Software Business
Executive Report

March 24, 2008

Offshore Outsourcing Strategy: Does India Still Make Sense?
By M. M. Sathyanarayan, President of Global Development Consulting, Inc

Recently there was a story in the press about a mid-sized Silicon Valley software company pulling the plug on its Indian operation. They decided to close their entire development operation and bring it back to the U.S. Some others have closed up shop quietly.

Nowadays, I am being asked this question with some regularity -- “Salaries are raising fast in India; does India still make sense as the outsourcing destination?” Add to this the most recent item in the news – some big name companies in India have reported layoffs. If you currently have an offshore operation in India or have an interest in setting on up, what does this mean to you? Here is my analysis.

• Current Indian salaries for developers are in the range of US$15K to $20K. Silicon Valley salaries for similar skills are in the range of $60K to $90K. When you add other costs – additional management, travel, productivity difference, communication, duplication of equipment and so on, cost in India is still a fraction of the U.S. cost.

• Projecting into the future, average salary increases in India have been in the range of 15% annually. Though layoffs have occurred, they have been at entry level jobs and it is unlikely to have a material effect on salary increases in the future. If you assume 8% salary increases in the Silicon Valley, over the next 5 years, India will continue to have much lower salary than the Valley.

• Instead of salaries, fully burdened cost is a better metric. If you were outsourcing, vendors would charge you in the range of $50K per developer; if you were to add $10K for additional costs, your fully burdened cost will be in the range of $60K vs a range of $100 to $120K full burdened cost in the valley.

• In the case of the mid-sized Silicon Valley Company that decided to bring back their development, their stated reason was high cost; on digging deeper turns out they had a staff of 20 to 25 developers in India and set up their own subsidiary.

• Subsidiaries require significant overheads --administrative staff – General Manager/Managing Director, HR Manager, Finance Manager, Office Staff, IT Staff and possibly unused office space to accommodate growth. Selecting the right offshore organizational framework in the beginning is crucial to the long term success in offshoring.

• In working with clients, I find that more than 80% of the companies begin the offshoring discussion with us indicating that they would like to set up a subsidiary offshore and how we can help them. After analyzing their situation, in better than 50% of the instances, we find the subsidiary model does not make sense. In the case of the mid-sized Silicon Valley Company, they would have been better off outsourcing to a vendor who could have allocated overhead costs over a larger base.  If their operating structure was set up right from the get go, cost may not have become an issue.

How do you select the right country?
In selecting a country for outsourcing, cost is only one of the considerations; take other factors into consideration – market potential, talent pool available and ability to scale, proven infrastructure and start up time, language skills and availability management talent. In the case of India, here are reasons for and against.

5 Reasons in favor of outsourcing to India – Proven infrastructure and processes, English language, Growing economy provides market potential, Legal System, IP and Privacy protection.

5 Reasons against outsourcing to India – Raising costs, High attrition rates, Difficulty in attracting staff, Excessive U.S. Management time, rapid growth resulting in scaling issues for many vendors.

Prior to deciding which country, you need to carefully evaluate and decide if offshoring per se makes sense for your situation and the best way to go about it. Those who have figured out how to establish and manage offshore operations are finding that it can make a strategic difference; but many are struggling with less than expected results

How do you decide if offshoring is right for you?
While there has been a lot in the press about offshoring in the past few years, we find that offshoring is not the right strategy for everyone.

For example, if you are a startup company with a bright idea, you may be motivated to save money by going offshore; but if your current staff is half a dozen developers, the overhead involved in setting up and managing 3 or 4 people offshore far outweighs the potential salary differentials; so, one of the first considerations is size of operation offshore and the associated overhead. Other considerations:

• Type of projects: Recently a company decided to bring back a project they had offshored because it was taking too much time to manage the project; the project manager from the US used to stay in daily contact with the offshore team; remote management on a daily basis does not work for the long haul. Offshore projects should not require real time management from the US.

• Does your staff have prior background and experience in managing offshore projects? If not, are you prepared to help them acquire necessary skills? Often, development managers with no prior background find it difficult to operate in multicultural environments, which offshore requires.

