Is business Software back?

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The preliminary GDP data for the 3rd quarter was released today. I actually started looking at the details of it a couple of quarters back to better understand how the economy was impacting our expansion stage portfolio companies.

The GDP data has a business software spend line, which is a pretty good gross proxy for companies selling information technology to businesses. The numbers have looked extremely weak this year, but the preliminary 3rd quarter (2009) report from last week suggests that the business software market may at least be stabilizing. The numbers indicate that the software spend is up about 1.5% from the second quarter (seasonally adjusted annual rates in current dollars), which basically means about flat, which isn’t terrible given where we came from earlier this year. The year over year third quarter number was down about 8.5 percent, which indicates the hole that companies still find themselves in on a year over year basis (for expansion stage software companies selling to the business sector, the new software spend line dropped a lot more because maintenance and service renewal is more sticky, so the hole probably feels even deeper).

What does all of this mean to an expansion stage company? Our recommendation to our portfolio companies is:

  1. Continue focusing on your customers and more sharply segment to improve your competitive positioning and approaches to creating competitive advantage
  2. Build your product and development methodologies
  3. Build your sales and marketing support methodologies and get the customers that you can get
  4. Move more of your marketing spend to influence marketing using a content marketing strategy
  5. Keep evaluating all of your employees and motivate and retain only the best and most important employees while maintaining your recruiting and improving your recruiting support methodologies
  6. More sharply focus on improving the sharing of your aspirations (mission, vision, values) across your company
  7. Improve your management team and its rhythm for turning your aspirations into a reality each day, week, month, and quarter

At some point the downturn will start turning up and the companies that follow this advice will be the ones best positioned for the next upturn!