Archive for the 'Business' Category
A good friend of mine is a writer, editor and big fantasy sports aficionado. I recently helped him set up a blog called ThePickToClick, where he posts (more frequently than I do I must say) about his obsession.
One day we were talking about various entrepreneurial things and I asked him if he could do anything he wanted what would be it? Well he quickly said that it would be to write about sports and fantasy leagues. I told him that I could set up the site for him and he could take it from there.
Step One - Work Out A Content Plan
He wrote up a content plan which helped me immensely in setting up the site’s sections and categories and gave me an idea of how the site should look so we didn’t have to do a whole lot of back and forth “take a look at this”. OK, we still did that but it was more for detail stuff than anything else.
Step Two - Install the CMS
There are a good number of open source CMS solutions out there, but I was fairly familiar with Joomla! so that is what I installed for him. I then went and found a good template via RocketTheme and installed that too.
I’ve spent the better part of a couple days getting the menus are set up correctly and doing some of the cool tab-like features for him as well as installing various module and components while he decided on how he wanted it to work and what the sections should look like. Naturally this required me to change things a few times, but so far it is looking pretty good.
Over the next few days and maybe week or two I’ll go into the various things I had to do to get the site running the way I wanted as well as the way he wanted. Covering topics like SEO, SEF, etc.
The site? Oh yea the site is RotoTown.com. If you are into fantasy sports check it out and if you are really into fantasy sports ask him to be a contributor or give us some ideas on what you would like see to improve it.
Ryan Carson of DropSend.com has an article on TechCrunch covering the 3 points to building a successful web application that will be profitable.
The three points really apply to just about any business, but he covers the particulars concerning web applications today such as a free plans that show the value of your product and encourage upgrades to a paid version of your product.
Building a content site
Web businesses that are predominately content based have the tough decision of going completely free or offering a subscription. These businesses are largely content based such as Digg, Netvibes, Flickr, etc. As Ryan points out, to have a service like these become profitable you really need a large amount of traffic in order to sell advertising. Even with advertising it can be pretty difficult to truly become profitable.
Sites like YouTube and Digg for example have a high cost of operation. Bandwidth, server hosting, maintenance and upgrades can get very costly quickly. On the flip side, most of these companies can be started with relatively little capital. The beauty of a web application is that as a general rule they can be scaled up. You can start with a small leased server and as traffic (and hopefully revenue) build up you can grow.
Building a product
The alternate route to take is that of a hosted product. SmugMug, DropSend, 37Signals are all companies that fit into this model. Most of these companies have a free version that they use to allow a user to try out the service and then have 3 or 4 upgraded versions from there. Having a free version can also help to generate awareness of your product. After all, word of mouth is always the best selling mechanism. In today’s blogging world, word can spread quickly as well further driving potential customers to try out your product.
Whichever route you are thinking about taking, read Ryan’s article as he has some other good information like pricing models.
Note: For the software developers out there reading this I know that scalability of an application isn’t always as simple as just plugging in more hardware. There are many other factors to consider however it is easier to scale up software than other types of products.
Matt Coddington, who runs the Net Business Blog, has an interview with the owners of the site One Greek Store. Two things I like about these guys.
First, they just went for it even though they are still in college. They didn’t know much about building a website yet went out on the net and found a free solution called VirtueMart. The software is based on the Joomla! content management system of which I am pretty familiar with. From the interview:
None of us know very much about web stuff. I know some basic things… but nothing significant. We use virtuemart.net which is a free open source shopping cart. The software is easy to use and allowed us to save a lot of money from hiring a programmer or having a custom shop made
Second, they didn’t let early setbacks stop them. They couldn’t find local producers that met their quality standards so instead of lowering their standards or giving up, then went for the ‘hard’ solution and bought the equipment themselves to produce their clothing and do everything out of their apartment! Dennis had this to say:
First we wanted to work with a local retailer… that fell through. So our next step was to outsource all of our production to a local seamstress/embroiderer. But what we found was that these local businesses didn’t product clothing to our quality standard with a fast turnaround. Our final evoluation was to purchase an embroidery machine and do everything in house.
