Tag Archives: products

It’s great to be in the software products business

hard at work on my software businessThose of us who own software product businesses sometimes grumble about what a difficult business it is. Although its indoor work with no heavy lifting, it has it’s frustrations: software piracy, customers who moan about paying a whole $0.99 for thousands of hours of work, buggy third party software, RSI, chargebacks and the catastrophic consequence of accidentally offending the great god Google, to name but a few.

But reading Kitchen Confidential brought home to me just what a hard business it is to run a restaurant. You have to make a major financial outlay to fit out the restaurant and kitchen. You have rent and staff salaries to pay every month, regardless of whether customers come or not. Staff turnover is generally very high in the catering business, so you are continually having to hire new staff. You have to deal with drunken, unreasonable and dishonest customers. Possibly also drunken, unreasonable and dishonest staff, who have ready access to sharp knives and boiling liquids. Theft by staff can be a real problem. You have highly perishable stock. If you don’t order enough, you have to turn people away. If you order too much, you have to throw away the excess or risk poisoning your customers. You have endless deliveries from suppliers, which you have to check to ensure they are the correct amount and quality. You have to keep the restaurant clean. Extremely long hours are standard. Even if you are doing well, you can’t seat more people than the restaurant can physically hold. A restaurant that has to turn people away Fridays and Saturdays might be empty on Monday. And success brings its own problems as you can only increase the scale of the operation by expensive and disruptive  measures such as opening a new restaurant or moving venue. The relentless overheads of staff, rent and stock mean that cash flow is a huge issue. It’s no wonder that restaurants fail so frequently.

Running a software product business is pretty cushy by comparison. You can start your own software product business with just a PC and a generous dollop of time. Nearly all the issues related to manufacturing, suppliers, stock and shipping go away when you are dealing with electrons rather than atoms. If you do make a mistake, you can usually put it right just by making another release. The worst a disgruntled customer is likely to do is post a snarky comment on a forum or send you a nasty email. High margins and low overheads means that cash flow is much less of an issue than for most other businesses. Software businesses also scale much more easily than other businesses. You aren’t tied to a particular location and don’t even need to rent an office building (billion dollar company Automattic has a fully distributed workforce and no company office).

The software business is a great business to be in!



Centurion tankA couple of years ago I got to drive a Centurian tank. 50 tons of clanking, smoke belching, killing machine. I can only imagine how terrifying it must be for an infantry man up against one of these heavily armed and armoured monsters. But, quite unexpectedly, I felt very vulnerable in the tank. My top lip was exactly level with a big spike of metal that formed part of the drivers hatch – if we had stopped suddenly I would probably have lost teeth. I could hardly move without bashing a knee or elbow on something hard. It was so noisy I could barely hear the shouting of the instructor, perched on the front of the tank only a few feet away. And, with my eyes only a few inches above the hatch, the visibility was poor. The tank was also very hard to drive, requiring an odd mix of finesse and brute strength. Just changing gear is quite an accomplishment for the inexperienced. I also got to sit inside some Russian tanks of more recent vintage and their ergonomics were even more nightmarish. Being inside one of these things on a battlefield, full of fuel and ammunition, a prime target for every enemy tank, aircraft and gun, must have been terrifying. It was a lesson that, what appears as invincible strength from the outside might feel very different from the inside.

  • Your competitor has more staff than you? That means that they have got to make more sales to turn a profit and they spend a lot more time in meetings.
  • Your competitor is better funded than you? That means they are spending more of their precious time and energy dealing with investors.
  • Your competitor’s product has more features than yours? Their product is probably more complex to use than yours.
  • Your competitor is using trendier technology than you? That probably also means they have a lot more third party bugs and issues to deal with.
  • Your competitor is based in a trendy location with better access to talent? That probably means they have to pay higher salaries and office rental and are more likely to get their staff poached.

Strength and weakness can be just two sides of the same coin.

I keep a vague eye on competition to my own table planning software. Over time I have built up a list of over 100 other products whose functionality competes directly with mine or overlaps significantly. New competitors appear fairly regularly. I notice that their website might look a bit more “web 2.0” than mine or their price is cheaper and my heart sinks a little. But, so far, it has never made a noticeable impact on my sales and I quickly forget about them. In fact my sales have gone up every year in the 7 years since I first released PerfectTablePlan. I just keep improving the product, marketing and support, day after day, year after year. While many of these competitors have since fallen by the wayside, with products and websites not updated for several years. Some of them are giving away their products free in the hope of making a few pennies from advertising. Some of them never even launched. Those that are still active are targeting rather different niches to my software.

Many companies respond to competition by trying to copy their competitors feature for feature. This is almost certainly a mistake. You will always be at least one step behind them. It is much better to listen to your customers and innovate. It is certainly a lot more interesting and rewarding. It is also much easier to market a product that is different[1].

There are cases where competitors can be a big problem, for example:

  • markets where there is a strong network effect (I wouldn’t want to compete head on with Ebay or Facebook)
  • markets where you might have to compete with the company that owns the platform (for example a Microsoft Office add-on isn’t likely to last long if Microsoft releases a new version of Office incorporating this feature)

So it is probably better to avoid these types of market, unless you are happy to accept that level of risk. But there are vast numbers of markets big enough to support multiple products. There are some 2 billion people with access to the Internet and they all have different requirements. Even a niche within a niche can provide a decent living for a small software business.

Competition can actually help you. The main competition for my table planning software is Excel and Post-It notes, not other table planning software. My competitors are helping to raise awareness of the fact that there is such a thing as software for table planning. Some of the people whose awareness they raise, are going to search for other software solutions and find and buy my software (thanks!).

