00:00:07 Introduction of the episode about the ERP market and introduction of Fabien Pinkaers, the CEO and founder of Odoo.
00:00:36 Short introduction of Fabien Pinkaers.
00:01:08 The problem of small and medium-sized businesses lacking resources to manage their internal processes.
00:01:50 The low rate of small and medium-sized businesses equipped with integrated management software despite billions of dollars invested by companies like Microsoft and SAP.
00:03:35 The ERP market became stagnant and failed to benefit from the same degree of innovation seen in other areas, such as B2C consumer apps.
00:08:58 Discussion of the cost of subscription and services.
00:09:26 Discussion of the service side being closer to two to three times the price of the order.
00:09:58 Discussion of how the price of the service decreases with size and complexity of the project.
00:12:34 Discussion of the cost of ERP systems and their limitations.
00:15:06 Discussion of the user experience of ERP systems and their tendency to stagnate after 20 years.
00:17:48 Discussion about a company missing on the evolution of enterprise software by focusing too much on integrating the ERP, sales, purchase, accounting, manufacturing and inventory and not expanding to modern things like social marketing, point of sale, etc.
00:21:06 No to acquisitions, focus on building and keeping the company culture to avoid the ERP curse.
00:22:58 Importance of saying no to new technologies, sales opportunities that may divert the company’s focus on building a better product.
00:25:57 Flatter hierarchy in the company structure with distributed responsibilities.
00:26:12 Discussion of the company’s structure with responsibilities distributed instead of centralized on middle managers.
00:27:46 Name changes of the company throughout the years.
00:28:23 Explanation of why the name Tiny ERP was not suitable for the US market.
00:28:52 Explanation of why the name Open ERP was also not suitable for the company.
00:29:00 Explanation of why the company picked the name Odoo.
Summary
The episode of lokad TV features an interview with Fabien Pinkaers, CEO and founder of Odoo, and Joannes Vermorel, founder of Lokad, discussing the stagnation of the ERP market and the need for affordable and agile solutions for small businesses. Both experts emphasize the challenges in providing effective solutions for small businesses due to the complexity of the problem and the need for more flexible and innovative systems. They also discuss the drawbacks of acquisitions in the ERP market and share their strategies for maintaining growth and innovation. Fabien explains Odoo’s atypical organizational structure, which features a flatter hierarchy, and the mistakes in naming the company in the past.
Extended Summary
In this episode on lokad TV, host Nicole Zint interviews Fabien Pinkaers, CEO and founder of Odoo, and Joannes Vermorel, founder of Lokad, about the development and stagnation of the ERP market. They discuss how smaller businesses often lack the necessary resources to manage their internal processes efficiently and how the ERP market has struggled to provide affordable and agile solutions for these businesses.
Fabien Pinkaers started Odoo to address the need for better tools for small and medium-sized businesses, aiming to improve their productivity and efficiency. Despite billions of dollars invested by major players like Microsoft and SAP, only about 15% of small to medium-sized businesses use integrated management software, and many are unsatisfied with their options.
Joannes Vermorel believes that the ERP market has become stagnant, with less innovation than other sectors. He suggests that this is due in part to the complexity of the problem, as well as the need for more agile and flexible solutions for small businesses. He also points out that the software should be called “Enterprise Resource Management” rather than “Enterprise Resource Planning” to better reflect its primary function.
Both Fabien and Joannes agree that smaller businesses have many of the same needs as larger companies, but with smaller budgets and less time to spare. Fabien sees the problem as a technical challenge rather than a go-to-market challenge, as it’s difficult to create a solution that is both simple and affordable for these businesses.
Drawing parallels between Odoo and Lokad, Joannes states that both companies operate in specific fields (ERP for Odoo and supply chain optimization for Lokad) and face similar technical challenges in providing effective solutions for small businesses. Fabien, a technical founder, believes that his background as a developer has been crucial in addressing these challenges.
Comparing the costs of ERP systems, Fabien says that Odoo’s subscription fees are about 10 times cheaper than other major players. While the cost of services may be closer to competitors for simpler projects, Odoo’s prices are significantly lower for more complex projects.
