Earlier today, Saugatuck had a good call with Jason Blessing, the new CEO at Plex Systems, who joined the company in early 2013. Saugatuck has been tracking Plex for more than 5 years – as we have long viewed it as an innovator in Cloud-based business software targeting primarily discrete manufacturing. While the firm has a strong heritage in the auto sector, we were pleased to hear that Jason has several new initiatives underway to help it not only strengthen the core but broaden the firm’s focus to appeal to other manufacturing sectors as well.
Jason was previously part of the leadership team at Taleo, which was acquired by Oracle in mid-2012. He brings to the job some very strong (and relevant) product and general management leadership skills, given his experience is creating, growing and scaling a Cloud-based apps business. As he explained in the call, in June 2012 the firm was acquired by Francisco Partners (from Apax), a San Fran based PE player. In December, an additional $30 million infusion was made by Accel Partners.
Built from the shop-floor up, and primarily targeting mid-range discrete manufacturers, Plex has grown nicely from the low $20 million range (when we first met them years ago) to greater than $50 million in revenues as of YE2012. Blessing shared that he thought the business could grow 20 percent in 2013, but accelerate to a faster pace in 2014 and beyond given the new investments that are now being made (with the new capital infusions). The four investment areas he emphasized included:
- Product: 2013 R&D investments to bolster and strengthen its core auto-centric backbone.
- Industry: 2013 R&D investments to create new and unique industry versions for the Food & Beverage sector (which will be a great “process” industry proof-point), and for Aerospace & Defense.
- Geo: Assess/evaluate how best to serve customers internationally – potentially with new office infrastructure vs. just having local talent in country – specifically in Europe (Germany), Asia (China) and Latin America (Brazil).
- Sales & Marketing: 2013 investments to create greater brand awareness, and put significantly more feet on the street (sales) – specifically plans to double the size of the sales force by YE2013.
With the investments currently underway, we see little reason not to assume that Plex can join the club of $100 million + size Cloud business software players within three years – potentially leading to an IPO before long. The issue is how quickly customer demand for Cloud-based business software will begin to more broadly accelerate in the manufacturing / logistics / transportation segments – as these are massively sized markets, with significant opportunity once the knee in the curve is achieved.
While early and sustained Cloud customer adoption has focused in the CRM and Collaboration/Social spaces (Phase I), and more recently for upper-mid and large enterprises in the HCM space (Phase II) – Saugatuck believes that we are just now witnessing the beginnings of the third and fourth Phases of Cloud business solution demand – focused respectfully on the Finance function, and around discrete / process manufacturing (see 1131RA – The 3rd Wave – The Emergent, Impactful Era of Cloud Financial Apps) – that will likely play out over the balance of the decade.
No doubt, Plex brings a wealth of broader ERP functional capability beyond its shop-floor manufacturing strengths. But our sense is that the firm is clearly focused on staying true to its manufacturing DNA, and mid- and upper-mid market target customer, so that it can remain a market leader as this sector heats up significantly in the coming years. Competition will be fierce, as traditional ERP giants SAP and Oracle reposition themselves for the Cloud, as will other on-prem players such as QAD, Epicor and Infor (among others). The players to especially watch, in our opinion, however, are the next-gen pure-Cloud players such as Rootstock, Kenandy and others – who while lacking in depth today, have the potential to catch up to Plex, given time and substantial investment – although this will not be a trivial catch-up.
Likewise, pure-Cloud players such as NetSuite will clearly want to play even bigger than they currently do in the manufacturing space over time, as this segment accelerates, as might juggernaut Workday – although they currently have their hands full managing the growth of their Financials and HCM businesses.
Interestingly, the route to larger enterprise manufacturers for Plex appears to be at the BU or divisional level, as companies explore a 2-tier ERP/manufacturing play. While most large enterprises are not prepared to give up their SAP R3 or Oracle corporate headquarters footprints, deploying Plex in a 2-tier ERP/manufacturing system architecture appears to be a very viable option for many companies, given the half dozen or so billion dollar (+) size accounts that Plex maintains.
This follows a similarly path that Netsuite has successfully used with their Financial suite, selling at the BU or divisional level as part of a 2-tier Financial roll-up – in accounts well-entrenched at corporate headquarters with SAP and Oracle financial footprints.