ERP for the SMB: Part One – Growing into ERP

Small business is the true engine of the economy. Small business managers have to be self-reliant and versatile. Small business managers are leaders, marketers, accountants, sales people, manufacturers, and they often are the custodians, making sure the lights are turned out at the end of the day. They may also be the IT manager. Often, they are all those people rolled into one. But as the business grows, they may take flight from some of these tasks and hire focused experts to create the teams and processes to support the growing business.

Today, businesses have many options about how they fuel growth. They can outsource many non-core tasks such as payroll, website hosting and development, manufacturing or logistics, and even sales. Yet, at the core there is an information base that is required to keep the operation running. Cash management, customer record keeping, employee records, and purchasing tend to be activities even the smaller companies conduct.

Not All Businesses are Created Equal

Businesses differ significantly from industries regarding the business model and the service options they use. And based on your business, your investments in technology can have a major impact on your business. For example, you may be a publisher and require superior composing and graphics software. Or you may be an etailer, requiring a commerce, accounting and CRM website to market and take orders. These types of businesses may have no ‘backend,’ i.e. require no manufacturing or logistics software, since they might outsource those functions. Conversely, you may be a custom manufacturer, with a few big clients. You can use a simple billing system (since you may have only a handful of customers), but need a manufacturing system to keep your operation efficient in order to stay ahead of your competitors.

On the other hand, a small business can be complex — and global — from day one. In our own business, we have global customers and global personnel, so our multi-channel communications — video and web conferencing, constant emails, instant messaging, smart phones, and content shareware — are probably the most important technologies for our business. QuickBooks services our A/R and A/P.

These few examples make an important point — that the road to ERP is not straightforward. And for many young or small companies technology purchases may seem daunting, so they purchase the minimum, putting off larger purchases for the day they feel more flush with cash.

The Pressures of Growth

Small businesses, if they are well run, tend not to have too many cross-functional traps, since there already are cross-functional roles — people wearing many hats — and constant communication. All that changes, of course, when businesses start to grow and that 8:30AM, 15-minute, day-starter coffee meeting to check in with one another becomes a thing of the past. One day, sooner than you think, you need to make the entire component work in an integrative way and the information management activities become burdensome without better technology. Or the transaction level grows too big, and you need to seamlessly scale or you implode. Various bellwether numbers are out there as to when the scale or shrink inflection point comes along. Some say it is around $10 million in sales.¹

But many experienced managers are not interested in the scaling pain, and opt for ERP much sooner. Recently we did a webinar with Jesse Menczer, CIO of DiscounTechnology (you can hear Jesse on YouTube here) where he told us that he made his ERP decision early to avoid scaling issues, but more importantly, to avoid a huge disruptive change, just to install software. So the driving force varies based on circumstances and CEOs’ foresight and confidence in their future success.

So Where to Go?

ERP for the SMB turns out to be a pretty big space. A $3M label converter is a very different business from a $200M food manufacturer, yet we are all calling these SMBs. Yet the software in the ERP space of SMB may be designed for and a better fit at that entry level of a $3M distributor; whereas another package may be designed to handle the complex activities of a $200M manufacturer and probably much larger firms. We will be exploring this issue of appropriateness of these packages to your business throughout this whole series of ERP for the SMB, but in this article we focus more on the really small companies growing into their first ERP.

Figure 1 below represents a graduated view of how the S (small) or M (midsize) Bs (businesses) may see the software provider market. Obviously, the distinctions in the chart are generalities (which we will drill down further as this series continues), but they point to a framework of thinking about, “Just how complex is my business?” Where is the need for automation? Where is the high velocity, the need for scale and real-time data to support operations that cannot be provided by spreadsheets?

Whether you are a small services company that hasgraduated from Quickbooks, or you just received that huge capital investment from an innovative joint venture to create a new high-tech nano-manufacturing facility or a new biotech research center, your needs are quite different. So understanding the velocity and volume of the business; what is most critical to managing the business and, therefore, must be invested in; as well as where growth and operations are likely to put pressure on the business, are all important to your thought process.

Following the crowd just doesn’t make sense. For example, when another business goes for deep ERP with a global financial module for multi-currencies but your customers are just down the road, it is clear that your needs are quite different.

Or using a Project Management and engineering software module for your manufacturing when you are a repetitive manufacturer may not be wise. On the other hand, if you are an engineering and construction business, that PM module may be a critical module for you. Of course, you may go the route of best-in-class software purchase just because of this issue: you need the best in the market to manage your core and are willing to deal with a few more software life cycle issues to get it. In fact, businesses such as distributors predominately do go that route — best of breed — for the logistics (WMS and transportation) software due to this very issue.

Socrates Had it Right

So, it’s all about who you are. Be objective and take your time to think this through before you set out on the software purchasing journey. Do your homework. Most small businesses are either intimidated by the techno-speak, or they just have a hard time breaking away from the day-to-day business to take the time to learn. There is no escaping the rigor of building your requirements and then making a good decision. Not to do so would be a mistake. ERP is like marriage. Once you are in, it is difficult to get out, and the wrong marriage can wreck your life.

So leave the social and sales pressures behind, and take your time to know who you are and where you are going before plunging into one of the most important decisions you ever will make for your business.

In ERP Part Two we will delve into how ERP designs are differentiated according to the complexity of the business processes they support.

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To view other articles from this issue of the brief, click here.