In the past few episodes of "Building Your Multi Million Dollar Practice" we've been breaking down the different sectors of businesses and what accountants and advisors need to know to help them grow. Today, we are discussing the technology sector. Technology has become such a crucial essential in every day life, and it's not a sector we want to overlook. The first step in advising for cashflow forecasting and fiscal management needs is to differentiate the types of technology. In this podcast, we will cover the different segments and indicators to help you discover the secret to helping your tech companies.
With a broad statement, like "advising the technology sector," the first step is determining their ultimate goal. Technology is a broad sector; a technology company can specialize in protecting information security, creating efficiency, ordering products, distributing products, and more. But largely technology can be categorized into two focus areas: for consumers or for businesses.
1. Is the technology structured toward businesses or consumers for sale? Some examples to help you determine which areas your client is focused on:
- For consumers: Amazon*
- For businesses: medical equipment companies, like Abbott
- For both: Apple
The second question that, once answered, will help you better cater your advisory services for your technology clients is determining how the technology is delivered.
2. Is the technology strictly a software/application or is it a physical technology?
Once you realize what product you're dealing with, and who it is structured for, advisors and accountants can then help them determine their primary concerns.
If the technology company is focused on consumers, marketing is everything. Their strategy should be primarily based on consumer-driven advertising and marketing. In the case of B2B, marketing is not as big of a factor, as increased exposure doesn't necessarily correlate to more sales.
If the company you advise is creating software, even if it is for a machine, you must still think about the time commitment before the product can even be sold. The coding must be created, training for the user done, developers cost upfront, what languages you will need expertise in, the architectural structure, etc. all need to be considered BEFORE you do any marketing or sales. Funding and capital are the biggest challenges, so differentiation and creating a unique product for the determined market is key. Strategy building is a great way to validate how much capital you will need, depending on who's funding, for how long, and what steps are needed to validate the product.
Exit strategies for investors are very important, as they want to fund services, but also get out through a merger or a public offering, usually within 3-5 years. A true interactive boolean algebra strategy isn't made by most startup owners, it's something that needs to be helped by their trusted advisors. A lot of the funders need to validate, which is why ProfitSee has made tools within our system to build true cashflow forecasts and strategize for the future.
Pricing for the technology company is also a very crucial step when advising a start-up company. Since technology creates efficiency better than any other sector, it is easy to have competitors, and these competitors can take a big toll on the pricing of a product. Creating software that is more sophisticated (ie. AI tools) can help eliminate the problem. The less unique your product, the more chance for some one else to create a cheaper, better product. One other big factor in pricing technology is if the price is one flat fee, with updates, or if it's a subscription based product. Software as a service has become a critical component in business-driven and consumer-driven companies, since updates can be made and businesses/consumers will not skip them as they would if they re-buy for every update.
Remember: determining the importance of marketing/sales, differentiating your product from the market, and creating software as a service all help create retention and adoption of technology. When deciding on factors of pricing and obtaining capital, advisors are pivotal in building future strategies and forecasting for growth. If you would like to learn more about how ProfitSee can help build opportunities for the technology companies you advise, book a time with our team to learn more today!
*Although you can have businesses with an Amazon account, it is mainly focused on the consumer side.