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Want a quick, insightful way to evaluate software vendors? Here's one

Brian Sommer Profile picture for user brianssommer June 11, 2024
Summary:
Buying enterprise software is about more than just functions and features. When you take the time to understand a vendor’s real priorities and how these affect specific constituencies, you see some things that will make you pause and possibly reconsider whether this is the vendor for you.

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I was having an impromptu conversation with the CEO of an enterprise software vendor. The subject was how prospective customers, investors and jobseekers should look at a software firm. I shared a concept an investor demonstrated to me when we walked through a packed exposition hall at a recent HR tech show.

The key concept

Software firms, like most businesses are often focused on one or two key constituencies. They could focus on prospects, customers, investors/owners or employees but they can’t give equal attention to all of these groups. And like the gravitational pull of celestial masses, vendors tend to favor just a couple of these constituents. What smart software buyers should do is to identify who a vendor caters to the most and how that will impact their firm short and long-term.

For example, if a vendor is owned by a private equity firm that installed its own management/executive team, then this company might place owners first and task its professional managers to deliver financial results that delight the owners. Customers, employees and users are secondary or tertiary concerns.

Alternatively, a vendor whose products have a great UX (user experience) make end-users their top priority and develop products that people not only fall in love with but tell others all about these products, too! This company may take longer to become profitable but its products sizzle!

Some vendors might place their own employees first. These firms might actually prioritize employees such that their product development efforts or customer implementations are allowed to fall behind because key people are on sabbaticals, getting an MBA or wind-surfing somewhere.

Sales-driven firms may place prospects at the top of pile. Unfortunately, once you become a customer (and no longer a prospect), the vendor’s attention plummets and your experience with the vendor falters.

You can see where this is going.

Ranking the priorities

Software buyers should, as a part of their selection process, rank each vendor on these priorities. For each vendor, they should identify who the vendor focuses on the most and rank order these vendor priorities.

Here are two potential (but often common) results:

Owner first, customer second, users third and employees last

This will likely happen when the vendor is a large, older firm. The management team may no longer be the founders of the firm and, as such, the new management lives in fear that the institutional or private equity owners will sack them if earnings miss by a single penny per share this quarter. The management team is obsessed with hitting short-term earnings estimates. They don’t think long-term as they might not be around. They get their stock options and other executive compensation/bonuses by hitting their short-term metrics and/or creating a liquidity event for the owners. These executives actually put themselves first instead of the company. Interestingly, customers are only relevant if the customer can help them hit a near-term number. In this scenario, users have no standing and customers have very little.

Customer first, users second, employees third and owners last

On the opposite end of the spectrum are these companies. These are often founder led (and possibly founder owned) firms where the leaders are laser focused on delighting each and every customer. These are the executives who proactively call up customers and prospects and find out what they need in the products, pricing, etc. These are the firms where a customer can call its vendor relationship “strategic”.

The ranking

Great selection teams should strongly consider the list of constituent priorities beyond the initial four listed earlier in this article. Some of the additional priorities could include: governments/politicians, social responsibility matters (e.g., DEI), prospects/new customers, existing customers, biggest customers, most profitable customers or all customers. The team should pick priorities that align with those of its own firm. One client said they had been in business almost 100 years and had many suppliers who’ve been with them for 90 years or so. To them, they wanted a vendor that would “do the kind of things that cement a relationship for decades not just for today”. But even that client found that not all vendors shared their vision of a great vendor/customer relationship.

So, what would this ranking look like? It could be something like the following:

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Stated vs observed priorities

Selection teams might also want to assess each short-listed vendor and identify the vendors’ (stated versus observed) priorities and what these mean to their firm. The distinction between stated and observed priorities is both important and deliberate. Sometimes vendors claim to be great corporate citizens while simultaneously conducting layoffs. Sometimes vendors experience a material change of control and tell their customers and prospects that things will remain just as they’ve always been when the reality couldn’t be further from the truth.

