Should a growing SME move from desktop accounting software to a cloud alternative or upgrade to cloud ERP?
It’s one of the hardest questions facing a successful business. Unfortunately finding the right answer is getting harder. Both options are improving so quickly.
Cloud ERP is on a tear. The largest competitor by licences, NetSuite, just got a lot bigger since its US$9.3 billion acquisition by enterprise software giant, Oracle. At its annual conference in Last Vegas this week NetSuite announced it would rapidly expand its sales force and introduce a rapid-implementation program that slashes rollouts to 100 days or less.
This will mean NetSuite will sell to smaller SMEs which previously would have baulked at the cost of customisation.
On the other hand, cloud accounting software is becoming much more powerful than desktop software. It can extend its useful lifespan by connecting to dedicated cloud applications with more functions or processing capacity.
The most extreme example I have found is Australian e-commerce company Kogan. It used Xero and Unleashed, an inventory management app, to push through $170 million in annual revenue.
At the Accounting Business Expo in Sydney last month, Kogan CFO David Shafer also revealed that his company was making about 10,000 transactions a day through Unleashed – to audible gasps from the audience. Unleashed rolled up the transactions into one daily transaction before pushing it into Xero.
It makes sense to stretch cloud accounting software until your size demands moving to an ERP. The annual subscription for a handful of connected accounting and business apps works out to several thousand dollars. An ERP starts at $20,000 to $50,000 a year depending on the number of modules required. Once you add overseas subsidiaries, e-commerce or advanced inventory it quickly passes $100,000 a year.
However, all that money pays for higher levels of efficiency in operational processes, critical for achieving scale.
A wrong decision either way can be deadly. A company can stall because its systems can’t keep up with new business, or it could blow tens of thousands of dollars customising a platform that is excessively complex.
NetSuite is betting big on this rapid-implementation program called SuiteSuccess. It is essentially a best-practice playbook that pre-configures KPIs, dashboards and workflows for 12 industries (with more on the way).
The SuiteSuccess sales process centres on a three or four-hour phone call that hammers out the key workflows in the customer’s business. At the end of the conversation the business understands how the ERP can improve the way the business functions rather than replicate the status quo.
The sales call forms the basis for the implementation. All the information on workflow design is fed straight to the implementation team. If a demo account was set up it is converted into the production account – the conversation on workflows continues and none of the earlier work is lost.
In the past year NetSuite tested this model with 300 companies in eight industries and claims it has had very solid results. Customers went live 60 percent faster, lowering implementation costs by 18 percent, McGeever says.
The ongoing dialogue resulted in very high customer satisfaction. About 90 percent of this group were referenceable accounts, which is astounding given the reputation of ERP for trainwreck implementations. There were only four change orders in those 300 implementations, McGeever says.
Oracle is pumping millions into NetSuite to fuel a huge growth spurt. But although NetSuite is opening new sales offices all over the world, it won’t start selling in a new country until it has a localised version of the SuiteSuccess program to underpin it.
McGeever says the program is his number one project. It is quite remarkable how much attention the company is giving to SuiteSuccess. The senior team are hailing it as the key to selling ERP on a much broader scale than ever before.
The biggest question is whether this program will be as effective outside the US and with NetSuite’s partner consultancies.
In smaller markets such as Australia and New Zealand the partner community hasn’t always rolled out ERP as effectively as NetSuite’s in-house team. NetSuite can’t afford for partners to bungle up implementations, with or without rapid-implementation programs.
In fact, Xero CEO Rod Drury recently talked about a company that ditched NetSuite and went to Xero instead. That company may have been oversold in the first place, but it also points to the effectiveness of the cloud accounting app-plus-ecosystem approach.
To ERP or not to ERP; either option is much more attractive than it used to be. How to get the timing right? Now there’s a good opportunity for a business adviser.
Accountants and bookkeepers who become more familiar with the power and limitations in the cloud accounting ecosystems would be in a better position to make the call.
Sholto Macpherson travelled to SuiteWorld in Las Vegas as a guest of NetSuite.
