SC Corner E8: When and why companies adopt an advanced ERP system

I'm Becca Smith, a solution architect here at netgain. I'm a CPA and I started my career at Deloitte as a tax accountant. My legendary co host, Chris Miller is a NetSuite expert. He's our VP of Product Strategy here at NetGain and he has over six years solutioning with some of NetSuite's largest enterprise clients. He's been a Controller, CFO, Director of Finance and many other roles. So let's jump in and tackle today's topic. Okay, well, we're excited to jump in today, Chris.

Yeah, I am too. Becca, it's good to see you.

It's good to see you as well. Uh, so I was thinking today we could talk about when it makes sense to switch ERP systems, whether that's from like an Excel based or into QuickBooks. And then like obviously QuickBooks is what a majority of small businesses use. Like going from that into a ERP like NetSuite or one of the other ones.

Yeah, yeah, no, that's a, it's a great topic because you see that all kinds of marketing material and everything, right. How to, how to make sure you're dissatisfied with QuickBooks enough to change. So yeah, I think that's a, that's a great topic because it actually, there actually is more to it than just QuickBooks is no good. And I need to get off of it because QuickBooks is actually fantastic for what it's asked to do and where, where it falls into place. So there's actually some really good times when you should consider and then other times when maybe you haven't met the, the triggers and you should stick with it a little bit longer before you jump into the complex ERP world.

Yeah, so I guess one of my first questions would be. Well, because I feel like with QuickBooks it does do really well for like the smaller, a little bit more straightforward. And then there's other things that does fantastically. Like we have people asking us for some of their features in netsuite, so. So I guess what would you say is the most common reason that people move over?

Yeah, I would. If I went back and looked at everything I've seen, there's a, you know, apart from like, there's a lot of product features and things, but it really comes down to two types of growth. First one I'll call kind of like vertical, like as your revenue goes up and especially like your rate of growth, what happens is, is you see it here with us. And again everyone, when you're like a 10 person business it's like one founder can be in control of everything. And other than going on, go up to 40 people and suddenly you're delegating now against your weaknesses, but you're still doing that. You get up to 100 people and now you need people to do the stuff you're good at. You're two layers removed from that. And now you need find yourself needing systems and that. And the business is fundamentally different at 10 million than it was at 1 million. And then it'll change and it'll change again. And we saw that quite a bit when I was a customer in that suite at ClearChoice. We were running great planes, which, you know, people think of a step up, but same thing. We went through a real growth phase and what we needed changed rapidly. And so we realized we had to start looking for something else. And that's kind of what began the whole netsuite journey. So there's a lot in that. Okay, well, what, what is the causes of those changes? And then the second thing is we can go through. Each of them is kind of like horizontal, like you. If you start getting more complex things and this can start small. My dad was a contractor. He had a masonry, but he had a plant where he manufactured, like, precast stuff. So he was a manufacturing business. Then all of his forklifts and equipment was owned in another company. Then he had, you know, the masonry contractors and the stone. And then he had a building material business.

And he's getting more subsidiaries with other, like, focuses.

Exactly it. And, you know, 20 years ago, he didn't have Netsuite. He was trying to do all this in QuickBooks. And so it was always all these cross things. And he spent all of his time essentially trying to figure out, well, how much profit did I really make? Well, I sold it to my. I bought my precast from myself and I bought my building materials for myself. But I bid the job at this. And so he. A big business, but he had kind of gotten really complex so that he could. He could do that. And a lot of businesses find themselves in that. So if you. And so kind of when you start getting that. That being said, you know, your question, what's the most common one? And I think there are four or five, and maybe we could go through each of them. But the first one, I really think that starts it is if you need to do international business. So. So when you think of QuickBooks here in America, it's very. QuickBooks is everywhere.

Oh, yeah. But I did an internship and I was working in QuickBooks like a bookkeeper.

Exactly.

What is the system? Okay. Journal entries.

Yeah. Like if you take school, they might as well teach you QuickBooks as you're going through school. That's what they did. But if you go over to Europe, outside of the UK there is no QuickBooks. If you go to Australia, there is no QuickBooks.

Interesting.

And you go to there. And so when, let's say you're in a.

That's just something to note as an sc. If you're talking to someone who's moving over, they're not using QuickBooks.

