The ten reasons why software companies lose in a losing economy?

I have been thinking about the software industry and what is going to happen to companies in this really lousy economy. There will clearly be companies that don’t weather the storm — either because their venture capital backers get nervous or because their customers do.  But, as in every downturn, there will be companies that figure out how to do the right thing and actually thrive. There will also be companies that simply have a business model for another time and will not make it.  So, I thought that I would put together a list of the characteristics of the software companies that will fail:

1. My technology is so revolutionary everyone will want it. I see too many companies that don’t actually know what problems their technology solves for customers. If it doesn’t solve pain — don’t bother.
2. The platform we offer to our customers is a complete architecture and we’re going to build an ecosystem. Software companies that think they can offer a complete platform to customers — even if they have only a few dollars in revenue.  This isn’t the time to try to do it all. Anyone, no one will believe you. Pick something you do well and stick to it!
3. We don’t plan to try to partner with the big players; it’s too hard. In tough economic times, customers want to know that there is someone big and powerful behind the scenes…just in case.
4. We’d love to partner with a large vendor if they are willing to put our product on their price list and sell for us. Keep dreaming. Big vendors will partner but only if there is something in it for them. If you can fill a hole in their product line you have a good chance but you have to be realistic.
5. We sell a great tool. Everyone needs tools but they are commodities. So, unless a software company has a deep channel, this plan won’t work.  I have seen too many really nice tools companies go out of business. It takes a lot of energy to make one sale to a customer. If the return on the sales effort is only $199.00, it will takes a long time to get to a million.  And in tough economic times, customers will put a software company throught the same due diligence process for a $200 item as they would for a $20,000. Everyone is afraid to make a decision.
6. Our technology sells itself. Just a few months ago companies were talking about how they wanted technology that would foster innovation. Now that desire hasn’t changed and probably won’t. However, customers want to know that they can get a fast return on investment.  Therefore, successful vendors are structuring their offerings in a modular way so that customers can quickly prove value.
7. We sell an entire turnkey environment. The days of big all encompassing implementations are over — at least for now.  Customers need to be able to implement just what they can afford or get budget for. If it is successful, they want to be able to add the next chunk…next year.
8. We are implementing precisely what our customers tell us they need. I know that it is important to listen to customers. However, there are important lessons to remember. Customers do not always say what they mean. They don’t always know what they want. They might be asking a software company to add functions that are specific to the way their company operates and may not be wise for the market overall. So, to avoid failure, listen but make sure that you are not walking into a trap. Look beyond fear and to what will make your buyer successful in their jobs.
9. We are thinking about Software as a Service (SaaS)…but… In scary times, it is easier to stay with what you know and not make waves. But customers will buy SaaS offerings because there is no capital expenditure needed. If you don’t know how to do this, partner with someone who does. It is going to become the normal way that many software offerings are provided now and even more so in the future.
10. We are limiting our outreach in the market. It is too expensive to advertise or market. We’re going to wait until things get better. While these are scary times it is not wise to hide.  While companies are hiding smart software companies are out there doing a lot of low cost but very effective marketing initiatives. It takes some hard work, but prospects will notice because everyone else is really quiet

There is no doubt that there is lots of uncertainty out there. There will be a lot of companies who don’t know how to position, price, and partner. There will be lots of companies that simply don’t know how to prove to prospects that they are worth betting on.  I suspect that the companies that survive will be the ones with great business models, interesting and accessible innovation and a lack of fear.

Has IBM Changed its Partner Strategy? The Hunt for OEMs

Partners are getting more and more important to the major software players. IBM announced a very interesting relationship with Kana, a $60 million solution provider of multi-channel customer service software. This is indeed a growing area in the market. Kana sells its software to about 60% of the Fortune 100. The company started in 1996 and has managed to survive some rough times and come out strong.

While IBM, like other major industry players rely on their partner ecosystem as an important go to market strategy. Some partnerships work better than others. What I thought was particularly interesting about the Kana partnership is its depth. Kana has decided to embed IBM’s DB2, WebSphere (including the WebSphere Process Server) into its solutions. SOA is an important new direction for Kana and the two companies plan to do some joint development in this area. Relationships like this don’t just happen. More than half of Kana’s customers are also IBM customers. This is important because increasingly the customers that I am talking to are looking to buy solutions from one trusted provider rather than trying to get a bunch of individual vendors to work together.

IBM has had a strategy for more than a decade of partnering with packaged software providers rather than being in that business. On one level, this can be viewed as a risky strategy. One only has to look at the roles of Oracle and SAP in the market to wonder if these packaged offerings will swallow up the entire ISV partner ecosystem like a black hole. I guess that my conclusion is that it just isn’t that simple. Customers that I have spent time with look at software packages from a different vantage point than infrastructure software. Because Oracle or SAP provides an excellent package for supply chain management or accounting management does not necessarily mean that they are the right choice for middleware or SOA infrastructure.

IBM’s partner strategy with ISVs has evolved over the past several years. I see a change from the desire to have lots of partners who will enable their software to run one or more IBM software offerings to deeper more strategic relationships. The Kana relationship is an OEM relationship — not a simple membership in a partner program. In fact, IBM has more than 30 of these OEM partnerships with vendors including Fair Issacs, Cisco, Nortel, and PTC — to name a couple. I expect that OEM partners are going to became an important center focus of IBM’s partnering strategy in the coming year.