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New ERP Vendors & Competitors Emerging

Competition Increasing in ERP - A Good Development

My good friend Vinnie Mirchandani, the author of Deal Architect (www.dealarchitect.typepad.com), and I were comparing software market tidbits out by Midway Airport last week.

One of things we discussed was Compiere's recent $6 million venture raise. Compiere is an open source provider of ERP software. Given its open source architecture, its solutions should be less expensive to own and operate. That is, Compiere should be a low TCO product.

I first learned of Compiere at one of MR Rangaswami's Software shows. While I wondered whether the world needed another ERP vendor at the time, subsequent market consolidation in this space would indicate that another player or two are needed to provide options and low pricing to software buyers.

I also spoke with the President of Agresso North America, Shelley Zapp, last week. It was a great call and I heard how Agresso is planning to aggressively (no pun intended) penetrate the North American market. Agresso will go after service industries here and promote their post-implementation flexibility. That flexibility capability is something that should resonate well with ERP users everywhere who find themselves shackled to products that promised infinite pre-implementation flexibility but offered little or no post-implementation change options.

Workday is another emerging ERP vendor. While I've had the pleasure of visiting the A-team that Dave Duffield has assembled, I cannot discuss their product plans due to NDA. I will say that I have relatively optimistic expectations of this group.

All in all, competition is increasing for ERP software and the timing is good for everyone. We can expect a growing number of ERP replacement deals in the coming years as those companies that bought ERP to mitigate Y2K concerns may start looking for new products.

We can expect competition to shape up around the following themes:

- low cost solutions - Expect MSFT, Compiere, and old school vendors to wage war here

- post-implementation flexibility - Agresso may stake this out but expect some the SOA vendors to promote this theme, too

- SOA - If vendors can translate this into business value, it might sell. Currently, Oracle and SAP are playing this card.

There will be other competitors, too. The ubiquitous "Business As Usual" will delay deal flow. But, so will BPO vendors, hosted providers and other SaaS solutions.

This looks like a fun space to watch.

Empathy Training

          Empathy Training - New but Necessary

I used to be on the other side of hundreds of software sales pitches. I heard one sales person after another pitching woo to prospective buyers. Empathy was almost never a quality/attribute I ever saw with most sales professionals.

Many of them sell software like car dealers (i.e., "This price is only good for today" or "Tell me what kind of budget you have and we'll see what we can put you into"). They listen only long enough to make the sale. No more and no less.

BusinessWeek (www.businessweek.com, "Death of a Pushy Salesman", 7/3/2006) had a nice piece on Empathy Training. This training helps sales professionals do a better job of listening to prospects - a lot of listening! The results have already worked well for one tech company mentioned in the article.

Empathy skills development is already spawning a growth industry in people providing this training to sales organizations. Not surprisingly, some sales professionals have balked at it. Apparently, Empathy skills development requires sales organizations to re-evaluate their team and create the means to collect 360 degree feedback on them. Next, sales professionals are taught to say nothing. This is something I'd pay to see; however, it would certainly be better than having a sales person doing playback (i.e., when the sales person repeats back/restates everything the customer says).

While I applaud firms that get their sales teams to be more empathetic, this is a trait that should have been there all along. Additionally, empathy skills that are deployed via a bad selling style (e.g., function/feature selling) or non-existent or poor collateral are wasted.

Read the BusinessWeek piece.

Empathy Training

          Empathy Training - New but Necessary

I used to be on the other side of hundreds of software sales pitches. I heard one sales person after another pitching woo to prospective buyers. Empathy was almost never a quality/attribute I ever saw with most sales professionals.

Many of them sell software like car dealers (i.e., "This price is only good for today" or "Tell me what kind of budget you have and we'll see what we can put you into"). They listen only long enough to make the sale. No more and no less.

BusinessWeek (www.businessweek.com, "Death of a Pushy Salesman", 7/3/2006) had a nice piece on Empathy Training. This training helps sales professionals do a better job of listening to prospects - a lot of listening! The results have already worked well for one tech company mentioned in the article.

Empathy skills development is already spawning a growth industry in people providing this training to sales organizations. Not surprisingly, some sales professionals have balked at it. Apparently, Empathy skills development requires sales organizations to re-evaluate their team and create the means to collect 360 degree feedback on them. Next, sales professionals are taught to say nothing. This is something I'd pay to see; however, it would certainly be better than having a sales person doing playback (i.e., when the sales person repeats back/restates everything the customer says).

While I applaud firms that get their sales teams to be more empathetic, this is a trait that should have been there all along. Additionally, empathy skills that are deployed via a bad selling style (e.g., function/feature selling) or non-existent or poor collateral are wasted.

