We recently watched a good interview from the Harvard Business School lecture series with Professor John Kotter, who discussed some of the ideas in his book "Buy In: saving your good idea from getting shot down". We thought we would share with you his simple, clear advice which will be of great use to small business owners and start-ups. It might be especially helpful for those renegade-type entrepreneurs who may have trouble getting people to believe that their ideas have value.
Below are Kotter's five ways of getting buy-in and our reflections on those ideas:
Draw the Gunfire!
Have a big meeting about your idea, invite everyone in. Because people are so busy, perhaps a lot of the reason they don't buy in to your idea is because it is just a blip on their radar. By holding a big meeting, you will "draw the gunfire". People will attack your idea. That's good because people notice gunfire-"once you've got their attention, then you have the possibility of winning over their minds and hearts". We interpreted this strategy as similar to the philosophy that "there's no such thing as bad publicity".
Keep it Simple!
"Avoid Vietnam." Don't debate the details. If you spend 15 minutes debating the details of your idea, people will tune out and stop thinking about the idea. There are simple responses to most types of attacks on an idea. Unfortunately, Professor Kotter didn't get into those responses in the interview, so perhaps we will need to peruse the book for those.
Be the Statesman
Treat people with respect, in your meeting and "on paper". Don't beat them into submission, especially if you are feeling angry or defensive-"mistake". Be the statesman. The bullies will try to beat up on your idea, let them. Let them come off looking bad, which helps you get buy-in from others. Be respectful of nay-sayers, you never know who may simply be a sceptic. If someone is simply playing devil's advocate, it wouldn't make much sense to debase them and lose their support for that reason. Treating everyone with respect draws the audience toward you.
Keep a Broad View of the Audience
Pay attention to the masses. If there is one person who is attacking your idea more viciously than others, do not focus all of your attention refuting that person's arguments. You can just imagine how this would give validity to their stance. You are there to convince everyone, and you will likely not change that one detractor's mind anyhow. Give everyone attention.
Be Well Prepared
Think carefully about your plan, how it would be used, and what some of the possible arguments against it are. Focusing on the details of your plan reduces anxiety. If you have thought of things down to the nitty-gritty, people will be less easily able to poke holes in your ideas, and you will come off looking more respectable and intelligent! And last but not least-and this last piece of advice might be really crucial to some of the more intelligent entrepreneurs out there-don't put people to sleep by talking for too long. If you do this, you're "dead" as Kotter puts it.
In the wealth building instructional book, "Eight Steps to Seven Figures," Chuck Carlson argues that to get rich, you should invest a lot of money. You can't invest if you spend, so to help his readers save more money, he presents Carlson's Rule:
Stuff begets stuff, begets more stuff
The idea is simple. When you buy stuff, you have to buy more stuff to support it. TV's require surround sound, DVD players, NetFlix and cable subscriptions. Cell phones require bling, ring tones, protectors, data plans, apps... the list is endless. Carlson argues that you'll save a lot of money on that endless string of supporting items if you can avoid buying the initial item. In that case, you have much more money to invest and get rich.
Features beget more features
The same idea can be applied to your startup's products. Features beget features, beget more features. Think about it in terms of Minimum Viable Product. If you want to ship your product, you need to concentrate on the minimum number of features someone will pay for. Once you start adding features, then you can quickly get into a downward spiral.
As an example, recently Qrimp added support for editing grids of data. This feature makes all apps built on the Qrimp Platform much easier to use, but it also opens up a feature can of worms. What if the customer wants to customize the dialog? What about validation for input? Error messages? An endless slew of questions arises because we put this one additional feature into the platform.
It's psychological. Your customers may not know what they want. They don't even know what to ask for. The more features you add to your product, the more their mind gets curious about wanting more. "What if it did this? What if it did that?" These are questions your customers ask because your product does something already. The more it does, the more users are going to want it to do.
Features beget more work everywhere else too
Additionally, once you've implemented the feature, you have to test it. You have to deploy it. You have to document it and handle support requests. You have to build a robust user interface on top of it and integrate it into the site.
It's much simpler to simply say no to new features. Don't say no to all new features, just be sure to evaluate which features to include based on the full string of features that feature will beget.
In his rule, Carlson was helping people save more money to invest into their futures. With my rule, I want to help you save more time to work on your business.
