Xamcor Industry Leader Interviews

February, 2014

Discussion with Thomas Schneck, CEO co-President of DocuWare

As part of the partnership between Xamcor and the Document Imaging Report, DIR editor Ralph Gammon has agreed to do a series of interviews with industry leaders. This is the initial Q&A, from a February 2014 discussion with Thomas Schneck, CEO co-president of DocuWare. DocuWare develops document imaging and management software targeted at the SMB.

Headquartered near Munich, Germany, DocuWare does significant business in Europe as well as the Americas. Its U.S. headquarters are located north of New York City in Newburgh, NY. In North America, DocuWare sells primarily through a reseller channel with a focus on working with MFP dealers. In 2013, it acquired U.S.-based competitor Westbrook Technologies and worked with Xamcor on the deal.

DIR: What kind of year did DocuWare have in 2013?

Thomas Schneck: Very good and interesting….record sales, implementation of new partner concept, acquisition of Westbrook.

DIR: Can you give us any specifics related to records sales?

Schneck: We are still waiting for our final audited numbers, which will probably be available at the beginning of March. But, I can say that new sales were up about 20%—without including Westbrook’s numbers.

DIR: Can you provide some details into the new partner concept?

Schneck: About a year ago, we announced a plan to divide our partners into four categories. The highest level is platinum, then gold, and down from there. The categories are based on metrics like revenue levels and qualified sales activity.

This is the first time we have segmented our partners in that way. We have 500 worldwide, and previously we didn’t give any more status to those who were doing more business. We’ve now implemented rewards like different discounts, as well as better promotion. For example, if a prospective customer is looking for a reseller in the New York City area, when they enter their zip code, the platinum partners in that region will be listed first. The idea is to give more incentive to our resellers. We want the stronger ones to keep up the good work and for the others to be motivated to do more.

DIR: Over the past couple years, DIR has run a couple stories about DocuWare’s desire to ramp up its growth. Were you satisfied with your growth in 2013?

Schneck: You are never completely satisfied with your growth. When you hire additional salespeople, you have high expectations. But, you also have to realize that it is going to take some time to bring everything up to speed. With our sales people now coming up to speed and our new partner concept, which is better aligned with our sales goals, we expect to gain even more momentum this year.

DIR: (In 2012, DocuWare received an investment commitment from Morgan Stanley Expansion Capital. The same group had been an investor in Perceptive Software, which was sold to Lexmark in 2010 for $280 million.) Can you discuss DocuWare’s strategy behind taking on funding from Morgan Stanley 2012?

Schneck: We were looking for strategic advice and financial resources to accomplish two goals: accelerating growth and capturing maximum market opportunity.

For some background, [DocuWare Founder and Co-President] Jürgen [Biffar] and I had been running the company for 25 years, and we wanted to get to the next level. Basically, what we saw was a very fragmented ECM market, with a couple strong players in every country. It’s our belief that at the end there are only going to be a few global ECM companies that survive. We want to be one of them. We felt we were starting from a good place because nobody going after the SMB space has the established global footprint that we do.

But, we needed somebody to help us that had done this type of thing before. Morgan Stanley had been very successful working to help Perceptive grow. So, it made a lot of sense for us to get together with them. They provide a good external perspective. They have seen thousands of companies and can give us feedback based on that experience. They provide a source for reality checks and can help us validate our ideas.

Two members of Morgan Stanley Expansion Capital sit on DocuWare’s six-person board.

DIR: How far along is DocuWare toward reaching its goal of becoming the dominant ECM vendor for the SMB?

Schneck: We sell more than 1,000 new systems every year and don’t believe anyone sells as many professional-grade document management systems as we do. Because of the way we go to market, with virtually no professional services or hardware sales, some ISVs might have higher revenue, but if you measure how many systems are sold, we think we are in the top three in the world.

DIR: How much opportunity do you think there is for document imaging and management technology in the SMB?

Schneck: In the U.S. market alone, it’s been estimated that there are 2.3 million companies in the SMB space. I would say that only 10% of the “S” and 25% of the “M” have some sort of document management system in place. That leaves at least 1.6 million companies that have to do something in the next 10 years.

DIR: What do see as the hottest drivers for ECM sales in 2014?

Schneck: Cloud, mobility, usability, e-invoicing, and, in general, government initiatives.

DIR: How fast are cloud and mobility technology being adopted in the ECM market?

Schneck: Cloud is still a small part of our business. People want to hear that you have it, and they seem very happy when you show it to them. Basically, even if they go with an on-premise implementation, it’s important for them to know they can switch to the cloud.

That said, over the last six months we’ve had more interest in the cloud, as well as sales, than we had in the past 2-3 years. (In 2010, DocuWare made a major commitment to develop SaaS technologies.) Cloud ECM adoption is happening much slower than you see in some other product categories, but it’s coming. In combination with mobility, where you are seeing a lot of interest related to workflow and iPhone and Android scanning—it’s really fascinating for people and I think these technologies will help rejuvenate the industry.

DIR: What do you mean by “usability?”

Schneck: People are being spoiled by all the good smart phone apps that are available now. They really have high expectations about what all their products, including ECM, should look and feel like.

DIR: How is the ECM market evolving and changing?

