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4 Non-Obvious Concerns When Buying Software From Unknown But Intriguing Vendors

March 21, 2014

Cloud and licensed software are both flush with vendors. BI, for example, is now in Enterprise-wide roll-out phase, but which BI vendor is your go-forward choice?  There are at least 24 tracked vendors in this space, and who knows how many are still under the radar.  The usual and established vendors have strong offerings, but some of the Most Unexceptional products and Cloud based services come from the new and the ‘up and comers’.  How do you buy from these non-obvious but intriguing vendors? If you’re the vendor, what is going through your prospect’s mind, and how can we reach win-win and close the sale?

Vendors go through maturity levels – some are figuring out how to transit to a win-win business model, others are learning mainstream business culture norms.  Some are technological visionaries but inexperienced at supporting end-user buyers over the contract term.  It boils down to one extremely personal question the shopper should ask – “what would happen if I choose a non-obvious vendor and it doesn’t go well?”  Each organization is different, some embracing fast-fails, while others emulate North Korea, and so the answer depends on both you and your employer’s risk tolerance. Sellers need to put themselves in the customer’s mind, ensuring personal risks are either allayed or avoided. If not, the sales cycle will be intolerably frustrating and elongated.

Here’s what matters, based on our experience, selecting, partnering and implementing:

1 – Is the product built as a product or is it a reuse of an internal tool or application?

Products are parameter driven and need to be more than Minimal Viable’ (especially cloud based offerings) and have a shareable roadmap.  They are architected for broader use, straightforward integration with other products/feeds and adaptable/extendable with backwards compatibility or Most Unexceptional case, backwards-invisibility (you don’t even know it was updated).  Internal applications are not as flexible and usually are built to be frozen for 10 years with little or no updating.   Check if this intended purchase was designed and built as a product, or was declared a product with little more than branding and a long roadmap of critical fixes and changes added.  The vendor’s CEO knows, talk to them, one on one.

2 – Is their business model a win-win? Do they understand the current business culture? Do they know it to a fault?

We increasingly are seeing vendors built for a near-term acquisition, not built to be a company lasting even the 3-5 years of today’s normal B2B technology contract term.  They’ll do whatever short term tactic is needed to get there.  Give Facebook credit, they’re a real company figuring out new business aspects so they can be around for years. Many vendors aren’t that strong or even care. The ‘tell’ is having an impressive New Customer list, but being thin in each account, usually the original purchaser and perhaps an add-on or two. We call these ‘orphan vendors’, and we kill them off during our Vendor Rationalization engagements, so you’re stuck holding the bag for a regretful purchase decision. Dumb Money investors love long new name account lists, so a lot of companies are forced (or decide) to go this short-term route.  Therefore, when you check references, ask for ALL the users in an account, not just their primary contact.

What is their distribution strategy: call-in centers, partners, resellers? Does the underlying supporting business culture mesh well with yours? Are they selling primarily on price? Some vendors rely on referral partners, essentially someone who hands them a warm lead and then steps out of the way.  This is a powerful new lead generation system, but who will be there next to you, shoulder to shoulder making sure you’re successful? Not the referral partner who has already made their 1X cash hit, or an implementation partner who wasn’t part of the original scoping activities. Build service level KPIs into your agreements with all parties.

3 – Post Sales Support – who will hold your hand while you attain mastery?

Implementation services are much less profitable and harder to scale than software, and so many vendors shy away from implementations, using local partners. This is actually a positive for the buyer as a poorly designed product might require the vendor’s deeper understanding of the unique architecture and resulting idiosyncrasies than most resellers/partners are willing to invest in learning given the potential market opportunity.  This could be an indicator of a product issue needing further pre-sale investigation.  Make sure you have full knowledge and application IP transfer for strong long-term self- sufficiency.

4 – What happens to the vendor’s employees if your implementation doesn’t go so well? Is it only my job at stake?

Having lived in Silicon Valley, and having been involved in growing or turning around vendors, I’ve seen what I call the ‘3 time zone phenomenon’ in action. HQ staff can move on to another HQ, monetizing their experience at a failed vendor, as long as their own hands are relatively clean of the main issue which sank the vendor they’re leaving. Or, if they were early-in and the vendor can be sold, they focus on slathering ‘lipstick on the pig’ to increase valuations, and then cash in big time.  You, the product end-user purchaser, are left explaining a regretful decision.

As a buyer, adjust your payments accordingly. As a vendor senior manager, you have to convince end-user buyers through tangible assets you’re a low risk option, such as through well thought through training, implementation plans and wrap-around services provided either directly or through resellers and partners with long-term financial incentives.

Non-obvious vendors can provide new and outstanding solutions, at cost effective pricing, and should be seriously considered. Often, they have the breakthrough solutions allowing you to innovate, providing more than a ‘me-too’ catch-up capability.  Just appreciate their point of view – despite what they may say, are they transactional or relationship oriented, and how does this square up to your personal comfort zone?

Richard Eichen is the Founder and Managing Principal of Return on Efficiency, LLC,  http://www.growroe.com , focusing on companies, initiatives and products where technology is the primary means of delivery and revenue. He is one of their senior Turnaround, Transformation, Program Rescue and Process Rescue leaders.  As a Change Agent, Trusted Advisor, Program Leader and Interim Executive, Rich has over 25 years hands-on experience reshaping companies, Operations, IT/Systems Integration and strategic initiatives.  He can be reached at richard.eichen@growroe.com, and followed on Twitter, @RDEgrowroe

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