Tackling the Innovation Squeeze: How Software Companies Can Fuel Growth in a Complex World

For decades, software companies have always driven businesses and societies to do things innovatively and more efficiently. As the world changes, is it now time for these passionate agents of transformation to transform themselves?

The pandemic’s lockdowns and quarantines required software companies to respond to the rapid uptick in demand for digital-only services and provide resilient technologies to power them.  Although the need may have decreased since then, digital innovation continues to be critical.  Current geopolitical and economic uncertainty has heightened requirements for large and small entities to do things faster and with greater reliability and transparency. They are turning to software companies and in particular software development-led firms, which find themselves in a unique dilemma. They’re being asked by clients toplay a significant role in the ongoing digital shift but are facing the same economic and market struggles as those they serve.

Software development costs are rising apace with inflation, and while clients are always willing to pay for quality, their internal controls to ensure financial stability in a changing landscape limit how much they can spend. Talent is hard to attract and expensive to train and retain in a sector where what is state-of-the-art today is old news tomorrow. Therefore, software companies must evolve a multipronged optimization strategy so they can innovate and help clients navigate a complex future with minimal disruption to their own ranks and the bottom line.

Attaining additional capital and investment is a natural recourse for struggling companies. However, banks are experiencing turbulence, and VCs and retail and institutional investors are far more cautious and insisting on profitability rather than fast growth, which sufficed earlier. So how can software companies continue to fuel innovation while every internal penny is dedicated to optimizing the business and money markets are tight?

To help our industry better understand and tackle this multipart challenge, Persistent began by classifying software companies that span the international landscape. Drawing from our considerable 30-plus years of experience in the global software industry , we identified four categories that fairly represent the contours of modern software development.

• The headline-grabbing Tech Titans like AWS, Microsoft, and Google are wrestling with translating their backlogs into revenues while continuing to innovate and optimize operations. Their rather thinned ranks due to post-pandemic layoffs must support both traditional and cloud-based products. This group’s main challenge is driving down SG&A costs to enhance profitability while retaining competitive differentiation via innovation.
• Recently Public ISVs are focusing on delivering new products quickly. For this, they are optimizing development with low-code tools and new technologies. Monetizing existing products or reducing associated operating costs are other routes to generating cash. The constant need to optimize staffing models weighs down their strategies.
• Private equity-based software companies, which we call Early Scalers, are facing delayed transactions and pressure to conserve cash, limiting talent acquisition crucial for competitive differentiation. They are pondering flexible resource allocation and the need to show profitable, scalable growth to meet higher investor expectations.
• Digital Natives are VC-funded software businesses such as late-stage start-ups hoping to go public. Like Early Scalers, they are grappling with funding delays and cash conservation. As their clients show a greater tendency to move to safer, established companies, they need help attracting enterprise clients and designing professional services models to hand off lower-margin services.

As one can see, the challenges are not exclusive to any category. CEOs and CFOs across these companies are on the lookout for strategies to transform their firms into leaner ones that can focus on innovation and deeper customer relationships for future relevance and profitability.

With our extensive experience of working with clients across these categories at various points in their unique journeys, we have identified six levers of success that software companies can utilize to smoothly transform and thrive . At first glance, these levers may seem counter to some accepted norms for competitive success , but we have seen them work often enough, for ourselves and our clients, to propose one, some, or all of them as components of a well-thought-out strategy for continued leadership.

Choosing an appropriate transformation partner is also critical to activating these levers for long-term success. The partner should be invested in goal-focused collaboration, be able to switch gears quickly, and possess a strong customer-focused culture. In contrast to some larger providers that may have an enterprise management perspective, the selected transformation partner must have a creative, boutique approach that can scale up or down quickly and be deeply acquainted with the distinct challenges in software development.

To learn more about the six levers, Persistent’s unique qualities as an ideal transformation partner for software companies, and how you can partner with us to use one or more of these levers to meet your current challenges and stay on course for your strategic horizons, download this insightful white paper today.