PHILADELPHIA - Jan. 10, 2017 - PRLog -- The Firms Running Most Businesses Are At Risk As Their Founders Age
As a generation of Baby Boomer business owners plan their estates, some in the software industry say that thousands of firms providing the highly-specialized software running many businesses will cease operations or be absorbed by competitors by 2021. This will lead to the largest ever consolidation of business software: the elimination of as many as 100,000 tech jobs and the evaporation of billions of dollars in value from Boomer estates.
Michael Zammuto, CEO of Cloud Commerce Consulting specializing in advising mid-sized software companies, claims, "These firms are at a crossroad and, while a few will sell for big dollars, I expect 5,000 will be gone by 2021. Many companies, employees and their customers simply are not prepared."
Boomers Automate Every Business
Throughout the late 1970s and into the 1980s, the personal computer revolution and access to inexpensive and simpler software programming tools allowed enterprising Baby Boomers to found independent, usually niche or vertical business software and service companies providing the first software to thousands of types of businesses including storage units, produce wholesalers, furniture manufacturers, liquor distributors, call centers, collection agencies, insurance companies, restaurants, and thousands more. These businesses required highly specialized solutions to replace their paper-based processes for every aspect of the business including purchasing, manufacturing, service delivery, customer service and account management.
Young software firms often customized the software for each new customer and structured software licensing deals where large licensing fees are captured up front followed by smaller annual maintenance fees of 10% to 20% of the original licensing costs. Software companies producing vertical software solutions developed fewer economies of scale than more horizontal software providers such as IBM, Salesforce.com or SAP.
Rapid Growth but Little Consolidation
New industries often experience rapid growth in the number of startups followed by similarly rapid consolidation. Hundreds of automobile manufacturers were started in a short time span; 200 of them went out of business after 1909. This trend eventually left a few huge behemoths. A similar trend of consolidation did occur in many segments of the tech industry. In the 1990s, search engines exploded in number and then consolidated to Google and Bing whose combined market share is reportedly over 95%.
The founders of many of these vertical business software companies discovered that it was difficult to raise growth capital or find strategic buyers. High customization, often relatively small vertical market sizes and usually aging technology limited their appeal as acquisition targets and their access to the capital markets.
Retirement Delayed
Now the one obstacle the founders haven't been able to avoid is at the door. These founders are getting old. The oldest boomers are already over 70 with millions more crossing that line every year. Many are working long after they expected to retire.
Large numbers of these firms will not find buyers. Many will simply cease operations, either de-facto closed or sold at bargain basement prices and absorbed into larger software firms. "The ones who survive are preparing today," Zammuto says. "Cloud Commerce Consulting has a 90-day transformation process to improve these businesses to make them more attractive to acquirers or improve profits and cash positions so they can survive and thrive."
Contact
Tara Taylor
Cloud Commerce Consulting
***@outlook.com
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