Lack of finance for SMEs provides opportunities for vendors
Just before the turn of the year, the Federation of Small Businesses (FSB) published the results of a survey of its members. The most pressing issue for its members is access to finance, with around one in three members seeing a reduction in finance and over 60% experiencing a decrease in trade. The FSB has proposed a series of measures to support small to medium-sized enterprises (SMEs), including funding from the European Investment Bank to the tune of £4 billion and UK government loan guarantees of an additional £1 billion.
Vendor financing is more important than finance applications
During 2009, software vendors need to ensure that they have strong financing offerings for their customers, either using their own resources or working with a strong financing partner. The economic climate is making customers more reluctant than before to have large up-front expenditure on new software and hardware. Instead those customers will seek different financing terms, such as deferred payments. Software vendors that are unable to offer effective financing or that have not developed software-as-a-service offerings will find themselves at a competitive disadvantage in an already difficult market.
It is a truism that businesses should manage their finances more closely when the economic climate is stormy. As such, many of the enterprise resource planning (ERP) and related categories of software vendors are emphasising the functionality to manage cash flow, reduce days sales outstanding (DSO), purchase more efficiently and generally improve the workings of the finance function. While not irrelevant, these features will not dramatically increase sales of these applications. Even where the benefits are quantifiable, the time taken to implement the solutions, make changes to business processes and train users can still mean that the investment in the finance applications is cash-negative for an extended period of time.
Vendor sales tactics will be challenged
Software vendors must make significant changes to their sales tactics. Rather than focusing on selling based on return on investment (ROI), they must move their focus to the impact on time to break even and cash flow for their clients. Sales staff must refresh their skills in finance-based selling and understand the software investment cases of their clients better than ever before.
ROI calculations are the stock-in-trade of vendor sales approaches, attempting to show the payback from a particular investment. While sounding a simple and well-defined calculation, the reality is that ROI is calculated in a multiplicity of different ways – many of which are bent to serve the ends of the vendors. Equally, many ROI calculations cited do not have a time element, while others are implicitly citing annual rates of return. In 2009, vendors will have to demonstrate that time-to-return is acceptable as well as the rate of that return. Sales staff who improperly use ROI-based techniques will fail to recognise the difficulties that the FSB survey highlights.
Being able to weave the benefits of financing into software and hardware sales is sometimes difficult for sales staff. Although selling to the CFO is not new for most sales staff, it may be the first time that they have had a deeply technical financing conversation with that CFO. The FSB survey indicated that lack of finance is going to be a critical issue for SMEs in 2009, and vendors that can address this head-on will find a sympathetic customer base.
Source : David Mitchell, Senior VP, Ovum