It’s Probably Best to Avoid
Vertical Accounting Software
According to J. Carlton
Collins, it is usually best to avoid vertical market accounting
software solutions - particularly those offered by smaller vendors.
Collins believes that while vertical solutions are supposedly designed
specifically for a particular industry, in most cases vertical solutions
provide only a handful of unique features coupled with cosmetic window
dressing and marketing hype. “Upon closer inspection one typically finds
fatal flaws such as weak financial reporting, older underlying
technologies, non-existent customization tools, missing modules, feeble
product support, a skinny sales channel, lack of third party add-on
solutions, and more”. Are these shortcomings really worth a few extra
industry specific features? Collins does not like the trade off. As he
recants below, Collins prefers to recommend well-proven solutions with
good customization tools that have been installed thousands of times.
Accounting Software Options
If you are in the
process of evaluating accounting software solutions to meet the needs of
your company, you will quickly discover that accounting software
solutions fall into three general categories as follows:
-
Vertical Market (or
industry specific) Solutions
-
Comprehensive
All-Purpose Solutions
-
Third-Party Add-On
Solutions (which are typically coupled with All-Purpose Solutions)
Vertical Market Solutions
refer to products that are designed to meet the
specific needs of a particular industry; for example: insurance,
restaurants, churches, contractors, and government situations. Examples
of well-known vertical market solutions are Shelby Systems for Churches,
Blackbaud for fund raising, Squirrel Systems for restaurants, Timberline
for estimating and job costing, Yardi for property management, and
American Fundware for government.
Comprehensive All-Purpose Solutions
refer to products that
are designed to meet the needs of a wide variety of industries and
business situations; for example retail, distribution, job costing,
services, consolidations, manufacturing, and much more. Examples of
popular off-the-shelf comprehensive solutions include MAS 200,
Great Plains, Axapta, Navision, ACCPAC Advantage, ACCPAC ProSeries, and
many more.
Third-Party Add-On Solutions
refer to off-the-shelf
solutions that offer separate add-on modules that integrate to
All-Purpose solutions and sometimes vertical solutions. For example,
frequently end users combine a top all-purpose solution with one of the
following popular third party add-on solutions: Crystal Reports (for
report writing), FRx (for financial reporting), Abra (for human
resources and payroll), Best! Fixed Assets (for fixed asset management),
Radio Beacon (for multiple warehouse management and wireless solutions),
and the list goes on. A few years ago,
Great Plains
reported that 80% of their customers purchase a third party add-on
product to compliment the Great Plains product. This is a rather telling
statistic.
While most people
typically want vertical solutions designed specifically for their
company, all-purpose solutions combined with add-on products usually
represent the best alternative. For example, MAS 200 combined with Radio
Beacon warehouse management, ACCPAC Advantage combined with MISys
manufacturing, or Great Plains combined with Trinity Distribution are
all common solutions that are well proven. In effect, this type of
solution gives you the best of both worlds - well proven core financials
plus industry specific functionality.
What CEO's Want
Most companies
initially want a vertical market product designed specifically for their
industry. For example, health care companies think they need a health
care solution; professional service companies think they need a
professional services solution; and restaurants think they need a
restaurant solution. It seems that everybody wants a product that is
developed specifically for their industry. However there is a
fundamental problem with this type of thinking in that customer
satisfaction among vertical solutions is dramatically lower than among
customers who use all-purpose products. Based on a survey of hundreds
of CEOs, CPAs and CFOs who attended my accounting software courses in
recent years, this group prefers all-purpose solutions over vertical
solutions by a margin of eight to one. Less than 9% of this group
indicated satisfaction with a vertical solution compared to 72% who were
satisfied with an all-purpose solution. After being burned by a vertical
solution in the past, most of these repeat CEO shoppers indicated that
they would not consider a vertical solution again. Exactly how do some
CEOs fall for the vertical solutions trap? Consider the following
example:
Example:
In October 2002, I consulted with a $40 million marble
company that uses a vertical market accounting system which I will call
MarbleTech (not the real name of the product). This marble company
called me in because they were unable to make MarbleTech work. Upon my
review of MarbleTech, I found this DOS-based solution to be old,
inadequate, buggy, weak, poor, slow, featureless, and ugly. It seems
that in 2000 the CEO was fed up with his previous accounting system and
made the executive decision to purchase MarbleTech for $180,000 because
it appeared to be written specifically for the marble industry.