• Are you prepared to invest up front? Offshoring has the potential to yield benefits; but it is front end loaded; you need to invest in vendor selection, training vendor personnel, incur travel costs and allocate bandwidth of your US staff to make offshoring work. Does your situation allow you to do these?

• Is your top level management committed to this approach? Without a serious commitment to make it work, when there are bumps along the way – and there sure will be at some point – you will be at a disadvantage to make it work.

• Is your organization ready? Offshoring brings about changes. Changes can be stressful. Either your organization accepts these changes readily or you need to invest management bandwidth to sell the idea.

Author Bio
M. M. “Sath” Sathyanarayan is President of Global Development Consulting, Inc., an advisory firm that provides training, coaching and consulting to companies either contemplating offshoring or have been offshoring for some time. Sath has over 25 years experience in the industry; he led the pioneering effort in offshoring at HP/Tandem beginning in early 90s, was Founder/CEO of a startup and is now consultant, author and trainer; his continued thought leadership in offshoring is reflected in the book “Offshore Development and Technical Support: Proven Strategies and Tactics for Success”. 

Sath can be reached at sath@OffshoringSuccess.com (408) 865-0474.

To download his free report: Global Outsourcing—6 Key Strategies to Achieve Success, click here.

Josh James, CEO of Omniture (a Hummer Winblad portfolio company), gave an inspiring talk on building a SaaS company last week at the Opsource summit. Josh walked through the history of Omniture as a case study for building a SaaS company. He talked about the need to invest in the company with a firm hand on the wheel as the recurring revenue slowly built up over time. He outlined the different stages of evolution of the company:

1) Product: build a rock solid product. Prove you can sell it as founders before moving past this step.
2) Sell: Sell like crazy, build out a team, hire some QBSRs (Quota Bearing Sales Reps)
3) Retention: focus on churn and retention issues, hire more QBSRs
4) Marketing: spend on marketing, hire more QBSRs

The next phases, not surprisingly, also included hiring more QBSRs but interestingly it is not until later that investments in efficient infrastructure and operations hit their ToDo lists. This outline displays a strong focus on finding a product market fit and then adding gas to the fire as the market opened up. The key metric that Omniture used to decide how much gas to pour on the fire was the Magic Number.

The Magic Number
The magic number ("MN") is a metric that can be used to tell you the health of your company from the perspective of growing monthly recurring revenue ("MRR"). It is a common mode metric to compare companies MRR scaled by sales and marketing spend. The MN provides insight into the effectiveness of previous quarter Sales and Marketing spend on MRR growth. Your MN will be penalized if the spend is wasted (bad marketing, bad sales execution), if your churn is high or if the market has issues (saturation, competitive forces). It also has a very high correlation with Q/Q growth rates so in general, high Magic Numbers are good.

To calculate:

QRev[X] = Quarterly Recurring Revenue for period X
QRev[X-1] = Quarterly Recurring Revenue for the period preceding X
ExpSM[X-1] = Total Sales and Marketing Expense for the period preceding X

Magic Number = (QRev[X] – Qrev[X-1])*4/ExpSM[X-1]

For example, consider a hypothetical company with the following financials

Q1 Q2 Q3
Revenue (recurring total) 1M 1.2M 1.5M
S&M Expense 800K 900K

Then the magic number is 1.0 for the end of Q2 and 1.33 for Q3.

Fundamentally, the key insight is that if you are below 0.75 then step back and look at your business, if you are above 0.75 then start pouring on the gas for growth because your business is primed to leverage spend into growth. If you are anywhere above 1.5 call me immediately.

Josh provided the following gas-pouring throttle chart for SaaS companies to evaluate how much to invest in their go-to-market spend. The data on the charts if from Omniture and other public SaaS companies.



Calculate yours…and get back to me if it is interesting! For fun and extra credit take a look at difference in Magic Number for some of the public SaaS companies like Omniture and SuccessFactors. I can be reached at lars@humwin.com

Prior to joining Hummer Winblad Venture Partners in 2006, Lars Leckie was involved in founding and operational roles at start-up companies. He was a co-founder of AutoFarm (now Novariant), a company focused on GPS and robotics. Lars was in charge of strategy, product marketing, business development and building the sales team across three continents. Lars has also been involved with the founding team of SportBug, a GPS and Internet fitness company. While Lars spends less time programming now, he started his technical career coding and hacking computer games. He is the holder of several US patents.

