Dances

Squeezing the Elephant

If you are a small company going after a big market, customer awareness is worth a lot to you.  If you have a great app (or web service) but are frustrated it’s so hard to get customers to know you are there, you should pursue using your commitment to a single platform to your advantage.  Elephants are always on the lookout for great cool apps that leverage their platform unique capabilities and that demo well.  Don’t be bashful talking to the elephant on how committed you are to their platform, how you have taken advantage of all the latest and greatest unique features of their platform, and how flashy your app demos.  Did I say don’t be bashful?  I really meant you need to be very very aggressive promoting your app to the elephant.  You need to stick that bundle of banana’s right under his nose.

Elephants are always on the lookout for great flashy apps unique to their platform that they can demo at customer events, in advertising, feature in blogs, and promote on their web site or app store.  Though the elephant may be forced to show some multi-platform apps in their marketing activities (a la Angry Birds) – you can be sure they are looking for apps that differentiate their platform from others. 

Again it gets back to how important the platform provider is to your sales and marketing efforts.  If getting exposure from the platform provider is very important, going with one platform, and squeezing the elephant for all its worth (given your “sole source” commitment to them), is an effective way for a small company to get known.   But as I said at the beginning, you need a great flashy app to really “work” the elephant effectively – and you need to be aggressive. 

If/when you create some real market presence and sales are rolling in, than is the time to think about maybe trying to ride that second elephant – when you have the cash flow to build a great app tailored to the capabilities and strengths of the two different platforms.  And when the elephant is starting to feel like having your support is important to them (not just important to you) – regardless of the fact you are riding multiple platforms.

Dancing with Two (or more) Elephants? Part 2 – Sales and Marketing Costs

A few partners I work with have recently developed their first mobile apps.  They tell me they find Apple being slow or refusing to accept their app in Apple’s App Store when they have already made the app available in the Android Marketplace.  I have heard similar fears from partners with apps that run with both Autodesk Inventor and SolidWorks.  Is getting marketing and sales support from your platform providers an important consideration when considering supporting multiple platforms?

It depends.

First, is getting sales and marketing support from the platform provider important to you?  If we are talking a mobile app, it is absolutely important given your primary sales channel is 100% dependent on the platform provider giving you space – and better yet prominent location – in their store (today, Apple’s App Store and the Android Marketplace).   You very much need to know each platform providers behavior when you support multiple platforms.  We know the Android Marketplace doesn’t care if you support iOS too – but are you sure Apple has the same behavior?  Maybe?

At Autodesk, we “programmatically” support partners that support multiple platforms – providing access to development software, support and basic company and app information on http://partnerproducts.autodesk.com. But what about working closely with Autodesk Sales Reps and Resellers?  If you support a competitive platform, they will assume you are “suspect” – which means they will rarely call you to help fill a customer need.  The one exception is where you have taken the time to develop a personal face to face trusting relationship with an Autodesk Sales Rep or Reseller.  Of course these types of personal relationships take time to develop, time to maintain, and don’t scale beyond a small number of people.  Is this Autodesk policy?  No it’s not.  This is a human emotional response that most sales reps and resellers for a platform provider will have. “They work with the enemy so cannot be trusted.”

Do you care? 

If your app is for a specific group of customers that the platform provider doesn’t target – or may not even be aware of – you likely don’t care about having a meaningful sales and marketing relationship with the platform provider.  You rarely if ever run into the platform provider’s sales reps or resellers – and more importantly your customers don’t either. Your relationship with the platform provider is primarily technical in nature – the platform makes it quicker and easier for you to develop and deliver a state of the art compelling competitive app.  Per my prior blog post, supporting multiple platforms is about getting the most capability from each platform – not worrying about sales and marketing relationships.

On the other hand, if your target customers do regularly touch the platform provider’s sales reps or resellers, you very much care what these folks are telling your customers.  This is where supporting multiple platforms is a real hurdle/obstacle to getting a platform provider’s sales team to recommend – or at least not discourage – customers from working with you.  If you need the platform providers sales team’s support for your business to grow and succeed, you either need to support just one platform, or take the time to develop personal trusting relationships with the individual sales people of each platform provider (a whole lot of quality time with the platform sales reps and resellers). As you can now imagine, supporting multiple platforms does add a real and significant cost of sales. Again this assumes you have an app targeted at customers that are likely frequently talked with by the platform provider’s sales reps and resellers.