Gerber uses the example of a baker who opens a bakery. She's spending so much time baking pastries, pies, and cakes, that she neglects her business, can't hire the right people, or open another shop. If she's going to build wealth, she has to focus on the business.
As a startup developer, you have to focus on your business too. It's not all writing code. Avoid feature creep and you'll have more time to build your venture!
When I started building startups in college back before the year 2000, building websites was a different ball game. It took millions of dollars in funding to acquire hardware, bandwidth, programmers, designers, graphics talent, marketing, software, and office space. Once you got all that, you had to keep the lights on and your people fed, almost 24 hours a day. As a consultant to these startups, I saw the pattern repeat over and over.
I remember one startup in particular called FirstLook. What a great group of people and talent there. It was an Idealab startup way ahead of its time. Firstlook, the domain still exists, but what is there now is not at all what this great company was doing then. Video streaming, previews, social networking, user generated content. If there had been money to keep the site running, I wonder where it would be now. Not long after I left Firstlook for another project, a scathing article was written about Bill Gross, the man behind Idealab, asking Why is he still smiling after burning through $800 Million in 8 months.
That's just not the way it happens anymore. Imagine what you could do today with $800 Million. Today, you could get 1,000 startups for that much money. Maybe 2,000. Maybe more.
Really, what is a startup? It's a couple of programmers, some cloud computing, marketing, and then some people to keep out the riff raff.
In 2001, starting an internet company cost a lot more money that it does today. It took dedicated staff for infrastructure, databases, and performance optimization. Today, you can get all that built into the platform on which you develop. Scaling is as automatic. Lots of lessons have been learned and incorporated into the infrastructure. Things that were very difficult then, we don't even think about today.
How will venture capital change?
The first way is that VC investors who want to plop down $5 Million or $15 Million on a venture are going to be struggling really hard to find someone who needs that much money to launch their business. It just doesn't take that much money. The money will either move away from software and into more infrastructure heavy ventures like wind farms, mass transportation, and the like...
Or even better, venture capital will stop investing in "ideas". They'll start investing in teams of people who have lots of ideas and the ability to implement those ideas very quickly. The problem with many VC firms is that they simply do not have the software to handle that kind of scale. The irony is that they are spending all their investors' money on software startups without even recognizing that they need software themselves to manage the investments. That's why we get multiple cold calls from the same VC firms "research analysts" to introduce themselves after we've already met.
For the most part, a great idea doesn't need 15 people dedicated to it to see it succeed. Thousands of ideas with 15 people dedicated to them fail every year and the risk/reward ratio is dropping like a rock. But that's the way it had to be. VC would pour tens of millions into ideas that were continually losing steam. They'd think, "With more marketing, it'll work. If we change the business model, it'll work." VC has become a numbers game. The skill is in diversification, not expertise. Much of it is a confidence game -- skilled manipulators win out, more on that later.
In the past, Venture capital relied on ideas bubbling up from the entrepreneurs, but this is the wrong approach. The Venture Capitalists are the ones with their eyes on the market. What venture capitalists need are small teams of 5 to 10 people who can take an idea, implement it, push it out to the world, and see what happens. If it doesn't take off, move on to the next idea -- with the same team -- immediately. If Idealab had put Firstlook on the back burner until its time had come, perhaps they could have recouped their investment. VC needs to invest in ideas -- superorganisms -- that can sustain themselves without a lot of overhead.
The time horizons and the monetary scale of the status quo Venture Capital firm just doesn't work anymore and the Investors are realizing it.
I see the changes happening fairly quickly. Big ideas aren't so big anymore. Most of the internet today, the new things coming out, these are just features. Video upload sites used to be entire companies. Now it's a feature of a social network. In fact, social networking is a feature of almost any content site, be it a blog or an online newspaper. Mark Cuban posted Open Source Funding to his blog and got 300 comments a day for days and days. It was a great idea, but it died, partly because a blog isn't the right place. Within a week, we built a website to manage those open source ideas. It actually only took a couple of days and the website never took off, but who cares? It cost nothing but a handful of our hours. Someone in those comments proposed such a website for $25,000 -- still too much money!
In our status quo world, VC waits for the entrepreneur to bring the idea, but venture capitalists are the ones with the ideas. They know what's out there. They use the internet just like we do.
