The FinancialForce movie – Secrets of Episode 2

Profile picture for user brianssommer By Brian Sommer June 25, 2017
FinancialForce has new leadership, a new focus, new partners and more. But will this reboot of the franchise/company pay big benefits?

2017 blog - FForce 1 new CEO
Tod Nielsen - CEO FinancialForce

FinancialForce is in the midst of a movie style reboot. What do I mean?

The technology sector is a lot like the movie business. Someone comes up with an idea and through a lot of blood, sweat and tears brings it to the masses. If it’s the right movie at the right time, it will strike a chord with the masses and become a blockbuster. And then, insatiable customer demand and movie studio greed dictates that one or more sequels must be filmed. Eventually, the movie becomes a “franchise” that will need a reboot when its actors either become too old or too expensive for another film.

Technology companies go through a similar maturation. Lots of software companies may be founded but only a precious few catch fire with the business or consumer market. For those that achieve some measure of success, modest or blockbuster, the investors within the company will push for more products, sales, markets, geographies, etc.

Additional releases and tuck-in acquisitions provide the opportunity for growing wallet share within the customers/fans they have as well as driving ever higher lifetime customer value. And finally, like the movie business, the board may periodically trigger a reboot of the team.

Whether the founders are fatiguing, prematurely retiring on their stock options or simply running out of skills to drive a rapidly growing and massively larger company, the board will bring new team members into the company to propel it to the next level (or sequel) in its history.

FinancialForce is undergoing just such a reboot today. At the recent Community Live 17 event, we met a number of the new team members and were briefed on the changes afoot. (Note: Phil Wainwright has already posted his assessment of things and Jon Reed is providing insights gleaned from FinancialForce customers.)

Here are my observations re: the plot line emerging from FinancialForce:

  • It’s a whole new team at FinancialForce - The FinancialForce roots go back to the last decade when Unit4’s Coda executives created a new financial system built on the platform. That initial product was called CODA2Go and it proved the viability of platform as a service. Shortly thereafter, Unit4 and Salesforce created a joint venture where Coda2Go was rebranded as FinancialForce. The initial FinancialForce team was predominantly comprised of Coda personnel and remained as such until recently.

Today, FinancialForce has a new:

  • CEO, Tod Nielsen, formerly of Salesforce
  • CMO, Fred Studer, formerly of Microsoft & NetSuite
  • CFO, John Bonney, formerly of SAP
  • VP-Strategic Operations, Soren Riisgaard, formerly of McKinsey

The leadership has materially altered and with these changes, one should expect changes in product direction, markets to be targeted, etc.  All signs point to exactly this shift in trajectory.

Vana’s out, ADP HCM is in

In November 2013, FinancialForce made two acquisitions. One was to acquire the human capital management provider VANA and the other was a supply chain management solution from Less Software. Both acquisitions appeared to be reasonable tuck-in acquisitions at the time as they, like FinancialForce, were built on the platform.

That was then. Today, FinancialForce has a new directional word: focused. The company today will be singularly focused on service-based businesses. To that end, it will predominantly enhance and expand its financial and professional services automation (PSA) solutions.

The HCM solution will be phased out in whole or part by 2022. It is for this reason that FinancialForce announced a brand-new partnership with ADP. But unlike the scores of other ERP vendors that have an ADP partnership, this particular relationship does not stop at payroll processing. Instead, this is a full HCM solution that ADP will sell into the 175 or so FinancialForce HCM customers.

I discussed this brand-new partnership with several FinancialForce executives. I described my concerns with the lack of clarity around the proposed integration between FinancialForce and ADP. Specifically, I wanted to understand how critical people related activities such as recruiting, onboarding, learning management, etc. would function in the new environment. Will these functions be found within the ADP HCM software or in the PSA parts of FinancialForce? Those details aren’t fleshed out yet.

2017 blog - FForce 9 svcs skills
FinancialForce - where HCM and PSA intersect

To illustrate, look at the following slide that was shared with the press/analyst group. It shows a professional services talent optimization process flow. An examination of the process components show a number of HCM related steps (e.g., recruit & hire, onboarding, talent management, etc.) but whether these will be part of ADP or FinancialForce software is not known yet.

Additionally, I asked:

  • Which system will be the official book of record for this professional services data? Interestingly, I got mixed answers.
  • Whether the new integration would include an automated general ledger interface? Yes.
  • Whether the system would support other kinds of service professionals beyond a business’ own employees? Specifically I wanted to know if gig economy, staff augmented and freelance workers would be included within the scope of the PSA and ADP solutions. To be advised.

Additional talking points

  • Supply Chain Management may no longer be core to the product set - I asked FinancialForce CEO Tod Nielsen if the same “focus” strategy on service economy companies means that the supply chain management solution is vulnerable. While no partnership with a supply chain management vendor was mentioned, neither was any further investment in this product line. Customers banking on the SCM solution (or material enhancements to same) should verify long-term product support for this solution.
    • Update: FinancialForce executives have subsequently clarified the status of the SCM solution. They tell us that: “We have tripled our development resources in aspects of SCM in the last 2 months, particularly Inventory, Sales Order, Fulfillment and Procurement.”
  • Opacity or Transparency? – Like many privately held firms, FinancialForce is reluctant to provide many metrics regarding its financial condition. I learned the company has approximately $100 million annual revenue run rate and is enjoying a growth rate of around 40%. I also learned that the customer count isn’t growing as fast as revenue. This is a good sign as it shows that the company is moving upmarket into larger customers and gaining success in infill sales to existing customers. I asked management to provide more guidance in this area at subsequent events.
  • Thirsty for a “Liquidity” Event? Investors in software companies, like investors in most any industry, want to get a return on their investment. The typical liquidity events include mergers, acquisitions and initial public offerings. The timing of this management team reboot and the fact that company was founded 8 years ago (2009) would suggest that some sort of liquidity event is desired in the next year or two. To achieve maximum value for such a deal, the company must show high growth (i.e., hockey stick growth), increasing profitability, growing cash flow, minimal churn, etc.

