The Software Vendor Business Environment

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The Software Vendor Business Environment
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The Software Vendors Business

• Make money from
• Providing software and related services
• Software
• Must satisfy a need or a want in a market that is
• Big enough
• Is willing to pay enough
• to pay the costs re-invest profit
• Licensed (not sold) maintenance
• Bulk discounts
• Negotiable prices
• Follow-on revenues are key
• Maintenance, Upgrades, Consulting, New related
  products, ...
• Software is quite sticky
• Cost of acquisition
• Need to ensure sold software is used
• Not shelfware

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Software Vendor Structure

• Shareholders
• Owners of the company.
• All profit and value increase accrue to them
• They elect the Board
• True for publicly traded or privately traded
  companies

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Software Vendor Structure

• Board of Directors
• Represent the shareholders interests
• They appoint the officers of the company
• Will advise the CEO
• Responsible for company acting lawfully

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Software Vendor Structure

• Chief Executive Officer
• Appointed by the Board
• In charge of running the company day-to-day
• By coordinating the activities of the Executive
  Team
• Commits to financial targets (revenue growth /
  profitability)

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Software Vendor Structure

• Executive Team
• VPs and C-Level officers hired and assembled
  by the CEO
• In charge of running the company day-to-day
• Meet regularly to coordinate activities and to
  set strategy
• Functional responsibilities corporate
  responsibilities

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Marketing

• Product Management
• Defining what products/services the company will
  sell at what price
• Preparing collateral materials for partners and
  sales
• Coordinate the release activities
• Key area

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Marketing

• Marcomm
• Communicating with the external world
• Advertising, press releases, - generate buzz
• Experts not at product (see prod mgmt) but at
  knowing how to reach people with a message
• Lead generation to feed sales pipeline

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Marketing

• BusDev
• Developing new business opportunities
• New channels to market
• New geographies
• New partnerships

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Sales

• Responsible for achieving the revenue number.
• Sales models
• High-level direct sales
• Identify decision makers with budget, chase them
  down, negotiate terms, close
• Dialing-for-dollars
• Dial out to big lists assembled by marketing
• Channel sales
• Sell indirectly via other organizations
• Paid via base commission
• May not be profit based
• Therefore need strong sales management

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Sales Process

• Sales pipeline or funnel,E.G.,
• Leads
• Qualified opportunities
• Short-listed
• In negotiations
• Close
• Sales management maintains pipeline
• Attaches estimated close date, sale value, and
  probability of close to predict future revenues
• Keeps the pipeline filled
• Uses a CRM system

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Client Services

• Pre-sales support
• Technical help for the sales group
• Implementation project planning pre-sales
• Onboarding / Implementation
• Ensuring a customer starts using the software
• Account Management
• Ensuring customers are happy
• Mining to see if they need additional
  software/services
• Customer Support
• Help desk

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Finance Admin

• The mechanics of establishing and reporting
  against budgets
• Spending controls
• Purchase requisitions. Purchase orders, signing
  limits, ...
• Taxes
• Financing
• Leasing arrangements
• Cash management
• Investments
• Funding
• IPOs
• Private investments
• Investor relations
• Administration
• Human resources
• Office management
• Internal IT

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Software Development

• Profit center
• I will spend more and make more and come out
  ahead
• Highly measurable results
• Sales, marketing, consulting
• Cost center
• I will spend more and produce more and better
  software
• How do you measure this?
• What is more
• What is better
• How much is reasonable to spend?
• Software Development is a cost center
• Need to argue the case for budget in a different
  way

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Management of the Software Organization

• Downwards
• Managing the software organization itself
• Outwards
• Managing the relationships and interactions with
  other departments
• Upwards
• Communicating and relating upwards in the
  organization
• Externally
• Relating to customers, partners, and suppliers
• Need to be good at all 4, not just the first.
• Need to understand the business you are in, not
  just the technical part, or you will fail.