As I mentioned before, we have gotten cold calls and emails from different research analysts at the same venture capital firms because they didn't have a shared database of start ups they've already contacted. There are too many startups to keep track of even the ones you already know about. What about all the ones you've never heard of?
In a day or two, we could adapt the Open Source Funding to solve that problem and roll it out to every Venture Capital firm in the country. They'd save time, make fewer phone calls, and look a little less unprofessional in the eyes of the startups they may want to fund later. Why would a startup work with a venture capital firm who doesn't even remember having contacted them already just a couple months prior?
These kinds of small problems can be resolved quickly and easily today. The real entrepreneurs aren't interested in an idea they are interested in thousands of ideas. Real entrepreneurs don't get married to an idea, they try something, see if it works, and if it doesn't, they move on to the next thing.
Unfortunately, this is not how VC works. VC works by taking a big idea, funding it with millions, then hoping it explodes. Stop doing that. It's not the way the world works anymore. The risk is too high.
Take the case of http://twitvid.io/ and http://twitvid.com. In the year 2000, it could have taken millions, perhaps tens of millions to get either one of those sites off the ground. Today however, a small group of three, or even just part of a group of an existing company, like EatLime, the makers of Twitvid.com, can take their existing video upload and distribution platform and adapt it to almost any purpose in just a matter of days.
They don't exist. I could rip off your website in two days. The people with the power now are the domain squatters. The winner of the twitvid competition will probably be twitvid.com simply because it has .com at the end. I suppose $20,000 doesn't buy a squatted domain and pay for development. That's a whole blog post to itself, but the point remains: technology is not the hurdle anymore.
Not believing it doesn't make it not true
In Confronting Reality: Doing What Matters to Get Things Right Bossidy and Charan talk about how factories are moving to China. It doesn't cut it to consolidate North American and European production centers anymore. Shaving 20% off your costs means a startup in India is going to eat you for lunch.
Venture Capital is going to have to confront a little reality of its own. Over at TheFunded.com, there are currently 326 Venture Capital firms with "no new investments." Of course I don't know if that simply means they haven't entered a new investment or that firm is out of business or what, but that is a hefty number. It's almost shocking that 326 Venture Capital firms exist at all!
What are you waiting on?
If you are a venture capitalist and you are reading this, please tell me what you are waiting for. Seriously, what are you going to do with all that cash? Just burn it on some snazzy business guy with a great pitch deck, but no ability to execute? I'm a software guy and people come to me all the time with idea after idea for a feature. They want millions in funding for a feature of an existing website. Don't laugh. I see features get funded all the time and I can't help but think it's why VC firms have been bleeding like stuck pigs since Q1 2008.
Humans Prefer Cockiness to Expertise
I don't mean to pour salt into your wounds. I read recently that Humans Prefer Cockiness to Expertise, but you gotta stop making decisions like that. I'm from Oklahoma, which is about as far away as you can get from Venture Capital that isn't drilling holes in the ground. They don't understand technology. I went to a couple pitches for companies backed by a state run investment company and I felt so terrible inside because I knew the state was wasting money on ideas that would go nowhere. I can't remember all of them, but one of them in particular is already a parked domain.
Failure is normal
Don't get me wrong. I understand that startups are going to fail. It is exactly this understanding that prompts me to write this post. Build failure into your business model. Instead of funding an idea, fund idea generators. Don't get married to ideas.
Scalable Venture Capital
It's an issue of scalability. How does a venture capital firm manage 100 or 1,000 or 10,000 ideas being generated simultaneously. There are over 8,000 stocks publicly traded on NYSE, Nasdaq, and the Amex. I traded stocks for 2 years, built an elaborate system and examined as many as I could. In 2 years, I only looked at about 1,500 different companies. Most of those were just once or twice. Of those, I invested in perhaps tens. How many of the 6,500 companies I didn't look at doubled or tripled while I didn't even know they exist?
In the stock market world, scalability is implemented through mutual and index funds. The large mutual funds have holdings in literally, hundreds, even thousands of different public companies. Millions of people give these huge funds thousands to hundreds of thousands of dollars and they buy shares, pretty much across the board. They throw a bunch of money at the wall and see what sticks.
The stock market works, because mutual funds can throw 8,000 companies at the wall. Venture capital fails because they can only throw 10 or maybe several tens of companies at the wall. Unfortunately for the investors, everything thrown falls off the wall. So what happens is investors have to throw money at several venture capital firms. The scale just doesn't work. The management fees at Venture Capital firms are tremendous.
