Monthly Archives: March 2013

Ephemeral

stonemasonMy grandfather worked most of his life as a stonemason. Much of that time was spent restoring the ruin of a Bishop’s palace in Sherborne. His work is still visible long after his death. The work of the stonemasons who built the palace is still visible after more than 8 centuries. How long after you stop programming is any of your work going to last? If it is a desktop app, I doubt anyone will have a working computer with an OS that can run it in 20 years. If it is a web app, it dies the day the hosting bill no longer gets paid. What are you going to show your grandchildren – some screenshots or faded printouts?

Everything is ephemeral over a long enough timescale. In the long run, we are all dead, as John Maynard Keynes famously pointed out. But it is slightly depressing how short the timescale is for software. It lives fast, but it also dies fast. Our work is more like that of an ice sculptor than that of a stonemason. I guess all we can hope for is that the software we spend so much of our life crafting brings us some fulfilment and improves the lives of our customers during its brief lifetime.

The brutal truth about marketing your software product

badwaterWe tend to hear a lot about software industry success stories. But most of us mere mortals have to fail a few times before we learn enough to succeed. In this guest post William Echlin talks about the hard lessons he has learned about creating and selling software products.

Probably, like you, I started developing my own software application a few years back. I had this dream of working for myself and becoming financially independent. The money side was a nice goal to have but ultimately I was looking for the fulfilment of working for myself. Sound familiar? Well, if it does, you may have learnt many of the lessons I’ve learnt. I don’t mind admitting now that I got carried away. I got carried away with building a test management application to the extent that I forget about many of the key things you need in place to build a successful business.

After a few years work I’d created the leading open source test management application (a product called QaTraq that’s still available on Source Forge but a little dormant). It had cost me time, money and effort. I’d achieved some success with building and marketing a free product. Next stop taking it commercial. This is where it gets brutal.

About a year into leaving a full time job I’m taking the last £1,000 out of the joint bank account. I’m making some sales but it’s damn tough. A few months later and I’m in the supermarket £15,000 in debt wondering if my credit card is about to be rejected for the families weekly shop. You read about this sort of thing in biographies on successful entrepreneurs. These guys take it to the limit and then succeed and make millions. Sounds so glamorous. When your wife, 3 year old son and 1 year old daughter depend on that credit card being accepted believe me it’s NOT glamorous.

Building a business has always been about balancing design, development, sales, marketing, support, testing, etc. When you’re a one man band that’s not easy. You try to do everything. You’re bloody brilliant at building the product. The trouble is, once you want to make a living out of it, that “building” is almost the least important bit. After I’d spent 5 years building my product I stumbled upon one very useful piece of advice. It was a little late for me but maybe it’ll help you….

“Learn how to market and sell before you build your product. Learn these crafts by picking a product that’s already been built and act as a reseller”.

That’s worth reading again (it’s counter intuitive). What’s being said here is that if you can’t market and sell a product (ANY product) then the odds of succeeding with your own product are slim. If you can’t “market and sell” what on earth is the point in wasting all that time, effort and money building your own product? If you’re never going to be able to market it, and sell it, why build it?

So find a product in a slightly different sector and sign up as a reseller. Save yourself the time and effort of building a product and practice marketing and sales with someone else’s product first. Create a web site, develop an ad words campaign and start promoting with social media. Sell the product! If you can’t get the hang of this why bother building your own? If you can get the hang of building your own marketing machine it won’t be wasted effort. If you’re clever and pick the right product / sector you just need to switch the product on your site a year or so down the road. Once you’ve built the marketing and sales engine switch it to sell the product you’re building.

I’m not saying that this is the only way to go about it. I’m just saying that if you don’t have the determination to learn, understand and be successful with marketing and sales early on, then it’s unlikely you’ll succeed with your own product. So why waste time building it. It’s a tough lesson to learn. One I learnt the hard way.

And the specific lessons I learnt the hard way? Well I’d do these things first if I was ever to do this again:

1. Create at least one lead generation channel as an affiliate for another product. That lead generation channel will probably be a web site and as part of that you’ll need to master things like:

  • Google Adwords
  • Social media
  • Email marketing
  • Blogging
  • Link building

All these things take a lot of time. Do you have the determination to learn and execute on all of this?

2. Spend some time in a sales related role. Initially I was working in a full time job whilst building my own product in my spare time. The best thing I did was offer to help the sales team with product demos. I learnt lots from working closely with sales people (I didn’t like them very much, but that’s a different matter) and clients. If you can’t do product demos to clients, or you can’t talk to clients confidently then you don’t stand a chance of selling anything. People buy from people and a product demo is THE place to show case YOU (and the product)

3. Spend time learning about re-marketing. A lot of money goes into getting that initial lead. Don’t waste it! Understand Google’s re-marketing campaigns. These allow you to follow the people that came to your site and continue serving them banner ads on other sites. Understand email marketing once you’ve captured an email address. Yes I hate most of this when I’m on the receiving end. The reality is that it works though. That’s why companies do it (and why Google make so much money). I’ll tell you now that your business won’t survive if you don’t master some of these techniques. And if your business doesn’t survive then every ounce of effort you’ve put into building that application is wasted!

4. Spend time learning about cross selling. A significant amount of revenue can come from cross selling other products. When was the last time you went to a restaurant and they didn’t try to sell you a bread roll? When was the last time you flew somewhere and they didn’t try to sell you priority boarding? For you this might be in the guise of selling your leads to other companies that have complementary products. It might be providing different editions of your application. There are many other ways to add additional revenue streams to your prime product sale. These streams are absolutely critical to the success of your business.

