Introduction

Most first timers selecting an accounting system want a vertical product designed specifically for their business, but this is too often a tragic mistake. This is because most vertical solutions offer a handful of impressive industry specific features that lure you in, but lack an enormous amount of features in other areas and suffer from bugs, proprietary technology, poor design, and lack of ongoing support. I've seen a lot of bad experiences with vertical solutions, and  in general, I think it is best to avoid them - particularly those offered by smaller vendors. I believe that while vertical solutions are supposedly designed specifically for a particular industry, in most cases vertical solutions provide only a handful of unique features coupled with cosmetic window dressing and marketing hype. “Upon closer inspection, you typically finds fatal flaws such as weak financial reporting, older underlying technologies, non-existent customization tools, missing modules, feeble product support, a skinny sales channel, lack of third party add-on solutions, and more”. Are these shortcomings really worth a few extra industry specific features? I don't like the trade off. I prefer you to recommend well-proven solutions with good customization tools that have been installed thousands of times.

Accounting Software Options

Accounting software solutions generally fall into three general categories as follows:

1. Vertical Market (or industry specific) Solutions
2. Comprehensive All-Purpose Solutions
3. Third-Party Add-On Solutions (which are typically coupled with All-Purpose Solutions)

Vertical Market Solutions refer to products that are designed to meet the specific needs of a particular industry; for example: insurance, restaurants, churches, contractors, and government situations. Examples of well-known vertical market solutions are Shelby Systems for Churches, Blackbaud for fund raising, Squirrel Systems for restaurants, Timberline for estimating and job costing, Yardi for property management, and American Fundware for government.

Comprehensive All-Purpose Solutions refer to products that are designed to meet the needs of a wide variety of industries and business situations; for example retail, distribution, job costing, services, consolidations, manufacturing, and much more. Examples of popular off-the-shelf comprehensive solutions include MAS 200, Dynamics GP, Dynamics NAV, Sage ACCPAC ERP, Sage ProSeries, and many more.

Third-Party Add-On Solutions refer to off-the-shelf solutions that offer separate add-on modules that integrate to All-Purpose solutions and sometimes vertical solutions. For example, frequently end users combine a top all-purpose solution with one of the following popular third party add-on solutions: Crystal Reports (for report writing), FRx (for financial reporting), Abra (for human resources and payroll), Best! Fixed Assets (for fixed asset management), Radio Beacon (for multiple warehouse management and wireless solutions), and the list goes on. Many years ago when Great Plains had 53 modules, the company reported that 80% of their customers purchase a third party add-on product to compliment the Great Plains product. This is a rather telling statistic.

While most people typically want vertical solutions designed specifically for their company, all-purpose solutions combined with add-on products usually represent the best alternative. For example, MAS 200 combined with Radio Beacon warehouse management, ACCPAC Advantage combined with MISys manufacturing, or Dynamics GP combined with Trinity Distribution are all common solutions that are well proven. In effect, this type of solution gives you the best of both worlds - well proven core financials plus industry specific functionality.

What CEO's Want

Most companies initially want a vertical market product designed specifically for their industry. For example, health care companies think they need a health care solution; professional service companies think they need a professional services solution; and restaurants think they need a restaurant solution. It seems that everybody wants a product that is developed specifically for their industry. However there is a fundamental problem with this type of thinking in that customer satisfaction among vertical solutions is dramatically lower than among customers who use all-purpose products.  Based on a survey of hundreds of CEOs, CPAs and CFOs who attended my accounting software courses in recent years, this group prefers all-purpose solutions over vertical solutions by a margin of eight to one. Less than 9% of this group indicated satisfaction with a vertical solution compared to 72% who were satisfied with an all-purpose solution. After being burned by a vertical solution in the past, most of these repeat CEO shoppers indicated that they would not consider a vertical solution again. Exactly how do some CEOs fall for the vertical solutions trap? Consider the following example:

Example:

In October 2002, I consulted with a $40 million marble company that uses a vertical market accounting system which I will call MarbleTech (not the real name of the product). This marble company called me in because they were unable to make MarbleTech work. Upon my review of MarbleTech, I found this DOS-based solution to be old, inadequate, buggy, weak, poor, slow, featureless, and ugly. It seems that in 2000 the CEO was fed up with his previous accounting system and made the executive decision to purchase MarbleTech for $180,000 because it appeared to be written specifically for the marble industry.

