Are You “Using It” Wisely?

“Use it or lose it” – that practice of budgets expiring at the end of the year. A few years ago, Jeffrey Liebman and Neale Mahoney, wrote a paper on expiring budgets. In it they analyze the US federal government’s spending on IT, specifically in the last week of the year, and the quality of that spending. They rely on data provided by the federal government, which does a fairly good job of sharing information pertaining to budgets, spending and large IT projects. This level of transparency is quite an achievement.

Their conclusion? “Use it or lose it” results in severe waste, possibly up to 9% of the entire year’s budget thrown away on useless projects. Somewhat depressing – especially for taxpayers.

From the point of view of a vendor, there is a lot of potential in the “use it or lose it” concept. The vendor’s sales people can behave like cowboys in the wild west and try to rob trains carrying gold across the plains (left over budgets). It is a means by which a sales rep can make, or exceed, their sales quota and take home a fat check. Or at least, that’s what I’ve been told when I just started indeni.

In reality, the situation is radically different. To begin with, if you analyze the financial data from our technological partners (those our product integrates with, and hence relies on), we’ve noticed that they don’t all have a massive jump in sales in December. Some of them do, but only the ones where December is indeed their fourth quarter (such as Check Point). Others, such as F5 (Q4 ends in September) and Palo Alto Networks (Q4 ends in July), don’t have a massive jump in December compared to the following quarter.

In addition, more and more vendors are moving to focus on recurring revenue. In indeni’s case, it is an annual subscription (so everything we make is recurring revenue). In the infrastructure providers’ case, it is the services they sell on top of the hardware. So there is a lot of focus around selling only to customers who really need the product and who we foresee will keep using the product in the future. For us, the pain of a customer churning (stopping to use our product) is greater than the joy of a customer joining (a bit like prospect theory).

To test this, I’ve taken a look at customers who joined our service in December (any December). Interestingly, over 80% of the customers who bought in December have expanded their use of indeni within a year of their first purchase. That is, they’ve decided to add more devices under coverage by indeni’s software (which to us means they found the product valuable). This is very much in line with customers buying in every other month of the year. The takeaway: we do not see a dip in “project quality”, as Liebman and Mahoney did, in purchases made at the end of the year.

So the question then, is, are their findings valid? If they are, how is it possible that products like indeni (and by no means, only indeni) stand out and challenge their conclusion?

My answer: yes, their findings are valid. My longer answer though, is that they are bundling together very successful projects with unsuccessful ones. It is possible to choose to invest in better projects and increase the quality of investments made at the end of the year. It requires deep thought and answers to difficult questions, such as:

  • What do we actually need?
  • What are we buying now that we plan on really implementing next year?
  • What is a nice to have and maybe not really needed?
  • Are we buying it as a trial or are we selling it internally as something we plan on using in full production? (it is OK to buy something as a trial, it will be assessed differently)
  • Can we invest the money more successfully elsewhere?

I can tell you, from a vendor’s point of view, that I’d much rather someone not purchased our software than purchased it and labeled it as a low quality project. However, if you do see the investment in indeni as something worth your while, we are looking forward to hearing from you!

A Hold Is A Buy

At one of the Blitzscalling classes I’m taking, Reid Hoffman (founder of LinkedIn) said the phrase “A Hold Is A Buy” in relation to re-evaluating one’s decisions on an on-going basis. Thinking about that phrase – it’s quite genius. It is a good rule by which to manage many things in our personal and work lives. Googling it, though, provides just one result. Apparently, Reid came up with something people don’t often use yet.

Imagine you own a stock and it’s going up. You haven’t decided whether to sell it or not and so are still holding onto it. The next day, the stock crashes and you lost all of your investment. The fact that you have not made a decision to sell it means, implicitly, you’ve decided to buy it. You are responsible for losing your investment. Daunting, right?

Instead, what you should have done, is sold the stock and then reconsidered whether to buy it or not (which would be the ideal way if we didn’t have a gap between buy and sell prices as well as the existence of fees).

Applying This To Our Day To Day

Whatever you are doing today you need to sometimes reconsider whether or not you should keep doing it. As we all know, it may be drastically easier to keep things the way they are than it is to change them. Reid used the example of employees (“would you hire this person knowing what you know today for the role they are doing today?”) but let’s think of something completely different: how we run our day to day.

indeni’s customers are normally engineering and operations teams within large enterprises. The engineers are responsible for setting up the infrastructure, purchasing new products, etc., while the operations team are responsible for running the infrastructure. If something breaks, the operations team needs to fix it. If they need to, they can escalate the issue to engineering, who are the ones who originally set the infrastructure up. To conduct these processes, a plethora of tools are used.

Once in awhile, a break can become very severe and cause a shakeup of this model. The break is so severe, it results in ripple effects throughout the organization and the higher execs are pressing on their people to find a solution to ensure it doesn’t happen again. Suddenly, the current processes and tools in use get reviewed to see if they can be adapted to fix the problem, or if new tools are needed.

The reason this review is only done when a severe issue occurs is that teams today are simply underwater with all the responsibilities that they have. It is difficult to make time to do something like this. If it ain’t broke, why fix it, right?

But take it from the approach of “A Hold Is A Buy” and it suddenly looks very different. If you do what you do today, it means you have made the choice to do it the way you’re doing it. In other words, you are responsible for the current method by which you go about things. Even if you think you didn’t take an active choice, you’ve made an implicit choice. You “held” onto current methods and so you essentially “bought” into them. The same scrutiny you apply to using a new tool (as our potential customers do to indeni, for example), is the level of scrutiny you should apply to your existing processes and tools.

So What’s The Solution?

You should wake up every morning, and during your commute (or shower, in my case), “sell” an item from your day to day. A process, a tool or a strategic plan. Once you’ve sold it, reconsider if you’d like to buy it. Consider the price, the value and whether or not it makes sense. I started doing this recently and noticed it changed my perspective on things. All of a sudden, things seem a lot clearer.