Yes, we’re heading into budget season again – time to lift your focus from the day-to-day business to plan one to three years out. Let’s face it – most of us don’t look forward to creating and managing a budget (except the CFOs – God bless them). My experience, however, is that those companies who thoughtfully plan their technology investments each year have a leg up on those who stay in reaction mode.
Of course, their first question is, “How much should I spend on technology?” Wouldn’t it be nice to have a resource that told you the magic number (as a percent of revenue) to spend on technology (or marketing or sales or…)? Well, wishing doesn’t make it so; I would be lying if I told you there was a no-brainer answer on how to budget.
Instead, let me tell you what we’ve learned from being a virtual part of 100+ companies over the years:
- Winning companies see technology as an investment versus just an expense.
- Being cheap now can be expensive in the end.
The clients that invest in their technology every year spend a bit more, but have less downtime, more reliable systems, and can focus on their business and future needs. The clients who do not invest annually end up in a cycle of fire drills with more downtime and less productivity. And here’s the kicker: they have to shell out a bunch of dough every five years or so to get the technology up to speed and reliable again. Ultimately the clients with the annual investment philosophy end up spending about the same amount of money over the years as the ones that do not invest annually, and they gain with increased productivity from more reliable, predictable systems. Yes, you heard that correctly. The firms that invest annually are ultimately better off and don’t spend a lot more than the firms that use the famine-and-feast method of spending.
Don’t believe me? Let me give you examples.
We have a client that has about $25 million in annual revenue. They invest annually in their technology and their budget is about $1.25 million, or 5% of their revenues. This budget includes support, hardware, telecom, and everything to do with technology. This client has systems that are up to date (not cutting edge), and they rarely have downtime or technology fire drills. Our regular tech meetings (we call them TBRs) are about the business needs and looking forward. Contrast that picture with another client that is about $10 million in annual revenue with a technology budget of about $200K, or 2% of their revenues. They have aging equipment, face regular downtime because of failing hardware and old software, experience near-constant technology fire drills. Our meetings are all about the technology “time bombs” and what we can do to avoid anything from blowing up.
As you think of your own business, which option would you rather have? Spend less money in most (but not all!) years and accept business interruptions and drama. You might call this the “Cold Sweat” model. Or have a consistent budget, predictably investing in technology thereby reducing your risk and increasing your employees’ productivity. Think of this as the “Focus on the Business” model. Ask yourself which environment you and your employees would prefer.
At the end of the day, we support both types of clients, counseling them to spend wisely and only invest in things that will help make the business more productive and/or reduce risk. Ironically, the reactive clients often spend MORE, not less, in Waident support dollars. Turns out that being in reactive mode is more expensive than proactively executing a plan.
If your company is ready to stop worrying about your technology blowing up, talk to us. We love to help clients transform their relationship with technology through a thoughtful and ongoing discussion of their business needs, smart planning, and excellent execution.