6 Software Business Pitfalls When Shopping for a Planning Solution
Finance staffer in a tech company? This article is for you.
Are you a finance staffer in a tech company? This article is for you.
Why are you getting so many emails from financial budgeting, forecasting, and consolidation sales reps? It’s because they reach out to tech companies early and often. Why? Because they’re tech companies too, and they know you’re likely eager to use modern tools. They think you’re an easier sell.
The Background
Around 2016, the Corporate Performance Management (CPM) market—which includes budgeting, forecasting, consolidation, close, and reporting—exploded thanks to a ton of capital. New vendors popped up seemingly overnight, and almost all of them built a “SaaS” model. Since VCs were throwing around money at the time, it made sense. Software companies were spending.
Now What?
You’ve decided to start evaluating platforms. They either all look the same or look radically different. Some focus on one ecosystem, like NetSuite, Microsoft Dynamics, or Sage. Others claim to be “source system agnostic.”
At ShortlistMatch, we know the answers to these questions and will guide you to the right vendor. If you’re working with us, we have the below handled for you.
1. The “SaaS Demo” Trap
Many vendors assume they only need to build one demo that suits all software companies. They’ve based these demo models on themselves, meaning they’re primarily B2B software revenue models where deals take time to close, a CRM is involved, they renew annually with uplift, and so on.
Challenges arise when considering the vast number of potential models out there that are nothing like the above:
- App Store: Businesses sell many units with no sales cycle whatsoever. Some are on a free plan and then drop off. Some convert. Over time, some buy upgrades. Some cancel.
- Buy on Website: Conversion ratio based on website visits or clicks is used to forecast subscriptions, which in some cases start with free trials. Then they convert, or they don’t, like the App Store example. Often there is a tier upgrade.
- On-Premise: You might think this model is dead, but it’s not true. There are still on-premise products out there, especially in the Enterprise space. These are sold via a big license fee and ongoing support, just like the old days.
- Freemium: Like a free trial, but with no end date. The customer uses the product under certain constraints for free. If they want the good stuff, they upgrade.
- Usage-Based: Common in infrastructure technology such as web hosting. Based on CPU usage, storage, or hits, the customer is charged. This is big in iPaaS and has bled over into applications. It might also fall into a per-transaction model, which has some similarities.
- In-App Purchases: Selling access to data, ads in the app or website, etc.
Then there are several hybrids:
- Subscription + Product: Customers subscribe to an app for a specific purpose and can elect to receive products each month. These products can be upgraded or changed. This is a hybrid product/tech business example.
- Subscription + Usage
- Subscription + Managed Services
Just because the demo you saw has a “software model” in it does not mean your model will fit. It could be radically different, or that model could be rigid, meant to be used in an extremely specific way.
2. Metric-Mania!
Of all the industries I’ve sold to over the years, you would think manufacturing and retail would have the most metrics. They often operate on razor-thin margins, after all. But alas, no. The software industry has gone absolutely bananas with metrics, so much so that vendors have scrambled to cram them into products for the sake of a demo, because, well, we need them all!
This obsession with metrics can be both a blessing and a curse. Is having all these metrics nice? Yes. But consider your tech stack. Can you reliably bring it all together in the CPM system you’re evaluating to calculate those metrics correctly? Some tools can only integrate with one source system—the rest are flat file uploads. Others have a broad integration set.
Consider:
- Integration Capabilities: How am I going to get the information needed to calculate these metrics into the tool? CSV? Or is this automated? Is the setup significant?
- Flexibility: How can I change the calculations myself? Are these hard-coded formulas?
- Timing: Will I be doing CSV uploads “for now”? Or can I expect data to flow right away? Beware of the “for now” processes, as they often become a permanent burden.
3. The Source Systems You Forgot About
Most products on the market will pull in data from almost any ledger. That is the easy part. Software businesses, on the other hand, may have other key sources of data:
- Subscription Management tool
- Proprietary software platform (your own product)
- App Store and Google Play
- CRM (not everyone uses Salesforce)
- Data warehouse
- Professional Services Automation
- Spreadsheets
- Payroll or Human Capital Management tool
- ERP
Bringing in only ledger data tells a summarized, dollar-value-only part of the story. What about those renewals? Are those in the subscription management tool, or are they in the CRM? Maybe you keep them in a centralized ERP. Either way, you need access to them.
Moving around CSVs is painful and should be avoided where possible. The good news is that there are modern platforms that offer better ways to pull data than ever before. What used to be a $20k implementation project can now be accomplished with something pre-built. That said, it is nearly impossible to ascertain that yourself in an hour-long demo.
4. Employee Planning
Most software businesses will tell you that salaries represent 80% or more of their costs. This means that, while planning for expenses like phone bills and various subscriptions is important, those pale in comparison to Workforce Planning.
When you go out into the market, you’re going to see a workforce model like this, which may be fine for you:
This highly abbreviated example shows named employees and will include other drivers like health insurance, 401k, and other tax calculations that are the employer's responsibility.
This planning model works well for almost everyone. But what if...
- You need to plan based on capacity, like for your call center.
- There is a big offshore presence where you instead plan by roles on a project.
- Some sort of seasonality exists where you must labor up and down.
Vanilla named employee models will not accommodate that. You will need a second workforce model to make the process efficient and stay out of Excel for that function.
5. Project Forecasting
Is your business involved in complex implementation projects? Are those a profit center or a loss leader? Where is the project data sitting?
For businesses that offer an implementation service with their initial sale, consider the need to budget for those in the CPM tool. You may decide that your PSA tool accomplishes this, and all you need to do is import completed outputs from that. That should be easy for most mid-market and above products.
However, if you are looking for a detailed project-planning forecast tool, you will want to dig deep to see what level of project detail the vendor can support.
Can the system add those post-implementation? Or will you need to start over?
6. Data Segmentation – Today and Tomorrow
After selling CPM tools for 15 years, it never fails that dimensionality is not carefully considered by the buyer, especially in rapidly changing businesses like software companies. Compared to other businesses, technology companies (especially software) change their revenue models constantly. SKUs change, pricing models, new products are released, support packages are added or revised, and so on.
This may require far more dimensions than you considered. For example, let’s pretend you implemented a conservative model to start:
- Dimensions: Department, Product, Location, Product, Class
Each of those only have 15 values today. No problem.
Fast forward 3 years and there has been an infusion of capital. The business expands. Now you need:
- Dimensions: Project, Subsidiary, Currency
Can the system add those post-implementation? Or will you need to start over?
In Conclusion
While software businesses have several powerful products to choose from, they often get confused with the sheer number of products on the market. This results in either doing nothing, buying the first thing that they see, or buying a product that worked for that moment in time—forgetting that software businesses grow and change.
