Glue Products Have An Advantage When Customers Determine Value for a Solution

“Glue products” connect sections of software solutions for customers. At the application layer examples include Tibco, IBM’s MQ Series and more. At the functional level, examples include software systems for training, networking, data collection, and many more. This post will discuss functional glue products.

A brief word on how these products tie together sections of functional solutions may be helpful:
I have current experience working with Microsoft’s SharePoint server product and related training solutions. So I will present what follows specifically on training as a glue product and how I think sales teams should address value with their customers.

SharePoint customers, on-premises, have objectives like “collaboration”, “compliance reporting”, internal communications (intranet), communications with partners (extranet), etc. Without training, personnel may not be able to successfully deliver on any of these objectives. So does the value proposition for the training component depend simply on the training itself, or should the calculation of value be based on how the system chosen for the training requirement optimizes the overall value of the SharePoint solution? Sales teams should help customers understand the most accurate value calculation will be based on the value of the overall SharePoint solution with the training component included as the optimum choice for the job. This tactic enables a favorable pricing discussion for the training component for the sales team while, at the same time, promising the best chance the customer will have to extract the highest possible value from investment in the overall solution.

If sales teams don’t do the work (in other words come up with a description of the solution the customer expects to build with SharePoint, and the expected role for training or one of the other glue solutions I mention above), then the value proposition will likely come down to an “apple vs orange” comparison where one training option is compared to another without any attention to the overall solution. The sales team will likely find itself haggling over price, while the customer struggles to get to the highest possible return on investment in the overall system.

Convincing customers to participate in a value calculation as I have just described depends on trust. So sales teams should also implement supporting tactics capable of elevating the relationship with the customer.

I am often surprised to see how few early stage ISVs marketing functional glue products demonstrate understanding of these tactics. Successful efforts to sell to enterprise software customers almost always include this type of value discussion, calculation and proposition.


Repurposing Sales Teams as Products Change is Challenging, a Contentious Structure May Produce Better Results

Results for the business quarter ending May 31, 2013 at Oracle® weren’t well received by Wall Street. Don Clark and Nathalie Tadena summarized the results and investor reaction in an article published on June 20, 2013, Oracle Earnings: Shares Slide on Flat Revenue, Cloud-Software Challenges in the online edition of The Wall Street Journal. The authors wrote: “Oracle lifted its profit 10% in the fiscal fourth quarter ended May 31, doubled its quarterly dividend and authorized a stock buyback of up to $12 billion.”, but investors still took 9% off of the stock price in simply 1 day of trading.

Why? As the authors aptly note, revenue reflected zero growth from the prior year. Sure Oracle is making more money from its businesses, but the bottom line is not growing. We think an important reason for insignificant revenue growth is an effort to train an existing sales force, familiar and committed to enterprise markets, to sell multi tenant cloud alternatives. Oracle reported on sales difficulties in its Q3 2013 report. The Q4 report claims substantial improvement in the effectiveness of sales teams, but there are no results to substantiate the claim.

We don’t think efforts to retrain sales teams, like this one (there are other examples at Dell and HP) work very often. We think a better approach is to restructure sales teams into a contentious formation, where enterprise sales teams can compete with sales teams dedicated to selling multi tenant cloud products for the same business. A simple review of the history of efforts by Oracle’s peers and competitors–Microsoft®, and IBM® shows little success at extracting the gold from repurposing the same sales personnel onto new products.

In contrast, a review of how other industries, for example newspaper publishing, handled similar difficult challenges, shows management fostering healthy contention between sales teams. In the 1990s and the first decade of the new millennium, separate sales teams were dedicated to selling print vs. online editions. A healthier New York Times in 2013 is an example of how contention can be used to produce better results. We think Oracle®, Microsoft®, and IBM® should think about how to use internal contention methods to better manage sales to produce the revenue improvement they need.

Ira Michael Blonder

© IMB Enterprises, Inc. & Ira Michael Blonder, 2013 All Rights Reserved


It Helps to Carefully Read Analyst Reports Before Including Them in an Appeal to Authority

Carefully read analyst opinion before adding it to a sales presentation built around an appeal to authority. We almost made the mistake of pouring some comments published by Gartner, Inc. in its Highlights From Gartner’s Data-Driven Marketing Survey, 2013.

After a careful review of the material we decided the conclusions reached were not applicable to our target market — early stage Independent Software Vendors (ISVs). Here’s an example: “A majority of marketers that we interviewed, 54%, invest in digital marketing because they believe it’s key to their competitiveness. But they are not certain of the return on their investment. For that survey, which took place in April 2012, we interviewed 98 marketing executives in companies with revenue greater than $1 billion, and who had or were considering a digital marketing function.” (quoted from Gartner, Inc. A link to the full report has been provided above).