Read the BusinessWeek piece.

Messman is Out

                  Guard Change at Novell

Story:

InfoWorld reports that Jack Messman and Joseph Tibbitts, the respective CEO and CFO of Novell, were cut loose by the Novell board (http://www.infoworld.com/article/06/06/22/79551_HNnovellce0ousted_1.html?source=NLC-TB2006-06-22).

Analysis:

Novell hasn't been knocking them down in droves for the last few years. Sales the last couple of years have been flat or down. Profits made a return this last year but growth has eluded the company .

Novell has bet big on Linux and as more companies like Novell embrace it, the better that whole space will be. However, a change in leadership may not be enough to re-right Novell. They are in a market with tough, low-cost competitors (e.g., RedHat).

The best software company leaders, as I've written before, are visionaries. Robert X. Cringely, in his book Accidental Empires, identified two critical people that must be present in any successful software firm: the Hippie and the Geek. The Hippie comes up with phenomenal, far-out ideas (i.e., the vision) that captivate and enthrall prospective customers. The geek is in the top 1% of the top 1% of programmers worldwide. The geek enables the hippie's vision.

Messman was formerly the #1 guy at Cambridge Technology Partners (CTP). His firm was absorbed by Novell in 2001. CTP was a systems integrator/consultancy. There really haven't been too many former consultants lead software firms to high growth futures. In fact, when finance chiefs, administrators and other non-Hippies are given the helm, the results are usually moribund. The company moves along much as it did for a while and then fortunes begin to decline.

Whether or not Mr. Messman was hippie-enough or not, we may never know. What we do know is:

- a change was needed now

- the new leadership will really need to work doubly hard to get growth back into the Novell numbers

More Contracting Info

             Software Licensing - Part Two

Story:

Interesting piece on software license management in Software Magazine (www.softwaremag.com/L.cfm?Doc=943-5/2006 ). The article comments on the difficulty companies have staying in compliance with contracts and under changing circumstances (e.g., migration of software to a multicore hyper-threading computer. There are some interesting stats and graphics in this piece from Macrovision.

Analysis:

Probably the best advice I have is for software users to:

- get very familiar with their existing software contracts (if they can locate them)

- verify what the contracts really allow you. In-house and/or outside counsel is helpful here.

- develop strategies first, discuss them with vendors prior to instigating any changes. Vendors have no leverage over users until after they're in breach of their contract.

- leave options open.

- understand how important (or unimportant) your firm is to the vendor. If you're their largest, most visible user, they'll be maleable. If you're a smaller firm, one of thousands, start praying. These discussions could get really mean and ugly.

Threatening to be a negative reference or bolting to another vendor seldom works with vendors. Why? Most of them know you can't afford the switching costs to change and your executive team won't permit the change. If you're going to go this route, make sure the story is plausible and evidence points to this being a credible event.

Stats on ERP

                       Back Pocket Stats

www.crn.com - Computer Reseller News reported on 5/15/2006 (The Big Picture on Profitability) that Back-Office Software is experiencing 12.2% growth the last 12 months with profit margins of 21.5%. Other segment stats were also available.

ARC Advisory reports the worldwide ERP market forecast is $17.5 billion for 2006 and growing to $21 billion in 2010. (see www.scml-mag.com "ERP Extends Beyond Manufacturing"). CAGR was listed at 4.8%. Growth outside China will likely be in non-manufacturing sectors.

Legal Help

                        Contract Help

Here's an interesting resource for those of you contracting for application software: http://www.sachnoff.com/files/tbl_s18FileRepository/File110/141/F-Hines-Feb06.pdf

This document is originally from the ACC Docket (www.acca.com) and does a nice job of explaining critical issues in software contracts. I'm keeping a copy in my files.

A Lot of Depth on Lawson

                        Lawson Profile

Story:

Local papers sometimes come up with the coolest stuff. This week, a local Minnesota paper ran an in-depth piece on Lawson software: http://www.twincities.com/mld/pioneerpress/14837908.htm

If you track the ERP space, Lawson or Intentia, you might want to read this.

Analysis:

Post-merger, the track record for acquired or acquiring companies in application software has been spotty. Too often, the acquirer gets distracted for too long trying to integrate products or get all products on a common platform. The Lawson-Intentia combination may not result in merged product lines but it did bring new management into the picture. The Pioneer Press piece offers one clue as to the challenges within Lawson today: They have had seven different marketing chiefs in the last six years.

