5 more things not to do when you start a business

My friend Mike Trup’s posting on his experience about starting up his own software distribution business.  He starts with a nice variation on the classic advice (Ansoff) not to go for a new product in a new market.  Mike’s twist replaces the market with the channel.  I’m going to be posting more about screwing with your channels soon.

1) Do not try and introduce a completely new product or service and a completely new way of buying it all in one go. I promise you, you will be up against enough of a problem trying to get people to understand and accept one of these concepts.

The rest is here

Read more!

So you thought marketing is fun - lessons from software companies

An important part of any product based startup is to consider the marketing channels by which the product will be delivered to market.  It’s a simple point but capable of extreme pain for a startup that get’s it wrong and painful enough even if you get it right! 

The following goes through the detail of some of the issues that will keep you up at night for a software business.  Some of the points are equally valid across other types of product.

1 Upsetting your distributor

Imagine you produce some form of software and you’ve established a distributor arrangement.  They have sales people who are out talking up your product and their cut is say 30% of the retail price.  Now you might also want to sell the software online.  It’s not unreasonable and relying solely on a distributor is something I’ve personally come to regret when I’ve not had other parallel channels in place.  Okay so it’s a good idea – but here’s how you can screw it up.

• You need to consider the pricing strategy compared to your distributor.  If you are going to undercut them then how happy do you think they are going to be?
• Your website may be the main ‘landing point’ for people looking for the product and so if you have a huge banner saying BUY HERE that points to your online store then again, your distributor is going to be furious when they spot the little link to their site.  You’re essentially taking all the leads that result from your driving people to your website – distributors normally consider that those leads should belong to them!

2 Protecting your product

How is the product protected?  You can’t download a version of the software that has dongle protection (an electronic encryption key that fits into a USB port for example).  So your customer has to download a version that has software protection.  You can’t let them download a version without copy protection because you will end up with a huge market share among people who paid you nothing to get their illegal copy. 

Untrue you might think – well 3D Studio Max is a great bit of animation software with loads of loyal users.  Sadly 30 – 60% of those users are using ‘hacked’ versions of the software.  I love the company to bits though because they write this loss off as ‘training new users who will buy a legal copy when they get some money or join a company.’  When it’s your turn for the bear to eat you it helps to have a sense of humour.

So you have an ability to deliver the software but how does a client ‘activate’ it?  Again, the correct answer is using online and automated methods – i.e. email/web.  I say it a lot but you have to get people out of the process as you scale up a business.  The alternative is someone ringing you up at 3 in the morning for the unlock code.  Remember the web is global and your customers may well be too so you’ve got to deal with sellling 24/7/365. 

I know a few companies that get back to you with a code via email when their offices open but if I’m buying something I want it now, I want it yesterday and I certainly don’t want it when the company gets around to it.  My advice – don’t even think of any solution that requires any human intervention delaying a customer from using the software. 

3  How do you encourage people to try the prooduct?

I’m not going to touch on open-source and freeware/shareware models here but think more about the typical software sales model.  If I want people to buy my software then I will have better results if they try it (unless it’s a total nightmare to use in which case your career probably lies elsewhere anyway).  You’ve basically got two choices here:

• Time limited version with full functionality.  Here people can try the software with full functionality for a limited time or a limited number of ‘openings’ of the software.  You need to pay attention here as I once set a 15 day trial period for a piece of software and it was really not enough time for people to get their head around the full functionality of that complex piece of software. 
• Limited functionality version.  This type of software build does not include all the functionality that you require.  I use Groove and there is now a 3 month trial version of that software.  Previously they had a version allowing only a limited number of workspaces (shared areas among users) and limited upload speed.  I think they changed to a time limited model because the ‘limited’ version was frankly perfectly usable for many users.  The new time limit forces people to buy the product.

Trial versions work because you get used to the product and potentially create information that only the software can handle.  You can get a time limited trial version of Mindmanager for mind mapping and I am writing this using BlogJet.  In both cases I produced and saved information using the trial applications that I then really didn’t want to lose later on.  I was convinced by the products as they got to the end of their trial periods and so bought them both.

4  Web delivery of software is a global market

Did I just say global?  That means a different version of the product to cope with different languages – not to mention manuals, demos, FAQ’s, video walkthroughs etc.  Not just that but even the license agreements will change from country to country.  The US version will not be suitable for the UK or for other English speaking countries.  That means you have to cope with localising the product for every market.  The dumb way is to have different builds for each country.  It’s bad enough trying to keep a development programme under control with the usual problems of source code control within the software team.  Adding in 20 build versions of each release to cope with different country versions will create more chaos.

The solution (within country areas sharing a common language), is to incorporate the license agreements into one build and have the user select where they are when they do the install.  Remember we are talking about startups here – Microsoft can justify doing things differently.

