Most companies are buying the wrong software

Published on the 29/11/2023 | Written by Heather Wright

Most companies are buying the wrong software

Buyer remorse runs high…

Most businesses are buying the wrong software, with 58 percent of US companies regretting at least one software purchase they’ve made in the last 12 to 18 months, according to a new report.

For nearly a quarter of the 3,000 businesses surveyed, it’s not a one-off regretful purchase, with 23 percent admitting multiple bad buys during the 12 to18 months. Big and mid-size business (250+ employees) reported more software missteps than smaller businesses, possibly due to bureaucracy and IT complexity.

“Companies often rely on shortcuts to make their initial software vendor list quickly.”

The Capterra report shows buyer’s remorse isn’t just common, it’s costly: More than half of those who experienced purchase regret say the purchase led to a ‘significant’ or ‘monumental’ financial impact. Forty-one percent said the software purchase ultimately made them less competitive, with the same number saying it cost too much money. Reduced productivity was another negative consequence cited by 38 percent.

Frustrations were also high over the difficulties onboarding and training new users. Vendor-related issues, like a problematic handoff between sales and implementation teams (48 percent) or poorly managed expectations (39 percent) also lead to regret.

While the survey is US-based, Hayden McCall, lead consultant for A/NZ software advisory firm Software Shortlist, says there’s plenty of anecdotal evidence of the same issues here.“There’s a tendency to put far too much faith in known brands and what your mate reckons, or falling for a glitzy sales demo, versus going through a robust requirements gathering, shortlisting and evaluation exercise. Business software is seldom a one size fits all decision.”

Software continues to be a fast growing area of spend for Australian and New Zealand companies as they lean on technology to increase innovation and drive revenue. Gartner has forecast software spend in Australia to hit $38.7 billion in 2024, a 12.8 percent year on year increase – the largest growth across the categories monitored by Gartner in its annual IT spending forecasts. That’s off the back of 13.2 percent growth in 2023 – again, the highest growth across all categories. In comparison, the next highest growth category for 2024 is IT services, up 8.2 percent to $48.8 billion.

Sixty-five percent of buyers in the Capterra survey say they plan to spend more on software in 2024. For 22 percent, that increase is expected to top 20 percent.

The problems, according to Capterra, start right at the very beginning, with the initial list of vendors.  Almost all buyers start with an initial list of software vendors in mind. Eighty-one percent of those go on to purchase from the list ‘almost always’ or ‘most’ of the time, regretting their purchase decision 62 percent of the time.

Those vendor lists are often pulled together based on vendor social media posts (77 percent) and Google Search (67 percent) – sources that are great indicators of which vendors are promoting their products most effectively, or have the resources to allocate to search engine optimisation, but not always the best indicator of which is the best tool for a businesses’ needs. Indeed, 77 percent of those relying on vendor social media posts for information reported buyer regret with 67 percent of those relying on Google Search reporting the same.

Product comparison websites and consultations with industry experts were the information sources producing the least amount of purchase regret.

“More than anything, buyers need better methods for creating a stronger initial list in order to increase their odds of success,” the survey report says.

“Companies often rely on shortcuts to make their initial software vendor list quickly, so they can get back to other responsibilities. They prioritise vendors they’ve seen in advertisements, or that came up at the top of a Google search.

“It’s here where businesses unknowingly start their path towards a regretful purchase – by having tunnel vision for the familiar or popular, and ignoring better options they don’t know exist.”

Three appeared to be the magic number when it came to initial software shortlists – more then three slowed down the process and led to decision paralysis, while less than three didn’t provide enough options to compare and contrast.

Unsurprisingly, engaging with all three options on their list through demos, free trials and the likes, also helped reduce regret.

It’s not just the initial vendor list that’s at fault, however. The purchasing team assembled, length of time it takes to make the decision and purchase, lack of specific goals, and a failure to understand the total cost of ownership are all factors which can hamper successful buying according to the report.

McCall says many businesses also have a misplaced belief that external vendors wave a magic wand to configure solutions exactly as you want them. “Configuring ERP solutions is part science part art and does not happen without significant input from the client. Buyers need to budget a substantial investment in allocating senior resources to the project to ensure results meet expectations when the system is deployed to the business.

“The other area that is underinvested is a thorough analysis of user reviews. You might need to read through 50-100 verified and relevant reviews before you start to recognise patterns and themes that build confidence or signal warnings. Do the mahi.”.

Buyers who experienced regret say the top changes they’d make on future purchases are ensuring alignment among the stakeholder group about evaluation/selection criteria and clarifying desired goals and outcomes.

“Whether the goal is to increase customer satisfaction by 10 percent or reduce the risk of a cyberattack by 60 percent, having defined, measurable goals with your software purchase can help you determine if your decision was the right one,” the report says.

It urges communication of the goals and use of a feature comparison template to align purchasing teams around the products which are most likely to check all the boxes.

And on that purchasing team – having a mix of non-IT staff and IT staff was a significant contributor to lower purchase regret, with the IT team able to handle technical details, while the non-IT team evaluate features and try products to see if they’re easy to use.

Understanding the total cost of ownership was also key, with ‘bait and switch pricing’ souring decisions.

“Unlike a lot of purchases, the price you usually see for software is not the price you pay,” Capterra says. “While vendors may advertise a certain price on their website, that usually only covers the cost of the actual software license. On top of this price, and usually buried in the terms and conditions, there are add-on fees for things such as setup, data migration, user training and customer support.”

Asking about, and understanding the TCO for a product keeps expectations in line.

Interestingly, companies take five months on average to evaluate software options and make a purchase – but those who did it in three months or less reported less remorse.

“These businesses go in with a plan, methodically go through their search and evaluation process, make a decision and don’t look back.

“If you’re confident a product fits your needs, don’t second-guess yourself or delay everything to loop in other stakeholders. Your odds of panic purchasing a poor-fit product will only go up,” Capterra says.

“From defining goals at the outset to making a confident decision quickly at the tailend, there are many places throughout the software purchase process that can be improved to reduce the purchase regret.”

McCall agrees, but adds that while Capterra tools, Gartner magic quadrants and the like are useful, they are only a starting point.

“The right software is only half of the mix. Human’s do the rest, so selecting vendors that demonstrate industry knowledge, fit in culturally and display a genuine desire to understand what makes your business tick will improve your chances of success.”

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