The interview explores the challenges and stagnation in the ERP market, with small and medium-sized businesses struggling to find affordable, agile, and efficient solutions. Both Odoo and Lokad are working to address these challenges and bring about much-needed innovation in their respective sectors.
Vermorel explains how some companies in the ERP market have become stagnant due to the structure and design of their technology. He emphasizes the importance of considering the true costs involved, including the costs of using an expensive relational database like Oracle and the cascading effects on user interface and productivity. Vermorel believes that innovative companies in the ERP market must find ways to overcome these constraints and design leaner, more efficient systems.
Pinkaers agrees, adding that the cost of an ERP system is directly related to its capabilities or lack thereof. He suggests that if a software can cover a lot of ground in a standardized way, it can help keep costs low. Both Vermorel and Pinkaers see a pattern of stagnation in large tech giants within the ERP market, where their user experience tends to stagnate after about 20 years. Vermorel attributes this to companies becoming too big and losing focus on their core product, while Pinkaers notes that many traditional ERPs have failed to evolve to meet modern needs, such as e-commerce and customer-centricity.
The two experts also discuss the challenges and drawbacks of acquisitions in the ERP market. Vermorel explains that acquisitions often lead to a separate stack of technology that mismatches the existing stack, resulting in misalignment and difficulties in fixing the issues. Pinkaers agrees, stating that the most successful products in enterprise software are usually those that have grown organically rather than through acquisitions. As for Odoo’s approach, Pinkaers emphasizes the company’s focus on building its own products instead of acquiring others, which he believes is the only way to achieve the simplicity and affordability that SMEs need.
Both founders discuss their strategies for maintaining growth and innovation while avoiding the stagnation often associated with enterprise resource planning (ERP) software.
Pinkaers emphasizes that Odoo’s long-term focus and private status allow the company to prioritize product development over quarterly results. He believes that maintaining a strong company culture and saying no to distractions, such as unnecessary acquisitions or sales opportunities, is essential for remaining focused on building better products. Pinkaers also notes that the best managers know what not to do and where to focus, maintaining a clear vision for the company.
Vermorel agrees that saying no can be difficult but is necessary for long-term success. He shares an example from Lokad’s experience integrating TensorFlow, a popular deep learning library from Google. Although TensorFlow is an excellent product, it did not align well with Lokad’s existing technology stack, leading them to develop their own solution instead.
Pinkaers explains Odoo’s atypical organizational structure, which features a flatter hierarchy than traditional companies. Instead of promoting successful developers to management positions, Odoo allows them to continue doing their jobs while distributing management responsibilities across the team. This approach enables developers to maintain their expertise and contributes to a more efficient organization.
Nicole Zint then asks about Odoo’s name changes over the years. The company started as Tiny ERP, moved on to OpenERP, and finally settled on Odoo. Fabien admits that he made mistakes in choosing names that had specific meanings, leading to the need for these changes. Tiny ERP was not suitable for entering the US market, as it did not convey the desired image of a “big” company. OpenERP was not ideal either, as the company did not want to be compared with traditional, complex ERP systems. Odoo wanted to position itself more as a suite of business apps that can be used individually or together.
In an effort to avoid making the same mistake thrice, Fabien chose the name Odoo, which doesn’t have a specific meaning. This allows the company to build its brand around its innovative approach and unique offerings without being limited by preconceived notions attached to a particular name.
Towards the end of the interview, Nicole thanks Fabien for providing insights into Odoo’s management approach and discussing the ERP market.
Full Transcript
Nicole Zint: Hello and welcome to today’s episode on Lokad TV, “Dusting the ERP Market”. We will be exploring how the ERP market has been developing in the last decades, but also stagnating. We are lucky enough to be joined by FabienPinkaers, the CEO and founder of Odoo, one of Europe’s very few unicorns based in Belgium. Fabian, could you please give us a short introduction of yourself?
Fabien Pinkaers: Hello everyone. I’m Fabian, the founder and CEO of Odoo. I started the company a few years ago, and we are now close to 2,000 people. My resume is basically very simple: I only did Odoo.
