Fog Creek Software
Discussion Board

how do small companies live amongst the monsters?

I am kinda curious about how small companies (i.e. Fog Creek) developing and selling software survive amongst the big software corporations? It does happen, so I must be missing something in my reasoning. Please correct me where I am wrong.

The way I see it, when a small company comes out with a great new product, they do have a chance to create a decent size curstomer base and even grow it as the software gets better and includes more features, etc... I see that FogCreek accomplished that. However, once the software is out, especially after it is a hit, everyone will talk about it and know about it. At that point, what stops a big software corporation -say Microsoft- from creating a similar piece of software and steal away the good idea and the customer base? It will take time, but they have the time and the resources... The goal here would not really be to crush the smaller company, but simply steal the idea and use it to generate more cash.

In short, what secures Joel and his software company's future? What makes them feel so good about coming to work everyday, work on CityDesk, and know that their software will not have been duplicated by the end of the day, and the customers stolen eventually by some monster corporation?

Friday, December 12, 2003

Sometimes, the limits of market value for the SMB's niche app makes it not worthwhile for the MSFTs of the world.

The rest of the time, there really isn't anything to stop them from creating a competing product, and business get steamrolled.

Greg Hurlman
Friday, December 12, 2003

What I've found is that the talent necessary to design and implement software that customers will find useful, unique and will actually buy is exceedingly rare.

I'm not talking about throwing a bunch of code monkeys or offshore developers at a product idea. And I'm not describing some non-commodity technical skill (there is no such thing.)

I'm talking about conceptualizing and implementing a product based solution to someone's problem that they will consider worth buying at your price.

Most large companies, and even many small companies, can be suprisingly brain-dead and paralyzed in this process. There are a myriad of ways to abort the full cycle of this process - and you do need the full cycle.

The product idea can be lousy. The developers can run amok and build castles in the air that result in an unstable or difficult to use product. The management can be unresponsive or just plain stupid and can subvert a really good idea with a bunch of irrelevant bullshit. The market research can be poor. The product idea may be great, the developers may have done a good job, but the product may be priced out of reach of its target. The corporate ego may never permit even conceptualizing a product that is appropriate to the resources that the company can afford.

These are the main problems I'm seen in many companies.

I think the "sublety" to a successful small developer like FC is that they can get all of these elements right consistently.

Bored Bystander
Friday, December 12, 2003

Eric Sink had some valid points about this, but in general, larger companies frequently require a larger rate of return than smaller companies.

For MS to go after a market that is, say, 5 million a year just doesn't make sense for them, but a small ISV can thrive there.

Mark Hoffman
Friday, December 12, 2003

E, you should really take a look at the following series of articles:

I know Eric's site was mentioned recently within these forums, because that's how I "discovered" it.

To summarise, the trick is finding a market in which you can do really good but which isn't really on the radar of someone like Microsoft.

You have to understand that Microsoft simply isn't interested in anything valued under about $100M per year. This may not be obvious given the way they throw money into unprofitable ventures; but it really is true.

This is true of all big companies to some extent; but particularly true of Microsoft.

What they're really after are markets that will develop into cash cows. Not the market you or I will target with our 15-30 person company. We're only looking for about $3M per year. That wouldn't even pay Microsoft's electricity bill.

Now, you should be careful not to find a niche that is too close to the business of a large company. If you do, that big company will eventually eat your lunch, your dog and your house.

Friday, December 12, 2003

> Now, you should be careful not to find a niche
> that is too close to the business of a large
> company

Indeed.  Consider an analogy to another field.  You start up an espresso stand.  Is McDonalds going to go after you?  Probably not, but Starbucks might.  Starbucks doesn't try to compete with burger joints, but you just try opening a coffee shop across the street from one and see how well you do.  Setting up a little Irish pub across from a Starbucks makes a lot more sense.

The food service industry is huge, and there's lots of room for small players.  The same is true of software.

Eric Lippert
Friday, December 12, 2003

The danger isn't that MS or another big player will develop something similar. It's that they will buy out your competitor instead of you.

Stephen Jones
Friday, December 12, 2003

I think a part of JOS's success was Joel tapping the rich vein of technical implementors wanting to comment on issues that are often ignored by the usual commentary process, or are presented inaccurately.

Joel himself fitted this target market and thus attracted attention and credibility. I don't know, but I presume the resulting interest helped build and support markets for his product.

Big companies would not be nimble enough to create this sort of interest community. If they tried, the people doing the hiring would not hire someone like Joel or an equivalent to do the writing.

Friday, December 12, 2003

Eric Sink wrote an article about this:

While you are at it subcribe to the Business of Software...

Prakash S
Friday, December 12, 2003

#1) Forget about getting rich quick.

#2) Big bussiness is less efficient.  This is especially true of software development.  They have more overhead.  They have less ability to do quality control in the hiring.

#3) Big business is concerned with staying big business.  Therefore, they end up detatched from the customer.  Automated call centers.  Highly-structured tech support where you have to go through several layers before you can talk to anybody who knows anything.  As a small biz, you're close to the customer.  You can respond faster to their feature requests and bug reports.

Now, there's the other side of the coin.  BB can dump money into an unprofitable product until you're out of business.  To combat this, you have to stay lean and efficient.

Richard P
Friday, December 12, 2003

In New York City there was an eclectic clothing store called Canal Jeans. They had everything from army surplus to $800 coats to lingerie to the largest selection of backpacks I'd ever seen on one wall.

Then Old Navy opened up directly across the street, and sadly, Canal Jeans is out of business.

