The Old Joel on Software Forum: Part 4 (of 5)

Business idea pursuit

A quick disclaimer... I am not entirely sure if what I am about to present here has ever been discussed. I did a quick search, but the keywords I picked returned many seemingly irrelevant topics. If I am repeating an earlier topic, I apologize.

Now that that's out of the way, here is what I would like to talk about. To give you an up front summary, I would like to have my own company at some point in time. I have been working for corporations until now, and I would like my drone days to end at some point.

Obviously I need an idea to start a business from what I generate some income. I do get an idea or two every now and then which could potentially be turned into a business. I have to admit that I never had an idea that has never been thought before. Frankly, I don't really see it happening any time soon either, but you never know. :)
My ideas are often improvements on what already exists. More like my version of "if it was done this way, it would be a lot better" kinda things, or along the lines of "I wish I had this feature in this product", or "this is stupid. If i had done it, I would have done it this way..." Every now and then, I also get seemingly not so common (commodity) ideas, but when I do a google search I realize there are a few startups already working on the thing or something very similar.

Assuming that my ideas are already thought of things, then the question becomes, "do I go ahead and try to get my business up and running and perhaps succeed, OR, forget the whole thing since it is being done already". I suppose the answer depends on what the idea is, who is already doing it, how saturated is the market, etc.. etc... I realize there is a lot to be discussed in this area, but I don't want to discuss any of this since there is plenty of forum discussions and articles/books on this stuff. What I want to concentrate on is a few specific examples, and perhaps your own experiences if you care to share so that I might perhaps get some insight.

Let's start simple. The pizza business... Just in my neighborhood, I know of 5 local pizza places not including Papa John's, Pizza Hut and Domino's... I always wonder how these guys stay in business. What makes a guy or a gal to say "I want my own pizza business damn it!". Obviously there is a ton of competition, but I know the pizza places in my neighborhood have been around for as long as I have been around, so they must be making at least enough money to stay in business. I personally would think starting a pizza place is risky due to market saturation and the fact that I personally don't think there could be enough product differentiation to say "My pizza is better in such and such ways". The existing pizza places do that, but I -as a consumer- don't believe them. I have never said "I want Papa John's pizza because they use fresh ingredients" even if they might think that's what's bringing me to their product. :)

This example can be extended to other food related products. How about McDonald's, Burger King and Wendy's? If I want a burger, I go to the closest one unless I get snatched by a KFC before I get there. I can't see enough of a product differentiation amongst them. I don't see other local burger joints popping up in my neighborhood probably for this reason. I don't even know how they stay in business when there is one of each of these places every 100ft as far as the eye can see.

Let me jump to a more technical example. How about internet search engines? I know of a dozen but I have been using Google almost exclusively for quite some time now. Was it always that way? Nope. I used to use Altavista a lot... I think I heard Google from a friend one time, and I have been hooked ever since. The mind boggling part of Google is that before it existed, there were many other search engines out there already: Yahoo, Excite, Altavista, Metacrawler, Lycos... Some died, some are still around. So apparently one day the founders of Google said "We can make a better one damn it!", and they did it, and it worked... But if I were them, I would say, "The market is saturated. I better move on". I couldn't take it up against Yahoo and others. Google obviously works great. It returns very good results. That is a differentiating factor "now", but back when they started, that couldn't have been a differentiating factor because it is every internet search engine's goal to return the most relevant results... Just because Google was intended to be better doesn't mean that goal would be fulfilled... It is almost arrogant for the Google guys to have even thought that they could do it better. Obviously their business plan said more than "We know we can do it better. Just watch and see". I wonder what it actually said. :)

Another example... The company I currently work for designs, manufactures and markets industrial motion controllers. Heck, I am not even sure how we differentiate ourselves. When I turn the pages of a Motion Control magazine, I see zillions of products that look just like ours. They claim to be achieveing the same things... How are we still in business? Well, I don't know. I am not management. :) Clearly, we do have some things we do differently, or better, or cheaper so that customers pick us, but these things we are better at are not immediately apparent to me even though I design the damn products. As you see, I am the engineer that makes it happen, but I don't come up with the ideas.