Go read the interview and maybe get inspired to get started on your business idea.
A very important question when deciding what route your software startup will take is whether to target corporate customers or individual customers, the B2B or B2C models. Choosing which model has a big impact on several areas of your business, from software delivery to pricing to perceived value.
Business to Business
A
recent interview with Ian Landsman of
UserScape, a help desk software vendor, says
If possible go B2B instead of B2C. B2B generally will let you charge higher prices and allow you to focus on fewer but more valuable customers.
By ‘valuable customers’ here, he is referring to the price margin per customer for businesses. For a medium to large company, it is fairly common to see software purchases in the 6 to 7 figure range. Most decent size companies think nothing of spending a couple hundred thousand for a piece of software. Their perceived value is much higher than for an individual customer, hence the higher prices.
The downside to this B2B approach is that companies that will pay for this level of software tend to be either picky about the vendors they will deal with and be difficult to approach. By picky I don’t mean the quality of the product, but the recognition of the vendor itself. If a vendor is not well established in their market they will have a hard time making a go of it. It is kind of an ironic fact that for the most part the bigger the vendor and software package the lower the quality of that software, but companies don’t buy quality, they buy a name brand such as IBM, BEA, Microsoft, Oracle, etc.
Ian notes in the interview the struggles in this area:
Now I’m trying to figure out the best ways to reach those old school companies who get all their product information from conferences and trade publications.
Another downside is that companies also look for a laundry list of features, which means far more work for you. It doesn’t matter that they probably don’t need all of the features they are asking for because someone in the company read some article somewhere that said they needed it.
Business To Customer
The other side of the coin is the B2C model. These companies tend to get a lot of visibility because they are, by nature, in the public space. Think YouTube, 37Signals, Flickr, SmugMug, Digg, TheGoodBlogs, etc.
There are two variations of the B2C model. The first is a direct sale to the customer. SmugMug.com follows this approach by charging for their photo sharing/hosting services. Their customers range from the everyday photo taker to full photo professionals and they offer nothing for free, however they are very successful because they have a great product at the right price point to allow the customer to see value in using their service over a competitor offering free services. Of course you could also sell a physical product as well like an Amazon or other online retailers.
The second approach is the advertising model. This is where the Diggs, YouTubes and Flickrs of the world operate. They offer free services that attract a lot of visitors and rely on those visitors for advertising revenue. That advertising can come from a variety of models, such as pay-per-click like Google ads to cost-per-impression to direct sale of a spot. The advertising models tend to be social media sites and the good ones generate large amounts of traffic.
The B2C approach can have a much lower barrier to entry on two fronts. First, individuals are not as overly concerned about company recognition like corporations are and as a result are more likely to check out your product or service. Second is a much lower cost to market. As I mentioned in my previous entry about DropSend, building a web startup can be done relatively inexpensively and much quicker as you can add features as you go.
The downside to the B2C model depends on which route you take. If you choose the advertising path you could end up getting large amounts of revenue, but not large amounts of profit. The operating costs for a site like YouTube or Digg can be quite high with most of the costs going to hardware and bandwidth. That isn’t to say that this approach can’t make money. There are many sites that make good money using advertising. Going down the pay-for-services approach can have its own hurdles. You need to find that niche that people are using but are also willing to pay for and provide a better product that the competition.
The Sweet Spot
An under targeted market is the small to medium B2B market. These companies rarely have an IT staff or at best a very small IT staff so they can’t afford to build software and yet they don’t have the big budgets to buy those 6 and 7 figure software packages. While they are very cost conscience, they still need software to run and expand their business. There are also a lot more companies of this size so you are playing to volume that a B2C model targets, yet higher price that the traditional B2B model enjoys. Finding the right price point and finding customers to buy your product can be tricky, but you may have more success as these companies are more apt to consider a newer, non-established company to do business with.