No, they're not. Yep. They're not. They're not using it. So in Australia they might use Xero because that's headquartered in Australia. If they're in India they might use Tally because that's headquartered in India.

Okay.

But QuickBooks as great as in the US cannot, it doesn't have any localizations. I mean that. So when you find your. The first one I often sit down is if I find myself needing to be doing international currency, any sort of localization, those kinds of things, you almost immediately need to step up into the next level of system, a higher erp. And you take like. And so if you're a masonry contractor, that's never going to happen.

Right. Because it's local. Local like good space.

Yep. But if you're a software company like we are, it's most international business in the world. You're not five days old and you're trying to figure out how to sell into Canada and how to sell over in Europe. And so that pushes your need to like step up into a NET suite or a system like that.

So software companies are going to grow out of QuickBooks much faster than say a physical services type of company.

Absolutely, absolutely. And that's, that's one. Because there's just not an alternative you can't do. They have some very basic currency but not enough to really make anything work. So like that's kind of me the first one, you know is if I need to go international, I need to look at.

It's kind of just an automatic checkbox.

Yeah, yeah. And it's tough to swallow because you know your QuickBooks same thing. QuickBooks online costs you a thousand bucks a year. You go to netsuite and, and you can have a part time person working on it. You go to a NET suite and now it's 20,000 a year and you need administrator, you need all these people. And so that's often, you know, when we talk about what tips you over is this level of effort and complexity. You know, how do I, am I generating enough value versus, you know, sticking within QuickBooks? And that's kind of the where people want to ride out and see when do I need to change is when that gets too painful. But international would be my, my very first one that I would say really tips the scale where you need to have that. Especially if you need to pay people in a foreign country, you need to receive money in a foreign country, or you need to file taxes in a foreign country, you're essentially better, better upgrade pretty fast.

That makes sense.

Yeah.

Okay. I think you said there were like maybe four, three or four others as well.

Yeah, the, the second one that I would say is we'll call it regulation. So I have kind of a different opinion like a lot of Gap than maybe people might think as an accountant or that A lot of times when we talk about counting people, Gap is kind of thought of as this magical standard. That's what all, all goodness comes from this and nothing but, and nothing is of real value.

Regulation.

Yeah, all regulation. And what happens is when you're running the business and trying to do that Gap many times is like it's an obstacle. Not necessarily that. So you, I, I, I go back and I think of John D. Rockefeller. So when he was running Standard Oil, he was an accountant by trade. They talked about it. But when he runs Standard Oil, he didn't follow Gap, what people call Gap there at all. He essentially created his own accounting double entry system to run all of the Standard Oil. Well, he knew better than anybody his profitability, what things are going, what all the every part of the trust was doing. And then he would have people come back and kind of adjust it for gaps so he could show people what he had to show them. You know, back then he didn't have to do much and the whole idea of the trust, but he would do what he had to do. And that was because he was like, well, these regulations have nothing to do with how Standard Oil makes money or does anything. And so kind of the first thing I think is important is to not lose sight of that. That, you know, QuickBooks did a big study and they're kind of obvious, but they asked their customers, you know, what are the most important? And the first one is get customers. Number two was get paid. Number three was get capital, you know, and kind of obvious, you know, fourth one I think was payroll, you know, manage payroll. And you know, way down the list was regulation.

Just because it doesn't actually have to do with running your Business. It's like a requirement because you're a business.

Exactly. Yeah, that's exactly right. So I will hear as CESA at times kind of talk about that as like, the first thing, don't you want to get GAAP compliance? You want to do that because a.

Lot of these companies are cash basis.

Exactly.

And so they're not even bothering with GAAP accounting principles.

That's exactly it. And more importantly, they don't want to hear about it. Like, there's no private.

They don't. No one's asking them for it. They're not looking to get funding anytime soon. They don't care.

Yeah. They're not running around going, man, I sure wish I could do my rev rec better or I wish I could do this. And so we want to kind of never forget that, like when you're trying to help someone come kind of from that small business to scaling up. We want to focus on the business aspects of why you want to change the system more so than just regulation, for regulation's sake. Now, the reason I said it's number two is because people have to do it at some point. Number three, get capital. As soon as you want to get capital, what happens?

