Earlier this week Plex Systems announced global venture capital and growth equity firm Accel Partners has made a $30 million strategic investment in the company. As part of the financing, Accel Partners will gain a seat on its board of directors, where Francisco Partners, which acquired Plex Systems earlier this year, already holds three seats. Accel Partners has invested in some pretty high profile companies, including Facebook, Kayak, Qlik Technologies, Dropbox, Walmart.com and Cloudera. According to Sameer Gandhi, a partner with Accel Partners and newly appointed Plex Systems board member, “Accel’s investment philosophy is to invest in companies that have the greatest potential for success due to their market position, disruptive technology and prospects for future growth. Plex Systems represents an opportunity to help move a highly complex and diverse industry – manufacturing – to the next computing platform, based in the cloud. We believe the manufacturing ERP market represents at least a $5 billion opportunity, and that less than 10 percent of the market has transitioned to SaaS so far.”
While I don’t get involved in market sizing, the $5 billion opportunity sounds reasonable and my research indicates the percentage of manufacturers that have transitioned to SaaS ERP in particular is somewhere around 6%. However that doesn’t mean manufacturers haven’t made any investment in SaaS solutions, or that they won’t in the future. Based on a recent survey of 300 companies, 50% of which were manufacturers, only 21% of manufacturers have no business applications deployed as SaaS. Obviously that means 79% do. While many think manufacturers lag behind in terms of embracing SaaS, my survey found them more knowledgeable and more willing to move solutions to SaaS than those in other industries.
Why is that? Because manufacturers are generally pragmatic. Walk around a typical manufacturing facility today and you see plenty of automation. Sometimes you see more automated equipment than people. But manufacturers would much prefer to spend their technology budgets on equipment and technology that will produce more products. Business applications might make them more efficient but they don’t produce parts and product. Manufacturers’ core competencies are in design and production, not business applications and the hardware and software needed to run them. Therefore many are quite content to let someone else worry about the care and feeding of those applications.
Does that mean most or even many manufacturers are going to run right out and switch to SaaS? No. My survey results indicated it will take 5 to 10 years before almost half (45%) of business applications will be deployed in a SaaS environment. There are simply too many existing solutions out there and the vast majority of companies are not rushing to replace them. Although the number of replacements has been increasing recently and that still represents an enormous opportunity in general and for Plex in particular. It has a growing installed base of very loyal and engaged customers and a broad portfolio that dips deeply into the shop floor.
Indeed, this implies a lot of opportunity for companies like Plex Systems and Accel Partners’ investment is a further validation of the company’s viability in the market. Unlike other new entrants to SaaS ERP, Plex has been delivering it for more than eleven years. It made the move to pure SaaS long before it was fashionable or even widely accepted. In its early years, it was successful in spite of being SaaS, not because of it. As a private company now owned by Franciscan Partners it doesn’t disclose financials, but I do know that it was self-funded for many years, only tapping into another round of venture capital to accelerate growth. “Self funding” equates to profitable, something many other larger pure SaaS providers still cannot claim.
Many of its competitors make the mistake of underestimating the competitiveness of the company and the product. In addition, Plex has made some strategic and smart additions to staff recently, starting with the hiring of Jim Shepherd as Vice President of Strategy. I know Jim well and he and I worked together at ASK back in the 1980’s, but he has spent the better part of the last 20+ years building a strong reputation as an industry analyst, first with AMR and then Gartner. Plex has also brought on some other industry veterans lately and continues to hire.
An Infusion of Capital to Fuel Growth
Plex has always been very responsive to customers. It uses rapid application development methodologies to respond quickly to specific customer requests, including customizations that most SaaS-only solution providers would never touch. In fact those customer requests were what drove the majority of product decisions and development. I am sure that was a big factor in making them profitable. After all, they seldom built features, functions and products on speculation. While this is admirable in making the company customer-centric, and also mitigates risk, it also limited its ability to expand into new segments of the manufacturing market. This additional strategic funding should help them expand without having to sacrifice that customer responsiveness.
I’ll be watching very closely (and you should too) to see what directions this new infusion of capital takes Plex Systems.