Can artificial intelligence do the work of high-powered consultants?
A Munich-based startup founded by a math major is doing just that. His fast-growing software startup offers companies like 3M, Cisco, and General Electric better results at a fraction of the cost -- and he's grabbing market share in a $15 billion market from consulting powerhouses like IBM and Accenture.
Should investors in those incumbents be worried? A little bit. (I have no financial interest in the companies mentioned in this post).
Before getting into why, let's take a trip down my memory lane. When I was a graduate student in computer science at MIT, I took a course called Office Automation Systems from a professor named Michael Hammer.
The name may sound familiar because Hammer -- in whose class I first heard the idea of looking at business processes with a "clean sheet of paper" -- and my former boss, Jim Champy, co-authored Reengineering the Corporation that created a multi-billion dollar consulting market.
As I learned from running several reengineering projects over the years, the first step for a business process redesign team is to map out the current processes. From there, improvement opportunities should become apparent -- inspiring a redesign intended to cut costs and time and boost customer satisfaction.
Alex Rinke was a math major in Munich who was asked to do this sort of consulting. But rather than go out to interview people to learn about how a client's business process worked, he realized that he could use data from its IT services system to map out how a process worked.
What's more, Celonis, the company he started to commercialize this insight, has developed an artificial-intelligence based system that offers practical suggestions on how to redesign a process to make it more efficient.
An early client was Siemens that used Celonis to tighten up its procurement, manufacturing, and order-to-cash processes -- which claimed that Celonis helped it "reduce operational costs by 30% and get to market 20% faster." What's more, Celonis has added such big name clients as Bayer, ABB, 3M, and GE.
Rinke started in 2011 with three people and started 2017 with 150 -- he expects the company to triple its revenues this year and to end the year with 250 to 300 employees -- a third of the new hires will be engineers and the balance in sales, marketing, and administration.
Celonis is pretty capital efficient -- having achieved this growth with a mere $27.5 million in capital from Accel Partners raised in June 2016 after having bootstrapped itself to $10 million in revenue in less than three years according to Rinke.
Why is Celonis growing so fast in the Automated Business Process Discovery (ABPD) industry that Gartner estimates is worth $15 billion? You can hire a consultant to map your processes for at least $1 million if you are willing to wait six to nine months for a pretty good result.
Or you can pay Celonis between $100,000 and $500,000 and get better results within minutes. Celonis claims that it has helped several Fortune 1000 firms (like Bayer, Vodafone, Airbus, among others) cut operational costs by 30% -- translating into "hundreds of millions of dollars by improving key processes such as purchase-to-pay, orders-to-cash, production, logistics, accounts payable, accounts receivable and IT service management."
Celonis says that companies are finding these benefits hard to resist -- taking a combined $100 million in revenue from rivals such as IBM and Software AG.
While Celonis is taking a tiny amount of revenue from these huge companies, its success helps highlight how easy it is for startups to win huge customers from incumbents that overcharge customers for products that deliver inferior results. And that outcome is a clear result of their inability to attract and motivate world-class talent like Rinke.
Meanwhile, I would not be surprised to see one of these consulting giants offer a nice payday for Celonis through an acquisition.