One of the problems that this marble company had was that they had no idea what was in stock. As a result, sales representatives sold inventory from approximately $3 million worth of inventory located near the warehouse docks while the remaining $9 million worth of inventory sat there unused. The white glove test confirmed that a great deal of the company’s inventory had sat there for several years without turning over. Another problem was that marble shipments arrived daily and were often shipped out on the same day, without being entered into the system. Three workers spent a great deal of their time just tracking down errors related to identification and invoicing problems resulting from this poor capture of information. Right away we see $120,000 worth of annual salaries wasted by workers who track down errors and another $500,000 per year in interest expense on the floor plan note related to the non-used inventory. Of course there is no easy way to calculate the cost of disgruntled customers who turned away after countless billing and shipment errors, nor can the frustrations of company employees be quantified. To be sure, there is a real cost to an inadequate accounting system.

How did this $40 million marble company arrive at this point? They searched the internet and found the MarbleTech product touted as a solution for the marble industry – and fell for this trap hook, line and sinker. Had the company done a little checking around, they would have identified the shortcomings and avoided this fiasco. First of all, the product has fewer than 500 customers – a telltale sign that it is not well proven. Secondly, it is a DOS product which means that the underlying technology is poor. Thirdly, I called the publisher who told me that the product had been discontinued 5 years earlier and replaced by a newer Windows solution. This certainly suggests that MarbleTech failed the future outlook test. To rub salt in the wound the publisher of MarbleTech told me that this product had been developed for the health and beauty salon industry. Shall I go on? 

Even today as I write this article the Virginia reseller still promotes MarbleTech as a marble solution. It appears that this marble company was "misled" (for lack of a better word) into purchasing this product - mistakenly believing that it is ideally suited for the marble industry - when in fact it is not. This company wanted to believe that there was a vertical market solution that would meet their needs so strongly that they did not take the most basic of due diligent steps to confirm the viability of MarbleTech before purchasing this product. In hindsight, the company could have thrown darts at a list of Great Plains, Navision, MAS 200, SouthWare, or SYSPRO and ended up with a solution that would meet their needs far better than MarbleTech. However because these all-purpose solutions are not marketed specifically as marble solutions, the company never considered them as legitimate choices. 

Companies frequently get wrapped up in the terminology used in a particular product, or used to describe a particular product, and jump to the conclusion that product must be ideally suited for their needs. In many cases, it may just be fancy marketing or a little window dressing and nothing more. Yes, there are good vertical solutions out there, but my personal experience has been that the majority of them far well short of meeting the needs of popular well proven products.

YOUR Needs are NOT AS Unique AS YOU THINK

Many CEO newbies believe that their accounting system needs are unique. The reality is that the accounting system needs of companies of all industries and sizes have far more in common than one may think. For example, all companies utilize a trail balance with offsetting debit and credit entries. All companies receive bills that they must record, organize and pay. All companies must bill for their products or services. All companies have employees who need a periodic paycheck. All companies need to produce period profit and loss statements, balance sheets and general ledgers. In other words, the core financial system needs of all companies are basically the same. The differences between companies of differing industries typically amount to a handful of needs. For example, consider the accounting system needs of a doctor’s office compared to the accounting system needs of an attorney, CPA, or plumber.  The key difference is that the doctor must be able to print invoices in a prescribed format that is acceptable to Medicare, Medicaid, the Veteran’s Administration, and Insurance companies. This unique invoicing need can be met by an all-purpose product with good report writing customization, or by an all-purpose product with a health care add-on solution which prints invoices in the proper format.

