Fog Creek Software
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Did you stake your claim in the Wild west?

A number of posts about people pondering the idea of starting their own software company have appeared here.

Hence, the title: Stake your claim!

One of the most import concepts here is making a claim.

When parts of a industry change, it creates opportunity.

For example, in that last 8 years there has been a incredible boom in coffee shops. In fact, if you take the major corners in a busy business section of town, you will likely find 1 or two corners to be a coffee shop. In other words, I know people who have gotten into the coffee business. Since there was a coffee shop boom, most, if not all if the easy, and real viable locations for coffee shops were taken 5 or more years ago.  You are now not likely to easily find 5 good locations to build your business around. The reason is obvious, those viable locations that will * E A S I L Y * support a coffee shop were long ago snapped up by savvy business men.

I remember about 4 years ago during the internet boom people would walk door to door in the business condo complex where I was working and drop off their card, or simply stuff in a brochure. Those brochures were for creating and designing web sites. In other words, some of these guys were picking up a few new customers PER WEEK. Now that all these companies have web site built, it is VERY DIFFICULT for you to come and do web site work. Why?, well because those 50 or 60 easy companies already now have hired a web company. That web designer is going to hang on to those 50 or 60 companies. Of course billing out a $75 per hour, that person has lots of work. However a new grad out college today can go door to door in that same business condo complex and drop off his card. (or the really crappy flyer that the first person did 5 years ago). That new person will be lucky to pick up even ONE customer. The reason for is that most companies now have their web site. They also have a web designer company also. You would have to get those customers TO CHANGE to your company. That is hard to do, and further, as mentioned most of those web sites need just a little maintains now, and there is not as much work. Coffee shops are not growing, and nor is web site design work.

Hence, those companies that staked out their claim in the last few years are fine. So are those companies that opened up some coffee shops. So while you can make great money with a coffee shop in a good location, or great money with a web design company, good luck finding new customers.

Of course, the same above concept applies to companies that hire consultants and purchase vertical market software. 10 years ago TONS of business did not even have a computer. Today, most , if not all of those companies now have a network. Back then you could easily find a small warehouse that did not have some type of inventory control system. Today, they all do. So, did you create and sell that inventory system?

10 years ago almost no Dentists in town had a computer system. Today, every dentist in town I  know has a computer system. (and they gladly pay $200 per month to just use the dental billing system). In fact, the maintenance cost of those dental systems is VERY LOW. Do the math if you snagged 40 customers.  Of course, those types of systems just supply you with pizza and beer money while you develop other markets. The existing left over markets now take real money to crack. The money from those original easy customers are what we use to finance the new ventures.  (or just sit back and eat pizza and read Joel on Software).

Did you build up that client list?

Did you stake your claim in the Wild West?

The industry is now very mature, and the costs of entry into the software goes up every day………..

Because the wild west is not Wild anymore.


Albert D. Kallal
Edmonton, Alberta Canada
Kallal@msn.com

Albert D. Kallal
Monday, December 30, 2002

Regarding cost of entry going up... Well, I think the cost of entry is going down, and that's a good thing. Sure, it's harder and harder to market the same old product everyone else sells, but it doesn't cost an arm and a leg to make a new product.

That is, there are plenty of free tools with which one can write software and web pages and what have you, which means that it costs nothing to learn everything the old, established stakeholders knew.

Now the market for web sites/etc may be saturated, but that means that it's harder to get into the web site market. OTOH, if you have another market in mind, which isn't saturated, the cost is the ink and paper for flyers and the gas to get to where you want to drop them off.

I like software because the barrier to entry is only "a computer". Not "a good computer" (a 486 running slackware linux will let you write software. Painfully slowly, but you can learn valuable skills with it!), and not "a good computer with multi-tens-of-thousands of dollars of software" (i.e. graphics industry), but just "a computer". That's a pretty low barrier to entry. If you have a computer and an idea and some time to learn skills, you can break into that new market that only you've discovered.

It may be that there are fewer unrecognized markets, but that's the case in EVERY industry. The barrier to entry for software related things hasn't really risen, it's just matured like all other industries, and you no longer can just do the same old thing. And that's a good thing.

