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January 2012

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.

 Ashram

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.  
Bootstrap
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!

Elephants

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?


Data Platform?

Elephant’s also provide “data platforms”.  Data is distinctly different then general technology as data is much more valuable to customers then the tools that make it.  Whether it be AutoCAD, Microsoft Office, PS/3, Facebook or an Oracle database, and though changing design tools and technology platforms can be painful, changes that change, disrupt or obsolete years and years (decades) of data are much more painful.  Because data is so important, most customers will avoid investing in technology from small companies because of the risk the data created will be made obsolete or just hard to work with long term.  In the old days being able to export all data in ASCII format was a reasonable approach (why Autodesk developed the DXF file format) but these days a usually human readable XML format provides users “future proofing” for their data.  That said, these text formats are mostly just suitable for a one time migration of data as they are “verbose” (large file  sizes) and “slow” (too slow for real time use when the task is compute intensive or performance is important).  Small companies leverage Elephant file/data formats - even though they are proprietary – so potential customers have confidence that going with a small company is okay because their data is future proofed due to the sheer size and ubiquity of the Elephant’s file formats - such as Autodesk’s DWG and Adobe’s PDF.  How do you provide your customers comfort their valuable data is future proofed?