50,000 Pound Software

My friends at SRA Capital in San Francisco invited me to their Winter Technology Conference last week giving me a hall pass to sneak out of the Atlassian office and check out some public software companies. For those of you in private companies, if you ever wanted to disabuse yourself of the idea of being public, go to a financial conference.

The drill is: companies pitch themselves to investors as a good investment without…

a) sounding like Ken Lay or Jeff Skilling of Enron,
b) saying anything that has not been sanitized to smithereens by their investor relations consultant, internal counsel, law firm, accounting firm, and any other anal-retentive person in the decision hierarchy,
c) making any future statements remotely interesting
d) saying they are a good investment.

This last fact is a bit hilarious. Isn’t the whole point to believe these companies are a great buy?

All this means the presentations can be exceedingly dull. To make it even more boring, two out of three of the following people give these presentations: the CFO, the investor relations person, and the CEO. The CEO has some chance of making the presentation interesting because in theory he or she has the brass balls/ovaries to say something slightly edgy.

But if you were to pick out of a line-up exciting presenters, you probably wouldn’t pick any CFOs. Think about what they do: make numbers add up correctly. Personally I would be incarcerated right now if it were not for some great CFOs like Bill McDonagh (now at Walden Venture Capital) with whom I worked in the past. CFOs are critical guys, but they are not the go-to guys for spine-tingling excitement.

The other weird phenomenon is what the companies and investors focus on. I call this a self-fufilling prophecy. The investors want to know how big the Average Selling Price (ASP) of the software is. The bigger the better, naturally. One thing I noticed that is somewhat new since I last did these presentations is that companies talked about how many deals were over $100K in size. The more the better. This is dysfunctional in my mind because there are ways to make money and produce great margins without huge expensive software. But an endless loop exists with investors wanting this and companies feeding their lust.

Another dysfunctional metric is how many sales people do you have and how many are you hiring. As if huge sales forces were the only answer. Investors are looking for the leverage. Meaning: you spent all this money developing the intellectual property, you can sell it now, so now ram it down the throats of more customers.

I think the opposite is a lot more exciting. Once you understand the power of really good, lightweight software sold at a great value with lower distribution costs, you understand a much more efficient and exciting business model. But people who think this way aren’t real common at investor conferences. Some day I think this will change.

Not everyone was boring. Ali Jenab, CEO of VA Software was great. He is a sharp guy. He had led a compelling turnaround, and he gave the audience a lot of interesting content. His challenge is that VA Software’s media businesses: Slashdot, Freshmeat, and Sourceforge.net are highly distinct and have considerable potential, but their software business doesn’t seem anywhere near as interesting. You can bet that because they are public, with a guy like Ali running the show, there are strategies he cannot talk about that are in the works.

Which brings me back to boring presentations and the herd-mentality about business models. The opportunity exists for public companies to say something really interesting, rather than trudge through the same crap every other company does. Although Sarbanes-Oxley has neutered these guys to some extent, a financial conference pre-Enron collapse was not much different. I have never actually fallen asleep in one, but I need a lot of coffee and Coke.

The real troubling thing is the same-ness to the business models: expensive software requiring expensive sales costs.

But forget it. That’s why I work in a private company like Atlassian that does everything totally counter to these types of companies. And has better performance. ☺

2 responses to “50,000 Pound Software

  1. Pingback: Investor Relations

  2. Great reading, keep up the great posts.
    Peace, JiggaDigga

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