ERPodcast Episode 29
The Perfect Time for ERP
Welcome to the ERPodcast Episode #29 – The Perfect Time for ERP – that’s the title and theme of today’s examination of just that – when should a growing company undertake an ERP project?
And it’s not a simple question. Any ERP project is massive, whether you’re a $12m annual revenue company going from Quickbooks to Sage Intacct or a $200m company replacing DynamicsGP with a new cloud-based ERP.
ERP is an intensive project, needs a ‘all hands on deck’ approach and the stakes are high. There’s legendary stories of Hershey’s Chocolate almost losing the company when a failed SAP effort meant they couldn’t ship product in the middle of the peak Halloween to Christmas season – not good – and there’s also scores of those types of stories from lesser known and more private companies.
So when is, The Perfect Time for ERP?
We’ll talk about 3 real world examples of recent ProfitFromERP clients and the drivers behind those examples.
There’s also a world of opinion in the world of startups – do you do the ERP project Pre-IPO to show potential investors solid financial controls and operational efficiency? Do you wait until the next round of funding to be able to afford the higher end ERP’s with related SEC reporting tools to make sure of compliance needed by a public company?
Then there’s the staffing balance – we’ll have more people on board next year so we can spread the ERP implementation workload across more resources….but if we had ERP already installed we’d need to hire fewer people for the same size operation.
Here’s the conundrum – most of us don’t hire for excess capacity. It’s more like we’re not really sure of the data, it’s coming from disparate spreadsheets, running late, last minute– but the staff is working overtime and Saturdays – if we just had one more person to chase down the data… which is a good solution, but by definition, a growing company continues to grow and we keep adding one more person just to keep up, pretty soon there’s 22 desks in the business office and we’re looking for more space because everyone’s working overtime and Saturdays.
Putting things off til some magical ‘some day’ only gets us from complexity to mass complexity.
Then one day we wake up and we realize ‘WOW – it would have been a lot easier to implement ERP when the business was simpler and we could have managed growth in a lot more systematic method’. Plus, instead of rolling out training to 50 people all at once, we comprehensively train the first 10 and teach each onboarding employee the exact steps using the new software specifically for their job duties. And maybe even start hiring people who’ve already been using the same ERP we just implemented.
So what’s The Perfect Time for ERP? Let’s look at some real-world examples. Stories of companies that took a leap at different stages and how that all turned out. I’m your host, Gene Hammons, Director of ProfitFromERP, our business consulting firm helping clients actually create Profit, From their ERP projects. Right back after this!
Hey – a word about sponsors. Putting together the ERPodcast is a labor of love, it’s often our first introduction to new clients, we also think it’s about giving back to the community, sharing stories of real world ERP projects, how the market works, things we’ve experienced over the years and so on. .
As long as there are still ERP projects that fail or have huge cost overruns or don’t do what the demo looked like it did – as long as there’s a bad project out there, we’ll keep pushing out the know-how to avoid those situations
But – running a growing company ProfitFromERP – just like any other emerging company, there’s a lot to do. Time is critical.
And if we’re going to allocate the time to the ERPodcast – well, we need to do it as more than a net loss leader – so we have sponsors.
The easiest way to get podcast sponsors for a podcast is through placement brokers – you can tell the brokers where your breaks are, say at 2:17 into the podcast – and they’ll pop some ad in there. Next thing you know, the podcast has a My Pillow ad or it’s Toyotathon again right in the middle of an ERP implementation discussion.
But you, the listener, your time is valuable too.
So we’re not doing that.
What we are doing is spotlighting some of the very many related products in and around the world of ERP and business, software and technology.
In other words, give you something of value – knowledge about a product or service that could be vital to the ongoing success of your business.
Just like the ERPodcast topics, not every ad is going to be of direct interest to you.
But as we create the ads, we’re focusing on what our listeners would find advantageous. and you might pick up some ideas on how to integrate something else that is a direct advantage for your company.
Like I say, your time is valuable.
And that’s todays sponsor message about sponsors on the ERPodcast. You can also help us out by mentioning how you found out about a particular sponsor – or – get in touch with us at Info @ ProfitFromERP and we’ll make a formal introduction to get you to the right place with any of our sponsoring firms. Of course if the My Pillow Guy calls, all bets are off.