The Decision
Deciding which path to take can be a tough decision and each has its own rewards and risks. Like any good startup strategy, researching the market can help guide you along with your available resources. Understanding the risks and rewards of each model will go a long way in realizing your success.
Thanks to the TechCrunch forums, I found this text document describing how much the startup DropSend spent on building their service.
The figures are in British pounds and according to Google the current exchange rate is almost $2 per pound which means they spent just under $60,000. They have some good general guidelines, such as:
- Don’t build for acquisition. Build your business for profitability first. If Yahoo! or Google comes along and wants to buy it, wonderful, but don’t build it with that intention.
- Have a financially viable idea, and don’t worry about being caught up in another internet bubble. If it is worth buying, people will pay for it. A great example here is SmugMug. They offer a pay service for photographers and photo sharing. Yes you can find free alternatives, but people will pay for good service.
- Try to limit the amount of features to get the product out and the get money in.
Some of their money saving tips:
- Barter for any service that you can to avoid spending cash.
- Don’t spend on anything that you absolutely don’t need. Don’t call, use IM. Don’t buy stationary, etc.
- Use free and cheap software. Open source is your friend!
- Shop around for services. This is especially true for hosting which can vary widely.
I think my favorite tip of all pertains to lawyer expenses:
”Get a free 1 hour consultation - from as many different lawyers as possible.” Now that is a great idea!
They contracted out for pretty much all of their development, which can also be a widely varying expense. One area where you can save some money on pertains to graphics and the site design. Go to your local college or put out an ad in something like CraigsList asking for a college student/intern to do some graphic design for you. You get the graphic work for no or minimal cost and the student gets exposure and something to add to their resume and portfolio.
Being a software developer myself, I would advise against going this route for the actual software work. For a web startup, this is the core of how your business operates and should be done by someone with experience. The last thing you need is for your application to go down because of bad or inexperienced programming. For all intents and purposes, quality software can written in any programming language so if you aren’t particular don’t sweat this aspect too much. Having said that, using open source solutions can really save you some money here. The LAMP solutions (Linux, Apache, MySQL, PHP) is such a common platform these days it shouldn’t be hard to find developers who are familiar with it. Going this route will save you not only on development costs, but also licensing costs, which for all four of the LAMP pieces is nill.
There are other varieties of open source as well which are popular, such as Ruby and the Ruby On Rails toolkit — popularized by 37Signals — the PostgreSQL data and a few others. The important thing is that these are free and being popular means that developers can be found relatively easy.
While building a web startup can be done for less depending on your resourcefulness and contacts — Kevin Rose is reported to have paid a buddy $1000 to build the first incarnation of Digg — shelling out $60k isn’t all that much when you have a great idea with potentially 10’s or 100’s of thousands of users using your service. Those users can either be directly paying, such as SmugMug, or that traffic drives good advertising rates.
Anyone have any other money saving tips?
TechCrunch had a post about a year ago about not blowing your beta testing. Being TechCrunch, the post was geared towards internet related products and sites and a recent post about Geni doing some things right and some things wrong.
Being in the software business, I understand the importance of beta testing and I have also seen beta software that users ended up thinking was production quality and all sorts of problems come of that. The TechCrunch post about Geni is a perfect example, although Geni may have presented themselves as production ready.
As I’ve written recently, I’ve been debating about what features to include in my initial release and it can be tough. So here is what I have come up with:
Enough to be compelling
If you don’t have enough to be compelling, people won’t come back. For software you want enough features that someone will buy which fuels future development. If you have a more tangible product, don’t try to make it too perfect. My wife makes incredible container candles and everyone who buys them loves them, but she is a perfectionist and keeps trying to get the perfect combination of scent, burn time, looks, wick burning, etc. I keep telling her to just make them and get customers, the rest can come. Oh well, at least I get to enjoy them! (EDIT: My wife was just reading this and said “They aren’t good enough to sell yet”. I rest my case…)
Private Betas
Google had the right idea with its Gmail product. For those not familiar, Google is the king of the beta release. Some of their software remains in beta for seemingly forever, but with their email package, they used an invitation only approach. This pseudo-private approach to beta testing had two things going for it. An analog to the beta for merchandise would be a focus group.
