Solomon Software: Breaking Away from Perception as “Best-of-Breed-Accounting” Vendor


Vendor Genesis

Solomon Software, Inc. is a leading worldwide supplier of mid-market business applications exclusively optimized for Microsoft SQL Server on the Windows NT/2000 and BackOffice platforms.

Founded in 1980, with headquarters in Findlay, Ohio, Solomon Software has been experiencing a steady growth over the last few years. It is a privately held company, with estimated revenues of $60 million in fiscal 1999. It currently employs over 400 people, and has experienced less than 10% employee turnover in recent years. From a founder-driven company of 20 years ago, with a traditional focus on accounting software, the Solomon Software of today is run by professional corporate management and offers a much broader and deeper product portfolio.

Solomon designs, markets, and supports its flagship product Solomon IV, a financial and business management system for small to medium enterprises (SMEs). Solomon IV is a suite of over 50 standard modules, running solely on Microsoft SQL Server and Windows NT/2000 platforms. It comprises the following series of products: Financial, Project, Service Management, Distribution, Manufacturing, and e-business. Since 1997, Solomon has acquired selected independent developers and launched partnerships, which have significantly broadened its product line. During 1998 and 1999, the company released its distribution, manufacturing, service, project management, and e-business products.

In 1998, Solomon opened four regional Solomon Technology Centers (STCs) in North America to support its distributors. These centers provide applications and installation support for its indirect channel in order to provide efficient service & support for customers and some economies of scale for distributors at the same time.

Vendor Strategy and Trajectory

Focused on the low end of the mid-market ($2 million - $250 million in revenues), Solomon serves its worldwide base of more than 12,000 customers in 400 different industries in more than 100 countries exclusively through its extensive network of independent sales and support organizations. The company has over 20 affiliate offices worldwide and derives approximately 25% of its revenue from the international market.

At present, the company seems satisfied to continue in the SME markets, focusing on maintaining and enhancing existing functionality of its Solomon IV solution. Over the last two years, Solomon has accelerated the release of new functionality and attempted to create a new market perception of not being only an accounting software provider, with a sole focus on product flexibility. We expect the company to continue expanding Internet deployment and CRM capabilities. Solomon also plans to invest in alliances with ASPs to further its penetration into this increasingly popular marketplace.

Solomon will continue its sharp focus solely on Microsoft technology, coined in "the power of one" motto (one platform - Windows NT/2000, one database - MS SQL Server, one development environment - MS Visual Basic, etc.). The company has not developed a vertical industries focus though. We expect Solomon to continue providing breadth of horizontal functionality in an integrated business application delivered through a strong indirect channel. We also expect the number of STCs to grow both in the U.S. and worldwide. Vertical specialization will continue to depend upon the particular distributor's focus.

Vendor Strengths

Solomon has established strong recognition and penetration within the lower-end of the Small-to-Medium Enterprises (SME) segment of the ERP market. Its single-code product, with the same look & feel for both small and midsize customers, differentiates the company from its competitors (e.g., Great Plains, Epicor, Sage Software, Navision, etc.) that currently offer separate products for the lower and upper ends of the mid-market. Furthermore, its sharp focus solely on Microsoft technology, coined in "the power of one" motto (See Vendor Trajectory and Strategy), presents an attractive, risk-free option for frugal mid-market customers.

While its competitors, particularly Great Plains, may have a more extensive partner channel within the industry, Solomon's indirect channel is more nimble and focused. This is due to its single-code product portfolio that reduces the deployment and support requirements for its entire market segment. In addition, Solomon supplements its distributors through its Solomon Technology Center (STC) network. These provide for global service consistency and additional leverage for the channel.

Solomon IV is very competitive in speed of implementation (from only two weeks to four months duration), feasibility of customization, total cost of ownership (TCO), and price/performance ratio. The product architecture has been devised entirely from scratch within the Microsoft context, which provides for flexibility and ongoing agility.

While we cannot disclose more detailed financial data because the company is privately held, we can state that Solomon Software has been a viable company and has exhibited a solid long-term financial track record and low staff turnover.

Vendor Challenges

Due to its late expansion into the ERP world, the company has been trailed by its reputation of a best-of-breed accounting software vendor. While Solomon has accelerated its delivery schedule of new functionality, it will be hard pressed with tight "time-to-market" constraints. The following intended functionality delivery schedule would be a tall order for even much more resource abundant competitors:

  1. Repetitive build and MRP modules of the manufacturing suite (planned for release in Q2 2000)

  2. Replenishing, commissions, and shipments modules of the distribution suite (planned for release in Q3 2000)

  3. Employee utilization and time & billing of project suite (planned for release in Q3 2000)

  4. Additional e-business functionality (planned for release in Q2 2000)

  5. Object model of the system tools suite (planned for release in Q3 2000)

The situation is further aggravated with the lack of human resources (HR), and advanced planning & scheduling (APS) suites.

