Documens Boss

I’d like to share a story with you about a friend of mine who operates in a completely different industry. His story made me think…

This friend, let’s call him Stefan, currently sells fashion apparel to fashion stores, one and a half years in advance of when it can be purchased in the stores.
He moved agencies 3 years ago and had to start from scratch with a new fashion line from another company. However, he had a good network of approximately 400 fashion shops who knew him well.

During the first year, his new agency nearly kicked him out; in order to gain entry to the stores with the new fashion line, Stefan didn’t simply focus on selling as much as he could but instead, offered a small collection, worth approximately €7,5K, for them to purchase. The management of his new company however, was only involved in selling to large fashion chains and simply didn’t appreciate the small deals he brought in.

In his second year however, building on the success of his first year and the good customer service he provided, Stefan achieved growth of almost 200%. He has just completed his third year and has achieved growth of more than 150% - and all the fashion shops he wanted to do business with, are now trading with him.

Stefan’s management team now also views him in a different light. Over the past three years, they have lost some of the larger fashion chains as clients, faced heavy price negotiations and eroding margins and therefore, have been unable to generate any growth at all from their target group of large fashion chains. 
 

The ECM/BPM business:

So what are the underlying lessons that can be learned? If we look at the ECM/BPM, data capture and output management market in which we are active, just a few years ago, the majority of the technology vendors were ‘elephant hunters’, seeking deals of 500k or, better still, over six digits. Interestingly, I have recently read an article by a manager at Accenture, stating that deals between 10 and 100 million don’t seem to take place anymore.

Underlying this change, the industry landscape has changed drastically. To give just a few examples:

1. Open Source
a. A number of companies have discovered that using Open Source is an excellent strategy for gaining potential new users for their enterprise software; by charging a small fee for a support contract and allowing a client to use the software up to the limits of the Open Source capabilities, they are then able to move the client  on to signing an enterprise site license agreement - Another example of a low cost starting point, which carries scant risk for both parties, whilst ultimately leading to significant deal value and a very ‘soft sell’ as the client is already engaged with the company.

2. Saas based vendors and Cloud computing
a. We currently find almost every capability becoming available in a SaaS or Cloud Computing based environment. Again, no significant sign up fees but costs based upon actual usage – and, crucially, this is not necessarily a cheaper option. In fact, certain clients will even pay more over time but the service is simply not perceived in this way and therefore, decisions are made much more quickly.

3. Client budget restrictions
a. IT budgets are still shrinking or needing to be stretched further. Top management is looking for solutions that generate an immediate return, as opposed to large infrastructure decisions, which are costly and demand larger capital outlay.

So where is this all going to lead? I recently read an article in the Harvard Business Review (Jan/Feb 2010) that branding around products and services becomes less and less relevant. The only thing that matters in a sustainable business model is the ability to successfully retain relationships.

My friend Stefan, knew instinctively, through 15 years of selling fashion, that client relationships were one of his most critical assets. He didn’t oversell during the first year as his first priority was  to protect his clients from failure, while he proved himself again. 

We note significant growth among our clients at those companies which have successfully transitioned into a more service or performance based pricing structure where they have to rely on long term and successful client relationships. By contrast, quite a number of pure play technology vendors/product sales focused companies are currently struggling to generate new deals and clients every quarter. Here, at Document Boss, where we introduced two new lines of service in 2009, we witness the same result.

One example is our EVA (Equity and Value Assessment) program. This is specifically aimed at companies with between $5 and $15M in revenue who come to us requesting a potential trade sale of their business. If they require a value which we believe is out of range, instead of turning them away, as we would have done a few years ago, we now offer them a coaching service, for a quarterly retainer, to create the required value. Employing a variety of services, we help them to create their desired value within a 24-36 month period, after which they can then position themselves for the desired exit.

Large deal hunting currently seems to be an option only for Tier 1 type companies, such as IBM, Oracle and their ilk. But we notice among our clients that even large enterprises increasingly prefer to follow a risk-averse approach, which is easily achieved via small and medium sized companies with strong domain knowledge in our sector.

In order to obtain a clearer picture of how deal making is developing in this industry, we will conduct an on-line survey, which will include a large proportion of the people who receive this publication. You may also benefit from completing our form, as we will analyze the results in one of the following issues of Boss News