A Newsletter About Solutions and Creating Exceptional Value Essay
A Newsletter About Solutions and Creating Exceptional Value
High Impact Projects
A Newsletter About Solutions and Creating Exceptional Value
Software Company Narrows Focus from
1 Million Prospects to 40 – Closes 30 Sales in First Year!
After 3 Years of Revenues Less than $2 Million, Sales Soar to $75 Million in 4 Years!
Systems Produce Paybacks for Clients of more than 10-to-1 Stopped Trying to Sell to Information Technology Department – Found Line Executives With An Urgent Need to Buy CEO Found a Way to Reduce Risk and Capture Financial Upside A Repeatable Pattern Emerges Compiled by Tom Ingram, PMPi
Before Jeff Miller took over as CEO, Documentum had suffered three years of flat revenues, never exceeding $2 million per year. After Miller took over, the next year’s sales increased to $8 million, followed by $25 million, $45 million, $75 million and an IPO in subsequent years.
Granted, these were the boom years – but this success story carries some essential lessons which I have seen work in several other settings over the years. Below is a summary of these key lessons from several sources, including a Harvard Business School case study. None of this is easy. Documentum went through a period when it was burning $1 million per quarter, with only $4 million in cash reserve, and only two new customers. Success in the intangible, “black magic” world of software is difficult, and my hope is that you can take some useful lessons away from this summary. Following are some of the things that worked for them.
Narrowed Their Focus from “everyone in the world that touches complex documents” to a “rifle shot.” Documentum chose to focus initially on the regulatory affairs departments of Fortune 500 pharmaceutical companies. This narrowed their universe of prospects from some 500,000 to only 40 companies worldwide. Urgent Need to Buy: Documentum was able to identify buyers in extreme pain due to the regulatory paperwork requirements for submitting new drugs for approval. They focused on finding prospects that were in a situation where (1) regulatory requirements created much pain, (2) prospects demanded a solution and (3) the solution could represent a significant competitive advantage.
Documentum closed 30 out of 40 initial target prospects in the first year! Help for Struggling Software Companies [email protected] 972-394-5736
Newsletter #25 July 2004
TOM INGRAM & ASSOCIATES, Inc.
Huge Payback for Customer Every day that was saved in drug approval application time resulted in a $1 million incremental profit for Documentum’s clients. The system reduced drug approval application time from 1 year to approximately six months. Average profit per day of $1 million times 128 days saved = $128 million in incremental profits per drug application. A typical system might cost $4 Million – Resulting in a 32-fold Payback!
Target Buyer: Documentum discovered that their target buyer was not the Information Technology (IT) department! IT departments are often happy with the status quo – while line executives are not. They also discovered that executives and department managers were really the ones that drove the priorities for IT. Documentum stopped trying to sell to IT department buyers and focused on line executives with a problem and a budget. I will add that I have seen this to be true in dozens, if not hundreds, of instances in my 24 years in the technology and software business.
The boom times of the ‘90s were a slight exception to this rule. The IT department was buying a great deal, and companies got used to selling to the IT department. When reality came crashing down upon us, and the techbubble burst in the early 2000’s, this aberration disappeared. I will note that this is an extremely difficult shift for companies to make because their sales force, including sales executives, and even the CEO, often have experience only selling to the IT department – they have no skills, credibility or capacity to sell to line executives. Picking the Initial Target Niche: One of the key issues in picking the initial target niche is the size of payback to the customer. By focusing on the area which your customer has the greatest payback, they have the most to gain economically from purchasing from you
Assuming you can consistently deliver this payback, it is much easier to get Niche 2, Niche 3 and Niche 4 going after you have a strong set of happy customers behind you. Subsequent Niches: After Documentum’s initial success in the regulatory affairs department, they spread to other niches in every department within pharmaceutical companies. (regulated chemicals, oil refineries, etc.) This included a big win in the document management area for oil and gas exploration and production companies, where Documentum helped them manage the property/lease/royalty paperwork. This approach is often called the bowling pin model, because you set up the initial niche as a “headpin”, knock it down and that makes it substantially easier to “knock down the following pins”. This approach also helps you keep a controlled risk (or cash burn rate) by requiring the software company to demonstrate that it can find and close customers with an urgent need to buy, one niche at a time.
Changes to Software Product Offered: Note that Documentum had the discipline to stay focused on the needs of very tightly defined sets of customers. They started in the regulatory affairs departments of pharmaceutical companies, and slowly spread, niche-by-niche (bowling pin-by-bowling pin) to other departments and other industries. It is critical to recognize that Documentum invested its precious cash in software product enhancements only for these customers. The Harvard Business Review Case highlights a particular situation where Documentum declined a $2 million order because it would have required them to make
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