How to swim with the sharks
Why smaller companies need not be afraid of well-capitalized incumbents.
I used to wonder why well-capitalized companies tolerate the terrible UX in enterprise solutions like SAP.
SAP provides software to collect and analyze data essential for running a modern corporation: accounting data, sales tracking, supply chain management, and so on. It meets the generic needs of any corporation worldwide, but it's not uniquely customizable without using complementary software.
But now I understand why SAP is here to stay. Its longevity can be attributed to high switching costs.
Once an ERP is integrated into a business, employees invest their time in learning to use it. They build habits around it. They establish relationships with service teams. Additionally, the company has to invest in complementary software to customize the ERP.
So replacing an ERP comes at an extraordinarily high cost. You have to spend on the new ERP and its complementary software. You have to retrain employees. You still have to transfer existing data into their new system. You also risk interrupting services and losing data as you transition from one system to another.
Recently, the Cooperative Bank of Kenya changed its core banking services software. It was painful for them. I think they lost data in that migration since customers were forced to resubscribe to mobile money services. I wouldn’t be surprised if they lost millions during the process.
Once an ERP like SAP gains a foothold in a business, it can leverage high switching costs to keep upselling the client or charge more for its annual subscriptions if it wants to.
ERPs are designed to serve company processes, not consumer needs.
Consider Kenya Power and Lighting Company (KPLC). It uses SAP, but it is hard to reverse a pre-paid token made to the wrong account.
KPLC requires you to write an email and send it to someone in a mundane department who may not respond. Reversing that token is still a complicated process internally. There are likely no straightforward mechanisms dedicated to it.
But Kenya Power is a monopoly. Without competition, they would only switch if internal stakeholders were somehow willing to take the pain and upgrade.
But there are companies in different markets, that have probably gotten a bit lazy and a bit ossified, and a bit less competitive in serving existing customers’ needs.
If you are to compete with them, you have a huge advantage as it would be hard for them to move.
If you can create a product that is so much better than the status quo that it starts to get some organic growth - once you attach a real sales and marketing engine to that, it's going to be hard for a big company to compete effectively.
So I think smaller companies don't realize how much of an upper hand they have. There's an element of organizational transformation required to be good at software, and it's profoundly hard to achieve.