Welcome back to the ERPodcast – today we’re going to look at three companies –
- an emerging pharma manufacturer who’s promising compound just finished the research and development phase and got fastracked FDA approval to go to market. The company is moving from 4 people to a staff of 125, and replacing QuickBooks – all within the first 6 months.
- A growing Audio Visual dealer, installer of auditorium, stadium, and amphitheater systems.
- And we’ll look at a Oilfield support firm, who can’t track where their million dollar equipment is, even with QuickBooks and a staff of 13.
Before we get into today’s stories – It’s the ERP Planning Calendar update. If you’re looking for the Perfect Time to Implement ERP – the ERP Planning Calendar helps you get an overall estimate of average project timing. Our mainline client base is companies who are evaluating and implementing ERP. The release date for this podcast is late August of ’23. For smaller companies replacing QuickBooks, if you were to call ProfitFromERP today, count on putting the project together and the time to evaluate and compare different software – give yourself about 4 months til a purchasing decision, but with the holidays, making a decision and going to contract by 12/31/23 from a late August start is a pretty tight schedule. Then comes the implementation – If you select one of the made-for-cloud options it’s possible to get financials live by Q2 next year and related modules operational in the April/May time period – but that’s aggressive.
For midsized corporate projects, 6 months minimum for selection and 6 months for implementation, so you could see a Q4 of ‘24 launch – more likely Jan 1 2025.
So if you’re looking to move faster than Jan 2025, we’d recommend some urgency on the front end – contact us tomorrow at Info@ProfitFromERP.com
Of course, there are untold millions of elements that could either accelerate or delay these estimates, but averages being what they are – just something to keep in mind as we talk about the Perfect Time for ERP.
Story #1. The Pharma company. As you probably know, getting a new drug to market takes years of research, testing, clinical trials, FDA approval – and it’s not just the huge pharma companies. Sometimes it’s a small, independent R&D team, even sometimes a single research scientist comes up with a promising compound. They can then hire Contract Research companies to run the clinical trials, testing and FDA submissions. In many cases, the entire early stage company consists of a scientist or two, a money guy slash angel stage investor, and usually a part time bookkeeper to pay the bills and keep the books in order. Super small staff.
The FDA recently created a fast-track approval process which was designed to get promising drugs to market in a shortened timeframe. What this meant for our Pharma startup is that after years of limited activity, they suddenly have approval to go to commercial and the company needs to expand from 4 people to a business plan estimate of 125 people. New CEO’s and CFO’s Supply chain, national sales, Quality, packaging and labelling, general staffing, on and on.
In this case, the former part-time QuickBooks Bookkeeper was tasked to select and implement ERP. But this wasn’t the only software project – the FP&A that’s Financial Planning and Analysis department was implementing advanced financial planning and SEC Reporting software. There was a stock option software managing project. A quality system, a lab management package, HR software, expense management and AP, as well as a medical CRM package.
Millions of dollars of software investments none of which were coordinated with one another – often, the person who would eventually be in charge of some of these systems wasn’t even hired or identified yet.
We were leading the ERP evaluation only and from the start it was mayhem. We’d narrowed the field down to two products that were being used at our other Pharma manufacturing clients, Microsoft Dynamics AX and NetSuite. Almost weekly, the QuickBooks Bookkeeper would call and say ‘what about Super Biz Pro – she’d say ‘we just hired a new supply chain manager and his former company used Super Biz Pro and he loves it.’ Not having heard of Super Biz Pro, we’d do some checking and find a fledging ERP publisher with 25 East Coast companies – not really a competitor of Dynamics AX’s 20-year international record in pharma manufacturing with thousands of industry references. Nor anywhere near NetSuite’s cutting edge made for cloud technology. But if the guy in supply chain likes it….
And remember, the company is going from 4 people to 125, so every week there’s someone else walking through the bookkeepers office – all of whom had more experience in pharma manufacturing than she did – and all making good natured ‘suggestions’.
Finally, we had a decision and started the implementation. We’d pulled together a nationally leading NetSuite reseller with a great consulting team. The lead financial consultant was a SOX wiz based in Miami. Developers in Denver. Subject matter experts in Memphis and Austin. Great team for our East Coast based client.
