Yes, I know, it’s a pretty harsh title, but I experience this week after week: ERP vendors coming up with the cloud-hosted copy of their ERP software and not understanding why it doesn’t sell. I wrote this post to stop them repeating this mistake and to share the lessons I’ve seen at least 10 times in the last three months.
To set the scene, this post is about the two ends of the ERP customer spectrum -- Mr. “Do-it-my-way” and Mr. “Just-do-it” (apologies lady readers, but I couldn’t locate my LEGO women figures). So, the two ends are:
If you’ve got the point, you can stop reading now, unless you want to verify that you really got the point. In summary:
The “Do-it-my-way” customer represents a layer of customers in the market who want an ERP system that’s tailored to their unchangeable and mostly complex organizations and they are not ready to accept that their company data is kept outside of his company boundaries.
They prefer to own the software license, as well as the hardware. They are not fully comfortable renting software or services. They typically require the ERP to be fully customized and expect physical presence of consultants to deploy, tailor and configure the system to their company’s unique needs.
In many cases (especially with larger customers), the license cost of the ERP has to pass their procurement department and prices are heavily negotiated. This customer profile represents a traditional ERP vendor’s current customer base.
The “Just-do-it” customers are looking for ways to pass on the problem of hosting and operations to someone else, are OK to host data outside of their company boundaries (in many cases, they have no company boundaries anyway) and perfectly happy to sacrifice capabilities for simplicity.
These customers are looking for something that’s easy to set up, easy to use, relatively low-cost and doesn’t require long commitments. This profile represents a potential Cloud/SaaS ERP customer.
Of course, these two profiles are far away from a comprehensive customer analysis in the ERP industry. For example, I’ve identified a profile between the above two, who is happy to move data into the cloud (for the benefit or reducing the running costs of the ERP server infrastructure), but doesn’t want to sacrifice the customizations and the complex and unique functionality. I call this profile a “Do-it-both-ways.”
When Do Cloud-Based ERPs FAIL?
When a vendor is very successful with ”Do-it-my-way” clients (by the way, well done -- it’s typically the result of hard work and a great software built over 10-15 years) and it positions a cloud-hosted copy of its ERP software as the ultimate next step, most of its current customers freak out or just send it away.
To use an analogy: we all know that electric cars are the future -- so why do we still buy the regular models? Many of us are not ready for that step yet for various reasons. ”Do-it-my-way” clients are no different and we should respect them for this. Many of them will still use their on-premise ERPs in 15 years time and they will be perfectly OK with that.
“Do-it-both-ways” customers (a total of 50 at one of my ERP vendor clients with 10,000 on-premise deployments) will be OK to use the public cloud, but only to run the current ERP as it is, in order to reduce their operational costs of running the hardware on their own premises.
So, What’s a Cloud ERP Success Like?
ERP vendors who have successfully launched a SaaS service, identified niche market segments who could use bundles of simplified modules of their existing ERP software. If you don’t know where to start, ask your sales people about the list of lost sales opportunities where the reason of losing a prospect was the license cost, complexity of setup / deployment or the overly thick baseline features of your ERP.
Identify a niche, where you already have a good track record, but there’s a certain layer of customers who you couldn’t do business with before, for the reasons above (your ERP was overly complex to them, too expensive or too long and complex to set up and configure).
Put together attractive bundles for them, figure out a nice way to integrate these and deliver a unified experience, possibly via the web browser. Interview some of your lost prospects and invite them for a free pilot -- in return, request feedback, make the service better and try to keep them as customers -- ask them for case studies over time.
To Make These Lessons More Structured
This table below may help you decide the best action for the 3 profiles I outlined above:
Is it Really Worth it for US$ 50 per User per Month?
It certainly is. Don’t forget that your SaaS service will target a different profile from your current ERP customers. So, in other words, you are not converting your current high license-paying customers into a SaaS “rental” model.
Instead, you are using your name, experience and software to attract a new customer profile and therefore, generate a new stream of predictable, recurring (monthly) revenue to your company and set your sail for a world of Software-as-a-Service.
Please comment if you have anything to share -- I’m eager to listen and learn!
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