Right technology, wrong company?

Enterprise Management Associates often gets asked to help IT shops plan or validate management strategies and technology selections. In most cases, this involves checking such things as product functionality, functional need, appropriateness and fit with other management products, appropriateness and fit with skills and processes, and the extensibility of the product choice – how it’s likely to grow in relation to specific IT requirements.

Price can be a factor, as well, especially in smaller enterprise shops, but since management software is more of a “way of life” than a commodity, the actual price of the software is often the least significant aspect of the total investment.

However, from time to time, EMA is faced with a different kind of question, one that is, to be honest, more difficult to answer. We get the question when an IT shop, typically in a larger enterprise, wants to invest in what it clearly believes is the best technology – but the provider is a small company. The IT shop wants to know: How do I know if this company will be around in five years? Will I have bet my full investment in software, training, customization and processes on the wrong horse?

There is a sort of formula here. The larger the buyer or the more strategic the product (for example, the core information system for assuring network and/or application performance and availability) and the smaller the vendor company – the larger this questions looms.

When faced with this dilemma, there is no simple answer. If the technology is the best fit, often at a significantly competitive price – the opportunity should be seriously considered. However, in a period of mergers and consolidations, and at a time when small independent software vendors (ISV) are still disappearing, the question of viability has to be taken seriously, as well.

I would love to tell you that EMA has a crystal ball with infallible answers. However, that not being the case, the best I can offer are some guidelines for pursuing this issue:

* Don’t be shy about sharing your concern with the company. Smaller ISVs with a thin skin around this issue – or that seem to wince at the question – probably don’t have the leadership in place to move your comfort zone into the “go-ahead” mode.

* Get to know the real executive leadership if you don’t already. Once again, the ISV should make this easy for you, especially if you represent a large company.

* Since most of these small vendors are private, you should ask for frank answers from them about recent revenue growth. Now, in 2004, you should look for strong positive revenue increments, with a good plan for building market presence.

* You should also assess the dependency, or lack of it, of the company on venture capital funding.

*  Check out the company’s ability to support you – in terms of services, training, and unique requirements for customization and deployment. If you’re global, check out the company’s ability to support you globally.

* Build as many of your concerns as possible into the contract – so that payment evolves over time and deployment. Promote contractually, as well as through dialog, a business partner relationship.

* Don’t spend your time on largely meaningless data such as market share. Market share today is little guarantee against an acquisition, and since taxonomically pure markets are themselves not meaningfully representative of most innovators – will often say little about the real position of your target. Do, however, gather information regarding the customer base, its size and relevance to you, and its growth.

For ISVs the lessons should also be clear. Don’t grudgingly wait for this type of question, but instead anticipate it, especially with larger accounts. And as much as possible build your answers into your marketing and the interaction of your sales force.

I should stress that not all management software purchases require this type of scrutiny. Niche products, or products with focused or limited deployments, or smaller IT environments with more limited investments in operations, training and process – all represent ripe environments for exploring advanced technologies without this level of concern for viability. However, even for large, strategic management investments, the powerful benefits of innovative technology should not be ruled out without some examination – even when viability is a “fair” and important question.

These are a few top-of-mind thoughts on the issue of innovation and viability. If you have perspectives on this of your own, I welcome comment. And if you have a crystal ball – give me a price.