Supply Chain Shaman

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Good-bye to the Breakfast Club

We met for five years at the Wyndham Hotel on Broad Street in Boston.  It was usually for breakfast. My calendar was so full that it allowed very little face-to-face meeting time with a struggling start-up like Optiant; but since I have a passion to help start-ups, I rolled out of bed early for the breakfast club.
The group, due to turnover, was never the same.  The names changed—Jonathan, Sean, Matt, Rajb, and Jim came to the table at different times – but, the topics were constant.  We talked about the market, founder aspirations, and potential exit strategies.  For awhile, it was like musical chairs, but on Monday, March 22, 2010, the music stopped, and the exit strategy became clear.  Optiant was purchased by Logility for 3.3 Million dollars.  The company sold for a low multiple and the founders, unlike those at its competitor LogicTools, received very little financial reward for their efforts.
It is a case study of a flawed software start-up.  What can we learn?  Three thoughts come to mind.

Three Lessons

Not about a Good Product.  I have visited the Optiant implementations at HP and Procter Gamble.  They are world class.  The software worked.  Optiant had a good product.   The results were compelling: 30-50% reduction in working capital and a 5-10% improvement in service levels. Sadly, success in software start-ups has little to do with the product. 
The company started off on bad footing –leadership and financial sisues– that never allowed it to get on its feet.  Leadership, sales and marketing issues abounded.  At the end, the board was more interested in an exit strategy and recouping some of the investment than improving supply chain value. The sale to Logility removes the financial viability shadow from Optiant’s battered past and allows a good product to survive.  To be successful, Logility will have to leverage its sales and financial capabilities (which continue to impress me) without squashing the innovator’s spirit.
A Missionary Sell needs a Missionary.  In many ways, Optiant was a solution looking for a buyer.  The solution was ahead of its time.  When the company started, inventory configuration –analyzing the right form and function of inventory and optimizing push pull boundaries—was new.  It was a missionary sell.  Unfortunately, the company was never able to find the right voice to convince buyers to try a new approach.  For success, the company needed to find the equivalent of Ken Sharma of i2 Technologies, David Semchi-Levi previously of LogicTools or Shridar Tayur at SmartOps.  They needed someone with enough passion and conviction to help a buyer try a new approach.   They never found it.  To make this successful, Logility will need to find one.
Market needs to be Big Enough.   Inventory optimization is too small to be a stand-alone market.  The primary driver of the inventory optimization market is the lack of functionality in the ERP supply chain planning suites.  Simply put: companies struggling with new ERP implementations and million dollar implementations were unwilling to ask for new funds to improve what they had asked their boards to implement.  Optiant found itself in a small, but competitive market. They were never able to achieve the SAP partnership status of their competitors and there were just too few of these companies to buy.  This will not be an issue for Logility.  They have a loyal and mature installed base.  The company can sell it successfully into its base.

 What now?

This solution will be available in the Logility Voyager 8 product.  The question is will the two cultures find the right blend?  Will Logility be able to retain and appreciate the deep optimization and innovation background of the Optiant’s founders? And will the Optiant founders be able to appreciate the sales and financial leadership that they were so sorely lacking?  It will no longer be about improving SAP and Oracle implementations; instead, it will be about taking Logility to the next level.  Will the Optiant founders have the stomach to do this?  What do you think? Do you think that they will be successful?
Let me know what you think.  The Supply Chain Shaman is off to India this week. Look for more postings on my travels.

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