Category Archives: ethics

Understanding What You Want Out of Your Business

Overview

Having visited numerous SMB (Small or Medium Business) companies and implementing Dynamics NAV since 1999, I’ve had the wonder pleasure of meeting unique and interesting people. The business problems that were discovered are both exciting and challenging. Over the years, I’ve learned a lot both about businesses in general, as well as myself and our organization.

Rewind a few years in my career, I remember whenever I go into a company on a consulting engagement, after analyzing the customer’s business, I would make all these really good, cost effective, and sometimes contradictory recommendations on how to make their business more efficient and effective.

I would say out of the 10 recommendations and suggestions I would make, if I was lucky only about 3 or 4 of the recommendations I make are heeded. Some of the recommendations that I thought would be a sure hit turned out to be duds. I’ve always thought that the only reason why certain projects didn’t go through was because of the budget.

To a certain extent, it’s true, the monetary cost of certain projects will definitely be ignored especially if the benefit cannot be justified. But as I grow older (and hopefully wiser), I realized that most of these projects were rejected even before it got to “how much it’s going to cost” stage.

I realized that there is something else that is involved on deciding whether certain project gets supported. That “something else” is the current life stage of the owner.

It’s About the Money, but Not Really

It’s all so simple. A 30 year old person will make different “long term” decisions than a 60 year old person. What the younger me was trying to do is make suggestions for long term strategic growth for a business owner that’s trying to retire and/or sell the company. And making strategic short time gain recommendations who’s in the business for the long haul.

As I mentioned earlier, often these suggestions and recommendations will contradict each other. How should a company spend the time and resource to hire an assistant or spend the time and resource on training to make the team more effective? Invest in new equipment or just repair and patch the old one? Should we just patch this deficient business processes? Or totally revamp it? There are business cases for all, and depending on which way you swing, you can argue it either way.

After years of frustration on why my brilliant ideas were so casually disregarded, I realized that without understanding what the owner intention is for the business, a lot of energy I spent figuring out solutions to what I think is their business problem is will fall on deaf ears.

At the end of the day, what every SMB business owner want is for all of their problems to go away. But how do we, as a hired guns, help facilitate this? And how do we know which problems they consider “must solve now” or “solve later”?

For a while, my most feared question from our clients is: “How do we make our company more effective?”. Because this entailed hours analyzing and writing up recommendations, then having it shot down. Very demoralizing, billable or not.

The First Thing that We Need to Understand

What do you want from your business?

Are you looking for this business to provide comfortable retirement? Or do you want to expand it?

To expand it (and maybe sell it at one point), you have to invest and make changes in your business. To provide comfortable retirement, you may not want to change too much; stay the current course.

There are ways to implement the proper strategy for both scenarios. But don’t try to ask for advice on expansion when your goal is retirement. It will not work and you will come back and want to change everything.

Similarly, don’t think about short term retirement if your goal is to expand. Because to make your company more efficient in the long run, it will force you to make painful decisions on personnel, technology, and the way you do business.

Knowing their frame of mind and putting myself in their shoes allowed me to become more effective on providing recommendations for resolving the CEO’s problems on “what should be resolved right now”.

Conclusion

Note that the subject matter is usually very tense and a lot of CEOS and owners of the organization were taken back by the rather blunt question. Sometimes, it’s not as straightforward when family members are involved. Sometimes, the CEO wants to retire themselves but want to expand so their family members can take over. These contradictory objectives requires hashing out by answering more tough (and blunt) questions.

At the end of the day, knowing what you want out of your business will not only make our job easier, also make your life easier and happier.

Why You Cannot Find a Good Service Based Solution Center

The Conversation
Recently, I had a meeting with an owner of a company that I thought was going to ripe me a new hole. This company originally purchased NAV from another solution center and overpaid for subpar service. Problems steming from wrong advice given to unnecessary modifications causing them delays in their operations. Noting this, they went to another solution center that did a wonderful presentation, but eventually suffered the same treatment as the original solution center that sold them the product. Basically, non-existent support and overbilling.

They eventually found us and after my interview with the owner of this company, I went through our company philosophy, how we approach customers, and what our princples are. We’re able to gain the trust of the owner and we soon put him at ease that we were the people they were looking for.

Then, the bombshell questions came. “Why are there no good company that service Navision (Dynamics NAV) out there?”. Followed by, “why didn’t we buy the software from you?” I have to admit, the 2nd question caught me off guard.