Seasoned CEOs know to look for well-proven products that are well supported. In executive terms, a suitable accounting software solution will meet the following criteria:

1.       Well proven – used by tens of thousands of businesses.

2.       Stable product - well tested and nearly bug free. 

3.       Good underlying technology – developed with a top programming language.

4.       Good performance - runs on a top database.

5.       Good customization tools – allows the product to be tailored for specific needs.

6.       Good support – good vendor support in addition to knowledgeable local resellers.

7.       Backed by a strong company – in good financial condition and led by good management.

8.       Positive future outlook – The product is not likely to be acquired and put out to pasture.

9.       Strong offering of modules and features – Rates highly in the Accounting Library product.

10.   Strong financial reporting – Built in analytical reports, links to Crystal, FRx, and Excel.

Using this simple checklist, one can eliminate 98% of all vertical solutions because most are not well proven; most are missing modules and key features; most run on weaker databases; most are written in older languages and run on DOS, most have weak financial reporting, no customization capabilities, and no local support. As final nails in the coffin, most vertical solutions are not stable and they are not backed by strong companies with a positive future outlook.

Wading Thru the Options

According to an informal search of Internet web sites using Google and Yahoo!, there are about 500 all-purpose solutions on the market today. There are also between 3,000 and 3,500 vertical market solutions and approximately 2,000 third party add-on solutions in the marketplace. To further complicate matters, these 6,000 or so solutions target different markets ranging from entry level and mid-range companies, to high-end and tier 1 companies. With so many options, it is easy to see why customers are confused, frustrated, and intimidated by the evaluation and selection process. There is no need to be intimidated. Most of these solutions can be easily eliminated using the simple checklist provided above. In my opinion there are fewer than one hundred all-purpose, vertical, and add-on solutions that merit consideration.

The Problem with Vertical Solutions

You don’t need anecdotal evidence to see the problems with vertical solutions; a logical discussion reveals the key issues at hand. There are explainable reasons as to why vertical market solutions tend to be very poor options. For example, a vertical solution is by definition targeted towards a smaller industry. How big is the market for accounting software solutions for say – insurance companies? According to the 2002 US Economic Census, there are 170,795 insurance companies in the US. A software company would need to control 11% of insurance company market in order to build a sizable customer base of 20,000 users – an unlikely event. Compare this to the 7,000,000 prospective customers of all-purpose solutions. These solutions need just one-fifth of 1% of the market to achieve 20,000 customers. While difficult, the numbers suggest that an all-purpose solution is far more likely to succeed because they need not dominate a market to achieve this goal and thus ensure profitability and longevity.

This same principle affects the products’ dealer channel as well. While there may be a sufficient number of insurance customers nation-wide to support the product, there may not be enough insurance customers in many markets to support a reseller of that product. For example, a reseller in Macon, Georgia may evaluate the market and determine that with only 224 insurance companies in the area, there are not enough prospective insurance customers to support the sustained selling of an insurance accounting software solution. Based on this analysis, the prospective dealer decides not to support that product, and instead chooses to support and resell an all-purpose solution such as Great Plains instead. This type of reason is used daily by resellers to make decisions about the products they will and won’t support. As a result, reseller channels for vertical solutions are either non-existent or skinny at best. For this reason, most vertical market solutions are sold and supported only by the manufacturer of those products, or by only a handful of resellers.

This problem of a limited distribution channel gives way to another problem in that most customers want to buy accounting software solutions from a local company, so the company is nearby to provide support and personal assistance. The idea that a Macon, GA based company can be properly supported by a Phoenix, Arizona vendor or reseller does not produce a comfortable feeling for many of us. In this situation, many companies fear that they will not see the vendor very often once they have collected their money. For these reasons, many companies choose not to purchase products from distant vendors or resellers.

