November 10, 2009

How Plex Systems took off like a rocket with SaaS: 11 tips

by Adam Stone, Senior Writer, SoftwareCEO

Plex Systems of Auburn Hills, MI is aiming at the moon, literally.

Its SaaS offerings helped manage the NASA Lunar Reconnaissance Orbiter mission to the moon, as well as assembly work for the International Space Station.

Founded in 1995, company revenues will likely hit $27 million this year.

Piloting the craft is CEO Mark Symonds, formerly of IT services firm O/E Systems (now PMV Technologies), where he created the company's enterprise solutions division and grew it to more than 70 employees.

Company Snapshot
Plex Systems
Basics
Founded:	1995
CEO:	Mark Symonds
HQ:	Auburn Hills, MI
Headcount:	140
Revenues (US$)
2007:	$17.2 million
2008:	$22.9 million
2009:	$27 million (proj)
Major Clients
• Batesville Tool & Die • Cuisine Solutions • Inteva Products • iPurity • Magna Powertrain
Awards / Honors
• One of Michigan's top workplaces, Detroit Free Press, 2009 • Best of SaaS Showplace Award, 2009 • National Sloan Award for business excellence, 2009 • CODiE Award finalist for SaaS, 2009 • CODiE Award winner for business process automation solution, 2007

He also co-founded Innovative Information Systems (IISI) (now CDI), a contract development firm that served HP, Weyerhaeuser, and other big-name clients.

Despite the downturn in automotive — which counts for 60 percent of the company's business — Plex has grown steadily by branching out into food, life sciences, and other areas.

Venture fund Apax Partners boosted that effort with a 2006 investment, and this week anteed up another $5 million.

The company's flagship Plex Online delivers CRM, ERP, MES, SCM, and other enterprise tools in SaaS format. With 350+ modules, Plex Online covers everything from business intelligence to payroll.

The bottom line is simpler. It's all about helping manufacturers keep track of their processes, and trace any errors back to their source.

When we talked recently, Symonds discussed the following 11 tips, including how to compensate your SaaS sales force, how to break into a new vertical, why case studies are so powerful, and why you may not need middle managers after all.

Blast off to growth, tip #1: To drive new business, pay for SaaS sales up-front
If you want new sales, you're best to pay all commissions up-front, says Symonds.

"We are staffed with hunters, not farmers, since most of our new business comes from new customers. Ninety-five percent of our customers already run the whole suite, so there is not tons of up-sell opportunity. For the most part, we're looking for new name plates, so we pay salespeople up-front."

The company now has eight sales people, and Symonds expects to add four more by the end of 2009. They keep up a brisk pace.

"We are in line with the SaaS industry average of new subscriptions totaling about $100,000 monthly. So, for example, that could be 10 deals worth $10,000 a month."

It makes sense. To motivate SaaS salespeople to beat the bushes for new clients, pay them the whole shot up-front, not in a trickle as customers renew. Especially if you know they're all going to renew.

Blast off to growth, tip #2: Sometimes bigger fish swim fastest
With a typical deal size of $10 to $20,000, it takes an average of nine months for Plex to close a deal.

You might expect the quicker hits to come from smaller clients, but sometimes they can close a bigger deal faster.

"Some big ones close fast because they have a team together. They know what they want, they know how they want to get there. The smaller ones are not as well-organized, their needs are not as well-defined, so sometimes they will take longer," Symonds says.

To get smaller players moving, Symonds' sales team starts at the highest level and then drills down to specifics.

"Our first conversations quickly get to discussions about the SaaS model. Usually their last implementation was so painful, we give as much information as possible to help them understand a SaaS product versus an on-premise. We try to help them understand how transformative SaaS can be for their business.

"That often gets them off the dime."

To jump-start a waffling client, pitching a no-hassle implementation can sometimes be very effective.

Blast off to growth, tip #3: Find verticals with the same problems you already solve
Plex is eyeing food, beverage, and life sciences as logical extensions of its present base.

"What has made us successful is our focus on the shop floor and traceability. If there is a failure in the end product, we want to be able to trace that back through the supply chain, back to the suppliers, to determine what went wrong.

"So now think about the food industry, whether it is spinach, tomatoes, peanuts. When there are massive recalls they have to take everything off the shelves, because they don't have the traceability to say which particular lot of peanuts was tainted."

If those companies could backtrack the failure, as Plex can, they could save millions of dollars… and maybe lives.

Blast off to growth, tip #4: To make headway, find an inside partner
The quickest way to explore a new vertical is with the help of a guide who already knows that alien world.

Consider food and life sciences.

"These are high-precision industries, where product failures kill people. Our product has the capabilities that can really be meaningful to those industries, but the challenges are in learning the jargon, and understanding their regulatory environment," says Symonds.

"Customers like Cuisine Solutions in Virginia sought us out because they need that precision and traceability that we have… We didn't know anything about food at the time. We didn't know a lot of the terminology. Our website didn't say 'food' on it.