In addition to the product functionality gap, Solomon IV does not exhibit much of a vertical focus. Solomon distributors offer vertical solutions on an opportunity-by-opportunity basis only, which we believe is insufficient to satisfy the stringent requirements of a highly competitive market.

While Solomon has established its worldwide presence, particularly in Latin America and the Pacific Rim, it is going to be challenged with combining its country-specific variants of applications into a single, global product in order to be selected as a global strategic partner. Double- and multi-byte character sets (DBCS & MBCS) are currently not supported, while the full Euro currency triangulation support is planned for release in Q3 2000. We believe that these are at least two years late to market.

Remaining privately held deprives the company of the significant capitalization for marketing, R&D and acquisitions, and the visibility that is inherent in being publicly traded. This is particularly true in light of its ambitious new product release schedule. Furthermore, more conservative CFOs may cast a wary eye on Solomon's immunity from financial statement disclosure, given that corporate viability increasingly gains in importance for software selection procedures.

Vendor Predictions

Despite a highly competitive environment, we predict that Solomon has the potential to reach US$100 million in revenues within the next 3 years (60% probability). This is based on the prediction that, within the same time period, more than 60% of its revenue will come from existing customers, which will want to either replace an old Pervasive-based product with MS SQL Server-based Solomon IV or add new modules to a current Solomon installation (75% probability).

Due to increasing competition and visibility from its publicly traded competitors with significant resources, we believe that the company will have to decide to go public within the next 18 months (60% probability). Failing to do so will put Solomon in a very disadvantaged position compared to its competitors against the backdrop of its above-mentioned R&D capital requirements.

We believe that, within the next 12 months, the company will have to either acquire (35% probability) or partner with (65% probability) vendors whose products would significantly enhance its human resources, and complex manufacturing and scheduling capabilities. The potential alliance candidates for complex manufacturing functionality are ShopPro Software and MAI Systems, while and Mangrove Software is a candidate for HR alliance.

While we believe that within the next 3 years, no single ERP vendor will reach more than 20% market share within the SME market segment (80% probability), Solomon faces the danger of losing its Top 10 vendor position within the SME market if it does not deliver new functionality within the above timeframe. This is based on the assumption that a slew of other vendors will emulate Solomon's focus on Microsoft technology within the next 12 months (70% probability) and deprive it of its current strongest advantage.

Vendor Recommendations

Solomon should put the wheels into motion to becoming a publicly traded company without much delay. The company is one of the larger privately held ERP vendors, and we believe that the independence of Wall Street volatility carries much smaller specific weight than the need for additional R&D capital and market visibility. However, Solomon should have a cautious approach in presenting its IPO case, e.g., as an e-commerce vendor rather than a traditional accounting vendor.

Solomon should further fortify its strong position within the Small-to-Medium Enterprises (SME) market segment in the following ways:

  • Expand business in its existing customer base, by upgrading older versions of software and by offering new extended ERP modules and enterprise applications.

  • Conduct a detailed scrutiny of current geographic coverage in order to identify any room for further global expansion, bearing in mind its existing global/multi-national product capabilities.

  • Deliver more new, focused, and pre-configured vertical solutions (e.g., Clubs, Communication, Construction, Convenience Stores, Cross-Industry, Electrical Service and Repair, Entertainment, Equipment Rental, etc.), and offer application outsourcing while making every effort not to alienate its VARs by cannibalizing their profit.

Remain committed to new product features and expedite the introduction of additional enhancements (See Vendor Challenges), possibly through strategic product alliances with other vendors. We also encourage the company to consider undertaking a more aggressive marketing campaign concurrent with these developments. Its visibility is overshadowed by a spate of high-sounding press announcements by its main competitors.

User Recommendations

We generally recommend including Solomon in a long list of an enterprise application selection to the lower-end of the mid-market companies (with $2M-$250M in revenue), which are staunch users of Microsoft technology and have significant financial accounting, project management, distribution, and service requirements, while currently not needing complex manufacturing functionality. Companies looking for a holistic, broader functionality and a particular industry focus from a single vendor may benefit from evaluating other products at this stage.

Any organization evaluating Solomon Software should consider existing functionality only, and, in the case of final selection, should negotiate incorporation of new applications components now at negotiated license fees, in expectation of Solomon's future product introductions. Potential clients should also conduct a preliminary research on industry expertise and reference sites of a regional Solomon value added reseller (VAR) when Solomon is included in the selection process .

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