So you have an app and business that could really benefit from a close relationship with the platform providers sales reps and resellers.  Developing and maintaining a strong sales relationship with the platform provider’s sales team means supporting just one platform. 

Isn’t that very risky – being dependent on a single platform provider for success? 

The platform provider could fail to maintain their market leadership position, neglect development of APIs, compete with you, or just decide your partnership is no longer important to them.  Are there exceptions to supporting just one platform - when a close relationship with the platform provider’s sales reps and resellers is important? 

We’ll look at the business risk of supporting a single platform, how to minimize the risk of a single platform business strategy, and the rare exception to the “single platform if sales relationship is important” rule, in my next post.  A thought experiment.  Do you think it’s safer or riskier to dance with one (real) elephant at a time (tusks, trunk and all)?  Or is it safer or riskier to dance with a few elephants at one time? Why?

Dancing with Two (or More) Elephants?

At some point almost every software company will need to make a decision on how many elephants to dance with (platforms to support).  Just one, two or more? Should I dance with Apple (iOS) and Google (Android)?  Should I dance with Microsoft (Windows) and Apple?  How about three elephants – Xbox, PS/3 and Wii?  Closer to home, how about dancing with both Autodesk and SolidWorks?  Autodesk at one point - many years ago – “tried” to dance with nine elephants all at once.  Is there a right or wrong answer to supporting multiple platforms?

The easy question to answer is you definitely can dance with too many elephants at the same time.  It costs real money to support multiple platforms – and direct software development costs are typically one of the smaller costs of supporting multiple platforms. 

Short Term

Quality and support are near the top of the added cost of supporting multiple platforms.  Trying to maintain a single code base that runs on multiple platforms invariably leads to quality problems as one stumbles upon platform specific behavior that you won’t find in any documentation or sample code.  Adding a new feature or fixing a bug for one platform will at times create instability in another platform that has to be sorted out.  If you are good, you might be able to manage this quality juggle for two or three platforms, but quality and the cost of quality increase more than linearly as you add platforms. And then there are the extra support costs for multiple platforms – having to deal with customer problems that may or may not be platform specific and the complexity of ongoing platform updates which each platform releasing updates at different times.  May I suggest quality and support costs go up exponentially as you increase platforms supported?

Long Term

Dancing with several elephants drives you to make “lowest common denominator” app design decisions.  Do you add a new feature that only works on one platform but not another?  Different capabilities on different platforms make everything harder to do – app design, coding, testing, documentation, sales and marketing materials, and so on.  This gets way complicated way fast – so you feel compelled to keep your app the same on all platforms – leading to only using lowest common denominator platform capabilities.  What happens when you have a competitor that only supports one platform, takes advantage of all the capabilities of the platform, and builds a superior application?  Let me say that again. What happens when you have a competitor that only supports one platform, takes advantage of all the capabilities of the platform, and builds a superior application?  I have seen this scenario play out a number of times over the years.  Trying to build one app that runs the same on multiple platforms (platforms that are competing to differentiate themselves from other platforms) fails in the long term – and the more competitive the market, the quicker it fails.  

So does that mean you cannot support multiple platforms?  No – you can.  But you need to start with the assumption each app on each platform is a different and unique application.  You need to make the investment in development, quality, support and so on assuming you are really developing two (or more) unique apps that have the freedom to take advantage of the platform they are designed for (not limited to lowest common denominator design).  Sure you can likely share a bit (even quite a bit) of code between these similar but different apps on the different platforms – but product design and engineering needs to have the freedom to do their best taking advantage of the strengths of each platform.

Net Net

You need to be sure each platform you are considering supporting presents you with a large enough business opportunity to build the best app you can on the platform – and not make the false assumption its mostly the same code so supporting multiple platforms is cheap and easy.  A lowest common denominator app design strategy is a strategy for failure.

Dancing with more than one elephant will also impact your ability to leverage the platform provider’s sales and marketing resources. That may or may not be important to you. We’ll save that discussion for another day.