Nicole Zint: Fabian, when you founded Odoo in 2005, there was, and still is, an ongoing problem that smaller businesses lack resources to get the business tools they need to manage their internal processes. How did you plan initially to tackle this competitive landscape at that time?
Fabien Pinkaers: It’s clear that we started with the feeling that small and mid-sized companies don’t have the right tools. They still have a lot of administrative tasks, repetitive tasks, they are overloaded with emails, and they don’t have access to the information. So, they really don’t have the right tools, and people suffer from that. When you don’t have the right tools, the whole organization is totally inefficient. We wanted to fix that, but it’s a very complex problem. It took decades, and it’s not finished. We started with this principle that there is something to do. It’s not only about managing the business process like the traditional ERP, but it’s also about bringing productivity tools to the employees and users to really change the efficiency of the companies.
Nicole Zint: That’s very interesting. We see now that only about 15 percent of small to medium-sized businesses are equipped with integrated management software, but most are unsatisfied with what they have. Microsoft and SAP have invested billions of dollars in the SME market, and yet they have still failed. Joannes, what do you think that is?
Joannes Vermorel: That’s a complex question. First, Microsoft doesn’t have just one solution in this landscape; they have something like four of them under the banner of Microsoft Dynamics AX. They have actually compiled a series of products, and it’s one of those few areas where Microsoft has mostly grown through acquisition, which is fairly unusual for this company. The bottom line is, I believe it is very difficult, surprisingly difficult. My own perception of the market was that some companies tackled the problem of, and again, ERP is a bit of a misnomer. It should have been something like ERM, Enterprise Resource Management, because planning is really a secondary concern; it’s not the primary concern of this sort of software. There was probably a very large and successful German company that managed to become super large in this segment, and there were a few others that became large, but what I saw was that…
Nicole Zint: After this, I would say, initial traction in the 80s and 90s, the domain became slightly stagnant. It didn’t benefit from the same degree of innovation that was very noticeable, for example, in other areas such as B2C consumer apps or lifestyle apps that really went through a series of breakthroughs. I would say ERPs underwent a lot of revolution, but overall, it was much slower. Fabien, do you agree with what Joannes is saying about this evolution of ERP systems becoming more stagnant, or the market becoming more stagnant in the solutions that they offer?
Fabien Pinkaers: Yeah, I totally agree. I do agree that despite the fact that key players invested billions to reach the small and mid-size market, the adoption rate is very low. The main reason for me is that there is a big complexity in small and mid-sized companies. They have a lot of needs, they need accounting, manufacturing, inventory, they have a website, they need supplies, they have a supply chain, they work in different countries. Basically, they have the same needs as big companies, except they need more agility. It’s not all about managing the process; they need a solution that is flexible and agile. On top of that, they don’t have the large budget and time that large companies have. That makes things very complex. I used to say that we don’t have competition because what we try to do is to crack something that nobody succeeded in cracking. It’s more of a technical challenge than a go-to-market challenge. The complexity is in delivering everything they need and making it simple and affordable.
Joannes Vermorel: By the way, I can really relate to this problem because, although Lokad’s success is only a tiny fraction of Odoo’s success, I was faced with tackling supply chains with the exact same sort of problems. Supply chain optimization isn’t fundamentally very different for smaller businesses. They still have all the statistical patterns, seasonality, and constraints such as shelf space or minimum order quantities enforced by suppliers. These constraints exist whether you’re small or large. The sort of problem that Lokad faced was indeed, as you pointed out, a very technical problem that was unsolved in the market. Most days, I feel like most of the problems we are tackling have barely been scratched by anyone in the market.
Nicole Zint: I think there’s quite a lot of potential for innovation in this area, then.
Nicole Zint: What are some similarities that can be drawn between Odoo and Lokad, besides the fact that one is larger than the other? In the ERP market, Odoo is somewhat similar to Lokad in the supply chain solutions market, in that they both approach things differently and don’t have direct competitors.
