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Know Thyself
A man’s got to know his limitations.
A successful technology company has to steer a course between the rock of good enough and the hard place of anything worth doing is worth doing well.
Good enough is by definition, good enough. It gets the job done. Unfortunately, it doesn’t pack any wow. And you need some wow to build the word of mouth that wins you acceptance on main street.
Doing well provides lots of opportunity for wow. But it can take too long to bring your product to market. Time that your competitors, who have deftly balanced good enough against doing well, will use to take your market away from you.
I have a serious case of perfectionism. So advising me that something is good enough is invariably the right thing to do. Because good enough to me is pretty darn good to most others. And there will be a generous helping of doing well.
But if you’re the type who stops when things are good enough, then you probably need a good strong kick to take things to the next level. Because your idea of good enough is apt to be another’s idea of not quite. And you’re probably missing that little something that makes a product special.
Product Manager
SourceGear is looking for a Product Manager. Eric suggests that an experienced developer might be interested if:
You love to develop software, but you want to consider a broader range of opportunities. Maybe you’re looking up the corporate ladder and noticing that all the rungs above you require some business savvy. Maybe you want to be an entrepreneur.
Since my geographic handicap (CT not IL) takes me out of the running, let me add my 2 cents.
You love writing software because it is one of the ultimate expressions of creativity. You start with an idea, you shape it into a usable form and you bring it to life. You’ve been working your way up to higher levels of abstraction for most of your career. Each step up the abstraction tree increased your leverage and let you create something bigger.
Product Manager is the next step. Your vision will determine what problems your product will address and how users should address them. You’ll miss writing code and you’ll be frustrated with the fickle variability of the market. But you will forget all that as your vision to life with each release.
Risk and Reward
The greater your risk, the greater your reward. If you ever find yourself assuming greater risk without a corresponding increase in potential reward, then it’s time to re-evaluate what you’re doing.
It is never easy to start a new business. But there is a significant difference between trying to replicate an existing business and trying to create a new market.
Suppose you want to start a new restaurant. You could open a new McDonald’s franchise. You could open a diner serving standard food. Or you could open a new place serving cuisine unfamiliar to the local population.
The McDonald’s is the lowest risk option. In addition, it will likely take the greatest up-front investment. Starting a new diner will be a higher risk, but it will take a much smaller up-front investment. And being the first restaurant with a new cuisine is the highest risk.
Erik Sink advises that you pick your business so that you can compete against the big and dumb. And that is great advice to optimize your chance for success. But because it is an established market, it has the side effect of limiting your upside as well. You can still become comfortable and successful. But you’re not going to be sinfully rich and famous.
If you want a chance to be seriously rich, then you don’t have the luxury of mitigating your risk. You need to go for broke and attempt to build a new market. You don’t get on the cover of Time for competing with the big and dumb.
Personally, I’d be happy with comfortable and successful. But a VC won’t even listen to a business case that makes the founders comfortable and successful.
Startup v. New Business
Conflicting positions aren’t always in conflict. Consider Paul Graham and Mike Taber.
In The 18 mistakes that kill startups, Paul Graham states:
Have you ever noticed how few successful startups were founded by just one person? Even companies you think of as having one founder, like Oracle, usually turn out to have more.
And in The single founder myth, Mike Taber asserts:
for Paul to say “Starting a startup is too hard for one person.” is incorrect and misleading. I’m doing it now. ... Having been in the situation before, I’d prefer to have no partner and have to do all of the work than have a partner who isn’t pulling his weight.
Personally, I just wonder if they aren’t using different definitions of startup. I suspect that Paul Graham thinks of startups as companies that either create new markets or revolutionalize existing markets. As do I. And I suspect that Mike Taber takes a more literal definition of the startup as a new company.
You may disagree, but I find it difficult to see a company as a startup when it simply replicates an existing business. Other than the product, what is the difference between starting a computer game company and starting a restaurant? And why would you consider only one a startup.
Value Pricing
Quality software is hard to write and easy to copy. That combination doesn’t seem to sit well with some people. They focus on the low recurring costs and conclude that the software is overpriced. I’ve even known people in the software industry to be similarly deluded from time to time.
Value Pricing says that customer cost should be proportional to customer value. A rational customer should be willing to pay X in order to receive a value greater than X. Microsoft Office Professional Edition 2003 is $421.99 at Amazon. If it saves you more than $421.99 in document preparation time or document exchange aggravation, then it is a prudent purchase.
The pricing problem lies in determining how much value a customer actually accrues from any given software package. If the pricing model is too simple, then you will be undercharging customers. And if it gets too complex; then no one will understand it and many will think that you’re trying to somehow trick them.
The conventional pricing solution is to license per user. It is easy to understand. And it matches what is usually the first order value effect – value proportional to the number of people using it.
If that isn’t good enough, then the next step is to introduce different classes of users. Power users get more value than normal users who get more value than occasional users. This handles the primary objection to user pricing – I’m not going to pay X for someone who uses the software twice a month.
Sometimes you cannot differentiate users by capability. In this case, you license by some alternate measure. For example, it is common for databases to be licensed by processor. Or you might license web site related software by the site, with pricing tiers based upon the size of the site.
Bear in mind that value pricing is just a start. It defines the upper bound of what you can charge. Your final pricing model should also reflect competitive factors and revenue optimization.
The Genie is out of the Bottle
Just for the record:
- I believe that if PayPerPost is successful, then the blogosphere will be diminished.
- I believe that PayPerPost and its investors should be ashamed of themselves.
- And unfortunately, I believe that the Genie is out of the Bottle – that there is money to be made and someone is going to do it.
The End of Innocence
I often think that the most durable legacy of the dot-com years is the belief that an idea, a web site, and a host of eyeballs can make you rich. I am constantly amazed by the ways people actually think they can make money – and how much money they actually make.
The downside of all this inventiveness is that any idea can and will be commercialized. Case in point, PayPerPost. Peter Wright would have us believe that [PayPerPost is] a marketplace – we put advertisers in touch with bloggers. And that their hands are clean – any deception in the process lies in the hands of the individual bloggers.
Jason Calcanis love[s] the transparency, authenticity, honesty, and passion found on blogs … [and feels] the need to defend it from the forces of evil, a.k.a. PayPerPost.
I’d like to feel some outrage. But I just can’t muster any up. As much as I hate to say it, it just seems like the next step in the commercialization of weblogs.
- Take the First Step is barely commercial, it only advocates the brand of me.
- Smalltalk Tidbits, Industry Rants is somewhat commercial, it advocates James Robertson with a strong splash of Cincom Smalltalk.
- Engadget HD is primarily commercial. The authors may be writing about a topic they love, but the site only exists to make money.
- PayPerPost is all about commerce. It acknowledges the success of Weblogs, Inc. and
findsattempts a business model with more leverage.
PayPerPost may create an environment in which weblog malfeasance can flourish. But I’m a wee bit sceptical that there are enough unethical and successful bloggers for it to be a real issue.
9 October: The Genie is out of the Bottle