5  So what’s the price in a global market 

Software in the US often has the same price in dollars as the UK price is in pounds.  So what’s to stop an enterprising person in the UK (or any other higher cost country) buying from say the US?  Your distributors are going to be ballistic at this point as well by the way – if you can’t prevent people buying from the US then they aren’t going to get many sales themselves.

So do you apply a single price across the world?  If so, which one – the higher UK one that will hurt sales in the US or the US one that will leave money on the table in other countries?  Actually you do neither, you setup your buying process (or more likely work with an experienced online sales processing company) that prevents people from buying out of territories you define.  You can do this, for example, by using the credit card billing address to check it is consistent with the geographic ‘shop’ that the person has entered.  In this way you can set and attain different prices for the product in different markets.

Copyright Richard A D Jones 2005

Read more!

Dead project walking -why you have to kill projects to be successful

Companies can be outstanding at generating new ideas – I mean really world-class and yet they struggle.  The simple reason is they don’t have the resources to exploit them.  I’m not talking about the resources not existing in the company, I am talking about them just not being available.

If the resources are being used for something useful then is that okay?  Well only if it is more valuable to the business than the project it is delaying.  If not, then your resource prioritisation across the portfolio of projects better be good.

However, the more frustrating problem for companies relates to when their resources are ‘lost’ to the business either still working on bad projects or doing ‘after sales’ on previous projects. 

The pre-requisite for these problems is that the business does not understand what people are doing.  I know that seems ridiculous but I’ve seen it enough to realise that resource management can be truly appalling without visibly crippling an organisation – it just runs as if through treacle and delivers far less than it could.

The second factor is that there is no mechanism to actually ‘kill’ projects.  Surprised?  Again, there are companies that start projects and assume that if something was started it must be a good idea and therefore should be completed.  Think about it, the company starts several projects in a similar area but success of the first project to complete renders the other projects superfluous:

• as the problem has been resolved
• the technical performance target has been achieved
• the solution created by the successful project is not compatible with the other projects

Now what I’m saying is that if you don’t actually have an ongoing review process that can kill or put projects on hold, then you will struggle to start new projects.

The review process should therefore kill or hold projects if:

• the project cannot meet a milestone (a milestone being a project specific state of achievement)
• the project fails a gate review (a pre-defined step in the process that new ideas/concepts etc. have to pass through)

and the important addition is…

• the project no longer makes sense with respect to other projects that have completed or are in progress and other projects that are awaiting approval

 

Read more!

Some rules of investing in technology companies

I'll do a version of the classic rules of investment and startups some other time but here are a few you don't find in books.

• If there's money on the table - take it!
• You’ll be wrong sometimes but hanging on for a better deal later on seems to go wrong way too often.
• If it feels wrong - it is.
• Don't get seduced by spreadsheets, sometimes the best judge is going to be gut instinct.
• If the team say any of the following you are either going to have to work hard to help them or should leave by any convenient exit (including diving head first through a window if necessary)
• We have no competition
• We’re using the money to pay ourselves salaries
• We know that <insert huge company name here> failed with this product but this’ll be different <insert lame justification here>
• If you think this during the meeting then you’re probably in trouble
• I know more about this than they do
• I can think of 10 companies that have tried this area and they're all dead
• If the team falls out in your first meeting then they’re probably not getting along in the background. I’ve not seen blows (yet) but I’ve seen some major hissy fits. Seriously if the team can’t control itself in ‘public’ then I’m going to imagine the worst in private

These are just ideas – please apply your brain to whether you apply them as you know few rules are valid in every case. Except not arguing with a grizzly, I think that one is pretty good always.

Copyright Richard A D Jones 2005

Read more!

Technology startup funding tips - 'go faster' money

Money invested in a company is there to make something happen.  I normally refer to it as ‘go faster’ money – as the most normal use is to fund the business accelerating towards it’s goals using the extra funding as fuel. 

In comparison, the following are not seen as reasonable uses of their money by investors:

• Giving yourself a great salary
• Taking expensive office space
• Feeling better because you’ve got some ‘breathing space’ money in the bank
• Acquiring a nice company car
• Funding extravagant trips to conferences on tropical islands
• Fancy lunches
• Upgrading office computers

Early stage investors want to see that you are working hard with their money and doing things that will make them (and you incidentally) wealthy.  Every pound/dollar/euro should, in their view, be sweated harder than a fat guy in a sauna. 

So if you want an investor to give you funding then provide them with the details of the ‘as is’ business case and the relevant changes that will be made to the business with the new money.

For example, HP studies (and some real classic thinking) showed that a product delivered on time will make substantially more money back than a product delivered six months late.  Time really is money in that case.

What is it in the business in question?

• A bigger sales team
• A new territory opened early
• A new platform
• Incentives
• More developers
• A license agreement for technology

Whatever it is, the investment case should indicate the clear financial benefit of the altered plan.

 Copyright Richard A D Jones 2005

Read more!