Rarity in the software industry
Michael Treacy and Fred Wiersema wrote a great business book a few years back called “The Discipline of Market Leaders”. In essence, they posited that market leaders are strong in one three key disciplines: product innovation, operational excellence (low cost leadership) or customer intimacy. Almost all software firms try to be product innovators and many succeed to some extent. But, truth be told, few really achieve great, long-lasting status as a product innovator. No, most software firms had a great idea, got it to market sort of on-time and began to lose their innovative edge quickly. If you don’t believe me, just look at how many lackluster software firms get acquired by even larger software firms that can only ‘innovate’ via inorganic (i.e., acquisitions) growth.
So, it’s really rare to find a truly innovative software firm and even more rare to find one that’s customer intimate. Well, I ran into a couple of these lately.
Halogen is a Canadian, not Silicon Valley, HR software vendor. More specifically, they are an employee performance and talent management solution provider. In the words of a Halogen executive, they work hard to offer ‘brilliant (solutions) made easy’.
Customer intimate software firms should be viewed differently than product innovators. When you put the two on a shortlist, the product innovator will bore you to tears with one new function/feature after another. I was always amazed at the general ledger vendors who tried to create a sixth, seventh or eighth new way to allocate a balance. Did any of these matter when the usual accountant was only going to use the first method? No.
Customer intimate software firms have to make solutions that:
- Are really easy, intuitive to use. I mean really, really, really easy. The solutions are elegant, effective and powerful but the tools do not overwhelm the user. That’s a tough order to fill.
- Are fail-proof in their implementation and usage
- Are backed up by people who really know the product
- Are implemented by people who put the customer/user needs first (and not those of the vendor or implementer)
Has Halogen totally nailed the customer intimacy discipline? They could be close. The company continues to grow organically and grow strongly. The firm is up to 1500 or so customers and has experienced 24 consecutive quarters of growth. Halogen gets a significant amount of in-bound marketing leads from word of mouth referrals. To me, that’s the greatest compliment (and cheapest way to acquire new sales leads) a firm can get. It also speaks to the delight customers may be having with this product line.
Customer intimacy is not synonymous with high cost. For software firms, there may be some added development cost and some extra customer care costs but these firms don't have to spend near as much in customer acquisition costs as a product innovator or operational excellence vendor might. Customers might actually get a better value from a vendor that can:
- actually get a product installed at the price quoted
- deliver a solution that users understand fully and use right out of the box
- answer users questions well and timely
In a tight economy, software buyers might want to decide which discipline truly fits their needs especially if their firm cannot afford lots of user training, an implementation that runs over-budget or a product that users cannot decipher.