One of my secret nerdy activities is to peruse the Uline catalog. In case you never have, this 800-plus page catalog is a compendium of “shipping, industrial, and packaging materials” that fundamentally defines what it takes to be a manufacturer or distributor in North America. The breadth of its 37,000 products can be summed up in one simple sentence: if you’re manufacturing, assembling, packaging, distributing, or selling almost any kind of product in the discrete manufacturing space, if Uline doesn’t have it, you probably don’t need it.
To be clear, Uline isn’t selling the raw and direct materials used in actual manufacturing processes – that’s someone else’s job. But what Uline sells is just as important: shipping materials, pallets, self-laminating tags, hopper bins, safety knives, steel strapping tools – the variety is breathtaking. It’s so vast and all encompassing that I’ve often dreamed of making this catalogue required reading – ok, required “perusing” – for an MBA class on manufacturing in America. In every page is the story of how things are built, how shop floors are provisioned, how employees in our complex and beleaguered manufacturing sector get their jobs done safely and efficiently. It’s actually kind of inspiring, if you ask me.
Also on the curriculum would be a study of Epicor and its customers, for whom Uline is undoubtedly an important lifeline in their day to day operations. While we in the Silly-Con Valley tech world are constantly regaled with amazing stories of technological innovation from top-tier enterprise software vendors that would look right at home in a sci-fi movie, Epicor’s manufacturing and distribution customers are out there making and distributing the “stuff” that would be more at home… in a home, an office, on a farm, in a factory, or as part of a BOM for a larger, more complex product. Without the benefit of sci-fi level inspiration or innovation.
Epicor’s customers occupy that theoretically less important and interesting middle market of companies that employ dozens or hundreds of employees, not 1000s. They sell direct and they sell to other manufacturers in a wide range of verticals. Epicor’s customers are everywhere, and the total addressable market of Epicor and its fellow SME vendors – Infor, Dynamics, Sage, NetSuite, SAP and others – numbers in the millions of companies worldwide. According to a Small Business Administration report from 2018, over five million manufacturing jobs in the US – representing 44.4 % of the total – came from small manufacturing businesses. When we talk about Main Street in the context of retail – similarly important and similarly beleaguered – we need to remember Main Street retail is just down the block from a similar street in the manufacturing world.
That these mid-size manufacturing companies are under a lot of pressure is an understatement – changes in the global economy taking place before the pandemic were already impacting America’s manufacturing Main Street. Industry consolidation, supply chain complexity, the shrinking of the timeline between new product introduction and end of life, the need to sell direct to customers, even consumers, the pressure to hire the workforce of the future today: It’s a never-ending litany of challenges that multi-nationals can afford to take a pot shot at with some untried and untrue innovative technology and a jaunty “fail forward fast” attitude. But not the Epicor customer base: “fail forward to bankruptcy” is more like it.
So if failure isn’t an option, is Epicor the solution? The fact that they were just bought by a private equity firm for $4.7 billion (giving former owner KKR a reported $1.3 billion return on their four year old investment) says that at least there’s some smart money that thinks so. The fact that their CEO, Steve Murphy, acknowledged in a recent analyst Q&A that “we know we’re not the only ERP” and that connectivity to a larger supply chain and value chain that’s not based on Epicor technology was an essential part of their perspective is another good sign.
Indeed, the very success of Epicor in an ERP market that tends to focus on SAP, Oracle, Microsoft, and Infor tells me that customer choice can be more important, to the right audience, than expensive marketing campaigns. The fact that they have a user group that is both independent and apparently relatively active is also a potential plus: it’s always good to have the loyal opposition harassing you to be better – I know more than a few vendors that could stand for more constructive criticism from their customers.
One of the other reasons I’m interested in Epicor is precisely because it’s a contender in an ERP market that is dominated not by the aforementioned top four vendors but by the omnibus category of “Other.” How large Other is depends on the yardstick, but I think Apps Run The World’s estimation that Other supplies almost three-fourths of the ERP software to the market is a good starting point. Other market research firms pull Epicor out of the namelessness of Other into the Contender class (IDC) or Visionary quadrant(Gartner). The latter firm even placed Epicor on a par with Microsoft and ahead of IFS, NetSuite, QAD, Plex, and Acumatica in its Magic Quadrant for Cloud ERP for Product-Centric Enterprises. Not bad for a company that is a few orders of magnitude smaller in terms of revenue than some of the companies it shares the accolades with.
