Michael Fauscette

Start up Spotlight: Clarizen

Clarizen is a project execution software start up that deploys its software in a SaaS model. The company is based in Silicon Valley and has operations (including product R&D) in Israel as well. Founded by Avinoam Nowogrodski (the founder of SmartTeam, a PLM company that was acquired by Dassault), it is on release 2.1 of its product. The company has several key differentiators including:

1. Task execution focus
2. Easy update through either the Web interface or Outlook
3. Open API integration
4. Simplified UI
5. Personalized dashboards presenting data across single project & aggregated project portfolio
6. Integration to MCAD software (currently supports Solidworks)
7. Built in collaboration tools

So what makes it interesting? Historically project management software has focused on the management aspect of projects, often with limited benefit to the individual project team members. This phenomenon often has manifest itself in "management" oriented software packages that take a top down approach to controlling activities of individuals while providing management with critical project metrics. The same parallel could be drawn with sales force automation tools which require large amounts of data captured from field sales personnel to produce forecasts and other management reports but in the past have served little benefit to the end user. Project management software requires project managers to build extensive work breakdown structures to assign individual tasks. Team members must then routinely update the project tasks with time, expenses, task status, schedule changes, etc. All these activities, while very important from a management perspective, offer little value to the team member in planning and executing their daily activities. It is often difficult, for instance, to determine task interdependencies and plan for critical path changes that impact your personal schedule of work. Clarizen, with its Web 2.0 approach to projects, answers many of these complaints. Clarizen was built from the user up instead of the manager down and puts tools in the hands of those who need them to do their jobs. Tracking tasks interdependencies and status is simple and the users can update status with related notes and comments through the MS Outlook integration or directly through the Clarizen software.

cloud, Enterprise 2.0, Project execution, Project management, Software, start up, Web 2.0

Software business case 2.0

I was musing with a colleague the other day about building a business case for purchasing software and where the real value was in software implementation. I've used a methodology for years when I worked for software vendors that assisted prospects in establishing the what, why and how of the proposed software project. The basic process involved a consulting engagement that assisted the prospect in establishing their current business state, best practices for the specific industry vertical (benchmarks) and the future state of the business after the proposed project was completed. In evaluating the proposed project I used four criteria: 1. revenue, 2. cost, 3. quality and 4. innovation. The subsequent business case we developed used the four criteria and applied them to the future state to demonstrate the value of the project to the business. We looked for some combination of the criteria to use as the justification for the cost of the project. Many times this took the form of a return on investment (ROI) calculation, because, face it, that's what executives wanted to hear...that the proposed project would pay for itself in X amount of time in increased revenue or decreased cost (or the Holy Grail, both). On the softer return side you had quality or innovation, often much harder to quantify (not always though, increased innovation might be demonstrated, for example, by bringing more compelling products to market faster; increased quality might reduce scrap costs, etc.).

Lately I've started to think that the original four criteria are not the only factors any more, that something else is starting to emerge that could be used to establish value. I'm more involved in using social media tools over the last two years, so maybe that's impacting my thinking more, a good thing. I also have come to believe that Web 2.0-like tools should be used in the enterprise, so again that's opened me up to some different thinking. So at this point I'd add a fifth criteria, intimacy to my list. Intimacy can be applied to new projects to gage the increase in dialog, engagement, and interaction in an ecosystem. This might be most obvious when applied to Social CRM tools, which by their design increase customer intimacy but the term could also be used in a supply / design chain or perhaps in a partner ecosystem as well. Applying Enterprise 2.0 tools in the enterprise to increase intimacy. I will admit that I'm still in the early stages of thinking this metric through, but I'm convinced that this is an important new part of evaluating the value of a prospective software project.

Enterprise 2.0, ERP, Project management, Social CRM, Software, Web 2.0

Project-based ERP

This week I attended the 3rd annual user summit for OpenAir in Boston. OpenAir, recently acquired by Netsuite, is a professional services automation (PSA) vendor that deploys its software in the SaaS model. I wrote an IDC link on the acquisition when it was announced. I presented a short overview on project-based ERP and my take on the market during Netsuite CEO Zach Nelson's keynote Tues afternoon. During the conference Netsuite announced a new vertical focus that they are calling Services Resource Planning (SRP) that is aimed at the market that I call Project-based ERP. I started tracking this market last summer with the publication of the first market forecast in this space from IDC (IDC Doc #208756, Sept 2007).

