Posted tagged ‘Economy’

Economic Crisis Makes Open Source Clear Choice

October 20, 2008

I have noticed recently that the pundits are aptly noting the growing importance of open source software. With the economic crisis, everyone is looking to cut costs and they will naturally look toward open source.

A great article in Express Computer relates that “Gartner predicts that by 2010 it will account for 20% of the global software market.” Open source is growing and, while the article outlines a number of reasons, I think Santosh Dsouza, Chief Technologist, Sun Microsystems, sums it up best, “There are a number of features in a product that only a few customers demand. It is not feasible for software vendors to spend time working on such features. In case of open source, the community contribution helps bridge this gap. This not only gives a customer more insight into the product but also helps in increasing the product quality as quality issues can be more proactively addressed and comprehensive testing can be done.” As software vendors have to tighten their belts (especially those that are publicly traded or trying to go public), you can bet they will have to cut back on staff and will not be able to maintain product velocity.

This is exactly why our ethos at Orange Leap is community first. Let’s leverage technology and expertise across nonprofits so you don’t have to rely on us for everything. That way we can focus on the core product (product governance) rather than a bunch of customizations that distract us, which is what takes up significant amounts of most software vendors’ time.

In CIO, JT Smith recently did an excellent analysis of why open source will expand even more rapidly due to the economic crisis. Basically, there is an open source solution that is as good or better than proprietary solutions for almost everything you do.  As Smith ends the piece, “Open source applications don’t have one thing that their closed-source brethren have: licensing fees. Certainly you’ll still have support, deployment, and possibly hosting costs; but you have those costs with closed source software as well. The difference is that you’ll save the money you would have put toward licensing fees and now you have that to put toward implementation and support costs.”

I truly think moving toward open source makes great sense for so many organizations right now because of cost and flexibility. Some have asked me if it makes sense for smaller organizations without much or any IT staff. I say absolutely. Open source can be hosted and on-demand so you have no infrastructure issues (albeit some additional cost, but much less than hiring IT professionals). And even if an organization never reads or writes a line of code, they benefit. They benefit from the community fixing bugs and adding features, and they benefit from a better quality product since we remain focused on the core product. They can even become integral participants in the community through user tips, answering questions and getting top quality fundraising advice. 

But more on the community aspects soon. We are about to make some exciting announcements regarding the future of the Orange Leap Community.

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A Bad Economy Forces Good Decisions

August 20, 2008

Let’s face it: times are tough. This economic slowdown has seen giving slump more dramatically than in the past. The explanation is obvious…just drive by your local gas station, go pick-up groceries or look at the unsold homes in your neighborhood. Donors have less disposable income and are anxious about the future.

So, is there any good news? Actually, I think there is. The economy will recover—economies, like history, are cyclical by nature—and oil prices are already beginning to stabilize and drop from record highs. In addition, in recent days, we’ve seen a remarkable rise in the dollar’s value, making imports and goods, including food, more affordable. These are all positive signs.

Positive, macro-economic signs, however, do not change the amount of money in a donor’s wallet, at least not for a while. The reality is that we will see lower levels of giving at least into 2009 (remember, even when things get better, donors are cautious for a while) and maybe longer. There are no guarantees, and nonprofits doing their budgeting should not bank on year over year revenue increases.

Until things really turnaround, however, there are some creative and tangible things you can do to operate your organization more efficiently and effectively. Start by finding the most obvious place to cut costs without losing effectiveness or capabilities and if you follow the example of today’s most savvy companies and governments, that means focusing on IT costs.

Most IT spending today is incredibly inefficient. It relies on an outdated model of paying huge up front costs and ongoing license fees to lease software over which you have little to no control.

For example, how much do you pay Microsoft for desktop applications and back office applications (like Exchange)? The City of Washington, DC saved millions of dollars each year in licensing fees by switching to free (Google Aps) and Open Source (Open Office) solutions for their desktop applications. All of these are fully compatible with Word, Excel, PowerPoint and other Microsoft standards. How much could you save by doing the same? How many more lives could your nonprofit improve with the funds you’d save and have available for programs and services?

This is a large part of the reason that Orange Leap made its mature and full feature constituent relationship management (CRM) solution available as an open source offering earlier this year. You have all the functionality (and more) of a product like Blackbaud’s Raiser’s Edge®, but your cost of owning and operating the software will be 40-70 percent less. Plus, you don’t have to pay huge up front fees and you are not beholden to us. It’s open source. It is as flexible and customizable as you want it to be.

Hopefully, the silver lining to these difficult economic times is that nonprofits will find ways to creatively cut costs so they can focus more dollars on the people they serve. Software, including but not limited to CRM solutions, is a great place to start.

Do not let a “sunk” cost sink your organization

August 1, 2008

Large up-front license fees for software are a serious issue, and one we need to eradicate. However, one of the biggest things holding organizations back today is not the issue of paying those fees again now or in the future, but the issue of not letting go of the fees they paid in the past…even if it is the recent past.

I have often heard the comment, “Well, we spent a lot of money on that system and, even though it is not meeting our needs and holding us back, we need to wait until we have gotten our money’s worth to make a change.” While the “get your money’s worth” mindset seems to make sense, it is actually a logical and economic fallacy. “Sunk Cost” is one of the most important, but most overlooked, financial principals for nonprofits. It is important for organizations to take a holistic view around all decisions that takes into account all costs and potential revenue, so that they are focusing on total net revenue to achieve their mission. Let me elucidate with a simple example.

Say X organization has invested $50,000 dollars in a piece of proprietary software. That $50,000 includes license fees, deployment costs, staff training and time, etc. However, Soon after launch they discover the software is not meeting their needs. Staff time is twice what was expected and, as a result, their fundraising staff are only able to execute half as many campaigns as expected. In addition, restrictions in the data collection, tracking and segmentation means that certain targeted appeal strategies cannot be executed. But the organization feels like they invested so much in the software, they just have to “live with it” for a while and “make do”.

This sense of being held hostage is not only debilitating, it is a false sense of imprisonment. There are plenty of options for the organization. For example, the organization finds a piece of open source software they test out (for free) and find could solve th majority of their problems. 12 months after buying the current software, they invest $10,000 in data migration, implementation, some customization and staff training and time. Since the software is open source, they were able to tailor an number of modules to their specific business processes and adapt a community built adresss verification integration that significantly reduces duplicates and bad addresses in the system.

Once this new software is live, they find that they have cut staff time in half around standard operations with the software. Let’s say those two staff are paid $40,000 per year each and were each spending 25% of their time with the previous software. That is a staff cost savings of $20,000, netting $10,000 in efficiencies right there.

In addition, the new software capabilities around fundraising and the efficiencies gained have granted the staff time and ability to execute their more sophisticated fundraising strategies, which have yielded an additional $50,000 in the first 6 months!

Therefore, the move away from the previous system, even though it had only recently been acquired, yields an additional $40,000 in total net income to further the organization’s mission. This is why being anchored to a system that is not working, in the false belief that you have to get value out of a sunk cost, only serves to drag down your ability to help those you serve. And, in uncertain economic times, the ability to reduce costs while generating more dollars is needed now more than ever.