Mike Swieton
Monday, December 30, 2002

Ah, but "software" is not one business, you can always stake your claim in an area that has not been thought of yet, you just need to be creative!

Daniel Shchyokin
Monday, December 30, 2002

The west may be tamed, but there are still plenty of Cowboys out there.

Sure most places have a computer system now, but on the whole they suck.

Take my bank, for example.  A few years back I opened an account online.  Back in the land grab days they were offering incentives.

Last week I tried to upgrade my account for some additional features, but their computer system wouldn't allow it.  I would have to open a new account, and then manually move everything over. 

It is now as easy for me to switch to a whole new bank as it is to stay with my existing bank.  Their computer system has forced them to loose a significant competive advantage - the fact that moving my account is so much trouble.

This is one of the UKs leading banks, who spend a fortune on their IT and yet they as being strategically disadvantaged by their own systems.  How much worse is it for smaller businesses?

Ged Byrne
Monday, December 30, 2002

Hmmmm.... interesting thread.

I think many of the frontiers (from a business standpoint) are definately passed the Gold Rush stage and are still in the Wild West stage.  Of course, some parts of I.T. industry are a lot more mature than others.

While the cost of entry into most markets is very low, the competition is currently very high. That is, in most markets having a computer, an internet connection, and some programming skills just ain't going to be enough to start a sustainable business.  Before the web design craze there was the "I know VB and I can develop a custom made application/system for your business" craze.  Nowadays, most small business owners who don't use off the shelf software choose either a company they can sue or have their fifteen year old cousin do it for them.

While it appears that Joel Spolsky was able to spot an opportunity and take advantage of this opportunity through creative marketing, there are still many things about his business that he has chosen not to share with his online audience.  Maybe there is room for another "How to start your own computer software or consulting business" book?


Monday, December 30, 2002

I"m not sure that finding an unexploited niche is the key thing in starting up a new small business.    Joel has some good recommendations in his book section, and also I think a couple articles that touch on this. 

One of the books Joel recommends, for example, "Growing a Business" by Paul Hawken, suggests that it's fine to start a business with lots of competitors.  Just plan to do something different and better, like "building a better widget" (or hamburger), or doing it cheaper or with better service.  I can say from experience that I've found many clients who are very unhappy with the "shrinkwrap" vertical market software they use.  Some even switch every couple years at a large expense in an attempt to find something better.  Major complaints:  bad customer service and bugs in the programs.

Another thing emphasized in "Growing a Business" and also in some of Joel's articles is the difference between an Amazon-like startup and a Ben-and-Jerry's-like startup.  Something like Amazon does stake out a new niche, but requires large amounts of startup money and lots of time before it shows a profit at all, though if it pans out the profits can be huge.  This model has a low chance of success, but the payoffs for success are huge.

Something like Ben and Jerry's, on the other hand, can be started with nothing more than some credit-card debt and can show a small profit from the beginning.  It will grow slowly and will likely never be the smashing success of an Amazon-like company, but the chances of success are much greater.

I myself am not looking to become the next Bill Gates.  I'd be satisfied with a relatively modest income, building some equity in a company, and calling my own shots (another thing that can be difficult in an Amazon-like startup with venture capital partners wanting to have a say).  That's why I'm starting my own business along the Ben-and-Jerry's model.  Nothing new, just want to do things a little better and cheaper than most of what's out there.

Herbert Sitz
Monday, December 30, 2002

i agree with the minority viewpoint opposed by Herb. There's plenty of room in the pool, so come on in. not to say it won't be hard work - slackers should just go for government or corporate jobs where they can disappear into the woodwork. But if you're a hard worker why give the best years of your life to the man? You will have to struggle, you will have to live poor, you will have to earn less than minimum wage at times so that you can provide a decent salary for your employees. But in the end, it might work out and you'll be on your own, creating your own projects and no one can sabotage your best efforts eexcept yourself. If this sounds appealing, go for it! if not, stay where you are. Both are valid choices. Entrepreneurship is definitely not something for everyone -- in the beginning of creating a real business, entrepreneurship == poverty and borders on homelessness. (Yes you can skip this and scam people with big talk but that's a different life style.) But in return your big risk you get a chance at big payoff as well as the way more intense experience of being a cowboy riding your code horse out alone onto the range looking for some cash cows to bring to the roundup.