At Hummer Winblad, Lars played a key role in the firm’s investments in Aria Systems (SaaS billing and customer management) and vKernel (Virtualization Infrastructure).

Lars is a keynote speaker at next week’s SaaS Economics Summit.

Collaboration:  The Impact on Your Company and Your Partners
By Linda Moffat & Holly Simon - Evolving Collaborations, LLC

Collaboration:  how or if you collaborate, whether within your own department, across different departments or across geographical regions, can make or break your company’s efforts, expenses, resources and results.  It is a critical activity and mindset that can impact the success of your company as well as the partnerships you rely on to extend your business presence and revenue. 

Collaboration has multiple elements that can influence success or failure.  For example:

• Communication- it is not just what you are communicating; it is how you are communicating
• Political landscape - job titles versus reporting structure
• Personalities –the interpersonal skills of the people you have to work with
• Regional nuances

We have gained great insight over the years from our business experiences and observing the activities of our clients.  We focus on a company’s strategy, their operational structure and the sales and support of their business partnerships and sales channels.  If collaboration is an issue within a company, the performance and revenue generated from their partners can be affected.  Often times it is the partner that is examined for issues and the company may not even realize that they need to look inside their own four walls. 

To give you an example of the impact of collaboration, following is an experience a client shared with us.  She had worked for this company several years ago. For this article, let’s call her Sue.

Sue was a Global Partner Manager of a major IT company.  She supported Partner A.  Sue had to deal with inefficiencies she saw taking place within her own organization.  Sue would spend a great deal of her time on administrative activities that took her away from the more strategic work she was hired to do.  One such area was the information and data (sales, products sold, etc.) she would need to collect from her regional channel managers across the globe.  These channel managers supported (Partner A) and reported (dotted-line) up to Sue. 

Sue’s company could not come to a consensus regarding the type of reporting tools and templates they should use on a global basis for partner performance reporting.  So, working off of different reporting templates, Sue was forced to do hours of manual work to pull together the data she had to collect on Partner A, in preparation for weekly meetings with her executives.

The ripple effect on Partner A was that because Sue and her channel managers were bogged down with too many administrative activities, they lost critical business strategy time with Partner A and ultimately lost credibility.  Partner A did not view Sue or her channel managers as trusted advisors; only as tactical support.  Partner A gravitated to a competitor who had the time to create and execute on partner-to-partner business plans and who Partner A could rely on to be a trusted advisor to their business.

In this example, it was not the tools, templates, reporting processes, etc. that was the problem; it was the lack of collaboration by the regional VPs who did not want to work together on an overall solution that would streamline time, resources and costs.  The result, they lost a great partner and great source of revenue for their company.

Training is another area we see impacted by the lack of collaboration.  Many companies use different learning providers and courses regionally and across the globe.  Particularly soft-skills training of partner/channel managers.

By collaborating and choosing consistent, global learning providers and courses, your company will see an impact in training that is:

• Relevant and sustained:  meaning that common messages and language across sales/channels are used.  It ensures learning is applied and continually supported in workplace and, that there is instructional integrity throughout the skills development process.
• More cost effective:  it removes duplication and reduces the cost of delivery
• Consistency across all regions:  this enables the company to recruit, develop and retain motivated and skilled people.  Promotions can be based on skills and not just on tenure.  Consistent and clearly defined products, processes and tools can be integrated into the training and used (globally) in the daily activities of your people.

So what do you do if collaboration is an issue within your company? 
As we stated earlier in this article, collaboration is both series of activities and a mindset within an organization.  The following are recommendations that we have seen positively influence collaboration within a company.  If you take only a couple of these activities and begin integrating them into your organization, you will begin to see the power of collaboration.

• Executive buy-in:   this is critical to ensure that collaboration is mandated.  We see leaders creating and running their own mini-businesses (silos of business) within their company.  Companies where we have seen collaboration mandated from the top down and employed by the executives, they operate like a well-oiled machine.  Employees are happier as there is no overall feeling of competition and political jostling among their peers.
• Cross-functional Teams:  working collaboratively can help you obtain greater resources, recognition and reward when facing internal competition for finite resources.  These teams are responsible for cross-functional activities and projects.  Through great communication skills, the members of cross-functional teams help to breakdown the silos that we often see in companies. 

