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Pithy Insights On The Business of Software

Posted by Dharmesh Shah on April 17, 2008 in strategy Speaking 8 Comments

I've been invited to speak at the upcoming Business of Software conference in Boston (my home town!) on September 8, 2008.

As such, I've been thinking a bit about the business of software.  I do this regularly because my day job (and most of my night job) is running a software business in the area of internet marketing

more info:  Business of Software Conference

There are a ton of great speakers scheduled for the conference -- and then there's me.  Other folks that will be there include Joel Spolsky (who is sponsoring the conference), Seth Godin, Eric Sink, Steve Johnson, Richard Stallman, Paul Kenny, Jessica Livingston and Jason Fried.  It promises to be a great conference and I'll do what I can to not bring down the average quality too much.

If you're planning on making it to Boston for the conference, please reach out. 

Meanwhile, here are somewhat pithy thoughts on the business of software.

Pithy Insights on The Business Of Software

1.  Software businesses are not a low-cost play.  You're probably better off producing great software somewhat expensively than producing average software somewhat cheaply. 

2.  Great software is produced by great people.  Mediocre people don't ever accidentally produce great software that makes millions of dollars.

3.  Programmers have not been, and never will be, commodities.  If you think this way, I'd quit now.

4.  Pricing software is hard.  More people charge too little than charge too much.

5.  If you're charging really small price-points, consider going to a freemium model (some version for free, the upgrade is paid for).  The free version is a great way to get some distribution and customers.

6.  Just because people should buy your software doesn't mean they will. 

7.  One of the trickiest parts about a software business is figuring out the right level of services to sell.  If the answer seems blindingly clear, you're not thinking about it hard enough.

8.  It's getting harder and harder to make money on pure software innovation (i.e. lines of code and the product itself).  Increasingly, business innovation is what companies are using to drive differentiation and better margins.

9.  It's a great time for software startups.  Capital costs are very low (infrastructure, systems software are getting cheaper every day).  And, distribution is actually possible with some creative marketing on the internet.  Tiny companies have a shot at reaching big markets.

10.  There are still people that believe massive spec documents and months of planning will produce working software that users are going to be delighted with.  I feel sorry for these people.  Think agile, folks!

11.  Make sure you're deciding correctly between a horizontal offering and a vertical offering.  Horizontal offerings are tempting because of their potential scale -- but they're much harder to execute. 

12.  Programmers often like to build platforms, not applications.  But, building a business around a platform takes lots of good strategic thinking (and often a fair amount of capital and/or luck). 

That's all I have for now.  More on this particular topic in a later article.  I'm on vacation today, so didn't have enough time to really dig in.