How software vendors grow - time for Plex to flex

Many application software vendors follow a predictable life cycle. Initially, they sell their solutions to friends, family members and a number of high-risk taking innovative/early adopter firms. Later, as the products mature, the company can then go through a long period of steady growth – but it’s not explosive growth. 

Sadly, some firms will see their solution lose relevance in the market if they don’t take it to the big leagues of market acceptance before the space is rendered obsolete. For example, if you created an on-premises application and it hasn’t taken off by now, it’s time to fold your hand. The cloud market has rendered much of that space passé.

Ideally, a great application software firm will someday go from nice, 'Steady-Eddie' growth to monster growth at some point in its life.

There a more than a couple of models that illustrate this phenomenon.  One of these is the hockey-stick growth model.

The hockey stick model, like the other models, suggests that firms will experience an initial period of little to modest growth. If the product starts catching on with the market, growth will eventually kick in and become quite significant. However, many, if not most, application software firms never hit the sharp uptake in business. They linger in a slow growth mode.

Why is hockey stick growth important?

The average software buyer (of an application like HR, ERP, Financials, etc.) will likely use this product for at least 10 years. They rarely replace a solution any sooner as the incremental cost to replace it will greatly exceed its incremental benefits. Some solutions may stay installed for 20 years.

If an application software vendor wants to gain market share it must capture the business when a buyer is in the market. If it doesn’t do so at that moment, it would have to wait 10-20 years before this opportunity opens up again.

Unfortunately, in 10-20 years, the market will have shifted again. The vendor’s solution may no longer be technically or functionally relevant anymore.

Successful software firms seize the market opportunity as soon as possible. They grab all the market share that they can. Steady growth will not allow for outsized market share gains and, when a vendor massively grows its market share, it:

• Generates a 10-20-year cash generation stream via maintenance or subscription fees
• Hobbles competitors that will not get that income stream

When a vendor is in a position to pursue outsized growth, it can:

• Experience high growth (i.e., growing CAGR) and improving operating margins
• Enhance its Rule of 40 compliance
• Markedly enhance its valuation
• More handsomely reward its investors/shareholders

Plex and Growth

Plex has been at the cloud ERP solution business almost as long as Salesforce has been hammering away at the CRM space. The firms have different growth trajectories as ERP solutions are huge from a functional footprint (many even include a CRM module). It also takes a long time to build an ERP solution that encompasses back office and shop floor applications. It takes even more time to build out all of the unique manufacturing methods and vertical requirements that manufacturing solutions must support (e.g., medical devices, make-to-order, discrete, etc.).

But now, it’s time for Plex to experience the kind of growth Salesforce has achieved.

Over the last several years Plex has:

• Rounded out the product line
• Upgraded its technology stack
• Moved into several verticals
• Enhanced its management team

 

But Plex has also delivered many of the promises it made to customers over the years. When I spoke with several customers at the recent PowerPlex event in Detroit, they were quite happy with what the Plex product line does today and they don’t want Plex to return to a time where it over-promised and under-delivered. No, customers like the Plex of today – a company that delivers (and they don’t want that to change!).

Plex is in a good place now. Their growth numbers, revenues, customer counts, etc. are all up and solid.

But now may be the time for Plex to flex.

Plex today

Plex is in a great place today. It has:

• A new CEO – Bill Berutti was brought in a few months ago from BMC. Bill understands two things: how to get sales energized and how manufacturing works (he was previously at PTC). Bill could help Plex drive out-sized growth.
• Completed a number of initiatives to help customers implement Plex software faster and at lower cost.  What happy/successful customers provide are more positive references for a growing sales engine.
• Integrated the DATTUS solutions that it acquired in the summer of 2018. This adds substantially to their IIoT capabilities.
• Several vertical solutions in place including: Automotive, Metal Forming, Food & Beverage and Industrial Manufacturing. It can, in some cases, support Aerospace and High Tech/Electronics customers.
• Moved its products more and more up-market.

The new opportunity for Plex

Plex may become the beneficiary of a couple of positive trends not of their own making. But these trends could deliver many new sales to Plex if it wants to pursue them.

First, too many of Plex’s traditional competitors have been behaving badly towards their own customer bases. ERP software buyers are just tired of vendors:

• litigating customers
• aggressively auditing their customers
• failing to use public cloud scale to reduce TCO
• not innovating
• taking forever to deliver anything close to a breakthrough

 

Today’s buyers aren’t necessarily looking for a functionally identical (or less functional) solution that prepares for some latter-day digital transformation journey. They want a modern solution built on public clouds, multi-tenancy, etc. and one that supports IIoT technology out of the box. They don’t want something that takes $200+ million and armies of integrators years to implement.

There is plenty of opportunity out there for Plex to help manufacturers rollout their ERP modernization, factory of the future or other initiatives.  The best and biggest opportunities will likely involve:

• replacement of older MRP/ERP products like JD Edwards, Baan, SSA BPCS, Mapics, etc.
• replacement of SAP solutions in use at individual plants or divisions of larger firms
• companies open to a two-tier ERP environment
• manufacturers with a growing global presence
• manufacturers wanting more scalability in their operations and systems

 

But right now, there may be additional opportunities awaiting Plex within the SAP install base because of SAP’s decision to mandate that their ECC/ R3 customers move to S/4HANA by 2025. Also, SAP management may be pre-occupied with dealing with Elliott Management and whatever changes Elliott might insist that the firm accept. And, SAP has a number of new executives in top spots. They’ll likely need time to grow into their new roles.  Add this to the Indirect Access kerfuffle of late and Plex could find many SAP customers open to a new ERP solution.

It’s important to note that not all SAP customers would be candidates for a Plex solution. Some SAP customers need manufacturing software in verticals that Plex doesn’t support yet. Some SAP customers are doggedly committed to an on-premises ERP solution and Plex is clearly a cloud solution. Some SAP customers want their financial applications at HQ to be the same application code used in the plants – that could nix a two-tier ERP approach in some deals.

But, in the end, Plex’s shop floor functionality and its digital connectivity on the shop floor would definitely impress a lot of SAP customers.

What Plex must do

When I spoke to one Plex executive, he wasn’t too psyched about pursuing SAP customers. His concern, and it is legitimate, is that some of SAP’s customers are used to 15 person sales teams, take years to make an ERP selection decision, and, love to engage a software vendor in drawn-out and extensive software negotiations. These prospects must be dropped from the sales funnel as soon as they are detected. Why? Plex doesn’t retail at the kind of cost point that justifies big sales teams, drawn out negotiations, etc.

But other SAP prospects could be golden. Plex’s sales teams must educate prospects, early, how Plex does business and use this to help guide the very best prospects to a new deal.

Plex also needs to cultivate more, deeper relationships with big systems integrators. They need to set aggressive goals to move more SAP partners to the Plex fold ASAP. You can’t drive outsized sales growth unless you also have an outsized ability to implement these solutions (successfully) with customers.  There’s another reason to recruit these SAP partners. SAP’s integrator partners are also great at promoting SAP products to prospects. These partners have great, long-term customer relationships that Plex should try to exploit as well.

Another key partner ingredient will be to find those partners willing to create additional vertical extensions to the Plex product line. Each of these extensions further extends Plex’s addressable market.

This change to outsized growth will likely require attention to Plex’s culture and other change management issues.

My take 

This is the time for Plex to make bold (not timid or its usual) moves.  Strike now, strike hard and take no prisoners. But, in the process, I pray Plex will remain more in the camp of the white-hat wearing good guys in the ERP space as we sure don’t need  more of the ruthless, wallet-fracking ilk out there today. Time will tell.