Software vendors overall health must be a critical component within your software selection process. If the company that you purchase is not financially healthy, you run the risk of purchasing on a platform that may not be supported in the future. In addition, the company’s inability to generate cash flow from sales will reduce its ability to fund future program development efforts. Software vendors – what are the four factors to consider as it relates to assessing vendor health?
1. Look at the Industry’s Financial Trend Software vendors – like any other industry – do not operate in a vacuum. Each company impacts the other company. If the industry’s financial trend is weak (declining sales, declining profitability, declining cash flow), anticipate industry failures or acquisitions.
2. Look at the Company’s Financial Trend Software vendors should either be profitable or have a plan to reach profitability. If a company has no definitive plan to achieve profitability, it must rely on outside investment to survive. The recent “flight to investment quality” within the investor community has reduced money losing company’s capacities to raise funds.
3. Look at References Software vendors should provide you with a number of references who are at various stages of the purchasing cycle. Issues such as ongoing service and support levels are critical in helping you determine the right company to support your development efforts.
4. Look at the Company’s Current and Future Business Plan Software vendors should be able to tell you and to provide you with materials on where they are as it relates to their current and future business plans. If a company appears to have a shortfall as it relates to its future business plans, consider the impact that knowledge will have on the company’s profitability and its ability to raise future capital.
Conclusions: As the IT Director or Group Manager, you need to assess the strength of a company both from a technology and a financial performance basis. If a company is lacking in either area, you should consider exploring alternatives. Once you have purchased the software, you have made the transition from a prospect to a partner. Their success, in large measure, will impact your project’s long term success.