To be fair, this is kinda how many b2b companies work - not just this one. At my work, we get vendors that promise everything, charge a ton and we set up all our data in their product, deliver on less than half of what they claimed and by that point it's too late/expensive to move away from them.
It's why I don't trust enterprise vendors. They make their money of few, very high margin sales. They claim things like "support packages", but really that's just a way to let IT managers pass the blame onto someone else - your users can blame the vendor rather than blaming you (even though you chose the vendor)
It's dangerous to work with any company to whom losing you as a client would radically alter their finances. To illustrate the difference: if I cancel a 37signals-style app at $40/mo, sure they loose money and they don't want that, but it doesn't really alter their financial picture. They don't need to lay off staff or adjust salaries or anything. If my business terminates our contract for one of our "enterprise" packages, that company is losing $50,000+. At that point, they might need to let people go. Someone is probably losing a huge sales commission that will significantly impact their life. They're going to do everything to prevent that. Since actually creating a quality product is difficult, they tend toward lock-in and promises. So when the IT manager is asked "why are we still using this horrible product?" they can say, "it would cost so much more to transfer out since all our data is in it and we can't get it out without essentially re-doing all that data entry" and, "they've promised XYZ that will fix things in 6 months." By the 6 month mark, the IT director can pass the blame onto the company saying, "how was I supposed to know they wouldn't deliver?" if anyone still remembers.
I'm sorry you got snagged by such a bad company, but there are many worse companies out there. Always beware of any company that can't lose you as a customer. People think that means they'll get good service from them. Really, it means that they'll use any underhanded trick to keep you on the hook hoping that you won't take the steps to rid yourself of them - for example, once you give functionality, it's very hard to take it back and if we had offered lots of options and moved down to 4 within our firm, we'd never hear the end of it, right decision or not.
OT/separate question, but how would you recommend a new company venture into the enterprise software model? There will always be a first customer a startup would need that would be critical to the finances/bottom line
Well, when you don't charge hefty fees for software, no matter how small you are, the revenues aren't critical.
For example, if I launch service X - say a website spell checker like we saw here not long ago - and charge $20/month, the $20/mo from my first customer becomes 100% of my revenues until I get another customer. So, loosing that customer means that I loose 100% of my revenues! However, the absolute drop in revenues is only $240/year - not pocket change, but also not an amount that I'd compromise my morals over.
The issue with many enterprise companies is that they get a dozen people paying $50,000/year and at that point, losing one customer is a big deal both in terms of percentage and in terms of absolute revenue lost. If you're a company of 6 people and you loose an account paying you $50,000/year, your ability to pay salaries, etc. changes drastically. If you're a company of 6 people and you loose $240/year, it doesn't matter if they're your only customer, it doesn't affect whether you can pay salaries. It still might not be profitable, but individual customers don't determine your fate - masses of customers do.
Mostly, I just don't think you can act morally in a relationship where the other party holds so much sway over your livelihood. If they hold that kind of sway, you will do whatever you can to prevent them from exercising that power - promising changes you have no intention of making, trying to make it hard for them to leave by locking-in the data, etc. And in business, that happens when you're selling a product at such a high price to so few customers. If you base your business model off of selling at lower prices to more customers, no single customer can hold that sway over you because, while customers are always important and should be well-treated, if they decide to go another way it can be an amicable break because they aren't hurting you that much.
Really, I think that the enterprise model is broken. A lot of it is based off of trying to sell products to pointy-haired bosses by slick salespeople for lots of money and then locking the customer into your system. shudder. I'd suggest a completely different route for enterprise software: go as open and cheap as you can and build on volume. Rather than worrying about someone leaving, give them a reason to stay. The enterprise vendors we interact with don't have that attitude. They don't roll out something useful unless it can go on a checklist. They don't care about the quality of something since that's subjective and isn't as easily seen in "requirement evaluations". Disrupt the system. Heck, go open source and offer a hosted solution. Businesses love paying for hosted solutions because they can wipe their hands of it. Likewise, you can assure them that, if at any time in the future you become an evil company, they can take the code and host it themselves. That gives you a consumer-facing drive to improve, rather than lock-in. Heck, if the company needs something different, they can program it themselves and give it back to you! Free development! And you get a good reputation as a hosted service that doesn't lock people in and is constantly giving people more reasons to love you. That's the models that I'd recommend. People will pay for your expertise - you developed it, you administer it, you make sure it continues to work with no hassle on their end. That's a lot of value compared to many enterprise apps that are expensive and require companies to have someone to deal with it.
