I often return to the scene of the murder…the gut-wrenching memories of the photographer, the investigators circled around the bloody corpse, forensics being collected in baggies – maybe the worst day of my life. The victim? Mr. SG&A….better known as…my friend, my brother, my confidant…Johnny Commission. RIP Brotha.
The arrest was made, but the jury rendered a not guilty verdict…again. Weird thing is, I’m not even mad at the murderer, as she was just doing her job – after all, she’s a highly paid assassin. She never kills out of passion, or jealousy, rage, or envy. She kills for the money. She says the same thing every time on the witness stand and she always seem to find a technicality that sets her free – can’t identify the murder weapon.
Wall Street gets away with yet another murder – hung jury!
Software companies traditionally have HUGE margins – more than almost any other industry. However, like any industry, Wall Street likes to go after the “weak fawn” in the business model. For us, it’s SG&A. And…a large portion of SG&A is…you got it…commissions. Control this line item in your EBITDA, and Wall Street makes a software company rich. Here were the 3 potential murder weapons presented in the trial – you be the judge:
- Enter exhibit A, Your Honor – SaaS. Most of the big money I’ve made in my career has come from a simple notion – incent customers to buy now based on their growth model for the future. When SaaS came on the scene, one of its foundational principles was to allow customers to only buy what they need…when they need it. Moreover, SaaS revenue is recognized ratably, meaning over a 3-year period vs. the perpetual model of recognition upon signing. Translation, your commission is now paid over time. 2 strikes against the software seller.
- Enter exhibit B, Your Honor – No Innovation. In 1995, a company called Siebel Systems created a whole new sector in software – CRM (customer relationship management). It was good for everyone – mainly software sellers. Siebel took off like wild-fire, and as such, had to entice sellers with higher commission rates. This led to the industry increasing their commission over-all to keep their best people. Today…innovation has slowed down…almost to a complete stop. Existing software firm CFOs know this…and commissions have substantially dropped accordingly.
- Enter exhibit C, Your Honor – Educated Buyers. Selling software today is much different than 20 years ago. Some might argue that’s because software is less complex, therefore requires less events…leading to commoditization (President Bush word). I think it’s due to the proliferation of the Internet’s role in helping customers make informed decisions coupled with their buying experience. To find a buyer that has never bought software today would be a unicorn. Different than 20 years ago, most companies have hundreds if not thousands of software packages deployed. Buyers are smarter, wiser, and know how to sift through the elongated cycles, sales tricks, and over-buying. Less complicated sales cycles require less skilled sellers. This has led to a drop in pay.
Not sure if identifying the murder weapon changes the outcome of the trial or not, as Wall Street seems to always win the jurors over with her charm. Either way, there’s been another murder, and I’m in mourning.