was led by General Atlantic, a Greenwich, Conn.-based private equity fund.

Mu Sigma founder and CEO Dhiraj Rajaram said the company will consider taking its stock public at some time in the future.

You read about Mu Sigma first in my Oct. 2, 2010, technology column.

Here it is, in case you missed it:

Online shopping site Gilt.com relies on the aura of exclusivity, even in the midst of recession, to give its invitation-only customers 36-hour deals on luxury fashion, travel, home decor and pampering services.

Chicago is one of Gilt’s fastest-growing markets, prompting the launch in mid-September 2010 of GiltCity (giltcity.com/chicago) to offer local shoppers deals pertinent to them. Gilt is growing quickly because Chicago members are inviting friends to join, and because the company has found retail partners here to offer exclusive deals to Chicagoans, said David Zucker, vice president of customer marketing and customer relationship management for the New York-based company.

Its target audience is the young and wealthy who are discriminating about buying only the highest-quality goods.

To offer targeted deals, Gilt.com needs critical intelligence about its customers’ demographics, shopping histories, buying behavior, and Web browsing and click-through history.

“Using analytics, we can figure out what our Helmut Lang shoppers looked at on the website, previous sales they’ve attended, the sizes and products they’ve purchased, and which parts of the country they’ve purchased in,” Zucker said, noting that Gilt doesn’t share personally identifiable information with anyone.

Zucker said he hired Northbrook-based analytics firm Mu Sigma because the company works closely with Gilt.com’s analytics team, rather than focusing on one-off projects, and gives easy-to-understand analyses.

Geekiness good

Mu Sigma’s founder and CEO, Dhiraj Rajaram, extols the company’s geekiness, saying his aim is to build the world’s largest applied-mathematics company. The company’s name and offices echo this philosophy, since “Mu” is the mean and “Sigma” signifies the standard deviation, and mathematical equations adorn the wall-length office windows.

Rajaram is nearing his goal, as Mu Sigma achieves $50 million in yearly revenue, employs 900 and counts among its clients Dell, Microsoft and 23 other Fortune 400 companies. The company ranks No. 204 in the latest list of INC magazine’s fastest-growing entrepreneurial businesses, reporting a three-year growth rate of 1,424 percent.

Seventy-five of Mu Sigma’s employees work in Chicago, while 800 work in India. Mu Sigma’s services cost one-fifth that of typical management consulting fees.

Zucker said a company the size of Gilt, with 500 employees and a projected $400 million in revenues this year, must “balance quality and cost-effectiveness.”

“Mu Sigma provides a more cost-effective avenue” than hiring an analytics staff, he said.

Rajaram started the company six years ago after his work as a strategy consultant for Booz Allen Hamilton illustrated the need for applied math talent to help companies make better decisions.

“Every 18 months, the amount of data doubles. I saw that organizations needed to be more data-driven in making decisions, and that this is an irreversible trend,” Rajaram said.

“I never thought of myself as an entrepreneur. I call myself an entrepreneur by chance,” said Rajaram, a native of India who has called Chicago his home for 14 years. He holds a master’s degree in computer engineering from Wayne State University and an MBA from the University of Chicago.

Microsoft provided big break

Rajaram put up the equity in his home to start the business, and it got its first big break from Microsoft.

The company must make extra efforts to attract and train Americans who are mathematically skilled because of the scarcity of math majors and young people interested in careers as statisticians, applied mathematicians and econometricians. It runs Mu Sigma University and puts new hires through rigorous training so that they understand consulting principles, applied math tenets and using technology to solve business problems.

Rajaram foresees huge growth as data becomes ubiquitous, estimating that Mu Sigma will double its revenues to $100 million and eventually employ 2,000 to 3,000 in the next three years. He also foresees the day when behavioral science will play a larger role in helping companies make decisions.

Longing for ‘verb’ status

Rajaram dreams of the day when Mu Sigma becomes a verb, similar to Google and FedEx, in which people say, ‘Google for the answer,’ or ‘FedEx this package.’

Dave Frankland, a customer intelligence analyst for Forrester Research, said Mu Sigma must fight to keep its analytical service from becoming a commodity.

“The basics don’t differentiate Mu Sigma. It comes down to what the company delivers for clients,” he said, noting that an array of competitors offer analytics services, including the Allant Group in Naperville and Euro RSCG Discovery in Chicago.

Outsourcing, privacy issues

Mu Sigma also must deal with two hot-button issues: outsourcing and privacy.

The company follows a model that Frankland described as “classic business process outsourcing” by employing most of its staff in India. So its challenge will be to quickly build its business-savvy reputation in order to be taken seriously as a strategic adviser rather than being picked as a cost-savings initiative, Frankland said.

Privacy will become a growing concern as more data are crunched and as Mu Sigma and others drill down into deeper details about clients’ customers, such as Gilt.com’s shoppers.

Mu Sigma and its rivals “are creating really complex, involved and sophisticated views of customers,” Frankland said. “Some consumers have issues with this. We describe the privacy issue as a ticking time bomb. If new privacy restrictions are imposed, it will change the way a lot of companies do business.”