Factory Software from Wine Country

It began over dinner. Nancy and Randy Flamm, who worked for competing suppliers of materials to small manufacturing companies, were out with a shared customer who wished that his factory had the kind of MRP and ERP software that large manufacturers had. Randy sensed opportunity: As production manager at a small manufacturer in the early 1980s, he had written his own software for inventory and scheduling. In short order the Flamms quit their jobs, took a second mortgage on their house in Los Angeles, and launched IQMS.

They had 100 customers within a year.

The innovations came quickly. Randy converted his software to the newly introduced Windows platform, creating one of the first Oracle-based client-server programs for small manufacturers. Then he connected the application to factory equipment so that the machines automatically sent operating information to a data warehouse. Next, he linked the warehouse to back-office financial and human resource systems for the industry’s first end-to-end solution. He changed the whole game by delivering comprehensive views of factory performance in real time.

Now IQMS enabled small factories to do what the big ones did: monitor operations moment by moment around the clock, adopt lean principles, organize just-in-time supply chains, cut downtime with proactive maintenance, and determine production cycles and unit costs within minutes and cents.

Growth and Challenges

With growth came both challenges and opportunities. The Flamms had moved IQMS to Paso Robles, a wine region midway between Los Angeles and San Francisco, which made them one of the handful of high-tech companies near mid-state universities such as California Polytechnic University (“Cal Poly”). But then Silicon Valley began attracting talent from those schools, and the Flamms had to get creative with their recruiting. One tactic was doing interviews on local talk radio, encouraging parents and grandparents to tell college-age kids that Paso Robles had its own high-tech employer.

Meanwhile Randy was the company’s CEO, CTO, and software designer, and nearly everybody in the company reported to him. Nancy, the controller, pulled in her brother and his wife to run sales and marketing. When the Flamm’s babysitter Shannon Holloway showed interest in IQMS, they discovered she had management talent and hired her, too.

At the 20-year mark, IQMS had annual revenue of $35 million, no debt, a strong competitive position – and the Flamms were turning down dozens of investor inquiries each year. When they decided to recapitalize in 2014, one company stood out. “TCV was heads above everybody else,” Randy Flamm says. “We spoke the same language, and everything they ever said was exactly what happened.”

Strong Partnership

“IQMS caught our attention well before we invested, because of our experience with other founders who achieved the same kind of technological and competitive breakthrough,” explains Jake Reynolds, general partner at TCV who led the investment with fellow general partner Kapil Venkatachalam. “We weren’t worried that they had taken little or no outside investment, because that meant they were going to judge us based on what we could do for their business, not the size of our check.”

TCV presented a roadmap for moving IQMS toward cloud-based, SaaS solutions that generated revenue from subscriptions rather than licenses. TCV also advocated for tools to surround the company’s customer-focused products with stronger support and professional services, and for increasing speed by building out the software architecture to a true multi-tenant solution. Significant investments in all these areas would take several years to accomplish but prove decisive for scaling the company.

Just as importantly, TCV had abundant experience with transitioning founder-led, family-run companies to experienced manage teams. That’s why everyone was delighted when Gary Nemmers, formerly COO of HighJump Software, agreed to become IQMS’ new CEO in 2015. Nemmers was a veteran of other founder-led businesses, and he had helped grow and scale multiple businesses and prepare companies like HighJump for its successful exit via acquisition. “The first time I met Randy and Nancy, we clicked, and I knew it in my gut that the time of the transition was right,” Nemmers recalls, and that was the beginning of IQMS’ next phase of rapid and sustainable growth.

Smooth Management Transition

Respectful of IQMS’s close-knit culture, Nemmers worked closely with TCV and brought in seasoned veterans to take leadership positions the company had never staffed before, including Matt Ouska as CFO, Dan Radunz as CTO, and Cheri Williams as SVP of professional services. Under Nemmers’ leadership, the team formalized and aligned the company’s core business processes so they could accelerate product management and development, serve more customers, and scale more efficiently than in the past. They also established an office near San Francisco to increase the company’s accessible pool of software talent.

“Our mantra was ‘people, processes, playbook’,” says Nemmers of his first year leading IQMS. “Once we added a few key people, we could bring in strong processes across the entire firm and establish playbooks to do things in a consistent, repeatable way.” As for working with private equity, his advice to other CEOs is equally clear. “You listen to and align with your board and your investors. At the same time, you follow what has made you successful in the past because that’s why they hired you to run the company.”