Evolution of a Vertical Solution

After more than 20 years of installing accounting systems, I have dealt with many vertical market solutions – and in general my experiences with vertical solutions have left a very bad taste in my mouth. In general, with only a few exceptions, I believe that vertical solutions are almost always the wrong way to go. Hundreds of companies concur – through my accounting software web sites and articles, I receive a high volume of complaints about "poor" vertical products. It causes one to ponder how vertical market solutions are created in the first place. To be sure, many products get their start as a home grown solution for a specific company in a particular industry. However, the following fictional story describes how many vertical products evolve:

Picture two guys in Tampa, Florida (Ralph and Joe) who own the rights to a “has been” accounting software product called Wombat Accounting. Years earlier a push had been made to create and sell this accounting package; however, due to missing features, missing modules, poor technological design, lack of a distribution channel, and the disappearance of investors – the product has all but folded. Because they have nothing better to do, Ralph and Joe go fishing for the day. On their journey, they come across a proprietor named Sam who owns a boat marina, and Sam explains “if I could find an accounting software product that would keep track of the name of the customer’s boat, the slip number where that boat was parked, whether that boat has been re-fueled, and whether the customer’s trailer is kept on the premises – I’d buy that product”.

Motivated by the prospects of making the sell, Ralph and Joe run back to their garage and work feverishly to add these requested features to their Wombat Accounting product. Weeks later they show up on the boat marina doorstep to demonstrate their product’s new “boat marina” accounting solution. Upon seeing these features, Sam shouts hallelujah and snaps up the product – “Presto”, a new vertical market solution for boat marinas is born.

Over the next several years, Ralph and Joe continue to add functionality to the Wombat Accounting product that is specific to the boat marina industry. They also adjust their promotional materials and verbiage to position their product as a boat marina solution. In reality, the newly improved product may indeed have some neat features for boat marinas, however the inherent limitations, which kept the product from succeeding in the first place are still there. For example many, many vertical market solutions suffer from old technology, proprietary databases, lack of financial reporting, lack of corporate support, poor performance on a local area network, no customization tools, weak security, higher price, full of bugs, and a host of other problems.

Despite the multitude of limitations, boat marina owners across the land continue to purchase the Wombat Boat Marina solution for two reasons. First, they erroneously assume that they should purchase a solution specifically built for their industry. In reality, they allow a few impressive features to sway them. As my friend David Hood (former President of ACCPAC International) likes to say, “You can put lipstick on a pig, but it is still a pig”. So true. The second reason that boat marina owners continue to purchase Wombat is that they are unaware of the product’s shortcomings until well after they purchase the system. By then it is too late, they have already married a pig.

Conclusion:

As described in this article, I am not a big fan of vertical market solutions. I find that while many vertical market solutions seem to be the best solution up front, closer inspect reveals many problems and weaknesses. I’ve heard many tales of vertical product nightmares, and I’ve experienced a few myself. In general, I think that customers should avoid vertical products. Yes, there are a few good vertical solutions, but 98% of them seem to be giving the other 2% a bad name. I’ve talked to hundreds of business owners who have told me about their nightmare experiences with vertical market solutions. In each case, three prominent phrases permeate their stories – 1) missing features; 2) bugs; and 3) “I’ll never do that again”. If you are shopping for a vertical solution, you might be well advised to proceed with caution and apply the 10 point checklist described herein.

Worthy Vertical Solutions:

I would like to go on the record and state that despite my criticisms mentioned above regarding vertical solutions, there are some vertical solutions that are excellent. The following products represent vertical market solutions that over the years seem to consistently offer stellar solutions – contrary to my aforementioned arguments.

• Serenic (Non Profit)
• Blackbaud (Non Profit, Donor Software)
• MIP (Non Profit)
• Shelby Systems (Churches)
• Deltek (Government Accounting & Project Accounting)
• Squirrel (Restaurants)
• Yardi (Property Management)
• Sun Systems (Oil & Gas)
• Timberline (Construction and Property Management)
• Tenant Pro (Property Management)
• Rent Manager (Property Management)
• Epicor (Manufacturing and Distribution)
• SYSPRO (Manufacturing and Distribution)