A big difficulty with the ERP space is that it's just too big. A lonely startup might be able to build a better product, but the hard part is getting a company to stake their future on it[1]. Companies shopping for ERPs value stability of the company as much as quality of the product. The last thing a company wants is to install an ERP from a company that may go out of business in 5-10yrs.
It was said in the article, but I will reiterate: enterprise software companies are mostly made up of salesmen-not software engineers. The majority of their profit margin is from after-sale products such as warranties and consulting. These products have very little to do with the quality of the software product itself. In fact, it might even pay for the software to be buggy since a) more bugs = more consulting = more renewed warranties b) multi-year software contracts are not unheard of and c) ERP switches are extremely costly so companies stick with them for years, if not decades.
As a programmer, I wish that a quality ERP product could stand on its own, but sales and (company) size are key if you want to compete with SAP/ORACLE/MS. At the very least companies will ask for previous customer references, run a D&B on your company, and ask for a proof of concept install. This is a space so ripe with opportunity it hurts but for a small startup to succeed, it will need to pick off pieces of the giants before competing with the entire product.
[1] Yes, ERP software and implementation is that big of a deal. There are old stories floating around of botched ERP implementations costing companies millions of dollars and, eventually, sinking them due to the loss of business (even after reverting to pen/paper accounting).
You have some valid points, but there is another side to the equation. ERP is not only necessary in big organizations, but also in smaller ones. One could start serving the middle market. There are thousands of smaller companies that would kill to have ERP systems installed, but cannot afford them.
There is tremendous scope for start-ups here and the market can be penetrated. One needs to think out of the box and study the problem. Most organizations see the need for ERP, when their business expands or when it is running through problems. By that time, their processes are not well defined and that 'confusion' in turn is passed in a sort of convoluted way into the software. At this stage most of them are in need of a good Business Consultant rather than software!
Most Businesses are still run in a 'fuzzy' way. ERP systems impose rigidity and inflexibility. The new generation software would free business from these constraints.
- They would be mostly web based. They will be made of 'websites'that can talk to each other. No need for EDI systems. RSS feeds for materials anyone?
- They would be evolutionary in nature as their proliferation will attract further development and cross-fertilization of good features.
- They would cost 1/100th of what existing systems sell for.
I think there is a great business opportunity here.
These failed million dollar installations are purchased from the big institutions. The size of the company selling the ERP software is unrelated to the probability of a successful implementation.
True - but no one planes for failed installations. You always think they'll happen to "other companies" and not yours.
An ERP, in order to be effective, takes a lot of buy-in from all your business units, and getting that buy-in will cost the IT people some serious office political capital if the install fails. So what does the average person in a large corporation go with? The big guys who have a proven record.
It's similar to the aphorism "no one's ever been fired for picking [IBM, Microsoft, FedEx]" - sure, there's a risk that the thing might fail, but when you go with the largest company around who is almost exclusively focused on this, that risk should go down (I'm not saying that's true - only that that's the working thought process), and even if it does fail, you can fall back on saying "well, it's the industry standard, so I didn't screw up by picking it."
Start-up ERP will not go straight into large companies, and it probably shouldn't. Start with small local companies, and slowly work up in size - and then pick a size and stop there. And look at FreshBooks: they're a Toronto start-up that's got some decent penetration into tracking and invoicing sector, which is traditionally the domain of much larger companies. They do that for a while, get small-to-medium sized businesses comfortable with them, and then in two years maybe release a module that does payroll and integrates into the existing one? A year after, once their customers trust both of those, release an HR one? There's your start-up ERP right there...
It was said in the article, but I will reiterate: enterprise software companies are mostly made up of salesmen-not software engineers. The majority of their profit margin is from after-sale products such as warranties and consulting. These products have very little to do with the quality of the software product itself. In fact, it might even pay for the software to be buggy since a) more bugs = more consulting = more renewed warranties b) multi-year software contracts are not unheard of and c) ERP switches are extremely costly so companies stick with them for years, if not decades.
As a programmer, I wish that a quality ERP product could stand on its own, but sales and (company) size are key if you want to compete with SAP/ORACLE/MS. At the very least companies will ask for previous customer references, run a D&B on your company, and ask for a proof of concept install. This is a space so ripe with opportunity it hurts but for a small startup to succeed, it will need to pick off pieces of the giants before competing with the entire product.
[1] Yes, ERP software and implementation is that big of a deal. There are old stories floating around of botched ERP implementations costing companies millions of dollars and, eventually, sinking them due to the loss of business (even after reverting to pen/paper accounting).