Anyway... software is lousy and horrible. Most of it is just. Networks are thoroughly insecure. Hardly anyone is satisfied with the poor quality of their computers and software. Something to moan and complain about, sure -- but also a tremendous opportunity that is staring all of us straight in the face.

If computers worked great and most people were satisfied with what they had in their software and hardware, then I'd agree with those who say the gold rush is over. But there was no gold rush -- if there was then a lot of gold would have been found during it and is now gone. But there wasn't any gold found, so there's still lots of prospecting to be done for those who can afford to move to SF and live in a shack while paying a year's salary for simple but necessary tools like a pick and a shovel.

X. J. Scott
Monday, December 30, 2002

I meant EXPRESSED by Herb - I agree with him.

X. J. Scott
Monday, December 30, 2002

Did want to add that unless I am missing something Ben and jerry's has always been more profitable than amazon.com.

X. J. Scott
Monday, December 30, 2002

The key is follow-through. There are tons of opportunities to create software or a service that could be sold for enough money to pay the bills. The problem is many one person shops lose interest so quickly. For example, there are thousands of free and low cost shopping carts but practically every one is terrible beacuse the developer lost interest. Even though the shopping cart category is one where monetization is very easy to envision.

pb
Monday, December 30, 2002

X. J. Scott wrote, "If computers worked great and most people were satisfied with what they had in their software and hardware, then I'd agree with those who say the gold rush is over. But there was no gold rush -- if there was then a lot of gold would have been found during it and is now gone. But there wasn't any gold found, so there's still lots of prospecting to be done for those who can afford to move to SF and live in a shack while paying a year's salary for simple but necessary tools like a pick and a shovel."

Gold Rush simply means a herd mentality. During the California Gold Rush the people who made most of the money were the businessman who sold supplies to the miners.  During the dot-com era the businessman (VCs, investment banks, company executives, etc.) made most of the money not the techies.

I suppose you could compare the Wild West era where there wasn't a lot of laws or enforcement  of those that did exist to certain areas of the IT industry where software is slapped together and rushed out the door or into production.

one programmer's opinion
Monday, December 30, 2002

[
Entrepreneurship is definitely not something for everyone -- in the beginning of creating a real business, entrepreneurship == poverty and borders on homelessness.
]
When I started out I lived in a studio apratment with no furniture and no heat. If I had gotten a job and worked my way up the ladder who knows where I'd  be, but now (after 10 yrs) I have 2 companies and am looking at various opportunities. When I look back it would have been easier to just get a job and paycheck but those same people who did that are now unemployed.

John S.
Monday, December 30, 2002

Not sure if the gold rush is over or if the wild West has been tamed, but we have a company, Microsoft, that is hell bent on being the company store.

Crusty Admin
Tuesday, December 31, 2002

"Today, every dentist in town I  know has a computer system."

My dentist only just computerized (last week!) and I know of several more not using a computer at all.  Same country, Albert...

"In fact, the maintenance cost of those dental systems is VERY LOW. "

One of our clients (very close client since we colocate and created their helpdesk system) provides computer maintenance for roughly 50 different dental offices here.  They use two or three different programs.  These programs are the single Biggest source of problems, crashing almost daily, conflicting with practically anything else the dentists might run, including Outlook.

Furthermore, they are written for specific versions of Windows, so you cannot easily upgrade until the vendor produces a new version (a service pack will break it).  The performance is abysmal, but adding new RAM also breaks it (the program only accepts up to a certain amount - the vendor has to make updates to the software everytime a new amount of RAM becomes "standard")

Based on my observations, dental software is far from being low maintenance (and I would say this is deliberate on the part of the vendor, as they are able to charge astronomical consulting fees)

Why do the dentists put up with this? There are no good alternatives.  If someone were to come along with a fast, stable, easy to use and economical dental program, it wouldn't surprise me if they were mobbed.

