TECHNOLOGY

A little Dutch software company suddenly achieveda market capitalization of $6 billion. Baan Co.'ssecret: making the complex simple.

Auto-BaanBy Nikhil Hutheesing

"MAKING MONEY IS A PLEASURE, buthaving money can be a problem,"says Jan Baan, the founder andchief executive of Baan Co.

The pleasure part for Baan issupplied by his firm, based inMenlo Park, Calif, and Putten,the Netherlands. It mints moneyselling the monster programsthat big companies use to inte-grate all their operations, fromraw materials to accountspayable. So enamored is Wall Streetof the concept that the .stock is upfri)m a split-adjusted $8, when firstpublicly offered in 1995, to a recent$61.25. Market capitalization: $6.3billion.

The problem of having money issolved by Baan, a pious DutchReformed Calvinist: He gives it away.The recipient is a foundation Baancreated to do good works in desper-ately poor countries. "Informationtechnology is a creation of the Lord,"says Baan, 51. "It was created in Hiswisdom and is one component thatcan keep the world running in anormal way. I am just contributing."

While contributing to the world,via improved technology' and charita-ble works, Baan is also taking a biteout of the hides of SAP and Oracle,leaders in the world market forcompanywide automation. That

market is growing at an estimated34% a year, but Baan's revenueshave been racing ahead at 80% ayear for the past four years, to$491 million over the past 12months. Baan has raised its share ofthe U.S. market to 5%, but still has away to go to catch SAr, with 33%.

Investors are betting that Baan hassomething that SAP lacks: simplicity.To implement SAP'S R / 3 software,you need to hire consultants to deter-mine all the processes theprogram will ever

control—, e v e r y t h i n g

from manufacturingto purchase orders to com-

munications. And you have to fore-cast your company's needs years in

advance becauseit is fairly difficult to

make big changes afterthe SAP software is installed. Baan iseasier to install and modify. You don'tneed as many consultants.

This, at any rate, is the claim madeby Baan's salesmen, who have per-suaded such firms as General Electric,Snap-On Tools, Northern Telecom,British Aerospace and Komatsu tobuy Baan software. Advanced Manu-facturing Research, a firm in Boston

109

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Gaining on SAP

40%

30

20

10

0

Market share Baan Oracle SAP

'93 '94 '95 '96 '97 '98 '99 2000Sources: Advanced Manufacturing ftesearch; Deutsche Morgan GrenfeH.

SAP's integratedcorporate soft-ware systomis powerfulbut complicated.That has giventhe simplerBaan systema foothoid.

that tracks this software market, saysBaan will ultimately cost you S8,000per license in consulting fees, againstas much as S20,000 for the competi-tion's software. (A customer can typ-ically hook up about three employeesfor every license it buys, since not allusers are on line at onee.)

Against a backdrop of numbers likethose, the price for the software—around $4,000 per license, whetheryou get it from Baan, SAP or Oracle—doesn't seem so shocking.

Baan's good fortune arrived almostovernight, after it landed a key 1994contract with Boeing Corp. After

eliminating 60 other applicants,Boeing provided SAP, Oracle andBaan with data on the steps requiredto build landing gear and connect itto the plane.

The software needed to do a lot.When an order was taken, did it makesure that the supplies were available?Did it check the capacity of Boeingplants to see if they could handle theorder? Did it properly gauge howeasy it was to pay vendors and orderparts? If American Airlines wanted aplane with 500 scats instead of 380,could the system tell that this orderneeded to be customized?

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m^-'^-mm^^Mm / /xFuselage ....._. .:., oí Boeing's coming 737-800Software to connect the rivet to the accounts payabie department.

Baan won the tournament and atrophy customer, charging Boeingonly $20 million for a 15,000-licensesystem.

Next target: put the corporation'ssuppliers and customers on thesystem, too. Daimler Benz uses Baansoftware to build the new Mercedessports utility vehicle in Vance, Ala.After getting a dealer's order elec-tronically, the system generates a cus-tomized bill of materials and calcu-lates which parts need to be ordered.WTien supplies come in, the Mercedesreceiving department scans in theirbar-code labels, feeds the data toinventory control, makes an account-ing entry and pays the supplier.Instead of 30 clerks to order parts,Mercedes needs only 3.

All this requires systems that cananalyze the interplay of complexoptions, such as sourcing materialsfrom this supplier instead ofthat one,shifting production from one plant toanother and moving goods by truckinstead of rail. Baan claims to be aheadof SAP and Oracle in the creation ofjust such an integrated system.