What the Academics Think of Elephants - and Dancing with Them

As promised for a few posts now, let’s take a look at some academic research around the dynamics of elephants, elephant herds, dancing with elephants and more.  There are some real gold nuggets in this pile of research that can really help start-ups think through how to best dance with elephants (and not lose sight of the environment you are building a business in).  I must warn you the terminology used by researchers in academia can be a “bit much” at times with terms like “multi-sided platforms”, “two sided platforms”, and “social efficiency” taking some time to get your head wrapped around.  On the plus side, academia just loves researching “platforms” so there is plenty to learn. 

So here is a list of academic papers on platforms and partnering  - what we’ve been calling dancing with elephants – with my elevator description on what I believe are important conclusions – as well as at risk of embarrassing myself – my occasional disagreement.

Why Dance with an Elephant?  Why Not Go It Alone?

Invisible Engines: How Software Platforms Drive Innovation and Transform Industries

Video games.  Social networks. Operating systems. Smart phones.  Buying networks. Music services.  This is one of the classic books on platforms (elephants) .  Though it is starting to feel a bit dated, it covers most of the basics on why there are elephants, why dancing with elephants makes sense (and frankly is a necessity unless you have a number of wealthy friends), and how elephants plus riders and myriad other dancers together are a major source of innovation in our world. 

The Elephant’s Dance

Platform Rules: Multi-Sided Platforms as Regulators

Using Facebook, TopCoder, Roppongi Hills (a retail center in Japan no less!) and more as foundations to develop their platform concepts, these academics create a simplified (for an academic but not for me!) framework for looking at and thinking about how a platform provider develops and manages their ecosystem.  We all know the way a platform provider make information available, technical limitations they apply (that at times feel arbitrary), use of social media, contests, conferences, license agreements and so on impacts development of partnerships and an overall ecosystem.  But can you imagine trying to create a framework that make objective sense about the effectiveness of all this? Do I sound skeptical?  So I don’t fully buy into the model – but this research does give someone dancing with an elephant (or two) some insights on what the elephant might do – and why they might do it (that is sometimes very much not obvious).  If you know more about what the elephant is considering and might do – you are more likely to get a ride on top of him instead of dodging his steps.

Handicapping Elephants

Dynamics of Platform Competition: Exploring the Role of Installed Base, Platform Quality and Consumer Expectations

This is a video game industry based research effort – so beware applying to other industries.  If you are having to make a hard decision about what platform (elephant) to ride, this paper provides a wee bit of insights into factors to consider when trying to “pick the winner” in an elephant race.  Nothing is uglier than building your business riding - or running with - the elephant that stumbles before the race is over (taking much of your sweat equity investment down with it).  The paper uncovers the interplay of indirect network effects - more people with the platform leads to more apps for the platform which leads to more people with the platform circling skyward - with customer expectations - does a customer want/need more than a few apps? Also is poor quality in a platform (sort of like n with a drunken elephant) a mortal or surface wound? Unless you are a math major (I am surly not), I suggest skipping the development of the differential equations that try to model and predict the growth or failure of a platform.

What About “Open” Platforms?

Opening Platforms: How, When and Why

Why work with “proprietary” platforms such as from Adobe, Apple, Microsoft or Autodesk?  Why not stick to open platforms like HTML, WebGL, and SVG?  Platforms have a lot of different stakeholders – it’s not just the platform provider, customer and ISV.  There are various forms of complementors including service providers, hardware providers, educators, and others – all with their individual needs, wants and unique motivations (mostly they are all trying to make a living and have the occasional chance to do better than just make a living).  This paper comes to the conclusion that successful platforms naturally evolve into a hybrid mix of proprietary (the platform) and areas of “shared responsibility” (open).  This paper covers a lot of ground – and makes observations and draws conclusions that mirror a lot of what I have seen personally in the development of ecosystems in CAD industry over the last 20 years.  It evens talks about what I would rephrase as the dancers putting the elephant(s) in a cage!

