Sales soft analysis - group a v2.0
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Sales Soft faces a dilemma on whether to continue developing its comprehensive sales automation software PROCEED or divert resources to a sales forecasting software called Trojan Horse. While Trojan Horse could generate quicker revenue, it would mean abandoning the original goal of becoming a leader in the high-end sales automation market. A long-term analysis shows that continuing PROCEED's development is more profitable, as it has no threats from competitors and is projected to generate over $30 million in revenue by 1998 compared to under $10 million for Trojan Horse. Therefore, to achieve its long-term objectives, Sales Soft should choose the PROCEED option over the diversion to Trojan Horse for short-term gains.
Sales soft analysis - group a v2.0
- 1. Sales Soft Case – PGPMX, Mumbai By Group A - PGMPX 2015 (Amit Jaitly, Mandar Risbud, Michelle DSouza, Sanmeet Dhokay & Vinod Maliyekal) What’s the dilemma? Sales Softwas formed with the primary objectiveof developing and selling a comprehensiveSales Automation (SA) product & thus becoming a leader in the high end of SA softwareindustry. 35% of planned SA product(PROCEED) was complete as of early 1995. Meantime, Sales Soft came across several feedbacks realizing that it is possibleto packagethe already completed portion of their softwareinto a “Sales Forecasting” software(which would be altogether different than the high end Sales Automation software). Developing & marketing this Forecasting software(Trojan Horse) would mean some immediate cash flow but would also mean suspending originalobjective of becoming a leader in Sales Automation softwareindustry and relinquishing that market share. The dilemma was whether or not to take this diversionof route and build and sell the intermediate Forecasting SoftwareOR stick to original plans and eventually build and sell the top-end SA product. Evaluationof Alternatives: Sales Softhas option of choosing one of the below two alternatives: 1. Continue developing full-range CSAS product(PROCEED) (which is around 35% ready) 2. Use the above 35% ready productand build a mid-segment product(Trojan Horse) instead of PROCEED & start getting early revenue. But in that effort, relinquish market share& position of a “leading CSAS organization” to other competitors
- 2. CSAS field is very niche and total market size comes to $3.1 billion (as per Exhibit 2). Developing PROCEED falls in line with Sales Soft’s original objective of becoming the leader of the CSAS segment. Sales Softis already pursuing over 20 prospects & data of 2 such prospects shows promising ROI within 9 to 24 months (Exhibit 7). (Cost Benefit Analysis of Implementing PROCEED – derived from Exhibit 7) Cost of Implementation $$ Saved in Sales Cycle Time Reduction $$ Saved in Start- up Time for New Sales Person Prospect A $2.66 mn $777,600 $181,440 Prospect B $6.35 mn $7.05 mn $1.41 mn Upon review and comparison, following facts go againstpursuanceof PROCEED development: 1. Revenue realization from PROCEED sales would happen only in late 1996 or in 1997 whereas Sales Softis currently cash-strapped with net loss of $1.3 mn & will continue to do so till 1997 (Exhibit9 & 10) 2. CSAS purchasedecisions involves many stakeholders & slows down the process 3. CSAS implementation cycles are lengthy (24-30 months) with heavy dependence on Consultants 4. Sales Softhas limited sales force & selling Trojan Horse& PROCEED, both, is not an option. Ithas to chooseone over other, at present 5. To continue with PROCEED development, Sales Soft is going to need another 8 months and $1 mn more while it is already projecting losses till 1996
- 3. Following comparison further gives an impression that developing & selling Trojan Horseis a better proposition: Trojan Horse PROCEED Simplified selling process Complex, lengthy selling process No dependence on Consultants Heavy dependence on Consultants Only 3 more months for development (and $200,000) 8 moremonths for development (and $1 mn) Low entry barrier for Customers because of low price High entry barrier Shorter implementation time (1/3rd that of PROCEED) & buying decision Longer implementation time (24-30 months) & buying decisions Little end-user training needed Separate efforts/time for training Below table shows thatin the shortterm, choosing to develop the mid-segment Trojan Horsesoftwarecan fetch Sales Softa faster revenue realization. PROCEED Trojan Horse Would beready by June 1996 Jan 1996 Price/User License $2400 $1000 Estimated # of Users - 5 prospects - 400 users per prospect - Total users: 2000 - 15 prospects - 400 users per prospect - Total users: 6000 Revenue from Licenses $4.8 mn $6 mn 1996 Revenue $2.4 mn (half-yearly revenue only) $6 mn However, this would hold true only in shortterm. Longer term thinking and extrapolating available projections over 3 years duration projects a different picture:
- 4. Basis for abovecalculation: a) PROCEED revenue figures are taken as is fromTable A b) Assumptions for TH revenue: Currentprospects = 20; out of these, 15 might turn into customers, as the case study says “severalexisting prospects haveshown interest in TH” Each prospectis assumed to have400 end users (Refer Page 6) Licensing price / user = $1000 (Refer Page10) This graph clearly shows that: Though short termrevenue calculationshows that TH development is beneficial, long termviewproves that developing andselling PROCEED would be far more profitable venture Conclusion: - Sales Soft’s originalobjective was to become market leader in the upper end segment of comprehensiveCSAS software(PROCEED). Deviating from this objective mid-way and selling TH might relieve PROCEED from it’s immediate cash worries. However, itwill forceSales Soft to permanently relinquish it’s currentpromising position in the market $0 $5,000,000 $10,000,000 $15,000,000 $20,000,000 $25,000,000 $30,000,000 $35,000,000 1996 1997 1998 PROCEED Revenue TH Revenue
- 5. - Though the year of 1995 and 1996 aregoing to give Sales Softno revenue (and hence a net loss), Sales Softis adequately covered till end of 1996 via VC funding - Though TH market is currently promising, it will become very tough due to planned entries of giants like Microsoftand Lotus - There is no threat to Sales Soft in the PROCEED segment in the shortas well as long term. Basedon all the above points, Sales Soft shouldchoose togo with PROCEED option.