Once the Post-ZIRP* World Hits …

… providers that raised big bucks on vision and overhyped third party tech will begin to fall like dominos. (So choose your provider wisely over the coming year!)

And you knew this was a comin’ after our little lyrical rant on the Post-ZIRP World, especially if you were paying extra attention to THE REVELATOR‘s postings and the following discussion streams on LinkedIn.

THE REVELATOR, who claims that the only “AI” providers who will survive in ProcureTech will be:

  • ? AI Operating System Solution Providers
  • ? Front-End Functional AI Solution Providers

In simpler terms:

  • those that provide a foundation for ProcureTech solutions built on AI tech
  • those that provide AI-enabled front-end for more “human” interfaces to sophisticated back-end technology

Whereas I claim the only providers sure to survive are those:

  • who identified a problem, built a solution to solve that problem (working with [potential] customers), and delivered that solution successfully, possibly without any AI whatsoever (as not all solutions need UI)

The key here, and even in THE REVELATOR‘s examples, is that the company focussed on real-world problems of (potential) customers, built a real solution to solve that problem, and worked with customers to successfully implement that solution.

To this end, after a point was raised about how 2025 is going to be a bumpy ride for many companies that raised too much with their deft timing of bandwagon hopping, THE REVALATOR asked three very important questions that the doctor is all too happy to answer:

1. Will solution providers’ focus shift from funding to addressing the decades-long challenge of the high rate of initiative failures?

Not until the funding starts to dry up again. And even then they will again listen to the marketing mad men and try to save their souls with sound-bite marketing and gimmicks. When that fails, most of those who remain will try to slash costs across the board, focus on keeping and upselling existing customers, and double down on prayer until they can see ZIRP again through the telescope. At which point they will jump on the new hype-cycle driven bandwagon and try to raise cash to build garbledy-gook powered ProcureTech.

With the exception of suites with a large enough install base to survive indefinitely on current revenues (possibly with some significant operating cost reductions), only those currently focussed on solving real problems, and who continue on that path, will double down on trying to reduce not just failures, but even bumps in implementation to make sure every customer is happy out of the gate to the point those customers talk about them with their peers at networking meetups and they have leads coming in without cold calls.

2. With some notable solution map logos or brands running out of cash, how will it impact the post-AI Bubble Burst solution provider landscape?

A lot will disappear. Those who see the writing on the wall now, even though they won’t admit it, are already putting themselves out there for acquisition while the multiples are good. Those who don’t will scramble to merge with partners or take firesale deals just to stay alive. Those who fail at that will just disappear.

3a. What will be the common characteristic of solution providers who remain?

Answered in part 1 – those that focus on solving real problems, and doing so at a fair, sustainable price point for them AND the client, who, since happy with the solution, will continue to renew and even add more modules/capability over time.

3b. What will be the common characteristics of those who disappear?

Those who went all in on the Gen-AI or orchestration bandwagon, didn’t build any unique and original functionality that solves real procurement problems, tried to build a business on overpriced third party tech (not due to third party tech fees, but the ridiculous multiple they have to charge because they raised too much money and the investors are demanding a return), and failed.

* Zero Interest Rate Policy

We Might Just Need A New Funding Model For (Procure)Tech StartUps!

This article was inspired by the same LinkedIn Article by Gaurav Sharma that inspired my last article on We Need Better Events!

Basically, Gaurav posted the following:

My Buyer’s mindset is bugging me on this point!

The average cost of a CPO 3-4 day business trip on a conference: USD 10k at a minimum (Conference tickets, Business Class travel, stays, network lunch, etc).

If 70 Smart CPOs can pool this sunk cost into an investment pool, it can become a seed investment for a Procurement tech startup. Advantages?

  • Instead of just “talking” about Ideas at a conference, you can be part of a “builder community.”
  • Own the Equity.
  • Your own customized solution; hence, your Opex will be reduced by getting rid of your dated tech stack!
  • You still get networking benefits!