It may seem like the Wild West is over to Albert, but there are lots of opportunities out there. Companies here in Canada at least are spending quite a lot to tie their various mammoth systems together, or to create "custom" applications that will allow them to work more effectively (eg scheduling apps that tie into Great Plains, for example).  And many, particularly small/medium shops, are quite open to replacing mammoth/archaic applications (such as dental software!) that don't work very well for them with something that is "better".

I agree that the Wild West is over in that people aren't just throwing money at things because they "need to get a computer/network/enterprise software/website/Y2K compliant etc". But if you've decided that opportunities have passed you by and you don't look for the opportunities that are present all around you, then I think you'll miss out.

Phibian
Tuesday, December 31, 2002

First, I have enjoyed all the responses here.

As for me stating that some how opportunity in the industry does not exist, I in no way want anyone to walk away thinking that the software industry has no opportunity. There is still TONS of opportunity.

However, my real point was that staking a claim is a VERY important concept. New technologies or changes in the costs of technologies can create new opportunities.

However, the industry is maturing. While the cost of computers is very cheap, the cost of entry goes up due to the learning cure, and the amount of technologies that one must master.

Also, critical here is the concept of change. For example if you walk into that dentist office and show them one of the new wireless pc tablets, you can make sales to companies that have existing systems. The tablet pc is real vertical market winner. They have real uses (I have been shocked by how many magazines etc have mentioned that the device has little use for the average pc user! Well duh!!, but for vertical markets…it is gift horse and a killer concept). So, keep your eyeys open for changes in technology that let you get your foot in the door.

As for my comments about some systems being very low maintenance? Well, good cars and good software both tend to requite a lot less maintenance then poorly designed systems.

I have several vertical market packages out there that on average run for 1 or 2 years at a time BETTEN service calls.. Some in fact are even longer. Hence, while some software for some companies is crappy, there is a also a lot of very high quality software out there. Some of that software of mine automates word and even has email. I design all my software to both be VERY LOW in training, and also VERY LOW in maintenance. In fact, I bust my rear to make software low maintenance. Low maintenance software is a fact of design (gee, another post/thread idea based on this concept would be a great topic: How do you wriite low maintance software?).

The concept of low maintenance and reliable software is a very interesting concept. It is also springs up another very HOT TOPIC of the day:

That topic is:

                Custom software VS .off the shelf software
                What should a company do?
                Why should a compnay choose custom over
                Off the shelf?

This is a big issue right now. I am seeing a lot of companies decree that no more in-house software development is to occur (ie: no in house, and no more contractors will be hired to develop software). They simply state that we will now only purchase off the shelf pre-made software. This is a alarming trend right now. (It might not alarming if you have staked your claim in a particular industry).

Anyway…I have to run right now…but the above has a good few ideas for new topics here....

Albert D. Kallal
Edmonton, Alberta Canada
Kallal@msn.com

Albert D. Kallal
Tuesday, December 31, 2002

I think the larger issue here is defining what it means to be "high tech".  Not that long ago, high-tech meant refigeration, 4-stroke engines, aircraft, etc.  These have all been commoditized.  Maybe it's time we stopped referring to Dell and Peoplesoft as high-tech companies.

What is the new "wild west"?  Biotech, entertainment (9pm in a large US city and nothing to do?!), physical communities (lots of lonely, isolated people out there), education and worker training, health care automation, etc.

This isn't the answer we want to hear.  We want to start up Visual Studio, write an app and change the world.  Unfortunately, as Albert alluded, most of the land has been spoken for.  Software is still relatively fast moving and chaotic versus other industries, but is beginning to slow down.  There just aren't that many instances where someone says "I've got a wad of cash and would fork it over to the first person to write an app that does X."

I don't think "software quality" is a rich new frontier, either.  Obviously, companies still underestimate the hidden costs of "bad" software.  However, the improvements will be slow and incremental.  Good (for lack of a better word) software will triumph eventually, but the quality difference will need to be extreme to unseat an established, trusted competitor.