Yeah, well, anytime you go to a bank, they're going to ask you for your financial statements and expect to be GAAP compliant.

Yep, that's exactly it. So that's when it comes in, is how can we help you get GAAP compliant? As easy as possible with that. So that comes in, you know, if you got to do an audit now, you want to any of those things so that sometimes, many times that's forced.

Upon you, like, they hit a point in the company's trajectory where they now have to become GAP compliant.

Yep, that's exactly.

That would also then be a trigger.

Yeah. And that's important to ask about because if you just kind of talk to someone and say, well, don't you want to be GAP compliant for GAP compliance sake? It's gonna. No one's gonna. No, no, I don't. I would tell people no. But if you find out that there's an event that's going to require them to take on a lot of this, that's when you'd say, you know, you guys want to say you want to go ipo, you're pre money, but you want to go IPO someday. Well, this is what we got. You've got to have in place to be able to do that. And then you can start building with systems. So for that one, get capital. The third One that happens is again, getting back to that scaling up. When you're a 10 person business or a 50 person business. QuickBooks is like one system and one person or two or three people are often the only people in it because it's the accounting data and you might have a couple of executives.

It's not doing the operational side of things, it's really focused on the accounting.

That's exactly it. And you know, it's like you're reading my mind, Becca, here, because then you develop all these other systems.

I know where you're going. Because NetSuite does the operational side.

That's exactly. That's exactly.

So my brain immediately went to that.

Yep. You get to the point where you have all these disparate systems and you want to find it bring in there are too many people, too many communications. You need system control to be like.

Running your company in outlook, because that's how you're making the communication happen.

That's exactly right. And this one actually I think is the one that can be the most valuable to customers. So if we go back to that, get customers, get paid, get capital, those three things kind of bringing all your systems into a unified place where you understand that that is going to help you understand where all your leakages are coming from, who your customers are, who your customers aren't, where are you getting paid, where are you not getting paid? And that can really become transformative for your operations because that gives the reporting.

I mean, I feel like so often people come to us and they're like, well, yeah, everything works, but I have no visibility.

That's exactly it, none. And then you'll reach that point where you'll grow, say from 1 million to 10 million. And you think, I've done it, I've gone to 10, 1 million, 2 million. Nothing's going to stop me from growing, you know, to 100 million or something. And then you find as you go up that curve, you hit a brick wall because your systems will not allow you to do what you need. You need the right kind of accounting data. Even though, because now not one person can know everything going on in the company. You have to be able to interchange that. You have to be able to be able to handle the complexities that come. And so many times what happens is people wait until they hit the brick wall, look around for some things, change out their sales, people do this and do that and don't realize that this is now kind of the time when a system, and ideally you want to kind of build out that system. Before you hit that wall, when you hit one of those inflection points. And so if I was talking about like when should you change? Well, when you do see yourself hitting one of those milestones and you say I want to grow to the next milestone, that's when you really do need to think about what, what do we need system wise to enable us to do that?

Because you won't spending so much money on people to do this that I could easily cut down that cost and now just have a system.

Yep, that's, that's exactly right. How much more am I, am I with people? But then more importantly, what, what can the system do that better than what people could do? Yep, that's, that's exactly right. So, because you know, same thing, you can't grow people linearly with revenue. If you do, you'll never be profitable, you'll never be able to grow. And so it becomes more and more important to automate everything.

Yeah, that makes a lot of sense.

And then the last one, I think that happens and it's kind of related to this is kind of vertical specialization. So QuickBooks has like their different editions for like different accountings. I'm picking on them but, but they're quite good. You know, if you, if you're a contractor or you're in services or a small engineering firm, those become really helpful. And then kind of as we get it, same thing with the operations, you, so you find yourself needing a lot more in depth functionality. So you know, if you have a small manufacturing business, well, something you may need to be able to calculate your lead times on materials and things like that.

Okay.

And so you need the ability to do that, ability to do those kinds of calculations. If you're retail, you need to know, well, how am I moving my stock across my different stores and how do I optimize that?

So apart from like accounting complexities, there's also like vertical complexities that you might hit.