Only the advice of the consulting team went unheeded. It started with the data import discussion…
One thing about QuickBooks – and many other bookkeeping systems, exporting data and importing into ERP is tremendously time-consuming and super expensive. Bringing bad data into a new system is the surest way to corrupt the data integrity of the new system.
There are many issues here, For one thing, setting up the Chart of Accounts in the new ERP is always different than how you’d set up QB when you’re first starting out. So it’s not a 1-1 export/import.
Secondly, you can, with 14 thousand dollars in consulting time, recreate the books from early years in the new system, that is, replicate what you already have in years of QuickBooks records from the years prior to the ERP launch – but you’re bringing in data from a private company into what will shortly become a SEC regulated, SOX compliant Public company. Even if you had set up QB to handle public accounting responsibilities (I don’t even know if you can do that) – and not many part-time accounting people are SOX knowledgeable – bringing that data over into the new ERP just opens huge liability.
Here’s the thing. You already have those books from the early years, in QuickBooks. You have that data, balanced and audited or at least reviewed by the company CPA – it’s done and finished. Just keep a single user copy of that around. And while you may be on an advanced Online version of QuickBooks with an annual subscription cost, you can go to Costco and purchase the QuickBooks desktop version for 263 dollars and download your QuickBooks Online file, import that file into Desktop – and you have all your early data available to refer to as often as you need to.
Sure, we can bring over trial balances so you can compare this year’s sales to last years sales – oh wait, new pharma manufacturer, no product yet, no sales last year. No inventory. No manufacturing costs. We’re taking the compound to market in the new system. What a great place to stick a stake in the ground and start running.
Here’s another ERP industry trick we used to do. Say we were replacing an outdated ERP with our new ERP package. Did this with several I worked with decades ago.
The customer, usually accounting and finance driven, demands we bring over ALL 10 years of historic data from the old system into the new ERP package. And back then it wasn’t cloud software and excel imports were yet to be developed, not to mention proprietary systems on both sides.
But, if your job was in accounting and finance – THE BOOKS – accounting is what you do all day all week, for years – it’s the most important thing in the company – do you know how hard we worked all these years?
What we would say, as the ERP implementation team is, Let’s bring over trial balances from past years and we’ll import a full year of transactions. Then, after go live we can go back and start importing full data from previous years, build backward, that sort of thing.
Everyone’s usually happy with that. So we move forward with the implementation.
Newer ERP systems had better keystroke logs than older systems did – just technology got better. After go-live, probably 6 months later, we’d have our expert consultants go into the ERP system logs and pull out who, and how many times any of the users went back to look up the year-old data we’d imported to launch the new program.
Typically, there were 100+ lookbacks the first month of the new system going live, then 22, then 6 and for the last three months, one user went back into the historic data.
The first couple of times we did this, we would come prepared with an estimate of how much it would cost to import all the previous years of historic data, not just the first year, but everything – we found we would never get that far.
Because when we’d mention building backward, importing earlier year’s data, we’d get a blank stare from the accountants – ‘What are you talking about?’ We’re talking about what they had mentioned as so very critical pre go-live.
But here’s the thing, the new ERP system had become THE BOOKS – everyone in accounting had spent months implementing the new system, insuring trial balances, new Chart of Accounts, making sure everything tied out, Reporting, new reporting they could never do before – automating bill paying, setting up allocations – everything.
The old numbers, the historic data – it no longer mattered. What mattered was THE BOOKS, and the new ERP had become THE BOOKS.
It’s more illustrative, and important to recognize the transition in the minds of the users. One, you need to understand how vitally critical the historic data is to the business office. It’s all they have, it’s all they’ve professionally lived for – you have to get that.
Two, you need to understand that implementing software creates changes in the system, but also changes the perspective users – however – they can’t see that, not having experienced it – but as someone who has seen company after company go through this change, you need to recognize the first state of mind that valued the historic data and know that eventually, they’ll convert to a new state of mind where the new system is all top of mind.
It’s these kinds of lessons that make or break an ERP project. Downplay the value of historic data upfront and you lose all credibility with the users. ‘What do you mean we won’t have historic data?’ And, if you miss bringing over enough summary data – your reporting just doesn’t work. Try to bring everything over and it’s so time consuming and requires everyone minutely scrubbing dozens of 1,200 row spreadsheet lines of data – that alone can sink a project.