Our market is not characterized by ” . . . companies with revenue greater than $1 billion.” The companies in our market do not ” . . . invest in digital marketing because they believe it’s key to their competitiveness.” They invest in digital marketing because most of them sell software as a service (SaaS) solutions. Almost all of the revenue they produce is the result of online sales and marketing.

So what’s the big deal? The big deal is how we got to this report. We followed a link from an innocuous sentence on a web page on the IT World, Canada website: “Many organizations are plagued by disconnected analytic efforts, according to research firm Gartner Inc.”.

Note the hyperbole in the sentence. There are comparatively not ” . . . [m]any organizations . . . ” with revenue over $1Bil. The survey conducted by Gartner, Inc. speaks to a very small segment of businesses here in the United States.

Opting to include information actually unrelated to a subject at hand in an “appeal to authority” substantially diminishes the effectiveness of the appeal. Sad to say a lot of the argumentation we read today is hastily put together with information actually irrelevant to the discussion at hand.

Ira Michael Blonder

© IMB Enterprises, Inc. & Ira Michael Blonder, 2013 All Rights Reserved


Enterprise Purchasing Policies Can Inadvertently Impede Return On Investment in IT Systems

Early stage Independent Software Vendors (ISVs) planning on a customer profile typified by a larger, enterprise class business customer, should have a tactic in place to handle modern enterprise business purchasing methods, at least for the United States market. These purchasing methods usually include a simple sole source procedure to fill orders. The rationale for these methods goes like this: Sole source vendors are comfortable selling computing technology products, and even services, as commodities to their customers. So the vendor accepts lower margins in return for larger order volume.

To play the game, early stage ISVs will need to sell products to their end customers at a lower price through these sole source vendors. The sole source vendor, in turn, will sell the product to the end customer at a set price, usually directly negotiated between the ISV and the enterprise IT business customer. But internal sales teams, where compensation plans are weighted towards commission, will not have the incentive to pursue the business if they must anticipate splitting the percentage basis of the commission with the sole source vendor. In some cases the sole source vendor will get 75% of the margin, leaving sales people a mere 5 – 10 percent of normal commission.

The purchasing method, itself, is problematic. Sole sourcing results in a low cost order processing procedure, but some ISVs will simply not be able to compete for the business, especially self-financed ISVs lacking the financial resources required to compensate sales staff in lieu of commission.

Enterprise business suffers where the best solution for a requirement is manufactured by an ISV poorly equipped for the enterprise IT selling experience. Frequently this type of ISV will drop out of the competition for the business if sales teams cannot be fairly compensated for the extensive effort they must make to win the order. The result for the customer is a mediocre solution promising a limited return on investment. IT portfolio management roles should be designed to ensure enterprise business doesn’t fall into the trap of buying products, which can be procured through a sole source channel, but are, nevertheless, not well received by peers in the same market.

If your business falls into either of the roles we’ve just presented (meaning you’re either an enterprise business with a substantial need for computer products, or you’re
an early stage ISV with a product targeted for an enterprise customer profile), you need a better tactic to successfully use your strategy to attain targeted objectives. IMB Enterprises, Inc. can help you. Please contact us to learn more.

Ira Michael Blonder

© IMB Enterprises, Inc. & Ira Michael Blonder, 2013 All Rights Reserved


Partnering with Core Application ISVs can Open Opportunities to Engage with Enterprise IT Decision Makers

ISVs offering what we refer to as peripheral solutions to enterprise businesses can experience substantial difficulties as they seek to engage directly with decision makers. Purchases of these solutions are usually invisible to decision makers as the result of two rather obvious factors:

  • the impact of the cost of acquiring these solutions is considered insignificant and
  • the requirements for these solutions often arise independently of requirements for corecomputing platforms

As we have argued in the last couple of posts to this blog, it is likely much easier for these ISVs of solutions on the periphery of enterprise IT computing to gain renewals on subscriptions where decision makers are aware of the solutions and engaged in the successful implementation of them as components of an enterprise-wide quest for value. Nevertheless, as we have just noted, most of the time engaging with decision makers is a very difficult challenge for ISVs of peripheral solutions. The end result is a difficult tone to year end where the sales team is out in the market with crossed fingers hoping that customers will opt to renew, despite a lack of support from decision makers.