There’s a lot of qualifiers preceding “ERP” in the title of that Gartner report, but it’s still a pretty decent position for a contender/visionary that by its own admission isn’t the household name it would like to be. That could change, depending on how well they leverage the enormous opportunity for upgrading this massive SME manufacturing market. It’s a sweet opportunity made all the more sweet – and pressing – by the current pandemic economy.
Said pandemic economy has visibly accelerated an already decent appetite for innovation. A recent report published by my friend and colleague Laurie McCabe’s SMB Group probed the issue of crisis-mode tech spending and came up with some interesting results. The most interesting one was the observation that companies that have accelerated their tech innovation since the crisis began have seen a significant increase in revenues relative to those whose tech spending was in stasis or actually decreasing. Whether the revenue increase was due to the new tech or due to the business opportunities that the new tech was supposed to address is largely irrelevant: the bottom line is that there’s gold in them thar tech upgrades, for customer and vendor alike.
Taking their share of the opportunity won’t be easy for Epicor. The market power of the likes of Microsoft and Oracle/Netsuite clearly will make it hard for Epicor to be heard above the noise. But there may be enough demand to go around, at least for a while: the pandemic economy has begun to reshape buying, selling, customer management, supply chain interactions, and a whole raft of processes that for many SME manufacturers and distributors haven’t been upgraded in forever. There are plenty of warehouses in the US running on AS/400s, huge quantities of companies still living exclusively in an EDI transaction world, and there’s a zillion strategic business processes run on the enterprise software equivalent of baling wire and duct tape, the ubiquitous Excel spreadsheet, that are desperate for an upgrade.
Interestingly, Uline also finds itself vulnerable at this complicated moment in our global economy, even as the pandemic has presented some important opportunities, particular in supplying PPE and other safety-related equipment to its customers.
A certain monster has been stalking Uline from both sides of its business. That monster, none other than Amazon, is not only encroaching on Uline’s core business – a classic digital transformation attack from a nimble online company – but Bezosilla is also responsible for the loss of many of those Main Street stores and manufacturers that form the core of Uline’s customer base. Uline’s president, Liz Uhlein, scion of the company founders and an outspoken commentator on the socio-political world from the pages of her catalogues, penned a Year of Amazon counterattack recently that was a classic defense of a business model under siege from a voracious competitor. The intersection of the challenges facing Epicor, its customers, and Uline is itself worthy of its own MBA school class.
I’m personally rooting for Epicor and Uline, and their mutual customers. The two vendors both have very large competitors that are riding a 20-year Silicon Valley hype wave that wants us to believe that Epicor and Uline are quaint reminders of a soon-to-be-forgotten past. Meanwhile, Epicor’s and Uline’s mutual customers are more and more trying to be part of that hype wave, with a similar do-or-die imperative, while remaining the viable, competitive SME businesses they’ve always been. Which means, if they succeed, continued relevance for Epicor and Uline as well.
I’ve spent more time in small-town America than many in Silicon Valley, having crisscrossed the two-lane roads of the country coast to coast more times than I can count. What’s obvious if you take the time to look is that not every successful business in America is a tech company, run by tech bros in their 20s and funded by VCs of a similar age and perspective. Nor are they all located in a storied tech corridor on the West Coast, eager to test drive the latest blockchain or quantum technology and build a business destined to be the next unicorn.
Lord help us if the Silicon Valley model is what ends up happening to the bulk of our economy. What the pandemic has taught me personally is that it’s the small businesses that really count – not the ones vying for airtime on Cramer and ringing the bell on the NYSE, but the ones that sit one, two, three tiers down in the supply chains that fuel the world’s GDP. What happens to the companies that dot the landscape of the intercoastal industrial sectors of our country is going to have a lot more to do with how the economy at large recovers than what happens to Microsoft, Oracle, or SAP, or Workday, Salesforce, Google, and Amazon. The enterprise software market just doesn’t depend on selling enterprise software to its largest accounts: it depends on selling software into a market that is complex, multi-tiered, and a mix of small, medium, and large companies. There is no global economy if only the very large enterprises – vendor and customer alike – are the only survivors of the pandemic’s economic devastation.
At least that’s not a global economy I want to be part of. Do you?
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