People do very well in low and medium tech businesses.  One of the most profitable industries of the last 20 years has been scrap metal.  Yup, Sanford and Son.  Mechanical, civil and chemical engineers make good money; managers even more.  Commoditization is your friend.

Just like any investment, you need to take risk to get return.  Software was "risky" and paid well.  Now, with high tech unemployment, we're realizing those risks.

Welcome to the low tech, boring, profitable world of software.

Thoughts?

Bill Carlson
Tuesday, December 31, 2002

I don't know about dentists, but I have experience with a sporting goods store here in town.  The husband-and-wife owners (mid-40s) are almost completely computer-illiterate, though there _is_ a PC in the back room.  The accountant is a 60ish woman who never used a computer in her life.  One of the employees sometimes uses Microsoft Excel as essentially a word-processing program.  She makes lists of sale items in it.  Another employee used to play video games on the computer, but he got fired.

This kind of situation is probably more common than you might think.

.
Tuesday, December 31, 2002

>>This is a big issue right now. I am seeing a lot of companies decree that no more in-house software development is to occur (ie: no in house, and no more contractors will be hired to develop software).

I have noticed this trend as well and not just small companies. Some big companies have had their fingers burnt with bad projects and have figured out they just don't need it.

Tony E
Wednesday, January 01, 2003

Ok, that Sporting Goods store is a excellent example of what I am talking about.

First, sporting goods stores like anything else in retail is a very tough business. The boom in running shoes many years ago created a lot of opportunity. (ie: a lot of people started up stores just based on running shoes during the running shoe boom). A few years later they would be a real sports store). (the boom in running shoes really brought a lot of people into the business)

Anyway, lets look at the sporting goods market as compared to other vertical markets in a typical city:

First, the major sport stores are those HUGE BOX retailers of sports equipment. (they are not mom and pop operations anymore). Thus, there FEW sports stores. In addition, the smaller sporting goods stores are thus few in numbers. There is not going to be very many sporting goods stores in a major city run by mom and pop operations. Further, the sport stores that are really are run well WILL in fact already have a computer system. In other words, if they are a good store, they will likely have a good computer system. So, what is left. Not Much?

Ok, lets assume that for $60,000 you can write the sport store some system to do invoicing and some inventory/pricing system for them (it might not be a full point of sale system..but it will do a lot). Ok, at this point, you will be lucky if there is even one other customer in the area that can, or will purchase the sporting goods system that you made (because the others already have a system). In addition, each additional customer is going to have different needs (that means you will need to add more features).

The cost of a new point of sale system today is VERY LOW since a good many companies have already developed these systems over the years. Those other companies 10 years ago did actually find some customers that paid $60,000 to develop the system. Many of those same software companies will now sell that same system for only $3,000.

I have always thought what incredible business I am in. A company pays me to develop a system, and when I am done I can turn around and start selling it? Wow..we really are in a cool business! You get paid to develop products that you can sell. Man..what a rush!! Golly, no wonder we like thus business!

Anyway, today those point of sale systems are very cheap. Hence, the problem for you now is that the market is paying $3,000 for a system that will cost $60,000 to develop. If you are lucky, that company might want to spring for development costs, but it really does not make economic sense when other products are out there.

Further, why invest 60,000 of programmer time into a market that only has 1 or two possible customers? I am not willing to do that.

However, if the industry has a LOT of possible customers, then I for sure will jump at the chance. Hence, I would skip the sport store, and go for the pharmacy. For that 60,000 worth of work, you are much better off to chase a different industry.

In late 1980’s and early 90’s the pharmacies in my town went trough a huge computer boom. A large number of Pharmacies in 1990 did not have a computer (a good many did, but they were expensive mainframe type systems). The advent of the pc (286 with 40 meg hard disk) changed everything. The other import key was programs like FoxPro and Clipper came out. These were very efficient development programs. Prior to this, a personal computer WAS NOT suitable to run these kinds of business. The software tools were not really available.

