A Winning Startup Combination
Group of Entrepreneurs Breeds Multiple Winners with Expandable
A network of financial and operations executives have used techniques they honed while working together to energize manufacturing operations at a series of successful startups. The startup operations this group have been involved in include Alantec, Assured Access, Sentient, Shomiti, Sonic Manufacturing, ipVerse, Alidian and Desana Systems. Each of these companies has successfully made the transition from product development to manufacturing and a number were sold to major industry players such as Cisco and Alcatel. The manufacturing operations of all these companies have been run by a small core of individuals that have worked together and developed, through experience, a methodology for jump-starting manufacturing operations from zero. One of the keys to their success has been the development of simple and flexible information systems that allow them to keep a close touch on operations without requiring extensive investment or support, according to Rich Weber, Director of Marketing for Desana Systems, who has been a member of this informal group from its earliest days.
Two of the three core members of this group, Weber and Al Sadler, first worked together at Omnitel in the late 1980s. They left Omnitel towards the end of the decade to join a networking startup called Alantec, where they met up with the third member of the team, Pat Royan. In the early days of Alantec, one of the key challenges the group faced in starting up manufacturing operations was implementing an ERP system. "We were extremely limited on both financial and human resources," said Royan, who served as chief financial officer of Alantec. "We needed an inexpensive system that could be implemented quickly without any customization. But we also needed fully integrated MRP (material requirements planning), inventory, order entry and financials. As fast as we expected to grow and as fast as inventory depreciates in a technology business, we recognized that the ability to generate real-time reports on our inventory, cost of goods sold and financial performance would be critical to our success."
Selecting ERP system
"We looked at tier-one ERP systems such as SAP and Oracle," Royan continued. "They could handle our business with ease but the minimum cost and lead-time to get them up and running was $1,000,000 and one year. We couldn't handle either number. So we looked at PC-based systems and discovered they had good financials and in many cases job costing but they lacked high-end integrated MRP. MRP is essential to integrate order processing, inventory and cost of sales in a way that allows management to keep a pulse on what's happening in a business. Then we discovered Expandable Software. The neat thing about this package is that it's still the only one I know of that provides full-fledged and integrated MRP in a simple PC framework that allows it to be implemented in a few weeks. And, the system's low cost is well-suited to startup organizations."
The implementation worked out perfectly and played a major role in the success of the startup. "We got the system up and running in just a few weeks without having to get a consultant involved," remarked Weber, who served as Information Systems Manager for Assured Access. "One factor in our success was the ability of the software developer to provide experienced, in-house trainers, eliminating the need to contract consultants. Getting a fully integrated ERP system up and running as quickly as we did provided a major boost to our organization. We had the ability to track, at any given instant, exactly what inventory we have in stock and how much would be required to meet our manufacturing plans. We could also make profit and cash flow projections on a real-time basis in virtually no time, simply by using the information already entered into the system for manufacturing scheduling. The whole thing ran like a top and required only a single person to support."
Core of business practices
Weber said that in addition to simply selecting a software package, the Alantec team developed a core of business practices that played a major role in the success of that firm as well as others yet to come. "We came together as a group and decided we would enter all significant information into Expandable," Weber said. "Our philosophy was that if it wasn't in Expandable then it didn't happen. This meant that we soon developed an information storehouse that we could use to monitor every aspect of the business. All of the members of the management team saved considerable amounts of time because, instead of walking across the plant to find out the status of a work order, for example, we could simply call it up on the screen. Of course, the users of first-tier ERP systems such as Oracle and SAP enjoy these same advantages. The catch is that to obtain them, the company would need to invest millions, develop a team of people to support them, and go through a long implementation process. We achieved essentially the same benefits for a small fraction of the price, were able to complete the implementation in a few weeks, and haven't needed any dedicated support people."
Alantec went on to become a leading supplier of multi-service networking solutions and is widely recognized as the company that commercialized ATM technology. In 1996, Fore Systems acquired the company for more than $600 million and has continued to expand its product line. The success of this implementation became common knowledge in Silicon Valley's startup community and was one of the reasons that Weber and Royan were asked to join a new startup, Assured Access, even before the merger became final. "From the beginning, we didn't have any doubt what type of ERP system we were going to install," Weber said. "In fact, if my memory serves me correctly, our second purchase order was to Expandable for the software. That was after we bought computers but before we bought our furniture." Several other people in the operations team at Alantec joined other startups after the company was purchased. Dan Creager, Mike Park and David Leonard joined Shomiti and Dave Ginsberg went with Sentient. Both of these companies also implemented Expandable. Sentient was purchased by Cisco Systems in 1999 for an undisclosed price and Ginsberg soon joined Sonic Manufacturing, where he also led an Expandable implementation.
Getting a new company off the ground
Assured Access's business was producing a family of multi-service access concentrators for Internet Service Providers (ISPs). "Since we were already familiar with the software, it literally took us hours to get up and running at Assured Access," Weber said. "We created the chart of accounts in an Excel spreadsheet and downloaded it into Expandable and we were in business. Not a bit of consulting or customization was required." Royan said that the integration between MRP, inventory, order entry, purchasing, and financials was crucial to Assured Access' success. "Consider the importance of inventory in the networking business," Royan said. "Every year our selling prices drop by 20% to 50%, which means the value of our inventory is dropping by the same amount. Expandable provides powerful tools for keeping inventory as low as possible without incurring stock-outs that reduce our sales. The software's sophisticated MRP capabilities immediately explode every order we receive into the components required to produce it. The fact that MRP is integrated with inventory and financials means that we know in real-time exactly where we are. To make sure we stay on track, we dispensed with physical inventories but employed a full-time stock person who performed cycle counts on a daily basis. The system helped us successfully navigate the perils of a networking startup." The bottom line is that the company successfully got its manufacturing operations off the ground and was sold to Alcatel in 1999 for $350 million.
In a process that Weber compares to the spreading of a virus, the team at Assured Access soon joined three more startups. Pat Royan became Chief Executive Officer and Rich Weber became Marketing Manager at Desana Systems, a company that is developing next-generation service delivery from the data center. Art Klein became CEO at ipVerse, a developer of open, intelligent network operating systems for integrated voice and data communications services, where he hired Dave Leonard from Shomiti as Vice President of Finance. Al Sadler became Vice President of Operations at Alidian, a company that delivers optical service network solutions for metropolitan area networks. As you might expect, each of these companies became Expandable users. In the meantime, PCB Assembly, a supplier to Assured Access, implemented Expandable based on their recommendation and subsequently sold their company to Flextronics.
Weber said a key reason that members of the network have continued to work with Expandable over the years is that the software has been continually improved to keep up with their growing needs. "Expandable's integration with the Agile product data management system was very useful in integrating our engineering and manufacturing operations at Desana," Weber said. "When an engineer makes a change, it goes through an approval process that is controlled within Agile. As soon as the change is approved, it instantly updates the Expandable bill of materials. We can easily run an impact report to determine how the change affects our inventory and manufacturing schedules." Royan concluded: "Expandable has played a significant role in the success of every startup that I have been involved in. It's the only ERP system I know that's simple to install and use, yet provides industrial strength MRP and scales to over $100 million in sales without difficulty."
For more information contact Expandable Software, Inc., 900 Lafayette St., Suite 400, Santa Clara, CA 95050. Phone: 408-261-7880. Fax: 408-247-2160. Web: www.expandable.com. Email: email@example.com.