The Industry
It’s really not fair to say only Navision (Dynamics NAV) has this problem. The problem really applies to all of ERP industry, regardless of whether you sell Great Plains (Dynamics GP), SAP B1, Epicor, Oracle, etc. It’s all the same. Why are there no good service companies that cater to existing companies and users?

I pondered the same question. We obviously carved out a good niche providing excellent service to existing customers. It’s not like we’re smarter than other people doing ERP implementations. It’s not like we have more technical abilities.

With all the talk about our how our industry business model is built on having a long customer relationships, why is it that it’s so hard to find good solution centers that provides good service? That makes the customer want to stay with the company for many, many years?

It’s All About the Money
Yeah, you knew I was going here.

When you’re in the ERP or accounting software industry, the majority of the money from a customer is spent in new sales. Consider the following graph:

NewSales

Assuming the customer is purchased the product in 1/1/13 and they went live on 4/1/13. In the first 3 months, the customer will have spent the majority of the total value of the entire implementation. The cost that you would’ve paid to the solution center will include the software license and the initital implementation.

The reason why you see a few bumps in the post implementation support is because after the customer is live with Navision, they will add on modules, users, etc. In addition, every year the customer (if they choose to) pay for the 16% enhancement. Sometimes the customer will even do an upgrade which will require some labor.

You can extend the graph out longer but it’s pretty much the same.

It will take many years, if ever (if the customer is not on the enhancement plan), for a service based company to match the same revenue obtained from a new sale in the first 3 months.

If you were to own a solution center, where do you want to be? Just looking at the graph, it’s a no brainer. To maximize revenue for a company, you absolutely have to focus on new sales and new implementation. Microsoft rewards you if you focus on the new sales. The owners of the company rewards you if you can bring in new sales.

High Risk and High Reward
Make no mistake about it, to focus on new sales is a tough business. You have to hire and manage a sales force. You have to have enough talented manpower to handle all of that new implementation. On top of that, you have to feed these talents even if you don’t make a sale.

So here’s the cycle, the cost of talent is not cheap. In order to feed this talent, you have to focus on new sales and drive in revenue. Basically, you have to feed the machine. This means that if the customer does not spend enough with a solution center that focus on new sales, you will not get the love that you’re expecting.

Because the machine is so costly to feed, if you don’t make a new sale, it does not matter how talented your staff are. You’re going out of business.

You have to focus your best talents on revenue generating endeavors, basically new implementations. For the low money generators, such as support, you hand those off to junior people or cheap resources. Because post implementation support, to most companies, is a money losing operation. Solution centers of a certain size cannot live off of support services.

Refusing to Play the Game
Now to the 2nd question that client asked us “why didn’t we buy the software from you?”.

The answer to this is simple. When you’re buying a new software, you’re mostly buying from perception or the preceived quality of the company that’s proposing the software to you. When you walk into their office, they have a very beautiful office with very beautiful people. When they do their demos and presentations, it’s all done professionally with case studies and well thought out demos of the software. They even have a secretary to bring you whatever you want to drink.

If you were to come to the place where I work, I’ll be pretty embarassed to show you around. It’s a glorified office that’s 200 sq ft. with dirty walls and old furniture. But I can service you some instance coffee or water.

Now if you were a prospective customer and you walk into their office and you come to our office, which one will give you a better perception of credibility?

How I’ve been able to live and thrive in this business is because I refuse to play the game as I explained here.

Conclusion
While I was explaining this to the owner of the company, he kept saying “but this is not right, this is not right!”. Yes, everyone in the world will agree that this is not right. But this is the reality of our industry.

In the end, my response to the owner of the company was this:

1. It’s hard to find a good service company because focusing on service for existing companies is a money losing business
2. The reason why you didn’t buy from us is because on initial look, we’re pretty damn fugly.

That’s Just The Way It Works

There’s a dangerous trend in the ERP service industry. I frequently encounter this when I’m speaking with client sites that’s asking to migrate to Navision and existing Navision clients asking us for support.

One of the first things we do when we walk in to a new client was to ask questions. Why are they switching? What is your current problem? Why are you doing certain things the way you do it? When going through the questions, one of the more common responses I get when we talk about their existing process in the system is “That’s just the way it works”.

Really? Is that really the way it works? Is your business not running efficiently because that’s just the way it works? Are your competitors gaining market share while you’re losing market share because that’s just the way it works? Are your customers buying from your competitors instead of you because that’s just the way it works? Is there nothing you can do to find out more because that’s just the way it works?

