Guerilla Treasurer

Here in the northern reaches of the globe, we are getting ready to enter the dark of Winter when the sun does not rise at all above the Arctic Circle. The Kaamos period (Kaamos is an untranslatable Finnish word for the dark period) lasts up to 51 days in the very north of the country. In other words, this is a perfect time to write darker, precautionary blog entries.

Europe is awaiting with trepidation a new dark period in the financial markets. The recent credit crunch hit banks hard and only rapid capital infusions into the afflicted banks in the US saved the markets from a collapse. This time around, many experts are even more pessimistic. Banks are considerably more debt-laden than three years ago and if the defaults really hit the fan, the trouble that started from Southern Europe can spread into a full-blown financial mayhem.

Should this happen, it means tough times for corporate treasuries; decreased availability or, at worst, complete drying up of capital can drive the cost of borrowing through the roof. There is precious little companies can do about rising cost of capital, but what they can do is regulate the amount of financing they need. By managing liquidity effectively, the treasury can play a major role in decreasing the amount of financing needed. But this requires not only effective liquidity management but also reliable cash forecasting.

Corporate Treasurers and CFOs have considered improving cash forecasting a high-priority development item for the past decade. Yet the majority of corporations are still stuck with unreliable forecasts. I cannot say how much work companies have really done to improve cash forecasting, but I can tell you that many a wrong thing has been done. Instead of concentrating on rapid and cost-effective solutions that repay themselves quickly, far too many corporations undertake their development initiatives as flexibly as the former Soviet Union developed their infamous five-year plans. No matter the size or the importance of the project, it is undertaken in the same style – with time-sensitivity or cost-consciousness not a part of the vocabulary.

In a fast-changing situation we are facing, the treasury should make streamlined decisions and select best-practices based SaaS (software as a service) solution that can be deployed quickly. The decisions needs to be quick so that the solution can be deployed in time should the worst case scenarios realize. Even if the solution lacks some seemingly important features, this problem is an order of magnitude smaller than the alternative – not being able to effectively manage and utilize liquidity because of insufficient forecasts.

I recently participated in a Treasury seminar where the CIO of a bank urged the audience not to believe what software vendors tell them. This CIO really knew what she was talking about as she had previously worked in software sales.

Even though I sell software myself, I agree with her whole-heartedly. The only objective of many sales person is to break down your resistance and get you to buy his solution whether it actually meets your needs or not. If you are not paying close attention, a good sales person can talk you into buying something you should actually avoid like the plague.

A common example of this is the required “minor customisation” of a software package to exactly meet your needs. These customisations are often sold as small addenda to the solution, but they can end up transferring a great deal of currency from your account to the vendor’s account in the following ways:

1. Deployment is delayed by several months – keep in mind that every lost day also decreases your project ROI
2. You WILL get a hefty bill for the customisation – the software vendor is not doing you a favour; they are doing very good business (in fact, they sometimes offer an artificially low license price because they know they get guaranteed extra revenue from the customisation)
3. You need to constantly call the vendor’s help desk about the customisations; and, lo and behold, the support comes with a hefty fee
4. With the first version upgrade (or the next one, at the very least), you are informed that some more customisation is needed to ensure compatibility (now go back to point #2)
5. Finally you realise you have sunk so much money into the project that it is impossible to back out of it gracefully.

This is why you need to make a few things crystal clear before you let any sales person dazzle you with their verbal acrobatics.

First of all, carefully consider how large a project you are willing to commit to. Calculate your exact ROI target (and remember that time is money; you need to consider the savings you lose while the project drags on). Analyse your needs and consider your processes: in my experience it is almost always more efficient to make small changes to your internal processes than to try to change a third-party system to exactly match your existing processes.

And if you have a feeling that the sales person is not telling you the whole truth, you can check for some common warning signs.

The warning lights should turn on if the vendor cannot give you a fixed price for the deployment project but keeps mumbling about how difficult it is to give a precise figure because of customisations or some such other circumstance.

Another clear warning sign is a help desk service that is not free of charge. Quite often this means the help desk is jammed – and if the application works well, the help desk should not be jammed.

I have previously written about the importance of references when acquiring a solution from a new vendor. Just don’t let the vendor get off the hook too easily; instead use the procedure I have described in my previous blog entry.

We recently learned another good reference strategy from a Norwegian buyer: they asked for the name of a customer that had stopped using our product. This was, in my opinion, an excellent question. A former customer is not likely to give a sanitized version of their experiences, especially if they have gone through anything like the merry-go-round I described earlier.

In the same seminar, a representative of a different bank described how they had acquired a business critical solution under a very tight deadline. Because of a corporate acquisition the bank had to find and implement a new system for managing their loans portfolio in under a year (which is usually a mere blink of an eye for a bank). Because of the tight deadline, the bank had taken a Guerilla Treasurer approach and selected a SaaS (Software as a Service) based solution. I was happy – but not surprised – to hear they were very satisfied with the choice they had made.

In last week’s entry (Happy As a Pig in…) I described a typical acquisition process, in which a consultant is firmly in the driver’s seat and the treasury acts as the punter.

From the Secret Guerilla Treasurer Academy

How, you might ask, does a Guerilla Treasurer then acquire a solution faster and at a lower cost?

She starts by cutting down the number of potential vendors by acknowledging the following facts:

• The IT department is busy enough without having to support the treasury in their system acquisition
• Solution vendors only mention the positive things about their solutions
• The choice of solution may be wrong – therefore the mistake must be rapidly correctable

The corporate IT department is typically already overburdened by an ERP project, infrastructure renewal project or by IT efficiency measurement development project. Therefore a Guerilla Treasurer selects only solutions that burden the corporate IT department minimally.