How does a small anything live amongst the monsters? How does a Snapple compete with a Coke & Pepsi? A Converse with Nike and Reebok?

1. Price - the same or just as good, but less expensive.
2. Quality - better than the mass produced, lowest common denominator, and you often pay a premium for it.
3. Features - Ours does something nobody else's does.
Friday, December 12, 2003

>> 2. Quality - better than the mass produced, lowest common denominator, and you often pay a premium for it.
>> 3. Features - Ours does something nobody else's does.

Quality and *well-selected* and *otherwise unavailable* features seem to be the key to most small SW companies' success.  I really don't think price is the biggest factor.

M$ can afford to dump every conceivable feature into a mass marketed horizontal application. MS can do this because they sell vast quantities of product with very low cost of goods, so they can afford to spend buckets of development money scattershot.

A small company simply doesn't have the luxury of indiscriminately gobbing on features. So they have to compete by offering something nobody else does and omitting the features that nobody uses or wants. MS, by contrast, can afford to put a power butt flosser into every MS Office application.

The quality aspect interacts with the selection of features. The small SW company has to have a very tight focus so that they can build successful products. If too many features are attempted given the development staff size, budget and available time, then you will either wind up with a late or very buggy product.

Also, it seems to me that small companies have to be able to identity an idiosyncratic, yet unmet need. CityDesk certainly isn't for the end user "Frontpage user" crowd. It's somewhat programmable and template driven and is kind of tough to initially acclimate-to. Also, it probably would appear measly and feature-poor to someone jaded by the size bloat of a typical Office application install. It's an extremely efficient tool once you get rolling, far more so than most such tools.  But... it's not for everyone.

Bored Bystander
Friday, December 12, 2003

Great points. Mini Cooper appeals to a different set of people than a Ford Taurus, as does Winnebago. Both sell much fewer than Ford does, and may even strike a deal with Ford or be acquired by a Ford, but the core concepts that differentiate them from the Ford Generica remain intact.

Nobody can compete with Microsoft Word, but there are plenty of niche text editors out there that thrive. Find a niche and stick with it.
Saturday, December 13, 2003

I remember reading a few years ago that Microsoft wouldn't enter a new market, unless they could see a $1B a year turnover, not just $100M.

This was during the dot-com time, so maybe a big exaggeration, but still, that leaves a heck of a lot of room for the little guys, in the $1-10M range.

I'm personally hoping to grow my little business to fit into one of these niches.

Steve Jones (UK)
Saturday, December 13, 2003

My company (GraphPad Software, , provides data analysis and graphing tools to scientists) is fairly small and very successful by any measure. I know of several others.

My only advice is to focus on providing a great product and great customer service, and don't spend a lot of time worrying about what the other companies are doing.  A few smart people with vision and patience can create better software than a big company with org charts and internal politics. And the internet lets you distribute and support your software fairly easily.

Harvey Motulsky
Saturday, December 13, 2003

This book (The Innovator's Dilemma) explains the advantage that small companies have over large ones.

He also recently published "The Innovator's Solution" showing how large companies can defend their position.

fool for python
Saturday, December 13, 2003

US Steel is one of the textbook business failures. Christensen attributes to their lack of willingness to innovate and embrace some of the newer more flexible steel manufacturing procedures that the smaller Bethlehem Steel embraced.

A special I saw on PBS attributed it to strong unions among other things (the US's slowing expansion reducing the need for steel, for example).

His book was embraced by large corporations in the dotcom era, but now that the dotcom uprising has been largely put down, I don't think the large corporations are as worried as they once were.
Sunday, December 14, 2003

Steel companies tend to be grossly inefficient anyway. The reason is that so much is tied up in the hardware that there is little real incentive to make best use of personnel; however in the long run this causes the company to harden the arteries everywhere.

British Steel was pretty awful also; I had the misfortune to work for a branch of it about four years back, and despite having some really good people it sucked.

Most heavy industries make bad use of personnel. Oil companies also; what happens is that wages, even exceptionally high wages, are such a small part of the total bill, that they are prepared to let inefficiencies creep in everywhere. What they don't factor in is that the rot spreads.

Stephen Jones
Sunday, December 14, 2003

That Innovator's Dilemma was an excellent book.

Don't steel companies go thru cycles?

Prakash S
Sunday, December 14, 2003

I am going to start a list of stupid stuff poor people talk about in order to remain poor.

1 - somone will sue me.

2 - my employer will claim he owns my stuff and sue me.

3 - the big boys will see me as a threat and squash me.

Lets be honest, THESE are the things you should be thinking about :

1.1 - Only 4 people will buy my product, three of those family members and even they eventually asked for refunds.

1.2 - I will stay working for somone less intelligent, less decent and earning more than me for the next 25 years at which time my wife will leave me and I will find myself alone drunk in a bar like Charles Bukowski minus the wit.

1.3 - The big boys will never know I exist.

Fearing failure I understand, Fearing the imaginary consequences of success in order to avoid feeling bad about not trying is weak.


Monday, December 15, 2003

*This book (The Innovator's Dilemma) explains the advantage that small companies have over large ones. *

to counter that there is also the problem of the 1 hit wonder as outlined in moore and mckenna's, *crossing the chasm* ....

"... high-tech products require marketing strategies that differ from those in other industries. His chasm theory describes how high-tech products initially sell well, mainly to a technically literate customer base, but then hit a lull as marketing professionals try to cross the chasm to mainstream buyers ..."
[amazon review]

peter renshaw
Monday, December 15, 2003

*  Recent Topics

*  Fog Creek Home