Joannes Vermorel: More than the differences, I feel the style of the founders plays a part. Correct me if I’m wrong, but you, Fabien, are a fairly technical founder as well, which I think played a part in getting something that was working.
Fabien Pinkaers: Yes, I’m a developer, so I’m very technical. It’s important because it’s a technical challenge. It’s not a challenge that you can fix by investing millions or with marketing, otherwise, others would have succeeded. The reason nobody succeeded is that it’s extremely complex technically.
Nicole Zint: Am I correct in understanding that the average ERP integration can cost somewhere around forty thousand dollars? If we compare that to Odoo, it manages to achieve the same for only about four thousand dollars, which has made it the leading company, especially in developing countries.
Fabien Pinkaers: To compare the price, you should look at the price of the service and the price of the subscription. For the subscription, the numbers are well known. We are between 6 to 18 euros depending on the countries, while the average of the other key player ERPs is around 180 euros per user per month. So we are basically close to 10 times cheaper than the others. Of course, they sometimes discount a bit, but it’s still an order of magnitude lower. On the service side, I would say we are closer to two or three times the price of the others, but it grows very fast depending on the complexity of the project.
If the project is simple, like just a CRM or accounting software, I would say our services are slightly comparable to the others. But as soon as you need more applications, the others reach their limits very quickly, needing integration with different software for point of sale, e-commerce, or social marketing, which are usually not part of the ERP. Their budget explodes, whereas all those things are standard with Odoo. As the project gets a bit bigger or more complex, the price of the service is massively decreased with Odoo.
And obviously, depending on who’s offering the service, different companies have different strategies. Some are more expensive but offer more customized services, while others are more affordable but provide more standard services. It also depends on your implementation methodology.
Nicole Zint: Speaking of the high cost of ERP systems, for example, NetSuite has a very high cost, but don’t they also have very high operating costs due to the massive computing power they need? So when you say that you have something that is lower priced, as is the case with Odoo, is it not just a pricing decision?
Joannes Vermorel: That’s right. Odoo is not just cheaper because they decided the license would be of a lower price. They are even open source, so technically, if you want to run it, you can download the code and just run it for free. But the thing is, you have to look at the real costs involved, and depending on how you structure your technology, you will have a lot of costs that emerge from the very design of your tech.
Nicole Zint: So, for example, if you start by having a technology where you’re exceedingly dependent on a relational database that is very expensive, like an Oracle database, and you’re relying extensively on this product, then you kind of, by design, end up with a lot of cost. But then if, on top of that, your design is slightly antagonizing your database layer and you need more, you incur a lot of cost. We can go on and on. If, for example, for your screen, all those things can cascade because if you start having something that antagonizes your database layer, then maybe you are going to start cutting corners in your user interface, and so you end up with a user interface that has some issues that you can’t really fix without blowing up your database budget. So you end up with something that has lower productivity and raises your cost again. But that’s again, that’s the sort of things that are diffuse costs; it’s not as simple as saying this price per user that Fabienwas quoting, and yet all those things pile up.
Joannes Vermorel: I believe there has been, at least for some companies, this domain has been very stagnant on average. I’m not saying that there are no outliers, but I believe that one of the key drivers of truly innovative companies in this ERP market is to try to find ways, innovative ways, to revisit all those constraints and do a lot more. So, obviously, you don’t want to have at the core of your software something like an Oracle database. That’s obviously not going to happen with NetSuite now that they have been acquired by Oracle. But more than that, it’s about how do you design something that is very lean, where your workload is not getting out of the roof, so you can keep all those costs fairly low and you can even afford to build user interfaces that feel good for the users, and where they feel good, which turns into being quite productive and agile. I mean, that’s my perception of the way I understand this market and the sort of driver that makes it tick in terms of development-wise.
Fabien Pinkaers: I totally agree, and I would add that the cost, for me, is directly related to the capabilities or non-capabilities of the software because that’s where the cost starts to increase. When the software is not able to deliver some features, then you need to integrate different software, and then the costs grow rapidly. But if the software can cover a lot in standard, you can keep your cost very low.