And he was right about how much is wasted on many of these events, but, as I pointed out, it’s peanuts to what is wasted by vendors to attend just one 2 to 3 day big procurement event and get lost in a sea madness.

But if we held better events, as I discussed in my last article, and saved a lot of money, then the question of what we do with it becomes valid. Unfortunately, CPO-led funds are not the answer. Why? As I pointed out in my comment(s):

  1. You’ll never find 70 CPOs who (think they) have the same problem; sometimes it’s hard to find just 7!
  2. CPOs are definitely NOT CTOs – they have no idea what it takes to build a product!
  3. … many are not founders either – they have no idea what it takes to build a company! (And when many try, they don’t do so well … that’s why many of the 666 companies on the mega-map won’t be around in a few years, going the way of many, many companies before. (See SI’s historical vendor day reprise and count how many of those are left … extrapolate that % and it’s about accurate for survival rates beyond a few years.)
  4. Many CPOs need to learn, and startups need to be taught what they need to do, especially since, right now, we have too many vendor offerings and most don’t solve the right problems. (Again, see the Mega Map.)
  5. Even if you get a MVP out of that 700K (not likely), you’ll need a next round to make a real enterprise grade product, and then another round to grow the company enough to support it across those 70 organizations.

And this brings us to the funding issue. One thing that Gaurav got right is his implication that current funding sources aren’t always doing the job we need done. Right now, most (Procure)Tech funds come from:

  1. PE funds that only back growing, successful companies that the PE fund thinks they can grow and charge more for (or increase profits by reducing the operating expenses, scaling back on R&D, and potentially running the company into the ground over the long term)
  2. VC funds that play the numbers game (invest equally in 10 potential winners betting 1 will be a unicorn, 3 will be successful, 4 more will fail but be salvageable for the tech team and 2 will be a write off completely covered by the unicorn win)
  3. Angels that follow their fancy

And no funds come with a purpose to solve a particular business or technology problem. So maybe we need to follow the charity / endowment model in education / the public sector and establish

d. “Startup Funds” that

  1. identify common problems that need to be solved and create a fund for each problem
  2. pool money from companies that want those problems solved into each fund
  3. look to invest that seed money in a startup once the fund reaches a certain value (1M+) and the right startup is identified with a plan that can create an MVP (that can be shopped to VCs or bought by beta companies) for that investment level

Then CPOs, and even tech companies, with a similar need can pool their money towards a certain goal.

Thoughts?

So You Admit You Might Be a Dead-Company Walking. How Do You Avoid the Graveyard? Part 7

In short, as per Part 1, you

  1. keep admitting to every mistake you are making and do something about it, then
  2. continue by looking for cost-effective opportunities for improvement and pursue them and finally
  3. never, ever, ever forget the timeless basics.

Today, we’ll continue by describing what you do when you identify, and admit to, one of the next two mistakes (mistakes 9 & 10) we chronicled in our two part introduction to our “dead company walking” (Part 1 and Part 2) series (where we helped your potential customers identify problems that signify you are a SaaS supplier they should be walking away from). (You can find part 2, part 3, part 4, part 5, and part 6 here.)

9) Sales is about numbers, not solutions

While this wasn’t generally true in the early days in our space (probably because the overall investment was low and S2P+ plays weren’t getting a lot of attention from the big VC and PE funds investing in them) this has now become a big problem and at the majority of big players, or VC/PE backed players (funded before any whiff of profitability), who are focussing on numbers only … and if you don’t make them, every quarter, you’re out.

Moreover, at the bigger firms, it’s don’t worry about solving the problem, that’s the implementation partner’s problem, and their failure if they don’t, which, sadly, could only be true IF they are the one that sold the solution through a partner (referral) platform. (But still is a situation that should not happen. More later.) Otherwise, your customer’s success is entirely your responsibility, no ands, ifs, or buts,

And if you don’t focus only on customers you can support, you won’t have happy customers, which will mean a few things for you.

