Why you should care how your BI platform is funded

There's been a huge amount of investment in the BI space recently. A recent article by Dave Kellogg talked about the hype in valuation and capital efficiency of many BI companies. It’s an important topic that people purchasing analytics platforms should think about because it says a lot about what priorities a business has.

Millions of $ in raised capital = big profit?

When you see capital raisings of hundreds of millions of dollars, you expect to see businesses that are doing phenomenally well. But generally, that's not the case. Many BI organizations are good at raising capital, but not necessarily great at building businesses and products. Take Domo, for example. It raised about $700 million but only listed for $500 million. Birst raised $130 million but sold for $100 million.

What is your BI vendor building?

If I were a customer thinking about buying BI software, the first thing I would look at is how the business was built. This tells you a lot about the management team and what they want from that business. Do they have the capability to truly create value? Do they care about their product? Are they building a long-term business or trying to offload it as quickly as possible before the money runs out? If it’s the latter, that's a real concern because how long can the business sustain itself if it doesn't have the revenue to support it.

What is your BI vendor spending on?

As a customer, you also have to ask what these companies are spending money on. A lot of companies spend money on huge event-driven marketing campaigns and hire an incredible amount of people. This means the organization becomes flabby very quickly. This isn’t necessarily the way to build a long-term, viable and sustainable business. I think a business is better off building a great product that people want to buy and then building the operational efficiency that's required to scale and grow.

There's nothing magic about building a sustainable business. It's simply good management practice. You need to understand the revenue you're generating and the billings that are coming in. You need to leverage the risk that you’re willing to take and choose to spend capital effectively to get a bigger bang for your buck.

Your call

So if you’re a buyer of software products, you should be very cognizant of how a BI business has been built. If their management is more focused on raising money than on building a great product, then you need to decide if you’re prepared to take the risk of buying software from them because that company may not be around for the long term.