A cure to this malaise is to joint market with ISVs of bigger solutions. If our readers need to be convinced on this point, then we recommend that they simply consider that the cost of these bigger solutions is always a matter with high impact on enterprise business decision makers. Further, implementing bigger solutions requires changes in operating procedures across an enterprise. Based on these two conditions it is safe to assume that decision makers will maintain focus on requirements for these bigger solutions.

The task for ISVs producing peripheral solutions is to identify likely partners who will require peripheral solutions to ensure that their customers can successfully implement their solutions. Success in this setting almost always amounts to implementing a solution that will produce a lower cost of business operation. Cost savings should be understood as largely synonymous with the concept of value for enterprise IT businesses.

We participated directly in the successful efforts of one ISV with a peripheral solution targeted to enterprise businesses. This ISV had a solution that permitted enterprise businesses to purchase very costly document production equipment. Specifically, enterprise businesses could use this ISV’s solution to spread the cost of this costly document production equipment across a wide range of computing systems, including a mainframe, work place computing and standalone personal computers. Our partner in this solution was a small company by the name of Xerox. If you care to hear further about this specific success story, then please use our contact form to submit your request.

© IMB Enterprises, Inc. & Ira Michael Blonder, 2012 All Rights Reserved


Opportunities to Engage Directly with Decision-Makers Must be a Priority for Enterprise IT ISVs with Recurring Revenue Product Models

As we wrote in a prior post to this blog, enterprise IT ISVs with “razorblade” products built to produce a healthy recurring revenue from the periodic replenishment of the “non durable” component of the product (which is usually length of access via a cloud or software as a service, SaaS, subscription) must engage directly with decision makers. The reason for this imperative is that successfully capturing service renewals becomes a much easier task when decision makers are correctly engaged from the start of a sales plan. Lots of sales trainers have admonished their students to meet this imperative; therefore, we are not making our claim in a vacuum. The facts are that the perspective of operational personnel as regards costs, benefits, savings, etc. are very different from the perspective of decision makers who likely own budgets, and, therefore, manage capital outlays with utmost care.

We know of three different methods of producing this type of engagement very early in a sales plan. The first method is to implement what is often referred to as a “diagnostic” or “deeper dive” activity with a prospect. The purpose of this activity is to collect all relevant information about a prospect’s needs, ostensibly to determine not only the factors that a prospect is looking to change, but the severity of these factors, which most sales trainers agree will permit sales teams to estimate the likelihood of a sale. The general rule is that the more severe the factors, the greater the likelihood that a sale will be made.

Of course, the details that emerge from this “deeper dive” activity more often than not will include identification of decision makers as well as the roles of other important contacts in a purchase decision. Where factors are severe, in our experience, there is a greater likelihood that prospects will acquiesce to including decision makers in a discussion. But for products that sit on the periphery of larger applications, it is often very difficult for sales teams to get prospect commitment to engage in a deeper dive, especially in 2012 where prospects have generally accumulated all of the information they require about meeting their needs before they contact sales.

In these cases we highly recommend identifying other contacts within the same organizations. In other words, while an initial sale is in process, lead generation teams are using techniques like teleprospecting to engage with other contacts at the same business. It is much better for this process to be effective not to link the two activities. In other words, we recommend that sales teams continue to execute on their sales plan with immediate prospects independent of the activity of lead generation personnel. Over time, a map of decision making for the enterprise should emerge.

The last method is simply to use renewals as an opportunity to engage with decision makers. In our experience, prospects are much more open to identify decision makers post sale than is usually the case while the sales plan is in process. Of course, it is much more difficult to engage with decision makers after the sale has been made, but in some cases there is simply no alternative.

In the next post to this blog we will look further at how ISVs of peripheral products can leverage partners to get to the same aforementioned decision makers.

© IMB Enterprises, Inc. & Ira Michael Blonder, 2012 All Rights Reserved


Any Opportunity to Include Decision-Makers in a Sales Plan for Enterprise Software should be Acted Upon

Sales teams representing enterprise IT ISVs need to act on any opportunity to include decision-makers in their sales plan. It is is easy to be lulled into skipping this critically important step. Here’s an example: sales receives an incoming inquiry from a user at an enterprise organization. This user, as it turns out, is looking to implement a specific solution like our ISV’s product. The user has gone through a preliminary step of gaining management approval to purchase some solution to meet his/her requirement. Therefore, from this user’s perspective, the next step is simply to gather all of the information required to make an informed decision as to which product will best meet the objectives of the requirement.