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Proposals

• If money is needed for an initiative, you must
  ask for it in a productive manner.
• Not just state a need, expecting money to flow,
  and then having an I told you so attitude if
  not forthcoming.
• Managers with budget control would be
  irresponsible if they allocated money on ill
  thought out initiatives
• Will require a written proposal.
• Its a management role to translate vague needs
  into concrete budget.
• E.g., staff might say we really need to do
  distributed builds to cut down compile times
  cannot go to a budget request with that alone
• Manager should be aware of the chances of getting
  something like that done (by being plugged into
  the current fiscal situation of the company)
• Manager must coordinate turning this into a
  concrete proposal
• Manager must sell the proposal

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Contents of a Proposal

• Expected benefits
• How this project will achieve them
• Monetary costs
• Capital (hardware / software)
• Consulting
• Initial and ongoing
• Timing of cash expenditures
• Staff time
• Initial and ongoing
• Who
• Timelines
• Milestones
• Alternatives considered
• Other approaches
• Which systems considered / costs / functionality

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Closing on a Proposal

• Manager will want to discuss how to trim costs
  from the proposal
• Need to be flexible
• E.g., trading off a production-grade server for a
  workstation
• Will probably need to go back to vendors to have
  another discussion on trimming costs
• Should not spring proposals on senior management
  out of the blue.
• Ideally, will first have a ballpark figure for
  the project as a bogey in the budget.
• If not, must build support for the concept
  gradually
• Get support from other execs as well
• May not be possible...

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Corporate Financials

• Corporations usually have cash available at all
  times, but may not be willing to spend it.
• Important financial measures are
• Revenues
• Yearly, year-on-year
• Quarterly, compare same quarter across years
• Monthly
• Profit
• Revenues less cost
• As a percentage of revenues
• Yearly is most important
• Profitable businesses are typically valued at a
  multiple of revenues
• Demonstrate consistent performance
• Year-over-year
• Quarter-over quarter
• Month-to-month

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Budgets

• Before the start of each fiscal year, the
  executive will go through a budget exercise
• Sales will forecast revenues
• Each department will forecast costs
• Each departments cost budget will be backed by a
  written business plan
• CEO will balance the budget
• Departments will do a round 2 of the business
  plans
• CFO will finalize detailed budgets

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Capital v.s. Operating

• Capital expenditures
• Not salaries or consulting
• Hardware, big ticket software
• Can pay for it with cash up-front, but full value
  does not show up as a cost immediately.
• Get benefit over a 3 year period
• Will depreciate the assets
• (Because can sell them at any time)
• Can finance these purchases
• E.g., leases
• Therefore do not need cash if corporation is in
  good financial shape
• E.g., growing quickly
• E.g., 12,000 server
• Goes into the cost budget as
• Year 1 4000
• Year 2 4000
• Year 3 4000

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Cost Versus Baseline

• Hire an employee at a 48,000 salary
• If hire on July 1, 2005
• Will be a cost of 24,000 in 2005
• Increasing the baseline budget by 48,000 for
  2006
• Consultants are more flexible in this regard
• If not on a committed project with sunk costs

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Software Development Annual Business Plan

• Introduction
• Mission, products under maintenance, new products
  being worked on
• Accomplishments in the past year
• Self-assessment of process maturity
• Areas for further improvement
• Baseline Budget
• The baseline spending if no new initiatives
  undertaken
• Will already be higher than last years budget
  owing to new hires arriving mid-year
• Baseline staffing ratios
• How/where the baseline is being spent
• Organizational Structure
• New initiatives summary
• Broken out by area of focus
• New initiatives detail
• E.g. bp98

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Summary

• Source Code Control
• Defect / Feature Tracking
• Reproducible Builds
• Automated Regression Testing
• Release Planning
• Feature Specifications
• Architectural Control
• Effort Tracking
• Process Control
• Business Planning
• Do all these things, and youre doing well.

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Thank You!

• Now go forth and produce software!