]an Baan is an unlikely softwaremagnate. After dropping out ofschool at 16, he spent several yearsworking as a clerk in a slaughter-house, then drifted into the comput-er department of a building materialssupplier. Inspiration: Customerswould gladly buy an off-the-shelfsystem that they could easily adapt totheir needs. In 1978 he foundedBaan. Four years later he brought hisbrother Paul into the company.

As the business grew slowly, theBaan brothers and their combined 19children were a happy brood, living amiddle-class life in Barneveld, 45minutes outside of Amsterdam.Then, in 1992, William Grabeknocked on their door.

Grabe, a partner with the Green-wich, Conn, venture capital firmGeneral Atlantic Partners, told theBaans that they were sitting on a goldmine. All they needed was a litde cap-ital to break through in the U.S.market. "Jan insisted his companydidn't need any money, but we werepersistent," explains Grabe.

In 1993 General Atlantic put $18million into the Baans' company,taking a one-third stake and leaving

112 Forbes • October 6, 1997

them with a third each. Suddenly Janand Paul had to confront somethingnew: wealth. They realized they eachheld S18 million, too.

The brothers wanted to go righton building the business, but theydisliked the idea of continuing to pileup money. They had no ambition todie rich and leave behind a clan ofidle descendants.

So they sold all their stock in BaanCo. to a newly created foundation,each brother taking back an lOU for$15 million. It was a gift more than asale. The Baan family stake was wortliclose to $500 million by the timeBaan Co. went public in 1995, and itwould be wordi $2.8 billion today ifthe foundation hadn't parted withany shares. The foundation did sellsome, but still has $2.4 billion inassets, making it larger than the

Rockefeller Foundation (see box).What are the Baan brothers going

to do to justify Wall Street'sgrandiose expectations for their com-pany.' Use their richly priced stock ascurrency to round out their sofKvareproduct line. In the past year Baanhas bought Berclain Group, a firm inQuebec that makes software to linksuppliers and manufacturers; Aurum,a firm in Santa Clara, Calif, thatmakes software to automate salesforces; and Antalys, a firm in Golden,Colo, that sells software to let a cus-tomer know instantly if an order canbe delivered within a certain time andunder a certain cost.

"By acquiring companies thatunderstand the space, we gain a goodinfrastructure and talented peopleand get to participate tight away in amarket that's growing at 50% annual-

ly," explains Amal Johnson, Baan'sexecutive vice president. "It's sort ofa Cisco Systems-st\'!e approach."

Baan is also adapting its system tothe Internet and to private intranets.The compatiy has begun making itssoftware operate with standard Webbrowsers, and it's planning to licensepush technology. "Push" is just afanc)' word for continuous broadcast-ing of data, such as the financialticker tape that runs across your PC'sscreeti. With Baan push technology inplace, Boeing could teed its suppliersthe day-to-day changes in its project-ed demanci—say, for landing gear.Suppliers would then adjust theirresources accordingly.

Nice features, if they don't makeBaan software too messy and destroyits appeal, "Our enemy isn't SAi',"says Jan Baan. "It's complexity." ^M

Protectingthe kids

HAO THEY NOT TRANS-FERRED their shares inBaan Co. to their founda-tion Oikonomos (Greekfor stewardship), Jan andPaul Baan would both bebillionaires. They say tiieyare glad tliey are not. "Weprotected our kids so theywon't inherit the money,"explains Jan. "And we didit just ill time. Once youhave billions, egos get inthe way and it's harder togive it away. Better toanticipate being a billion-aire and stop it."

Oikonomos has builtorphanages in Indonesia,paved roads in NewGuinea, brought medicineto leper colonies in Indiaatid helped entrepreneursstart businesses in Bolivia.It finances its grants,expected to total $10 mil-lion this year, with occa-sional sales of Baan stock.

Jan ana raui öckinWhy make heirs angry? Give away your $1 billion even before you have it.

Dutch law permits theBaan brothers to keep thefoundation's assets heavilyconcentrated in Baanstock and to retain votingcontrol of Baan Co. indef-

initely, neither of whichwould be possible for aU.S. foundation.

When Oikonomos doesdiversity its portfolio, it'snot to buy bonds. Instead,

it operates Baan Invest-ments, a venture capitalarm investing insmall systems integrators,sofhvare developers anddistributors. -N.H, •

Forbes • October 6, 1997 113

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