Financial Controls at Chrysler
Lutz has an entire chapter devoted to the problems of companies' financial controls in his book "Guts - The seven laws of business that made Chrysler the world's hottest car company."
Lutz was the President and Vice Chairman of Chrysler Corporation. The first tale about Chrysler's financial problems - the tale about Lee Iacocca and the $1.2 billion United States loan guarantee - is well known by most business owners. The story of Chrysler's second crisis and recovery in the early 1990s, however, is not as famous. "Guts" is Bob Lutz's story of how he dealt with Chrysler's second crisis, and the business principles that Lutz developed during the crisis.
Another problem that Lutz cites is that financial controls make the current state of our business legitimate. Once controls are in place, we tend to think in terms of changes to our current financial achievements, and that tends to validate numbers which, quite simply, may not be appropriate for a business like ours.
Lutz believes that it's easy to use inappropriate numbers as our baseline, and then delude ourselves into believing that our finances are much better or much worse than they really are.
For example, a software developer might gross $1,000(US) in their first year of business. That may be an encouraging number, or a discouraging one. It depends a lot upon how mature their marketing niche is, and whether or not there's an established brand in that software niche, and whether the niche is growing or stable or declining, and how aggressively their competitors are marketing their software, and many other factors.
Roll the calendar ahead one year. The same software developer has $1,500 in gross income in year two of their business. Lutz would say that their financial system might be telling the developer, "Good job - your income is up by 50 percent". But, in reality, the developer should be disappointed that she or he is still earning hobby income after their second year of business.
Financial Controls at General Electric
General Electric (GE) provides another example of how bad financial controls can deliver bad marketing information, and bad marketing strategies.
Jack Welch tells the story of GE's marketing strategies in his autobiography "Jack - Straight from the Gut." One of the strategies that Welch put in place when he took over General Electric was to only compete in markets where GE could be the number one or number two player.
This resulted in some convoluted definitions that hurt GE's market penetration. For example, in GE's jet engine business, the company defined its market as airplanes that used jet engines that produced between mmm pounds of thrust and nnn pounds of thrust. And GE was the number one seller in this narrowly-defined marketplace.
When Welch forced the corporation to abandon its "number one or two" policy, and redefine the marketplace to be "all jet airplanes", GE realized that it was a relatively small player. And it set its sights on becoming a large player, resulting in hugely increased revenues during the years that followed.
So, I think Lutz and Welch might argue that badly defined financial strategies and policies can hurt a company by making it think that it is much more successful than it really is, or than it might be if it weren't constrained by its self-imposed rules.
Truth is, financial controls are great. But they're a tool. Software developers need to manage them, and not the other way around. Don't let financial controls dictate how your software company should be run.
Software Marketing Budgets
Of all the financial controls that software developers use to regulate their microISV companies, the most abused one is the marketing budget.
Too many lazy marketers create their marketing budget first, and then create their marketing goals and objectives second - if at all. So says Mark Stevens, the author of the book "Your Marketing Sucks." And while Stevens wasn't specifically talking about independent software developers, we see this problem quite a bit in the software development industry.
A developer might raise a question in a forum by asking, "I have a couple hundred dollars to spend this month on marketing. What should I do?"
This is not the right approach to take. Your Adwords budget, your search engine optimization (SEO) purchases, and your press release expenditures should not be dictated by how much money you have left over at the end of a particular month.
microISVs need to set goals, and create a marketing plan and a marketing budget to meet those goals. I'm not suggesting that you ignore your real-world finances when you establish your marketing goals. But you need to plan your marketing objectives before you determine how much money you'll invest in your software marketing efforts.
Make a list of the most important changes or enhancements that you could make to your software marketing -
- Create a line extension. Spin off a Light version of your application. Or a Professional version. Develop a publicity campaign to tell the world about the new edition of your software.
- Localize your software and sell it in different languages, countries, and regions. Create a publicity campaign for each new language.
- Tweak the sales message on your website to make it more effective. Ensure that there's a path through your web pages that each person in your target audience can follow.
- Do a website makeover, and strengthen your sales message to all of your target markets. Build new landing pages, and make them easy for prospects to find.
- Develop a positioning strategy that ensures that your programs are attractive to new, untapped audiences. Alert the press in each of your vertical markets about the benefits of your applications.
Marketing Budgets and Selling Soda
Sergio Zyman, the author of "The End of Marketing As We Know It," also believes that most businesses don't know how to set their marketing budgets. Too many firms treat marketing as an expense. They tend to set their marketing spending to some fixed amount, or perhaps to some percentage of their income or profit.
Zyman wants us to treat our marketing expenses as an investment and not as an expense. Instead of thinking about how many additional promotional campaigns we can purchase, Zyman would ask us to think about how many additional software sales we can generate. By treating marketing as an investment, we'll develop more realistic plans to ensure that we spend our marketing budgets wisely.
Marketing budgets and other financial controls need to be an organic part of every microISV's business. Don't just go through the motion of creating these financial documents. Instead, create meaningful tools that will allow you to manage your company's finances, and generate the revenue that you need to make your software development business a success.