This difference is something vendors can go to great lengths to hide or obfuscate. Vendors have been known to:

  • Greenwash their commitment to environmental concerns. Recently, one vendor added significant capacity to its cloud data centers but did nothing to locate its data centers in places where they can get carbon emission-free electricity (e.g., solar, hydroelectric).
  • Talk a lot about their commitment to diversity but why are all of the top executives and most every vendor speaker at their user conference a male?
  • Ignore the impact of their hiring and layoff practices on the communities that they operate within.
  • Create overly complex pricing schemes and contracts to make it hard for prospects to know what they’ll pay over time. Worse, they’ll use URLs in the contract that can change, unilaterally, in a moment’s notice.
  • Put some of their product lines on economic life support (and/or cut marketing budgets, developer headcount, etc.) just so they can juice up their short-term earnings numbers.
  • Etc.

The rankings and the notable differences between priorities

Software buyers might also find that the rankings above are good to understand but it’s the relative distance between individual vendor priorities that really tells a story.

For example, if you ask your selection team to allocate 100 points across the priorities, you might get a result like this:

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In the example above, management is clearly in the back pocket of the firm’s owners/investors. Added to that, prospects are the next key constituent of management concern. This vendor team is all about the money. If you want to do business with this firm, just know that it won’t really do anything for existing customers, the environment, etc.

The other constituents

Previously, it was suggested that readers consider other constituents that might shift a vendor’s priorities. Those included refined segments of customers like prospects, new customers, existing customers, biggest customers, most profitable customers or reference customers. This may seem like a useless subdivision but it can be quite important as:

  • Vendors may dote on those customers that are willing to act as enthusiastic reference accounts. To earn that rabid, infectious enthusiasm from a given customer, the vendor may be secretly giving some pricing incentives to the reference account that might not be available to other current or future customers.
  • Vendors may be very focused on ‘the customers to come versus the customers they already have’. Software buyers should check into how much vendor attention prospects are receiving versus what long-term customers are getting.
  • Large customers often get VIP treatment at user conferences. They’ll be the ones who get invited to the vendor’s box seats at key NASCAR, pro sports and other events. Will your firm get any of this attention?

There is also the management priority concern when the vendor is obsessed with its newest version of its products at the expense of its more geriatric solutions. Prospects might find it interesting to investigate why the vendor has such issues getting its customers to upgrade. That investigation could identify concerns like:

  • The vendor is using the upgrade as a way make the customer forfeit their perpetual licenses (which are fully paid for) and accept an annual subscription instead. The subscription may come with other fees (e.g., hyperscaler charges, toll charges, etc.) that exceed the annual maintenance fee that the customer used to pay.
  • Implementing the new solution could be very expensive and risky. Customers were not expecting this in their budgets. If the original implementation was pricey and troubled, then customers likely need lots of proof that they won’t experience problems again.
  • The vendor needs to show Wall Street that its revenues have conclusively shifted to the subscription model and/or are cloud-based. This is the way old vendors try to convince investors that they possess ‘modern’ applications although customers are mostly just getting a different kind of bill (and the apps themselves have not materially changed or been modernized).

In all of those scenarios, the customers’ wants and needs are clearly secondary to those of the vendor. Is this the kind of a customer/vendor relationship your firm wants? Forcible product upgrades and mandated changes to one’s hard-fought negotiated agreements may seem wholly unattractive to discerning buyers.

My take

Where a vendor chooses to spend its time, capital and energies is noteworthy as it highlights whether your firm will get fair pricing, above average support, etc. Your needs should match the relative priorities of a vendor. If not, this mismatch could be an expensive mistake that will prove to be frustrating for all concerned.

When you and a vendor are not on the same page vis-à-vis priorities, then this will not be a fun, long-term relationship. Why? When one or more members of the selection team have fallen in love with some cool, powerful capabilities in a potentially new solution, they will find it hard to let this vendor go. They’ll fight to keep this vendor in the mix even though they know this firm is not a good fit (business-wise) with your firm. Countless movies have been made that show some ‘bad-boy’ that a sweet young woman falls hard for. In the end, the bad-boy proves why he deserves that reputation. The young woman either gets the bad-boy to mend his ways or he jilts her in some cruel way. In the software world, bad-boy vendors don’t change and certainly not because a single prospect wants them to. Nope. That’s a fantasy. The real world is where software decisions have to be made.

Make sure you see the totality of a vendor and not a carefully crafted veneer. But, beware. It might not be pretty!   

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