Venture capital has relied for too many years on too little diversification. There are 8,000 public companies, but there are hundreds of thousands of startups. Even 1,000 VC firms can't watch them all. There's no way. Probably the vast majority of the ones they do see are garbage. Most of the ones I see are garbage and they aren't flocking to me like they're flocking to the VC's with a lot of money.
Streamlining the investment process
The current process of investing in a startup is long and arduous. Startups have to pitch tens or more Venture Capital firms to have even a hope of a deal. If the VC likes the idea and the team, it takes term sheets, attorneys, board seat decisions. It's a nightmare. What startup wants to go through that?
For too long, Venture Capital has been in the driving seat because they have the money. But today, snazzy startups are going to YCombinator for $25,000, launching in a few months, and destroying incumbents in their market funded by VC firms with millions of dollars. That rocky ride is never going to end for venture capital.
If a VC is going to survive, it absoluately must streamline its processes, reduce time-to-investment, and invest in more companies. The era of the BIG idea is over. Even gene sequencing, which was impossible 10 years ago, can be had for $48,000 today.
Even if you do find the next big idea, you don't have time to make a profit on it. The current pyramid strategy of selling your company to some other company you funded 10 years ago, like Google or whatever, just isn't going to work. Even Google has it's own Venture Fund. I think Google is probably smart enough not to buy a technology company funded with tens of millions of venture capital when they could reinvent the wheel with a couple engineers.
If you are really curious, watch a longer version of the dancing guy and listen to the comments from the camera drivers. His revolution was a long time in the making. I think it may have had a lot to do with the song itself, which is Santigold's Unstoppable. I had never heard the song before, but I love it and have listened to it at least 30 times since seeing Derek Sivers's post a few days ago at Hacker News.
It's a great and inspiring story, even just the unfolding of this sensation itself, but that's not my focus here. Unstoppable doesn't mean you create a huge following, that's a consequence. The Dancing Guy wasn't thinking, "I want to get a huge dance party going." He was thinking, "I want to dance!" With that in mind, here's...
How to be unstoppable
That's what I want to talk about. I brainstormed it on the white board this morning. I figured if it's good for designing situational applications, perhaps it's good for blogs as well. Here's what I put up on the white board before I started this post, click for the high res version:
What's your problem
The first thing you have to figure out is what's your problem. What burdens you? What slows you down? What costs you money? In my earlier career as a consultant a year out of college, they taught us to identify the pain. Pain is debilitating. Pain killers are valuable to medicine. The day pain died was a very big day for medicine.
Some questions you may want to ask to identify your pain are:
What is expensive?
What is time consuming?
Are solutions cost prohibitive?
Can you implement a better solution? (I'll talk about what better means later on)
Would you be more powerful if you solve this problem?
Would you have greater freedom?
These are things you should ask yourself -- about your own life. If you have this pain, someone else may have this pain as well. Eventually, you are going to want to build a product you can sell, or develop a skill to get a job. You want to be motivated to succeed.
If you aren't making your own life better then you will constantly be seeking approval from others. Forget approval from others, make your life better in a way that may also make other people's lives better. Then, no matter what happens -- your life is better! The constant pursuit of a better life will keep you going through the trough of sorrow.
At some point, the trough of sorrow is going to slow you down. It will make you want to give up. Remember! It has also made others want to give up. Others have given up because they didn't get enough of whatever it is they were seeking outside themselves. You are looking for your pain, because internal motivation is widely regarded as a huge indicator of success inlife. Stanford University has a deep analysis of reasons for action.
So, find your pain, or better yet, make a list and then come back and I'll help you filter them to find the best pain to focus on.
Do others share your pain?
The best kind of pains to solve are the kinds of pains other people have. One of the reasons television is so successful, is because lots and lots of people are really, really, bored. Boredom is painful. Bored people will do anything to end their boredom. That's why entertainment companies are so big. If you have a talent for entertaining, watch videos of yourself. Record your voice and listen to your songs.
My personal pain was the amount of time it took to build information systems. You know your pains better than I do. Which of them are shared by many?
Who shares your pain? Where are those people? How are those people going to find you? When you kill your pain, you're going to have to share your analgesic with others and enable them to find it. This is often the hard part. You may have to market the product, buy advertisements. You are definitely going to have to show it to people and interact with them. Maybe you can build a website and SEO it and be done. Maybe not. The easier all this is, the more unstoppable you'll be.