Nicole Zint: Fabian, if we look at how the big tech giants have evolved over the years within ERP, do you agree, Joannes, that we see this tendency for their user experience to stagnate quite a lot after about 20 years, this sort of ERP curse?
Joannes Vermorel: That’s something that is very fascinating. I’ve been routinely doing technical audits as part of due diligence for venture capitalists. I never took VC funding for Lokad but managed to sell missions for them that are just tech audits. The interesting thing is that when I audit a startup, I can usually date the year the company was founded just by looking at their stack.
Nicole Zint: …and the way they look at the problem is very interesting. It’s as if a company is established in 2014, and then it kind of pretty much freezes all their practices and tech stack. It’s not always the case, but it’s frequently a pattern. What I see is that some very successful vendors, at some point, seem to give up on what Fabien described as the ambition to have a very good product. They are very innovative, and by the way, I believe, for example, NetSuite was massively innovating around 2000. They were probably the first web ERP that had a very accessible web-based user interface at the time, which was really disruptive. Nowadays, having a web interface is pretty much a given, so it’s not considered a point of differentiation anymore. The bar has changed. But what I see is that if I look, and I’ve been working with NetSuite for over a decade now, there is very little change from the NetSuite of a decade ago and the NetSuite of today. And this is frequently happening for many software products, where after two decades, they kind of stagnate. My perception is that people move on in their life or whatever, and you end up with fairly stagnant products. Fabien, do you agree with this idea that the more a company grows, the higher the tendency to become less automated and stagnant in its development as well?
Fabien Pinkaers: Yeah, I do agree. I believe Odoo is an exception because we are still very focused on the product. But I do agree that’s what happens. If you look at the market 10 to 20 years ago, the challenge at that time was to consolidate your accounting to have your financial data correct from different activities, and to organize your business flows. That’s where the traditional ERPs are still today. They do the business flow, they consolidate all the financial accounting data from manufacturing, inventory, and so on, but that’s it. They don’t go on e-commerce, they are not customer-centric, they are accounting centric. They don’t allow a lot of agility, everything is complex, they don’t do modern things like social marketing, point of sale. So clearly, they missed a wave of evolution. I believe also that it’s because they get too big. When you get too big, you have middle layers of middle managers who are not expert developers or experts in the product, so you defocus yourself from what matters. What they did well at the beginning, which is integrating the ERP, integrating sales, purchase, accounting, manufacturing, and inventory, they stopped there. They could have gone further and tackled the issues of today. Now, marketing is important, e-commerce is important, point of sales are super critical, but they just stopped there. The rest they do with acquisitions and integrations with third-party tools, so they clearly missed an opportunity.
Joannes Vermorel: The problem with acquisitions is that enterprise software is not exactly miscible. When you have an acquisition, you end up with a separate stack of tech, which is slightly but consistently completely mismatching your other stack. You see, having a very good product, especially when you have enterprise software where it’s all about complexity management, frequently boils down to being very consistent across the board in everything that you do. You don’t want to have technical surprises everywhere because that’s going to create issues.
Nicole Zint: Pain points and friction can be difficult for software engineers, as they may stumble upon something unusual that doesn’t align with the rest of their stack. For the user interface, it can also be confusing because users are used to a certain way of doing things, and a foreign element can throw them off. When you have acquisitions, there can be misalignment across the board. It’s difficult to fix these issues while the system is running at full speed. I believe that the most successful products in enterprise software are rarely the result of gluing together acquisitions. More often, they are beautifully designed products that grow organically.
Nicole Zint: Fabien, what’s your view on acquisitions for Odoo in the future?
Fabien Pinkaers: We don’t do acquisitions. We build, we don’t buy. To reach the level of simplicity and affordability that SMEs need, you can’t have a complex, aggregated stack of different things. You need to have something clean that is built from the ground up.
Nicole Zint: But I was under the impression that you could just buy a blockchain startup and an IoT startup, put them in Odoo, and have a blockchain and IoT powered ERP, or maybe even virtual reality too.
