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HOW TO MAKE A PROFITABLE BUSINESSWITH INDUSTRY-SPECIFIC INTELLECTUAL PROPERTY ON TOP OF MICROSOFT DYNAMICS CRM
BY WIM GEUKENS
Executive MBA Brussels 2014-2016Promoter: Prof. Dr. Leten BartCompany promotor: Özkan Erener, Ceo VeriPark24th of November 2016
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AGENDA
1. Objectives & High level findings2. The building blocks3. Methodology 4. Results5. Q&A
1OBJECTIVES & HIGH LEVEL FINDINGS
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OBJECTIVES
Business case - how to make a profitable business with industry-specific intellectual property (IP) on top of Microsoft Dynamics CRM
For CRM Services partners, not yet an ISVSuccess factors - how to become a Top Performer with profitability > 75%
6 FTE3 FTE
200k-2M$
NPV 900k$
IRR 102%5
Y Year 0 Year 1 Year 2 Year 3 Year 4 Year 5
Breakeven1,5Y
Indirect Channel
ROI 106%
Profit.Margin > 65%
HIGH LEVEL FINDINGS
2THE BUILDING BLOCKS
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CUSTOMER RELATIONSHIP MANAGEMENT
CRM is not just software, but a strategy
Moving from product to customer centric
Worldwide CRM market = 26.3 billion $
Growing with 12.3%.
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MICROSOFT DYNAMICS CRM
Growing with 35%-40%
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MICROSOFT DYNAMICS CRM - PARTNER ECOSYSTEM
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CRM PROJECT IMPLEMENTATIONMORE VALUE, FASTER AND CHEAPER
$
Time
CRM Software
12 Months
Customer Specific Services
Services Industry Specific
100
IP
Customer Specific Services
<100
Implementation Services<12 Months
3METHODOLOGY
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METHODOLOGY
B2B surveyTarget group = All Microsoft Dynamics CRM PartnersPopulation size N = 5.000Confidence level c = 90% Margin of error E =10% Response distribution = 50%n (sample size) is 67 people 117 responses, 77 completed
Data collectionDifficult since no partner lists availableHans Peter Bech, Amazon bestselling author & bloggerSocial media (Twitter, Linked In, Yammer)Emailing's to 471 peopleExtremeCRM website
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SURVEY DESIGN
EfficiencyQuestions topics
Personal
Product
Marketing
IPDistribution
Business case
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SURVEY ANALYSIS
Top performer > 75% margin
Average performer between 75 and 35% margin
Bad performer below 35% margin
Answers were Clustered
Focus on ISV
4RESULTS- BUSINESS CASE- SUCCESS FACTORS
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THE PROBLEM STATEMENT
Services Gross Margin related to Microsoft Dynamics CRM is only 28% (avg)Many related risks – people businessNeed for higher margins
with another business model that can co-exist in the same company leverage the CRM knowledge and experience.
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HIGHER MARGIN AND VALUATION
Monetizing IP, by entering the Software Product market
84% Profit @ survey Top PerformersNot including “big” ISV’s
with investments over 2 Million $ with revenue over 20 Million $
Software Vendors are 2 times more valuated than IT Services
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6 SOLUTION OPTIONS
1. Build a horizontal add-on 2. Build an accelerator3. Build a starter-pack4. Build an industry specific add-on5. Do nothing6. Offer the Software for free, add services on
top of the Software
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BUSINESS CASE ASSUMPTIONS
The partner hasbetween 15 and 80 active partners40 customers after three years150 users on average dealsRecurring revenue per customer of 50k$/yearIP revenue growth of +/- 50%
Partner margin of 15%Discount rate of 10%Tax rate of 33%Operational cost of 10%Services are not taken in to accountAverage complexity of the solution
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WHAT PARTNER CHANNEL TO USE
Customer
touch
Price
Complexity
Direct Channel
Online Channel
Indirect Channel
Business Case
Business Case
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DISTRIBUTION CHANNEL ROI
Item Per year Item Per yearSoftware License Value/Deal $ 50 000,00 Software License Value/Sale $ 50 000,00
Number of Partners 15,00 Number of Sales/partner 2,00
Income Per year Income Per yearNumber of Deals/Year 20,00 Number of Deals/Year 30,00 Revenue from Deals/Year 1 000 000,00$ Partner Revenue from Deals/Year 1 500 000,00$ Margin from Sales (@100%) 1 000 000,00$ Margin from Sales (@85%) 1 275 000,00$
Net income from Licenses $ 1 000 000,00 Net income from Licenses $ 1 275 000,00 Expenses Per year Expenses Per yearFTE's 720 000,00$ FTE's 560 000,00$ Travelling budget 15 000,00$ Travelling budget 15 000,00$ Marketing budget 15 000,00$ Marketing budget 35 000,00$ Renting Microsoft Azure features like storage, virtual machines, SQL, ... 10 000,00$
Renting Microsoft Azure features like storage, virtual machines, SQL, ... 10 000,00$
Total Expenses $ 760 000,00 Total Expenses $ 620 000,00 Net Income $ 240 000,00 Net Income $ 655 000,00
profitability 24% profitability 44%ROI 32% ROI 106%
Direct IndirectISV Solution, 3 people in Sales Team ISV Solution, 12 partners engaged
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PROJECT MILESTONES
STEP 1 - Select Industry
Create the TeamDeliver a MVPBecome local
championReferences
STEP 2 - Add extra modulesExtend the team
First partner opportunities
Setup distribution channel
600k$ revenueBecome breakeven
STEP 3 - Go global
Invest in marketingAdd sales revenue
STEP N - Scale fast
Add 400.000 to 500.000 $ per year
in sales revenue>50% margin
40%
20%
60%
100%
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COST BENEFITS ANALYSIS
Associated benefitsDegree of Explicitness Do New Things Do Things Better Stop Doing Things
Financial
B5) New income for IP licensing:
B1) Less CRM people needed: release 1 FTE staff, cost savings 80.000$ p.a.
