“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!