More often than not, the response they received when they’re processing a particular function in the system are given by their software consultant. As experts in the system that was implemented, there’s not much the clients can go by in terms of verifying whether the consultant’s response is accurate or not. There’s not much reason to doubt the reponse given.

This is a lazy consultant’s response. Your consultant is basically saying “Don’t bother me, you’re not important enough for me to find an answer so I will just blame it on the software”.

There are questions that are totally out of the consultant’s field. That’s understandable. Everyone gets stumped, even the most experienced Navision implementors and developers. There are some instances where the the consultant’s hands are tied, like functions related to the executables which we can’t modify. But it’s the consultant’s job to give you an satisfactory answer on why things are the designed the way it is, or if there’s no answer, what are the work arounds or if it can be reported to Microsoft as a future update.

Working with Dynamics NAV (Navision) a little more than 12 years, I know enough that 99% of the coding in the system are there for a very important reason related to your business and the best business practice. And with Microsoft Connect, there’s an outlet to make suggestions to improve the product that you use.

Especially with an open source software like NAV, there’s no reason that you, as a customer, should accept answers like that. That’s just the way it is.

My Microsoft Conundrum

First of all, let me state that I’m a amateur investor in the stock market. I have a discipline when it comes to stock investing in that I look for companies with good products and/or strong management. One of the major holdings I have is Microsoft (MSFT), in fact, my Microsoft stocks takes up about 20% of my portfolio.  As an investor, I want to see the stock shoot up and demostrate increased sales of the product quarter after quarter. Likewise, I want to see the profit increase quarter after quarter.

The reason I bought Microsoft stock is because I believe in their products. I believe in their vision of “business software” will be. As to what I believe their vision is, that’s a separate BLOG post.

As you all know, I’m also the principle of AP Commerce, Inc. based in Los Angeles. We are a small Certified NAV partner; we do nothing else other than to implement Microsoft Dynamics NAV (Navision). Personally, I’ve been working with NAV since 1999 and have been involved in hundreds of implementations to date. Our company is created to be a service company, not a software sales company. It just so happens that NAV is the product that we uses so we can help our customer achieve greater success.

However, this post is not to discuss accomplishments. It’s a genuine conundrum I have being an investor of Microsoft and a business owner doing business with Microsoft.

Before I continue, let’s make one thing clear about Microsoft. Microsoft is in the software sales company. Their core business is to sell software. Not service, not hardware, not internet content, not social media, not whatever. Yes, we all can see they’re trying to diversify, but at the end of the day, their business is to sell software. Period.

It’s not a secret that Microsoft loves partners that can sell and sell and sell. Since Microsoft channel reps are evaluated by how their region performs, channel reps throws all of their support and time into partners that sells. As an investor, I love this strategy. More sale means more revenue and hopefully fatter profit. By exceeding these arbituary numbers set by Wall Street, stocks shoot up. Wall Street loves growth. When I receive the annual reports from Microsoft, I always turn to the revenue and the profit section. I look at how much revenue growth this year as compared to the previous year, and the year before that. I look at the earnings per share, I look at what the cost of doing businesses. In short, I want to see growth and more GROWTH! In the world of Wall Street, public companies are evaluated by the quarter. If the quarter sucked, the company will get hammered and executives get fired…

As such, it’s not a surprise that Microsoft wants more partners to sell all of their product suites. And more and more hardware dealers and bulk software retailers find out about Microsoft Dynamics NAV (Navision), studies the manual, pass the required tests, and acquire the competency to sell Navision (among other softwares). In a push to sell more software, my suspection is that even larger solution centers, to be more aligned with Microsoft strategy have shifted their focus software-sales centric.

As a business owner working with Microsoft Dynamics NAV. I’m deeply concerned by this practice. As we all know, selling and implementating Microsoft Dynamics NAV is different than selling and implementing Microsoft Office or setting up a network using Windows 2003 Server or implementing Exchange Server with Sharepoint. Without proper skillset or the resource, the implementation of ERP usually fails. Once the software implementation fails, customers blame the software, the vendor, and ultimately, Microsoft. 

These bad implemenations creates a deep distrust in Microsoft; confirming their belief that Microsoft is an Evil Empire and all of Microsoft products suck. Pretty soon, word of mouth spreads (business executives and managers have powerful friends) and before you know it, more and more people have the mental imprint that Microsoft sucks because their friend of a friend got screwed. For the record, Microsoft products does NOT suck. Microsoft Dynamics does NOT suck.