QuantifiableB6) Higher Enterprise Value (share price should go up when public company)B7) Increase market share in other regions B8) Recurring revenue
B2) Reduction in bad debts: reduced payment write-offs: 20.000$ p.a.Eliminating invoice follow-up, since payment is needed before license key gets deliveredB3) No project overruns,
MeasurableB9) Lower attrition rate of team members, since part of a small dedicated teamB10) Opportunity for home office, and flexible hours
B4) Less need to “connect” with the local company in all his aspects since new markets are addressed and less need for cross and up sell
Observable
B11) Improved customer satisfaction and retentionB12) Improved relationship with MicrosoftB13) Less sales staff frustration, since there is always room to sell Software,
B15) Higher quality output (IP is more replicable than projects)
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COST BENEFITS ANALYSISDiscount Rate 10%
Operating Costs 10%Taxes 33%
Year 0 Year 1 Year 2 Year 3 Year 4 Year 5Recurring costsInternal development costs Quantity Quantity Quantity Quantity Quantity Yearly salary cost
- Team Manager 10 000$ 10% 20 000$ 20% 50 000$ 50% 50 000$ 50% 50 000$ 50% 100 000$ - Product Manager 10 000$ 10% 20 000$ 20% 30 000$ 30% 30 000$ 30% 30 000$ 30% 100 000$
- Scrum Master 10 000$ 10% 20 000$ 20% 20 000$ 20% 20 000$ 20% 20 000$ 20% 100 000$ - Business Analyst 40 000$ 40% 40 000$ 40% 50 000$ 50% 50 000$ 50% 50 000$ 50% 100 000$
- Functional Consultant 40 000$ 40% 40 000$ 40% 50 000$ 50% 50 000$ 50% 50 000$ 50% 100 000$ - Technical Consultant 100 000$ 100% 100 000$ 100% 100 000$ 100% 100 000$ 100% 100 000$ 100% 100 000$
- Channel Manager 20 000$ 20% 40 000$ 40% 70 000$ 70% 100 000$ 100% 100 000$ 100% 100 000$ - Pre-Sales Consultant 20 000$ 20% 20 000$ 20% 20 000$ 20% 20 000$ 20% 20 000$ 20% 100 000$ - Back-Office Manager 8 000$ 10% 12 000$ 15% 24 000$ 30% 24 000$ 30% 24 000$ 30% 80 000$
- Support Follow Up 8 000$ 10% 12 000$ 15% 16 000$ 20% 16 000$ 20% 16 000$ 20% 80 000$ - Partner Support 10 000$ 10% 15 000$ 15% 30 000$ 30% 30 000$ 30% 30 000$ 30% 100 000$
- Technical Assistant 10 000$ 10% 15 000$ 15% 20 000$ 20% 20 000$ 20% 20 000$ 20% 100 000$ - Product Trainer 10 000$ 10% 15 000$ 15% 20 000$ 20% 20 000$ 20% 20 000$ 20% 100 000$ - Project Manager 20 000$ 20% 20 000$ 20% 20 000$ 20% 20 000$ 20% 20 000$ 20% 100 000$
- Marketing Manager 20 000$ 20% 30 000$ 30% 40 000$ 40% 40 000$ 40% 50 000$ 50% 100 000$ Travelling budget 5 000$ 10 000$ 15 000$ 15 000$ 20 000$ Marketing budget 5 000$ 20 000$ 35 000$ 50 000$ 75 000$ Renting Microsoft Azure features like storage, virtual machines, SQL, ... 10 000$ 10 000$ 10 000$ 10 000$ 10 000$
Total recurring cost 356 000$ 340% 459 000$ 425% 620 000$ 570% 665 000$ 600% 705 000$ 610%Revenue from License sales 200 000$ 600 000$ 1 000 000$ 1 500 000$ 2 000 000$ Gross Income -156 000 $ 141 000$ 380 000$ 835 000$ 1 295 000$ Operating Cost (10% of Gross Income) 10 000$ 14 100$ 38 000$ 83 500$ 129 500$ Net Income Before Taxes -166 000 $ 126 900$ 342 000$ 751 500$ 1 165 500$ Taxes -$ 41 877$ 112 860$ 247 995$ 384 615$ Initial investment (one-off cost) 20 000,00$
Purchase Hardware and Software (devices for testing, test-software, etc..) 10 000,00$ External consultancy for specific short term advise 10 000,00$
Net Income -20 000,00 $ -166 000 $ 85 023$ 229 140$ 503 505$ 780 885$ NPV 900 283$ > 0IRR 102% > 10%PI 46,01 > 1
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COST BENEFITS ANALYSIS
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SENSITIVITY ANALYSIS
Net Present Value
Internal Rate of Return
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SUCCESS FACTORS ON HOW TO BECOME A TOP PERFORMER
Use government grants for Research and DevelopmentSell reused code to customersUse own IP and other ISV’s IP in the CSP model Focus on only one ISV solutionInvest in a richer platform including Office 365 and the Azure components Support both models: Cloud and On-premisesTop performers’ Average IP Deal size is 35k$, and have around 12 CRM consultants
Conclusion
5Q&A
6 FTE
Questions&
Answers
3 FTE
200k-2M$
NPV 900k$
IRR 102%5
Y Year 0 Year 1 Year 2 Year 3 Year 4 Year 5
Breakeven1,5Y
Indirect Channel
ROI 106%
Profit.Margin > 65%