So back to our startup Pharma Manufacturer
They decide to ignore the advice of the national consulting team and because they have never imported data, they decide they need someone on-site to help with these data exports/imports
So they hire another local data import consultant to bring the all data in…everything.
Have we mentioned it was a cloud version of QuickBooks and a cloud version of NetSuite? Neither system was ‘on-site’ so why was it critical to have the consultants on-site to import data? Don’t ask questions.
They brought in a local consultant from another firm, Mc-whatever. She informed them that NetSuite was a very small program, not a major player like she was used to – Sage.
Now, having been a leading manager with the largest Sage reseller in the country in 2001 – 2005, I know that Sage is a billion-dollar global conglomerate traded on the London Stock Exchange – but most of their products are for smallish business. They run about 17 different programs stateside in the US maybe double that worldwide. You may have heard of some of these names if you’ve spent any time in smaller companies. MAS90, MAS200, MAS500, Timberline, Peachtree, X3, AccPac and now Intaact – and several other programs, you’ll just have to trust me –
The new local consultant? She didn’t know that.
She only knew she’d used something called ‘Sage’. Red Flag.
While there’s a overall company called Sage, maybe 40 software programs worldwide, none of those products is called just ‘Sage’. They have rebranded MAS90, Sage100, Sage200, Sage300 – but when you asked her which Sage product she was familiar with, she’d quickly change the subject.
Anyway big problems were just beginning. The entire consulting team advised the client that she’d hired someone who was an actual threat to the success of the project – the biggest red-flag I think she was called.
So we have multiple major software projects all over the company. A project leader who’s never been in a management position blowing in the wind in all directions based on who was last in her office.
This was a perfect example of when a comprehensive consulting team should have been onboarded to manage all the software projects – bring in someone with 20 years experience, etc. But it was all over the board.
Was this the Perfect time for ERP? No. The project failed by any measure.
You cannot implement a dozen major software programs by department at the same time across a single organization. You need a comprehensive approach and selecting software programs that have been integrated in the past.
But most of all, you need a project leader who can stand up to all of the new people walking into her office with ‘new’ ideas. Sure, some of these program recommendations had been the right answer 10 or 12 years ago when they were implemented in former companies of the new department managers – but that’s three generations of technology ago. It’s akin to someone walking into the IT office today and saying, Office 365? We used Windows XP and we really liked it. And yes, I know I need better examples because half the audience doesn’t remember Windows XP – but that’s kinda the point.
Without confident leadership, and a consistent direction, the ERP project floundered – we can only imagine how all the other software projects were progressing. The last we’d heard, the project leading bookkeeper was no longer with the company.
Another situation to consider is when, in your growing company, when do you pull the trigger on a new ERP system?
We’ve talked a bit about early stage startups who are completely busy, going crazy with new growth – and it always seems like, we’ve got so many priorities we should probably delay til next year. And when next year comes, busy again, the 4 new people they hired are now also super busy – no extra time for an ERP project – when the reality is – you are never going to hire more people than you should have already hired yesterday to get todays work done. That is, no small business, mine included, hires someone just in case a big project comes along so we’ll have some capacity.
You hire for urgent need. The increased hiring lags the increased workload. Hiring the right fit probably takes longer than planned, so by the time you do get someone on board, you’re now a larger company than when you started looking and it’s really time to bring still others onboard. That – by definition – is a rapidly growing startup.
So there were these two companies we worked with. Both approximately $30m dollars in annual revenue. Both with complex business models.
One had implemented ERP 3 years ago when they were a $14m company, knowing that they were actually too small for such a system such as NetSuite at the time – it would have to be a stretch purchase. The other kept trying to deal with issues using QuickBooks and spreadsheets.
Three years later, the NetSuite based company was running the business with the same 6 positions in the business office, accounting, finance, purchasing. The QuickBooks company had grown to 13 people in their business office and still couldn’t tell you where their million-dollar oilfield equipment was.
So, 6 people with NetSuite, total control and planned controlled growth. QuickBooks and 13 people and millions of dollars of assets are totally out of control. The QuickBooks company was actively shopping to find a buyer for the company.