Enter consulting firm EnteGreat which specializes in verticals like food and pharma. Symonds says they bring their subject matter expertise to the table.

EntreGreat provides training, configuration, and validation, while Plex sells the software.

Plex has similar relationships with Plante & Moran in automotive and Baker Tilley in general manufacturing.

"The success measurement will be how many deals they're involved in, and over time, how many deals they bring to the table," Symonds says. "Three deals a year is a great start.  A good target for a mature partner is at least 10 per year."

Blast off to growth, tip #5: To reassure prospects, use case studies
Some 60 percent of Plex business is tied up in the on-so-sloooow auto industry.

"We always get this question: 'You're in automotive, you must be dying on the vine?' In fact, a lot of our newer deals are automotive, because more than ever these suppliers need to reduce their costs and streamline operations."

That doesn't mean it's easy to make the sale; every dealer is naturally hesitant to spend. Symonds says a solid book of case studies is making the difference.

You can see these case studies here. Any visitor can see a quick summary, or register to download a longer PDF. And each story is clearly labeled with that customer's vertical.

"We try to give them examples of others who have been in that situation, and really succeeded. Stories sell, especially stories that parallel their own stories.

"People want to know what their peers have done, what their competitors have done. Is there another $50-million injection molder who's had success with this?"

Ideally, Symonds would like to have a case study for any prospect.

"The idea is to have enough of them so that the sales people can always reference a peer to whoever they're talking to. We probably have more than 20 of these available, and it's growing. Our marketing director tracks those all the time: What do we have? What areas do we need?"

And how does he entice customers to do a case study?

"We may give inducements, like free services, or free admission to our user conference," Symonds says, a $1,295 value.

"At the last user conference we made it public, putting out a call for submissions and offering that free admission, and that started to bring people out of the woodwork saying they had stories to share."

Case studies help close deals, especially if they fit the prospect's own industry.

Blast off to growth, tip #6: You may not need middle management
Keep the org chart lean. Don't bulk up on unnecessary layers of management.

In the early days, "everyone in our development team reported to the founder — something like 30 people — and that was not practical."

As the firm grew, Symonds rejected the usual response: to add another layer of management.

"Rather than putting in middle management, we've made 'team leaders' who are first among equals, so to speak.

"Teams range from three to seven people. The breakdown has evolved over time. The end state is organized by functional area such as accounting, production, quality, procurement, etc."

Team leaders "mentor, adjust work loads, reward, sanction, review and inspire. They also act as the lead designer for their functional area."

Unlike traditional middle managers, team leaders work on the front lines every day.

"We believe that everybody needs to contribute directly, whereas a middle manager would not be as connected with the day-to-day work of the people they're supervising," Symonds says.

Rather than weigh things down with a middle manager who stands one step removed from the team, pick a key player within each functional group, a point person who can lead but still remain engaged in the daily work.

It's an interesting approach to the age-old dilemma of managing growth.

Blast off to growth, tip #7: A CAB should do more than advise
Plex has a seven-member customer advisory board (CAB) — soon expanding to 10 — and Symonds relies on it for tangible ideas.

Take, for instance, the matter of SaaS product enhancements.

"Since we [can] deploy changes to the software every day, we have a challenge in making other customers aware of all these neat features," Symonds says.

"Working directly with the CAB, and having our director of development and our chief scientist on that team, they were able to brainstorm solutions.

"Out of that we developed a new 'enhancements forum.' Customers sign on to the forum, and every time a new feature comes out, users get an e-mail notifying them of that change."

Faced with a real-world challenge, the CAB delivered a practical solution. And it also stepped in to bridge a language gap among users.

"Accounting takes expertise. Quality management has its own jargon and technical details. Production, scheduling, it's an enormous system. So at a recent CAB meeting, a customer suggested we create a wiki that customers could use to contribute their ideas.

"We very quickly created that wiki with basic definitions of Plex Online, with a separate advisory board of eight customers to oversee that effort. In its initial rollout, it holds definitions and how-to's for about 10 percent of the system.

"Now we are looking into different techniques to reward people for populating that wiki, especially something that feeds into their pride of ownership.

"That means measuring who's doing the most posts to the wiki, who is most highly rated among the user community, and then recognizing them at our user conference, in press releases, in newsletters."

A CAB isn't just for feedback. The board should contribute practical tools for improving service.

Bonus tips: Four ways to get the most from your customer advisory board (CAB)
While on the topic of CABs, Symonds rattled off these other pieces of advice from his own experience.

CAB tip #1: Choose power users
"Choose customers who are innovators and make good use of the software," he says. "They may not be the easiest to deal with or the largest, but they need a passion for their business and what [you] can do to help them achieve their goals."

CAB tip #2: Keep to a high-level agenda
"We have a great CAB: They don't focus on the nits, but rather on the relationship, our direction as a company, and our service."

Otherwise, he warns, "It's easy to get bogged down on issues specific to individual customers."

CAB tip #3: Don't be defensive
"Be prepared to hear the brutal truth. To get the most out of the relationship, you need to let the customers be frank and totally open. Then you need to listen and respond with meaningful actions."