New Growth

IQMS flourished and significantly increased its customer base. Growth was not always smooth, but TCV had Nemmers’ back. “License revenue is inherently lumpy,” he points out, “so sometimes revenue was a rollercoaster. We’d crush our plan one quarter and miss the next, but we had a plan and knew how to execute. The board was super helpful in thinking long-term and strategically versus focusing on quarter-to-quarter swings. They were great sounding boards.”

With a broader and deeper solution set plugged into a professional marketing engine, IQMS emerged as one of the top software providers for small and medium-sized manufacturers around the world. The company naturally started attracting attention from the strategic players in the ecosystem. “We knew that IQMS offered the best route for enterprise software providers who wanted to expand into the SMB space,” Nemmers points out, “so we played from strength. It wasn’t just the enterprise players evaluating IQMS, it was also us looking for an ideal fit.”

Strategic Exit

Dassault Systèmes of France stood out for exactly that reason, and Nemmers seized an opportunity to kickstart the conversation. During a visit to Europe, he picked up the phone and called Philippe Charles, SVP of manufacturing and supply chain for Dassault. “I told him I was in Zurich and a whole day had opened up on my calendar,” Nemmers recounts. “He said ‘Give me five minutes.’ Then he called back with an invitation to meet him and his team in Paris, and that was the beginning of the great relationship we built with Dassault over the next year and a half that led to the merger.”

Nemmers and his team had carefully and strategically grown the business and poured energy into building relationships with customers, serving 1,000 manufacturers located primarily in the U.S. whose 2,000 manufacturing facilities in 20 countries produce for the automotive, industrial equipment, medical device, consumer goods, and consumer packaged goods industries. The core MES and ERP platform could be expanded with more than 20 additional modules including CRM and payroll, all integrated in a single database.

“Dassault is a strategic vendor for enterprise manufacturers and was looking for a way to get into the SMB segment,” explains Venkatachalam. “Initially we talked about channel partnerships, but we had a feeling the discussion would pivot toward something more strategic.” Nemmers worked with TCV to conduct a robust M&A process that included more than 20 strategic vendors and investment firms. Dassault won the deal and completed the acquisition in early 2019.

The two companies already share around 600 customers, who use both IQMS solutions and Dassault’s SolidWorks platform to run their factories. From this foundation, IQMS can market to over 55,000 SolidWorks customers and Dassault can now address the world’s estimated 250,000 SMB manufacturers. Even the timing is perfect, because so many SMB manufacturers are now replacing legacy software that is reaching end-of-life. Randy and Nancy Flamm are happily ensconced on their ranch near the Pacific coast, while Nemmers guides his team and IQMS through its integration with Dassault and onward toward even greater success.

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Quality: Getting Reacquainted With a Mission-Critical Discipline That’s Been Taken for Granted

Key Takeaways by Kapil Venkatachalam from EtQ’s Annual User Conference

The global quality management software market is estimated to reach over $12 billion by 2024, according to Grand View Research. As industries like automotive, healthcare, pharma, biotech, energy, food and beverage, and chemicals are becoming more sophisticated, quality management has become a large-scale phenomenon around the world for companies of all sizes.

Purpose-built Enterprise Quality Management Software (EQMS) platforms enable organizations to collect key quality indicators, monitor them and proactively address root causes of deviations from the norm. “This approach becomes a strategic asset when it is adopted across the organization,” says Matthew Littlefield, President and Principal Analyst at LNS Research. It can also have a symbiotic effect across related functions within an enterprise, such as R&D, product design, and manufacturing. LNS Research, for example, has found that companies using EQMS see measurable and significant improvements in everything from product compliance and manufacturing defect rates to engineering and service metrics. In LNS’s most recent research, Building the Executive Business Case for EQMS, Principal Analyst Dan Jacob analyzes over 1,000 manufacturing companies, showing that those that deployed EQMS have reduced the Cost of Poor Quality (COPQ) by 11% and increased the share of successful New Product Introductions (NPI) by 21%.

I recently had a chance to connect with leading-edge quality experts across multiple industries at EtQ’s User Conference. We talked about the forces driving radical changes in how companies think about their products, how quality can be a competitive advantage, and the trends companies need to focus on with regards to quality management.


Quality and Brand: One and the Same

One of the strongest themes was that quality is no longer a late-stage process of weeding out defects at the end of a production line—today, it’s a proactive concern of senior management. Quality and reliability have become a differentiator between equally priced products and a reason you’d buy Brand A over Brand B. For some companies, quality goes beyond brand reputation because their products can be a matter of life and death. Case in point: the brakes in your car. They must work without fail, regardless of the price or brand of the car.

