StoneTalk Episode 9 – Harry Hollander and Ted Pitts

In this episode, Patrick speaks with Harry Hollander and Ted Pitts, the cofounders of Moraware.

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Listen to this episode to learn:

  • The history behind Moraware’s beginnings
  • Why Moraware transitioned to a subscription model
  • How pricing philosophy is integrated into CouterGO
  • How to track your margin over a period of time
  • Best practices for tracking fabrication data
  • What you can do today (for free) to start tracking your inventory more efficiently
  • The innovative ways of inventory tracking

Be sure to subscribe to the podcast in iTunes… and please let us know what you think! You can leave comments for this show on the StoneTalk Facebook page or on this site.

If you have stories or insights that you’d like to share with other fabricators, please reach out to Patrick.

Transcript

Welcome to StoneTalk, the podcast for countertop fabricators. Brought to you by Moraware, makers of JobTracker scheduling software and CounterGo estimating software for countertop fabricators. I’m your host, Patrick Foley.

Patrick Foley: Welcome to Stonetalk, the podcast for counter top fabricators. Brought to you Moraware, makers of Job Tracker scheduling software and CounterGo estimating software for counter top fabricators. I’m your host, Patrick Foley.

I’m here in Boston at the Business of Software Conference, and we’re going to do something different today. We’re going to turn the conversation inward and talk about Moraware for a bit, since I have the two founders in the room with me. Ted Pitts, and Harry Hollander. Many people already know Harry, but Harry why don’t you tell us what you do for Moraware.

Harry Hollander: My favorite part of my job is doing everything that talk to our customers. That’s from sales, support, marketing, going to visit people in person.

Patrick Foley: But you have a fancy title?

Harry Hollander: The title, President, means I get to do all the other stuff too that nobody else wants to do. I guess Ted and I share that responsibility.

Patrick Foley: OK and Ted, what do you do on a daily basis for Moraware?

Ted Pitts: I’m in charge of the product. I work with the developers and trying to design the next feature and exponents and keep the servers running.

Patrick Foley: We’ll talk about a few different topics, but let’s start with history. Why did you start Moraware? It was about 12 years ago, right?

Ted Pitts: Yeah 12 years ago.

Patrick Foley: What was the story? What caused you to start it?

Ted Pitts: My brother had a Corian shop.

Patrick Foley: OK.

Ted Pitts: They had tried looking for software, and one day he called me up. I was working for a software company in Silicon Valley during the .com boom. He called me up and said, “Hey, we need some help.” That sounded fantastic because I just wanted to help my brother on the side.

Patrick Foley: Right.

Ted Pitts: So I spent about 4 months working nights and weekends building a product just for their company. Basically taking the spreadsheets they were using to run their business and turning them into what is now Job Tracker.

Patrick Foley: So that did turn into Job Tracker? That was the start of Job Tracker?

Ted Pitts: That was the beginning of Job Tracker, yeah.

Patrick Foley: How did CounterGo come about?

Ted Pitts: CounterGo came about many years later because we’d been selling Job Tracker since 2003, I guess.

Patrick Foley: Right.

Ted Pitts: It wasn’t until 2011 that the … our customers had been asking us, since 2003, “Can you do drawing?”

Patrick Foley: All right.

Ted Pitts: The answer was always, “No, we don’t do drawing.” There were other companies that did have some kind of quoting system that was based on the drawing. So we always thought that wasn’t a real great strategic move for us, is to move into something that we are not good at, and our competitors are good at, and then try and do that. But it became clear over all the years of the customers asking for that, obviously the competitors hadn’t solved the problem that everyone was happy with. We finally got to the point in Job Tracker that the next best feature we could do was solve the drawing problem.

Patrick Foley: OK.

Ted Pitts: That’s why we decided to tackle that, and we built CounterGo.

Patrick Foley: Cool. It was a little before that, that you started doing a subscription model. What was the impetus for that?

Ted Pitts: It was a process of when we first started selling Job Tracker; it was an up-front fee, so that meant someone had to make a big commitment to get in to use the software. Pay us a lot up front, and then less each year after that.

Patrick Foley: Right, right.

Ted Pitts: As everyone remembers, there was a bit of a problem with the housing crash.

