While each firm has its own target markets (with some overlaps), the macro commentary from these all-cloud firms was affirming and intriguing.
Here are some of the discussion items and observations on the same:
Supply chains are definitely a focus item of their customers. Every one of these software leaders has customer anecdotes involving supply chain concerns whether they be in health care, manufacturing or other verticals. Businesses have learned that they must:
- Avoid too much concentration in a specific supplier or country. Diversification and risk mitigation are good practices, again.
- Create new supplier relationships where goods are shipped by truck not via overseas cargo containers.
- Have mechanisms for increasing/decreasing shipments based on how conditions (e.g., currency, political instability, health concerns, tariffs, etc.) in certain countries are evolving.
Some of these CEOs, like so many of their customers, had their own challenges acquiring PPE in the early days of the pandemic.
Smart software firms have already lined up their rainy-day funding. At least two of these firms (as well as others I've spoken with) closed material debt financing deals late last year or early this year. The capital that was raised came with record low interest rates and the use of this debt won't dilute equity. The purpose of these funds is three-fold: it can act as a cash cushion in the event the pandemic-induced recession slows cash flow; or, it can act as a source of funds for acquisitions; or, it can be used to power out-sized growth once the economy starts to recover. Enterprise software firms with cash will be in a great position to acquire tuck-in firms at bargain valuations while the economy is still trying to find its bottom.
The Pandemic has shown how poorly firms did with planning/forecasting. Planning activities that relied almost exclusively on internal, historical transaction data have been of little use in recent times. Interestingly, the issue may not be with the technology products out there but the lack of imagination of the users. Few firms were including external datasets into their planning processes and fewer still were creating signal tests that would flag the emergence of a new market opportunity/challenge. Bhusri and Halloran both see planning tools taking on a major new level of importance in businesses as dynamic, chaotic business swings are becoming ever more common. Both of them also see the importance of using ML in anomaly detection.
In my opinion, all vendors with planning tools need to do a better job of pre-populating planning templates with linkages to great external data sources, algorithms that spot anomalies in this data and workflows that trigger fast action on the part of a customer's executives. These smart planning tools should be more of a solution that requires minimal tuning on the customer's part to be highly relevant in their industry. It should not be a pile of parts, tools, etc. that require a multi-month implementation to maybe work. Further to this point, vendors should pre-negotiate access to key external datasets (e.g., social sentiment data, weather data, etc.) so that customers can quickly and painlessly activate this access (and avoid lengthy selection and contracting efforts).
Cloud won/on-premises lost. Granted, these three CEOs represent all-cloud solutions, yet they point out several interesting items. First, they can remotely instantiate their customers' new solutions in minutes. No need to acquire systems software, database licenses, etc. Moreover, they all have examples of implementations being completed remotely during lockdowns. That's kind of hard to do in an on-premises world.
Think about it, how can Plex get manufacturing plants operational during times of lockdowns and no travel? And yet they did. All three vendors pointed to rapid implementation methodologies that they developed and rolled out well before the pandemic as a key to their continued successes. Those methodologies were designed with the idea that much of the work could be done remotely. Just the name ‘on-premises' says that much of the work will be done on-site.
(On a side note, another all-cloud ERP vendor, Rootstock, also reported a new go-live of its first Aerospace & Defense customer. This spring implementation took only 3.5 months.)
All three firms are helping customers. One of the most interesting anecdotes came from Bill Berutti. He described how the Work From Home (WFH) mandates created a global shortage of laptop computers (see this CNBC story on how Google is scrambling to find laptops for its WFH employees). For one of his affected customers who was in the middle of implementing Plex's ERP, Plex scavenged up dozens of older or unused laptops at their headquarters and shipped them to the customer to help them complete their installation.
Aneel and Bill also stated that they are doing what they can with some of their most challenged customers and are finding ways to defer some costs or provide other payment flexibilities. This flexibility is being extended to some of their existing and net-new customers.
ERP backers are staying with their firms. Both Plex and Planful (formerly Host Analytics) are owned by private equity firms. Both CEOs indicated that their respective owners remain committed to growing their firms. Top line growth is and remains a priority for each.
Realistic growth is the order of the day. All three CEOs understood the pain that their customers were encountering during this pandemic. But more importantly, they had a realistic understanding of what that pain would do to some of their sales and earnings.
Shortly after these calls, Workday held an earnings call. In that call, Workday's co-President Chano Fernandez stated:
In this uncertain environment, there are companies that are prolonged with that decision process as they focus first on assessing and responding to the immediate impacts to their business. The good news is that, based on where we stand today most of the pipeline impact has been opportunities moving into later periods rather than deals altogether going away, with the largest expected impact to be in Q2 and Q3. It's also important to note we have seen improved prospect engagements since April. We have also seen healthy pipeline growth for FY'22 as opportunity shift from first half to both Q4 and into FY'22.
I applaud Workday for honestly stating what many of us have known (and predicted): the pandemic will defer some enterprise software spending and place hardships on some customers, particularly those in devastated industries (e.g., hospitality). For any ERP vendor to boast about being ‘immune to recessions' is tone-deaf. It also shows a callous disregard for the customers and a short-term slavish attention to Wall Street (instead of creating/cementing long-term customer relationships). I chafe every time a wallet-fracking ERP vendor coos about customer experience while simultaneously gouging their own customers.
Wall Street actually liked Workday's earnings narrative and more vendors should follow their lead.
For more on this issue, please see this solid CNBC piece this month titled "Software Thinks Its Revenue Is Crisis-Proof. This Time Is Different". Here's a taste of what's inside:
The question was raised in a provocative essay by Boston fund manager Gavin Baker of Atreides Management. Baker argues that the market may be overstating just how insulated software companies are from the economic fallout of coronavirus. While companies may not cancel software contracts, Baker wrote on Medium.com, many companies could still be vulnerable to losing revenue as clients pay less for per-seat software licenses adjusted for layoffs at the clients’ companies, spend less for support services for software they already own and seek more lenient payment terms.
Planning is the new go-to application. Grant and Aneel both had strong, positive opinions re: planning technology. Aneel added that their Adaptive Insights solution (now called Workday Adaptive Planning) has become the company's go-to internal application as the pandemic has triggered almost daily re-planning exercises at Workday.
Grant indicated that many Planful customers want to incorporate weather data into plans to better forecast facility occupancy (a key issue given new spacing requirements). Weather and promotion data are also needed in plans as workforce staffing needs are acute today.
A few things are obvious given these discussions:
- Cloud apps were a good bet a while ago and a better bet today.
- Planning apps, while an unloved but necessary tool for years, have exploded in importance today.
- Scalability (not just ‘resilience') is something both vendors and customers must build-in from the get-go. It shouldn't require expensive, time-consuming effort. It should be the backbone behind all commercial software agreements today.
- Vendors with a reputation for helping down-and-out customers will reap great word-of-mouth brand benefits. Wallet-frackers will suffer long-term.
- The myth of always growing ERP revenues, even in the face of vicious recessionary pressure needs to be laid to rest. The faster that vendors educate shareholders and Wall Street of this, the better the industry will be.
Note: if you want to dig a bit deeper into these themes, check my most recent podcast with diginomica's Jon Reed, The new rules of enterprise software - and events. A wake-up call with Brian Sommer - also embedded below.