The company has completed a couple of financing rounds over the years with a $110 million venture round in March 2015. Venture capital firm Crossover Ventures led that deal. and Unit4 have been involved since the beginning and may be desirous of seeing some sort of monetization of their investment in the near-term.

Remember, many technology investors would like to see a significant payout within seven years of their investment although that timeline is always subject to macro market conditions. My view is that the time for such an event is rapidly approaching for FinancialForce and this is likely a major focus point for the new executives.

A Branding Focus

The ideal or target customer of FinancialForce has changed over the years. Like many startup companies, the initial products were not functionally robust enough to serve large enterprises. FinancialForce was no exception, targeting a number of smaller accounts in the formative years. Over time, FinancialForce functionality has been enhanced thus allowing the company to sell into ever larger firms.

The new management team intends to focus the company, its brand, its target market and more around a tightly defined space. The focus on service oriented businesses is part of this strategy. But readers can expect FinancialForce to zero in on mostly midmarket companies. I suspect we’ll see plenty in the months to come about who/what FinancialForce is (and aspires to be).

2017 blog - Fforce 3 portfolio

FinancialForce executives emphasized three components to their newly focused strategy: business model agility, time and talent optimization and predictive insights.

The business model agility piece speaks to how many businesses are shifting from selling products to products-as-a-service. The time/talent component is how services will be delivered and why PSA is key to their product line. The predictive analytics is meant to show how a new set of KPIs are needed to effectively run these modern businesses. Interestingly, their slide showed HCM in the predictive analytics category. That’s interesting as HCM is being phased out of FinancialForce and phased in with ADP.

Coming Attractions

With a new management team a number of new product management decisions will be made. We did see some new functional and product upgrade plans announced at the show. However, most of these were for the immediate 2018 and/or 2019 timeframes. In brief, these enhancements include:

  • Predictive analytics will be available on mobile devices and include a number of services-oriented metrics (e.g., utilization). Predictions around customer patterns/behaviors are also planned.
  • Platform innovations and security enhancements are also planned
  • Wave analytics that could accommodate IoT and other big data
  • New UI/UX via Lightening
  • Enhanced revenue forecasting ability
  • Additional revenue recognition enhancements
  • Vena for budgeting/planning

2017 blog - FForce 10 2018 priorities

My take

Everything is a service focus – FinancialForce isn’t the only ERP vendor that has staked out service oriented industries as its target market. In reality, the majority of the ERP vendors have staked out this identical space. For this reason, one finds financial software vendors frequently in possession of a PSA solution (e.g., NetSuite has the OpenAir PSA) or alliance.

Staking out service companies as a target market is a logical, short-term strategy. Other verticals, like manufacturing, take too much time and money to build deep vertical functionality. I get it. More than one ERP CEO has told me to never let them develop manufacturing solutions again.

But avoiding manufacturers and distributors is not viable long-term. FinancialForce should be leveraging more of the Salesforce Einstein, Radian6 and other big data related tools to help manufacturers merge sensor, IOT and other operational and external data into financial reports and briefing books. FinancialForce can help manufacturers move into the digital age in a significant way without necessarily creating old-school MRP applications. In fairness, FinancialForce is not alone in understanding this opportunity and it is very early days.

ERP without HCM - History has shown us numerous examples of ERP vendors that started first as a financial software vendor and then moved into human resources software space next (or vice versa). The usual evolution of a software vendor involved filling in a number of back-office functions first and then moving to the shop floor. There are, however, some examples of ERP vendors that started on the manufacturing shop floor before building back-office functionality, too.

The key observation is that few vendors have built out a product line without having a solid HCM solution of their own. The wisdom of the ADP decision will be something I’m sure I will wonder about over time. While I understand need for FinancialForce to be focused in its sales, product development and other efforts, the absence of its own, fully supported, HCM solution may become a competitive disadvantage for the company longer term. Time will tell.

Targeting the Implementation – Great subscription-based software companies have learned that an outstanding initial customer experience is key to maintaining high customer retention rates. SaaS companies cannot afford to lose any customers within the first several years of their sign up as the selling costs often dwarf the initial revenues received for quite some time period.

I heard this is a focus of the new management group at FinancialForce but I had neither the time nor opportunity to find out more regarding their efforts in this matter. This will undoubtedly be a future focus area of mine for sure.

Will the reboot succeed? – Knowing some of the new players and having watched FinancialForce over the years, I’d give this reboot a good chance of working. The HCM change notwithstanding, the emphasis on core strength focus is a good thing for the company and many of its customers. FinancialForce should continue to grow but the more upmarket products will need more upmarket sales professionals and implementation partners to meet these growth targets.

End note: you may also enjoy my FinancialForce podcast review with fellow diginomican Jon Reed.