Tag Archives: Financial Engineering

Financial Engineers and The Prolonged Death Spiral

Great blog post by Allan Kelly on The Prolonged Death Spiral Business Model highlighting the sort of software companies you probably don’t want to work for,

What I never realised was that a prolonged death spiral could actually be a viable business model itself.

Quadratron was dying, it eked out its last few years collecting maintenance royalties from legacy customers – one customer in particular. In fact it was dying when I joined, they lured me in with a plan to spend a lot of the remaining cash on a new product. But things were worse than that.

Like so many companies Quadratron found that once you have survived the first few years, once you conquered the risk of developing a product and have an installed user base you can continue milking that base for a long time. Provided you don’t do anything silly like trying to develop a new product that is! Quadratron had been very successful, it had a lot of customers to milk.

He goes on to explain how these companies are run by “financial engineers” people know a lot about debt structures and taxation but nothing about software businesses. They’re not interested in investing or capturing new markets, but maintaining cash flow.

He concludes:

These companies are a success by some criteria: the people running them and the people who buy them stand to make lots of money. Financially they look good – except the debt. And customer continue to use the products they want to use. They exist, they employ people. By some criteria they are a success, we should not forget this.

They can be miserable places to work in because real engineering is not a consideration. And pity the poor customers who are being led up the garden path about future products.

It’s a longish piece, but it’s well worth the read.

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