5. Don’t try to become a sales person. You don’t have to be a sales man/woman to sell. Some of the best sales people I’ve worked with are those that just go out of their way to HELP the customer. They understand their niche inside out and have the gift, not to sell, but to HELP. People that are looking to buy something want help. They want an itch scratched or a problem solved. If you can help them with a solution then you’re most of the way towards making the sale. Forget all this rubbish about psychology and techniques to influence people. The best thing you can do is enter the mind set of helping! Go out of your way to help.

I don’t have all of this right by any stretch. I know one thing though. Products don’t sell themselves. And if you’re not prepared to start learning about sales and marketing you won’t sell your product.

It was all a bit ironic for me though. I spent years building my own test management product to help software testers. It even started out as the leading open source solution in it’s market for many years. I mastered SEO and created a great lead generation process (the oxygen of any business). I created a version which I put a price on and sold to companies. I even sold to a number of significant companies. But I just couldn’t do all of it. I couldn’t balance the design, development, testing, marketing, sales, support, etc. It’s brutally painful when this dawns on you.

In the end what I’d really mastered was lead generation. I ended up with a web site that attracted my target audience but failed to sell much. When you realise that, you realise that it’s the product. Nothing wrong with the marketing and sales. It’s the product. There were better products out there. Kind of tough to swallow but as soon as I did, I moved on. These leads, or rather people (because leads are actually real people), were looking for help. I just needed to provide them with the right product and services. So I started reselling other products and providing consultancy around those products on my test management website.

In the end I had one of the toughest bits right. If you get the lead generation right you’ve built a marketing foundation that you can build any type of business around. For me I just wished I figured the marketing piece out before I’d built my product. Now I just work on my marketing. Oh, and I help companies with their software testing and test management. For me at least, it’s much easier this way.

William Echlin has spent 20 years in testing, working on everything from air traffic control systems to anti-virus engines. He had a bad experience in his early childhood trying to effectively manage test cases with vi (he’s still a huge fan of vi but recognises that text files make a lousy repository for test cases). In an attempt to deal with these childhood demons he became a consultant on all things related to test management.

The 1% fallacy

Here is how to make a fortune writing software:

  1. Pick a large and established software market e.g. back-up, anti-virus or customer relationship management (CRM) software.
  2. Write a new product for that market.
  3. Get 1% of the market.
  4. Retire to your own island.

These markets are massive. The CRM market alone is estimated at around $18 billion per year. 1% of that is $180 million. How hard can it be to get one measly percent of a market? Ka-ching!

Except of course, it doesn’t work, unless you have massive amounts of funding or a brilliant idea that can completely disrupt the existing the market. Even then, you probably still need a fair amount of luck.

The competition in a large market, such as CRM software, is very tough. The top  companies have huge budgets and armies of developers and marketing people. Your chance of getting on the first few pages of Google results for a search term such as “CRM software” are as near to zero as makes no difference. And there are all sorts of network effects working in the favour of the established companies. For example, the biggest vendors will have an ecosystem of consultants, resellers, training courses, books, user forums and third party products that no new product can hope to match.

Then there are power laws which mean that you have to rank surprisingly high to get 1% of a market. The most famous power law is the Pareto 80/20 distribution. This is named after Italian economist Vilfredo Pareto, who observed that 80% of the land in Italy was owned by 20% of the population. Pareto distributions appear in all sorts of places. I have looked at various data for my own product and I have found the 80/20 distribution appears in my own data.  For example:

  • 77% of searches result from 20% of search phrases
  • 75% of sales come from 20% of email domains

If I could be bothered to crunch the numbers I expect I would find that  approximately 80% of support emails come from 20% of my customers and 80% of hits are on 20% of web pages. There is evidence that companies sizes are also distributed according to a Pareto type power law. Assuming a Pareto-type distribution, we can calculate what percentage of the market each company has according to their ranking using Zipf’s law :

Number of companies 1% rank
100 19
1,000 13
10,000 10
100,000 8

This table shows the rank you need in a market of given size to get 1% of the revenue of that market. For example, if there are a 1,000 companies in your market, you need to be ranked 13th to get 1% of the total sales.

How many companies are selling CRM solutions? I have no idea. Even in my little niche of seating plan software I have at least 10 direct competitors and well over 100 competitors with substantially overlapping functionality. I dread to think how many CRM products there are. At least a thousand I would have thought. What are your chances of coming from nothing to being the 13th biggest selling CRM solution? Also the conversion rates of customer visits to sales are typically around 1%. That means if you want to sell to 1% of a market and your main sales channel is your website, you need to get pretty much everyone in that market to at least visit your website. Good luck with that. Your best chance of getting a chunk of a big market is to create that market and grow with the market. But creating new markets is notoriously expensive and risky.

If you are a small software company, you have got a much better chance of getting a decent sized chunk of a small market, than 1% of a huge market. As a general rule of thumb, I would say pick a market for which you have got a decent chance of getting in the top ten Google results for important search terms (power laws again). You can even do this by going after a small segment of a big market. e.g. a CRM solution aimed at companies that trade on EBay. Or perhaps a CRM solution aimed at companies that trade on EBay in the Spanish-speaking market. You can always broaden your focus if you are successful in a small market.

Whatever you do, don’t stand in front of investors and pitch them the 1% fallacy. It makes you look an idiot. I should know, because I’ve done it.