Patrick Foley: Little bit, yeah.

Ted Pitts: Cash was tight. So our new customers were not so anxious to pay us a big up-front fee. People kept asking us, “Hey can we pay you less, but over a longer period of time?”

Harry Hollander: At some point, we did do some financing, so we financed over the course of a year.

Patrick Foley: OK.

Harry Hollander: People started asking for longer and longer terms. “Oh, can you finance this big purchase over two years?” Or whatever. In practice, we were already, despite never making the decision, we were actually in the business of hosting some of our customers. We started doing it temporarily, that was the intent. While you’re getting things set up, we’ll help you out by hosting it and then once you’re ready for the real deal, you can download it to your own server. Then some of those people never downloaded the software, either.

Patrick Foley: Yeah.

Ted Pitts: And combine that with the people who did download, very rarely had professional IT people on staff. So they would be running a mission critical piece of software on a computer that was sitting over in the corner getting granite dust on it every day.

Patrick Foley: Right.

Ted Pitts: Which, this thing that is running their entire business is not a reliable computer. When something goes wrong with it, they didn’t have anyone on site to fix it very quickly. We would end up periodically having customer call us saying, “Uh-oh something happened to my computer, can you help me fix it?” All those things just meant the whole experience of using our software was worse because they weren’t able to run the software like you would having professionals run it.

Harry Hollander: Even so, before we made the business decision to jump into the subscription thing, even we were hosting people, it was conscious. It was this temporary thing we ran into. The server our customers were on was running in the closet at Ted’s house. It was not a professional setup, so that was not a great solution either because we had the same problems. It was not a professional IT situation either.

Patrick Foley: Right.

Ted Pitts: That was the first year, we called it the demo server. We though, “If it’s always named demo, then people will expect it to not be necessarily reliable.” It became necessary for our demo server to become really reliable once there were multiple businesses relying on it.

Patrick Foley: I didn’t know that history. When did you move into a professional hosting facility and start getting good at it?

Ted Pitts: That was all probably … beginning in 2004 is when it was running in my closet.

Patrick Foley: OK.

Ted Pitts: Probably by late 2004, we had enough customers.

Patrick Foley: Cool. Obviously that started working well. At what point did you decide subscription is the future and stop selling the software for download and what was the impetus for that?

Harry Hollander: It was the housing crash specifically. I can’t even remember who it was, but we had one customer who convinced us somehow, I remember having multiple conversations. “You got to have this thing where we stretch out these payments over multiple years because otherwise, our business are already struggling so much there’s no way we can afford to do this if we have to pay 9 or 10 thousand bucks at the time up front.”

Ted Pitts: There was also a progression because we started off … our first reaction to the housing crisis was, people didn’t have cash, but they wanted some kind of solution to their scheduling problem. We came out with a smaller edition of Job Tracker. We tried to figure out how could we possible make the price lower since so many in the industry are short on cash right now? We came out with the basic edition, we just slashed some features. We said there’s no way we could possibly support having customers running it on their own server, if we’re charging such a low price.

Patrick Foley: Got it.

Ted Pitts: That was the first product that was only sold as a subscription and so people started buying basic edition and then saying, “Wow this is great, now I want these other features that were in standard edition or inventory.”

Patrick Foley: Got it.

Ted Pitts: We had to have a path for them to upgrade. That’s when we made all of Job Tracker subscription.

Patrick Foley: OK.

Ted Pitts: As soon as we did that, there was no reason for anyone to buy the download version anymore because at that point the subscription version was far better than the download version.

Patrick Foley: That makes sense. Cool. Let’s dive into the product itself a little bit and talk about an issue that’s important to all of our customers. We’re here at a software conference, it’s a topic that’s talked about, about our business but let’s talk about it more in the context of our customer’s businesses: pricing.
Let’s talk about pricing and CounterGo, specifically. How did you think about pricing when you wrote CounterGo? How did you think that our customers wanted to think about pricing? What’s your philosophy of pricing in CounterGo? For example, did you think about cost, did you think about value? What was your impetus?