A Guerilla Treasurer is not interested in hearing hours of sales pitches from the remaining vendors. He only wants to see a short product demonstration that helps evaluate the usability of the solution. He also asks for references (both fully satisfied customers and less than satisfied customers) and speaks with existing customers. By talking with these companies, he finds out more efficiently whether or not the solution is right for his own company.

If the vendor claims that none of their customers are less than fully satisfied, they are either lying or they don’t have any customers at all. In either case, a vendor like this should be dropped from the list.

In the next phase (if there are any vendors left), a Guerilla Treasurer prepares for the possibility that the solution does not fulfill the needs. He makes sure that the agreement can be terminated quickly. If a solution vendor demands a termination period of more than three months, they either do not trust their own solution or they are making dishonest promises.

This process is likely to leave only fully SaaS based and easy-to-use solutions on the table.

A Guerilla Treasurer can get up to this point fast and with a reasonable amount of work. The next step – matching company processes with the way the solution selected works – is more time-consuming. In this phase, a good consultant might provide significant added value.

I have been evangelizing the SaaS (Software-as-a-Service) deployment model for nearly a decade now.

During that time, the name of the model has evolved from ASP (Application Service Provider) via SaaS to the last hot buzzword, Cloud Computing (heavily touted by the giants of the IT world these days). I still prefer to talk about SaaS as it describes the model best and because SaaS is only a part of the larger Cloud paradigm.

I’d love to claim I was a visionary who saw the explosive growth of the SaaS model already when I founded the company in 2000. In fact, the real reason we ended up with a SaaS solution was the farsightedness of my staff.

Despite the great strides the SaaS model has taken, we still come across clients who feel the traditional software licensing model is the only right way of deploying solution. Their typical arguments for the superiority of that model are:

• Data security in SaaS deployments does not meet corporate standards
• Internal IT department manages systems more efficiently than service providers
• In the long term, the traditional licensing model is more cost-effective

What all these arguments have in common is that a credible SaaS vendor can easily prove them wrong. In fact, these arguments can be turned into SaaS sales arguments.

Data Security

Lack of sufficient data security is a very valid risk. When acquiring a SaaS solution you should audit how the service is provided. If the production server of a mission critical SaaS service is found under the desk of the vendor’s IT manager, you might as well stop discussions right there and then.

A viable SaaS vendor either builds its own 24/7 state-of-the-art server facility (á la Salesforce.com) or uses outsourced facilities from a proven vendor. We, for instance, have used IBM service center facilities from day one. I find it hard to believe any reasonable data security policies exceed the capabilities of IBM.

Service from Internal IT Department

From the Secret Guerilla Treasurer Academy

The finance manager of a large industrial firm told me he avoids SaaS solutions as he wants to be able to yell at someone’s face when the systems don’t work. Coming for a large corporation, I know that, should you happen to find someone from the IT department to yell at, they are not terribly impressed by the yelling of a finance manager if his server happens to be down. And even if they are impressed, that will not really speed up the solution.

The entire business of a SaaS vendor rides on service availability. The vendor must win the clients’ trust every day because the clients pay for the service and can terminate the agreement at any time. If problems occur, the vendor has every motive in the world to solve them as fast as possible.

Cost of Ownership

The third argument, cost, is usually equally easy to shoot down.

Sure, if only the license price and annual maintenance fees are counted, it is possible that a perpetual license software package may seem more cost-effective over a five year span than a SaaS solution with a fixed monthly fee for the same period.

However, you need to add deployment costs, hardware costs (plus operating systems and other required licenses), the cost of IT deparment resurces, and additional costs from new versions. All these costs are included in the monthly SaaS fee. In fact, if a SaaS contract is still more expensive than a perpetual license solution after including these costs, the vendor has grossly overpriced it.

SaaS will replace perpetual license software in treasury solutions, too. A Guerilla Treasurer sees this trend and chooses SaaS already now, because that way she does not have to spend extra time or resources for the mandatory applications.

As the CEO of a small software firm I frequently ran into a particular problem when on a sales call to a client — credibility. Even though our offering would address the client’s needs fast and affordably, many deals are not made because the client doesn’t dare buy from us.

One thing that we have done to solve this credibility issue is making buying as easy and risk-free as possible for the client. After making sure during the sales process that our application really meets the needs of the potential client, we offer the client a zero commitment and even a money-back guarantee in case the product does not meet the expectations. But even with these assurances, some clients do not dare pull the trigger.

From the Secret Guerilla Treasurer Academy

As annoying this is to us, I do understand these clients. They are not professional buyers and they want support for their buying decisions from the IT, finance, or purchasing department. If they make the decision independently and something goes wrong, their careers are on the line.

Because of this, there is often an “acceptable” way to muck up a project. It is easy for the buyer to make the apparently correct decision, such as tie the development of cash forecasting into a corporation-wide SAP project. The fact that the solution won’t be available for at least two years or that the corporation loses several hundred thousands because of inefficient liquidity management is besides the point.

For the success of my company it is fantastic that there is a fast-growing number of companies with Guerilla Treasurers as decision-makers. They concentrate on developing treasury functions and they solve any issues fast and cost-efficiently. A corporate SAP project does not stop them from solving problems with a flexible monthly-fee based SaaS solution that can later be substituted with the SAP solution when it becomes available.