It’s Not Just About the Elephant’s Dancing Skills – Yours Too (The Most Common Strategy Mistakes)

Understanding Michael Porter: The Essential Guide to Competition and Strategy

This is not about dancing with elephants – but valuable anyone pointing out key strategy mistakes that kill companies – such as the need to make tradeoffs – the necessity of deciding who your customers are and are not.  We all avoid making tradeoffs that might limit the number of customers we could have.  Yet all too often fewer tradeoffs mean less focus and fewer sales.  More tradeoffs mean more focus and more sales.  Counter intuitive?  Sort of.  Themes similar to Geoffrey Moore’s classic “Crossing  the Chasm” and “Inside the Tornado”.  On a tangent, I fondly remember well over a decade ago purchasing a few hundred copies of “Crossing the Chasm” and giving them out to hundreds of Autodesk partners – as well as many many senior managers at Autodesk.

Had enough of academic papers about platforms?  Want to hear about more research that applies to building a new business dancing with elephants?  Let me know – as I have a lot more (and just may do one more post).  On the other hand, I suspect I may be putting too many of you asleep and it’s time to move on to more stimulating discussions. If you are having trouble dancing with an elephant or deciding what elephant to dance with, tell me a little bit about it - and I'll attempt to do justice to "Ask Abby".

Busy in India

I won’t be delivering the as promised academic research on dancing with Elephants as promised – finding myself too busy traveling around India this week. India is an interesting place being a mix of worlds and cultures. Whenever you try to generalize about India – you can quickly find an exception. Is it an ancient culture? Yes. Is it an emerging market full of new ideas, new business models and innovation? Yes. Is it the hustle and bustle and dirt and grime of a rapidly growing over crowded emerging market? Absolutely. Is it the peacefulness, patience selflessness of an Ashram? Yes again.

 

Ravi Shanker Ashram outside of Bangalore. The “Art of Living” through music, song and dance. A delightful place one of my software engineers in Bangalore – Partha Sarkar – took me to visit.

My ADN Evangelist for India (and a bit more of Southeast Asia and ANZ) Arvind Thangli has been chaperoning me around (Dehli, Mumbai, Pune, Bangalore) meeting small and large software partners, customers pursuing internal development, professors at a leading University of engineering and technology, and one of the largest System Integrators in the world. For someone like me that grew up in New York and has now spent half my life in California, the juxtaposition of third world infrastructure with first world cutting edge technology development is surreal. Showing people the latest Cloud and Mobile technologies from Autodesk, talking to them about their needs and development efforts, sharing thoughts on where the software industry is headed – from the long term value of app stores to what is best done on a mobile device versus the Cloud versus the desktop, is absolutely engaging, intellectually stimulating, and just plain fun.

This India trip included my last “DevDays” presentation of the year (for non-ADN members, DevDays is where Autodesk presents partners with an advanced look at new Autodesk technology that is going to be released in the coming year – and in some instance over the next two years). This is my fifteenth DevDays of the year having started in Melbourne (Australia) in early November, crossed Asia, then Europe, Sao Paulo (Brazil) two weeks back and now having finished up in Bangalore – having now presented Autodesk technology directions to over 1400 software developers. One take away from the world tour for those of you that are entrepreneurs, the Cloud and Mobile in the design and engineering space is now (if not last year). Not next year, not next month, not next week. Last year during DevDays we talked about how to integrate Cloud technologies with Autodesk technologies. The audience was a bit skeptical – doubts about connectivity, doubts about data security, doubts about their customers/users being ready. Those doubts are gone today. Software developers around the world are now asking “how” – and “help me” (not “my customers are not ready”).

During DevDays, I was delighted to see some great Cloud and Mobile apps developed by Autodesk partners around the world – from partners in the US, partners in Switzerland, partners in Russia, partners in Australia. Innovative technology mostly developed by just one of two engineers in just a few months. If you have a great idea for a Cloud and/or Mobile app aimed at the design and engineering community, act now. Dive in – the water is warm. Don’t delay. There is a window of opportunity for Cloud and Mobile innovation in the design and engineering community for the next year or two – and then the window will close and it could be over a decade before a new business creation opportunity like this presents itself again.  All you need to do is ask the four "Cloud andd Mobile" qualification questions when approaching a customer problem:

1. Is Collaboration needed?
2. Is there a Large changing Dataset that many people need to use?
3. Is there a Compute Intensive task that would tue up a desktop for many minutes or hours?
4. Is the Code Changing Frequently?

