The Software Vendor Business Environment CSC 444 F 05

The Software Vendor Business Environment CSC 444 F'05 Lecture 13 1

The Software Vendor’s Business • Make money from – Providing software and related services • Software – Must satisfy a need or a want in a market that is • Big enough • Is willing to pay enough to pay the costs + re-invest + profit – Licensed (not sold) + maintenance • Bulk discounts • Negotiable prices – Follow-on revenues are key • Maintenance, Upgrades, Consulting, New related products, . . . • Software is quite “sticky” – Cost of acquisition – Need to ensure sold software is used » Not “shelfware” CSC 444 F'05 Lecture 13 2

Software Vendor Structure • Shareholders – – Owners of the company. All profit and value increase accrue to them They elect the Board True for publicly traded or privately traded companies CSC 444 F'05 Lecture 13 3

Software Vendor Structure • Board of Directors – – Represent the shareholder’s interests They appoint the officers of the company Will advise the CEO Responsible for company acting lawfully CSC 444 F'05 Lecture 13 4

Software Vendor Structure • Chief Executive Officer – Appointed by the Board – In charge of running the company day-to-day • By coordinating the activities of the Executive Team – Commits to financial targets (revenue growth / profitability) CSC 444 F'05 Lecture 13 5

Software Vendor Structure • Executive Team – – VP’s and “C-Level” officers hired and assembled by the CEO In charge of running the company day-to-day Meet regularly to coordinate activities and to set strategy Functional responsibilities + corporate responsibilities CSC 444 F'05 Lecture 13 6

Marketing • Product Management – – Defining what products/services the company will sell at what price Preparing collateral materials for partners and sales Coordinate the release activities Key area CSC 444 F'05 Lecture 13 7

Marketing • Marcomm – Communicating with the external world – Advertising, press releases, - generate “buzz” – Experts not at product (see prod mgmt) but at knowing how to reach people with a message – Lead generation to feed sales pipeline CSC 444 F'05 Lecture 13 8

Marketing • Bus. Dev – – Developing new business opportunities New channels to market New geographies New partnerships CSC 444 F'05 Lecture 13 9

CSC 444 F'05 Lecture 13 10

Sales • Responsible for achieving the revenue number. • Sales models: – High-level direct sales • Identify decision makers with budget, chase them down, negotiate terms, close – Dialing-for-dollars • Dial out to big lists assembled by marketing – Channel sales • Sell indirectly via other organizations • Paid via base + commission – May not be profit based – Therefore need strong sales management CSC 444 F'05 Lecture 13 11

Sales Process • Sales “pipeline” or “funnel”, E. G. , – – – Leads Qualified opportunities Short-listed In negotiations Close • Sales management maintains pipeline – Attaches estimated close date, sale value, and probability of close to predict future revenues – Keeps the pipeline filled • Uses a CRM system CSC 444 F'05 Lecture 13 12

CSC 444 F'05 Lecture 13 13

Client Services • Pre-sales support – Technical help for the sales group – Implementation project planning pre-sales • Onboarding / Implementation – Ensuring a customer starts using the software • Account Management – Ensuring customers are happy – Mining to see if they need additional software/services • Customer Support – Help desk CSC 444 F'05 Lecture 13 14

CSC 444 F'05 Lecture 13 15

Finance & Admin • • The mechanics of establishing and reporting against budgets Spending controls – Purchase requisitions. Purchase orders, signing limits, . . . • • Taxes Financing – Leasing arrangements – Cash management – Investments • Funding – IPO’s – Private investments – Investor relations • Administration – Human resources – Office management – Internal IT CSC 444 F'05 Lecture 13 16

CSC 444 F'05 Lecture 13 17

Software Development • Profit center: – “I will spend more and make more and come out ahead” • Highly measurable results • Sales, marketing, consulting • Cost center: – “I will spend more and produce more and better software” • How do you measure this? – What is “more” – What is “better” – How much is reasonable to spend? • Software Development is a cost center • Need to argue the case for budget in a different way CSC 444 F'05 Lecture 13 18

Management of the Software Organization • Downwards – Managing the software organization itself • Outwards – Managing the relationships and interactions with other departments • Upwards – Communicating and relating upwards in the organization • Externally – Relating to customers, partners, and suppliers • Need to be good at all 4, not just the first. • Need to understand the business you are in, not just the technical part, or you will fail. CSC 444 F'05 Lecture 13 19

