Product and technology lifecycles are well understood by marketers and CEOs in the tech industry. The Gartner hype cycle is very popular and is used extensively as a point of reference, predominantly by vendors, but also by customers.
But, does a company position on a Corporate Operating System, “hype cycle” curve, match its products or technology? – And how does this affect business valuation?
The Corporate Operating system is a blend of Company org-chart, marketing tools and strategies, sales organizations, R&D methodologies, product management. Different companies have different Corporate Operating Systems. There isn’t such a thing as a standard Corporate Operating System. Yet, when looking beyond the shop window and the marketing image, it is possible to identify broad categories of technology Corporate Operating Systems.
Obviously, the well described startup Operating System is the first one that springs to mind. However, in the software industry, there are a few others. As many of today’s mid-sized businesses were founded in the 90s, it’s not at all surprising that Corporate Operating Systems designed 15 or 20 years ago are still noticeably prevalent. In these businesses, where R&D is at the heart of the organization, technology plays a major role, with Sales and Support organization also fulfilling a critical function. If products are sold direct as solutions, then often, the Professional Services Org is also important in terms of head-count, revenues and profits.
In those businesses, Sales have a structure in which the Business Development Managers have a broad area of responsibility. Marketing is there to create marketing campaigns, focusing on delivering leads to sales people who then manage the business until the close of a deal, and on designing a great website, sales collateral and even business cards, but not much more.
Tech support has grown into a well-functioning organization in which recurring maintenance revenue gives a shining P&L since, in these companies it isn’t rare to see 35 to 40% of annual revenues derived from annual support contracts.
This Corporate Operating System could be described as the Win XP of Corporations, often improved to Windows 7. It does the job very well; refined over time; staff knows it and hence, they like it; executives and Board know it hence, they like it too.
Yet, in today’s fast-changing world, these organizations are facing major dilemmas. Cloud, SaaS is playing an increasingly important role. Disruption may not be imminent, but everyone anticipates it.
Another critical point is that generation Y staff are wary of working in those organizations where most managers - and even the executives - joined at the same age they currently are themselves. They perceive a lack of dynamism in such organizations as these managers and executives are now driving their careers along the safest possible route towards a full pension.
The profitability of the model is not really in question. What is in question is how long it can be sustained? - How much more can such businesses grow, clinging to that model? To put it more succinctly: what’s is its future?
Equity value has many components: technology, patents, customer bases, current and future business model and more. A fundamental driver of equity value though, is the relevance of the business in 5 to 10 years’ time.
Does your business look relevant if it is run on the Windows XP or Windows Seven of the Corporate Operating Systems?
Now is the time…
Now could be a good time to examine where your company stands in its corporate lifecycle. It’s also a good time to plan for an upgrade to help you prepare your business for the best possible valuation as and when you are ready to sell it.