Let go of social interference
This is really hard. It plays a lot into the internal vs. external motivation. There will be a lot of external motivators pushing you away from the solution to your pain. Maybe people don't understand your pain.
"First they ignore you, then they laugh at you, then they fight you, then you win."
Most of the people watching the dancing guy were laughing at him. They teased him. Gandhi knew this happens to great successes ages ago. You have to realize this and not let them stop you. If you don't drive a fancy car or you don't wear nice clothes, they'll think you don't fit in. They won't understand. Every penny you spend on those things is a penny you can't put toward being unstoppable.
I moved to a new city many months ago to be closer to friends, business partners, and opportunities. I didn't know how long I would be there, so I didn't bring a bed. I actually haven't had a bed in several years. Beds cost money. Beds are difficult to move. But I do have a 9 foot conference table in my living room. I'm typing on it now. It's good for meetings, collaboration, poker games. These are things I love. Beds stop me. They slow me down. I also have desk chairs and a white board. I get a solid 8 hours of sleep on the floor.
From the outside, not having these creature comforts makes people skeptical of your seriousness. Behavior that deviates from the norm is "weird". People don't understand it. Ignorance hurts. Maybe you can solve that pain. People understand the status quo, but the status quo is the enemy. More on that later.
Do you have the skills to solve your problem?
This is important. If you can't solve your pain, then either learn to live with the pain, or buy a solution. It's best to learn to live with it -- the mind is very powerful. If you can't live with it, then you're on the right track to finding a good problem to solve. Learn to solve it. Don't buy a solution, unless it's cheap, learn how to solve it. How long will that take?
Lots of companies have very large research and development budgets. Companies like Microsoft, Intel, Google, ... The United States military funds lots of research through DARPA.
Sometimes you might not know how to solve the problem. Sometimes you can ask for help. Sometimes you can read books. Go to the library. Research your problem. Figure out what people are doing now to solve it. Find the problems with their solutions.
What you need to decide is, can you afford to eat, shelter, and clothe yourself long enough to find a valuable solution to the world? If you don't know how long it is going to take, keep your day job until you figure it out. Learn skills at night. Live with your folks. Live in another country! You don't necessarily need to be around a lot of people while you are discovering your solution.
It's called, "Going into the cave." You may need to go into a cave to let go of social interference. How long can you be in there? What sort of provisions do you have? What tools do you need to take with you? If you do go into the cave, don't go crazy. Some people go crazy. Social interaction is important, find people who know, love, and support your unstoppableness -- or maybe they already recognize it.
Forget the competition
Once you have found our pain and are beginning to solve your pain, nothing else matters. Competition doesn't matter. Remember, you are solving a pain many people may not even know they have. It took you a lot of soul searching to find it. Most people don't go that far. You have to go deeper and you have to go farther than anyone else. Let your competition advertise for you. Competition is a distraction. Think of your competition like collaborators.
Your competition will go out of business before you. Think smart. Be tough. Keep going. Run fast! Tony Hsieh, who is himself unstoppable, said in his opening remarks at South-by-Southwest that by yourself, you can go really fast, but with a group you can go far. In the beginning you will be small and nimble. Your competition is big and bulky. They can't go as fast as you can. They have customers they have to listen to. They have employees they have to manage. They have advertising to create and distribute. Your competition has a lot of pains you don't have yet.
You don't even know who your competitors are. If you focus on your competition, you forget about all the competition out there you've never heard of. Those are the ones you need to really fear. They're like you. They're unstoppable. Google is stoppable. Microsoft is stoppable. You are unstoppable.
Your new competitor is the status quo. You are trying to solve your pain. The status quo causes that pain. When you change the status quo, you create a Blue Ocean. Competitors big enough for you to know about could be swimming in lots of red oceans. You want to destroy the status quo and create a new market for your solution. You are solving a pain that the world out there is trying to solve the hard way, because they don't know about your solution.
You're venturing into uncharted waters. You do not know what is out there. You may not know how to solve your problem. You may not know a solution is even possible. Lots of people have told me, "That's impossible." Those words are a big motivator for me, but doing the impossible is scary. Maybe you'll discover it really is impossible. Maybe you'll hurt yourself. Maybe you'll runout of money. Maybe no one else wants your solution. Maybe you'll just waste a whole bunch of time, so enjoy solving your pain.
