Software businesses are hard

As a software developer, you know the story: the “idea guy” approaches you and all he needs is someone to code his “idea”.  You know, for equity.  I get thousands of these per year, and you’ve gotten at least several dozen even if you’re not in a heavy “get-rich-quick” development sector.

And while that’s all true, and interesting, and fun to talk about, what us software developers have forgotten is there’s the equal and opposite myth that we can just throw some code together in an afternoon, and boom, instant revenue.  Somewhere between 37 signals and pg’s “make something people want”, we’ve gotten to the point that we think we can just write some software that solves somebody’s problem and hey, instant money.

Take Bingo Card Creator’s patio11.  He says:

Interviewer: Do you think other people could repeat your strategy used in Bingo Card Creator?  Is it unique or are there a thousand other niches where it would work?  Could they quit their jobs, too?

Patio11: First of all, I think absolutely nothing I’ve done in the last four years is particularly inspired or out of the ballpark for anybody.  I think anyone on e.g. Hacker News could open a small business on the Internet: if you can program, that is all you need to be able to do.  I think there is a rich, vast, almost limitless sea of niches: many of them are bigger than bingo cards for elementary schoolteachers.
One of my friends from the Business of Software boards, Andy Brice (http://www.successfulsoftware.net),  runs a site (http://www.perfecttableplan.com) which does seating plans, primarily for weddings and bar mitzvahs, etc.  He is my business idol.  Peldi from Balsamiq does Mockups — and that’s all.  I used to know a guy — unfortunately he exited the business in favor of more lucrative opportunities — that wrote scheduling software for chimney sweeps.

If you can make a decent living doing bingo cards or seating plans or software for chimney sweeps, then clearly there are additional niches out there for you if you take the time to look for them.  [Patrick notes: talk to real people with real problems.  That is literally all there is to it.]… I think with enough creativity, domain expertise, and empathy with your customers’ needs, though, you can create the moral equivalent of that in almost any arbitrary niche.

Patrick doesn’t give himself nearly enough credit.  He’s a damn near brilliant marketer, and his strategy with BCC is pretty much ingenius.  There is absolutely no way your average good-coder HN reader could replicate his success without spending a lot of time learning marketing and customer acquisition.  And in fact, if you look into his real strategies on the subject, you’ll discover that’s pretty much exactly what he advocates: careful study of marketing and sales.  Andy Brice and Peldi are similarly brilliant entrepreneurs who are also under-appreciated.  Although Andy doesn’t bill it this way, his list of criteria serve as an excellent list of what’s probably wrong with your software business.  That knowledge doesn’t just come from conducting a few problem/solution interviews–it comes from a hard study (read: lots of failures) of software businesses.

This is all very arbitrary; let me give you some concrete examples to hang your hat on.  We want to do a product in the commercial construction industry, because it ticks a lot of boxes on our scorecard (desperately needs mobile, an unsexy sector ignored by other software developers, quite literally people take scissors and paste to bits of paper to solve problems because no real solution exists, and millions of dollars are lost  today due to human error).  It’s a textbook case of a great problem, and if you know of anyone in the commercial construction industry in Austin or a surrounding area, you should get in touch so we can conduct some problem/solution interviews.

The roadblock?  On a five million dollar project, the margins are so thin that a contractor may only make $25,000.  That’s a margin of 0.5%.  A slight mistake and the contractor is 10x or 100x in the red.  Costs are shaved all the way down to the wire.  All unnecessary expenditures are eliminated.  Screwing subcontractors out of their fee to recover losses is standard operating procedure. To say selling to this market is difficult is the understatement of the century.

Now let’s take an example from the other side of the spectrum.  This guy released an app that didn’t sell well.  It’s not exactly a triple-A title, but it’s fun enough.  The prevailing wisdom on HN is:

it seems better as an ad-supported title (it’s too simple) than a 99 cents title when you compare it along side other 99 cent titles I’ve seen in the app store. The bar is getting higher and higher and unless I see something amazing in screenshots or a trailer, it’s not even worth the purchase barrier to entry for me to try it.

That’s right, “the bar is too high” these days to sell a fun title for one dollar.  Granted, he’s not exactly solving anyone’s pressing problem.  But you’ve got smart hackers holding a phone that’s going to cost upwards of $2k over the contract, and they’re whining about spending a buck.  From a sympathetic, “sell your products for money” entrepreneurial community.  But the commenter is spot on in the sense that today’s economics usually dictate expenditures of six or seven figures for a $.99 game title to be successful.  Which is beyond the reach of most small developers.  In other words, software businesses are hard.

I could give you another ten examples.  We provide a service aimed at small businesses that have some ongoing costs.  Lots of potential customers object to the very idea of ongoing billing.  We’re talking about a total spend of around $50/year, for a vital service that solves an important problem, but apparently not important enough for that kind of spend.  Maybe we’ll break even in six months.

Another example.  We’ve talked to customers about expanding one of our product lines to reach into small businesses from its current market of freelancers.  Our existing product helps the little guys track on the order of a few million dollars a year, but as they get bigger, they outgrow our product.  Adding some “small business” features would let them keep using it as they grow.  They’re willing to spend a maximum of $25 for a one-time license, SaaS is out of the question.  We would never break even on that one, even though it’s an important problem that we’re in a very unique position to solve.

There are problems everywhere you look, and as a software developer you can solve them.  But how many of them are worth it?  Not very many.  If you can’t get a small market to pay you $500/year, if you can’t get a medium market to pay you $25/year, if you can’t get an enormous market to spend $5, it’s just not a very important problem.  And every city in the US is filled with the carcasses of startups solving unimportant problems.

Look, I’m not whining about the state of the world.  It is what it is.  But it’s important that we as a community stop perpetuating the idea that software businesses are easy.  They’re hard.  Very, very hard.  It’s every bit as hard as the technical work.  If you’re a developer, it’s probably a lot harder than the technical work, because you know all the technical stuff already, but the business stuff you don’t know.

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