SaaS Interviews with CEOs, Startups, Founders
Partnering with an ERP as an OEM VAR-deal terms, code ownership, exit value impact?
09 Nov 2022
Chapter 1: What is the main topic discussed in this episode?
Hey folks, hope your Q3 and Q4 is off to a good start. We just wrapped up Founder 500 in Austin, Texas. Hundreds of bootstrap founders showed up. It was an amazing time. I loved meeting so many of you.
This interview today is a recording from that session, which you're gonna love because now we have visuals, we have the founder teaching, and I made every single speaker include their revenue graphs and real artifacts in their presentations. Without further ado, let's jump in.
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Give it up for Charlie Fritch. Thank you. I figured this might not be the most popular topic, but I'm glad you guys could join. A little bit of background. I started in the hotel industry long before we started our software business in the hotel industry. I've owned a hotel real estate brokerage firm that lists and sells hotels, and I've had that company for 25 years. We also owned a hotel.
We had done capital markets advisory for hotels, arranging mortgages for hotels. Oh, great. Thank you. So that was how I got started in the industry. And analyzing hotel profit and loss statements and all of the reporting for hotels
We've basically looking at the output of the accounting systems and all the software, we felt there was a need in the industry and an opportunity to create a more modern web-based, robust, integrated accounting and business intelligence platform. So that's how we got started. And I was fortunate to have a longtime friend who's a successful serial software entrepreneur.
He sold his first company to Cisco in 99 for 175 million. And so he was our software and tech business advisor from the beginning. And he said, well, Don't, you know, an accounting platform is daunting to build from scratch. So look at building on top of an existing ERP.
And so we, my son Chip and I interviewed a number of different platforms, Salesforce, Intact, others, and then decided on the ERP that we would build on top of. So what we'll talk about in the next few minutes is choosing an ERP, advantages of being an OEM versus a regular VAR. Does everybody familiar with those acronyms? Original equipment manufacturer writes original code, the equipment.
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Chapter 2: What is the background of the guest and their experience in the hotel industry?
So these are some of the ERP systems. This is a usability index for mid-market ERP platforms. We chose the top one on the list there. They have a strategy of growing through partnerships. And they liked our depth of knowledge in this vertical. And so it's been a good fit. Again, just... Acumatica's fastest growing global ERP.
And this is the ISV ecosystem with Acumatica, so it just shows you there's a lot of them in all four of those categories. Not all of those are anywhere near applicable to our vertical, to the hotel industry. But half a dozen of them are, and we have partnership agreements, and we can make revenue off of those. This is just a little snippet from our OEM software license agreement.
The highlight, basically what we do, we adapted the Acumatica solution to develop additional modules. So we developed hotel-specific functionality and built that on top of Acumatica. Then we resell it as a private label, so our platform is labeled as Hotel Investor Apps. Typical VAR split is 50-50 up to that.
It actually, a value-added reseller may only get 40% of the revenue, whereas an original equipment manufacturer can get, oh, 70% to 80%, depending on volumes. So this is the structure of the ERP partnership and important considerations. Development time excluded from royalty when you're starting. It's going to take more time than you think.
So try to get as much time prior to starting minimum royalty payments. monthly or quarterly payments revenue share split negotiating that and percent that revenue share You may be able to negotiate a declining percentage as you scale up with higher volumes
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We don't pay any revenue to the ERP from our implementation and training fees. We only pay on the monthly SAS fee. We own our code. Vertical exclusivity is something you can negotiate. We were not able to get it immediately, but we have a trigger to be able to do that and some control over if somebody else was going to enter using Acumatica into the hotel space.
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Chapter 3: How did the guest identify the need for a modern ERP solution?
We also can drive more internal growth with applications built off of the ERP. So we also are developing on AWS QuickSight, a business intelligence platform like Tableau or Power BI.
So we have some business intelligence tools that were now just beginning to sell to our same customer base to double potentially triple the annual contract value that we have from each Hotel that we sell this is the complicated mess that one customer sent us that they were using and
which has, it's really about 13 different providers, but even more, higher number than that as far as applications and functionality. So they had an accounting program, our competitor in the middle. They were using a business intelligence tool called Profit Sword, a couple of their applications. They were using a BI platform called SciSense. They're using a
Payroll human capital management software purchasing software a vendor I buy And then they were using other programs for some of the other accounting functions Like Fixed assets purchase orders Inventory management contract management So instead, this is what we can offer. And we've built a functionality on top of the ERP in here.
And then we're building on QuickSight tools for operational anomalies, labor intelligence, pace reporting, which is comparing FUTURE REVENUES TO WHERE THE HOTEL WAS SAME TIME LAST YEAR. AND WE'RE BUILDING SOME OTHER APPLICATIONS AND BUSINESS INTELLIGENCE TOOLS, AGAIN, OFF THE ERP. AND THEN WE'RE USING THE INTEGRATIONS.
THESE ARE FOR CATEGORIES OF ISVs THAT WE HAVE AGREEMENTS WITH THAT ALSO DRIVE SOME REVENUE FOR US. And then we pull data from these four sources from the hotel property management system, from point of sale systems, and Smith Travel Research is a data provider in the hotel industry. And then from purchasing applications.
So this is our current and projected revenue growth, and it may look like a crazy acceleration of growth, but there's a very long sales cycle for enterprise-level companies, particularly in the hotel industry, and we've been working on a lot of the larger companies for a couple of years now. And we have a significant pipeline of those companies where we'll be adding 100 hotels.
Some have 100, 200, 250 hotels. So that will enable us to scale up more quickly. And next year and the year after, the revenue from our business intelligence applications are going to equal or exceed the accounting piece. So that's our projection, that's why it's not just pie in the sky, but based on our sales pipeline right now. This is just a screenshot from the QuickSight
business intelligence tool, we've built a labor analytics tool. So we're pulling data from a payroll time and attendance provider and then pulling that into QuickSight and then we're using our financial data to create key performance indicators with the labor data in QuickSight. So, uh, anybody have any, any questions? Yeah. What? One minute or two, two. All right, cool.
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