You cannot write commercial business software in C, or gw-basic. You MUST USE a database system. Those powerful PC database systems all of sudden meant that the PC could be used to run a pharmacy. It also meant that a developer could in a REASONABLE AMOUNT OF TIME develop such a system. Mini computer systems that pharmacies had been using were now being attacked like bees to a big honey pot. Those hungry bees were the new PC’s equipped with database systems that rivaled those mini computers in terms of performance, and the price was ONE TENTH of the cost.

Ok, so lets assume we decide to spend the $60,000 of development costs on a pharmacy system in place of the sports store system. Well, there is at least 500 pharmacy in an average large city. Further, those pharmacies GET MORE BENEFIT from a computer then does a sports store. (much more In fact when you taking to account the health care billing issue, and prescriptions/drug renewals). Further, those pharmacies will GLADY pay $200 per month to use those systems. It is VERY IMPORTANT to chase a market that is willing to pay. If the market is not willing to pay for a solution…then that market does NOT exist. I have not checked, but the going support rate for pharmacy systems was around $200 in 1990). (my brother is a pharmacist).

Ok, so, lets assume you get 30 pharmacy customers. (in the early 90’s you could have done that easy in my city). You will sell each system for about $5000 profit.  (the computer back then was about 5000 and the software would sell for about 5000). Anyway, it generally represented the pharmacy about a $10,000 to $12,000 layout for the system. (the larger pharmacy in town were paying $30,00 to $60,000 for their systems). Ok, so now we have sold 30 systems:

30 x 5000 =  $150,000.

So, at this point we have had 150,000 income. This can keep your software company going. In addition, each of those pharmacy is now paying you 200 per month.

So, how much is your software worth now?

Those 30 customers are actually going to be paying you $200 x 12 x 30 customers = $72,000 per year income you now have.  That means you can sell that software/company to investor or another software company for an easy $250,000 or $300,000. (based on that $72,000 income). You might get more, since you also do sell each copy for $5000. But with a customer that is willing to pay you $200 per month, you will quickly drop prices just like a cell phone company did. That 200 per month is the real value here!

So, you would probably be crazy to sell the software for $250,000. In the next few years, you are likely to take on more customers. In addition, if you take a look at the true value of that $6000 per month as a annuity, it is worth WAY MORE then the $300,000 that you can sell the business for. (that is worth more then 1 million in value to produce that income) . I know that $300,000 sounds cheap, but in the business world for small companies, the going rate is usually that payback occurs in LESS THEN 5 years.

So, what this means for a investment of $60,000 of programmer time, you can turn that into a company something worth 500,000 in just a few years. You folks don’t think value is created without customers..did you?

What are you going to do? Write the sport store system,or the pharmacy system? This is a no brainier, because one market is MUCH LARGER then the other. (and also more willing to pay for software). You might find a sports store in town with no computer, but just try and find a pharmacy without one today?

Also, of course during those years the product will be constantly improved. Lets assume that each year I invest a good $35,000 of developer time into the product. That means in 5 years, the average investment into a pharmacy computer system will now be $60,000 + (5 * 35,000) =  $235,000. The new system you write will probably have credit card system built in, and now electronic submission of health care benefits is also standard fair in every pharmacy system sold (that means they all now electronically submit health care information to the government). In fact, even most systems support blue cross and several commercial health care plans also. Hence, it was REAL easy to write a pharmacy system 10 years ago. Now,…wow…just try…


This means that 10 years ago, you could spend $60,000 on programmer time for a average pharmacy system. Now you will have to spend $235,000 on an average pharmacy system.

Note that this programmer time could be just your “time”. That time STILL HAS a market price. This market price exists regardless if in fact you are being paid by someone. You can be living at home in your basement, and not being paid. It still represents a investment of time. You can be living with a friend, and thus you have no rent, no car, and perhaps eat really rotten food. However, that $60,000 still represents more then one half of a year of developer time. (it does not really matter if you are being paid or not).