Yep. Yeah, that's, that's exactly it. And many times if I'm, you know, step back and take on the role of I sell software. These are the people you actually want to talk to. Because the accountants are notoriously stingy and they'll tell you, we can figure it out, we can figure it out. They'll put it on Excel, they'll say they'll work late and be like, you work late. But the operational guy is the one who will be like guy or girl will be like, this isn't working. I need to know where my stuff and my store is. Go get me something that will help me know where my stuff is in my store. When that happens, then changes happen. And, you know, and that is often the thing that I'm, that we're often looking for. At least when I would talk to people about, you know, have you outgrown QuickBooks far. You outgrow it operationally far faster than you do the accounting wise debits and credits. Sometimes you got to pull those people, the accounting people along with them. Pull them along with them and say, let me talk to your ops guys. And they'll be like, oh, this, this, this, this is killing us. And then when they see what they can do, they're like, I want that. And then it's, you know, suddenly those squeaky wheels start moving, you know, to make a change, because that's where NetSuite really starts to change it. Like, accounting makes a big difference in the quality of business. Like, you can go back to Rockefeller knowing everything makes quality decisions. But when you can deliver stuff faster, cut down on your inventory you're carrying, those are like real intangible benefits that everyone can see.

And so those become like a reporting impact and a dollar impact.

Exactly. And then people can literally say, boy, having NetSuite has turned into this amount of dollar savings or this amount of revenue growth. Getting back to that, number one, you know, how do I get customers, get paid, get capital. And NetSuite can help you do all three of those, you know, by some of these deep vertical functionalities.

It seems like then like from an SC perspective, right. Like I sell software. The companies I should be looking for are companies that are on like a QuickBooks type of software. If you're international, it's not QuickBooks, but you're looking for companies that are foreign or going foreign. They have a large operations team because that would potentially cause those inefficiencies. On the operating side, the companies that are growing very quickly on the ARR side or whatever their metric of that would be, the revenue is increasing quickly because then they're more likely to hit those walls.

The vertical, the industry type needs that are deep, that may be holding them back from being able to take advantage of, say, a great market opportunity or something like that.

Yeah. So I think like those are almost metrics that you could go in and look for at a company specifically, and that would then be able to help kind of generate leads that may. And also as a customer, like, if I'm facing any of those issues, then that could be a clear sign that what I need isn't more people but what I need is a system.

That's right. That's exactly right. And those, when, as you approach that, those are the, those are absolutely the companies you're, you're looking for. Because not everybody will have the, the people or the ability to step into a netsuite. And so you really do need to have like a, like a screen. I use my family business growing up again as an example. It would have been extremely tough. Even though he could have used like a NetSuite. Well, it just didn't lend itself well to taking on that kind of complexity. They're probably a QuickBooks person forever going to do that. So I also, there's a qualification part of this is, you know, who really will be a good fit for NetSuite and how you can do it. But again, if you get back to the first principles, it's always really growth. You need a company looking to grow revenue vertically or looking to grow horizontally. If you found one that's kind of in that cash cow, hey, I'm where I'm at. Revenue may change 10% a year, but we're kind of right where we're at. We're kind of stable hiring. That probably is not the ideal NetSuite customer profile.

Yeah. And that's just good to pay attention to and also make sure you're asking the right questions as you're going through like a sales process and vetting clients, like if they're not triggering your thought on any of those kind of four key things. The fourth one was regulation. That was the other one I remembered then. They're probably not the greatest candidate and you're gonna either have to, they either want NetSuite and that in and of itself is a great reason for them to switch over or they, it may be a harder sell.

Yeah, yeah. And that's where the, and then those ultimately become your very price sensitive buyers and where you have to do which.

There are like emerging teams. Right. And I feel like a lot of companies are kind of going that route of trying to get into the smaller business space by giving you a gate in at a small price. But just things to be aware of. They don't ever want to get past the emerging level.

Yeah. Oh no, that's, that's exactly right. And I think even a lot of it, Netsuite, the emerging space, is almost betting on, you know, one out of 10 of these guys are going to.

Really just take off, take off and.

They'Re going to turn into a million dollar customer. You know, maybe not 1 in 10 for that one, but they'll turn to $100,000 customer, 1 in 10 of them. And if you do that, that becomes a great investment in all of these other companies that are much smaller. But you gave them a great way to get enter into netsuite.

