There's a new reality of software licensing -- regardless of whether the revenue and hosting model favors a traditional enterprise installed sale or a SaaS approach. The new paradigm I speak of is focused on the longer time it is taking to get deals done in many situations. But it's not just longer sales cycles. Even after a deal has been negotiated, legal has unofficially signed off and budget dollars have supposedly been approved, it's taking a herculean effort to actually get ink and get started in time frames that most of us are used to seeing in an increasing number of cases. I've been able to confirm this shift from talking to a handful of vendors (large and small) who witnessed a similar trend towards the end of Q109. Rather than getting ink by quarter's end, many deals ultimately took until April for signature pending a "final final" budget approval based on actual Q1 numbers from the prospect company -- and this is after a budget was made available and approved the first place.
What is the underlying cause of these delays? Greater uncertainty surrounding financial performance -- not to mention the full body cavity search that CFOs are giving their income statement and balance sheet before allowing any new initiatives -- is causing companies to become more conservative than ever. Deals are getting done -- they're just not getting done at the rate that many of us are used to seeing -- or that procurement and ops teams want to see. Now, this is not a universal situation. Some companies -- and some areas of Spend Management -- are seeing deals getting done in record time. But as a rule, the software sales environment has changed -- even for solutions that typically provide a rapid ROI and for providers with a long history of delivering true value rather than just a lower TCO. What should providers and companies do to take advantage or prepare for this new environment? I'll provide some advice to providers in this post while tackling suggestions for companies licensing software in a follow-up later this week.
Software providers should follow three pieces of advice. First, providers should offer new incentives (while potentially tossing in a few sticks as well) to get deals signed in a reasonable time frame. Perhaps this might involve agreeing to an implementation SLA -- as one vendor told me the other day -- to put staff on a project based availability, giving preference to those who sign by a certain date (which would potentially accelerate an ROI). In other cases, this might involve an additional kicker (e.g., a discount) for a longer-term deal signed by a certain date -- above and beyond other standard discounting. Regardless, this additional kicker (or stick) is something that must be enough for an internal team to take to their stakeholders to free up a budget for final signature over other projects. In other words, it better be good.
Second, I'd recommend that providers revisit their near-term guidance to shareholders (private or public) based on the new licensing reality. This not to say that there will be fewer deals and fewer dollars -- it's just that the time to land the big one (let alone the smaller ones) will often get longer and be harder to manage quarter-to-quarter (i.e., camping out at the end of the quarter might not be enough to get a signature anymore). Truth be told, pipelines may be looking better than ever for many vendors, but the speed with which they'll be able to close the majority of their deals will not only get pushed out -- it will also become more unpredictable, especially at the end.
Third, and this follows along the findings of the previous recommendation, I'd suggest that providers take comfort in numbers -- pipeline numbers and opportunities specifically. Given that there's only so much influence a provider will have to induce a prospect to finally sign-off in the current environment, the only insurance policy to make sure that you hit a quarterly bogey is to have more deals in the funnel -- and more deals entering the funnel. This points to an even more important role for demand generation and visibility early in the process.
If I may make a personal observation here, I'll say that my consulting practice has never been busier crafting private-label content and thought leadership for demand creation programs than now. We've been running at close to maximum writing capacity. Perhaps this is just due in part to timing, given specific client needs since last fall when we started to notice the uptick in content development work for lead generation programs. But I'd suggest something else -- that thriving vendors realize the increased emphasis they must place in general on thought leadership programs to provide fuel for the lead pipeline (not to mention trying to accelerate the sales process for those deals which might actually gain some velocity).