  • unless you replaced (part of) the ERP/MRP and became the ERP/MRP, good luck getting a renewal,
  • you won’t get a reference, and
  • when potential customers run into your customers at events and ask about you, you’re going to get a very bad review and even if those customers aren’t CXO/VP cheque signers now, the fact they are trying to improve themselves means that they will be, and you can forget about ever getting any business from any organization they will ever work for (and we’re not in the boomer times where you had a job for life, we’re in the times where most people change jobs every 2 to 3 years because greedy corporations, instead of focussing on retention, focus on recruitment and, thus, the only way these buyers can get the raise they deserve is to switch jobs on a regular basis).

It’s time to get back to basics, and ask:

  • what solutions can you sell : and focus only on customers with appropriate problems
  • what upgrades can you sell later : and not only focus your development roadmap to support them, but educating, supporting, and maturing your customer to the point where they would get value from those upgrades and want to pay for them
  • what’s the best price/package combo to maximize the overall lifetime value of each customer : it’s not about how much you can sell now, it’s about how much you can sell as long as you both shall be in business; and that will require figuring out how much value you can deliver over time in a controlled expansion, and pricing appropriately so your customers see bang for their buck year after year and ensure that, if times get tough, your solution is off limits as far as the chopping block is concerned
  • what sales people can sell this way : you want sales people who are focussed on the long term success of a customer and willing to close a smaller deal now for a bigger deal later; however, for this to work, their remuneration has to go beyond the traditional sale, and you can’t rip a customer away from them, because you qualify that sales person as a “hunter” and want them to focus on new sales, and give the client to a “farmer” who will then get big commissions on effortless upgrade sales later based on all the hard work the initial sales person did in the beginning; you hire “hunter/gatherers” who are not only responsible for closing new clients, but keeping those clients at renewal times where they should be able to renew the license at a fair increase (due to inflation and increased core platform capability) as well as sell the new modules / upgrades appropriate for the client; and, finally, you need sales people in it for the long haul, not a sales person who jumps ship every two years (because they know they sold silicon snake oil)

X) Any temporary price cut to get those initial clients can be made up later!

This is bullcr@p and, guess what, your investors know it.

You have to ask yourself, because this is what your customer is asking, if it’s not worth it now, why is it worth it later?

The reality is that if it was worth it, your customer would pay it now. If you have to cut more than 10% to 20%, your software is not worth it, and you’re fooling yourself or your investors if you keep saying it is.

Moreover, you’re ruining you reputation when you say it’s a million dollar solution that is yours for the low, low, one time price for $200K. Enterprise buyers are a bit savvier than trusting, uninformed consumers. And the reality is that even an uneducated hillbilly who lives in the mountains and only comes to town twice a year to stock up on supplies would see through the hogwash and call you out as a con.

Your investors might want big sales as fast as possible, but the path to true success is happy, repeat, customers who buy more at every renewal. Fair, honest pricing and a bit of patience will lead to greater success than sleazy car-salesman tactics.

Stay tuned for Part 8!

Blinded By The Hype!

To the tune of Blinded by the Light by Bruce Springsteen.

Madman, PR, bummers
Marketers in the summer with a teenage solution
In the dumps with the mumps
As the adolescent pumps his way into the chat
With a boulder on my shoulder, feelin’ kinda older
I tripped the merry-go-round
With this very unpleasin’, sneezin’ and wheezin’
Calliope crashed to the ground

Some all-hot half-shot was headin’ for the hot spot,
Snappin’ his fingers, clappin’ his hands
Some bespot mascot was caught doing the robot trot
with a whatnot in its hand
Now young Scott with a slingshot finally hit a tender spot
and throws his vendor in the sand
Some bloodshot forget-me-not whispers, “Legal’s within earshot,
save the buckshot, buy on the lamb”

But they were blinded by the hype
Revved up like a deuce, another Gen-AI ectype
Blinded by the hype

