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| Home - CEO Spotlight - Jul 03 Issue |
CEO Spotlight: Cyrus Hadavi, Adexa Software
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Angel Mehta:
What is Adexa doing differently now than you were during the bubble?
Cyrus Hadavi:
During 1999 and into 2000, our customers used to buy everything at the same time. We were focused on end-to-end solutions -- from business planning to shop floor sequencing -- and enabling our customers to collaborate with their customers and multiple levels of suppliers. Now the question for customers is "where is my immediate pain and what pill (application) can I take to give me immediate relief and ROI at the lowest cost?" This is
excellent for Adexa. We have scaleable applications to deal with specific pain-points, and they seamlessly integrate with our other applications when customers want to focus on their other issues. We have a lot more interaction with our customers today, in terms of meeting their specific short term objectives, and the relationships we build in the process serve us well in the long term.
The other thing is, we had a lot of people who had joined the company during the bubble economy...they just left school, and were highly compensated. They were given promotions very quickly...they were given a lot of stock options that obviously, at that time, translated into a lot of money. And when the bubble burst, all of that essentially went away. Educating our employees was a key challenge. Explaining to people that the bubble was just a dream – the reality is what we see today. We had to explain that to build a company, you have to make it through those tough periods – you have to be able to withstand the downtimes. It took us about 2 years to be able to manage people's expectations - some people accepted this; some people didn't. The good news is that people who are still here, they understand what it takes to build a great company. They're not here for short-term gain.
Angel Mehta:
Let's talk about the market in broader context...many people seem to concur that the enterprise software market is maturing – that the bigger companies really don't need anything beyond what they've already purchased. I want to ask you about that from a supply chain application context...Is that true? In other words, I understand that there are companies that are not happy with the applications that they've purchased, but does that make up the totality of the market, or is there an entire market out there that hasn't even begun to explore automating the supply chain?
Cyrus Hadavi:
First of all, people may have spent a lot of money on buying supply chain management or other types of enterprise software. But they have not really uncovered the value of what it has to offer. Most companies have bought supply chain planning for the internal operations of the enterprise. But the complete solution - a solution that can take demand from customers in terms of their sales planning, compare the internal constraints and then take it even further to the supplier base to see if they can deliver, and based on that cycle back to the customer and make commitments with regards to capacity....that is still a dream for most companies.
Another area where we see a bright future is to expand into the concept of what we call "Self-Correcting Supply Chains." Typically, you have hundreds – if not thousands – of suppliers. Typically, you have hundreds – if not thousands – of customers. You have thousands of resources, etc., so that is a lot of data....a lot of signals coming at you. The real question is: How do I detect trends? How do I detect exceptions? For example, let's say a supplier commits that they deliver in under 10 days, every time. You examine the supplier over a 3-month period, and you realize that 95% of the time, they are delivering in 8 days. Well if a supplier is really delivering to me in 8 days, 95% of the time, I am in a position to adjust my supply chain model. I can now commit faster to my customers because I know I can get the stuff inside my enterprise 20% earlier. Not to mention, my inventory is lowered because instead of 10 days, they deliver in 8.
Better customer service at lower inventory cost is the simple result of monitoring a trend. That's what I call a self-correcting supply chain – where a company can collect the appropriate data, watch for trends, and when a threshold is crossed, use that information and tell the relevant constituents about it. It's a huge segment in and of itself.
There are thousands of pieces like that. Another untapped market is the smaller and medium-sized segment. When you look at countries like China, India, or Russia....or down the road – 10 years from now – the Middle East, despite the current political environmental situation, they have a lot of manufacturing, and we haven't even touched any of those places.
Angel Mehta:
One of the things that we try to get every CEO to do with the Sterling report is share 3 key mistakes that they could think of that they've made or the company has made over its history...Can you comment on that in your experiences at Adexa?
Cyrus Hadavi:
Sure. One mistake was that I should have raised money a lot sooner. I boot-strapped Adexa for the first 3 years. We were profitable, so I didn't see the need for financing at all. But not raising enough money caused us some headaches down the line because Adexa was not as well known as it could have been and didn't generate as much marketing hype as it should have. So that would be my Number One mistake. The second mistake has to do with not raising enough money when we finally did go out for financing. I was very thrifty about how much money was needed...in retrospect, that may have been a good thing – but early on, I think we could have expanded a lot faster.
