The problems at Clarify and the problems at Manugistics were similar in some respects, IMO. But CLFY stumbled at a much lower level of revenues so I consider their screw-up especially pathetic. It is quite difficult to handle hypergrowth and I would expect many blow-ups, especially in the sales rep world of software.
My only issue with MANU is the decision to blow-away Q4 by so much. It just doesn't make any sense at all to be attempting to execute your way through hypergrowth and not be more conservative with the accounting. These guys set a new high-water mark in stupidity with that one.
One analyst had many great comments on this one:
"It was not lost on management that a company in the forecasting and planning business should have better forecasts and planning - especially in light of the Q1 blow-out quarter which we've dubbed the "Look Ma, No Hands" quarter resulting in the proverbial 15 minutes of fame."
Reasons listed for shortfall include:
"a handful of sales reps can drive even a large company's fortunes. Manugistics only closes 30-40 deals a quarter with a sales rganization of 249 people (of which about half carry quotas and the rest are sales support). The top third of the salesforce usually represents the majority of license revenue for most enterprise software companies. If companies were forced to disclosed reliance on a single sales rep for more than 5% of their license revenue, we'd see a new paragraph in a lot of 10Q's."
"The company had 11 deals over $1 million (worth a total of $11.5 million) going into the last few weeks of Q1. None of those deals closed. The company believes 10 of those still deals are still good and two have already closed. The company has a total of 75 deals it is working for Q2 compared to 32, which closed last quarter. We estimate the pipeline is around $250 million. Of the 75 deals, 45% are in MANU's traditional CPG market and 45% stem from existing customers. The company has already been selected in some of these deals and is in the negotiation stage. Management believes the deals delayed from SAP's announcements (which were a minority of the transactions in the quarter) are back in the pipeline as prospects decided they couldn't wait to see specifications from SAP."
"Although there is never a great time for a stumble of the magnitude MANU just experienced, its best done if the market is still hot and the competition is limited. It is helpful to draw an analogy with the database industry. In 1990, all the leading vendors in the database market lost money as the market stalled as a result of immature products and the shift to Unix away from the DEC VAX. Because the underlying demand was still solid, several companies recovered and grew dramatically in the mid-1990s. Later the market slowed and Microsoft and IBM were in the mix as real competition, which is why Sybase and Informix are having a much tougher time recovering this go around.
Looking at the potentially large market for supply chain management (perhaps not as large as ERP) and the limited number of legitimate contenders (I2, Manugistics, and SAP), there is room for MANU to recover since we don't think the company has a product problem. The stumble reinforces common wisdom that I2 has the more aggressive sales force that can sell high whereas Manugistics has been selling plant by plant but has a larger base of satisfied customers in production."
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