Image credit: Eureka Solutions
Hi,
The comment that “ERP starts at $20,000 to $50,000 a year” is not actually correct – MYOB Advanced – a full Cloud ERP solution that competes in the market with other solutions such as Pronto, NetSuite and SAP BusinessByDesign is significantly less than that when you are looking at the license costs per year…I use it myself and I am paying $197AUD per user per month inc GST for the full Enterprise version which as no transaction count restyrictions and has a full API for integration as part of the solution.
If you were to compare it to the Xero and Unleashed scenario for Kogan, with a single user I could achieve the same outcome although I wouldnt need Xero and Unleashed – I can achieve the same level of financial control and inventory management with API integration via the REST API’s with just the MYOB Advanced solution. Obviuosly if I was going to add my brand managers and logistics team I would need to buy them all licenses which would increase the monthly cost and you also have to factor in services related to the implementation – although in the Kogan scenario I have heard them claim that they did the entire solution themselves… https://www.crn.com.au/news/ruslan-kogan-reveals-secret-to-cheap-prices-but-fatter-margins-441803
Disclaimer: I was previously an employee of Acumatica in the USA ( the base solution that MYOB Advanced is built on) but I do not sell any of these solutions
Thanks Richard for the comment and you’re right, for a single user it’s much cheaper. I didn’t realise you could get a single licence for Advanced!
My ballpark figures was based on the assumption that everyone in the business is on the ERP, not just the business owner. Generally speaking, businesses over 10 or 20 seats are more likely to make the investment than a micro-business; the latter would struggle to find ROI over a collection of accounting ecosystem apps. For 10 people on Advanced it’s $24k a year.
Thanks for pointing out the true starting point, though.
And Richard – on the Kogan install of SAP, they originally went with a partner in Melbourne (recommended by SAP) but according to Kogan’s CFO it was a total disaster. Kogan ended up hiring their own SAP team and pulled out every line of code added by the partner…
Interesting story. I interviewed the CFO on stage at the Accounting Business Expo in March about it.
Hi Sholto -thank you for this. My thoughts are: the longer a business can stay on a Xero or QBO + add ons solution, the better – user experience is good and time and effort to maintain is small. However as the business model becomes more complex, more and more add-ons are required making the ecosystem more difficult to manage. Additionally a business needs to evaluate each add-on individually to ensure it meets business requirements – for example Unleashed doesn’t handle On Costs for overseas purchases whereas Dear does. If a business needs to include labour and overhead costs in their BOMs they need to look beyond Unleashed. If profit centre/tracking is a business requirement, you need to look carefully at the add-ons as many can’t support this. GL Integration into Xero/QBO can often be more simple than is desirable and Xero still has a fairly basic Payroll system (not yet supporting ETPs) meaning that many businesses need an add-on for Payroll as well. A lot of time and effort may be required and a disjointed system could emerge at the end.
An ERP system should come with all features required by mid-tier businesses meaning everything is one place, – some of the slightly more fringe requirements may not be available in all systems – for example Tencia does not have a Service module, CRM may be a third party add-on and several ERP systems use a third party payroll module. Customer, Employee portals may or may not be provided
Price wise – implementation costs are of course much higher as this is a total business solution, but generally for a business with 10-20 users the annual maintenance runs at 20% of software cost so can often be under $10-15k per annum.
As you rightly mention – the partner community hasn’t always rolled out ERP too well. An ERP system can be remarkably complex and there are frequently multiple ways to implement a business process. The ERP partner needs a good understanding both of the ERP system and be able to understand the processes of the business to marry them up. And NetSuite is a good example of this – there are a host of parameters in each module, a good example – it is all powerful but its power can confound the unwary
Great points, Margaret. Interesting about maintenance, I didn’t realise it was so much lower than the sticker price. Thanks.
Good article Sholto.
Your title is spot on. Cloud Accounting App or Cloud ERP? Good Choices, Hard Decision.
It is easy to get into Cloud Accounting…i.e. Click here…Free Trail!
But like the electric car, Cloud ERP is still early days.
I think the cloud is great, and I use it extensively for my own small business, but it surely did not win as suggested by the article’s picture. Consider this, we have different modes of transport, why can’t we can have different platforms to accommodate ERP software.
