Nothing like letting customers know they are important – until they are not! Recently, SolarWinds announced that it is “reviewing its strategic alternatives” with respect to the company. Here’s how the company’s CEO described the situation in its press release:
“Consistent with its duties, our board of directors has determined that it is prudent to undertake a review to see which alternative or alternatives, including our standalone plan, are the best way to maximize shareholder value,” said Kevin Thompson, the Company’s Chief Executive Officer. “As the board conducts its review, we remain focused on strong revenue growth and cash flow and excited about continuing to deliver our world class products to help IT professionals manage all things IT.”
Ahh, if that doesn’t give customers the warm fuzzies, I don’t know what does!
Here’s my take: SolarWinds is excited about servicing its customers and extracting as much revenue from them as they can, until such time as they can sell the company at a price that pleases investors and management. Yes, we can only imagine where delivering “world class products to help IT professionals” fits into its priorities.
For tech companies, this dialogue is becoming common place. There is an all too predictable lifecycle for tech companies. A company is started, VC backing is obtained, and then the search for an exit is on. Customers be damned; venture capitalists, hedge funds, and the rest of Wall Street want a return on investment – and they want it sooner rather than later. But building a lasting company can’t be done on a timetable.
Venture capitalists and Wall Street are no doubt a smart lot. But what do they know about building scalable software applications, data center infrastructure management, or delivering five nines availability? Of course, they don’t know anything about it, nor do they care to. Their place in the food chain is to simply make money on money. Period.
There were warning signs that SolarWinds was on its last leg of the tech lifecycle. Its flagship network performance monitoring product began to wane. SolarWinds made numerous acquisitions to boost revenues and profits. But alas, none of the acquisitions were able to move the needle.
A pattern we consistently see in tech companies is chronic underinvestment in research and development. Presumably, investing in research and development is too long-term for a fleeting tech company on a timetable.
Why do the heavy lifting if you can acquire? However, acquisitions are rarely the answer. The fact is, products have to be crafted thoughtfully and purposefully over time – there are no shortcuts. Furthermore, enterprise products need to be seamlessly integrated for maximum value. Acquisitions promote far-flung development teams, multiple code bases, and no product synergies.
Full disclosure, ManageEngine (a division of Zoho Corp.) is a competitor of SolarWinds. And whle SolarWinds may be the impetus for this blog, the transiency of tech companies is a pervasive problem for the technology industry. For now, the only assumption customers can make is that their technology providers will not be around for the long-term.
We know there is a better way. That is why Zoho Corp. will never take venture capital financing, we will never go public, and we won’t build our product portfolio through acquisitions. It puts the onus on us to develop products that customers want to pay for. Our survival depends on it. And like we all learned growing up, we don’t spend more than we make. That doesn’t mean we don’t invest in growing Zoho. We simply spend on what’s important to customers – products. In fact, we spend on average 300 percent more on research and development than the next technology company (as a percentage of revenue).
As an industry, we need to build companies as more than just vehicles for creating wealth for investors and management. We need to build companies that last, where the customer is truly the most important variable in the formula for success. Now, that’s the strategic alternative worth exploring.
Raj Sabhlok is the president of Zoho Corp., the parent company of Zoho.com and ManageEngine.
