How to Build A Sustainable ERPNext Business

By Rushabh Mehta September 5, 2017 Community 10 comments

As the ERPNext community grows, I have had the opportunity to talk with a lot of community members, on how do they build and grow a sustainable business around ERPNext.

Death by Apps

Most of the other eco-systems for business software survive by giving the opportunity to developers to build and market their own apps. Most of these apps are not really open source (there is no source published) and there are obvious problems that we have discussed elsewhere. (To summarize, fragmentation of the ecosystem and bad user experience for someone who wants to use or maintain functionality inside an app). So we have decided not to promote paid extensions or apps within the ERPNext ecosystem.

So how do businesses make money?

$100 Billion Industry

The global ERP + CRM + E-commerce software industry is worth more than a 100 billion dollars. Most of the companies providing products and services are hugely over-priced and a large majority of them have incomplete products make money by selling the sames missing parts over and over again. ERPNext is well positioned to disrupt this industry. As ERPNext vendors, we bring in change and freshness to the industry, but that change must also have a familiar face. This starts by pricing the ERPNext services at par with other products.

If someone is consulting a business on an ERP system, that is willing to spend say $50,000 on a paid ERP system, like MS Dynamics, then the price for ERPNext should not be lower.

Show Strength and Confidence

By pricing ERPNext services at a discount, customers will have a negative perception of the product and the vendor will be written off as "immature" or "folksy". Any vendor pitching ERPNext must position the advantages of ERPNext (extensible, customizable, on-premise, zero license) and not the fact that is is free or open source (that education can come in the second or third call, at which point the customer must be amazed). A customer willing to pay more than $50,000 is looking for a dependable partner to their growth, and that is the story that needs to be sold. ERPNext vendors must be partners to their customers, not just someone selling a cheap version of another product.

Ultimately we know that all ERPs will be open source, but until that happens, we must position ERPNext as a professional product. Where we win is that with the same ticket size, we can deliver so much more value to the end user. We can offer deeper integration with APIs, Portals, better usability that proprietary ERPs will never be able to fulfill at the price because they are structured that way.

We need to attack the structural weakness of the industry, that is dependent on license fees, out-dated technology, bureaucratic processes, demotivated software developers and over priced sales people.

Price vs Value

A lot of people are attracted to open source only because it is free. If you find that a customer is only talking about pricing then that is not the right customer. In the ERP world, just like the real world, customers must invest before they can reap rewards. A right customer is someone with whom you can partner with and grow along with their company. It is best to leave very small projects to freelancers who are better placed to serve them.

If you are a potential end user, looking for an ERPNext partner, first identify what are the outcomes you expect from your erpnext implementation. Say you expect your sales to grow by 30% and profit by $100,000 by the end of 3 years, then you should be in a position to invest a part of that profit into your ERPNext system. Investing $50,000 with an ERPNext partner will go a long way for you to achieve that growth and maybe more. On top of it, you will see amazing returns and improvement in the quality of your products and services. 

If you are an ERPNext partner, the way to start the conversation is to define the outcome. If the customers says, "I just want an ERP system", that is not an outcome. That is a solution to some unspecified problem. The key is to help the customer identify the pain areas they are looking to fix, and then help them fix it. Talking about pricing before talking without defining outcomes is like putting the cart before the horse. Once the outcomes are identified and quantified, the "value" of the product will be clear and then talking about "price" will be an easy discussion.

Not only that, well defined outcomes will help you steer the implementation process and leave you with a very happy customer.

Be Community Friendly

Ultimately, as a partner, your source of strength will be the ERPNext community. The community is both a source of freelancers you will be able to get work done on demand and also showcase your public profile. The stronger your community profile, the more likely you are the consultant of choice for new customers.

We as Frappé Technologies have chosen the 100% open source path and we see the community as our biggest strength. Our long term ambition is to be a small but high quality producer of open source software. We know that even if we get 1% of the total revenue generated by the ERPNext ecosystem, it will be more than enough for us.

The other 99% is on the table. Are you strong enough to take it?

Rushabh Mehta

Rushabh is a software developer and founder of ERPNext. He usually writes about the startup experience, open source and the technologies he is working on.

Concerned Prospective User September 7, 2017

Rushabh, I tested ERPNext in my firm for almost 2-3 months. I will share my experiences here. You guys have achieved a beautiful base which is simple, logical and has great scope for expansion.

When I first started off I hired a consultant. I remember having a discussion with him over ERPNext vs Odoo. He actually recommended me to use OpenERP 7 community version (old version of odoo) over ERPNext simply because according to him with both platforms his customers would eventually reach a level where custom apps would be required. There were many apps readily available for OpenERP and that would cost much less in time and money to integrate.

The major reasons I chose ERPNext over the OpenERP, was because it was - 1. Simple to use and lighter on resources - It felt snappier, lower loading times, etc. 2. Simple enough to do basic customizations - such as adding a field to any form. Small firms are dynamic and there's constant change in processes and requirements. 3. Great community - Very active and helpful

Despite the great framework, I found a lot of basic features missing or in development. While in trial, I tried to get help from ERPNext partners to get a small customization done and was quoted an amount close to $2000. I was getting an independent application in the market for $300 which had established itself over 10 years and could be used independently and were willing to do syncing with any database for an additional $50.

My concerns - 1. I interacted with a few ERPNext partners. Most of them already had developed & implemented 80-90% of what I required, which I was ready to accept and use as it is, but were charging exorbitant amounts to do the same.

