When a sector is buoyant and at the forefront of technological innovation and commercial investment, the human brain tends to maximise the opportunity and minimise the risk.
However, growing markets can be dangerous for non-corporate businesses unless evidence and careful analysis is used to assess market opportunities.
The numbers for the software industry are quite staggering:
• 57% of companies will invest more in IT and software in 2015 than they did in 2014
• By 2021, overall investment in the industry will increase by 24%
The five key growth areas are security, cloud computing, business analytics, wireless mobile and especially the Internet of Things, which is predicted to create $14.4tn in increased revenues and lower costs for businesses in the next seven years.
With so many opportunities where are the risks?
The main risk for non-corporate businesses in the software sector comes from selection bias (i.e. you only notice the numbers linked to opportunity and ignore the rest).
In any growing market, competition will be fierce and it is always a mistake to assume that predicted rises in investment and turnover will automatically equate to growth in profitability.
In fact, the opposite is the case:
• In the last financial year 46% of companies in the software sector saw their revenue per employee fall
• Despite strong growth, overall profitability fell in the last financial year
• Increased competition means that by 2021 profit margins are predicted to slip by at least 6%
How do you succeed in a market where the very opportunities you seek, expose you to the risks you want to avoid?
The answer is straightforward:
1. Make marketing decisions using evidence
2. On the basis of this evidence, choose the most risk-free opportunities
3. When you have made this choice, be prepared to change it as new evidence emerges
The free infographic below provides a summary of this article and also shows where you can get the insight and support you need to succeed in what promises to be a turbulent future for the software industry.