Yes to any of these four questions - Collaboration, Large Data, Compute Intensive or Frequent Code Change - means the Cloud is part of the answer.  Not "might be".  Is. 

And elephants love to dance with innovators - especially Cloud and Mobile innovators.  :-)

Now to risk sounding like a broken record, next week I get back to that acedemic research I have been promising for two weeks now on partnering, multi-sided platforms and dancing with elephants.

Can I Bootstrap a New Company or Do I Really Need Investors? Will I Starve?

Because of a great inquiry from a reader, I am going to delay one more post before talking about the academic research around software platforms and dancing with elephants.  I received a question from a motivated and excited software developer with doubts about their ability to start their own business. To start at the end, yes you can absolutely "bootstrap" the launch and growth of your own software company.  You do not need venture capitalists or angel investors to start your software business.  Web services (Cloud) based businesses are easier yet as you have fewer computers and no servers to buy!  One of the beauties of software companies is the ability to build a company with very little money using sweat equity.  Autodesk was in most part "bootstrapped" with thirteen programmers each investing about US$ 5000 each to get help the company started.  Did they quit their "day jobs"?  Absolutely not.  During the day they working worked on their regular salary paying job while spending evenings and weekends working on Autodesk projects.  There were modest Autodesk expenses that needed to be paid which is what the first US$ 5000 per person was all about.  Before the first US$ 55,000 ran out (I forget why its not 13 times US$ 5000), AutoCAD was out on the market and the company was cash flow positive in its first few months (easy to do before you have to pay salaries).  Over the coming year the original thirteen quit their day jobs and made Autodesk their sole job.  In these early days, Autodesk was the start-up dancing with the young elephant Microsoft and bull elephant IBM. Is this an exceptional case? Yes and no.  Yes in how big the business has grown but no in that thousands of software companies go from start to profit with little investment and no investors. Over the years I have personally seen over a thousand people launch their company as a night job and eventually quit their day job.  Several hundred have used their business profits to create small companies, a few hundred grow to medium sized companies, and a few dozen build large companies. A handful became downright wealthy with a few going public.  What's it take?  A great solution to a pressing customer problem and a cost effective way to reach (sell to) these customers in pain.  

Is it really that easy?  Its easy to get started.  It can take a lot of hours, and a lot of sweat equity, to get to the point you have your first few sales.  It can take many more hours and efforts learning how to effectively sell your solution.  But it's not magic and, in the Autodesk Developer Network community, over a thousand people have done it already.

I will say its easier to boot strap a new business when you are young - before you have many monthly bills to pay such as car, home and school payments.  When you can work this second job nights and weekends without neglecting the spouse and kids (because you don't have them!).  That said, I know a number of people that bootstrapped their first business beyond forty (and fifty) years old.  It was all about having a great solution and knowing how they were going to reach those customers in pain.

I just watched an Autodesk software engineer go through the bootstrap process where Autodesk was his day job and his "great idea" for an Apple App Store app was his night job.  In less then a year, his Apple App Store business (initially based on what was in effect some very cool screen savers for the iPhone) was on an annualized basis generating over twice his Autodesk salary.  So he quit his day job at Autodesk.  Enabling an individual with a great idea to start a new business at almost no cost is one of the primary reasons Autodesk launched Autodesk Exchange Apps (Autodesk's version of an app store that helps start-ups solve that "easily reach the customers at low cost" challenge).  One of the key reasons to dance with an elephant is riding the elephant greatly lowers the cost of entry - enabling you to more easily bootstrap your start-up.  Elephants enable you to get their first solution out the door generating those first sales in a few months - starting your move up the new business learning and growth curve.

I have also seen Autodesk acquire several bootstrapped companies over the last year or two that were dancing - maybe cutting the dance short a wee early while enabling their founders to cash in on all that sweat equity they had created.

So if you are dreaming about starting your own software or web services business, don't delay.  The sooner you get started the better.  And don't quit that day job until your new business is up, running and cash flow positive (after paying your decent salary).  You can do it. In the design and engineering software business, thousands of people have done it already.

