The Technology Tipping Point

How to judge when a small business owner needs to buy new tech gear or software

Earlier this year I discovered a little sippy cup stuffed under one of the backseats of our family minivan. It had some kind of black cottage cheese in it. My kids stopped using sippy cups at around the age of 6. They're now going into high school. The sippy cup was the final straw. I had hit the Honda (HMC) Odyssey tipping point. It was time for a new car.

We're all faced with moments in our lives where the decision to do something or take action is made crystal-clear. Small business owners face the same decision points when buying technology. Some guys I know can purchase a six-figure piece of equipment for their factory without blinking an eye, but agonize over a $5,000 software purchase for years. When exactly is the right time to spend the money? Is there a tipping point?

There is, and there's a way to anticipate when you'll hit it. Here are a few key technologies that business owners will be faced with buying or replacing during the next few years. We'll be hearing a lot of hype and sales pitches from technology people telling us what to do. Don't be distracted by the yammering. Just pay attention to your tipping point.

That New Server. Do you really need to drop a few grand on another server this year? Can't it wait until next year? Isn't there some "cloud" to put it on or something? Greg, a friend of mine who runs a job shop, has had the same server for seven years. He's had the same box for so long that even Microsoft has given up marketing to him. Why? Because his business has had no major change to its software systems. So if it isn't broke, no need to fix. But even Greg has to bite the bullet at some point. And that point will be when he upgrades his accounting software (see below). New software is a tipping point for a new server. Other tipping points are even more obvious. Like hearing funny noises. That's another tipping point. Finally, if you're the kind of person who doesn't like to deal with things breaking, then avoid Greg's situation. Replacing your server every three years or so will expose you less to IT geeks playing plumber with your most valuable data.

Customer Relationship Management (CRM) Software. What's the tipping point for buying CRM software? This is not a gray issue; it's black and white. It's strictly mathematical. You buy CRM software because you can mathematically prove that it will help you get more sales. How? By making sure that all quotes are being pursued to their very end. By making sure customers who haven't heard from you in the past six months are hearing from you. By making sure prospects who may in the future think about buying something you sell are hearing from you frequently enough to make them come to you first. By making sure you don't look like a dope when customers call because you don't know who communicated with them last and what problems they may be having. Think of all of all these situations you've encountered in the past three years, calculate how much revenue you've lost, and then compare that against the cost of a CRM system—and voilà! You have your answer. Here's another tipping point: You suddenly discover that the airline industry provides better customer service than your company. That's enough to make anyone take action.

Virtualization. We hear this term, and many of us still aren't getting our arms around what it all means. It's actually pretty simple. With virtualization, a business owner can take all of the stuff running on 10 servers and make it run on just one or two servers. Less space. Less energy. Less management time. Now we get it! Except that virtualization is still slow catching on in the small business universe (I mean those of us with less than a few servers in our offices). So here's how to know you're at the tipping point. By consolidating your servers down to just one or two, will the savings mentioned above outweigh the cost of the new servers and the propeller-head guy you'll need to set all of this up, including migrating all of your existing systems? If yes, then great. If no, then ignore virtualization for now, and spend your money somewhere else.

Accounting Software. There is nothing less sexy to a business owner than buying new accounting software. Invoicing, order entry, and accounts payable management simply does not make our hearts go thumpety-thump. I'd rather buy season tickets to the Mets. Unfortunately these things need to be done from time to time. What's the tipping point for new accounting software? First, don't listen to the accounting software vendors. Don't buy into the jazzy screens and pretty colors. There are just two rationales to cut a check. One is when your current system is slow, unsupported, not giving you the information you need, or becoming unreliable. The other is when you can absolutely, positively prove that a new system will reduce your costs by making your people more productive and (most important) you can prove these savings with a high level of confidence.

Green Technology. Will there ever be a tipping point for green technology? "Going Green" alleviates some of the guilt that we feel when we don't separate our paper and plastic at home (and you know you don't). But will it ever make economic sense? Some technology, like servers and cooling equipment, professes to be more environmentally friendly and energy-saving. If that's the case, and the reduction in energy expenses by purchasing a replacement piece of equipment is really significant enough to outweigh the cost of that equipment sometime in the next 47 years then by all means…go for it! My opinion is that we'll be more likely to see Jennifer Aniston and Angelina Jolie take a spa weekend together. For a small business, the only rational tipping point for "going green" is if you're part of an overall corporate effort to show the world how you're saving the world, especially if there are paying customers who buy your products because they think you're trying to save the world.

Software as a Service (SaaS). Oh boy, here we go. I've written before about SaaS, so I'll first say what I said previously: SAAS solutions are great for some companies, but may not be great for all companies. The entire world will not be using SaaS technology anytime soon. However, a big part of the business community will be relying on SaaS technology to help get things done. The guys I know who go for SaaS do so because it makes their people more productive. They can get data to and from their people faster, no matter where they are. They don't have an internal IT infrastructure and find it less expensive to rent the software rather than set it up themselves. They find that maintaining a system in-house is more expensive than the monthly fees they must pay for a rented system. These are tipping points for any potential buyer. Do the math to see if this makes sense.

Web 2.0 Technology. Many times I get asked by clients if they should be investing in "Web 2.0" technology. When I ask them if they know what this means, most give me that blank, vacant look. Web 2.0 stuff is just a set of programming tools that helps geeks bring together data from different places on the web. Social community sites like Facebook and MySpace (NWS) merge all sorts of widgets and gadgets so you can see maps, clocks, instant messages, newsfeeds, and other nonsense all at once. It's best to have suffered with ADD to truly understand how this all works. For the rest of us, there's no such thing as "investing in Web 2.0 technology". What we all want to make sure of is that the latest applications we're buying are capable of supporting this stuff just in case we want to make use of it. Tipping point? There is none.

Buying technology is no tougher than buying that piece of equipment for your shop floor. The tipping point for any major acquisition is to make sure, plainly and clearly, that there's a measurable return on investment. Otherwise, invest somewhere else. I hear there are plenty of cheap stocks on the market right now.

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