By Richard Foster for Virginia Business magazine's June 2012 Technology section, Virginia's Source for Business Intelligence.
Until recently, enterprise resource planning (ERP) applications were almost exclusively the province of global Goliath corporations with multiple locations, thousands of employees and very complicated back-office accounting and inventory needs.
Increasingly, though, new technology is democratizing the business landscape. Companies like xTuple of Norfolk are offering affordable ERP software solutions to small and medium-sized businesses that want to integrate their business systems in a painless and cost-effective fashion.
Founded in 2001 and headquartered in a 10,000-square-foot former bank building in Norfolk, the privately owned xTuple employs about 25 full-time workers with plans to hire another 12 in 2012. The company has turned a profit since 2007, Lilly says, and its annual revenue growth was a healthy 35 percent during fiscal year 2011.
Lilly chalks that up to xTuple’s unusual open-source software and shareware business model. Most ERP systems contain proprietary code and can be edited only by the publisher. But to Lilly, that makes as much sense as buying a car with the hood welded shut so that it had to be sent back to the factory for service. “It doesn’t mean everybody’s going to get under the hood. Most people aren’t going to tinker with the source code. But you’d like to be able to take it to whatever garage you’d want and hire your own mechanic.”
Following that philosophy, xTuple offers a free ERP software suite for small businesses, and tens of thousands of businesses use it without paying. However, as the companies grow, they purchase full versions of xTuple’s ERP software with more complex functionality. Companies using xTuple’s software range from small startup businesses to big companies such as U-Haul and Cedar Lane Natural Foods.
Prior to the emergence of smaller companies like xTuple, the ERP market mostly was dominated by two companies, Oracle and the German firm SAP, which marketed “big honking applications for big, honking companies,” Lilly says. Smaller companies used a mishmash of software solutions for their back-office needs, from QuickBooks for accounting to Microsoft Access or Excel databases for inventory. “That was the status quo, and it struck us as a market that could do with a little innovation and competition,” says Lilly.
Now, “you’re seeing a lot of smaller, less complex ERP applications out there that can really fit the needs of your small-to medium-sized businesses,” says Derek Singleton, ERP analyst for Texas-based Software Advice, a firm that helps companies find ERP solutions. Other companies vying for this market in addition to xTuple include MISys, NetSuite and Exact. Some larger players have also entered the smaller market, such as Microsoft, which offers the Microsoft Dynamics ERP suite.
The advantage of ERP, Lilly says, is that everyone in the company can access data in the same system: “ERP means one system, one record, so that when the accountant is looking at something, and the salespeople are looking at something, and the guys in the warehouse are looking at something, it’s all the same information.”
In addition to reaching out to smaller businesses, ERP systems providers also are turning to cloud computing and mobile applications, aiming to make ERP available on the go.
Mobile ERP technologies are still emerging. “Nobody has their full application fully available on mobile devices today,” Lilly says, but several companies, including xTuple, are working on the problem. xTuple unveiled a mobile Web client in May that emulates its ERP software suite in an HTML5 (the latest markup language for designing websites) browser-based environment. Most ERP providers, however, are only creating mobile apps that provide limited functionality and access just a portion of the ERP system, such as a client contacts database. Increasingly, though, more ERP applications will become available on the go, Lilly says.
“The biggest trend right now” in ERP, however, “has to be cloud computing,” says Singleton. “It’s taken a while for it to make its way to ERP but slowly but surely it’s something that has really hit this market and is starting to take hold in small and medium-sized businesses.”
Initially, Singleton explains, “There was a lot of doubt as to whether ERP could run in the cloud just because of how complex the applications are. … It’s a lot to manage on external software. But now it’s mature enough that it’s a viable option for certain-size companies.”
Deciding on whether cloud-based ERP makes sense for your company requires some homework and number-crunching, Singleton says.
Cloud-based ERP services probably don’t make sense for large companies, Singleton says. “Eventually it will be possible, but right now if you’re a very large corporation with very complex needs, you really can’t manage all that in the cloud.”
For small businesses, though, cloud ERP can be an attractive option because the up-front costs are much less, you don’t need IT staff, and you don’t need to purchase and maintain an on-site server.
But you have to trust that the off-site ERP environment will be up and running when you need it to be, Lilly notes. Microsoft’s Azure cloud environment went down on Feb. 28 because programmers had failed to correctly account for Leap Year’s Feb. 29, and Amazon’s Elastic Cloud 2 hosting service experienced a major 30-hour outage last year.
Also, Singleton points out, cloud ERP requires a fast, data-hungry broadband connection — your company may end up using the bandwidth of a 200-person operation for daily ERP needs.
Additionally, the cloud ERP services operate on a monthly or yearly subscription basis. At some point, maybe five years later, “there’s a point where the lines on the graph cross,” and it would be less expensive to have purchased your own server and hire IT staff than to run ERP systems off-site, Lilly says. “It’s the difference between owning and renting.”
While xTuple offers a cloud-based service through Amazon, it’s a small part of their business. “To beat up on my fellow software vendors,” Lilly says, “they love the cloud. They love the software as a service because it’s nice, dependable revenue streams. They’re not going to have any surprises in their quarterly calls. They’re not going to have peaks and valleys … but that’s not always the best thing for the customer. … Everybody should do their homework.”
Photo credit: Virginia Business
Missy Schmidt
Since early 2012, Missy has directed marketing for xTuple business management software, including the global user conference, inbound and outbound content marketing, lead generation, sales campaigns, website design and digital strategies. She has ties to the business and economic development, startup and entrepreneurial communities in Virginia and nationally. Prior to joining xTuple, Missy was VP of strategic communication and marketing for Hampton Roads Partnership, a public-private corporation that worked to improve the region's economy within the international marketplace. Before that, Missy spent 25+ in sales, including product development, within the industries of telecommunications, retail, industrial food service, government contracting, contract packaging and manufacturing. Missy holds a B.S. from James Madison University. She and her husband, Bert, who is president and CEO of WHRO Public Media, reside in the "innovation corridor" of downtown Norfolk.