Ted Pitts: Most of the impetus comes from the customers we’ve talked to. Over the years, we have had a quoting system inside Job Tracker. In order to get people started, they would send us their spreadsheets saying, “Here’s how we do pricing, how do we get this into Job Tracker?” So we’ve been dealing with hundreds of customers and hundreds of pricing spreadsheets and turning those into a quoting system. CounterGo was basically a combination of seeing hundreds of companies doing this and figure out what’s the most common method people use and try and make that as simple as possible. To say, “Here’s a price list that’s blank. You can just fill in the numbers, but you don’t have to rethink the structure of your price list.”

Patrick Foley: OK.

Harry Hollander: Even though a lot of our users think … they may have their own unique twist on things, the fundamental philosophy of how most of the people we’ve seen price things, it’s pretty consistent. There’s square footage of material, linear footage of finished edges, and the individual charges for all the different parts that go into it. Of course there’s oddballs, but over the course of seeing hundreds of them, we have a pretty good sense for what’s the standard in the industry.

Patrick Foley: There does seem to be a division. I’ve talked with some new customers of CounterGo and they think in terms of, “I know it’s going to cost me this much, and I want to make a 15% margin.” That’s not the way we thought about it, why didn’t we think about it that way? Contrast that approach, I have my own thing that I tell people, but put it in your words.

Ted Pitts: There’s two answers to that, one answer is, there is a division. Some people think of it as, “Cost plus a certain markup is my price.”

Patrick Foley: Right.

Ted Pitts: Other people think of it as, “My price should be X and that price should be competitive enough for me to make a profit and compete with … be low enough to get enough business but be high enough to make a profit.” So part of it is, some people do it one way, some people do another. We also just fundamentally believe you’re better off as a business pricing based on value, rather than pricing based on cost. You can end up not taking advantage of an opportunity if you’re providing a service that is incredibly valuable to a customer, that’s not always reflected in your cost.

If you’re going to guarantee a 5 day turnaround or a 7 day turnaround, there’s not a direct cost on your cost list associated with that, but if your competitor’s going to give you a 3 week turnaround, you can charge more for a 7 day turnaround than a 3 week turnaround. All sorts of aspects like that. Charging up for quality, charging for reliability, charging for your reputation. None of those show up as a cost that you could then do a 10% markup over.

Patrick Foley: What about margins? I had a customer ask me a few weeks ago about wanting to be able to calculate her margin from a job. She was thinking in terms of a little spreadsheet in the corner that said, “I know this is going to cost me this much, this is what I’m charging, therefore my margin is X.” I had another customer tell me, he had a different twist on it, that said “Well when my employees throw in the sink, I want them to see that that job went from 15% to 3% margin.” Have you talked to any customers about that or have you given any thought to what the role of understanding your costs is when you price?

Harry Hollander: I think that’s important, but I think it’s only valuable in the aggregate. On a job by job basis. You don’t know all the mistakes that are going to happen on the job between the time you do the quote and when it’s finally happily installed with the customer. If something breaks along the way, your margin is out the door anyway and you’re not anticipating that on any particular quote. So you’re looking retrospectively over the last month, or year. What was my margin? Are there certain kinds of customers that are higher margin or lower margin? That’s where I think it’s more important to look at it.

Patrick Foley: Interesting. So tactically, using the tools that we have today, we all know that software isn’t R&D, it’s a creative process, it’s not something that we can predict how long any given feature will take, which is why we don’t tell people, “Yes we’re working on X and it’ll be done in a month.” Because we don’t know when it’ll be done. With that in mind, with the tools that I have today, how would I approach something, just at a high level, how would I approach something like tracking my margin across a period of time? How would I deal with tracking that aggregate? Would I use Job Tracker more for that or would I use spreadsheets? How would I approach?

Harry Hollander: That might be what’s in your Quickbooks today. Over the course of some amount of time, I know how much money I’m bringing in, how much I’m spending on various things. I think that’s the place for the high-level analysis.

Ted Pitts: If you’re trying to track your margin and you’re not including big chunks of your costs, at some point you’re going to be deceiving yourself. We’ve seen a number of customers over the years try and track every detail and cost. The amount of effort that goes into that is huge. I would question whether it’s really worth the effort of capturing all that data. I know some people really think it is worth that effort, and they go through a great effort to say every action, every minute of the day, is somehow allocated to one particular job and try and calculate that. I don’t argue that that’s valuable to have, but the cost of collecting that, it’s hard to justify … you’re going to spend 25% of your labor hours collecting data.