And the CFO of the QuickBooks company said ‘they couldn’t really afford ERP right now’. What he was saying was he didn’t want to spend $70k licensing and installing ERP. But he was willing and in fact was spending $420,000+ each year on excess staff. Of course that was one $60k employee at a time and was a repeat of the last FTE approval to hire due to growth generated workflow.
Two issues here:
One, it’s easy to hire one more person to help with the work overload. Simple decision. You hire new people all the time, it’s natural. Launching an ERP project is uncommon and unknown. You really don’t know how well the new system will help, and there’s some doubt it will help at all.
Two, once you have 13 people on staff, announcing you can save $420k a year in labor by automating with ERP – it’s not the kind of thing a CFO wants broadcast internally across the company – better to just ride this one out.
Not the Perfect Time for ERP. At least if you’re that CFO.
Let’s talk about our other company, an emerging AV dealer – and I know when you mention Audio Visual or AV, there’s this mental image of a high school AV team pushing projectors into classrooms – this is not that.
Imagine if you will, performing surgery at Johns Hopkins in a video connected session from the operating room consulting with an expert at Cedars Sinai an entire continent away. The patient’s vital signs are superimposed on the screen, video is high definition sharp, the monitors megapixel – beyond clear, there’s no audio lag or latency – it’s not a Zoom hookup – there is not just monitors and cameras, but multiple servers behind the scenes controlling and routing signals from many digtal inputs, along with perfect lighting, no expense spared because, in this case it is a life and death situation and, might well be actual brain surgery.
The technology is amazing. The engineers who design and the technicians who install are all very talented professionals using the latest cutting edge gear.
That’s the level of AV services we’re talking about – operating rooms, university auditoriums, stadiums, high level corporate conference rooms.
So you had a highly technical company – the company president had crafted his own project management system to work with pricing, the AV system architecture, engineering approvals and more – a pretty savvy technical guy. But as well as his 4 level system worked, it was still missing things like purchasing and advanced inventory management – and it just didn’t scale and it wasn’t integrated. They were already in a spreadsheet heavy situation.
So we did a software evaluation – as the final decision narrowed, we completed the Cost/Revenue Model. That’s the business analysis done with the focus on how ERP can impact efficiencies – showing how transactional costs were reduced, more flexible reporting enabled things like annual purchase by vendor, great for negotiating discounts here and there.
The Cost Revenue Model showed if they followed a fairly conservative implementation of ERP and adopted best practices, the company would avoid cost increases and see revenue enhancements to be able to save nearly $5 millon dollars over three years.
They were very interested in the ProfitFromERP Cost Revenue Analysis and asked for copies of the spreadsheets and calculations.
We circled back three years later – and of course I asked if they’d followed that Cost Revenue Model and achieved their $5m positive impact – and they sort of chuckled. They said it was a good plan, but what the Cost Revenue Model actually did, was open their eyes to how this stretch purchase, this system probably too big for them could be used to make it pay for itself. And this justified buying a larger ERP than had actually been budgeted. The liked the ideas in the Cost Revenue model, they just took that plan and re-worked it to actually fit more within their own growth plans.
But what about the $5m over three years?
Well, they said, they had exceeded that $5m, more like tripled – they’d gone from a $14m company to a $28m operation. They were in negotiations to expand into Japan and Australia, becoming a $48-50m company next year.
At this point we have two companies in the discussion – the $30m oilfield services company with 13 people in the business office that cannot grow and the only path forward was to sell the company and let someone else deal with it. And the $28m AV company, with the same 6 people in the business office, tightly controlled, able to plan and execute phenomenal growth – and expanding into other markets – probably buying up competitors that had too many people in their business offices and overhead preventing growth.
What was the difference?
The Cost Revenue Model showed the AV company exactly what ERP could do in their situation. But it was just that, one Model. They saw how the model worked and were able to create their own model and prosper expontentially. In the other case, The lack of a Cost Revenue Model or understanding of how ERP could help, meant the oilfield company’s only move was to hire one more person to handle the ever-growing forest of spreadsheets.
Another quick insight into the ERP software market.
Every year, so many companies reach out to software vendors or ERP partner organizations. They have a desire to run better systems in the office – they don’t know exactly what they’re looking for, but they know there has to be a better way.
ERP fits the bill – now which ERP – that’s another question.
But these thousands of companies will engage with the hundreds of ERP sales teams, they’ll do a lot of research, they’ll compare different ERP programs, they’ll expend weeks and weeks of staff time as well as engaging with multiple presales groups from different vendors.
