My daily readings 11/06/2009

  • tags: screenshot, tool

  • tags: Startup

  • tags: customer, development, VC

  • tags: Startup, HR

    • Over time I took to telling people the following, “join BuildOnline because you think you’ll get great experience.  Join because you like the mission of what we’re doing.  Join because if you do a good job we’ll help you punch above your weighclass and work in a more senior role.  And if you ever feel that in the year ahead of you you don’t think that you’ll increase the value of your resume and you’re not having fun then go.  Join because we pay well but not amazing.  Stock options are the icing on the cake.  They’ll never make you rich.  Don’t join for the options.”
  • tags: no_tag

    • And he is right to point out that scale economies can make a huge difference in software.  Because the cost of making software (whether installed or SaaS) is mostly fixed, any incremental sale provides 80%+ of gross margin.  That means that once you have covered your fixed cost you have a lot of “play money” to start throwing around.  You can, like Spolsky’s Oracle example, spend heavily on marketing (and unless you believe that marketing is 100% useless) that will make a difference to sales.  And of course here is where things start to get interesting, because you can have such a strong feedback loop that it allows the first player that gets to scale to become 10x bigger than the next player (grow faster, make more money, spend more on marketing, grow even faster).
    • So I believe the assertion that bug tracking is definitely not a network effect business is wrong.  The effects may be weaker, but anybody offering software today and not thinking about how to create and sustain network effects in what they are doing is missing a big opportunity.
  • tags: no_tag

    • It doesn’t have to be a network-effect business for customers to prefer the popular product as a “safe” choice.
    • This is one of the big reasons why a lot of software is priced low enough that someone can pay for it with a credit card, and lots of software priced over $50,000 but very little between those two numbers. Also once you go down the enterprise software route the quality of your sales process matters more than the quality of your software. A good read on that is….
    • I did an internship at a largely sales-driven company (Everyone gets an email when someone closes a big sale), and it suuucked. Especially when everyone was really anxious and uneasy because Customer X wanted his bug fixes Right Now.

      Unfortunately, you attract top sales talent with big money, and they get lethargic if the big money doesn’t come from commissions, and they tend to over-promise to make the sale. This can piss off the developers and makes it not “a place developers want to work”. You definitely have to maintain a balance.

      The idea that comes immediately to mind is profit sharing. When Joe closes the big deal, everyone gets commission. Even if it’s not a significant amount, it’ll let your developers continue to feel valued.

      At least that’d make me happier

    • Just because their product doesn’t have a strong effect, it doesn’t mean their customer base doesn’t.

      If ten times the number of people are raving over their competitor eventually, that’ll have a big effect against them (or, at least, put them on the back foot).

  • tags: no_tag

    • Then I came across a quote from Geoffrey Moore, who is best known for his best-selling book Crossing the Chasm, which is about how businesses cross over from their initial niche markets to dominate larger markets. In another book, called Inside the Tornado, Moore writes about the great battle between Oracle and Ingres in the early 1980s. The winner of that battle is well known: Oracle now has a market cap of more than $100 billion, and I’ll bet you’ve never heard of Ingres.

      “What set Oracle apart from Ingres,” Moore writes, “was that [CEO] Larry Ellison drove for 100 percent growth while Ingres ‘accepted’ 50 percent growth.” Executives at Ingres meant well. According to Moore, they felt that the company “simply cannot grow any faster than 50 percent and still adequately serve our customers. No one can. Look at Oracle. They are promising anything and everything and shipping little or nothing. Everybody knows it. Their customers hate them. They are going to hit the wall.”

    • It’s entirely possible. Think of it this way: If you’re growing at 50 percent a year, and your competitor is growing at 100 percent a year, it takes only eight years before your competitor is 10 times bigger than you. And when it’s 10 times bigger than you, it can buy 10 times as much advertising and do 10 times as many projects and have meetings with 10 times as many customers. And you begin to disappear.
    • I’ve been working on the assumption that a product naturally creates demand for itself and the sales team just helps fulfill that demand. But I’ve realized that I have things backward. I’ve come to understand that a sales team drives demand. My problem is that I’ve never been able to figure out how to hire good salespeople. For a guy who wrote a book on how to hire great programmers, it’s mortifying how incompetent I’ve been at enlarging the sales team, which, right now, consists of one terrific account executive and a dog.
  • tags: no_tag

    • Facebook sucks you in because everyone you know is using it. You go to eBay to find something because you know someone is selling what you want to buy. Oracle wins in the enterprise because there are tons of experts and plenty of auxiliary software available. All these business rely heavily on the network effect: Their product is more attractive than the competition because of their market share.
    • 2) Become a sales force-driven company: Hire a bunch of sales people and make them convince people to buy our software. This is even more enterprisey thinking. Side step the actual users, the developers, and go straight to management with steak and strippers. I’ve worked at sales force-driven software companies and they suck. The sales people will invariably promise more than you have and drive you even deeper into “build everything for everyone”.
    • His problem is that he’s trying to sell commodity software when excellent free alternatives exist, and is depending on suits who don’t know better to keep him afloat.
    • If bug tracking packages has no network effect, then, I posit, nor should developer IDEs. Yet Borland had the same issue versus Microsoft. Eventually, if enough people use the same tool, the use of that tool “spreads” as people move from company to company. If Fog Creek’s competitor ends up with ten times the users, wouldn’t the “network effect” of all those developers experienced with the competitors product lead to a larger uptake of the competitor’s product as they move from post to post?
    • Not just over-promise, but flat out lie. Every sales person I’ve experienced seems to fall back on this with any new potential customers whose questions they can’t answer. “Uhh, yeah, it can totally do that!”
    • I think you’re wrong to say bug-tracking software is not affected by the network effect. Joel’s competitor has a significant plug-in community developing incremental improvements to the product. These improvements come faster as more people use it and build their own plug-ins, which is as close to a network effect as you’ll get. FogBugz doesn’t do the same, so perhaps Joel’s approach to the competition should be finding a way (perhaps a similar way) to introduce the network effect to his product.

Posted from Diigo. The rest of my favorite links are here.

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