One of the problems that this marble company had was that
they had no idea what was in stock. As a result, sales representatives
sold inventory from approximately $3 million worth of inventory located
near the warehouse docks while the remaining $9 million worth of
inventory sat there unused. The white glove test confirmed that a great
deal of the company’s inventory had sat there for several years without
turning over. Another problem was that marble shipments arrived daily
and were often shipped out on the same day, without being entered into
the system. Three workers spent a great deal of their time just tracking
down errors related to identification and invoicing problems resulting
from this poor capture of information. Right away we see $120,000 worth
of annual salaries wasted by workers who track down errors and another
$500,000 per year in interest expense on the floor plan note related to
the non-used inventory. Of course there is no easy way to calculate the
cost of disgruntled customers who turned away after countless billing
and shipment errors, nor can the frustrations of company employees be
quantified. To be sure, there is a real cost to an inadequate accounting
system.
How did this $40 million marble company arrive at this point?
They searched the internet and found the MarbleTech product touted as a
solution for the marble industry – and fell for this trap hook, line and
sinker. Had the company done a little checking around, they would have
identified the shortcomings and avoided this fiasco. First of all, the
product has fewer than 500 customers – a telltale sign that it is not
well proven. Secondly, it is a DOS product which means that the
underlying technology is poor. Thirdly, I called the publisher who told
me that the product had been discontinued 5 years earlier and replaced
by a newer Windows solution. This certainly suggests that MarbleTech
failed the future outlook test. To rub salt in the wound the publisher
of MarbleTech told me that this product had been developed for the
health and beauty salon industry. Shall I go on?
Even today as I write this article the
Virginia reseller still
promotes MarbleTech as a marble solution. It appears that this marble
company was "misled" (for lack of a better word) into purchasing this
product - mistakenly believing that it is ideally suited for the marble
industry - when in fact it is not. This company wanted to believe that
there was a vertical market solution that would meet their needs so
strongly that they did not take the most basic of due diligent steps to
confirm the viability of MarbleTech before purchasing this product. In
hindsight, the company could have thrown darts at a list of
Great Plains,
Navision, MAS 200, SouthWare, or SYSPRO and ended up with a solution
that would meet their needs far better than MarbleTech. However because
these all-purpose solutions are not marketed specifically as marble
solutions, the company never considered them as legitimate choices.
Companies frequently
get wrapped up in the terminology used in a particular product, or used
to describe a particular product, and jump to the conclusion that
product must be ideally suited for their needs. In many cases, it may
just be fancy marketing or a little window dressing and nothing more.
Yes, there are good vertical solutions out there, but my personal
experience has been that the majority of them far well short of meeting
the needs of popular well proven products.
My Needs are Unique
Many CEO newbies
believe that their accounting system needs are unique. The reality is
that the accounting system needs of companies of all industries and
sizes have far more in common than one may think. For example, all
companies utilize a trail balance with offsetting debit and credit
entries. All companies receive bills that they must record, organize and
pay. All companies must bill for their products or services. All
companies have employees who need a periodic paycheck. All companies
need to produce period profit and loss statements, balance sheets and
general ledgers. In other words, the core financial system needs of all
companies are basically the same. The differences between companies of
differing industries typically amount to a handful of needs. For
example, consider the accounting system needs of a doctor’s office
compared to the accounting system needs of an attorney, CPA, or
plumber. The key difference is that the doctor must be able to print
invoices in a prescribed format that is acceptable to Medicare,
Medicaid, the Veteran’s Administration, and Insurance companies. This
unique invoicing need can be met by an all-purpose product with good
report writing customization, or by an all-purpose product with a health
care add-on solution which prints invoices in the proper format.
Seasoned CEOs know to
look for well-proven products that are well supported. In executive
terms, a suitable accounting software solution will meet the following
criteria:
1.
Well
proven – used by tens of thousands of businesses.
2.
Stable
product - well tested and nearly bug free.
3.
Good
underlying technology – developed with a top programming language.
4.
Good
performance - runs on a top database.
5.
Good
customization tools – allows the product to be tailored for specific
needs.