So next time you find out about a new competitor, don’t panic. It is natural to focus on their strengths and your weaknesses, rather than your strengths and their weaknesses[2]. But they are probably doing the same, and they may be more afraid of you than you are of them.

In truth your biggest fear should be having no competition. If there is a no-one else doing what you are doing then either you are genius who has found an untapped market or the market doesn’t exist. Unfortunately, it is almost certainly the latter.

Further reading:

‘Choose your competition’ by Eric Sink

[1]This is why adverts for commodity products such as instant coffee and soap powders are so consistently awful.

[2] Microsoft should take note before they ruin a product with 90% of the highly lucrative desktop operating system market in their panic to compete with Apple in the tablet market.

Photo by Alistair Joseph.

15 criteria for evaluating software product ideas

Choosing the right product to develop is crucial. Great execution is also very important. But if you develop a product that no-one wants or no-one is prepared to pay for, then you are going to fail, no matter how well you execute it. You can often tweak a product or its marketing to make it more successful based on market feedback (‘pivot’) .  But the less pivoting you have to do, the better. Below I list some of the criteria I think are important for evaluating the potential of new commercial software products.

1. Are you solving a real problem?

Has your customer got a ‘bleeding neck’? Is your software solving a problem compelling enough that someone is going to download it, install it, evaluate it, buy it and then learn to use it, with the accompanying risks of credit card fraud and malware? It is hard to change people’s habits. They are going to keep doing what they are doing now (e.g. pen and paper or Excel) unless you can convince them your software offers them very significant advantages.

2. How much will people pay for this product?

This is a complex question and depends on many factors. You should be able to get a rough idea by looking at your closest potential competitors. But there are some types of software that people don’t expect to pay for, no matter how difficult or expensive it is to develop – for example web browsers and media players. There are some users who can’t pay – for example children and people in some developing countries. And there are some people who won’t pay – for example many Linux users. So good luck selling a media player aimed at teenage Linux users in China.

3. Is the market big enough?

Is the market big enough for you to make a living? How many people are looking for solutions to this sort of problem? This is less of a problem than most people think. Given the huge number of people with Internet access and credit cards it is possible for a small company to make a decent living from a market that appears very narrow. Narrowing your market also allows you to be much more focussed in your marketing.

4. Can you promote it cost effectively?

How are you going to reach customers: Adwords, SEO, partners, magazine ads, direct mail, social media, affiliates, resellers or other methods? Can you do it cost effectively? How much is each sale from Adwords going to cost you assuming a 1% conversion rate? If it costs you $31 in advertising for each sale of a $30 product, you aren’t going to be in business long. But if you can cross-sell it to customers you already have a relationship with, that is a huge plus.

5. How much competition is there?

If there are lots of established competitors, you may have a hard time getting noticed. Personally I wouldn’t want to go into any market where I didn’t have a reasonable shot of getting to the first page on Google for at least some of the important search terms. For example, I think it would be incredibly tough to succeed with yet another Twitter, RSS, todo list or backup application. Conversely, if there are no competitors, that means that there may be no market. Creating a new market is tough, especially for a small company. Ideally you want a market where there are competitors making a decent living, but you think you can do a better job than them, or at least be different to them in some important way.

6. How is your product different?

Many vendors try very hard to reach feature parity with their competitors. But successful marketing means being different to your competitors. How is your product going to be different? What is your positioning? Note that just being cheaper than your competitors is not enough.

7. How high is the barrier to entry?

How long will it take you to create a minimum sellable product? If the barrier to entry is too high, you may never have the time, cashflow and energy to reach v1.0. As a self-funded microISV I wouldn’t want to work on any product where I couldn’t deliver something sellable (a minimum viable product) within 6 months. Conversely if the barrier to entry is too low, then it will be easy for others to copy your idea if it is successful.

8. Can you reach critical mass?

Some types of applications need a certain number of users before they can take off (network effect). For example, a massively multi-player game, dating site or auction site isn’t going to be very interesting until the number of users reaches a certain threshold. Do you have the contacts and financial resources to reach this threshold?

9. Do you have the technical skills and domain knowledge to create this product?

If not, how long will it take to learn them? Different technologies suit different types of problems. Using an inappropriate technology, just because it is one you have experience in, is unlikely to end well.

10. Are you scratching your own itch?

If you can be your own customer, then this can be very helpful in coming up with a good solution. But be wary about assuming that your needs are the same as everyone elses.

11. What is the lifetime of the product?

Is the technology is going to be obsolete or will the market disappear within a couple of years?  Are customers likely to buy upgrades to new versions? The longer you can sell a product for, the more profitable it is likely to be.

12. Is a good domain available?

Can you get a good domain for your product? Domains that contain keywords that people are likely to search on will help with SEO.

13. What are the risk factors?

Every dependency is a risk factor. If the platform your products runs on dies, then your product dies.  If you are writing an add-on for another product, then you can be put out of business pretty much overnight if the core product dies or if the functionality of your add-on is incorporated into the core product. Can you get source code for third party libraries?

14. Is the passion there?

Good software takes a lot of time and effort. Don’t believe the hype about 4 hour work weeks. Is it going to be interesting and fun? Do you have the passion and commitment to still be working on this product in 10 years time?

15. Will it make the world a better place?

Software products can be an enormous force for good in the world, increasing productivity and allowing people to do things they couldn’t do otherwise. You don’t have to be the next Google to be doing something worthwhile. But creating a “me too” clone of an existing software package or a product that encourages anti-social behaviour (e.g. spamming) isn’t going to make the world a better place.

Making a decision

You need to look at all these criteria before you make a decision. For example, a short lifespan or a small market might be compensated for by a high ticket price. If you are evaluating several products, create a simple table with a row for each criteria and a column for each product and compare them side by side.

Did I miss any important criteria?