Similarly throughout history there have been industries with intense competition. For example the auto industry once had between 300-500 companies making cars. Today we have far less, but still seem to be quite a bit to me.

There are zillions of products with equivalent competitors: TV, toothpaste, shoes, glasses, computers, furniture...

To summarize this long post, what I am getting at is, when I do have an idea that is already being used to generate cash for others, how do I know that I can jump in, create a similar product and try making money? What tempted Burger King to join McDonald's and expect to get profitable? What thought process (business plan) OK'ed Pizza Hut to coexist with Domino's? How can Lowe's expect to make money when there is Home Depot? So on and so forth...

I realize that I don't have the full understanding for I have no official training other than engineering. I could have made some bad assumptions in my examples. If so, please correct me so that I can learn.

When those of you out there with your own businesses that went into a marketplace which had products similar to yours, what thought process did you go through and end up at the conclusion that you can still make it? How about you Joel if you are reading these lines?

I would like to thank you for reading my post if you actually made it all the way down here!! :)

Pursuer
Sunday, February 8, 2004

Having a great idea is only the first step in creating a successful business.

I once took a class focused on starting a small business and it was extremely valuable to learn how to write a business plan, how to sell your idea so as to get financing, etc.

The majority of all start-up companies fail, and most of the time it is not due to having the wrong idea (though that happens as well), but executing on that idea improperly, not getting enough money up front to stay the course during the inevitable hard time getting the business off the ground, etc.

I should say as a disclaimer that I don't run my own business.

In fact, the biggest thing I took away from the class was that I never want to run my own business: the pain of dealing with all the minutiae of taxes, payroll, personnel, etc. was the antihesis of what I enjoy doing.

So: learn the "business" side of running your own business before you decide to take the plunge, and make sure you understand what it takes to survive once you do get that great idea.

Good luck.

Mike Treit
Sunday, February 8, 2004

Have you read any of Eric Sink's articles on MSDN? He's got a series going on starting and running your own software company. Also, he has a number of relevant articles on his blog.

The one on choosing your competition is good: http://software.ericsink.com/Choose_Your_Competition.html

Nick
Sunday, February 8, 2004

Just to pick up on a couple of things you said

"I personally would think starting a pizza place is risky due to market saturation and the fact that I personally don't think there could be enough product differentiation to say "My pizza is better in such and such ways". "
and
[although in reference to the differences betweem Mcdonalds, Wendy's etc. Though overall used to explain the scariness of market saturation] "I can't see enough of a product differentiation amongst them."

I will reflect on this analogy, we buy our pizzas from La Porchetta, a small local run (if not then a very very small unheard of franchise) pizza place. Make the yummiest pizzas around. My brother-in-law swears by some place by the some video store up on High Street. Speaking of which a good number of the pizza places are right beside a video store. Our favourite video store is beside one, our second favourite video store is beside La Porchetta's....
If we are not eating pizza we are eating Chinese, we only ever buy the chinese from Westlake chinese, this is not only because it has the funkiest chinesiest dine-in (an old house, with round entrance ways to the rooms), but they make the best lemon chicken in town....

I am rambling to make a bit of a point. There are many ways to stand out from your competition, even sometimes your price can be higher and you still stand out. I don't care about prices when I eat chinese, because I know one store that it just so good.
As for pizza, I have one big chain we will use (dominos) but I would prefer La Porchettas, and I would never bother with Pizza hut etc. This is my personal preference. My brother-in-law swears by another small local run joint.
And then there is the 'place the pizza joint next to a video store idea', I have definite favourites among video stores, and so am naturally lead to order pizzas from the video store next door, hey they are close I will give them a try, they might be as good as La Porchettas, I will just try them once and see.

More then just market saturation of pizzas, there are acutally thousands of people wanting pizza for all different reason (taste, convenience, price) and this saturation of pizza joints serves to suit the needs of many people.

Heck two years ago my number one rule for living and philosophy for life was "don't eat pizza" and while that could form the basis of a whole new thread, I actually eat pizza now (ate it twice this weekend), why? well my philosophies still stand, but La Porchettas make a yummy pizza, and Dominoes do an edible one too. Who would of thought?