Harry Hollander: I think the other point to that is like in our own business, we know that employees are a huge chunk of our cost, as a software company. So worrying about the price of office supplies or something like that, it just has no material impact on the business. At best it could account for 1% of our costs and that’s not worth even sweating over.

Ted Pitts: So I can buy the upgraded pens, you’re telling me?

Patrick Foley: Fancy ones, that write the first time. That’s interesting to me, I want to go back to that a little bit though. I want to make sure I understand because this is not always obvious to me. When you say understanding the costs and aggregate, is the process as simple as looking at my Quickbooks or whatever I use for my accounting. I see what I take in this month, I see what my costs were this month, and if my margins as a whole are too low, I probably want to break it a little bit down into fixed costs, my rent or my payment for my space and equipment, et cetera. And then my more variable costs, the materials et cetera. If that margin gets too low on some aggregate basis, perhaps a month, I might want to say, “Hey I really need to raise my prices in order to stay in business.” Is that more of what you’re thinking or it varies?

Ted Pitts: I think you need to track it at lots of levels. Clearly you need to do that high level, because at the high level, the numbers come out in the red, you’re doing something wrong. But when you think of it more in the job level, the question is how much do you allocate to a particular job? One of the processes I’ve liked that our customers have done, that I’ve seen a number of them do, is track throughput. Which is instead of just tracking the revenue of a job, subtracting off the material cost on that job.

Patrick Foley: OK.

Ted Pitts: Because material cost is a significant cost, but it also is significantly variable, based on the kind of material. If someone’s buying the high-end material, material cost could be twice as much as the low-end material. If you think of that job as having high revenue, but most of that revenue went to high material cost, then you’re not really accounting for it properly. If you subtract off the material cost, all you’re left with is all the labor stuff.

You can add up all your throughput which is your total revenue minus material cost, and then the aggregate level, make sure that your throughput is covering all of your labor costs, and your machinery costs, and your rent, and everything else. It’s just a way of making sure that on a weekly basis or even a daily basis that you’re running an overall profitable business.

Patrick Foley: That reminds me of something, when you think of throughput. That makes sense of something that a customer told me recently. I visited a customer who did not yet have a fancy water saw or a CNC but was a successful, profitable company. The one piece of fancy modern equipment was called a Lion Polisher, the straight one? And the reason he gave was to get the same result would take 6 people for the same amount of time putting through that. So he was looking at it in terms of throughput, that was his highest ROI equipment purchase, because, “I’ve got straight edges on every job I do.” He’s telling me, “I can just run it through this Lion Polisher, boom. The same result as if 6 people were doing it when 1 person can just hold it there and put it through.” Is that the reason that you’re saying look at your throughput?

Ted Pitts: Absolutely. Because you’re thinking of your overhead and what you have to cover. If you’re saying, “My overhead could either be people, or it could be machines.” You want to treat those … if you can replace a number of people with one machine, then that’s the formula you’re going to use to figure out whether that machine’s worth the $100,000 you’re going to spend on it.

Patrick Foley: That makes a lot of sense. You said something that triggered another thought of mine. I’ve visited some customer where they want to track schedule versus actual on estimating how much time activities are going to take. What’s your opinion on that, in general?

Harry Hollander: I think that’s valuable for a short amount of time. Doing a time study, if I take this data for a day or a week, and I plan to do something valuable with it, then it might be worth the effort. But to do it in an ongoing way, probably doesn’t buy you a lot.

Patrick Foley: And this is back to the issue of, if there was zero cost to collecting that data, then fine, but there’s not zero cost to collecting that data, there’s cost to collecting it.

Harry Hollander: Every time the guy on the side has to push one more button and remember to do it a repeatable way and not have to involve a manager to fix his mistake, then it might be worth it. But as long as you’re relying on human beings to do something, there’s a cost.