Next post really will be about the academic research supporting dancing with elephants - the dynamics of two and three sided markets/ecosystems.  A taste for those of you that like academia and scientific studies and just cannot wait - check out "Platform Competition Under Asymmetric Information".

 

Dislike Business Consultants? I Do.

It occurred to me that before jumping into citing academic research around platforms, ecosystems, symmetric and asymmetric relationships, I would point you to some less academic easy reading that covers dancing with elephants – but also a whole lot more about growing a small business into a bigger business.  Over the years I have worked with numerous small entrepreneurial companies.  Some with great instincts on how to ride the elephant, some working hard on how to best work with the elephant – but also many other companies led by engineers and technologists that - though they wanted to grow their business - were really not engaged and enthusiastic about the what they viewed as a necessary evil – selling, marketing, developing business relationships and the sort.  A technologist owner/founder/CEO can build a great business with 10 or maybe 20 employee’s, but growing larger really requires help and a partnership with someone who really enjoys developing the non-product side of the business – sales and sales channels, business partners, classical and social marketing and the sort.  At the same time the technically oriented founder really doesn’t want to give up control of “their baby” – to someone that likely has little understanding of the technology and products and frequently little to modest understanding of their customers.  So what is a small entrepreneur to do to take the business to the next level?  One modest step toward adding more business/marketing/sales savvy to the business – without the big step of hiring someone to run your business and likely giving them equity - is hiring a consultant to help you work through the process.  Learn from an expert what is needed to accelerate the growth of your business.  Well I mostly treat consultants with suspicion and at times distain.  I know I shouldn’t have this negative view of consultants – but emotionally I do.  I know I am not alone.  My experience seems to always be the more I get to know about a business consultant, the less I like and value them.  With just a few exceptions.  Having met a lot of consultants and worked closely with a few, one consultant that has greatly impressed me, who specializes in working with small businesses to take them to the next level, is Phil Morettini.  You can quickly get a feel for his skills, insights and approach to building a technology business – and immediately learn from Phil’s experience and expertise - at his “Morettini on Management” blog.  Check out the right hand sash at the various categories of business development topics he has blogged about over the last few years such as under “Business Development” his post on “International Expansion: Partner or Invest?”.   In the “Business Models” category there is a great piece on “Should Your Sales Reps Cold Call?” and “Starting and Growing a Software Company in a Difficult Fundraising Environment”.  In the “Corporate Strategy” category, he has a great piece on the topic that always makes small company founders nervous and uncertain “Choosing an Advisory Board for Your Tech Company”. Or how about the topic every business owner – whether it be a large or small business – faces “Is It Time to Sell your Hardware or Software Company?”.  And the must read “Startup Mistakes by Software and Tech Companies”.

So I strongly recommend anyone starting a new software company, or trying to grow a small software company, spend some time studying many of Phil’s “words of wisdom” in his blog.  And if you really want and need more active help growing your business, give Phil a ring (though the tricky part if you want his direct help will be your selling him on that you are someone he wants to work with and for).

So next blog posting we’ll get back to the “academic research” I promised you was coming next.

Front Running the Elephant

One strategy for dancing with the elephant is running right in front of him – developing function, features and services you fully expect the elephant to develop sooner or later.  Sound crazy?  As a fox.  The highest volume opportunity is running right in front of the elephant – providing general horizontal capabilities a release or two or three before the Elephant does.  These are capabilities the largest number of the Elephant’s customers want and need.  It’s the largest volume opportunity for extensions to the Elephant’s technologies.  But how does one build a business when one is always at risk of getting stepped on?  By building a large number of products and services – 10, 20, 30 and more – you can afford to lose a product or two when the elephant finally gets around to implementing the same capabilities as one or two of your products.  A good example of front running the elephant is Symantec.  Much of Symantec’s revenue comes from front running Microsoft – such as their security product line (Norton and the sort). The Elephant also has limited resources so cannot do everything and some of your high volume horizontal products and services will survive several years.  Another consideration, when front running, is making measured investments in each of your products – and not overinvesting – as you don’t know how many years you’ll have to recover your investment.  You’ll also need to invest more time is promoting and creating awareness of your products as you need to build volume sales quickly as the lifespan of any one of your products is likely just a few years.