In 2012, the user depicted in our example usually doesn’t even need to reach out to sales at any point prior to placing an order. In fact, our ISV, like all of its competitors, has exposed lots and lots of informative content about its products, clients, testimonials, etc on its web site. Even more, pricing information is included in this material. The result is that our user knows just about everything, without any required contact with sales.

Once the inquiry finally comes in, the purpose is generally to shop the product, or, often, to place an order. Our sales team may try to slow down the process, in order to collect a lot of information about the user, his/her application, why the purchase was likely approved, etc., but our user may have very little tolerance for the efforts of the sales team to slow things down. After all, our user already has all the answers to the qualification questions he/she required to determine the set of products that would likely meet the requirement, which, in turn, needed further review. Our sales team will likely back off of its requests and assume the role of order taker.

If our ISVs product is a cloud offering with an annual subscription, it may be literally “up for grabs” as to whether or not our user will renew the enterprise subscription in year two, or not. When our sales team makes the attempt to secure an approval to send an invoice for the renewal charge, the response may be something like “I love your content, but I’ve moved onto another set of tasks and management has turned down a request to renew even though the team that took over for me would certainly benefit from a renewal”.

In fact, our sales team laid the groundwork for this problem way back when our user placed the order. It would have been much more fortuitous to push our user prior to accepting the original order. In the next post to this blog we will present some of the technique that we exercise to get the actual decision-maker included in the discussion.

© IMB Enterprises, Inc. & Ira Michael Blonder, 2012 All Rights Reserved


Dell Q3 FY 2013 Results Point to a Need for Better Management of Its Business Transformation

We sat through a webcast of Q3 FY 2013 conference call for Dell. Our rationale for spending the time required to attend this earnings presentation was simple. We are investors in Dell. As well, we are largely focused on realities and potential trends in IT computing for enterprise businesses and comparably sized organizations in the public and/or private sectors. Regardless of Dell’s present condition, the company is, nevertheless, a major factor in our area of focus, and, therefore, worth our attention.

It is hard for us to believe, but nevertheless true (per this report), that Dell embarked on its effort to transform itself into an “end to end” solution for enterprise markets four years ago. Brian T. Gladden, SVP and CIO makes mention of this fact at the start of this webcast presentation of the Q3 results. Gladden also notes that this “end to end” product produced approximately $4.8 Billion in earnings for the quarter, which, by any standard, is a considerable amount of money. But the composite growth rate, at a mere 3%, in our opinion, is much more indicative of a stable, mature business, than a growth vehicle. Further, the fact that the leading group of products in this complex set of solutions (in terms of revenue generation), namely hardware servers and network equipment, are simply the foundation for Dell’s growing set of offers at the application layer (principally Quest Software) says to us that enterprise IT spending on software is largely at a standstill, at least for Dell.

Mr. Gladden noted that total company revenue was down 11% year over year, but still within the range management forecasted in August, 2012 (albeit at the low end of that range). Gross margin, at 22% declined 60 basis points, from Q2 fy 2013. We think that some of this decline in gross margin can be attributed to what we have written about elsewhere in this blog, namely, the phenomenon whereby IT software is trending, from the customer, demand, perspective, to mere commodity. Profitability was shored up by careful management of operational expenses (OPEX). Nevertheless, earnings per share amounted to a 28% reduction below Q2 fy 2013.

Sales of network hardware grew by 40%, which is impressive. Mr. Gladden noted that Dell launched its “Active Infrastructure Converged Offering” in this quarter. This offer includes hardware, software and services components ” . . . under a common design architecture . . .” (quoted from Dell’s webcast, which can be accessed from the Dell website, for which a link has been provided above). He characterized the market forces driving this offering as a need for “simpler” solutions.

Per Mr. Gladden, the drop of 3% in sales of storage solution resulted in revenue that fell below management’s expectations. Nevertheless, he characterized this drop as more the result of weaker market demand than any competitive factors.

Our conclusion from this section of the Dell webcast is that enterprise IT spending on data center, on premise solutions is on hold, at least for the class of solutions offered by this vendor. Further, and with specific reference to Dell, itself, we think that the fact that hardware components — namely servers and network devices — remain key revenue drivers, despite 4 years of transition, indicates some management difficulty with regards to truly transforming this business.

