I frequently run into potential clients of my software firm who fit this profile:

  • $5M-50M revenue
  • 10-100 employees
  • no IT staff
  • entire business running on top of Microsoft Excel

This is so common in small and medium-sized businesses (SMB’s) that it’s spawned a truism in software start-up circles: if you want to make a lot of money, find a company using Excel for some function it wasn’t meant to solve, then turn it into proper software you can sell for $X/month. There have been countless software companies built on the back of that basic formula, because so many SMB’s (and, shockingly, even large enterprises) use spreadsheets for all kinds of crazy things and could save thousands or millions of dollars by using a purpose-built tool.

The reason for this phenomenon is that a spreadsheet is a widely available tool with general applicability, capable of doing many things reasonably well but few things exceptionally well. As an analogy, you can think of a rock as general tool with myriad uses – driving nails, smashing other rocks, holding a tent flap, killing something. And rocks are everywhere! It’s very easy to pick one up and start using it.

But there are specialist tools for all of those activities that would get the respective job done better – a hammer, a pickaxe, a tent stake, or a sword. Those things aren’t lying around on the ground, of course, so they take a little bit of work to acquire. But when you get one of these specialist tools, you’re happier with the results.

So it is with spreadsheets. You can use them for invoices, P&L statements, inventory tracking, diagnostic reports, and your church bake sale. They work reasonably well for any of those activities up to a certain point. But as you grow, either in data volume or in employee count, the spreadsheets begin to dictate process to your business rather than the other way around. Your efficiency slowly degrades due to the management of the multi-sheet monstrosity you’ve created. It’s hard to share internally, requires hours of manual upkeep, and is a source of constant errors.

Before you know it, you have multiple employees who spend more than 50% of their work days managing spreadsheets.

When I discover SMB’s with this problem, I’m ecstatic, because I know that I’m going to be able to bring massive immediate value to their businesses. Even the simplest solution I can provide has an IRR of something like 10-20% (which balloons if the company expects to grow), because employee time is incredibly expensive relative to software automation.

When I’ve met with a business owner/manager and identified spreadsheets as an area for improvement, the first question I’m asked is, “What are the alternatives to a spreadsheet for business function X?” Good news: no matter what X is, there’s an alternative!

Off-the-shelf software

The first alternative is other pre-built software, and it’s where you should start if you’re trying to find a spreadsheet replacement.

One simple example of this is accounting software. Everything you can do in QuickBooks, FreshBooks, or any other accounting application can also be done in Excel – but the former will do it better. This one is so obvious that nearly every SMB I know starts their business with accounting software.

Maybe less obvious is something like sales prospect tracking. Again, you can manage your lead generation and entire sales pipeline in Excel. But when you’ve hired salesperson #3 or #4, everybody is stepping on everybody else’s toes, and potential deals are slipping through the cracks, it’s time to grow up and buy a proper CRM suite.

There are a hundred other examples. Chances are that if you’re using Excel for something, there’s an off-the-shelf solution that does the job better.

The pros to buying off-the-shelf software:

  • It’s relatively quick to requisition and deploy. Nearly all business software is online or quickly going that way, so this can be as simple as click-click-click. You can be up and running with something like QuickBooks Online or Salesforce within minutes.
  • It’s usually inexpensive. Most software today is value-priced, where the cost starts small and scales as you add users (employees) or something similar. For SMB’s, this can mean costs starting as low as $5/user/month. Totally depends upon the software in question, but regardless, cost will not be a point of hesitation for most SMB’s.

The cons:

  • Your employees will have to be trained. You just bought a new tool that nobody knows how to use, yet it’s replacing a function that’s critical to your business. There will be headaches as you go through the retraining process. You’re a little bit on your own unless you hire a consultant to help.
  • You might have to give up something you want. You probably have some features that you’ve built into your spreadsheet-based process that don’t translate into the off-the-shelf solution. It could be something as simple as a data entry field on each invoice that doesn’t exist in your new invoicing software. When you move away from the generalist tool (spreadsheet) that has grown along with your business for years, this can happen.

That second deficiency of off-the-shelf software (feature gaps) is the primary driver behind the next alternative.

Custom software

Because off-the-shelf software tries to satisfy the demands of so many different types of businesses, it inevitably can’t perfectly match any one business’s needs.

For example, inventory tracking on a manufacturing floor is a common problem, but a specific widget manufacturer might have the need to attach specialized diagnostic information as part of a QA cycle on each new widget. If the off-the-shelf solution doesn’t come with that kind of functionality built-in (and it probably doesn’t), then the business works around the problem by bolting on another system or getting by without it.

“Getting around it” or “getting by without it” is sometimes not an acceptable answer, and that’s where custom software comes in. If you want to do something in a very specific way that caters exactly to your business’s needs, you probably want to hire someone to build your own software.

The pros to building custom software:

  • You get exactly what you want. Most things that you want to do are easily accomplished in custom software. Even esoteric features that no off-the-shelf solution would provide can be part of your solution.
  • Training and migration are smoother. Whomever is building your software can do so in a way that minimizes the retraining headache – making the software look as much as possible like something else that’s familiar, or even personally training key employees in the business. This can make the transition very smooth.

The cons:

  • It takes time to do. It will probably take at least 2-3 months to build, deploy, and transition. A large portion of this time will be spent gathering requirements from the business stakeholders and iterating on the solution until it matches what’s desired. This is mostly a process of discovery on everybody’s part – building something custom that hasn’t existed before doesn’t come easily.
  • It costs more up front. This is unquestionably the primary reason that a SMB will shy away from custom software. Costs are measured in tens of thousands of dollars, which is a large upfront payment to make for a system that will pay back over many years. On the flip side, as I mentioned in the intro to this post, the IRR is nearly always very positive for the business – it just requires education to see the cost savings in terms of employee time.

Anecdotally, I’ve found that companies are happier with custom solutions than they are with off-the-shelf ones. The latter usually promises things that only the former can deliver.

What to do?

If you have a bunch of business processes handled by Excel and suspect that you’re losing time and money as a result, it behooves you to enlist the services of a tech consultant. He or she can walk you through your options and calculate the ROI for each. If the consultant is also a software firm, you’ll frequently get the consulting portion for free as a lead-in to becoming a client.