They got down but they never got tight
They just won’t make it alright

Some brimstone, baritone, anticyclone, rolling stone
Preacher from the West
He says, “Replace the reporter”, hit me in the funny bone
I thought it was all in jest
And some new-mown chaperone was standin’ in the corner all alone
Watchin’ the young ones code
And some fresh-sown intern was messin’ with the data files
And all the while hoping it wouldn’t implode

Yeah, he was blinded by the hype
Oh, revved up like a deuce, another Gen-AI ectype
Blinded by the hype

He got down but he never got tight
He won’t make it alright

Some silicone sister with a manager mister
Told me they got what it takes
She said, “I’ll turn you on sonny to something strong
If I use the prompt with the funky break”
And desk-bound Aneed was checkin’ out the chatbot feed
To see if it was safe to go outside
And little Early-Pearly came by in his curly-wurly
And asked me if I wanted to try!

Oh, some hazard from Harvard was tripped on hype,
playin’ bacykard financier
Yes, and Dragon’s Den was trying hard,
they sent some dude with a calling card
He said, “Do what you like, just use AI here”
Well I jumped up, turned around, spit in the air, fell on the ground
Asked him which was the way back home
He said,” Take a right at the light, keep goin’ straight until night,
and then boys, you’re all on your own”

And now in the bazaar, a shootin’ star was ridin’ in a side car
hummin’ a lunar tune
Yes, and the architect said, “MVP, but first remove the cookie crumbs,
we’re gonna teach those boys to buy too soon”
And some distressed pro-buyer was complainin’ his system caught fire
from an AI he tried last night
Well, I purged his system cache as his drive I flashed,
I saw him calm and hoped that he’d be alright

But he was blinded by the hype
Revved up like a deuce, another Gen-AI ectype
Blinded by the hype

Mama always told me not to look into the eyes of a sage
Woah, but mama, that’s where the truth is, oh yeah

They were blinded
They were blinded
They were blinded
They were blinded

They were blinded

Is Valuing A Company At Over 10X Ever Justified?

THE REVLATOR asked a damn good question earlier this week in a comment to his Daily Double LinkedIn post where he asked how can Zip’s 2 Billion Valuation, for example, have any basis in reality or merit? Especially when THE PROPHET pointed out in his article on Zip’s Series D funding round at a 2.2 Billion valuation that this was a 40 to 50X revenue multiplier!

As usual, the doctor, was happy to answer, but since his answer is deep within the comments, it’s being recorded here for easy reference.

Damn good question. There’s no basis in reality for a valuation more than 10X (if the solution is currently priced right).

When you consider that most companies can’t grow at more than 40% year over year without imploding, as you can only identify good people, hire, onboard, and train them so fast; including support personnel. And while you can add partners for implementation, but they need to be trained and supported (and until you have a well flushed out “academy” and good Full Time support reps for each project sold through a partner, rapid growth will likely be disastrous); at 1.4x it’s 7 years for the company to reach a 10X valuation.

If this is truly a fantastic company, we’ll allow an average 50% growth rate, it’s about 5.5 years to reach a 10X valuation, which is about as long as any investor wants to wait for a return on their money.

Using this math, in order to justify a 20X valuation, it would require a vendor to DOUBLE prices the minute they received the investment (and screw over the existing customer base while limiting the future customer base). Unless the product was insanely underpriced or the vendor could add a lot of extra value in a short time frame (and neither is likely since a vendor grossly underpricing likely wouldn’t have survived long enough for a raise, and development takes time), doubling the price is just not justified.

Now, double this to 40X and the only reasonable explanation is that the investors are as high as a kite or trying to win a P!ss!ng Contest at their shareholders expense.

And the only way these investors are going to recoup that investment is to achieve rapid up-front growth and flip the investment up the chain until the company is eventually acquired by a mega tech player who’s been around for 40 years and will be around for 40 more … and can wait the 15 to 20 years to get their money back (because that’s about how long their customers get locked in for).