Concur CEO Steve Singh (Part 12)
Check other articles in the series...Much of the growth opportunity for Concur, in my opinion is in being able to effectively penetrate Small Medium Enterprise (SME) markets. Here, we discuss issues around market size and profitability of the sales channels.
SM: Smaller deals, in the 1-20 range, you can probably close them all by phone and even in the mid market you could close many of them by phone. You do not need the high touch sales. SS: Your instincts are right. I think you understand things that a lot of folks don’t. The cost of distribution is substantially cheaper in a Telesales model as you come downstream in the market.
SM: You earnings would be different depending on the model you are skewing towards. If you are skewing more on the SME side, it would be a lot easier to compete with SAP and Oracle. You won’t even see them in the accounts anymore. SS: In fact you run across different competitors in different segments. You are absolutely right. One of the reasons we generate the operating margins we do is because we have a nice distribution of where the revenue comes from. You can absolutely expect our ability to generate more aggregate profits in the middle markets and the smaller markets, than in the upper end of the market segment.
SM: I am slightly out of line in saying this, but if I were to present this company, I would say two thirds of my customers are from the mid and small market and it is more profitable to transact in that market. SS: I appreciate the comment you are making, but the issue for me is that we serve customers across the entire spectrum.
My audience goes well above and beyond the financial community. I want to incorporate that into our messages. At the same time, smart investors will look at comparable companies like Paychex and say “look at the profitability Paychex can generate in serving smaller accounts where the cost of distribution is lower and more efficient”.
SM: What I think is exciting, and the reason I have started covering the on-demand space in a lot of depth is because it is a delivery model that allows software companies to tap into the mid market which was basically a no-man’s land for a long time. SS: I think you are absolutely right. In fact one of the things we used to pitch five years ago back when I first started talking to investors about the on-demand model was the predictability of revenues. That is still the case; however what we were pitching today is not just the predictability of revenue.
SM: No, on-demand opens up a whole market, one that was not accessible before. SS: Exactly. Additionally, it actually should increase profitability. One of the great things about this model is you should be able to drive down the cost for your customer while you are increasing your profits. That is fundamentally different than in the traditional software model.
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