What do you think most influences software customers’ buying decisions today? In Sand Hill’s recent survey of software executives for our annual CEO / CFO Outlook study, we asked them to rank the biggest factors driving software customer spending over the next 12 months. They ranked “increase efficiencies and reduce costs” as the top factor, and it was also the top driver in our 2014 study. However, three factors differ dramatically in 2015 compared to 12 months ago.
The most dramatic difference is in the area of information security. Participants ranked security projects as the third-highest factor in software customer spending over the next 12 months – a 5X increase over the 2014 study findings.
The survey also asked executives to rank the seven kinds of software projects driving customer spending during 2015. More participants ranked “transitioning existing software to the cloud” as the #1 driver. Functional solutions such as marketing automation also ranked high. Among the seven customer spending areas, “enterprise social and collaboration solutions” ranked lowest in priority.
By the numbers
You would be hard pressed to find software executives that are not excited about the growth prospects for the industry and their individual companies this year. As was the case in our 2014 study, participants this year expect software industry growth to range from 20 to 30 percent or more; however, 33 percent have this growth expectation in 2015, compared to 22 percent in 2014.
More than half (53 percent) of the participants expect their company’s revenue growth in 2015 to be in the range of 50 to 100 percent or more – almost double the number of 2014 participants who held this expectation. More than half (55 percent) anticipate their company’s profit growth over the next 12 months will be in the range of 20 to 60 percent or more, compared to 36 percent of the 2014 study participants.
However, no executives participating in the study’s follow-up phone interviews downplayed the challenges associated with this hyper growth.
Software industry in state of transition
The Software CEO / CFO Outlook 2015 report’s title, “On the Customer Success Road in a Perfect Storm,” reflects two prevailing themes that emerged among the study findings:
- The need to focus on customer success – the new foundation for continued growth
- The “perfect storm” that now creates major challenges in the path to growth
The industry is transitioning to a customer-centric model. As the report details, executives describe it as focusing on the “customer success journey” and agree that it is not the same thing as focusing on delivering stellar customer onboarding and support; nor is it just a way to reduce churn. Buyers have much higher expectations of software companies than 12 to 18 months ago and expect software vendors to understand how to make each customer succeed in their unique vision of “success” with the vendor’s product or services.
The surveyed executives ranked “selling more to existing customers” very high in the top revenue-growth opportunities over the next 12 months, along with “emphasis on customer experience/success.”
As the report discusses, study participants agreed that a focus on the customer success journey necessitates changes in software business operations, investments and strategies.
The majority of the executives in the follow-up phone interviews reported their company is not satisfied with the ability to effectively manage customer-facing communications across the entire customer journey. All of the executives who reported their company is satisfied stated that it’s because their company undertook major initiatives to improve communications in the last 12 months. Several reported significant return on investment to date; others described the factors hindering their ROI.
The study found this focus on the customer success journey is also a major factor in talent hiring this year. As a CFO of one of the surveyed companies explained,
“Our talent gap is mainly because it’s hard to find people who understand the whole customer journey and what customers need in order to be successful.”
Perfect storm impacts
The study revealed short-term strategies in a tailspin at many software companies due to a perfect storm now slamming the industry. The storm has three components:
- Too many product options for customers and a whirlwind of new competitors for vendors
- The pace and volume of change due to new technologies
- Internet of Things acceleration is faster than anticipated during the past 12 months
The report provides information from the executives’ descriptions of how this perfect storm affects customers’ decisions and their understanding of their needs and requirements. Their discussions also explain how it affects software companies’ operations, especially due to the pace and volume of change.
The study explores how the perfect storm impacts software companies’ ability to focus on the customer success journey, which is now a top revenue growth opportunity and where customer demand is headed. It’s one of the most exciting, yet challenging, times in the software world.
Click here to read an excerpt of the report’s contents and buy the report, “Software CEO / CFO Outlook 2015: On the Customer Success Road in a Perfect Storm.”