ERP Should Pay for Itself in a Year: Q&A With xTuple CEO Ned Lilly

The universe of enterprise resource planning providers is huge; ditto for open source. The space where twain meet? Not so much. xTuple is an open source ERP provider, and CEO Ned Lilly says there are few fellow travelers on his company’s path.

In this tanking economy, the company has been leveraging both its open source bona fides and the fundamental functionality that is inherent in an ERP system to gain market share. Its most recent endeavor was the launch of an onine app store called “xChange.”

CRM Buyer spoke with Lilly about xTuple’s response to the recession and his plans to position xChange to achieve greater gains.

CRM Buyer: How is xTuple weathering the economic downturn?

We have found the recession to be a net positive; it certainly hasn’t hurt us. What it has done is make companies give us second looks — particularly larger firms that had at one time previously focused on Tier One apps like SAP and Oracle.

We grew the company in every metric you can think of by 250 percent in 2008 compared to 2007. That includes sales, profits, people, square footage in the office, partners.

In fact, we are doing some very aggressive growth activities this year. We did our first real outbound marketing campaign to grow our channel program, reaching out to 1,800 potential channel partners in the U.S. and Canada. In a very real sense, we see this economy as an opportunity to double down.

CRM Buyer: What are some of the cost-cutting measures you’ve taken?

We are still close enough to being in startup mode that we don’t have a lot of fat in the budget. We don’t do much travel or trade shows. When we do travel, it is typically in support of a local partner that might have three or four prospects they want us to meet with.

But more typical is when the partner stays on site with the prospect, and we have one of our salespeople here driving a demo over the Internet. That is a cost-effective sales model that we have had in place from the beginning — but as our partner program has grown, we are doing more of that.

CRM Buyer: How can your products help your customers’ bottom lines in the near term?

That is a great question for an ERP provider: If an ERP system can’t pay for itself in less than a year, then somebody has made a serious mistake somewhere. Any good ERP system — including ours — should be able to give you much greater insight into costs and where efficiencies can be improved in operations.

We view CRM as a subset of ERP, so all of the traditional arguments for CRM apply here. Our app can help increase profitability of customers, increasing shipments.

So, in answer to your question: For both the top line and bottom line, we can point to a couple of dozen metrics after new implementation that should improve.

CRM Buyer: What are some of the bright spots for your company right now?

We are seeing a lot of interest across the board from new prospects — and it is not just bigger companies that are looking askance at Oracle and SAP. In fact, we see quite a bit of entrepreneurial companies — smaller companies starting up — that are interested in our product and approach.

Our heritage has been in manufacturing, for instance, and in this space we are seeing a lot of interesting niche manufacturing companies with new ideas and products come to market. It seems counterintuitive, but a down market appears to be a good time for these companies to launch. It is exciting to be a part of that.

CRM Buyer: How will your company look a year from now?

We will continue to grow our core business of ERP for manufacturers and distributors — inventory-focused companies, in other words. Those are the types of firms that typically realize the biggest value from an ERP system. But at the same time, we will be adding a little more vertical segmentation in the product line in order to expand the types of companies we target.

CRM Buyer: You launched xChange recently — an online app store. What prompted that, and how is it working out so far?

What prompted us? People were asking for it. A lot of our partners have built apps over time for customers that they want to offer elsewhere. Many more have ideas of things they like to do and were looking to us to formalize a distribution platform. But it is also a significant and important way of engaging the open source community.

For instance, consider the use of reports in an ERP system: Everyone tweaks reports depending on how the company is organized. Say one company wants to have a different way of presenting serial items on a packing list. That is a relatively easy thing to do in SQL, for example, if you know how. But it’s still a pain to do. Those types of apps just naturally lend themselves to free user sharing and support.

CRM Buyer: I take it this is the route you will be using to add vertical functionality to the product line.

Yes. To give you an example, we recently rolled out a POS (point of sale) application as a loadable, pluggable module we are selling on exchange. It’s perfect for a retailer. In the short time we’ve launched the exchange, we have seen a lot of interest from partners and customers and open source users with whom we don’t have relationships in building point solutions on top of our ERP app. We’ve talked to people building systems for doctors’ offices, for instance — that is just one example of the dozens of those conversations we are having.

CRM Buyer: How much do you attribute your success to being an open source company?

I think being open source has a lot to do with our success: the ability to download a free copy of the software, and the fact that it gives you a greater level of control over the tech investment. To my way of thinking, those are attractive attributes in this market — particularly if you are watching every dollar right now.