So what's different with project-based ERP versus PSA and traditional ERP? Let's look at traditional ERP first. Traditional ERP grew up from a category of software that is called manufacturing resource planning (MRP). MRP is designed to manage the manufacture of goods. Companies like SAP have their roots in MRP (companies like Oracle, PeopleSoft, Great Plains, etc, started in a different part of the enterprise process than manufacturing but were still constructed around the product paradigm). Over time MRP added financial management, supply chain, human resources and other functionality to manage an entire business and became known as ERP. The core of the system though, is centered on products. During the 1990's service-based, or more accurately, project-based businesses tried to adopt ERP systems and were able to implement traditional systems only with quite a lot of customization to make the ERP suite work moderately effectively for their project-based enterprise. The fit was not good and the customizations were onerous enough that few of the systems could be upgraded. Customer satisfaction with these custom systems was not very high. In an attempt to meet the needs of project-based businesses in the late 1990's-early 2000 a new type of software was introduced by a group of start ups called PSA. The PSA solutions contained a business process focused on projects and generally started their process from the new project creation and ran through the process to invoice creation but were not a complete financial system (or HCM, SCM, etc.). The concept was that the PSA solution would be integrated with traditional ERP systems and would provide the missing project functionality. Companies like Evolve, Niku, and Changepoint to name a few, experienced good solid growth for a few years. The "bolt on" nature of the solutions led to the eventual acquisition of most of these vendors. OpenAir and Quickarrow also grew up around this PSA market but deployed in a SaaS model. Until this year they had remained independent. PSA, while an improvement to customized product-based ERP, was not the complete solution for project-based enterprises.

In a completely different path a couple of solutions grew up that were project focused. Two vendors, Deltek and Agresso (part of Unit4-Agresso) developed / acquired and sold complete project-based ERP solutions. Both vendors only deploy in an on-premise perpetual license model (or partner hosted, but the licensing is still perpetual). Deltek, which went public last year, in particular has seen very strong growth for all their solutions, which include project management solutions with strong earned value management (EVM) functionality for government contractors and complete project-based ERP.

What about the "big" ERP vendors? SAP and Microsoft basically have a vertical solution in the services vertical but it is built on the core product-based ERP solution and is not an end-to-end project-based solution. Oracle is somewhat more advanced in this vertical and has shown interest in expanding its footprint, most recently with its acquisition of Primavera and the formation of a Services Global Business Unit (GBU). Their solutions, while more robust than competitor's like SAP, are still mostly point solutions like project management, PSA, etc. that must be integrated with one of Oracle's product-based ERP packages to get a full business process solution. Oracle has a very robust business in services industries like professional services, construction, and transportation management.

Until Netsuite's announcement this week (and acquisition / integration of OpenAir) Deltek and Agresso were the leaders in the complete end-to-end project-based ERP solutions market. Netsuite joins these two vendors and of the three is the only one that offers the solution in a SaaS model. This is significant because of the accelerated shift to SaaS solutions that is being fueled in part by our current economic crisis (see my blog post: the financial crisis, now what about software?). Another factor is important to note about project-based businesses, many of the systems that were sold in the mid-90's are now out of support and can't be upgraded (as I noted above). The need to replace these legacy systems has worked to create a much higher demand for project-based ERP than many other software market segments and should drive solid growth for all three of these vendors.

cloud, ERP, Oracle, SAP, Software, Project-based enterprise, services companies, service economy

