Driving growth and profitability is never an easy task. Throw in dwindling budgets and swirling economic headwinds, and the CFO’s job becomes that much more difficult — and essential. Through savvy financial strategy and judicious investments, CFOs must lead their companies to long-term success, even in turbulent times.
Especially in turbulent times.
Smart technology investments will determine whether an organization sails through choppy economic waters or crashes against the rocks and joins the watery grave of failed ventures. Below, I share how, as a CFO, I consider software purchasing decisions, and I reveal my best tips for selling to the CFO during downturns.
The top three factors for evaluating the ROI of tech investments
Some technology purchases, like ERP systems, are simply the cost of doing business. But for every other software purchase, the first thing I look at is the expected business outcome. If there’s a justifiable business outcome, what’s the cost of the software relative to the anticipated outcome — what’s the ROI?
Typically, there’s a tangible number. For example, if it takes you a certain amount of hours to do a job, and with this software, you can do it in half the time, you simply quantify those hours saved and add in your ability to work on other tasks. That’s the ROI.
However, if there aren’t hard numbers, then I’ll look at the advantages I can expect to gain. Does this software allow my organization to do more than we otherwise could have, whether that’s augmenting, supplementing, or making things more efficient? And if so, again, is it worth the cost? What’s the ROI?
The most important question, however, the multi-million-dollar question, is whether that software creates a competitive advantage. This can be incredibly difficult to answer. And while it can vary between software, there are certain questions I’ll ask to help me decide. For example: Are we gaining market share? If so, why is that happening? If I’m purchasing analytics software, the question becomes whether or not it allows me to make decisions better, faster, and smarter than my competitors. If it’s sales software, the question becomes whether my salespeople are more productive than salespeople in other companies. And so on.
The impact of investor sentiment and downturns on tech purchases
There are two main things investors look at, and they’re often at odds: growth and profitability. Three or four years ago, when investors seemingly wanted organizations to grow as fast as possible and they didn’t seem to care as much about the bottom line, companies went out and bought all sorts of technologies and hired more people than they needed. The threshold for getting a company to buy new things was very low. Today, that’s just not the case.
When finance leaders start tightening — for better or worse — they get tunnel vision, and they simply focus on the must-haves, the most fundamental expenses. They assume the downturn is a temporary situation and that when things improve, they’ll be able to hire back or procure software they chose not to renew.
Investors today are looking for enterprise software companies to demonstrate meaningful progress towards increased profitability. Knowing this, any investments in new software areis going to eat into my bottom line and I really need to be convinced that this software will either significantly increase my profitability through greater top– line performance or reduced costs.
How to sell to the CFO during a downturn (whether you’re a seller or an employee)
As I mentioned, if you’re a seller, you have to show me how I’ll benefit. The more tangible and identifiable the ROI, the higher the chances you’ll get my business.
But there’s another element when it comes to software purchasing that I and many other CFOs have been burned by — we rarely see the results promised. If I have to spend a million dollars on a license that’s going to take 18 months to implement, and that’s going to cost several more millions of dollars to set up and then train my employees, then I need high confidence that there’s both a real need and the software is going to deliver what you promised.
On the other hand, if you’re an employee and you’re hoping to buy a specific software, here’s my advice: If your CFO must be involved, pull them in as early as possible. They’re likely going to reject your request because CFOs are fundamentally skeptics, and the easiest thing for a CFO to do is say no.
Why? First, it punts whatever spending decision is being proposed down the road, and second, it really tests your conviction and resolve. If you strongly believe strongly that something is worth purchasing and you hear “no,” you’re going to fight for it. Your conviction will erode their skepticism. Then, the more you can tangibly quantify the ROI, or say, “I’ve done this,” or find people that the CFO knows and trusts who have had a great outcome, the better your chances of gaining their approval.
Remember, ROI isn’t one and done
When any software package comes up for renewal, I consider a few factors. First, I’ll try to gain an understanding of the actual benefits and determine if it’s driving the value we anticipated. If we’re not seeing the benefits or if it’s just a commodity product, I’ll evaluate alternatives and pick the one that’s the least expensive and most effective.
Then, I look at utilization. If our company bought 100 seats, how many are we using? Generally, the business sponsor always wants to buy more because the sales reps at the selling company are doing their job and trying to sell more.
However, when switching vendors, cost always plays a major role. For example, maybe the run rate on a piece of software is $1M, and the software I want is $500K, but to make the switch, I need to spend $1.5M, and the net benefit of that $500K/year won’t hit me for five years. In that case, I’m much more disinclined to switch.
Build your competitive advantage
Intelligent software investments can save your team hours of tedium. They can provide automated insights, help you create models to anticipate trends, and even give you an edge over competitors. With the right technology, your organization can optimize its resources and weather economic storms. But if you want to sell to the CFO, you’ll have to show them the ROI.