• Leverage cross-functional teams to help identify and make the decisions surrounding global training, tools, templates, reporting processes and partner enablement.

• Repository of Information: dedicate a repository to collect consistent issues and best practices as well as find the route cause of systemic issues occurring across multiple regions and that may be inhibiting the performance of your partners.
• Internal Advisory Teams: that consists of representatives from all levels:  executives, management, channel managers, partner managers and support teams.
• External Advisory Teams: that consists of representatives from your partner community.
• Executive face time – collaboration with the partners.  Executives leave your office and meet with partners (large and small) to keep your finger on the pulse of what is working and what is not.
• Measure for Impact – measure the changes in revenue and overall performance based on the activities and actions you have employed.  Invest in performance tools that allow you to monitor and measure revenue and performance.

Evolving Collaborations works with companies who utilize partners and sales channels as part of their overall business strategy. With a proven methodology to uncover the root cause of issues, Evolving Collaborations helps companies streamline and optimize their resources, while improving partner and channel sales performance, revenue and partner loyalty. Through a strategic partnership, Evolving Collaborations co-created Performance Modules for Channels & Distributors- an interactive, online dashboard presenting Key Performance Indicators (KPIs) specific for channels and distributors.  The modules monitor and measure partner sales performance.

Evolving Collaborations executives have held positions with Gartner, IBM, Ingram Micro, Time Trend and Informatica. For more information, please go to www.evolvingcollaborations.com. The company will be presenting at Ecosystems Summit, June 25-26 in Denver.

Mindjet Accelerates Licensing and Protection for MindManager

Mindjet Corporation, a global leader in software for visualizing and using information has chosen the Microsoft Software Licensing and Protection Services (SLP Services) platform to protect and license their MindManager product line. SLP Services is a new Microsoft product family allowing software publishers to protect, package, license, manage, and activate their software, while at the same time exploring new business models without changing their code.

"Mindjet was looking for a way to help protect its IP," said Thomas Lindeman, Director of Marketing for SLP Services at Microsoft Corp. "With SLP Services, we were able to offer Mindjet the latest .NET code protection and a platform for creating new business models through flexible and secure licensing. This helps Mindjet secure its IP and be highly agile in its offerings to customers. Now, Mindjet can provide targeted offerings to its customers using a streamlined development cycle."

Applying Microsoft's SLP Services protects Mindjet's intellectual property from piracy while creating greater flexibility and speed in delivering business options and more seamlessly provide customer value. These services are particularly effective in providing enhanced license management and version control for the company's rapidly increasing enterprise customer base.

"We chose SLP Services to both protect our products and expand our market opportunities," said Richard Barber, VP of Engineering at Mindjet. "It will give us the advantage of strong protection and packaging flexibility without going back to our development team for quick responses to changing market or customer requests."

Magic Software Enterprises Ltd. (NASDAQ: MGIC), a leading provider of business application development, deployment and integration tools, is evolving its application platform suite to provide the functionality of a SaaS Enabled Application Platform (SEAP). The move is in anticipation of the growing demand from application vendors to repackage their applications as a Software-as-a-Service (SaaS) offering.

Magic Software intends to make the new product, packaged as the Saas Enabled Application Platform (SEAP), available later this year, initially in Japan. Following this, the company intends to extend availability worldwide. This new product will include, among other features, the functionality of the current eDeveloper platform in addition to rich internet client functionality.

Industry analysts believe that developing and deploying SaaS applications require a new breed of application platforms featuring rich internet client capabilities, very high scalability, fast and easy development and personalization, and relevant administrative functions. Magic Software achieved a first step in that direction in January 2008 with the conclusion of a beta program for the new SEAP offering, which includes rich internet client functionality. It was successfully evaluated by several leading partners for remote application delivery and SaaS features.

The next step, based upon Magic Software's partner feedback and industry input, entails making a number of product enhancements and functionality adjustments required for the operation of a SaaS Enabled Application Platform.

"We are committed to evolving and improving our technology, with an aim to providing our customers with a smooth path towards new environments and application concepts," said Eitan Naor, President and CEO of Magic Software Enterprises.

