A $200K Sales Gamble Pulls in Millions by Bruce Hadley, SoftwareCEO.com ©copyright 2002 by SoftwareCEO — all rights reserved	<< Back
Once-tiny Lombardi Software, an Austin developer of business management process software, closed four major deals last year after September 11. And we're not talking peanuts here: The clients are all Fortune 500 firms, and the transactions are worth "multimillions," says Lombardi CEO Joe Kozak. Okay, that's impressive, but here's the jaw-dropper: Prior to these deals, Lombardi's total revenues last year were about $300,000. Kozak wanted to ramp up, so he invested more than $200,000 in new software and services from a company called Stratascope — yes, you read right: He rolled the dice with two-thirds of his company's revenues. Was it worth it? "Absolutely," Kozak says. "In the economic conditions of 2001, we were not getting good traction. We were one of many companies, all of which had a faster jump on the market than us, because we were brand-new. My background was selling to C-level execs at Fortune 500 companies. My issue wasn't getting the appointment; it was what do I tell them when I'm sitting in the room with them? I needed a very compelling message based around shareholder value." "The Stratascope tool enables us to re-engineer our message from an IT product to a business solution," Kozak says. "It does this by providing financial analytics around how my target client is performing compared to best of class in their industry." Stratascope looks at the same seven key business indicators Wall Street analysts focus on: top-line revenue growth, cost of goods sold, sales and general admin expense, days sales outstanding, days in inventory, days purchasing outstanding, and fixed assets utilization. "Rather than go into a CIO with a development product, I now go into a COO — usually the CIO's boss — and say, 'We have a done a financial analysis of how you are performing in delivering shareholder value compared to how you are doing against all your competitors.' What comes out of that is gaps; they aren't the best in all categories — no one company is. 'I have a solution to help you close that gap,' I tell them. Then I go into our sales methodology." The Stratascope analysis gets the proverbial foot in the door; Kozak then does the close with a compelling, low- or no-risk proposition: "First, we use these indicators to show the prospect how well his company is performing today," Kozak says. Then comes the pitch: "I ask for executive sponsorship to meet with the team responsible for just one of those indicators, and make this proposal: 'We will have a series of workshops, drill down to that one area, and we'll come up with a business case to come back to you with the top 10 business processes that are clearly broken around that area. We will take the one process that promises to deliver the biggest bang and develop a solution for you. Before you agree to buy, I will build a prototype and present that to you, so that you have high degree of confidence that what I build will accomplish what it needs. If you like the prototype, then buy it.'" Lombardi collects consulting fees for building the business case, and for building the prototype, but won't collect software license or maintenance fees until the prototype is accepted. He says license fees usually run around $275,000 per business process — chicken feed compared to the typical return of $10 million or more. "My value proposition is simple," Kozak says. "You have problems in the billions that we can help you approach. Select a real hair-on-fire problem, we attack that, and we fix it. We give customers two go/no-go steps with no risk at each point — you know what the process is going to cost, what the implementation and services are going to cost, and you know it's going to cost you less than a million dollars to return $10 million in under six months." "A good example is Dell Computer," Kozak says. "They ship millions of dollars worth of hardware a year, and a percentage of the shipments are not completed — it's called distressed shipments. It costs Dell a lot to deal with that problem, and we built a process that fixed it for them very inexpensively." The future for Lombardi is to become a "process factory" churning out such fixes, Kozak says: "We provide the professional services portion through business partners; we want Lombardi Software to become a manufacturing facility that pumps out business processes." Bruce Hadley is a 20-year veteran of three software company startups and past editor of one of the industry's leading news and research publications. SoftwareCEO.com is a software industry portal offering business advice, discussion forums, research, news, events, and links to software-specific resources. Site Members also have access to file downloads, proprietary data, and thousands of dollars in exclusive Buyers' Club discounts.
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A $200K Sales Gamble Pulls in Millions