Fabien Pinkaers: Our plan is to always think for the long term. One of the reasons we are not publicly listed is because we want to continue focusing on the long term, rather than quarterly results or sales. Our entire company is driven by building a better product and offering better service. We do a lot to maintain our company culture and ensure that everyone is focused on building a better product. As long as I am focused on the product, the rest of the company follows. The key is to say no to many things, like new technologies that we could buy, or sales opportunities that could divert us from our main targets. By being focused and aligned, I believe we can scale. We have already scaled to 2,000 people.
Nicole Zint: Joannes, from your perspective, do you face similar challenges at a smaller scale?
Nicole Zint: Indeed, saying no to your teams can be difficult. At times, it feels like the rest of the team is falling behind. When you want to tackle something new, it would be faster in the short-term to just glue together another solution, but that’s short-sighted. Over time, you have to maintain it, and it might not be completely aligned with the rest of your stack. Can you give an example of a situation like this?
Joannes Vermorel: At Lokad, at some point we went into deep learning, and we integrated TensorFlow, an excellent open-source deep learning library from Google. However, it wasn’t aligned with what we had built. In the end, we had to ditch TensorFlow and develop our own solution, which was a slower process. Although our solution might be inferior to Google’s, it’s more integrated, maintainable, and agile within our technology stack.
Nicole Zint: I understand that saying no and focusing on specific areas can be challenging. How do you manage to motivate your team to not take the easy road but choose a more rewarding path in the long run?
Fabien Pinkaers: I believe that every manager knows what to do and has ideas, but only the best know what not to do. The best managers have a clear big picture and know where to focus while avoiding the rest. This allows the team to go further in the areas they concentrate on.
Nicole Zint: In your company, you don’t have a typical hierarchy of managers above managers, but rather a horizontal structure where everyone has a large impact and responsibility. What was the idea behind this atypical company structure?
Fabien Pinkaers: We do have a hierarchy, but it’s flatter than traditional companies. Instead of centralizing responsibilities on middle managers, we distribute them. For example, in our R&D department, when a developer is good, most companies promote them to a manager position. Initially, they might be happy, but after a few years, they end up doing things they don’t like, such as managing people, planning budgets, and hiring. They also lose their development skills over time. We don’t do that. In all our departments, people continue to do their job, and we distribute responsibilities among many developers.
Nicole Zint: 80% of their time is spent as a developer, so they become experts because they can do that for the long term. And 20% of the time, they receive other responsibilities. Some people are responsible for recruitment, others for coaching new employees, organizing training sessions, or handling specifications and testing tasks that have been done. Instead of having middle managers with all the responsibilities, we only have people who do things and become very good at them because they do them for the long term. We distribute responsibilities among different people, but only for a small part of their time.
Fabien Pinkaers: Yes, that’s correct.
Nicole Zint: Fabien, I have to ask, Odoo has had quite a few name changes throughout the years. We started off with Tiny ERP, then Open ERP, and now Odoo. What’s the next one? When is that going to be? I mean, it’s been working - you’ve made 10x in growth every time you were changing your name. So we were kind of guessing that the next time you changed your name, you would have another 10x growth.
Fabien Pinkaers: Now, it’s more like I made the mistake twice of choosing a name that means something, so I won’t make the same mistake three times. Odoo doesn’t mean anything. Initially, Tiny ERP was not very good for entering the U.S. market because it’s “tiny,” and in America, you have to be big. After that, Open ERP was not positive because we don’t want to be compared with traditional ERPs. We are more in the realm of business apps. There are plenty of companies that just use Odoo for accounting or just to create a website or a CRM. And obviously, if you use all the apps together, you have an ERP, but we don’t want to be compared with the bloated, complex ERP systems. So it was a bad name too. We had to change the name, and because I made the mistake twice of selecting a name that means something, we picked a name that doesn’t mean anything for the company, which is Odoo.
Nicole Zint: Alright, I’m going to have to wrap it up here, you guys, but thank you so much, Fabien, for joining us today. It’s truly interesting discussing the ERP market together and seeing how Odoo has really challenged the status quo that was initially there.