Proposals • If money is needed for an initiative, you must ask for it in a productive manner. – Not just state a need, expecting money to flow, and then having an “I told you so attitude” if not forthcoming. • Managers with budget control would be irresponsible if they allocated money on ill thought out initiatives • Will require a written proposal. • It’s a management role to translate vague needs into concrete budget. – E. g. , staff might say “we really need to do distributed builds to cut down compile times” – cannot go to a budget request with that alone – Manager should be aware of the chances of getting something like that done (by being plugged into the current fiscal situation of the company) – Manager must coordinate turning this into a concrete proposal – Manager must sell the proposal CSC 444 F'05 Lecture 13 20

Contents of a Proposal • Expected benefits – How this project will achieve them • Monetary costs – – Capital (hardware / software) Consulting Initial and ongoing Timing of cash expenditures • Staff time – Initial and ongoing – Who • Timelines – Milestones • Alternatives considered – Other approaches – Which systems considered / costs / functionality CSC 444 F'05 Lecture 13 21

Closing on a Proposal • Manager will want to discuss how to trim costs from the proposal • Need to be flexible – E. g. , trading off a production-grade server for a workstation • Will probably need to go back to vendors to have another discussion on trimming costs • Should not spring proposals on senior management out of the blue. – Ideally, will first have a ballpark figure for the project as a bogey in the budget. – If not, must build support for the concept gradually • Get support from other execs as well • May not be possible. . . CSC 444 F'05 Lecture 13 22

Corporate Financials • Corporations usually have cash available at all times, but may not be willing to spend it. • Important financial measures are: – Revenues • Yearly, year-on-year • Quarterly, compare same quarter across years • Monthly – Profit • Revenues less cost • As a percentage of revenues • Yearly is most important • Profitable businesses are typically valued at a multiple of revenues • Demonstrate consistent performance – Year-over-year – Quarter-over quarter – Month-to-month CSC 444 F'05 Lecture 13 23

Budgets • Before the start of each fiscal year, the executive will go through a budget exercise: – Sales will forecast revenues – Each department will forecast costs – Each department’s cost budget will be backed by a written business plan – CEO will balance the budget – Departments will do a round 2 of the business plans – CFO will finalize detailed budgets CSC 444 F'05 Lecture 13 24

Capital v. s. Operating • Capital expenditures – Not salaries or consulting – Hardware, big ticket software • Can pay for it with cash up-front, but full value does not show up as a cost immediately. – Get benefit over a 3 year period – Will depreciate the assets – (Because can sell them at any time) • Can finance these purchases – E. g. , leases – Therefore do not need cash if corporation is in good financial shape • E. g. , growing quickly • E. g. , $12, 000 server – Goes into the cost budget as • • CSC 444 F'05 Year 1: $4000 Year 2: $4000 Year 3: $4000 Year 4: fully depreciated Lecture 13 25

Cost Versus Baseline • Hire an employee at a $48, 000 salary – If hire on July 1, 2005 • Will be a cost of $24, 000 in 2005 • Increasing the baseline budget by $48, 000 for 2006 • Consultants are more flexible in this regard – If not on a committed project with sunk costs CSC 444 F'05 Lecture 13 26

Software Development Annual Business Plan • Introduction – – Mission, products under maintenance, new products being worked on Accomplishments in the past year Self-assessment of process maturity Areas for further improvement • Baseline Budget – The baseline spending if no new initiatives undertaken • Will already be higher than last year’s budget owing to new hires arriving mid -year – Baseline staffing ratios – How/where the baseline is being spent • Organizational Structure • New initiatives summary – Broken out by area of focus • New initiatives detail • E. g. bp 98 CSC 444 F'05 Lecture 13 27

Summary 1. Source Code Control 2. Defect / Feature Tracking 3. Reproducible Builds 4. Automated Regression Testing 5. Release Planning 6. Feature Specifications 7. Architectural Control 8. Effort Tracking 9. Process Control 10. Business Planning Do all these things, and you’re doing well. CSC 444 F'05 Lecture 13 28

Thank You! Now go forth and produce software! CSC 444 F'05 Lecture 13 29