It may sting, but it's way better to hear these criticisms from your friends than from your enemies.

CAB tip #4: Commit your management team
"Commit at a high level. We bring our CEO, EVP Sales, COO, Director of Development to every meeting."

Management buy-in is clearly a must for any CAB to reach its potential.

Blast off to growth, tip #8: In SaaS, stand guard over your software's integrity
Developers don't always need to serve the customer. In the SaaS world, developers should serve the software first.

Symonds explains it this way.

"Our development team wants to serve customer needs, yes, but they don't want to make the product unnecessarily complex and inelegant.

"Sometimes, for example, we get requests to make our software look like [a customer's] existing software… but we resist that because the software they're using is not elegant, not integrated.

"So the development team is the guardian of the product. Its job is to safeguard the product."

This spin is somewhat particular to SaaS.

"In an on-premise world like SAP or Oracle, they ship the software, the customer loads the software, and then the vendor or a consultant or the customers themselves make enhancements on site. In that case, if a customer has a stupid idea, it doesn't impact anyone else," says Symonds.

"In our world, there is a single version of the source code. So if we do something that makes the software cumbersome, it makes the software cumbersome for everyone. That's why we need guardians of the product."

Blast off to growth, tip #9: You may have better things to do with VC than acquire another company
Plex has just taken on a new round of funding: $5 million from existing investor Apax, plus another $1 million from management and founding investors.

One expected scenario would be for Plex to use that cash to gobble up complementary firms. Instead, Symonds says the money will fund internal growth, mainly in sales and marketing.

"Our biggest challenge is to increase market awareness of our product. We have a strong product and a scalable infrastructure. What we need is more people putting us on their consideration list when going to market for ERP software.

"We don't need to acquire companies for their technologies or acquire them for market share, since we are growing organically," he says.

"Having this extra money will help us spend more on sales and marketing, partner development, market awareness, platform development, and so on."

He says he wants the company to be IPO-ready in two to three years.

"IPO-ready involves a number of things. Foremost is a proven, sustainable, strong growth rate. We expect to grow the top line 30+ percent per year and have a growing addressable market. Size changes with market trends, but we feel we need to be north of $50 million.

"If you are that kind of company, good things happen." Indeed.

Blast off to growth, tip #10: Prioritize potential catastrophes
To ward off potential disasters, get methodical.

Plex uses a Failure Mode and Effects Analysis (FMEA) document to rank its emergency-planning priorities.

"You identify all the possible failures that could happen, and you rank the likelihood of it occurring, and then you come up with a risk priority number," explains Symonds.

"Then you just start knocking them off, starting with the highest-risk scenarios."

The CTO and his team are responsible for that document, which is updated every six months.

"As technology changes, there are better approaches for a given risk, better firewall technologies, better database failure technologies.

"It also is a matter of digging deeper into the more obscure, less likely risks. So we might have some lesser-used functions running on a single server that didn't need redundancy in the past. Over time, we will make that fault-tolerant," notes Symonds.

One of the disaster recovery items Plex took care of was a backup data center.

"We've had a second data center for five years. It used to be 25 miles away from us in Michigan, but three years ago we moved it to Asheville, NC after a regional blackout. We were up 100 percent of the time during that blackout, but it made us think that if this happened again it would be nice to be out of range."

To bring Ashville online took almost a year, and was a "multimillion dollar" project — a tough pill to swallow, considering the low odds it will ever be used.

"That's going to remain idle 99.999 percent of the time. It is really insurance, and I think that's why a lot of other players in the SaaS market haven't made that kind of investment," says Symonds.

"It took discipline to say, 'I don't care if the likelihood is low, we are going to spend money to be prepared.'"

Blast off to growth, tip #11: Don't neglect sales and marketing
Want sales? You need a sales leader. Symonds had no VP of sales on staff for the first eight months of his tenure.

In hindsight, he says that was a mistake.

"As a company, we didn't invest in sales and marketing. We have always been slow to do that. We were founded by engineers who felt that if you built the best product, customers will just buy it.

"That works out great when you need two or three customers a year, but when you need 75 or 100? Not so much."

Without a VP of sales, the pipeline suffered.

"I think we've learned that, and we are doing better. We have hired a seasoned VP of Sales, which adds a lot of credibility to our sales team. It shows that sales and marketing is a lot more than just a necessary evil — or at worst, a used-car type.

"By building that credibility of the sales force, it begins to change the culture. This has really turned it around," Symonds says.

"The biggest indicator is continued growth during the global meltdown. We were up 33 percent last year, and about 15 percent this year."

Such stellar numbers seem natural for a software firm with lunar ambitions. With all systems go, Plex is showing that SaaS is the rocket to ride.

About the author: Adam Stone is an award-winning journalist who follows trends in software, wireless, government IT, and general business. With more than 20 years experience, Stone writes about entrepreneurs, HR, business financing, and industry verticals for numerous business publications.