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Consona’s Growth Strategy: Franchising, Not Fusing

Blog post by on October 16, 2007 Editor's Pick No Comments

Consona CEO Jeff Tognoni says the ERP/CRM software maker’s mission is to be “your partner in ongoing business process improvement.” What that statement lacks in sizzle the company aims to make up with solid execution, according to executives at Consona’s user conference (Oct. 11-12 in Orlando).

Consona is the new brand name for M2M Holdings, a company that got its start by acquiring and privatizing ERP software firm Made2Manage in 2003. Since then, the company has embarked on an aggressive grow-by-acquisition strategy, buying up ERP software companies serving manufacturers, along with CRM vendor Onyx, and SRM (Service Resolution Management) vendor KNOVA. Consona now has 10 ERP/CRM brands used by 4,300 customers, with over 600 employees in 40 locations worldwide.

Onyx, you may recall, was caught in a bitter 2006 tussle between CDC Software and M2M Holdings. Earlier this year, M2M acquired KNOVA, then re-branded as Consona and formed Consona CRM as a business unit to include Onyx and KNOVA.

Looking for “Franchises”

I was curious to learn about Tognoni’s strategy for the acquired companies. Some “roll-up” ventures are CA-like financial deals whereby the parent company cuts costs and squeezes revenue out of aging product lines (what Tognoni calls “dead platforms”). But little is done to invest in the continued development of the “children.”

That’s not the case at Consona, says Tognoni. They intend to buy companies with a strong “franchise” in targeted markets, gain some efficiencies with shared services provided by corporate (e.g. back office and marketing), and grow each business profitably. Rather than migrating all applications to a common system like Oracle’s Fusion, Consona will keep the applications independent and focused on their target markets.

The fact that Battery Ventures is the main money behind Consona lends credence to this approach. Tognoni says that Battery has invested in some 200 software businesses and strives to build value. Other sources told me that Battery’s involvement signals Consona’s potential as a billion-dollar software firm.

Operating as a private company can be a blessing, especially with strong financial backers looking for long-term results. As Tognoni noted in a press release about the KNOVA acquisition: “As a private company within the Consona family of companies, KNOVA will be free from the constraints of being a public company and have improved access to investment capital for strategic initiatives.”

Customer Intimacy

The term “customer intimacy” was used quite a lot in presentations, discussions and interviews. At Consona, that means more than good customer service. Tognoni, CRM General Manager Pete Strom and other execs painted a picture of helping their customers take steps towards “Total Customer Management”—their term for a customer-centric strategy driven by the desired customer experience.

Furthermore, they say it means taking a more customized approach to software solutions. For the most part Consona’s ERP and CRM solutions are conventional installed software, which, they say, will offer more customization than is possible with SaaS/on-demand solutions trying to serve hundreds or thousands of customers on a single platform.

In the ERP space, Consona has a growing group of specialized “industry solutions”—each with its own general manager with P&L responsibility—that fit manufacturing micro verticals. This gives them an edge when competing with larger vendors (e.g. SAP) selling more general purpose ERP.

Growth, But Not at Any Cost

Consona has been growing fast, increasing from $80M in 2006 to a projected $140M this year. Tognoni says there are 30 application categories with around 200 vendors under analysis. And, he hinted that bigger acquisitions might be in the works.

But he also made it clear that acquired companies must fit their model: be a strong (“franchise”) player in their market, run on a Microsoft technology stack (with rare exceptions), and be available at a reasonable price. Tognoni says they are “exceedingly conservative” on acquisitions, not betting on cross-selling or other synergies to justify a price.

Onyx as Siebel Alternative? Maybe

Before the M2M acquisition, Onyx managers told me they felt Onyx was miscast as an SMB vendor, competing with the likes of Pivotal, SalesLogix, and Sage. Rather than being positioned at the high end of the SMB market, they’d rather be positioned at the low end of the enterprise space as an alternative to Oracle’s Siebel solution.

With the large enterprise vendors dwindling to the Big Two (Oracle and SAP) followed by all others, it seems to me that there’s an opportunity for a strong No. 3 to develop. Can Onyx be that vendor?

Before the acquisition, I’d have said “no.” Not because Onyx software can’t support enterprise-class deployments, but because the company was under funded and lacked credibility with large enterprises. Now, I think they’ve got an honest shot. Tognoni says they recently won a large deal in a head-to-head competition with Oracle/Siebel, with “thousands of seats” to be deployed. KNOVA also gives Consona an entrée into big enterprises looking for robust knowledge management and SRM.

Betting on Microsoft Technology

Consona is banking on Microsoft to be its platform provider of choice, and does not intend to join the platform wars like Oracle, SAP and now Salesforce.com.

There is one notable exception today: KNOVA, the SRM product in their CRM business unit. VP of Product Management Tim Hines says managing unstructured data is a task better suited to the Java technology stack used in KNOVA. Instead of recoding to Microsoft .NET—the long-term direction for Consona products—they’ll concentrate in improving integration with Onyx.

Consona CRM is also planning to focus exclusively on IE as the web client. Usability will be enhanced with more AJAX support and use of Microsoft’s new Silverlight technology (an alternative to Adobe’s Flash) for Rich Internet Applications.

Slow and Steady Wins the Race

The software industry is known for sound-bite executives that dis their competitors. The culture of Onyx was quite different from the beginning in 1994, because co-founder Brent Frei had a vision for a customer-centric solution sold in a customer-centric way. The contrast couldn’t have been more pronounced between Frei and hard-selling executives like Tom Siebel.

Pete Strom, part of the Onyx management team in the early days, left after the tech bubble collapsed, leading to Onyx losing customer focus while trying to please Wall Street. Onyx struggled along through management changes and questionable shifts in strategy like ditching “CRM” in favor of the smaller but faster growing BPM market. Don’t know what BPM is? Don’t worry, very few did.

Well, Strom is back, and he, along with other Onyx managers, see Consona’s culture as a return to Onyx roots. With the maturation of the enterprise software in general, and CRM software in particular, it could be just the right time for Strom to show that customer-centricity is not an oxymoron in the software business.

Challenges Ahead

Only time will tell if Consona management can execute to the vision they have set. Talking about “customer intimacy” sets the bar high for service/support. Some attendees told me there is plenty of room for improvement. I also think that the alternative-to-Siebel positioning is smart, but the Microsoft stack will limit opportunities in big enterprises.

While the more general purpose SaaS model doesn’t fit their approach to product differentiation, Consona appears to be ceding the SaaS market to others. In the ideal world, Consona should offer an “easy on” SaaS option, with an equally simple transition to an on-premise solution with full customization. Not everyone is mature enough to appreciate the longer-term advantages of an installed system.

The Consona brand strategy is a work in progress, too. Keeping the industry brands intact is a good move in the short term, but I wonder if this will work as their portfolio grows. It wouldn’t surprise me if they adopt a Sage-like approach in a year or two, whereby they link a solution brand to the Consona mother ship. For example: DTR by Consona, Onyx by Consona, Intuitive by Consona.

Watch This Space

Consona has a seasoned management team and good momentum in its grow-by-acquisition strategy. While Consona won’t out-feature Siebel in the CRM space, beat SAP for general purpose ERP, or out-hype Benioff (who can?), that’s not their game plan.

Stay tuned for more acquisitions and the verdict on whether Consona’s conservative, customer-centric approach can build a software powerhouse. So far, it’s looking good.

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