Tips for Making Sure Your Vendors will be Around Next Year

When it comes to buying software, one thing I learned early in my career is the importance that every good salesman places on instilling FUD (fear, uncertainty and doubt) with his prospects about his competitors. Sometimes this approach would take the shape of laying traps for competitive products. But more often than not it would take the form of more subjective commentary around the competitive vendor's chance of being around in the future. In today's market, this latter FUD approach is alive and well (as you'll see quite often on the pages of this blog in the comments section). With more FUD than ever, I've found that it can be difficult to separate background noise from the snippets of information that may have some truth to them. To help companies better sort through some of this noise -- especially the endless FUD exchanges between Ariba and Emptoris employees and PR types -- I thought it worthy to clear up a few things this morning.

For one, I believe that there is little chance that either Ariba or Emptoris customers will find themselves in a situation where their products and services are no longer being supported. Worst case: either or both companies become part of a larger ERP provider. And look at what that's meant at Oracle, for example. We still see competitive fights between Oracle and Peoplesoft procurement reps in the field. While I do believe that both Ariba and Emptoris will both eventually sell-out to a larger provider, even if this happens in the next 12 months (I'd handicap the odds at less than 3 to 1 for one and 8 to 1 for both), customers should have nothing to worry about and above all, should ignore the competitive FUD coming from both vendors about each other in the sales process. Either Emptoris or Ariba is a safe investment in my book, even in the current economy.

But what about the others? Larger and profitable providers (with >$50 million in revenue) like BasWare and BravoSolution pose little risk to customers. As do smaller, profitable (and closely held) providers like Iasta who do not have venture capitalists breathing down their necks. In the case of venture-backed providers that have not achieved profitability from a positive cash flow perspective (GAAP accounting matters less here in my book), I do believe they present some risk in today's market. The same holds true for closely held vendors who are not profitable. Given this, it's critical to insist on obtaining detailed, audited financial statements from providers in this category. If they refuse to disclose these as part of a deal, suggest that they provide them to your accounting firm under a confidentiality agreement. Your bean counters can then help you to decide if a particular relationship is too risky.

So, to sum up my advice on making sure your vendors will be around in one form or another to support you in the future:

1) Get past the noise between Ariba and Emptoris. Ignore the FUD! Both are and remain viable in this market (even Emptoris, which has not achieved profitability, has a strong balance sheet with their recent cash infusion). Ariba, which has had its own set of challenges reaching profitability, is also an extremely safe choice from a viability perspective.

2) Small does not necessarily mean risky if the vendor is backed by the founders and is profitable.

3) Dig into the financials of all privately held venture-backed companies (or have your accounting firm do this as an intermediary and make a recommendation). If a vendor still refuses to share this information, don't do business with them in this climate. If you want to go the extra diligence mile, look more closely at their banking relationships and third-party credit / supply risk details.

If you follow these steps, you face little chance of going with a software vendor whose products will either be discontinued or not supported at the level that you're expecting or already accustomed to. Good luck, and above all, do your homework in each situation to make sure that you're not being sold a FUD-bill-of-goods by a trash talking software sales rep!

- Jason Busch

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