AG5: Acadian Ventures' latest investment

Niches can be much bigger than they seem.

A little while ago, I got a call from Jonathan at Headline. In fact I got an email, a WhatsApp and two calls within a couple of hours of each other from him. My powers of perception deduced that he had something important and urgent to discuss. So I called him back.

He told me he was looking at investing in a company from Amsterdam that has great founders, solid product, growing traction, clear ICP, tidy cap table, very large TAM, strong customer retention, it ticked all the boxes. One thing was bugging him: he couldn’t understand why the likes of SAP or Workday hadn’t built this product. I agreed to have a session with the CEO co-founder, Rick van Echtelt, to understand more about the product.

After a demo and long discussion with Rick, I understood precisely why the likes of SAP or Workday don’t do what AG5 does, even though at first glance you would think they would or should.

If you head over to the AG5 website, you will get a good sense of what the product does. It solves the last mile problem of skills based scheduling, typically in a manufacturing context. When you have a production line, you need to track a precise detail of the machines and processes, and what skills are required to operate the machines. This has to be pretty granular, and it may well vary from plant to plant, or from production line to production line. I think of it as machine centric scheduling.

Jason and I then had a deeper dive, the more we looked, the more we liked it.

Coffee and race horses

A few years ago Rick met someone from a major coffee manufacturer. They had a major ERP system in operation, and they were also using SuccessFactors. The HR skills catalogue was fine for high level skills and behaviours, but it didn’t hold the specifics of every machine in the plant. No one in the plant had configuration access rights, as the HR system was set up centrally, and owned by HR. A bean centrifuge on production line 1 was different from that on production line 2. This knowledge was local to the plant, so it ended up in a local excel. Initially Rick thought it was just that the coffee company hadn’t deployed all the features in SAP SuccessFactors, but then he did a bit more research, and he and his co-founders spoke to dozens of manufacturers and warehousing companies, finding similar responses, irrespective of what HR systems, LMS or Manufacturing systems were deployed.

One use case is at KLM cargo handling, where there are special qualifications and skills required for live animal transportation, for instance with race horses.

They saw the opportunity to build a product to solve the matching and record keeping at a plant level better than excel could. The tool empowers the shift line manager to keep compliant, meet production requirements and worker requests. It doesn’t replace the time and attendance systems, but augments them.

Since then the business has grown rapidly, and now has over 100 enterprise customers. It is very sticky, and has a very respectable enterprise ticket price. It is really ready to scale internationally.

Edges, niches, silos and the last mile

Why wouldn’t a broad HR /ERP tech suite vendor build this as a feature into their product? There are a couple of reasons.

1. It is a vertical solution, lurking awkwardly between ERP and HR. There is only subset of the customer base that would need it. The battle over whether HR R&D or Manufacturing R&D would fund the building of this would be epic.

2. It would often require integration with non-vendor solutions, often competitive. For instance, would it work with IFS for manufacturing and SuccessFactors, or with Cornerstone for the LMS.

3. The Buffet (restaurant not Warren) problem. This is the biggest obstacle. Customers are generally unwilling to pay for additional capabilities that they perceive should be part of the suite.

4. GTM. Although the solution is technically more closely related to HR than operations, the buyer isn’t HR. It is the operational leadership, initially at the plant level. Adoption is likely to be plant first, then subsidiary, then group. Large suite vendors aren’t really set up for bottom up selling. It will require industry specific rather than horizontal presales, or some sort of broader bundling.

5. There is less risk and likely more revenue to be had by having this capability built by the ecosystem, and then co-selling it. Most of the major ERP vendors now have ecosystem / partner plays, and this fits well with that model.

At Acadian Ventures we really want to invest in companies where our operator experience and network can add value to the founder. AG5 is right in our sweet spot. There are some exciting synergies with portfolio companies such as Techwolf and Arist, and our network into the world of large enterprise vendors may turn out to be very useful too.

We are thrilled to be investing with Headline and Peak.

Thanks again to Jonathan at Headline, Johan at Peak, and to Rick and team for having us on board. This is going to be fun. More details from Rick here and here.

Taken while walking back from dinner with AG5.

I’d be remiss to not post a song. Lloyd Cole and The Commotions. Lost Weekend (in Amsterdam).