By Ken Kaufman
A respected professional, Chris Knudsen, said something to me a few months ago that I have reflected on several times since that occasion. We were discussing a company that has amazing, break-through technology with a wide-open market space. Their leadership just does not seem to be in a hurry to seize the opportunity. They’re growing at about a 7% rate through the first 10 months of 2009, which is not bad in slow economic times, but they could be doing so much more. They were treating their business like a “lifestyle” business, but Chris said there can be no such thing.
Before I jump too far into this thought, let’s make sure we are on the same page about what a “lifestyle” business is. In essence, it is a company that is not designed to grow much beyond the means or capabilities of the founder(s). A small auto-mechanic shop or a 5-chair beauty parlor would possibly fit this definition along with millions of other businesses around the world. These businesses do not take a lot risk, where software and technology businesses have to continue to risk everything with each change in the technological marketplace. For example, the iPhone has existed for less than 2 years, yet if your software does not have an iPhone app, you are considered archaic.
Now, let’s get back to the software business. The owners are running it like a lifestyle business. They are not in a hurry to grow, and they are taking only a portion of their relatively minute profits and investing them back into improving their technology and infrastructure. They have little sense of urgency in sales and they are happy to bring on a few new accounts each month. Let me repeat – they have amazing technology that could completely redefine their entire market. However, if they do not act quickly, they will lose their opportunity.
Technology is changing at light speed. Every software company has a window of time to make their leap and make a run at their market. If they wait too long or become too complacent, they will miss their opportunity. In terms of a lifestyle business, if they only rely on their own means and they do not pull the resources together to take advantage of the opportunity, they will not only miss the opportunity but they will likely be out of business in 5 years or less.
Technology is changing too fast and they will not be able to keep up. The competitors will eventually find their way through the window of opportunity even though their technology is inferior and they under-serve the needs of their customers relative to the company’s technology. These competitors will be rewarded with enough cash and resources to adapt and stay ahead of the changing technology.
So, I ask this question: “Is there such a thing as a lifestyle software business?” I haven’t found one, but I’d love your feedback on the subject. In my experience with CFO WISE, I have not seen one yet.
Ken Kaufman, Founder & CEO
CFOwise
CFO Services
CFOwise is the premier CFO firm for start-up, emerging, and medium-sized companies.
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