Perfect. Well, I trying to think if there was anything else I wanted to cover. I feel like that.

Yeah, probably my only other thing I would add to that is we talked a lot about QuickBooks. There are other kind of, like I mentioned Great Plains or why would I leave intact? These are a little bit more. Because oftentimes say like an intact, you know, with the rivalry between netsuite and intact. Well, usually when you've gone to intact, you've left kind of the QuickBooks need to. And you've said, I need more than QuickBooks has. And so now it's more of like a horizontal thing. And in that one, that becomes much more again operations. Because, you know, you look at intact, I, you know, often the competitive people come to me and really hoping I'd tell him something like, well, it doesn't know what a debit is. Like, it just, you know, it's, it's got no idea. You know, I tried, but you can't make a vendor bill out of that. Out of it. It's like they just have no idea now. It can produce financial statements. It can do accounting really well. So then you're getting into like, really tiny nuances with people. Like, do you like how it posts this cumulative translation?

Like, do you like formatting? Do you like, like some of the logic on the back end?

That's exactly it. Very, very tight nuances that maybe only a few people even understand, much less care about. And many times it's like, do I want to go this path or this path? But they nevertheless end you up in the same place. And so I think that's hard. That's again, where to me it's very important. Ideally, you want to look for people who are in the operational side. You know, are we in a business that has products or, you know, even if we're in a software, what are the. What are the additional pieces? Because accounting gets very difficult. You know, like a lot of times we like, you know, I would always tell people that when you're doing a sale with like purely accounting, it's a game of like inches. There's no Usain Bolt. You know, like, we just blew those guys away because they couldn't even, yeah, they couldn't even do that. You're winning by inches over essentially preferences on Some of these things. And so there, that becomes really important because it can be down to some different criteria than you have. Operations is the biggest one. If you needed that functionality that NetSuite has, you lean into it because that's where you get the value. Difference in price. You know, the other thing that is super important, and I think I told this before, but I had a professor when I was in grad school, we had a professor from Harvard on sabbatical there teaching at cu. And he had done. He. He was like, essentially, he'd done all the work for Coke and Pepsi, like one of, you know, the whole blind taste test thing. And he would be like, look, we do all these blind taste tests. He's how come 4 out of 5 people pick Pepsi in a blind taste test?

I've heard this before, but everyone picks Coke.

Everyone drinks Coke. And he's like, they. After all the research, all they did, it was the color of the can. People like the color of the can more than any other thing. Red is more like, than blue. And that, he said, explains Coke's market share more than anything. And the, the reason I think this is important is many times, like when you're doing a compete against another financial system, seize, you can forget about the appearance, how things look, and do that. Oftentimes that may be the most important criteria is the emotional action someone makes.

That's the inch that, like, makes the difference.

That is the inch that makes a difference. And so if I were to give, you know, why have I been really successful in a lot of these deals is because I often.

You go the extra mile, things look the way that they.

That's right.

Relevant.

That's right.

We've talked about that before.

And that's because an executive may only give you 30 seconds and their entire judgment criteria is, oh, that looks good, that looks right. And that. That's what it comes down to. So I hope that would be when you're considering telling a customer when they're looking to switch, many times they're wanting to move because they don't like the look of the system.

I've heard that they may not say that.

They may not.

They may say that.

I've heard that. But they may not say that. But that may be a lot of times when they're out looking. That's what it's coming down to as well. So don't neglect that when you're thinking of all these other pieces.

Yeah. Sometimes it feels like a waste of time to go through dashboards or to go through some of the, like, the pretty stuff at the beginning, but that visualization is what will, like, be the inch difference a lot of the time.

That's exactly right.

Perfect. Well, thanks, Chris. This was actually very helpful. I feel like coming from, like, the netsuite world and selling into the netsuite world, it's good to know, like, just keeping in mind what matters to the client and why they're switching, because then you can customize your demos to be fitting those needs. Make sure you're hitting on what matters.

Yeah, no, that's exactly right. So. Well, thank you, Becca, for letting me come back. I always appreciate it.

I'm Becca Smith, and I've been joined by Chris Miller. Thanks so much for listening to SC Corner. You can find us on any of your preferred streaming platforms, and you can always look up our products at NetGain Tech.