- Limited, but increasing, testers - Each tester was allowed to send invitations for others to participate. This allowed Google to gradually increase the amount of testers without having to find the testers themselves.
- Lots of buzz - It seemed like everyone that got an invite quickly blogged about it, generating lots of interest and anticipation.
If you want too much, it will take too long to implement and you are either burning through your capital or you never get it to market. Even worse someone else may come along and beat you to it. If you release too early, you risk not being ready like Geni and possibly having a faulty product.
The solution of course, is somewhere in between 
I’ve recently become a fan of the The Chief Happiness Officer’s blog. He discusses ideas around being happy at the workplace as having happy employees. This whole concept seems great and I do believe in it, but watching The Big Idea with Donny Deutsch last night really showed how well this can help the business and as a result, profitability.
The topic last night was big companies that made big turnarounds. One of them was the former CEO of Continental airlines and how he turned that company around, which had already gone through 3 bankruptcies. His primary focus was fostering an environment where the employees were happy. He knew that happy employees meant better service and better service meant happy customers which of course leads to more business. In this case that better ’service’ didn’t just mean a smiling face greeting everyone, it also meant that on time rates went up, aircraft had fewer maintenance issues, etc.
In essence, the employees wanted to be there and wanted to give their best and that is what helped turn the company around. The employees loved this guy so much that they chipped in and bought him a Harley Davidson as a present. now THAT is a happy workforce!
Whether said company is a couple of entrepreneurs or a large corporation, service should always be a priority. Having recently read Ben’s interview with Vernon from TheGoodBlogs I joined up and registered my three blogs and set up the widget on each blog. Piece of cake.
Not long after that I sent an email to them with a small suggestion on customization. Normally when I send such an email I don’t expect to get a reply or at best get a canned response. Not this time, Vernon sent me a reply saying that they were working on several improvements and that they appreciated the comments. Very nice and I appreciated their personal response.
Fast forward a couple weeks and I noticed something while looking through my stats on their site. Not a big deal but I thought they should be aware of it so I sent another email detailing what I saw. Again I got a quick response from Vernon saying they had fixed one of the two things I mentioned and the other they were looking into. A few hours later I got another email from Vernon saying they had fixed the other issue and mentioned an improvement they also made to their overall offering. I was duly impressed.
As a software developer myself I can appreciate the work they are doing and I also understand that sometimes seemingly simple things to a user can be a real nightmare to fix. Now the items I pointed out may not have been that big of deal, and I surely didn’t try to make them as such, but the fact that they quickly fixed the minor issues and took the time to let me know when I’m sure they are working on adding cool new features says a lot to me as a user. They could easily have said “Thank you, we’ll have that fixed in our next release” and that would have been fine with me. No, they fixed it immediately and told me immediately and that deserves credit.
The argument could be made that because they are a small company they can make those quick and personal responses, but I beg to differ. Being small and building the software that they are makes it harder to do such things. I’m sure they don’t have a dedicated support staff and I am guessing that at this point there are just the few developers working. Those who do not write software find it difficult to understand the mental focus and energy it can take to create good software, people just see us sitting at a computer all day and not doing much. Now take that energy and apply it to something that you are passionate about (as I’m sure TheGoodBlogs are) and you spend even more time and energy on it. It is quite easy to get too focused on what you are doing and forget or put off what your customers are telling you. TheGoodBlogs didn’t make that mistake.
I’m not easily impressed, but I do give credit where credit is due and TheGoodBlogs deserves it for demonstrating how a company should treat their customers.
