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The Future of Software

As seen in Crain's New York Business

The pandemic has brought about indelible change that is no more apparent than in the business community, where widely accepted operating norms have been shaken to their core.

Crisis is often a catalyst for change, and for the business community, tools and solutions were available to facilitate the transformation. At the heart of these changes is innovative technology that has enabled companies to shift gears quickly to respond to stakeholder demands due to unpredictable forces while these companies remain well informed to ensure effective decision-making. It is clear that business-to-business technology companies of all sizes will go down in the history books as one of the select few industries that thrived because of the worldwide changes presented by the pandemic.

In certain cases, the pandemic has accelerated disruptive trends, such as the shift in medicine toward telehealth solutions. In other cases, it changed the course entirely, most notably in the adoption of collaboration and communication tools by mainstream businesses to enable methods for working remotely.

Covid also has taught businesses to expect the unexpected. In many offices around the country, enterprise risk management was casually discussed over a midafternoon cup of coffee. But these days enterprise risk management is a primary area of focus for corporate executive leadership teams from companies of all sizes that want to assume the best, but be prepared or the worst. Companies have learned that effective planning and decision-making are driven by data and the analytical tools required to digest this data.

What does the next chapter look like for these technology developers? The world has had an erratic post-Covid reopening, and early stage technology companies must now ensure they sustain momentum to remain relevant and attractive to the investment community.

Investor focus on disruptive software-as-a-service, business-to-business companies is not new. For many years, these companies have been a consistent focus for investors, including private equity, because they offered growth opportunities that resulted in attractive returns on investment. This trend accelerated in the past two years, however, when customer adoption rates skyrocketed in response to circumstances that challenged our norms and strained our ability to adhere to traditional methods of operation. Most successful businesses are forward-thinking, and they look for ways to drive growth and increase profitability. When circumstances arose that challenged their ability to accomplish these primary objectives, software-as-a-service solutions offered opportunities to drive efficiency, reduce costs, increase customer acquisition or provide information to enhance decision-making. Investors embraced these technologies as much as their customers did.

Investors, however, look for more than promise and the potential of serving as a short-term fix.

We know that a world with or without Covid offers few assurances, which makes the competition for investment capital that much more fierce. The most attractive companies will be those that offer reliable cash flow sourced from relatable revenue streams. Software-as-a-service companies can provide investors with what they are looking for because subscription model revenue is simple and straightforward, offers a great deal of predictability, growth and, quite simply, stems from increasing the number of subscriptions. In many situations, software-as-a-service solutions are easy for commercial users to implement and are exceptionally scalable, which offers repeatable growth potential. In addition, software-as-a-service companies have extremely efficient cost structures and have not been significantly affected by pervasive supply-chain problems. Software-as-a-service companies can grow significantly by adding users without notably increasing their fixed costs, which is an appealing formula.

Looking ahead, early stage software-as-a-service companies have tremendous potential to establish a strong foothold in mainstream commercial businesses and increase market adoption of their solutions. Companies will rely more heavily on software that fosters growth, enables productivity and establishes efficiencies. To be part of the next wave of disruptive solutions, a software-as-a-service company needs to be successful in the pursuit of capital from a more scrutinizing investor pool that wants to know, in no uncertain terms, who the customer is and what problem the software solves.

Clearly identifying the problem and remaining laser-focused on the target is critical. Being able to clearly articulate that understanding to potential investors is vital. As important as these simple facts are, some developers describe their software using far-reaching case studies or vague language to market their product to cast a wide net to capture a broad range of possible applications. This can be confusing to investors who want to categorize the software to understand market potential and to assess value, strategize on growth opportunities and focus development efforts.

Covid may have been the greatest disruptor in recent history, forcing us all to respond innovatively to unpredictable changes. Software-as-a-service companies, however, have proved they can thrive through that disruption. Businesses have come to understand that those that were most prepared for and capable of navigating change were the ones that managed through chaos and prospered. Software that allowed companies to adapt became more valuable and experienced accelerated rates of adoption. Without a doubt, businesses embraced disruptive technologies long before the pandemic, but it was access to such technologies and their ability to incorporate those solutions in day-to-day operations that enabled many businesses to thrive despite adversity.

Early stage software developers will continue to serve the critical role of providing innovative solutions so businesses are able to focus on what counts—driving profitability, streamlining operations and effectively managing enterprise risk.

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