I believe Netsuite found a nice niche in the online ERP market space but are still too big for most in the SME market.
Xero, on the other hand, managed to get into “SME ERP” mostly because of other 3rd party add-ons. It is a clunky solution at best. Netsuite, as suggested, is pushing hard because the market is not pulling.
Smaller traditional ERP systems who did not yet migrate to the cloud are worried, but I personally think it will become a price war because cloud will ultimately (not yet) offer the same functionality. Certain industries will benefit more with the cloud, while others will simply keep their traditional desktop-server environment. Many hybrid solutions also exist. Cloud evangelists like you (and me, and Steve Jobs too) are terrible at confusing the Market with cloudy stuff, yet we offer little to none advice for transition strategies. Companies, processes, people and software are complex and that is why it becomes a hard decision.
My personal prediction is that desktop-server ERPs will still be a competitive product for the foreseeable future because:
1. COST – Their cost will come down (as they compete)
2. SPEED – The speed of processing large qty transactions (at least when comparing office LANs vs the Internet) is better with LAN based ERPs. (at least 95% of the time)
3. CONTROL – Trust and security (when a product is on your own server you can control it…i.e. backups etc)
4. TRAINING – Training (when you have a solid ERP why change it – imho Desktop Server ERPs still got more to offer)
5. CONVENIENCE – Convenience (this can go both ways but unless you really need to have online software why bother?) –have you ever notice how most people use their phones to watch videos, facebook etc. They do not want to or like working on that small screen. I think some companies will prefer isolated ERPs to keep productivity high,
6. DATA – Data sovereignty (are you, for example, aware, I am sure you are, that Salesforce do not have an AU presence)
7. FUNCTIONALITY – yes I mentioned this before. Even though big Online ERPs can offer the same functionality as traditional ERP systems, there are still only a hand-full.
8. COMPETITIVE ADVANTAGE – not everyone like having their IP, clients, BOMs, systems, processes, and trade secrets potentially exposed to supplier employees and maybe even corporate espionage.
9. DREAM BIG – with “older” ERP systems you are less exposed to public/private APIs being managed by third party providers and you can consequently still dream big without breaking the bank or reinventing the wheel.
10. IP – when you have a customised ERP system and unless another system can offer 20%+ more in cost savings or functionality, why go through all the drama of losing everything, especially if you spend 1000s of hours making the current system your own.
11. INTEGRATION – Hybrid solutions allow you to take your “cloud modules i.e. sales etc” to the cloud while the ERP and base live at HQ.
I want to conclude with this example, Online ERP is great and somewhat comparable to electric cars. Everyone thinks they are awesome and can see the obvious benefits, but some industries like farmers, miners, public bus & train transport cannot see themselves using until it proves to outweigh the cost, functionality, and current flexibility like having a petrol service station on every other corner.
Hi Hanno – I see you work in the area and so I’m sure have much better knowledge about product fit for your customers. Especially your point about IP – agreed, it can cost a lot to replicate a setup in a new system (cloud or whatever) if you’ve spent years customising it.
I guess it is all down to the timing. When to make the leap. The most interesting stuff, and which promises the biggest shifts in efficiency, are happening in the cloud. It’s just where the vendors are spending their development dollars. And new software companies develop exclusively for it. If you bought into on-prem ERP five years ago you’re probably going to stay put until you get the ROI back in another 5 years, but it makes sense that all new customers go straight to the cloud.
Great discussion Sholto, it’s a decision lots of small businesses need to make once they have a certain amount of repetitive workflow and need to move beyond Xero + spreadsheets.
We’ve built an ERP solution that allows our customers to maintain their familiar accounting tool (Xero), but upgrade the rest of their business management software to introduce standardised processes across Sales, Billing, Inventory and Service. https://www.bmserp.com/
As Margaret mentioned, the maintenance cost of traditional ERP generally runs at 20% of the upfront license. Plus implementation costs.
We have priced our software to be competitive with the ongoing maintenance, without the upfront license fee. As such, our per seat cost makes it affordable not just for small (5-25 person businesses), but much larger enterprises too.
Businesses can then get the best of both worlds, an ERP tightly integrated with the industries best cloud accounting software.