2004-07-22 16:02:06

The Business of Software

The following articles originally appeared on the MSDN website.  From October 2003 to April 2005, I wrote a column there called "The Business of Software".  Thanks to Chris Sells for giving me the opportunity to write for MSDN, and to Maurine Bryan for doing a great job with the editing.

It is common to see software companies starting out with two founders, a geek and an MBA. Do you really need the MBA?

Quibble over the details if you like, but don't avoid the main point of this article: You cannot expect your customers to trust you if you are unwilling to trust them. You might not like my suggestions. That's okay. But you still have to figure out how this principle applies to your situation.

You are a geek. You think about technologies first. You see a cool new platform and try to think of a way to use it. You discover the Opacity property in Windows Forms and you start trying to think of ways to apply it. If you are not already using the .NET Framework, you are frustrated, because everybody else is talking about how cool it is.

The best decision I have made here was to keep my risk low. I only invested about a month of my free time in the original development. I only spent about seven hundred bucks in cash. I started small and I kept my day job. Because of all these conservative choices, my micro-ISV is still alive even though my total revenue wouldn't pay for a set of the new Star Wars DVDs.

As far as I can tell, all of these guys are making a nice living for themselves by selling software products in a company with (essentially) one person. Many of us would not find it intuitive to aspire to be a single-person software company. Still, companies like these are fascinating to me. Some founders of micro-ISVs are making big bucks, even as they maintain a lifestyle that allows them to lead a very balanced life.

Product pricing is hard. There is no magic formula that will determine the best price for your product. I can't provide any easy answers, but I can give you some things to think about as you make your pricing decisions. In the end, you will just have to make a decision using your own judgment. There will be times you will wonder if you made the right decision. You may never know for sure.

In the end, every hiring decision will be made with your own judgment, and there are no guarantees. However, giving consideration to these issues can help raise the probability of making a hiring decision that you will not later regret.

Trade shows are my favorite of the basic "marcomm" tools because they are so interactive. Advertising and PR are primarily one-way communication, from you to the customer, without much chance for information to flow the other way. Other marcomm tools certainly have their place, but there is nothing like a trade show.

Have I not described exactly how you want to be treated when you are the customer?  If so, then shouldn't you be treating your customers the same way?  Why not?

Any sales guy who is offended by all the vicious jokes in this article is probably not competent. A sales guy simply must have a thick skin. If he can't handle my caricature, how will he cope when a customer tells him "no"? Even the best sales guy is going to hear "no" more often than "yes". If he can't accept all that rejection without getting discouraged, he's probably in the wrong job.

I asked the business folks to leave the room because the solution to this problem begins with us, the geeks. We are the ones who understand the technology side. The reality is that these technology choices cannot be made without our help. Furthermore, we can probably learn a thing or two about business a lot faster than the business guys can learn how to find a memory leak or dereference a pointer. Let's agree not to get uppity about this. The goal here is to learn how to bring our technology expertise into platform decisions as effectively as we can.

The crazy thing is that you have to do it all. If you don't do it, nobody else will. This takes a lot of versatility, and it explains why entrepreneurs are usually generalists, not specialists. We are the type of people who tend to be just a little bit good at everything, rather than very good at just one thing.

"Would you like me to give you a formula for success? It's quite simple, really. Double your rate of failure. You are thinking of failure as the enemy of success. But it isn't as all. You can be discouraged by failure — or you can learn from it. So go ahead and make mistakes. Make all you can. Because, remember that's where you will find success."
-- Thomas J. Watson, Sr.

I'll begin with a short summary of what accounting is all about. Then I'll cover the concept of profit margins. Finally, I'll talk about outside funding sources and the perils of building a company with money from other people.

Let's face it -- small software companies just aren't cool. The press does not typically write stories about small software companies. People like to read about high flying IPOs and the overnight creation of paper billionaires. People want to know what John Doerr's latest thing is. People want to know when the next bubble will arrive. Articles on this kind of glamour are the content that sells publications, so that's what the press writes about.