  1. Getting basic support was EXPENSIVE!! Take for instance $250 for running a one line of bench update. That too without any support included if anything goes wrong after the update!!

For an end customer like me spending $2000 for the above feature/customizations would have had an ROI of over 3 years! Didn't make much business sense and I didn't go through it. The real problem was, there were hundreds of such features that are still missing/under development and the issues have been and will be never ending! Although most of the partners had them ready they had them in custom apps, that would mean in-spite of paying the amount I would not be guaranteed future updates.

Now, I see this as an opportunity for developer eco-system. Add a bounty to each issue, get users & system integrators to support the bounty and add new features to the core. This way the core can grow much faster rather than multiple developers working on iterations of the same thing using custom apps on their own.

Another idea would be to have a separate paid branch of the code with additional features/domains that users/developers can subscribe to. The subscription revenue can be used to sponsor bounties.

It basically boils down to how you want to achieve your million $ annual sales - $1,000,000= $100 x 10,000 users or $1,000,000= $1000 x 1000 users or $1,000,000= $10,000 x 100 users

Frankly, ERPNext has great potential to be a mass market product for smaller firms rather than competing for an already populated marketplace of larger enterprises. As you rightly mentioned in your article, it has the potential to be a great alternative to the bigger ERP players eventually, but it will depend on how fast the feature-list and user-base grows.

At the end of 3 months, as an end user I don't see sense in paying exorbitant amounts for adding basic functionality to Custom Apps that might break in the future. It ends up becoming more expensive than getting a fully functional established system which is well tested.

There must be some model where developers and partners get their fair share and the core grows at a faster pace!

Well done so far!

Rushabh Mehta September 10, 2017

Hello Concerned User,

If you want to talk about your issue more, drop me a mail at rushabh at erpnext dot com

Robert Becht September 10, 2017

Great blog and great comment. The comment confirms what I have noticed following and using Erpnext for 6 years now....In the mailing list I have come across many comments of developers claiming that they has such or so developed...rarely I have seen this back in the core.Frappe is religiously free and open source...It seems that there are ERPNEXT consultants who have a different business model, the one referred to by Rushabh......"and a large majority of them have incomplete products make money by selling the sames missing parts over and over again." ....I am not an expert on licensing...but understand that extention made to GPL v3 code by definition is open as well

Rushabh Mehta September 12, 2017

@Robert, you are right. The service providers have an incentive not to give back contributions since they can monetize them again and again. This is not only against the GPL license but also against the spirit of open source. Let us hope that the problem of not being able to upgrade is a strong incentive to keep contributing fixes.

Felix September 14, 2017

I mentioned some points about incentivizing service providers in the discussion earlier this year about custom apps. If there is a stronger highlight or focus placed on "responsible" service providers, things will improve. Until that happens, the situation we see now will continue.

My comment is available here:

Grynn September 29, 2017

I dont think the service providers "need to be incentiviesed". They have their existance thanks to ERPNext. It is like taking care of ones parents. The incentive part was done and dusted when they gave birth and raised. Now it is pay back time.

As part of building a culture, we need to ask people to take a Pledge of Honor. It is not a contract. But a pledge or an Oath. To give back every line of code. Maybe give a 9 months gestation period when they can monetize. But then it has to come to the core.

Rushabh Mehta September 29, 2017

@Grynn, thanks for writing this. Sometimes I feel I am fighting a lonely battle on this one. Hope more people on the forum start calling out that this is the direction we are going. I have a feeling that if we can make this happen, we can create so much value for the community.

Grynn October 3, 2017

Have you thought about "Cease and Desist Legal" notice to enforce open source? Send a letter privately (from the foundation). If you don't hear from them, publish it here! Name and shame is the stick part of the "carrot and the stick". Carrot being the ERPNext software itself.

Rushabh Mehta October 4, 2017

@Grynn, I think more than a legal solution, we should create systems that drive contributions. Ultimately users must value that being able to consistently upgrade to the latest version is a good enough reason to push changes to the core. I think the public betas might be a good "systemic" solution to this problems.

As far as legal recourse is concerned, there are a lot of non profits like that can be activated at the right time.

Tropicalrambler October 6, 2017

I agree with the core absorption aspect. I understand that many customizations are the intellectual property of those who designed it. But in ERPNext's case, every custom app you make, depends on ERPNext. One can clearly charge for every customization, but having been on both sides of the issue, I can tell you that as an entrepeneur, it is discouraging to be charged everytime you need to change something. As a service provider, it is true that you can monetize over each mplementation of an app. However, it fails to respect the decisions of the business owner or manager. It "forces" him or her to be at a disadvantage. It thus discourages further software use, and again, companies fall back into the tedious and difficult task of integrating all the information they need to make proper decisions.

I prefer to establish a long term partnership, help the business owner focus on doing those things he or she needs to be doing: Selling their product or service, improving on that product or service, reducing those costs or value drivers which limit the economic value generating capacity of the business.

We (they) should no be spending precious time in the managerial duties beyond what is absolutely necessary and sufficient. ERPNext and the custom apps, plus its ecosystem provide, at a steady growing pace, the benefit of a robust platform that is cost effective, on which a business owner can have certainty over their business/accounting/inventory/customer data and make decisions that will improve value over the long run.

The benefits derived from this will be felt by individuals and radiate to the overall economy, increasing the available wealth, which in the long run benefits all people. I hope to share some of these ideas at the conference, and how I am basing our applications for ERPNext on the concept of Generated Economic Value.

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