Start up spotlight: ODesk

ODesk is, IMHO, one of the most innovative start ups that I've looked at in quite a while. Its business model is a hybrid software + services model, or maybe more accurately a staffing outsourcing company backed up by a very innovative software solution. So what exactly does ODesk do? ODesk is a one stop shopping experience for the hiring and management of offshore technical resources for staff augmentation and other software development needs. Through the SaaS application a customer can search, interview, select, manage, monitor, and pay offshore technical resources. The search / selection process is facilitated by several tools including full profiles, test results that demonstrate skills, work samples, interviewing tools, and most importantly community reviews of each resource. Once a resource is selected and the contracting process completed the ODesk tools again add value by providing a full management and monitoring system. Once a project is assigned the selected resource must log in to ODesk while completing all work (offline work can also be pre-approved and there's caching for poor Internet connections) so that billable time can be captured automatically AND, the key feature here, so that random snap shots of the resource's desktop can be recorded to validate the time and the work in realtime. Once the project is complete (or on agreed milestones), ODesk handles the payroll for each resource, removing the burden of dealing in multiple currencies and the burden of understanding local employment laws and regulations in multiple countries. To summarize the process, ODesk finds the resources, builds online profiles / resume's, maintains a community based rating / evaluation system, facilitates interviewing, handles contracting the resource, provides tools for monitoring and managing the resource and handles all compensation related activities. As the customer you select the right resource(s) based on skills and need, provide the specifications of the desired development effort, monitor the progress using ODesk tools, pay ODesk on agreed milestones in your local currency, and once the project is complete and accepted close out the project.

From the provider perspective ODesk provides an easy way to get access to projects, a way to work effectively with a remote manager and a way to make sure you get paid for what you do. ODesk provides the marketplace, the tools and most importantly the process that builds trust relationships.

So why do I like them?...if you couldn't guess, this is the most complete and elegantly executed staffing solution I have seen. The tools and the process make for a very easy to use experience and add significant value in a various unique ways. There's even a community section on the ODesk web site that provides forums, ODesk statistics, trends developed from the data collected from jobs executed on the site and resources. With close to 117,000 resources and over $45M in services delivered the business is healthy and growing. And if this isn't enough, the product is developed using the ODesk process. ODesk is VC backed and is funded by Benchmark Capital, Globespan Capital Partners, Sigma Partners and DAG Ventures. The seasoned management team is headed by CEO Gary Swart.

Enterprise 2.0, outsourcing, Project execution, Software, staffing services, start up, VC, Web 2.0

Software start ups and the financial crisis

As a follow on to my post on the impact of the financial crisis on the software markets, I wanted to take a quick look at the world of software start ups and the venture community. Now no one can doubt that we're in a crisis and that the crisis is BAD ("dummies guide to the crisis") but what does that really mean for current software start ups and for new ventures seeking funding over the next 12-24 months?

There's no simple answer to this question just like there's no simple solution for the crisis. Main stream investing, financing, banking are in a mess but what about "alternative" investments like VC funds? The core of the crisis is not linked to VC funds at all but that's not the whole story. In general VC's are becoming more concerned as the crisis deepens and are worried, especially by the potential difficulty raising future funds. You see funds often include investments from banks, pension funds, insurance companies, mortgage lenders, etc. Banks and insurance make up about 20% of all VC funds and certainly they won't have the capital to invest in future funds in the near term anyway. Freddie mac and Fannie Mae both invested in VC funds too. VC funds also often include large companies and wealthy individuals who have been severely hurt by the devaluation of the markets and in some cases won't even be able to honor previous commitments to existing funds.

The state of the economy also limits exit strategies for start ups; we've seen almost no IPO activity this year (for example there were 31 VC backed IPO's in Q4 2007, 5 in Q1 2008) and even the merger and acquisition frenzy has slowed so VC's are worried about how they get returns on their current investments. In some cases this will require the VC's to continue to invest in a company to insure they maintain the potential of future returns, severely strapping current funds. In the extreme the funds would have to sell off their stake in portfolio companies to secondary firms at a discount.

The news isn't all bad though. Several well established VC's have already raised large funds this year, including Battery Ventures, Sequoia Capital, and Austin Ventures. The problems will likely put a crunch on newer, smaller and less established VC's though. This could be especially rough for Leverage Buyout firms (LBO), who rely on loans to leverage their deals.

