According to business guru Michael Porter there are three generic competitive strategies for a business: you can be innovative, cost-efficient or customer-focused, but not all of these at once. Enterprise software companies typically produce some unique solution to a problem and then try to sell that to a wide range of companies, so are usually in the innovative camp. Rapid growth is key in software, requiring significant spending on sales and marketing; indeed a relatively mature enterprise software companies may well devote almost half its budget to sales and marketing. Hence software companies are rarely cost leaders. However, most software companies seem to me to be missing a trick when it comes to how they deal with customers; not having customer focus as your key competitive strategy is not the same as downright ignoring them.
Selling a piece of software for quarter of a million dollars or more to a large corporate is a lengthy and expensive exercise. Sales cycles are typically six to twelve months, and multiple resources at the customer need to be convinced before that elusive purchase order appears (a “complex sale”, to use a Miller Heiman term). Yet once an order appears, the commission schemes of most software companies incentivise the salesman to immediately head off to the next big deal elsewhere, in search of a fresh customer logo. Whatever vendors tell you in their sales literature, enterprise software projects take a long time, at the very least many months and often several years before a project is fully live. A software company does not hang around during this process: it typically relies on a systems integrator to do the implementation, and other than a spot of training and some calls to the helpdesk, the awareness of that customer within the software company gradually fades away, only periodically resurfacing if a crisis occurs.
There are missed opportunities in this approach. Customers typically make costly software purchases only after being convinced that it will really work, and the best way to be convinced is by an existing customer. Hence software companies sensibly produce written case studies of happy customers, and at a pinch will provide a phone number of an enthusiastic customer to prospects on the brink of purchase. However they often lose touch with what is really happening at a customer site once the sale has completed unless they also have professional services staff engaged with the project. The salesmen move on to hunt down the latest hot prospect. This can be a mistake, since selling more software to an existing client is a lot easier than acquiring a brand new customer. Estimates like “four times cheaper” appear in the press, but whatever the true figures, it makes sense that it will be easier to sell to an existing client than a brand new one. At a big corporation there are very likely to be numerous departments or subsidiaries that can use a piece of software, so in many cases it would make sense to recruit software salesmen who are “farmers” rather than “hunters”, in other words ones that nurture an existing customer relationship and seek out further opportunities, rather than focusing on the latest trade show sales lead.
It is evident to me in dealing with software vendors that such opportunities are frequently being missed. Existing customers are often ignored once that big perpetual license cheque clears. Evidence for this is seen in the regular Landscape studies that The Information Difference carries out, As part of the process software companies are asked to produce customer references willing to take a survey of how happy they are with the vendor. I find it remarkable how much of a struggle it appears to be for vendors with notionally large customer bases to produce even a nominal set of ten such customers. In the most recent Landscape report not one but two vendors had multiple customers who, in response to the question” “would you recommend this software to others?”, answered: “No”. Just how out of touch do you have to be with your customers to pick one of these as your reference? These were not typos: the same customers scored the vendors badly across a range of questions, and added comments such as “We do NOT feel any engagement from the vendor for us to succeed”. Remember that these were customers provided as references by the vendors, not a random sample.
Ultimately a software company benefits from having successful customers. They can act as positive references to prospects, they pay maintenance and they are a rich resource of potential cross-selling. But software companies need to stay engaged with their customers and ensure as best they can that projects actually succeed and deliver benefit to the paying customer. Mankind became wealthier when it moved from hunter-gathering to farming; enterprise software companies would do well to heed that lesson.