And you know what the #1 competitor for every ERP company is?
It’s called NO DECISION.
That’s right, the overwhelming majority of potential customers, every industry, every size will spend months evaluating ERP software and find it confusing, they’ll find it expensive, and lacking perfect information (which you will never have perfect information on any decision) they will stall, and finally, something else will come up and they’ll put the ERP decision on hold.
Some may come back and try again next year, some never really get started again – and many, many companies go through this cycle 3 or 4 times over a 5 year period before they ever actually make a buying decision.
It happens in the majority of all evaluations. NO DECISION is every salespersons biggest competitor, every salespersons greatest nightmare and the biggest marketing issue faced by all the ERP vendors.
Why is it so hard to make the decision? The standard approach to evaluating software just doesn’t end up provide much more than marketing hype, flashy demos and sales puffery.
But here’s the solution.
Back to our AV company – when they engaged with ProfitFromERP, our first step is to execute the Business Analysis part of the project. Gathering the Requirements – what does the new ERP have to do? How does it have to work?
This critical step allows a new structure to the entire evaluation approach.
We can start to pare down ERP systems from hundreds to dozens based on how the specific programs address our major client Requirements.
We can further structure the evaluation to focus on specifics of our Requirements, not some flashy demo of functions we really won’t ever use. We can also put some structure to the demos, systematically approaching every Requirement – and for some companies, 75 to 125 Requirements are not unheard of.
Next, we rank our Requirements by the financial impact.
This is the Cost/Revenue Model. It details what the major Requirements will do – are we using better warehouse management to affect inventory? Are we eliminating duplicate data entry and streamlining operations? Better reporting for accurate decision making. The lists go on.
But now, we have an ROI study and breakeven cash flows and paybacks for the project.
We can compare different software. We like the way A looks, but B really solves our planning issues – and that’s the key drag on company growth – or whatever.
Now the Question Changes.
Before, our question was, should we get new software?
Now the question is, When should we start saving $5m in labor costs and avoided expenses?
See the difference?
Should we change software? Versus Should we make the company more efficient by x-million dollars?
It’s a different decision.
So, with better information, you can pinpoint that Perfect Time for ERP.
Switching back to my days with the larger software firms working with multinational companies – they had teams of Business Analysts working on that question for years before they launch a $5m SAP project.
In the midmarket sized companies, you probably don’t have a Business Analysis department – even if you do have a business analyst or two on staff – do they know ERP? Are they familiar with many different and the latest versions of ERP offerings? Do they understand how the software can work – in the real world, based on past client successes not the success stories listed on the vendor website?
Can they architect and design a system to address the root causes of inefficiency and drive productivity?
So you really want to know the Perfect Time for ERP?
Start with the Business Analysis, Requirements and Cost Revenue Model – it’s Step One and Two in our methodology of ten factors used by the most successful ERP adopters – it doesn’t commit you for any additional steps or a fixed package of consulting.
That is, we have clients who have us come in at the startup stage and do a limited engagement – lay out the objectives, costs, goals and allow strategic decisions when the time is right.
When you have a tiny startup staff – it can be too early to bite off too much, or you may need to structure the project with staff augmentation to bring in the expertise you need to help with the project without committing to long term labor costs before you’re ready for that particular FTE in your organization.
Or if you’re in a hiring/growth phase – how to plan ERP before you’ve thrown so many bodies at the problem you’re locked into overstaff costs that prohibit spending on technology.
It will give you the information, specific to your company and your situation, the information to prevent the ‘no decision’ indecision trap.
It’s never too early to start talking about the Perfect Time for ERP so contact your software consultants or reach out to ProfitFromERP – never too early to start talking and initial discussions aren’t a billable event.
If we can’t save you money on the project, well, we’re not doing our jobs very well and that’s what we’re all about at ProfitFromERP. Be in touch via email Info@ProfitFromERP.com and we’ll get back to you with the right resource. I’m Gene Hammons, Director of ProfitFromERP thanks for listening to this week’s ERPodcast and do leave a review and 5 star ratings are appreciated.
Oh and always – the ERP Comment line – got a thought, comment, criticism, lead or story suggestion, 833 836-4440
Be in touch!