Software
The quote originates from Netscapes founder Marc Andreessen. When he wrote it in 2011 he want to say that the time where software companies will take over large parts from the economy from more industrially controller companies had come.
Software
The quote originates from Netscapes founder Marc Andreessen. When he wrote it in 2011 he want to say that the time where software companies will take over large parts from the economy from more industrially controller companies had come.
This is how Erik analyzes software companies
Of course, we won't reveal our entire selection process when analyzing software companies. However, some important key metrics are these:
Recurring Revenue Share:
The advantage of software companies is that they often have a large portion of recurring revenues, where customers pay monthly. The dynamics can of course vary between companies and business models. A high share of recurring revenue is more qualitative and creates good conditions going forward, and thus revenue growth.
Churn (Customer Loss):
To achieve high profit growth over time, it is critical for the company to retain and develop cooperation with existing customers. A low churn rate is also a receipt that customers appreciate the service.
Net Revenue Retention (NRR):
There are two ways to grow revenue: either through new customers or by increasing sales to existing ones. NRR is a metric used to measure customer loyalty and growth among existing customers. If an existing customer adds services and pays 15 percent more for the software compared to the previous year, then the NRR is 115 percent. If, on the other hand, the company lowers prices to the customer by 10 percent, then the NRR will sum up to 90 percent. For a software company to be able to grow both revenue and profit over a sustained period, a crucial factor is an NRR over 100 percent. This indicates good loyalty and that customers value the software. Exactly what one wants to see in their companies.
scalable
Developing competitive software is both capital and labor-intensive. The first few years are rarely profitable and it takes some time before you reach a point where you can scale your business. The reason why software is so scaleable is the low cost of adding new customers, upselling to previous customers has even lower costs. Almost the whole sum of the upsell is added to the bottom line.
Kritisk affärsverksamhet
"Where ever you do, make sure you pay rent on time". That's a way of thinking most of us can relate to. For companies nowadays it's equally important to pay their software licenses. Without software for CRM, planning, and video conferencing it's very challenging to run an effective business in this digital age we're living in. For software companies, this results in recurring revenues for long periods of time.
Software in Practice
To create long-term value for their shareholders, software companies need to offer competitive services that also benefit their customers. Here are some key areas where software is used to enhance, streamline, and secure business operations:
Scalability
Software support allows businesses to grow and adapt to changing needs without significant IT investments. For instance, cloud-based platforms like Amazon Web Services and Microsoft Azure can be scaled up or down as required, offering businesses the flexibility to manage fluctuations in traffic and data volume.
Automation of Routine Tasks
Software not only reduces the need for manual input but also automates repetitive processes. This increases productivity while reducing the risk of costly mistakes. Examples include receipt and timesheet management in accounting firm Fortnox, as well as sales forecasting and contact management in CRM companies like Salesforce, Hubspot, and Lime Technologies.
Effective Communication and Collaboration
In today’s business world, software solutions for communication and collaboration are essential. An example is Microsoft OneDrive, which allows users to safely store, organize, and share files, thereby facilitating smooth collaboration and access to relevant information.
Data Analysis and Insights
Software for data analysis is crucial in maximizing efficiency through valuable insights from company data. With real-time data, businesses can act faster and more strategically. Google Analytics, a popular web analysis tool, provides insights into visitors, traffic sources, behaviors, and conversions on websites.
Security and Data Protection
Well-developed software for security and data protection is key to safeguarding a company’s privacy and ensuring that sensitive information is handled securely. With the use of AI and machine learning, companies like Palo Alto are fighting cyber threats and ensuring that business data remains secure.
Productivity
Software is so much more than just electronic tickets and personalized digital ads. With software, it's possible to optimize amounts of building materials, plan shipping, and schedule mantenance to minimize pollution just to name a few use cases. Another amazing use case is in healthcare where surgeons can practice difficult procedures in a digital simulation. A well-prepared surgeon reduces the risks of accidents and makes for more efficient healthcare.
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