So what's my advice to start ups:

• Raise new rounds earlier it will take longer
• Be more cautious on burn rates
• Don't plan on IPO's or M&A activity for the next year

For good start ups:

• it will be easier to hire
• office space will be more available and cheaper
• follow on rounds could be easier as investors are drawn to quality
• fewer start ups means it'll be easier to get PR, media and analyst attention

There is VC funding out there and for new ventures with a very real business plan as well as high quality start ups who have built a solid business that money will continue to be available during the crisis.

cloud, Enterprise 2.0, ERP, financial crisis, Funding, investments, open source, Social CRM, Software, start up, VC

The financial crisis, now what about software?

I've spent a lot of time on the phone and in meetings with financial analysts, investments bankers and others from the financial community over the last couple of weeks. No surprise there I suppose, they're all trying to figure out how the enterprise software markets and vendors will fare in our current environment. Not a new conversation for sure, something I've talked about with these same analysts for almost a year now. 9-10 months ago IDC lowered forecasts across technology 2-3 % points. This varied a great deal across all markets but all markets were impacted and in general we agreed that the impact would last 4-6 quarters after the market started to show slowing growth. In the past we've seen a pattern, hardware generally reacts first, starting to decline within 2-3 quarters of the initial crisis and software delays as much as another 2-3 quarters before showing signs of the decline in growth. That seems to be holding true in this crisis as well, so software should start to slow some as early as the first quarter of 2009. We're already seeing some signs of this. But that's not the whole story and certainly the dramatic worsening of this crisis over the last 2 weeks will accelerate some of the possible outcomes. Let's take a closer look...

When looking at the overall enterprise software markets there are several basic factors that are critical to keep in mind when analyzing the possible impacts of a financial crisis. First, enterprise software buying cycles are generally long, with companies often taking 12 - 18 months to reach a final decision. That means that deals that are closing now could have started as long ago as late 2006. Secondly, how do companies buy? There are 2 basic licensing approaches, up front lump sum payment for a perpetual license with an annual maintenance fee for support and upgrades or a subscription based licensing fee that is a monthly (generally monthly although the period could be quarterly or some other agreed interval) that includes use of the software, upgrades and any support. On premise software is generally licensed in the first model, SaaS or on demand in the second model. The key difference here is that the up front fee is treated as a capital expense and the subscription model is treated as operating expense. The third factor to consider is that capital expenditures are often financed through companies like GE Capital. And the forth factor to consider is the emerging development and business models around open source software (OOS). The most common model for OOS is to provide the software for free download but sell services like support to assist with the implementation and use of the product.

With these factors in mind what do I think will happen in the enterprise software business over the next 12-24 months?

1. Companies will avoid non critical software expenditures whenever possible. I believe the most obvious place to see cut backs would be in core ERP upgrades. I would not be surprised to see companies delay upgrades for the next couple of years and move the funding into more business critical software purchases. By business critical I'd expect to see vertical specific software do well in a tight financial environment where the ROI is more direct and more easily defined. Solutions like retail merchandising, telecommunications service delivery platforms, utility asset management, and enterprise 2.0 initiatives especially around social CRM will likely do well over the next few years. The long buying cycles of software play into this as well, companies that have spent 12 or more months on a project to select a solution have a lot invested and are not likely to shelve the project at this point.

2. Companies will start buying more subscription based SaaS software solutions in leu of on premise software because of the desire to consume software out of the operating budget rather than the capital budget. We have already seen an increase in growth in the overall SaaS forecast and that will likely accelerate. In the past, growth for SaaS software was greater in the small and mid market but this is shifting as enterprise companies shift to buying SaaS solutions. The enterprise size companies will lead SaaS growth in the months to come. (I hate to use the "cloud" phrase but the fact is, SaaS and cloud will benefit)

3. The credit crunch will impact companies ability to finance software purchases. In some cases the gap could be filled by large vendors who offer to finance their own software. This crunch will also drive more companies to SaaS solutions as an alternative to the lack of available credit.

4. Companies could start to look to OSS as a more cost effective alternative to purchasing traditional software. There are still a lot of market perceptions around risk among IT and CIO's specifically, but adoption of OSS is becoming more main stream and this current crisis might help accelerate adoption.

Enterprise 2.0, Oracle, Social CRM, Software, open source, SAP, salesforce.com, ERP, financial crisis, Microsoft, cloud

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