THE CLIENT: Software Company

We engaged with the owners of a $48M software company to examine the myriad problems and chaos cited by the principals of this seven-year-old enterprise. They needed to discover what they could do to improve their profitability, as it had never been above 2% (EBIT) since inception.

The owners were brilliant developers and ahead of the market curve in their sector.

While their revenue was exploding, they did not have the experience or training to manage a quickly growing company. They needed answers on how to remain profitable and continue to scale for revenue growth.

FINDINGS

  1. We studied the three prior years’ P&Ls and saw aberrations to the strategic plans and troubling trends related to expenses, organizational structure, sales and marketing policies, post-sales customer service, and employee satisfaction. We focused on unraveling the largest expenses to assess their efficiency and value. There were nearly 100 different company activities that required understanding.
  2. First, the head of sales & marketing was a software developer who, in the words of the owner was “…really good at selling.” They had a direct headcount of nine in the sales department who were selling to only “key accounts.” Additionally, they had 33 outside “commission only” agents selling their product in protected geographic territories. All outside agents were managed by the head of sales.
  3. The company had a total direct headcount of 215.
  4. Their post-sales customer service was outsourced to India.
  5. The owners had 16 people reporting directly to them. (Both owners admitted they disliked managing the day-to-day details, which robbed them of valuable time doing what they loved…developing software.)
  6. There were 37 different internal price codes for the same product.
  7. They invested 3% of revenue in marketing (approximately $1.44M), but had no idea how effective it was in driving revenue or customer perceptions.
  8. They had numerous marketing messages that were not particularly well aligned.
  9. Of their staff, 26% had “two bosses”. (Fifty-six people had two people to answer to.)
  10. The owners never created a 2–3 year strategic plan, nor a mission or vision statement.
  11. Their products had very high value to their clients.
  12. They suffered a 31% churn in clients over the prior two years, and did not know why.

SUMMARY RECOMMENDATIONS

Because the organization’s issues were so widespread, we needed to simplify our recommendations to deliver results in the face of the most urgent challenges in a short timeframe.

  1. We worked with ownership to quickly develop a strategic mission and vision for their company — including a two-year strategic plan.
  2. We created a pricing policy that used a maximum of six internal prices. (Note: the company had experienced a 28% error rate in their invoicing, requiring considerable intervention from staff.)
  3. We urged a customer satisfaction survey to understand the clients’ perceptions of the company’s products and service.
  4. Since the organizational issues were so widespread, we urged ownership to hire a seasoned and professional business head as general manager or CEO.
  5. We urged the owners to bring their ad agency in so we could create a simplified and impactful messaging platform for their product deliverables and brand image.
  6. We insisted the agency develop a dashboard for reporting and measuring marketing spend efficacy and impact by advertising type and venue.

THE RESULTS — ONE YEAR LATER

  1. We were retained to recruit and hire a general manager/CEO, who was in place three months after completion of the diagnostic process.
  2. Clients commissioned a customer satisfaction survey and were very surprised to learn their post-sale customer service satisfaction was an abysmal 21%. (The new CEO brought customer service in-house upon seeing these results.)
  3. Invoicing errors dropped to 11% within one year; we are confident this will continue to go down as reorganization is implemented.
  4. The new CEO has begun a total reorganization of the company structure and has clarified job descriptions, responsibilities and accountability.
  5. EBIT grew by 50%, directly due to the newly consistent (and consistently implemented) pricing policy.
  6. Most importantly, the owners are thrilled to be out of the day-to-day business, and have only one direct report. They have returned to their roots as entrepreneurs and software developers — where they can contribute the most value.