If you build a horizontal product or service that is both reliable and extensible, you also are positioned to “win the lottery” should the elephant prefer to buy instead of develop horizontal technology that you have already developed.

A side note is folks viewing the Elephant stepping on a front running partner as evil.  One needs to recognize the elephant is talking to many many customers – the same customer you are.  They hear from these customers the need for numerous horizontal enhancements.  It’s rarely about the elephant seeing a successful partner and wanting to take their business.  It’s almost always the Elephant hearing what their customers are asking for. 

You can maximize your opportunity to “win the lottery” by building relationships with the appropriate Elephant product and product line managers.  This puts you in a position to sell your products to the Elephant or convince the Elephant not to develop capability you already deliver – as their customers can already get it from you – including having the Elephant send their customers to you!

To end this blog, if you are pursuing a horizontal front running the Elephant strategy, be sure to have several products, invest in a measured way in each product (don’t over invest), spend a good bit of time and money promoting your products, and keep in close contact with the Elephant’s product management.  I know one “front runner” that built up a US$ 2 million per year business selling horizontal utilities with just a team of 4 people – a development team of two and another two people performing sales, marketing and administration.   Needless to say they made money hand over fist for several years (but then over invested in one very successful product while neglecting the rest of their product line – only to see their over invested product stepped on by the elephant).

I plan to get a bit academic in the next blog posting – citing some of the scholarly research on platform technology.  Over the years, University researchers have taken close looks at a variety of platforms – operating systems, video games, and video formats – providing an objective and frequently formulaic take on the benefits of platforms and ecosystems for the various players.  There is also some great academic research about the market dynamics – and what small companies should do - when there are multiple Elephants (platforms) in the same market pursuing the same partners and customers.

Social Platforms? Sales and Marketing Platforms

Hey wait a minute!  Before moving on to other ways to leverage what I would call “classical” platforms of desktop technology and data, what about the new “social” platforms?  Are the new “social” platforms like Facebook , Twitter and YouTube different?  Yes and no.  Social platforms are for commercial organizations another way to create and maintain relationships with customers and partners.  The power and focus is less about the technology and more about how to best leverage the social connections these platforms have consolidated and organized.  What is the number one way companies find new customers?  It has been – and will likely always be – word of mouth.  It’s all about “who do I trust the most – who do I know best - my friends”.  The social platforms are a much more efficient and powerful mechanism (and potentially very low cost too) for a small company to create word of mouth “references” and “buzz” – reducing sales and marketing costs (barriers).  Make no mistake, these are technology platform sin the classical sense that small companies can leverage – but they are sales and marketing platforms (maybe better called “relationship creating” platforms).  The concept of sales and marketing platforms is not a new one – with companies like Microsoft, Autodesk, H-P and more using Value Added Reseller’s as a sales and marketing platform.  Many Autodesk partners with somewhat complex products that really need to be “explained and sold” have pursued and leverage the Autodesk VAR channel for many years (effectively leveraging VAR channels is a topic I'll be getting back to in the future and will likely take a few posts to cover in enough detail to be useful to a small start-up developing their go to market strategy).  There was a time when folks saw the new direct sales and marketing channels as developed by folks like Amazon and Dell as “the only answer” – but it’s become clear over time a mix of local/physical presence and web presence is “right” for products with significant technical content (see what is likely the most successful retail store chain on the planet - Apple and their Apple Stores).  “App stores” are a “social platform” for sales and marketing.  When the product is simple to understand and use, software based, and Business to Consumer (B2C) – an app store can be a very effective way for a small company to find new customers.  A warning about app stores – you really really need a great polished product to leverage an app store.  Mediocre or down right poor/low quality apps are quickly identified, avoided, and reputation damaging.  The transparency of app stores also means apps need to be improved – or new flavors launched - frequently and quickly - due to the easy access to your apps and sales success by competitors.  I see folks thinking one great app in an app store will make them rich – by this is very far from the truth.  One great app will enable you to boot strap your business from a sole proprietorship to a small company – but it’s going to take an ongoing stream of app improvements and new apps to create a real ongoing business - long term success. 