Schneck: I think there is a lot of confusion around file sharing vs. capture/retrieval vs. BPM. We are starting to see ECM being built into line-of-business systems vs. being deployed as a standalone application. Finally, we are seeing a consolidation of vendors.

DIR: How do you position yourself against file sharing sites like Dropbox and Box.com and line-of-business document management functionality?

Schneck: When we talk to customers in the SMB, many are using Dropbox, or have at least heard of it. However, they don’t see it as a long-term repository for documents. They see it as better for file sharing or collaboration. It’s not something they’re going to be comfortable storing documents in for 25 years.

That’s where it is today, at least. In three or five years that could change. However, one thing working against file sharing apps competing effectively in the ECM market is that the simplicity of those collaborative applications is one of their strengths. The question becomes, how much simplicity do you sacrifice as you increase functionality?

We have an integration with Dropbox. If users want to do long-term storage of documents, then they can export them from Dropbox to DocuWare through a drag-and-drop interface. Our strength is long term-archiving—structured storage of business records. We position our repository as very safe. If users are looking for that, than we are the right partner.

This is also interesting to line-of-business users. A lot of line-of-business applications are starting to build-in image enabling. But, that doesn’t mean they offer comprehensive storage of items like e-mail and documents generated from other applications. So, we position ourselves as offering comprehensive long-term storage of all business records. 

DIR: Related to market consolidation, discuss the strategy behind Docuware’s Westbrook acquisition in 2013.

Schneck: It provided us with access to additional distribution channels and complimentary technology, and helped us broaden our customer base.

DIR: Regarding the distribution channel, how important was Westbrook’s Ricoh relationship? (Through a relationship originally formed with IKON, Westbrook enjoyed Premier Partner status with Ricoh.)

Schneck: DocuWare has always had a strong relationship with Ricoh in the healthcare market. We also have a strong relationship with Ricoh Europe. Westbrook has a strong legacy with Ricoh in the U.S., and the acquisition is an important extension of our relationship.

Ricoh views us as one partner, but we maintain separate product lines. Ricoh is reselling the DocuWare brand for healthcare, and the Westbrook relationship remains the same.

DIR:  How has your strategy of building out a channel of MFP dealers contributed to your success? How has that strategy evolved over the years?

Schneck: The MFP channel is the backbone and fuel for our success. It provides us with ideal access to SMB market. Our evolution has been towards providing training, sales, and marketing tools optimized for this channel.

DIR: How has the dealer channel evolved? 

Schneck: It’s no longer a question of if dealers, or even MFP vendors, want to get involved with ECM, it’s now a question of which ISV they want to partner with and how aggressively they want to pursue the market. Especially now that the hype around MPS (managed print services) has started to die down, document management is really getting a fresh look.

Dealers are finding out that document management, not MPS, might be the sustainable business that everyone in the MFP market is looking for. We haven’t seen the margin erosion that a lot of other MFP-related technology has. That’s because ECM is really a solutions sales. You have to understand a customer’s specific needs and be able to integrate the software to address them. That helps create long-term margins.

DIR: Back to the Westbrook acquisition, what are the long-term plans for integration of the organizations?

Schneck: Right now, we are mostly keeping the organizations separate. Each has its own sales force and channel. Over the next two years, we will be looking at ways to bring the platforms together.

DIR: What were some of the positives that came out of the acquisition and some of the challenges associated with it?

Schneck: The positives include introducing a broader talent pool to our organization and creating a wider channel. One challenge is creating a common company culture while being respectful to the legacy of acquired company.

DIR: How have you gone about addressing this challenge?

Schneck: It’s a balancing act. Westbrook is a 20 year-old company with similar software to ours. They have accomplished a lot and are a player in this market. At the same time, the acquisition gives them a new home, and we want to create a common vision.

Each quarter we do a meeting at Westbrook’s offices in Connecticut and let everyone know what is going on under the big tent called DocuWare. They know we are counting on their contributions to help make that tent bigger. We want Westbrook’s employees to understand that this is not a one-way street.

We have looked at everything Westbrook does and have tried to take their best practices and implement them on the DocuWare side. At the same time, there are things we have done better and are implementing on the Westbrook side. This is across the board. If there is something they have done differently in product development or technical support that can help us improve, we want to learn from that.

Westbrook’s professional services practice, for example, has been a big asset to us. Because of the way we have traditionally sold software, primarily through partners who provide professional services, we didn’t have a big practice in that area. Westbrook, on the other hand, is very strong in PS, and we are learning a lot from the way they operate that part of their business.

DIR: How important was Xamcor to helping you get the acquisition done?

Schneck: Xamcor was extremely helpful and very creative. They were willing to work 24/7 to help us get the deal done.

DIR: How important is M&A to your strategy going forward?

Schneck: It is very important, primarily to help us acquire complimentary technologies, gain access to channels or regions, and broaden our customer base. These are the reasons we acquired Westbrook.

DIR: What tips would you give a similar sized company to that is looking to acquire?

Schneck: Have a clear vision who you want to be when you are grown up and derive your M&A strategy from there. Our goal is to be the leader in ECM for the SMB, so we asked the question, how do we get there? The answer we think is through a combination of organic growth and strategic acquisition. Of course, you have to do everything you can to drive organic growth, but acquisitions can be very complementary.