Patrick Foley: That’s why in practice, in Job Tracker, when we’re dealing with activities, the general practice, correct me if I’m wrong, but the general practice is put in the estimate that you think it’s going to take if the activity is happening some time in the future. Then when it’s starting to happen, if you can, put in the actual start time, and when you’re done put in the actual duration. It’s generally not worthwhile for long periods of time to try to get the estimate in one way and the actual in another way and to add custom fields or anything like that.

Harry Hollander: Every piece of data that you’re tracking takes more work.

Patrick Foley: That makes a lot of sense. So unless you’re trying to pick something, just have it there.

Ted Pitts: That applies to all of … tracking your schedule in terms of granularity. Do you just want to track it at a very high level, I’m starting an important project, did I finish the important project or do you want to track every single step? It goes through 7 guys in the shop, I want to track each guy’s 15 minutes that he’s doing. The more granular you’re doing it, the more it’s going to cost you. If you’re going to use that data, that may be worth it. But you’re probably not going to use the data.

Patrick Foley: Unless you’re doing that time study and try to see, basically what it’s really saying, are our estimates bad? Do we need to improve our estimates? And frankly, even then with auto scheduling, you should just be able to look at a little historical data. If you just change the estimate to the actual as you do it, you’ll probably get enough granularity to start making better guesses.

Ted Pitts: If you just report on the actual from the past-

Patrick Foley: Just look at the actuals from the past and you way, “On average we take 3 hours for this activity, so how about we estimate 3 hours in the future?” That’s a simpler way to do it, without adding any additional overhead.

Ted Pitts: Right.

Harry Hollander: Totally.

Patrick Foley: Cool. Makes sense. OK, last topic for today, and if people could find us incredibly boring and we’ll never speak of this again, at least we enjoyed beer in our rooms at Business of Software and chatted together, which is worth something on its own.

Let’s talk inventory, to wrap things up. Inventory has lots of dimensions. We have inventory in our software, but inventory’s a broader concept than that. First of all, if I’m a fabricator and I’m not currently tracking inventory, and I’m starting to get enough slabs that this is important, I’m worried about slabs that are walking away or that this is a big amount of value on my books, how should I start with inventory? Should I buy Job Tracker inventory? If I want to start tracking my inventory, what should I do?

Harry Hollander: So I would say to start, the hard part is not writing down the inventory I have today. It’s having a process where you don’t have to go do that every day.

Patrick Foley: OK.

Harry Hollander: Having some kind of cut sheet for the guy on the saw to let you know, “Here’s what I cut today.” Keeping track of the P.O.’s as they come in, and then you can actually create some kind of piece of paper or spreadsheet to say here’s what I think I have in my inventory. Then on an ongoing basis, go out and count what you have and compare that to what you think you have.

Patrick Foley: You didn’t say job tracker at that point?

Harry Hollander: No, I think-

Patrick Foley: If you aren’t doing inventory today, the easiest thing to do is just to use a spreadsheet?

Harry Hollander: In terms of the tools you need to buy, don’t buy anything, start with free stuff. The thing that’s expensive is actually having a process in your business to keep track of it.

Patrick Foley: It’s a people problem, more than a software problem.

Harry Hollander: Totally.

Patrick Foley: OK. My understanding then, at a certain point of time, if you get good at that, then our software adds a few bells and whistles. Our inventory ties into the operations of cutting things and scheduling activities so that when you complete an activity it gets removed from inventory. What does our inventory not do? When we’ve talked with customers about inventory, what is the other part of inventory that people think of?

Ted Pitts: The basic inventory problem is you just want to know exactly what slabs you have where, right now. That’s on aspect of inventory. There’s a second aspect of inventory, which is inventory account. Your accountant wants to know exactly what dollars you have at every point in time. So they’re kind of two different problems.

Patrick Foley: So some people have a million dollars’ worth of slabs in their slab yard, accountants care about that.

Ted Pitts: Right. With our inventory, it’s mostly focused on what slabs are allocated to certain jobs, and what slabs get used on the jobs that are completed. It’s really just tracking the slabs in and out. It wasn’t written by accountants, or for accountants, it was written for the fabricators.

Patrick Foley: OK, so what does an accountant do? They have to do something in Quickbooks? Is that … accounting package, do we even know?