The only thing we have to fear is fear itself—nameless, unreasoning, unjustified terror which paralyzes needed efforts to convert retreat into advance.
There are fears to be had you don't even know exist. Franklin D. Roosevelt's speech in 1932 is especially poignant now. He was talking about the fear that was paralyzing the United States during the great depression. The problems the nation faced in those days are the same fears the world is facing this very day:
Values have shrunken to fantastic levels; taxes have risen; our ability to pay has fallen; government of all kinds is faced by serious curtailment of income; the means of exchange are frozen in the currents of trade; the withered leaves of industrial enterprise lie on every side; farmers find no markets for their produce; the savings of many years in thousands of families are gone.
Don't let that fear paralyze you. Especially do not fear failure. Failure is your friend. It helps you figure out how to improve and become better. If you do not stop when you fail, like your competitors will, then you will be left with the win. Sometimes winning means surviving a war of attrition.
That means never give up. Live on the street if you have to -- be a park nomad! Lots of other people are going to give up. Lots of other companies are going to give up. Lots of our competitors have already given up and how much of the world doesn't even know we exist? If you commit to never giving up, then you don't even need a particular solution. Jim Collins, in his book, Good to Greatsays:
In contrast, Motorola, HP, Sony and GM -- four of the world's best ticking clocks -- all had their first products fail in the marketplace. Sony's first product, for example, was a cooker, which failed. Minnesota Mining & Manufacturing began life as a failed corundum mine, thus leaving 3Mers to ask, "OK, that failed, what else can we do?" Hewlett-Packard had a number of product failures, ranging from electronic bowling alley sensors to automatic urinal flusher, before it hit upon the audio oscilloscope. These failures taught humility and focused attention not on the products, but on developing the organizational ability to come up with excellent products, to take those products to market, to service customers, and so on.
Making a better solution
Okay, so you may not be able to find something there is no solution for, but remember, your competition is the status quo. You want to do it better. What does that mean? Better means: Faster, Cheaper, Higher Quality. It's the trilemma. Typically, you'll hear it like this, "You can have it cheap, fast, or high quality. Pick two." I once thought it was just something computer people say about software, but it is all over the place. Hollywood says it about their movies and television shows. Doctors say it.
So faster means you get your solution in less time. Cheaper means it costs less. Sometimes those two go hand-in-hand, because labor is expensive. Time is money, right? But what about Quality? How can you tell if something is higher quality?
Here are some of the things I think about when I say something is higher quality: Flexibility, Adaptability, Integration, Longer Lasting, Aestetics, Performance, Standards, Warm & Fuzzy, Zero Margin. When you are building your solution to your pain, think about those things.
The Swiss Army Knife is unstoppable, because it is more flexible. It has lots of blades, scissors, even a toothpick. It's the only knife you need. The Swiss Army Knife will be around forever. As a concept, it has lots of competitors. Maybe Victornox won't be around forever, but the swiss army knife sure will.
You want your solution to mesh well with the current world. Imagine if you make the most efficient lightbulb ever, but it doesn't fit in standard light bulb sockets. Or your lamp won't plug into the wall. People aren't going to buy it. Now imagine if your lightbulb could fit in a lamp or a car or a flashlight! Integration is important, because "no man is an island." Things have to work together. That's why Legos are so popular. Every Lego set works with every other Lego set. It's why there are API's and formats and XML.
You don't want to make cheap junk. Garbage is bad. It pollutes the world. It has to be replaced all the time. If your product is more durable than the competition, there will be a market for it. There is also a market for disposable items as well, but that's just gross. Look what disposable plastic has done to the world. Remember, unstoppable lasts forever -- by definition.
You are probably going to want to build something people like to look at. We aren't all rational beasts. Good design has merits. Don't focus too much on what your product looks like right away. It can always be redesigned, but be conscious of it. If your solution can be easily re-designed, that will go along way to unstoppable, because you can make it look lots of different ways. Cars change their look all the time. Websites change their look all the time. Even remotes and televisions. Bridges don't. Buildings don't. Think about that.
You want your solution to move faster. You want it to solve more problems in a shorter amount of time. Google learned early on that speed matters.