Why did I say app stores just apply to B2C?  Because the overall business market is still trying to sort out how to make Business to Business (B2B) app stores work.  How many companies purchase primarily with credit cards and payment services like PayPal?  How do you deal with Purchase Orders that most companies use?  How does a company own the license instead of an individual who may leave the company next week?  Autodesk launched its first app store with AutoCAD 2012 just 7 months ago and is going through the steep part of this learning curve.  Other large companies like CISCO are also working their way up the B2B app store learning curve.  Can new and small companies leverage these emerging B2B platforms to boot strap their business?  Yes.  Do you jump on board now and learn as these app platforms develop?  Absolutely – or you are just letting someone else take your position – and reap the rewards of being their early.  Look at early adopters of social platforms in the game space like Zynga’s FarmVille on the Facebook platform and Angry Birds on Apple’s App Store (and Android Marketplace).  They were both early, they both went through a bit of a bumpy (unprofitable) learning curve, and now the big players in the video/console games market are playing catch-up.  There are numerous “late comers” to these app platforms struggling to build real businesses – while the few successful early adopters are accelerating away from the field.        

Next posting I get back to the opportunities and risks building a business running in front of the Elephant – building a business around horizontal software utilities you absolutely know (or at least can foresee) the Elephant will also want to deliver to their customers sooner or later.  There is money to be made and a business to be built running in front of the elephant – but it’s a “different” kind of business that one needs to approach with “eyes wide open” – and a clear business strategy/structure that enables you to stay out front and/or cash out at the right time.

Why Dance? The Long Tail

Back to the value Elephants get from partnering with small companies – developing an ecosystem of partners delivering a variety of solutions – general utility software filling holes in Elephant products, niche vertical solutions that turn the platform technology into a very different tool, unpredictable innovation and people.  It’s easy for people to understand the value a small company brings to an Elephant when the partner makes the Elephant’s platform technology useful to customers in very different markets then the Elephant currently target’s  (note I say “currently” as one needs to watch where the Elephant is heading – which changes over time – and is a topic for a future blog post).  I like using interesting Autodesk partners as examples – but at the same time some partners like anonymity – so pardon if I am a bit abstract/obtuse at times. So a few examples of where niche vertical solutions dance well with the Elephant.  A long time Autodesk partner has software for ornamental ironworks fabricators.  Ornamental iron works?  That’s metal fabrication companies that make wrought iron gates, fences and bars over windows.  I live in San Francisco where most houses have bars with ornamental flourishes on all first floor windows – though there are also those wealthy folks that have iron gates and fences around their estates.  There are a few thousand ornamental ironworks companies in North America.  This Autodesk partner has about a thousand customers using their AutoCAD add-on for designing and fabricating ornamental ironworks.  Leveraging AutoCAD as a platform, and with just three employees, the partner has a professional desktop application for ornamental ironworks companies that generate several hundred thousand dollars per year in revenue with healthy profits.  What does Autodesk know about the ornamental ironworks business?  Nothing.  What does this Autodesk partner know about graphics systems and geometry kernels?  Nothing.  By dancing with the Elephant, the partner has built a great profitable business and the Elephant has hundreds of customers they wouldn’t have otherwise.   These specialized niche partnerships are from the Elephant’s perspective stable and very profitable “long tail” business.  How profitable is this long tail business to the Elephant?  Very.  The cost of sales and marketing for this partner driven long tail revenue is near zero (though the Elephant does have the mostly modest extra cost of developing and documenting APIs and supporting these long tail partners).  These niche software providers are companies well to the side of where the Elephant is focused so are at little to no risk of getting stepped on by the Elephant. 

If you are pursuing a Long Tail strategy - whether as the Elephant or by partnering with an Elephant - I really recommend you take the time to study this strategy in more depth by reading Christian Anderson's "The Long Tail: Why the Future of Business is Selling Less of More".  When it comes to a business based upon partnering, ignorance is not bliss.

Next posting we’ll talk about companies with general utilities that fill holes in the Elephant’s products and services features/functionality – companies that are typically in the bit risker position of running just in front of the Elephant. The closer to the Elephant’s front feet you run, the larger the sales and profit can be, but at greatly increased risk of getting stepped on.  If you are a small company dancing with an Elephant, are you in a narrow niche market running alongside the Elephant or are you providing more general capabilities and running in front of the Elephant?  Are you sure?