I hope beneath my bizzara explanation you can see me messing around with the mentalities of potential customers. Whatever your business, not be afraid of market saturation, don't be stupid about it, but don't write yourself off, you just may be the next La Porchettas, a pizza joint where your waitress could be the 9yr daughter of the owner, and you have no hope of getting a park because the place is packed and some crazy guy with a boat trailer who couldn't find a park has just stopped smack bang in the middle of the road so cars a queued back for ages, and cars wanting to leave just can't (did I mention you can order pasta there as well?)

Aussie Chick
Sunday, February 8, 2004

When I first started my business, 8 or so years ago, I worried about market saturation and competition.

We reached a point where we had $2k / month in sales doing this part time.

I almost quit at that time, but I wasn't enjoying my day job (programming) and thought "If I could do anything, if I were a millionaire, what would I do"? Answer: start this company.

So I did. I've found that many of our customers have never heard of our competition (3 companies in this very small niche field). An others preferred us to the 20 year incumbent.

SUMMARY
1. Customers don't have perfect knowledge. Just because *you* are aware of all the competition, doesn't mean customers are.

2. Running a business is hard. You have to get a lot of things right: right product features, reasonably well written program, effective marketing, etc. Very few companies do all 3 right. In fact, my competition doesn't do ANY of these very well.

3. If you can do something for a customer cheaper, better, and eaiser than they're doing it now (manually or with some competing product) then you have the potential for a business.

The trick is: can you provide the above AND still make enough to pay your salary.

The real Entrepreneur
Sunday, February 8, 2004

HOW TO GET STARTED
I approached my business (without realizing it) using the scientific method.

I did everytyhing as an experiment (or prototype) first, on a small scale, then put that into mass production.

For example:
1. Used iterative approach to programming (before XP was popular). I'd make a prototype and then test it with customers.

2. With marketing, I'd try advertising in a venue and measure the results. From this I elminated one venue that cost us 4x another one and boosted the better performing venue.

3. With sales, I'd pay attention to what people's objections/concerns were on the phone and reflect that in sales literature. ("Oh, people respond to *quanitfication* (numbers!), so I'll point out that our trial program lets you try 1,000,000 excercises).

Approaching it in this trial and error mode, you can start small, part time.

1. Create a rough (Beta) program that meets customers needs.

2. Refine that program to release it. See if you can sell some copies with test marketing/advertising. Goal here is not to make a lot of money (though that would be NICE). Goal is to TEST the market. BTW, Joel has written some GREAT articles on this. Search on "shipping is a feature".

3. Once you've proven there is a demand, work on it full time, quit your day job. (with 6 months savings in the bank!!)

CREATING THE PRODUCT IS MAYBE 25% OF THE EFFORT
The other 75% is : marketing, sales, tech support, order fullfillment, etc.
BUT.... all of the above is easy to learn. Lots of people have done those things. So, you can test your idea with only 25% commitment. You can write the program in your spare time.

LASTLY... if WRITING the program is a fulltime job for you, then realize that you may then need to hire people when you ramp up into full production (sales, marketing, etc.) and adjust your revenue needs accordingly.

The real Entrepreneur
Sunday, February 8, 2004

>1. Customers don't have perfect knowledge. Just because *you* are aware of all the competition, doesn't mean customers are.

That's a good point, my husband and I were talking about the number of Electrical firms in Toowoomba. We concluded that you don't need to be cheap/better then *all* the competition, just cheaper/better then the other two firms that the potential client has any intention of calling.

Aussie Chick
Sunday, February 8, 2004

Pizza places can have what economics types call a "geographical monopoly". In other words, you get your pizza from the closest pizza place. That is their product differentiation - where they are located.

The same phenomenon does not occur to anywhere near the same extent with software packages, although some people like "local" support, which might of course might just mean a local phone number switched through to somewhere else.

Spider
Sunday, February 8, 2004

In a nutshell:

Determine the size of the market,
Determine the percent of the market you can reasonably capture (almost impossible to judge if you haven't done sales).
Do the math & see if that amount of the market will support the enterprise while giving a healthy return on your money.

Sunday, February 8, 2004

Starting your own small business is not for the faint of heart and some industries are tougher than others to break into. I am assuming that you are interested in owning some type of software related business. My advice to you is to start educating yourself on entrepreneurship and don't limit yourself by thinking that the only business you are capable of running has to be computer related.

