Conversation with RootstockIn August 2022, Gryphon Investors acquired Rootstock and handed the CEO role to David Stephans. Stephans has been at Rootstock for several years and will give the company the consistency it will need as it looks to grow far faster than it has done in the past.

Stephans has already strengthed the leadership team by hiring Raj Badarinath as Chief Marketing and Product Officer. Expect to hear more from the manufacturing ERP company in 2023.

Enterprise Times caught up with Stephans late in 2022 to find out what has changed. I first asked him to give a short pitch for Rootstock.

“The real benefit in differentiation in Rootstock is our offering for clients. Modern connected cloud technology on a robust manufacturing, distribution and ERP supply chain product from a capability perspective. It’s really marrying the future of cloud technology together with some of the more legacy-like depth of capability that players that have been in this space for 30 to 40 years typically have, but they’re challenged with modernising their application stacks to meet the connected demands of, their customer’s customers, suppliers and supply chain.”

The company is growing and has around the 200 customer mark. It will be interesting to see how quickly it now starts to add customers with a growing partner ecosystem. The growth rate is high, according to Stephans.

He added, “Our annual recurring revenue growth, not including single, one-time services or implementation services, is close to 50%. From everybody we talk to, from an analyst perspective, that’s outpacing the market by anywhere between 7 and 9% over the course of the last 12 to 24 months. We’re pretty proud of that growth rate, and we think it reflects the products and services we’re bringing to market.”

On vision

What is your vision for Rootstock?

“My vision for Rootstock is focused on growth. We feel we have a great solution for a market with a ton of need. You’ve seen us through this evolution over this first decade of the business. For the first five years, we were really product focused. Bringing a robust product capability to the market as we built out a next-generation cloud technology platform with our partnership with Salesforce.

“The last five years have been spent figuring out how to take that product to market and accelerate growth. This next five years, ten years as we look at this business going forward, is all about being in the market and realising that accelerated growth.”

What is the target market?

“In the early days, it was a lot of SMB customers. A decade ago, manufacturers were much more comfortable with servers in the closet than with true cloud solutions. As the market and the mindset have matured, in particular, throughout the past almost three years now with the impacts of COVID, people are more aggressively adopting cloud and digital transformation initiatives.

“We’ve continued to move up-market as the market mindset has matured around cloud adoption. Today, our bread and butter customer is a mid-market manufacturer. We certainly have great enterprise customer names like Triple A, Intel, Hyundai Motor Corporation and Boston Dynamics. But our bread and butter still sit in that mid-market as we continue to scale up and capture more growth markets that continue to scale up in front of us.”

On product

What’s on the product roadmap?

“On the broader front, we’re looking at a few strong industry plays where we have strong penetration to date within the business. We’ve seen pretty good success in areas like med device manufacturing,  cannabis, and high-tech industrial, like the robotics space. Other industries, like solar, have been up and down a little bit from a market perspective. But, it’s been a strong customer base for us. We’ll launch some initiatives around industry-specific growth in those categories.

“Alongside that, Salesforce continues to make tremendous plays within manufacturing. They launched their re-strategisation of manufacturing, including automotive and energy, what they call MAE, with their new fiscal year back in February. They’re doubling down on their investment in this MAE vertical overall. Being a strong partner for them, we’ll continue to look for product opportunities to be alongside Salesforce and extend their front-office offerings with our back-office capabilities.

“We’re not wholly focused on Salesforce. We continue to see significant growth in bringing new customers into Rootstock that aren’t Salesforce customers on a ratio basis for the business.”

On international expansion

Per Norling, who used to head EMEA operations, seems to have retired. What is happening around Europe and Asia?

“Per decided it was the right time to move into his next phase of enjoying life. We are evaluating a stronger investment and stronger focus on certain geographies. If you look back historically, we’ve taken a pretty broad approach to our international or outside North America approach.

“We feel that the right approach going forward will involve focusing on Northern Europe. Also, in the countries where we’ve had success and built customer bases, like Japan. Where you’ll see growth focus from Rootstock internationally is probably in those two geographies.”

On partnerships

Besides the Salesforce relationship, there seems to be a growing partnership with Workday. Rootstock attended Workday Rising. What is the nature of that relationship?

“For the past three years, the focus for Rootstock has been helping Workday compete in what I’ll call physical product-oriented opportunities. Workday found the desire to continue to grow their industry opportunities where they can focus their HCM, and financial product plays into those physical product companies.

“I wouldn’t say manufacturing is necessarily the core. Many of the joint deals we’ve done with them focus on industries like high-tech and education. Where there are still physical products involved and where they need complementary physical product capability to compete with other ERP players, they typically ring Rootstock

“Rootstock is bringing in the capabilities of supply chain planning, material planning, inventory management, costing, procurement, order management, and fulfilment. All the aspects that a physical product company has in terms of business requirements differ from a human resources-oriented services company or a company that doesn’t have physical products. We do connect to their financials with a productized integration.”

What have you achieved this year?

“The Gryphon acquisition is the big highlight. A lot of time and effort was invested in that process. Through the end of Q2, we hit all of our revenue and growth targets, despite the market conditions. We’ve outperformed on what I’ll call retention and customer growth from the in-house customer base.