Most of these companies either bite the bullet and live with a software that they can’t really use and hates Microsoft for the rest of their lives, or they call around for other solution centers to come help them out.

We have quite a number of situations where companies called us help asking us to help them with a failed implementation. In one instance, the owner of a company that bought NAV over a year ago expressed to me that he absolutely hated Microsoft and his lack of due dilligence in selecting the right vendor and the software. He couldn’t believe that his original vendor got to be a Gold Certified Partner. He was so upset that he wanted to sue the solution center and Microsoft.

To make a long story short, I accepted the task and decided to let the chips fall where they may be. Fortunately, we were able to help them out quite nicely and the owners and the employees became a fan of NAV. Not only did they became our reference and paid their bills in full and on time, but they also agreed to go back on the enhancement program with Microsoft and bought additional NAV sessions. In the end, by making the customer happy, they ended up doing more business with Microsoft.

When I started the company, I promised myself that we would be a service company, not a software sales company. What we did for this company took time. It takes time to ask the company to believe in us, then to believe in NAV, then to believe in Microsoft. Trust is the hardest thing to build once it has been broken. Unfortunately, the time Microsoft spends working with this customer doesn’t translate into revenue quickly.

As a business owner who believes in Microsoft, I want Microsoft to reward partners that can do the job correctly, not reward partners that can only sell. As an investor, I want Microsoft to spend the time and effort supporting people that can generate revenue quickly. So I can see an increase every quarter and meet Wall Street expectations.

How would you recommend balancing being a service company and being an investor?

Question of Morality?

A few weeks ago, a CFO that recently joined his company called us up asking to quote Microsoft Dynamics NAV to them. This company had gone through a couple of management changes, got sold to another company, and then resold again to a group of private investors. Needless to say, none of the current employees have been there very long.

It just so happens that the CFO had used Navision before and loves it very much. He had gotten several quotes from different solution centers which were all about the same price.  In the end, for whatever reasons, we were able to win the deal.

By this point, the budget was approved for the amount specified on the quote. When we place the order with Microsoft, to our surprise, the company had purchased Dynamics GP back in the 90’s that no one knew about. This meant that we were able to receive credit from Microsoft and apply the credit to the cost of the software. The amount of the credit was 50% of our total software deal. So this is a significant amount and would cut into our profit for this deal.

At this point, two scenarios quickly came into my mind:

1.       Keep my mouth shut and fulfill the amount as specified on the original quote. Basically we would be able to book the difference as pure profit.
2.       Tell the customer of the credit from Microsoft and apply the credit to their quote

This basically came down to whether or not we should pocket the money or be honest and give the customer the credit they deserve.

It took me some time to decide what to do. The choice was hard but it was a decision that I would expect myself to make and the people we work with to make. It’s the way we’re brought up. Its’ way we build trust. It’s making the world a more pleasant place to live: I was to give the credit to the customer from the software purchase.

Before making the phone call to inform our new customer the good news, another thought came to my mind; was this good news for the CFO? I could only imagine the questions he would face if we invoice him for something that was significantly different than the amount specified on the quote:

“Why didn’t you do your due diligence and realize that the company had purchased GP before?”
“Why didn’t you know that you could’ve applied the credit the company had in GP?”
“What other things the board hired you to do are not done properly?”
“How can you propose such a budget if you don’t have the grasp on the proper information?”
“How can the company trust your decision making ability in the future?”

Would I be the person that will cause his loss of credibility with the CEO and the board and ultimately his job? Or was I just thinking too much?

I picked up the phone and delivered the whole story about the Microsoft credit to him privately. As I expected, there was no congratulatory remarks or a word thanking us for our honesty. He listened intently, paused for a few seconds, and then said, “Hmm… We bought the software that long ago and they still recognized it? Go ahead and send us the invoice then.”

From his paused, I can sense that for a few seconds, millions of thoughts went through his mind as well. What were his thoughts? God only knows, because I wasn’t going to ask him.

In the end, there was no right or wrong. It could be right or wrong depending on how you look at the situation and who you are. I did what I thought was the right decision; it was information that I would’ve liked to receive if our roles were switched. I would not like it very much if I found out this information on my own at a later date.

I guess that’s why we were able to win the deal.