Thus, 5 years later, the average pharmacy system will now represent a $235,000 investment of programmer time, or even more. That means you can live in your parents basement, but to write a pharmacy system will now take at least 3, or 4 years of your time. That is huge investment (more than most can make....dad will kick you out before you can finish the project!!!). The average pharmacy will expect products to have a certain level of features, and that level will take a LOT of time to reach. The barriers to entry for most vertical market software is going up by the day.

Hence, new competitors will have to spend MUCH more time developing a product to ENTER THE market. They have to, because existing products have several years of lead time.

One has to ask many people are now willing to sit in their basement and develop a product for 3 years with the prospect of only 1 or 2 customers  for the next year? The math does not work very well. Your product is going to have to be so good as to make the pharmacy change. (in fact, in the early 90’s a lot of them DID change. There was one really nice (and cheap) system that came out. Within 2 years, the established competitors bought that company out.

This does not mean at all that opportunity does not exist. However, there are dozens of affordable point of sale systems for small retailers. In fact, just go to your local mall. Even about 6 years ago, many of the smaller retailers in the mall did not have a computer system. Now, even the smaller independent clothing stores all have a computer system.

This business is all about turning code into dollars. The easy markets, and MORE IMPORTANTLY those markets that are willing to pay good money for systems were long snapped up by our industry.

Many industries left over really do not support software development. You often hear:

Gee, why is there not a good affordable computer system for Ostrich farmers? How come the software industry does make me good software? Of course, his friend who runs a pharmacy actually gets visits from salesman trying to SELL him software every other month!! Why, because the pharmacy industry can support a software company with much greater ease then can the 2 customers in Canada that have a small ostrich farm.

You could easily turn a 60,000 investment of time in 1990 into something worth 500,000 today. You don’t think we imagine value in this industry..do you? Software has value when it can result in a rate of return that exceeds the cost of creating the software.

Again, I am not saying the coffee shop business should be avoided. If you think you can run a good coffee shop, and do a good job, then you should. The same goes for software.

Also, lets not confuse vertical markets with mass market type software. However, at the end of the day, most of the above applies to both markets.

There is opportunity abound here, but at the end of the day, this is all about turning code into dollars.

Albert D. Kallal
Edmonton, Alberta Canada
Kallal@msn.com

Albert D. Kallal
Wednesday, January 01, 2003

Actually, I was under the impression that the leading cofee shop chains were losing money in Europe.

I tnink that the problem with vertical marked software is that the degree of customization necessary is such that there is little advantage in buying a special product over using a general purpose one.

The boss of the new training center we're opening in September had received an offer from the college to cutomizie this system they have.

I told him it was pointless because the basic organization would be different.

"But there must be a common program that can be used for all colleges"

*Yes, it's called a blank database".

Stephen Jones
Wednesday, January 01, 2003

Albert,

I thank you for that particularly lucid analysis.

I took particular note of your statement "Hence, the problem for you now is that the market is paying $3,000 for a system that will cost $60,000 to develop.", which is largely true. A special case of this principle we can see in something like MS Office, which cost tens (hundreds?) of millions to develop to where it is today. Unless someone has miraculously productive employees or techniques, it would be foolish to try to attempt to compete in the office productivity market. I do think there is a small niche market for office suites with greater stability with fewer features sold at a modest cost, but that market too is 'staked out', as you put it - and I know see where you are coming from with your 'stake' terminology.

There has been some discussion recently by people thinking of starting their own shareware companies for writing software to be marketed to consumers. The sort of analysis you've given is one to think about in this market. Typically a new shareware auther will write an application similar to another one that is being given away free or offered at a nominal cost. These would be niche markets to stay away from unless what is available is of totally unacceptable quality. Even so, it can be difficult making the case to customers that a stable program with a great UI is a real good deal at $200 when there are unstable but tolerable alternatives available with a poor UI for $5 or free.

X. J. Scott
Wednesday, January 01, 2003

Albert great point.

Sun, MS, Oracle, IBM are the smart ones aren't they.  Acting as the company store selling up tools to develop products for a market that could disappear over night.  Still if your product is good and your timing is just right - jackpot.  It think that keeps alot of people playing. 

Ryan Ware
Wednesday, January 01, 2003

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