Build your product to meet the standards. Standards are there for a reason. There are standard building codes. When I was an intern one summer, I had the pleasure of a window office overlooking the construction of a brand new high rise condo building. They'd spend hours digging huge holes to be filled with cement. Lots of cement trucks came in to fill those holes and every single time, a little man would come out of his prefab building, grab a sample of the concrete and test it to make sure it met the standards. If he hadn't, the building might have crumbled. Do you want to crumble or do you want to be unstoppable?
Warm & Fuzzy
Your customers want to feel good. You want to feel good. Isn't that why you are solving your pain? If you feel bad about the solution to your pain, then ... I mean, what's the point? I will pay extra for a warm and fuzzy feeling. People will search out eco-friendly products, fair trade coffee, and bamboo t-shirts because it feels good to buy them. When you make decisions for yourself, and for your product, and for your company, be good. People love shopping at Zappos because it feels good. The shoes aren't cheaper. They aren't higher quality -- they are the same shoe. But people seek them out and buy them for the warm & fuzzy. You can't stop warm and fuzzy.
This one is about low cost of production and distribution. Wal-Mart touts some of the lowest margins in the business. Software companies are so successful because it costs almost zero to replicate bits. MP3's are destroying the record industry because MP3's have zero margin. You may think of this as "production cost." The production costs of music go into the pockets of the big labels. You don't like that do you?
Think about it like your carbon footprint. You want to reduce your impact on bringing the solution to the problem as much as possible. The less you waste, the better. The less you consume, the better. The more efficient you are the better. It's about scalability.
Of course margins are a percentage, so it could cost you millions of dollars to create and distribute your pain killer, but if you sell hundreds of billions of dollars worth of pain killers, then that's pretty good.
A lot of people, when they talk about Profit Margin they think "high profit margins are great! That's an awesome business!" Microsoft has high profit margins. Software in general has high profit margins after it's created. The problem with high margins is that customers start to feel gouged. They think things like, "Why am I paying $20 for this CD, when I can get it free on the internet!"
My grandmother loves to tell a story of an insurance salesman in her town decades ago. He drove a beat up old car. He sold lots of insurance and saved up lots of cash and went out and bought a brand new shiny car. After that, he didn't sell any insurance anymore, so he ditched the shiny car and went back to the beater.
Really, don't worry so much about the money. If you solve a lot of problems you'll make a lot of money. In such a situation, you have to use your money for good things, like Philantropists do.
To answer Adrian's question we must first determine who creates Open Source software, who uses it, what is its value and what will happen to all of those questions in a recession. So I'll start by answering the questions for the current economy and then address them in a recession.
Who creates Open Source Software? There are mainly two types of organizations who write open source software: Individuals who want to solve a problem and companies who want to earn consulting fees or attack the business model of a competitor. Currently, we have a good industry for IT people. A lot of them write code on business hours. Open Office is supported by Sun to help fight Microsoft. Sun has a team of over 100 developers working on a product that generates no revenue and the justification is that it hurts a competitor, both in sales of Microsoft Office and by enabling users of Linux to have an Office Suite.
The problem with this model is that it is difficult to quantify the financial benefit. In a recession, the bottom line matters most and I suspect companies will abandon these models. In times of recession, employee productivity is important and that productivity must directly affect the bottom-line in a measurable way or the employees are laid off. Those laid-off employees may have more free time to work on Open Source projects to keep their resume fresh, but they may be too busy looking for a job. I suspect it will be the bright ones who have saved money that will find Open Source more easy to fit into their schedule and it may be an avenue for independent contracting and consulting sales. The rest of the laid off crowd may not have the technical capabilities to product good software, so the quality of open source may decline while the quantity rises. This could hurt customers of Open Source software and prompt them to abandon it, because of the Market for Lemons.
Who Uses Open Source Software? The primary audience for open source software is companies and individuals on a budget. In times of recession there will be more of these so the market for Open Source software will grow. With this additional demand, the supply will shrink. Not the supply of the bits, but the supply of developer time to meet the needs of the growing customer base. This may allow free software models to begin charging for their work and develop a paid software product. It will be the best of breed who go on to create companies around these innovative products, but the best Open source products may convert to commercial licenses.
Larger companies in times of recession will take fewer risks and this could hurt the market for open source software. Open Source is already more risky than commercially produced software and this keeps many away now. Those with the ability to accurately determine the quality of software may decline in times of recession and further limit the market.