6.
Good
support – good vendor support in addition to knowledgeable local
resellers.
7.
Backed by
a strong company – in good financial condition and led by good
management.
8.
Positive
future outlook – The product is not likely to be acquired and put out to
pasture.
9.
Strong
offering of modules and features – Rates highly in the Accounting
Library product.
10.
Strong
financial reporting – Built in analytical reports, links to Crystal,
FRx, and Excel.
Using this simple
checklist, one can eliminate 98% of all vertical solutions because most
are not well proven; most are missing modules and key features; most run
on weaker databases; most are written in older languages and run on DOS,
most have weak financial reporting, no customization capabilities, and
no local support. As final nails in the coffin, most vertical solutions
are not stable and they are not backed by strong companies with a
positive future outlook.
Wading Thru the Options
According to an
informal search of Internet web sites using Google and Yahoo!, there are
about 500 all-purpose solutions on the market today. There are also
between 3,000 and 3,500 vertical market solutions and approximately
2,000 third party add-on solutions in the marketplace. To further
complicate matters, these 6,000 or so solutions target different markets
ranging from entry level and mid-range companies, to high-end and tier 1
companies. With so many options, it is easy to see why customers are
confused, frustrated, and intimidated by the evaluation and selection
process. There is no need to be intimidated. Most of these solutions can
be easily eliminated using the simple checklist provided above. In my
opinion there are fewer than one hundred all-purpose, vertical, and
add-on solutions that merit consideration.
The Problem with Vertical Solutions
You don’t need
anecdotal evidence to see the problems with vertical solutions; a
logical discussion reveals the key issues at hand. There are explainable
reasons as to why vertical market solutions tend to be very poor
options. For example, a vertical solution is by definition targeted
towards a smaller industry. How big is the market for accounting
software solutions for say – insurance companies? According to the
2002 US Economic Census, there are 170,795 insurance companies in
the US. A software company would need to control 11% of insurance
company market in order to build a sizable customer base of 20,000 users
– an unlikely event. Compare this to the 7,000,000 prospective customers
of all-purpose solutions. These solutions need just one-fifth of 1% of
the market to achieve 20,000 customers. While difficult, the numbers
suggest that an all-purpose solution is far more likely to succeed
because they need not dominate a market to achieve this goal and thus
ensure profitability and longevity.
This same principle
affects the products’ dealer channel as well. While there may be a
sufficient number of insurance customers nation-wide to support the
product, there may not be enough insurance customers in many markets to
support a reseller of that product. For example, a reseller in Macon,
Georgia may evaluate the market and determine that with only 224
insurance companies in the area, there are not enough prospective
insurance customers to support the sustained selling of an insurance
accounting software solution. Based on this analysis, the prospective
dealer decides not to support that product, and instead chooses to
support and resell an all-purpose solution such as Great Plains instead.
This type of reason is used daily by resellers to make decisions about
the products they will and won’t support. As a result, reseller channels
for vertical solutions are either non-existent or skinny at best. For
this reason, most vertical market solutions are sold and supported only
by the manufacturer of those products, or by only a handful of
resellers.
This problem of a
limited distribution channel gives way to another problem in that most
customers want to buy accounting software solutions from a local
company, so the company is nearby to provide support and personal
assistance. The idea that a Macon, GA based company can be properly
supported by a
Phoenix, Arizona vendor
or reseller does not produce a comfortable feeling for many of us. In
this situation, many companies fear that they will not see the vendor
very often once they have collected their money. For these reasons, many
companies choose not to purchase products from distant vendors or
resellers.
Evolution of a Vertical Solution
After more than 20
years of installing accounting systems, I have dealt with many vertical
market solutions – and in general my experiences with vertical solutions
have left a very bad taste in my mouth. In general, with only a few
exceptions, I believe that vertical solutions are almost always the
wrong way to go. Hundreds of companies concur – through my accounting
software web sites and articles, I receive a high volume of complaints
about "poor" vertical products. It causes one to ponder how
vertical market solutions are created in the first place. To be sure,
many products get their start as a home grown solution for a specific
company in a particular industry. However, the following fictional story
describes how many vertical products evolve:
Picture two guys in
Tampa, Florida (Ralph and Joe) who own the rights to a “has been”
accounting software product called Wombat Accounting. Years earlier a
push had been made to create and sell this accounting package; however,
due to missing features, missing modules, poor technological design,
lack of a distribution channel, and the disappearance of investors – the
product has all but folded. Because they have nothing better to do,
Ralph and Joe go fishing for the day. On their journey, they come across
a proprietor named Sam who owns a boat marina, and Sam explains “if I
could find an accounting software product that would keep track of the
name of the customer’s boat, the slip number where that boat was parked,
whether that boat has been re-fueled, and whether the customer’s trailer
is kept on the premises – I’d buy that product”.
