Unit4's 2020 sets up 2021 and ERPx - a conversation with CEO Mike Ettling

Profile picture for user gonzodaddy By Den Howlett February 1, 2021
Summary:
2020 was a good year for Unit4 but now all eyes are on what happens with ERPx, the company's take on modern core systems that act as a platform for building out sophisticated business systems

Mike Ettling
Mike Ettling, CEO Unit4 (via Unit4)

Late last week I caught up with Mike Ettling, CEO Unit4. He is understandably upbeat after posting solid results for the year ended 31st December 2020 and the signing of 10 advance customers for its upcoming ERPx release, due 21st March, 2021. The numbers speak for themselves:

Cloud bookings growth was 43% (YoY) for the full year and 82% (YoY) in Q4, with annual recurring revenue from cloud up 20% for the year. Cloud subscription revenue grew 15% to $119.9m FY 2020 and 12% in Q4 (YoY) to $29.6m. The company reported 18% growth in total bookings (YoY) for the full year, and 20% in Q4.  

While these numbers may seem modest they come on the back of a year that was something of a rollercoaster. Ettling explained his 'Dutch dike' strategy this way:

We didn't waste time trying to guess how big the waves will be. They're going to come. So I banned scenario planning in the company. I said, I don't want any scenarios from anyone. The budgets, the budget, you know, no taking guidance down. It's going to be harder to get to but let's figure out how. There are three dikes we don't ever want to touch. We don't want to make anyone redundant as a result of COVID, we don't have to reduce marketing spend. And we don't have to reduce bonus and commission accruals. That got everyone aligned. Of course, we looked at other spend and plugged those dikes. It worked and we achieved pre-COVID EBITDA.

Ettling said he's very happy with the fact that non-financial metrics like the firm's Glassdoor rating improved during the year from 3.6 to 4.1, putting it on a par with Workday. Looking forward, Ettling turned to discuss the work done to get ERPx ready. When we discussed ERPx last October, I said:

Unit4 is in the last stages of re-engineering its core ERP, HCM and FP&A to run in a fully integrated manner. The idea is to offer a technology foundation based on a unified architecture that takes advantage of microservices. Critically, Unit4 says customers buying into ERPx won't have to sacrifice the core functionality with which they are familiar while having the flexibility to extend as they see fit. Existing customers already benefit from integrated processes - check this story from Forest Research - but it is the promised ability to consume and create fresh services for a 21st century operating model that are the appeal.

Today, Ettling goes a step further explaining that localizations have been abstracted to an extension layer. This makes ERPx attractive to partners because those same partners can take existing and well understood core processes that exist within the Unit4's ERP and build out what customers need in their locales without being concerned about the core. In preparation for this scenario, Unit4 added 22 new partners in 2020.

Taken one step further, you could imagine a services organization that has specific functional requirements coming from a variety of third-party applications that express the organization's business model but which require core ERP. Ettling put it this way:

Even in startups you've got companies with a 100 more apps. You've got people jerry-rigging apps trying to push data from one thing to another. What if I now came to you because I've got an integration kit, where I can build repeatable integrations, and say, right, you buy ERPx but you are a not for profit, okay, please tick the box. What CRM do you use, Salesforce? You use Slack? We say here's your integration mesh pack as a not for profit mesh pack customized to you. It's an extra, so much of subscription but you don't have to go spend money integrating all this, once you plug your packs in. It's just going to connect the mesh like when you switch on your phone, or use your Sonos system.

There's a sense in which ERPx sounds like the Zapier for ERP and I can see where that adds value. In Ettling's words:

We see many instances where people are doing what I call 'mind the gap' work where they're filling in the manual steps between apps and I think that our concept of the mesh with ERP at the heart solves that problem.

Unit4 has to build those integrations. Ettling understands that his company cannot do that alone, another reason for expanding the partner network. In addition, Ettling said the company intends to open an app store around Q4 this year which will be provisioned so that the apps you consume will integrate natively to ERPx

My take

When I first learned about ERPx it struck me that:

The fundamental thinking behind ERPx coupled with both robust pre-existing functions and an extensions story enabled by microservices should play well with customers who want the benefits of customizations but who don't want the accompanying technical debt burden. 

As I said at the time, it is also ambitious. The proof points will come as we see more examples of how the variety of assistive technology built by Unit4 provides fresh vertical market functionality and, perhaps opens up new markets. If Unit4 is successful - and having 10 launch customers is certainly heartening - then Unit4 holds the potential to become the center of gravity for midmarket services organizations. The fact it relies on Microsoft Azure adds a comfort factor as does the fact Unit4 is replicating well understood vertical market needs into ERPx.