"The robust design and conceptual foundation of our core technology is proven once again, with the ability to carry it forward to the forefront of the application development industry," added Naor. "Working on this evolution with ISV's who have been teaming with us continuously for over 20 years, carrying forward their line of business applications across the rapidly changing software industry without disruption, is particularly rewarding."

Contact www.magicsoftware.com

Licensing Toolkit from jProductivity

jProductivity has released Protection! Licensing Toolkit v3.5, the newest version of its leading licensing solution for software developers and publishers.

New features in version 3.5 include improved licensing support for server based (back-office) applications; a new set of the audit module's validation routines designed to minimize integration errors, conflicts and potential security vulnerabilities; improved code templates designed to speed up development and integration of Protection! into applications; significant advancements in all major areas of the toolkit provide an enhanced user and developer productivity features, stability and quality improvements.

Protection! provides support for breadth of licensing models including both Floating and Named-User model types. With the additional Protection! Licensing Server software publishers can introduce even greater variety of the licensing models and distribution schemes into their applications.
"Protection!'s ease of use and ease of implementation give power to software developers to embed licensing support into their application in as little as a day," said Gregory Ledenev, Chief Technical Officer of jProductivity.

Protection! empowers software developers to implement robust licensing features into their applications while providing an easy and non-invasive environment to their end-users.

Protection! Licensing Toolkit v3.5 is available as an update, without charge, for existing Protection! v3.x owners and subscription plan holders.  New users can try Protection! for free.  Upgrade pricing is available.

Contact www.jproductivity.com

InfoStreet Inc. has released Version 2 of its Customer Relationship Management (CRM) application. StreetSmart’s CRM is aimed at small businesses, particularly those which do not wish to spend the 65-dollar and up (per-user) price of other Web based CRM offerings. StreetSmart’s CRM offers small businesses across all industries the tools that management and sales professionals need to track leads, customers and grow business.

This major rollout reflects a larger move by InfoStreet to aggressively grow the company by further supporting their niche small business clientele while also expanding into new channels, including the growing OEM side of InfoStreet.

“This optional add-on to StreetSmart was created in direct response to feedback we received from our clients who wanted CRM but didn’t require the pricey and overly complex feature sets found with competing tools,” explains Phil Conrad, director of national accounts at InfoStreet. “Our CRM is extremely robust, extremely affordable and, furthermore, it is designed to allow collaboration throughout the entire organization, not just amongst the sales group.”

Contact www.infostreet.com

QuickArrow, Inc. and Pervasive Software Inc. have entered partnership has enabled QuickArrow to deliver a universal data integration solutionthat is easy to configure, maintain, and support. QuickArrow is leveraging the power of Pervasive Data Integrator to deliver QuickConnectIT, an integration engine capable of integrating QuickArrow with any application. This allows QuickArrow and Pervasive to deliver integrations that are consistent with the speed and economics of the Software as a Service (SaaS) model on one code base. The partnership also enables QuickArrow to better focus on its core competency, Professional Services Automation (PSA).

The partners have already implemented more than 50 bi-directional integrations between QuickArrow and other best-of-breed applications such as salesforce.com, Microsoft Dynamics CRM, Peachtree, and QuickBooks. With QuickConnectIT and more than 150 standard Pervasive adapters in Pervasive Data Integrator v9, the partnership will enable QuickArrow to integrate with almost any other application using a configuration process versus a custom development exercise.

“Pervasive and QuickArrow have partnered for five years to provide strategic and economic value for both companies and for our clients,” said QuickArrow Chief Operating Officer Kevin Bury. “Thanks to this relationship, we can now offer our clients the ability to easily integrate our SaaS solution with any other business critical application.” He continued, “As a result, we can deliver deeper functionality than ever before, and we have also streamlined our sales, implementation, and support processes to provide our clients with even greater Speed-to-Value.”

QuickConnectIT leverages Pervasive Data Integrator and QuickArrow’s proven Web Services API to support both on-premise and SaaS integrations and can also operate as an Integration as a Service (IaaS) solution. On premise, the solution enables businesses to connect QuickArrow with their other business critical applications including CRM, ERP, Financials, and HR.