Angel Mehta:
You talked about the opportunity overseas...how far as Adexa pursued the international market to date?
Cyrus Hadavi:
We are very much diversified that way. About 40% of our revenues comes from Asia. We are very strong in Japan...We have pretty much all the blue-chip electronics companies in Japan. We have 25 customers in Taiwan...a number of installs in Korea, an office in Singapore and we have just opened a new office in Shanghai. The international exposure has really helped us afloat in a tough North American market.
Angel Mehta:
Interesting. How did it come to be that such a large percentage of the revenues have been from international?
Cyrus Hadavi:
It was very simple. I went on a road trip with a partner to Korea and Taiwan. I had a big HP work-station at the time, which I put it in a suitcase with some home-made padding....and I just took the suitcase, went around, and gave demos. We managed to get 1 customer in Taiwan – the 2nd-largest foundry in the world (UMC) as our 1st customer. In Asia, it's an interesting environment. They are very detail-oriented, not to mention consensus-oriented. That want to see lots of substance...they take their time – sometimes up to 6 months of very detailed demos. They're not as open as we are in North America to sales and marketing hype. But once they buy into an offering and the technology works, word of mouth travels really fast. The way it works in Asia is, if you have 1 bad customer, you might as well just leave the island. But with very little marketing at all in Japan, our average sales price was $1 million in software – it still is.
Angel Mehta:
Did the high cost of sale pose a problem for you?
Cyrus Hadavi:
When we expanded, it was originally through our partners in Japan. In Taiwan, we had 1 or 2 people who went back and forth to make the sales there. But as soon as we had a couple of happy customers, we decided to make investments in those areas and watched it very carefully in terms of how we are doing, how many people we are adding, and so on. I think it was a good strategy. We did exactly the same thing in Singapore where our 1st customer was Chartered Semiconductors and Chartered is the 3rd-largest foundry in the world. Our first customer in Korea was Samsung, Plastics Division. The approach we've had is, first get a customer, and then make additional investments and grow. In China, given the potential that the country has to offer, we had 1 person on the ground for the past 2 years doing business development and building Adexa's reputation and mind share. Just 2 months ago, after 2 years, we in fact went ahead and spent some money opening an office and making the investment, etc. But we have taken a very careful approach in how we approach these markets because it can be very expensive. In Europe, unfortunately, we have not been as successful. I think maybe going back to the mistakes that we made is that we treated Europe as a kind of United States of Europe, and we felt that by putting our people in 1 or 2 locations, we could go after every region in Europe. That was a big mistake because the French, for example, they want their own vertical integration team. Germany wanted the same. So it was a very expensive learning experience for us in Europe, even though at some point in time, Europe was about 20% of our revenue. But for the past 4 years, it has been a huge drain on our expenses. Recently, we decided to cut back.
Angel Mehta:
Would you start an enterprise software company in today's environment?
Cyrus Hadavi:
Absolutely. There is an incredible amount of opportunity right now to add value. If you look back at the early 1990's, the world went through pretty much the same kind of setback as far as enterprise software is concerned. Up to about 1993/1994, there wasn't much activity. And then, all of a sudden, the supply chain market took off.
The early 1980's were a downtime and then in the mid-1980's, it started to take off again with enterprise software. Before that, there was this concept of, "Don't concentrate on a machine; concentrate on the factory." That caught on for a while, and now we're in the next phase. For the past 70 years, we've gone through a focus on the workers, to a single machine, to a single factory, to the complete enterprise. But the supply chain is just a small piece – now we're talking about what I call the trade value network – which is a huge opportunity. This problem of B2B – Business to Business planning – it's a huge, huge problem that most companies haven't even thought about. They talk about transactions, or they talk about exchanges and sending messages back and forth. But the problem of modeling connected companies - you have finances, you have banking, you have insurance...transportation...and your suppliers!! All of these need to be connected at the modeling level – not just as at this transaction level. Maybe I get so excited because of my domain knowledge here, but it represents a huge opportunity. People always have a tendency to think that the current reality is going to last forever. But that's never true.
Cyrus Hadavi is Chief Executive Officer of Adexa. To send feedback to Cyrus, email: chadavi@adexa.com
Angel Mehta is Managing Director at Sterling-Hoffman, a retained executive search firm that focuses on VP Sales & VP Marketing searches exclusively for enterprise software companies. To send feedback to Angel, email: amehta@sterlinghoffman.net
 
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