“An independent third-party assessment was done as part of the acquisition due diligence. They did a detailed survey of most of our customer base; our NPS score was 38. That is unheard of in the ERP space. They’ve said that we can go ahead and use that number, citing an independent third party.

“We’ve talked to other executives within the ERP space, just through growth and having conversations, and they would have killed for an NPS score of 15. We’re changing the game and putting a lot of pressure on our competition to match that service level within the space.”

“Also, in early May, we had Rooted In, our inaugural customer event. We picked a good time for that event coming out of COVID and had about 40% customer base participation in Austin. It was phenomenally well received. At the end of the day, I think the Boston Dynamics robots stole the show.

“For many people, it was their first major corporate outing post-COVID. The timing worked out great. The venue was phenomenal. It was great to be there with the customers, and I think it built a lot of goodwill and face-to-face relationship building.”

On the future

What do you hope to achieve in the next six to 12 months?

“What to achieve has morphed with the new partnership with Gryphon. It’s allowed us to accelerate growth. We are building out more of a senior leadership team. We’re going to add more go-to-market resources. We’re bringing new capabilities, resources, funds, and opportunities into marketing and sales organisation. And we’re going to amp up our partner network as well.

“We’ve been moving more and more towards working with systems integrators and third parties to help with implementation and create that go-to-market sales and marketing flywheel with those partnerships.”

The Gryphon impact

What does Gryphon bring to the table beside the funding?

“We went through an end-to-end ten-month process. The first step was to evaluate who would help us through the process, and we landed with Lightning Partners, who did a phenomenal job. They’re a mid-market, SaaS-focused investment banker. We talked to everybody and their brother on the potential investment front, strategically and through the financial markets, more of the PE type of investment community.

“We landed on Gryphon. They just checked all the boxes for us as a great partnership to move forward with. They are more of a financial investor, given their PE focus. Interestingly enough, they’re making a big push into software. They have a lot of portfolio companies, industrial companies, manufacturers, and otherwise. These will be potential Rootstock prospects in the future.

“As a private equity investor, they’re not the investor that changes the executive team and puts in their people. There is also not the investor that shows up at quarterly board meetings, and if you hit your number, they check the box, and they’ll see you next quarter. They’re in the middle, and that brings us a strong operations team. They have strong executive sponsorship aligning with our executive team to move the needle on these initiatives for growth over the term of this relationship with Gryphon.

“For instance, people like Paul Margolis, who ran the Marcam. They are operational advisors, and they sit on our board. They’re helping us from an executive support perspective to make this successful growth launch as we move forward.”

Do you have plans for acquisitions?

“We do. Gryphon is an add-on-focused acquiring entity, meaning that as a PE, they make a cornerstone acquisition like Rootstock in the ERP space. Then we begin evaluating what other capabilities would bring a pure growth opportunity to the overall business and Griffin’s portfolio.

“We started immediate conversations with several entities that would make good strategic additions. There’s some focus on potential Salesforce native application technologies that complement Rootstock in terms of our manufacturing and supply chain distribution focus.

“Then, there are other capabilities. Hypothetically, something like MES, more shop floor automation capabilities, or IoT where there’s really not a strong incumbent native to Salesforce. You could look off the platform for that capability, which would be a natural complement to what Rootstock does in the ERP space.”

On challenges

What are your challenges?

“The initial short-term challenges are really managing the opportunity for accelerated growth ahead of us. We’re doing some executive team expansion, building out our team of expertise. Staying able to leverage that high growth rate we have as a business while growing at the same time. People always say it’s a challenge to continue to hit extending growth rates over time as you grow a business and it gets larger and larger.”

Priorities

What is your priority at the moment?

“It centres around two things. One is continuing to engage in that customer culture. What we’ve done on the customer success side of the business has been enormous for us in terms of just continuing to build great relationships and great referrals. A great name out there in the marketplace from a customer perspective. When you get the kind of world-class retention metrics that Rootstock has right now, you need to continue to challenge yourself to improve those.

“Secondly, some of those more strategic answers in the near term around are we going to do M&A? How is that M&A going to fold into the overall growth strategy? I mentioned on the product side, which one of those industry focuses we will launch with quickly to continue to help the vertical industry as a growth contributor overall to the business.”

The book question

What was the latest book you read? What was your takeout for business from it?

“It was a reread for me, the OKR book (Measure What Matters: OKRs – The Simple Idea that Drives 10x Growth by John Doerr, Amazon (Aus, UK, US)) that talks about how to create a measured approach to initiatives within the organisation. I read it intentionally because of the next phase that we’re going through and how we will put in so many improvement initiatives. The big takeaway I got from it was I knew the concepts of OKR and the fundamental benefits and how they came about. It was really hearing the stories.

“I listened to it in audio form this time around. It was really powerful hearing the voices of the different people who participated, from Apple, Google, and many other companies within the book. To ground me back into the mental framework, we’re going to go through another strong growth-oriented push. We’re going to use objectives and key results as the model to get us there and just getting a refresher on that was was beneficial in the John Deere book.”

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