© IMB Enterprises, Inc. & Ira Michael Blonder, 2012 All Rights Reserved


Sales Cycle for Enterprise IT Purchases for Calendar Q4 in 2012 is Slower than Usual

We are witnessing a slower pace for enterprise IT sales in the fourth quarter of 2012 than we would have expected earlier this year. We think that a constellation of factors, including:

    Macro events in the United States, which include the so-called “fiscal cliff”, and the concern that enterprise business appears to have about the series of mandatory steps that will have to be taken to ensure full compliance with the universal healthcare act of 2011 (which moves forward, decisively in 2013)
  • Evolution of the office computing hardware device paradigm from PCs and laptops to smaller, lighter, less energy intensive tablets, ultrabooks and smart phones, and, finally,
  • lackluster overall business performance as the result of slower purchasing on the part of international customers in Europe and emerging markets

have contributed to this purchasing slow down.

Of course, if we are accurate, then publicly traded ISVs like Dell, HP and even Microsoft and Oracle, will likely report results below analyst expectations when March, 2013 rolls around.

The question for enterprise ISVs becomes how to manage this type of slow down. We strongly advocate eschewing any finger pointing at sales for poor performance. In fact, most of the conditions driving the type of slow down that we are witnessing have little, if anything to do with sales techniques. If anything, the type of purchasing climate that we are witnessing should prod enterprise IT ISVs to take steps to insulate sales teams that are performing to expectation from the type of hit that would otherwise occur as the result of these environmental conditions.

We are not calling for bonuses to be paid out when revenue falls below expectation. Rather, we are calling on sales management to carefully evaluate sales team performance and provide encouragement, where it makes sense, to ensure that talented individuals are not lost to competitors. In fact, we are entirely confident that present conditions will eventually improve; therefore, top performers will be needed as opportunities re-emerge. If top performers can presently be identified within sales teams, it makes sense to take the steps to retain them. It is common knowledge that the cost of replacing top performers is much higher than the cost of taking the steps required to retain them on staff. Why waste precious cash in an effort to replace talent that should have been kept on board?

From a product management perspective, it may make sense for enterprise IT ISVs to produce very low cost (and even no cost) versions of products to keep the process of seeding major account opportunities moving forward. After all, when macro factors improve (as they most certainly will), enterprise customers committed to a platform will likely pay to extend usage. The key for ISVs is obtaining their commitment> If resources are such that a quarter or two of slower progress can be tolerated, then it makes sense to continue winning commitment, even with “freeware”.

© IMB Enterprises, Inc. & Ira Michael Blonder, 2012 All Rights Reserved


ISVs with Cloud Offers Need to Include Enterprise IT in Discussions

In the last post to this blog we talked about enterprise IT, and their likely role in cloud computing discussions. There is another reason for ISVs to actively search for opportunities to include enterprise IT organizations in discussions about cloud computing offers. In fact, these organizations are usually highly influential within the management hierarchy of enterprise businesses, and, therefore, may have the authority to mandate enterprise wide use of solutions — which can result in substantial sales volume for ISVs.

Enterprise IT organizations can take on this role as a sponsoring authority for a computing standard either as a driver, or, on the other hand, as an implementer, working on behalf of a line of business (LOB) organization. When enterprise IT drives products as company standards, LOBs within the organization will usually adhere to policy and implement approved solutions for requirements.

When enterprise IT implements products on behalf of LOBs, the LOBs are usually powerful within their respective organizations. If ISV sales teams have done their work, meaning that they have reached out enterprise IT organizations and established credibility, then they have an opportunity to leverage successful implementations as a reference for other LOBs within the same organization. This latter approach requires more work, but can be equally productive as regards sales volume.

The point is that ISVs — especially Cloud ISVs — need to understand that enterprise IT is a very important group within the organization, and, certainly, not one to be treated in a casual manner. Gaining this understanding means carefully modulating promotion based upon the bring your own device (BYOD) movement, or the consumerization of IT to ensure that enterprise IT guidelines and policies are respected, and, further, presented to LOBs as they emerge. There is no more certain failure plan for a sales strategy for enterprise business opportunities than to go against enterprise IT policies and mandated procedures.

In fact, enterprise IT organizations will usually welcome outreach. They understand their obligation to provision as optimal a computing environment for internal users, as possible and will, in all likelihood, make reasonable best efforts to deliver on their mandate. We need to note that outreach should be effected appropriately in a carefully modulated manner. There is no need to include enterprise IT in early stage negotiations with LOBs beyond simply establishing, within the lead generation stage for the opportunity, whether or not LOB contacts are aware of any enterprise IT policies or procedures for the type of solution under discussion. Lightly covering this base very early in the sales cycles makes sense. A lot of wasted effort can be spared by qualifying prospects on this question.

© IMB Enterprises, Inc. & Ira Michael Blonder, 2012 All Rights Reserved