Harry Hollander: We don’t have a really good idea because we haven’t looked into the differences between what we do and what you would do as an accountant, but there’s some kind of concept on closing the books on a month or a year. Because everything we do is just tied to the job and the operations I guess, there’s no concept of locking down the past history and then moving on from there.

Patrick Foley: OK, and someone listening is banging their head against their steering wheel saying, “You fool, it’s obvious, you have to do this.” If that’s what you’re doing at the moment, please send your email to support@moraware.com and I will replay and we will happily appreciate your feedback to help us figure this out in the future, because it’s something we know our customers care about, we just don’t know enough, is what I’m hearing about this.

Also, customers often ask about bar coding. “Oh, I want to be able to bar code these in and out.” What’s the go-to solution there?

Harry Hollander: I think that’s the other problem that we don’t have a strong answer for currently, which is, “I want to just know everything that I have immediately.”

Patrick Foley: We have some friends that help out with that, we have the folks at DPM Systems, I’ve seen the demo online, but I don’t own a slab yard, but I don’t know how it works in practice.

Harry Hollander: I think bar coding’s fundamentally not any different than a dude walking around your shop with a piece of paper and a pencil, it just speeds up the data entry.

Ted Pitts: A bar code scanner is a keyboard that has one key, instead of 26 keys.

Patrick Foley: That’s actually a good way to think about it.

Ted Pitts: You can do the same thing by typing it in on a keyboard, it just takes a lot longer. The point of the bar code scanner is to speed up the data entry, but it’s not automatic. You’re still having to go and do all the data entry.

Patrick Foley: If you could wave a magic wand, and do it the perfect way, which we don’t have a magic wand, but if you could wave a magic wand, is there a perfect way to handle that sort of problem?

Ted Pitts: What I think the best option right now would be to tag every single slab with an RFID tag. Then you set up RFID readers all around your slab yard and you could have them asking the slabs continuously, 24 hours a day, where are you? Who’s here and where are you? We could collect that data that way. The trick with that is the expense. The readers have to have some kind of professional installation because you have to make sure it actually works and the RFID tags have a certain cost based on how far they can be away from the reader.

So there’s a question of how many dollars per slab does that inventory solution cost? And is that cost acceptable to counter top fabricators? And for full slabs, maybe that’s acceptable, but then you start thinking about … you have remnants in inventory, so if you have a remnant that is either worth $300 or 0, are you willing to spend $20 for some kind of RFID solution just to inventory that thing that may be worth nothing .So that becomes a little tricky.

Patrick Foley: That makes a lot of sense. Remnants are one of my favorite areas where people do some interesting things. I like how Slab Smith kind of creates virtual remnants, even as you’re cutting it, it has the concept of … they call it something other than a remnant now, it’s like virtual material or something. The story that really got to me was a customer of ours played on the psychology of their customers, and discovered that homeowners react better to remnants if they don’t look like waste. So they would square off the edges and instead of calling them remnants, they call them small slabs.

Ted Pitts: That’s just awesome.

Patrick Foley: It’s totally awesome. It’s just re-brand them, clean them up, literally make them slightly less useful than they were before they took the action, but then people actually buy them because they don’t look like waste. It plays on psychology, and purchases are not completely rational.

Harry Hollander: Right. If you have this little rectangle that looks like a vanity already, that’s a no-brainer.

Patrick Foley: … That’s awesome. Thanks for sharing some time. Hopefully people haven’t fallen asleep and made it through this clip. If you didn’t, please let us know that you hated this, if you did, that’d be great and please let us know that you made it to the end. If you did like it then maybe we’ll do this again the next time we get together. All right, thanks guys.

Harry Hollander: Thanks.

Ted Pitts: Thanks.

Thanks for listening to StoneTalk, the podcast for countertop fabricators. If you liked this episode, be sure to visit stonetalk.org or subscribe to StoneTalk on iTunes for more. Visit the StoneTalk show Facebook to join in the conversation and follow @stonetalkshow on twitter.
StoneTalk is brought to you by Moraware, makers of JobTracker scheduling software and CounterGo estimating software for countertop fabricators.
I’m your host Patrick Foley and I look forward to spending time with you again on the next episode of StoneTalk.

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