Meanwhile, market-side communication about products and services now operates at digital speed. Customer mishaps with a brand-name product can go viral and create a crisis for the manufacturer overnight. Examples include General Motors’ ignition switch recalls and Chipotle Mexican Grill’s food safety issues which sickened customers and pushed the stock down dramatically since the first outbreak was reported.

Source: CNN Money, Yahoo Finance


The Factors of Quality Management Systems (QMS) Growth

Some trends, I think, are driving the increased adoption of better quality management software:

  • Companies now go through more external inspections and validations than ever before, and regulators increasingly want direct access to companies’ QMSs. This speeds things up and makes inspections more efficient, compared to plowing through reams of paper documentation. In addition, regulatory rigor is rapidly spreading around the world, using industrialized economies as models. India, for example, passed new legislation regulating medical devices in early 2017—just a few months before the European Union updated its own rules.

 

  • Digitization is another major driver of how companies are now thinking about quality. Today, growth in sensors and Internet of Things (IoT) in manufacturing processes generate billions of data points along the supply chain. Companies now have access to information in digital format that is allowing them to track and make informed decisions in real time, so they can manage and optimize their assets more effectively and deliver consistent products aligned with regulations.

 

  • A shift in the social mindset around risk. For example, a toy manufacturer that manages to maintain strict quality control of its products might hear about a child that ended up getting injured, even though the product had no defect and was designed for children. The toy manufacturer might use that as a learning point to design the next version of the toy, taking into consideration these corner cases, even though it might not be mandated to do so by any kind of regulation. Arguably, society has become more aware and less tolerant to risk than ever before.

 

From Control to Assurance: A Shift in the Approach to Quality

With many factors driving the adoption of quality management, companies have shifted their approach to quality as well. Quality management used to mean inspecting products at the end of the assembly line. That was Quality Control, and it was reactive and not very efficient.

Now, big pharma companies (among many others) start from the very conception of the product in R&D and manage quality through production and all the way to eventual product retirement. In other words, quality is now managed end-to-end. This is what the industry now calls Quality Assurance.

In line with that strategic approach, some quality managers are pushing themselves to look at quality beyond regulatory requirements. “You have to imagine there is no FDA,” said a quality executive at a major supplier of healthcare consumables. “That’s the way you have to think. For some products, our company services up to 20 million accounts. How do we make sure every one of our medical gloves, for each of those accounts, has the same quality, reliability, and characteristics as the next glove?”

Companies Implement New Org Structures and Technology to Rise to the Challenge

Companies have spent decades answering the above-mentioned question of delivering consistent quality by throwing more people and processes at the issue. Today, a large company might have a technical quality team that assesses products from an R&D perspective, a regulatory team focused on the supply chain of materials, quality engineers in production processes, a compliance team doing internal audits, and post-market surveillance to close the quality feedback loop.

The proliferation of quality assurance processes has driven responsibility for quality management higher up in the organization. When quality leadership ultimately landed in the C suite, so did the need for integrated, on-demand reporting of key quality metrics. Many companies I spoke with have done surveys of their entire quality teams, only to find more than hundreds of different systems were being used for quality. The need to streamline processes has therefore become key to delivering operational excellence.

Quality managers related their struggles to developing an internal quality management software system or getting their existing ERP suppliers to provide it, before they discovered EtQ’s platform solution. EtQ makes it easy to integrate data streams from existing quality processes, create new ones, and present management with a clear picture of key metrics.

“We had one of the large ERP systems,” explained a manufacturing quality manager, “and we were told they offered a quality management software. That came with a $3,000 per day development cost. We didn’t want something that rigid, because we already had some processes in-house that included a lot of existing data. Newer platforms like EtQ’s give you that flexibility. As an end user you can play around with the platform to create your own processes.”

Looking ahead, conference participants predicted that quality management will continue to become even more strategic while also getting more mobile and more granular, right down to the electronic device history records for every part of a product. Companies like EtQ will continue to drive this innovation in quality management software because, as many conference attendees concluded, “quality is non-negotiable.”

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The views and opinions expressed in the article above are those of the author and do not necessarily reflect those of TCMI, Inc. or its affiliates (“TCV”).  This article is not an offer to sell or the solicitation of an offer to purchase an interest in any private fund managed or sponsored by TCV or any of the securities of any company discussed.  The TCV portfolio companies identified above, if any, are not necessarily representative of all TCV investments, and no assumption should be made that the investments identified were or will be profitable. For a complete list of TCV investments, please visit www.tcv.com/all-companies/.  For additional important disclaimers regarding this document, please see “Informational Purposes Only” in the Terms of Use for TCV’s website, available at http://www.tcv.com/terms-of-use/.