New, Small Software Company – Best Practices

In 1978, Harvard Business School and MIT graduate Dan Bricklin joined Bob Frankston to create the world’s first computer spreadsheet program. I was looking through old magazines the other day and came across my July, 1989 issue of Inc. magazine featuring Mr. Bricklin on the cover with an interview inside in which Mr. Bricklin discussed his “prototypical host company of the 80’s” and “reflections on staying small”.

Dan Bricklin’s story has always been one of my favorites, even as a kid in college. And his work and writings (see his site) remain exceptionally relevant today.

With VisiCalc, Mr. Bricklin was able to identify a need, write software to solve the need, and build a company around that software. Bricklin’s story is well known and Visicalc, his creation, is sometimes credited with sparking the personal computer revolution. He really was, I think, the first MicroISV. Even the downside of VisiCalc (being beaten by large rivals on IBM-PCs in the form of Lotus 1-2-3) provides an interesting study in the software business.

But that was over a quarter century ago. Even if it was an early small software company, could his experience then still be relevant to new small software companies today? I think so and VisiCalc, plus dozens of other companies and products, formed the basis for my research into Best Practices for a New Small Software Company.

I’ll talk about each point in future posts and I certainly do not claim to be correct. Many of these conclusions are common sense and/or already well accepted as sensible and are famously already the model for many companies. Other conclusions are matters of contention. Each conclusion is a result of some thinking and research.

Also, I am certainly not saying that companies with other approaches, markets, and plans will not suceed. They will and can (e.g. I know you can succeed in the consumer market, there are just some reasons that I recommend new small startups target businesses).

Here’s what I’ll be covering the coming weeks:

Target Market

• Target businesses (not individual consumers).

• Target small to medium sized businesses, in order to avoid the lengthy sales cycle of large enterprises.

• Offer a simple, standard, non-customized product that has little incremental costs with each new customer added.

• Offer the product on a subscription basis to help ensure recurring revenue.

• Offer the product subscription at a monthly cost of between $50 and $500 that within the purchasing limits of one person in your target market.

• Enter a target market where your product will not need to heavily integrate with existing enterprise systems.

• Focus your initial product on a vertical market and build a close relationship and participation in that vertical market’s community. (e.g. attend trade shows, etc.)

• Reinvest revenue from initial customers into expansion of your product to appeal to another vertical market, building a customer base incrementally and purposefully across vertical segments.

• Focus first on keeping current customers satisfied to help ensure recurring revenue from current subscribers.

• When current customers are satisfied, focus on expanding your subscriber base to grow the size of recurring revenues.

Innovation

• Offer fast time-to-market and simplified user experience as your disruptive innovations in the marketplace and a way to effectively compete with established firms.

• Target small markets that are ignored by large, established competitors.

Team Dynamics

• Keep team sizes small, with no more than two to five members per project team.

• Either start with or become a magnet for some of the top talent in the software industry.

• Attract business and talent by making presentations to business and technical audiences, contributing actively to the IT knowledgebase, and freely giving business and technical advice to others.

Culture

• Acknowledge that top knowledge workers have unique expectations of autonomy.

• Create a culture that values professionalism, recognizes work is unstructured and difficult to monitor, and does not attempt to force authoritarian methods.

• Engage in interesting and varying work.

Entrepreneurship

• Build and encourage an entrepreneurial culture that accepts experimentation and research, that encourages team decision making, that puts customer support and satisfaction first, and that has the ability to change direction quickly.

• Leverage an entrepreneurial environment as an innovative, competitive advantage.

• Do not duplicate another company’s culture; instead build a culture that is unlike any other company’s.

Project management

• Gain a solid understanding of the variety of project management techniques available in order to learn best practices of resource, time, and cost planning.

• Use agile project management methods, such as Extreme Programming (XP) to ensure you can respond to customer needs and exploit your light-weight organizational structure to ensure fast time-to-market is your competitive advantage.

Architecture planning

• Outsource physical platform implementation and support to a third party hosting center.

• Ensure hosting partners have industry experts on staff.

Information Technology

• Outsource application hosting to a third party to leverage their expertise in datacenter management and their economies of scale of operating a large data center.

• Use open source technologies such as Ruby on Rails and MySQL

Strategic Planning Summary

• Provide customers with unbeatable attention and personal customer service.

• Build and follow a development process that is repeatable for very quick delivery of solutions.

• Focus on marketing and sales activities because it takes much more than a good software product to have a successful software company.

• Focus on product differentiation (not cost) to ensure you have something that you are “best at”, “first at” or “only one to offer”.

• Do not attempt to enter the shrink-wrapped, retailer shelved marketplace.

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In future articles I will write about why I came to these conclusions. Also, with our first product around the corner, many of these will be put to the test!