When considering enterprise technology purchases – regardless of industry – corporate buyers would do well to think like investors. There are three legs to the technology evaluation stool: 1.) What is the technology provider’s value proposition? 2.) Who is the technology provider? (corporate buyers often pay insufficient attention here) 3.) What is the total cost of ownership? We break down each of the three elements in some detail. See the link to download the questions in spreadsheet form at note’s end.
1.) Value Proposition: questions to help frame and evaluate the technology provider’s value prop:
- Value-add: What business problem(s) does the technology solve?
- Features and Functionality: What is the breadth & depth of the product and services portfolio? How does each discrete product and service compare to competitive offerings from a feature/functionality standpoint? Price? Service-level agreements? Customer satisfaction?
- Core competency: Does the provider have a specialty area of focus, or, does the provider have multiple product offerings that address multiple functions across multiple industries without a centralized theme? Lack of product focus may lead to wasted resources which you the customer may pay for directly in the form of higher prices, or indirectly in the form of reduced product investment (less innovation) and reduced service levels.
- Customer Support: What consulting, training and customer support levels are available?
2.) Technology Provider: questions to help build a profile of the technology provider beyond the product portfolio.
- Management Team: Who is the management team? Are they the founding team or are they hired managers? What is their collective relevant experience – i.e. are they industry veterans or do they lack domain expertise? What is the SMT’s ambition for their company? What is their reputation with investors (public investors, venture or private equity backed or self-funded)? What is their reputation with users/customers? How many referenceable customers?
- Strategic Partner Potential: Is the technology provider a company that you may grow with? Can they meet your current needs and are they well-positioned to meet your potential future requirements? What is the provider’s product roadmap complete with timeline?
- Financial Strength: Is the provider sufficiently capitalized to maintain a quality standard that you’re comfortable with while also having sufficient capital to deliver new products and services?
- What is the level of annual Product Development/ Research & Development? (depending upon whether the company in question is privately-held or publicly-traded, it will impact your ability to acquire this information. Although one can always ask.
- Net cash on the balance sheet? (cash less debt)
- How much cash flow did the provider generate last quarter? Last year? Over the past three years
3.) Total Cost of Ownership: items to consider in your cost of ownership calculation.
- Delivery Model: Is the technology delivered as a hosted offering (i.e. “SaaS”, “cloud”)? Today, most software companies deliver their products as hosted “services”.
- Hosted/SaaS/cloud offerings: the Cost of Ownership for this delivery model will primarily be a question of usage. For example, if the buyer is invoiced at $99 per user per month (the “subscription fee”), the question will be “how many registered users will our company have live at ‘T0’? In 6 months? In Year 2, Year 3″ and so on. The subscription fee includes the right to use the software (“license fee”) and also covers maintenance and customer support. The maintenance element is essentially transparent to users/buyers as products updates are pushed out uniformly to the entire user base.
- On-premise: If an on-premise product (not delivered remotely via the Internet, resides on the customer’s servers), the product will likely have a different revenue model where the buyer will be charged an upfront license fee plus a maintenance contract (annual maintenance contract typically billed at 20% of the face value of the license fee). The maintenance contract ensures the buyer will have access to the latest version of the software. Further, buyers should expect to absorb additional expenses related to customer support, consulting and software installation/integration. Last, consider whether you will need to increase server capacity to enable usage of this new product.
- Assume Annual Price Increases: Build in a price kicker – assume the vendor will increase pricing by 1-2% each year.
- Bundle vs. best-of-breed: If the products and services in question are offered as a bundle, could you build a similar bundle with best-of-breed products and services at less cost all else held approximately equal?
Questions in downloadable Excel format HERE