The Software Industry: The Value of Customer Intimacy

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I wanted to take some time to discuss something I get asked a lot about - is the Intimacy Engine viable for software businesses, regardless of the Software-as-a-Service journey everyone is on and the Cloud impact?

The real issue they're worrying about is that a large consulting business will negatively impact the great margin that software has, thereby negatively impacting valuation.  It does not work that way when done properly.  Further, software-based businesses also have the problem of "where do I go from here", once the current product has been somewhat commoditized- i.e. other firms have moved above and below offering more or less price.
 
Traditionally software firms' options are to do a shift and become a suite of things, an infrastructure play, or find a new fresh home unrelated to the current space.  All these require additional product, and more importantly, selling to new buyers higher up in the organization - this is where a strong Intimacy Engine comes into play. 

It's much easier to go up the organization with your products if you have the ability to work with the executives on issues they care about.

Let's take the diluted factor of services to licenses sales.  It's just not true that you should be selling more licenses. Let me provide a picture to assist.  The buying cycle is as follows:

buycycle.jpg

The challenge for a traditional sales only approach is that if you meet a customer in steps 1 or 2, you have little control and a long sales cycle, and the drivers often become features and price.  However, if you lead with True Solutions™ during these steps, you can get paid for effort, control the process, and shorten time to product sales.  Most importantly, you get more product sales! 

Therefore the argument is null and void; you get more license-sales faster, and the magical break-down of 1/3 license sales, 1/3 service, and 1/3 maintenance is maintained.

Next, let's take the ability to move to expand the product offerings to maintain or re-gain momentum for a software business. The beauty of the software model is the margin it achieves on product sales.  By the way, this is true of SaaS also, it just elongates the revenue and eventually increases the product value (people end up paying more over time, but it is accomplished a period at a time- think salesforce.com).  

Every product market gets saturated eventually.  Everybody has made their decision on who to play with, or the market is crowded and price pressures force looking at new virgin territory.  Further, over half of all new product launches do not succeed in the time to market to get the revenue needed. This is almost always because companies must sell into a new environment and all their current abilities - marketing, messaging, sales - are used to the old environment.

The Customer Intimacy Engine™ business model does not have this problem.  The Intimacy Engine sells by examining ideas, and ideas can easily (by adding new True Solutions™ to the solutions portfolio) move up the organization.  

Let's say your current software works at the department level and you are going to increase your value by adding products that make your offering a suite of offerings that follow a life cycle - could be the supply chain, the product launch or other life cycles within your target customers.  The ability to quickly move to and above above a new safety line is enabled by the Intimacy Engine, thereby eliminating the risk of being unable to change the entire business model to reach these new buying environments. 

Let's say you are moving to a whole new space. Even more difficult! The same truth applies. You can add True Solutions for the new space and pull through your new products and minimize your risk of failure. 

The real challenge is one faced by every business - how do I build an Intimacy Engine for my specific business? 

In summary, the Intimacy Engine can enhance the current financials (within the model you wish to have) and can positively impact the largest issue facing a software business today (whether it is a standalone business or embedded in a larger company), which is how to move and grow into new marketspace.

MORE INFO >> Download: Customer Intimacy as a Business Model by Dean McMann

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This page contains a single entry by Dean McMann published on January 27, 2011 11:14 PM.

Mittelstand: A Lesson from Germany was the previous entry in this blog.

Customer Intimacy is not Engagement is the next entry in this blog.

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