Contact www.quickarrow.com
Contact www.pervasive.com

March 27

Unlock the Full Potential of Your CRM System with Rapid Integration
How PGP Uses RightNow and Cast Iron Systems to Improve the Customer Experience -- 11am PT (2:00pm ET) Duration: One hour.

Register at http://rightnow.custhelp.com/cgi-bin/rightnow.cfg/php/enduser/doc_serve.php?2=WCCRM-FORM-080327-CastIron

Achieving Enterprise Software “Success”
A study of buyer and seller perspectives on the drivers of enterprise software success - 2008

An ever-broader landscape of enterprise software solutions means buyers must work harder than ever to be sure their solution decisions support their business goals. At the same time, CIOs face ever tighter IT budgets.

Respondents agree that the no. 1 driver of value realization is ensuring effective usage of software in the enterprise. The survey found that improved adoption lowers costs, improves customer satisfaction and drives revenue growth. As CIOs struggle with the responsibility to ensure enterprise software success, they expect software companies to help them improve usage levels and share the burden of success realization.

Click Here to Download

March 26 -- Webinar: Closing Time: The 7 immutable Laws of Sales Negotiation -- Webinar is at 1 pm EST/10 am PST. The presenter is Ron Hubsher and it is sponsored by Jigsaw Corporation. Register at https://www1.gotomeeting.com/register/596532215

Ron Hubsher is a keynote speaker at SLAM 2008.

March 27 -- Webcast: Unlock the Full Potential of Your CRM System With Rapid Integration -- Webcast is at 2 pm EST/11 am PST. Produced by RightNow Technologies and featured speaker includes Chandar Pattabhiram, VP of Marketing, CastIron Systems.

Register at http://now.eloqua.com/e/er.aspx?s=336&lid=151&elq=8C684F96200748BB8F7C19163DCCB32A

April 2 -- Webinar: How to Monitor and Manage Your Partner's Performance -- Webinar is at 1 pm EST/10 am MST. Produced by Evolving Collaborations and myDials. Register at http://www.readytalk.com/ev.php?id=flhu3rp5

April 3-4 – SLAM 2008, San Francisco, Calif. Contact www.SLAMConference.com

April 3-4 -- SaaS Economics Summit, San Francisco. Contact www.SaaSEconomics.com

April 7-11 – RSA Conference, San Francisco, Calif. Contact www.rsaconference.com

April 14-16 – MySQL Conference, Santa Clara, Calif. Contact http://en.oreilly.com/mysql2008
April 16-17 -- CEO Bootcamp, Atlanta, Ga. Contact www.clevelbootcamp.com

April 22-25 – Web 2.0 Expo, San Francisco, Calif. Contact http://en.oreilly.com/webexsf2008

April 3-4
SLAM 2008, San Francisco, Calif. Contact www.SLAMConference.com

April 3-4
SaaS Economics Summit

World Financial Symposiums
May 15, 2008

(WFS) is an international organization dedicated to educating technology leaders. It organizes and promotes forums for CEOs, CFOs, corporate investors and other deal participants for the software and IT industries, with the intent to educate and encourage deal flow among industry participants.

This is the sixth year WFS is producing these events for leaders of technology and software companies in the U.S. and Europe. The upcoming Boston event is featuring a new program – a special afternoon M&A event, where the best authorities on M&A Strategies for Software and Internet Companies will speak and network. The conference will be held on May 15, 2008 at the Renaissance Boston WaterfrontHotel in Boston, from noon to 5 pm, followed by cocktails. You won’t want to miss this outstanding afternoon event.

To register, please visit www.worldfinancialsymposiums.com

One Global Platform offering the complete digital convergence experience through our signature events. Each event individually tailored to your specific needs and wants.

CommunicAsia, rank as Asia’s largest and most important ICT event not to be missed, CommunicAsia Exhibition serves as a global platform for top operators, service providers, regulators, vendors and consultants to network, exchange industry best practices and shape the future of technology.

With over 50,000 attendees in CommunicAsia2007; of which 50% was from overseas, this 4-day event promises a host of complementary activities to keep you well informed, identify key trends, innovations and solutions when you visit CommunicAsia2008. Be sure to meet the key decision people and observe market developments.

Pre-Register or visit us for more information: www.CommunicAsia.com

June 25-26
Ecosystems Summit

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