Quote of the day (from Eric Lundquist of eWeek 6/5/2006): "It is really hard to make successful acquisitions in any business. It is doubly hard to make successful acquisitions in the technology space"

If you'd like more on Lawson, see the eWeek piece of 4/11/2006 titled "Lawson Unveils Its Product Map" (www.eweek.com/print_article2/0,1217,a=175466,00.asp

Book: Why Technology Fails

                Change - The Ugliest Word in Systems

Briefly:

I saw a piece in CIO (www.cio.com "Why Technology Fails") about a new book called "The Change Function: Why Some Technologies Crash and Burn" by Pip Coburn.

Apparently, the author's key insight is that a new technology, to be successfully adopted, has to solve a real problem and that this problem is something causing a real issue for the users. If it isn't, the change hurdles will be overwhelming.

Amen.

When tech companies are really having trouble selling their business solutions, it is often that the solution is more 'nice to have' versus 'gotta have'. Personal technology solutions (like iPods) are a different animal altogether and often get sold on 'lifestyle' or experiential reasons.

The business solution is a tough one to do well. Change is tough for anyone but when it changes the way people work, the number of people needed to do the work, the skills to be proficient, etc., the change hurdles get big fast.

While I haven't found this author's book at the bookstore yet, I can state from personal experience that when clients/customers have a burning need/burning platform, the sale and implementation effort can zip on by quickly.

If the author would like to rename this book, though, might I suggest "The Customer's Not All That Into Your Technology".

Options & Compensation

                Sins of the Past Are Coming Forward

Story:

I saw a piece on the Bloomberg News wire this weekend (Options Probe Could Haunt Silicon Valley)detailing how unsettling a SEC investigation into stock options may become for tech firms.

What really got my attention was the tale of one VP hire of a tech firm. His employment package included:

- $240,000 salary

- $1,000,000 relocation bonus

- options to buy 200,000 shares

This VP was offered the job in January of 2000 and came on board in April. His options, though, were back-dated to early January at a price that made his options worth more than double by the time he started work. Amazingly, those shares were now worth $19 million.

Now, 29 firms are being investigated for option accounting and grant issues.

Analysis:

I remember all sorts of interesting demands being made by job seekers in the wild and crazy tech boom. I had a Marketing exec who expected 4% of the outstanding stock. I had a prima donna corporate attorney who brought in her own perk list to the interview. I had many people ask for home office equipment (and were reasonable about it) and many others who wanted us to furnish them with exquisite offices away from their homes.

Stock option greed was rampant back then and too few companies had a plan for how to dole it out effectively. This SEC review will likely expose a number of bad option grants made at a strange, heady time in tech. Thankfully, the foolishness and hubris of those times is over. I doubt few deals today approach anything like the one described above (If there are some out there, where can I send my resume?!).

The SEC investigations will make great reading but will likely fail to produce big changes in tech companies today. Why? No one's offering absurd options deals anymore.

Just recently, I was involved in the capital financing behind a high tech metals plant. I had a whale of a time explaining these facts of life to some of the parties involved:

- option equity must be earned. It isn't given outright. Even if you possess unique skills or knowledge, your equity will be pro-rated over time. Why? Should something happen to you, the remaining unearned stock would be used to attract your replacement.

- option equity is a type of compensation and can be substituted for salary and bonus in some situations. However, asking for a top market salary, a huge commission and a big options grant while taking no equity risk yourself is just plain greedy. In 1999, I met a lot of very greedy tech sales people.

- not everyone gets options. Sure, companies can choose to give everyone a little taste of equity, but the bigger pieces go to those who really make a difference and take the most risk. If you're getting paid a great salary and can get some nice bonus pay and promotion opportunities, you'll likely get a low options grant.

- option accounting is time consuming and expensive. There will often be RSPA (restricted stock purchase agreement) and ISO arrangements. These will often apply to the common stock (Not the preferred stock that investors get). Attorneys often maintain copies of all completed agreements and this adds to the cost.

- options agreements are generally not negotiable. Sure, an employment candidate can haggle for more options or see if the vesting term can be accelerated but the general terms involved in the grant are not open for discussion. What few seem to realize is that the board, not a management or HR executive, establishes a pool of stock that is eligible for option grants. Smart firms then allocate that amount by functional area and title within each area. Your job position may only warrant a few shares and that amount was established long before you were being considered.

- newer employees get fewer options than founding employees. The founders took more personal risk in launching a company with no sales, no prospects and no capital. If you are the 1000th employee, chances are you're not assuming much risk.

- employees may want to vigorously argue/negotiate the accelerated vesting provisions but the employer isn't really in a position to do much here. If they permit any material change of control to trigger full vesting, few employees would stick around after an acquisition. Acquirors kind of hate when that happens. Employees should expect the new owner to offer sweeteners to encourage the retention of desirable folks or offer a package to those who will be leaving.