Market economics is guided by a set of systematic forces that can be somewhat modelled and predicted. Somewhat, as the market system is so complex, that the models are understood retrospectively, but prediction is mostly thrown off by one or more obscure factors not considered. And then we come to business applications - aside from the attempts of all vendors to make comparisons between competing products difficult, there is also a not so small amount of emotion involved.
Comparable alternatives
The price we are willing to pay for goods or services depends on the cost of alternatives available, including the alternative of doing nothing. Easy, weigh up the benefits, and compare those to the cost, right? Well, yes and no. The model is not that simple. Take the automobile industry - if a car was compared only on the utility of getting a person from A to B safely, and in comfort, then the choice would be made on price versus specification only. Yet, we are willing to fork out considerable more money, for vehicles that on paper have less to offer in the form of features, specifications, or even reliability. There is an emotive factor at play. In business applications, a similar process applies. Especially in larger organisations, where more people are affected by (perceived) change, the choice seems to lean towards the "familiar", or at least, something not too radically different. The alternative is compared to what is already there.
For smaller businesses, or entrepreneurs, there is another dynamic at play. Especially when considering the solutions provided via subscription to a cloud service - there should be an easier way to compare. This is, unfortunately, not true. There is a huge difference in the solutions provided by the various vendors. And the price is not at all directly related to the features, or support levels.
What you don't see is what you are not getting
For small businesses and entrepreneurs, the business applications reflect a very simple solution to a very core need: to save time. Saving time doing administration, saving time by proactively managing the customer communications, saving time by managing the sales pipeline. Time saved is time spent on growing the business. Sounds simple enough, but how do all the various solutions out there help with saving time? And at what cost?
Is there a monthly cost? What is the offered functionality? How many users? What are the limitations? For example, a popular financial (accounting, accounts receivable, accounts payable) solution for entrepreneurs charges $25 per month - this covers also payroll for one person. That is great - not too expensive. However, the limitation is only 5 invoices and quotations per month... And additional users will incur additional charges. But what other functionality is supplied? Customer Relationship Management? Project and Time administration? Expense management and reconciliation? Does that cost extra? So, there is a per user cost, and a per module cost... Still, relatively inexpensive for the value it represents. Now let's add productivity and collaboration. Microsoft's excellent Office 365 business premium will cost around $18 per user per month. Google's G-suite starts at $5 per user per month, but a comparable offering to Office365 is $10 per user per month (most notably, you get 1TB of cloud drive for $10 per user per month, compared to the 30GB on the $5 plan).
What do you need as an Entrepreneur or Small Business?
Need is a difficult definition. entrepreneurs and small businesses have been doing just fine with spreadsheets, or even paper-based systems. However, in a high speed, highly competitive market, this is not competitive. Also, how much time do you really want to spend doing administration, versus spending time growing the business, or tending to the family life? I found the following to be essential to keep a lean administration:
· Accounting
· Accounts Receivable
· Accounts Payable
· Bank integration
· GST/BAS reporting
· Expense management (via mobile phone)
· Inventory management (if you sell items)
· Hours administration (if you invoice time)
· Subscription and Retainer invoicing
· Payment gateways (i.e. Stripe, Square, or PayPal)
· Customer Relationship Management with Pipeline Management and Sales Forecasting
· Productivity tools such as Word Processor, Spreadsheets, and Presentations
· Online Meeting facilities
· Email and Calendar server
· Cloud storage (1TB per user is desirable)
· Team collaboration sites (for knowledge workers)
· Website design and hosting, with integration to sales and booking tools (where applicable)
· (Payroll)
If you assemble your solution with these components, it becomes quite complex, quite fast. Some elements are based on a per user per month basis, others are charged based on other more functional metrics (such as number of projects, or number of invoices). Plus, you will have to deal with different vendors, different terms and conditions, and additional cost for integration (if applicable). Entrepreneurs and small business especially are served with simple systems that allow them to grow, and predictable cost structures.
I have placed payroll between brackets, as that is a bit of a different animal - a good payroll system is integrated to your business systems for the relevant data (hours worked, etc), as well as the general ledger and banking transactions (to reflect salaries and taxes paid). Payroll itself, however, is best outsourced completely, as there is advantage of scale.
Summary - selecting your system
Basic economics dictates the choice to spend resources (money) for goods and services against the available alternatives. For instance, do I spend $25 per month on an accounting package, or do I spend 4 hours per week getting the administration in order (if it can be done that fast). But that is only one alternative (buying a service or doing it yourself). The question is two-fold - 1). Does the service provide added value (i.e. there is a net positive monetary effect), and 2). Is the cost of this service reasonable against other, similar services, now and in the near future? Most will decide only on question 1 - it solves a problem, and the fee is reasonable for that solution. It does short-change your business, as other solutions may do the same for less cost, and/or provide cheaper options to facilitate growth. The last thing you want to do, is lock your business in an application where it is difficult or expensive to keep the applications in line with the business growth. Especially when you add employees, the need for collaboration tools increases. This could impose additional and unexpected costs. Ideally, the same per user per month cost will provide more and more value, based on the number of employees added.
Originally posted: 12 February 2018