Just make sure that you don't get into a situation where your morals might be challenged by your wallet. When that happens, you'll start doing evil things to your customers.
The real problem is that those same pointy-haired bosses create a positive feedback loop when they look at prices. If company A is charging $50,000/year for a product, and company B charging only $500/year for a competing product, the PHB immediatly wants to know what's wrong with product B, and never asks why company A is gouging them.
It creates incentive for "enterprise" companies to continue charging exorbitant prices, because PHB's tend to conflate price with value...
Good advice. The pricing is critical, because it affects everything in the sales/delivery/operations cycle. Say the price is $50k for the software, $20 for installation, $7500 for maintenance. This type of sale is going to take a dedicated sales force and a sales cycle of 6 to 12 month with no income for a year. When I was in the business, sales and marketing were about 50% of revenues.
Suppose instead you offer a hosted solution at $7500/year, which was your original subscription rate after the first year. Your burn rate is cut in half: smaller sales, marketing, and SE staffs. Way shorter sales cycle. Monthly payments after a month. No hassle supporting a gazillion os/database/custom solutions. This is the kind of solution that can grow organically.
[Heck, go open source and offer a hosted solution.]
I have it from a good friend who sells software built on Open Source to PHB's, that it's really hard to have them look at open source seriously. There is still too much of the "No body got fired for buying IBM" attitude.
Was the vendor's concern that a customer of yours could just pull your royalty-free license out of your uncompiled source and then gain access to their product without paying for a license? So, you would be distributing their registration key for free use with every purchase?
That sounds like a legitimate concern. If someone was distributing a valid registration key and fully-functioning application for one of our products (in exchange for a single royalty-free license), I'd give a blanket 'no' too.
Considering it's C#, and a "compiled" DLL is just preassembled bytecode anyways, I can't imagine it would be much more work to disassemble the DLL anyways...
It's why I don't trust enterprise vendors. They make their money of few, very high margin sales. They claim things like "support packages", but really that's just a way to let IT managers pass the blame onto someone else - your users can blame the vendor rather than blaming you (even though you chose the vendor)
It's dangerous to work with any company to whom losing you as a client would radically alter their finances. To illustrate the difference: if I cancel a 37signals-style app at $40/mo, sure they loose money and they don't want that, but it doesn't really alter their financial picture. They don't need to lay off staff or adjust salaries or anything. If my business terminates our contract for one of our "enterprise" packages, that company is losing $50,000+. At that point, they might need to let people go. Someone is probably losing a huge sales commission that will significantly impact their life. They're going to do everything to prevent that. Since actually creating a quality product is difficult, they tend toward lock-in and promises. So when the IT manager is asked "why are we still using this horrible product?" they can say, "it would cost so much more to transfer out since all our data is in it and we can't get it out without essentially re-doing all that data entry" and, "they've promised XYZ that will fix things in 6 months." By the 6 month mark, the IT director can pass the blame onto the company saying, "how was I supposed to know they wouldn't deliver?" if anyone still remembers.
I'm sorry you got snagged by such a bad company, but there are many worse companies out there. Always beware of any company that can't lose you as a customer. People think that means they'll get good service from them. Really, it means that they'll use any underhanded trick to keep you on the hook hoping that you won't take the steps to rid yourself of them - for example, once you give functionality, it's very hard to take it back and if we had offered lots of options and moved down to 4 within our firm, we'd never hear the end of it, right decision or not.