What is the Value of open source software First, we must acknowledge that open source software is not free. Many times it comes with bugs, it is not of the highest quality, the user base is smaller and the technical skills required to use it are higher requiring a bigger investment in education up front. The real value of Open Source software is the innovation and competition it brings to a market with huge barriers to entry. Small groups of coders working independently and in their free time can chip away at a large market, but it takes a very long time to make any headway or generate the kind of revenue that can support full-time concentration on a project. This amount of time is often longer than a recession. A lot of the major open source projects now were around during the dot-com boom and survived.
I think the market for Open Source products at the corporate level will shrink due to risk aversion, but grow among individuals because there are fewer of them working and they'll be spending less on technology. This could be good for Open Source because more people with technical skills will work on it. The problem this raises is that the high quality programmers are the last to get laid off and the low quality programmers only code for money.
Is Open Source recession proof?
If this question means, "Will open source go away in a recession?" The answer is no, there will still be plenty of people dedicating time to open source. Corporate sponsored open source projects will likely decline. Individually created projects may increase, though the quality will diminish.
The bottom-line is that recessions are bad. Open source will be hurt, but it will not go away.
We offer both kinds of FogBugz--hosted and installable--and our customers opt 4 to 1 to install it at their own site. For us, the installable option gives us five times the sales. ... we've got racks and racks of nice, well-managed Dell servers with plenty of capacity and our tech support costs for the hosted version are zero. Life would be much easier. But we'd be making so much less money we'd be out of business.
How to sell Qrimp is a decision I have had to think about a lot. On the one hand, I believe SaaS is the future, but it's not the future yet. There are still customers who want their information locked up tightly behind a rugged firewall -- and I don't blame them. I'll attempt to justify their concerns, they are my concerns too, and I'll try to help you decide which to offer yourself.
Hosting is easier for the solution provider
Hosting is a much easier solution. The provider controls the environment, there's no need to fly out to the customer site to debug installations, you can concentrate on making the system good and powerful and avoid concentrating on the installation routine. That last one is only partly true -- every time someone asks for an account, we have to perform a little bit of work to copy files and create a database, but still, I can control all that from my laptop anywhere in the world.
For some systems, creating binary installables doesn't make a lot of sense. Can you imagine a locally installed version of Twitter or Youtube? Of course not. What about SalesForce? or Wikipedia? In some cases it makes sense, in others not. You'll have to look at your own product to determine, but in our case, both scenarios are viable. Due to Joel's post, I'm going to continue down the road we started and offer both a hosted solution and an installable version.
A big part of my complaint with existing SaaS providers is that they are only available from the vendor's website. If all my data is on that vendor's computers and the vendor goes belly up, what are my options? If I can install the application on my own servers, I have less fear of using the service. If it's locked up in a proprietary database written in language I've never heard of or can't be installed on less than a $40,000 server cluster, I'd be cautious putting my business critical information on it.
What if, at some point I grow to love the service and I'm at the point I want to host super sensitive information in the application? I won't be too comfortable knowing that some Database Administrator there could be sifting through it like they do over at FaceBook. What if it's my source code? What if it's the minutes to my Board of Director's meeting? What if it's my patent library? Who would put trade secrets in a hosted SaaS?
I'm a real proponent of privacy -- especially my own -- so I think it is important to produce a product I would want to use myself.
This is why SaaS is the future and not the now.
Scalability and Availability
The final issue I'll talk about today is scalability and the availability of Hosted solutions. One complaint a lot of SaaS customers have is latency -- especially at the end of the month. We're all procrastinators and we all rush in at the same time -- the last minute. If hundreds of thousands of people are hitting your servers all at once, scalability will be a concern. Of course we all use the best caching algorithms money can buy and unbelievably massive clustered environments to help us respond to the load, but what happens when the internet goes down? Power outages? Earthquakes? Technicians!?
The best of both worlds
So, what we decided here at Qrimp is to offer both. We're fortunate to have an architecture that supports it and an installation routine that isn't too painful. I do all the development on a MacBook Pro running Windows XP, so I had to keep the system lightweight and easy to move around. We require IIS 6.0 and SQL Server 2005 and the .NET CLR. The best part about this is that it allows us to work off-line, so if the Internet goes down, we don't lose access to all of our data, just the stuff we've added since the last synchronize.