Motivated by the
prospects of making the sell, Ralph and Joe run back to their garage and
work feverishly to add these requested features to their Wombat
Accounting product. Weeks later they show up on the boat marina doorstep
to demonstrate their product’s new “boat marina” accounting solution.
Upon seeing these features, Sam shouts hallelujah and snaps up the
product – “Presto”, a new vertical market solution for boat marinas is
born.
Over the next several
years, Ralph and Joe continue to add functionality to the Wombat
Accounting product that is specific to the boat marina industry. They
also adjust their promotional materials and verbiage to position their
product as a boat marina solution. In reality, the newly improved
product may indeed have some neat features for boat marinas, however the
inherent limitations, which kept the product from succeeding in the
first place are still there. For example many, many vertical market
solutions suffer from old technology, proprietary databases, lack of
financial reporting, lack of corporate support, poor performance on a
local area network, no customization tools, weak security, higher price,
full of bugs, and a host of other problems.
Despite the multitude
of limitations, boat marina owners across the land continue to purchase
the Wombat Boat Marina solution for two reasons. First, they erroneously
assume that they should purchase a solution specifically built for their
industry. In reality, they allow a few impressive features to sway them.
As my friend David Hood (former President of ACCPAC International) likes to say, “You
can put lipstick on a pig, but it is still a pig”. So true. The
second reason that boat marina owners continue to purchase Wombat is
that they are unaware of the product’s shortcomings until well after
they purchase the system. By then it is too late, they have already
married a pig.
Conclusion:
As described in this
article, I am not a big fan of vertical market solutions. I find that
while many vertical market solutions seem to be the best solution up
front, closer inspect reveals many problems and weaknesses. I’ve heard
many tales of vertical product nightmares, and I’ve experienced a few
myself. In general, I think that customers should avoid vertical
products. Yes, there are a few good vertical solutions, but 98% of them
seem to be giving the other 2% a bad name. I’ve talked to hundreds of
business owners who have told me about their nightmare experiences with
vertical market solutions. In each case, three prominent phrases
permeate their stories – 1) missing features; 2) bugs; and 3) “I’ll
never do that again”. If you are shopping for a vertical solution,
you might be well advised to proceed with caution and apply the 10 point
checklist described herein.
Worthy Vertical Solutions:
I would like to go on
the record and state that despite my criticisms mentioned above
regarding vertical solutions, there are some vertical solutions that are
excellent. The following products represent vertical market solutions
that over the years seem to consistently offer stellar solutions –
contrary to my aforementioned arguments.
-
Serenic (Non Profit)
-
Blackbaud (Non
Profit, Donor Software)
-
MIP (Non Profit)
-
Shelby Systems
(Churches)
-
Deltek (Government
Accounting & Project Accounting)
-
Squirrel
(Restaurants)
-
Yardi (Property
Management)
-
Sun Systems (Oil &
Gas)
-
Timberline
(Construction and Property Management)
-
Tenant Pro (Property
Management)
-
Rent Manager
(Property Management)
-
Epicor (Manufacturing
and Distribution)
-
SYSPRO (Manufacturing
and Distribution)
- END -
J. Carlton
Collins is a
nationally recognized author, lecturer, and analyst in the accounting
systems industry. He has installed more than 200 accounting systems,
and delivered 1,800 lectures around the world on the subject of
accounting systems and technology. Mr. Collins has published extensive
accounting system reviews which can be seen at
www.ASAResearch.com.
Contact Information
J. Carlton Collins
carlton@accountingsoftwareadvisor.com
ASA Research, a division of Accounting Software Advisor, LLC
770.734.0950