To start your long journey you might want to do the following:

* Check local TV listings for any online educational programs that discuss entrepreneurship and tape record them so you can watch them at your leisure.

* Buy some relevant books.

* Checkout any local organizations such as SCORE (an organization comprised of retired business people who advise small business owners)

* Check out your local library and look for relevant books, tapes, CDs, etc.

* If possible attend a class on entrepreneurship.

* Search the world wide web for online magazines, forums, articles, etc. that discuss topics such as starting your own business.

One Programmer's Opinion
Sunday, February 8, 2004

>>>To give you an up front summary, I would like to have my own company at some point in time. I have been working for corporations until now, and I would like my drone days to end at some point. <<<

You should analyze at yourself first. Why have you always been a drone at a corporation? Why didn't you at least work for an entrprenurial company?

And if you are serious, take a marketing class or acting class.

Tom Vu
Sunday, February 8, 2004

Buy the latest edition of "Start Your Own Business" by the Entrepreneur Magainze staff.

Do everything in the book.

You will be VERY far along in the process of success in your business.

I have used this book a couple times, and came to a realization during the intensive process the number of flaws within my business process. So instead of wasting money and end up being in intensive debt, I saved and stucked with my own career.

T.J.
Sunday, February 8, 2004

If you want to get involved with running your own business I would recommend reading the following books:

“The E Myth Revisited” – Michael E. Gerber
“Thinking Like An Entrepreneur” – Peter I. Hupalo
“Think and Grow Rich” – Napoleon Hill

Some of these books are better than others. I would take some of the ideas with a grain of salt and others make it a mantra to live by. I haven’t started my own business yet but these books have helped me along the way to refine my thought processes on business

I don’t think there is any magic trick to it just a lot of hard work and hours involved. If you work in technology then you should be used to that part.

Anonx
Sunday, February 8, 2004

A lot of people make a lot of money on commodity items. There are other ways to differentiate your company even if the products from other companies are pretty similar. Companies use marketing, customer service and other value adds to sell commodity items.

chris
Sunday, February 8, 2004

Joel has an interesting article comparing the Ben and Jerry's type startup (small, slow, cheap startup with existing competition) to the Amazon type startup (big, fast, expensive startup designed to stake out new niche). A lot of it is relevant to questions by the original poster in this thread:

http://www.joelonsoftware.com/articles/fog0000000056.html

Herbert Sitz
Sunday, February 8, 2004

Joel misses one other model: the small, slow-growth niche business with little or no competition.

I've seen several businesses become successful using this model, and most of them still exist, making a profit year after year, primarily because the market is not large enough to attract competition.

There's nothing wrong with setting your sights to a more reasonable level than becoming the next Amazon--or even Ben and Jerries. Our economy thrives on small businesses that never become big businesses.

guilty as charged
Sunday, February 8, 2004

Thank you for all your excellent points.

I did read almost all of Joel's articles, the ones on Dexterity.com and also Eric.Weblog(). After some of you mentioned specific ones, I reread them. I do agree that I would rather go into a market where there are established customers so that I know at least what I want to do works. What I need to figure out I guess is how well it is working for the current customers, if there is any room for improvement, and how I can exploit the situation.

One of my fears is that I know absolutely nothing about marketing. I few of my friends who majored in business in college took some (basic) marketing classes. I glanced over their textbooks, and also discussed with them what they learned. The whole thing sounded like a big joke! As I mentioned earlier, I am an engineer. I work with facts, numbers, concrete things. Marketing is something I am pretty foreign to. Being who I am, I don't think I fit into any major demographic. I can tell because I find most commercials to be stupid, disgusting and a waste of time/money etc.. I sat down one day and tried to think of anything that I bought because I saw an add or a commercial. I couldn't think of anything.... Anyways, if you have any good marketing related book/article/website suggestions, I am all ears.

Apart from this point, I am also uneasy when it comes to uncertainty which is I understand to be a big part of running a business. I am going to have to get used to it. On other other hand, I know current business owners are not operating in complete darkness either. There has to be some visibility. Going back to my examples, Google had to have known something to start doing what they did. Otherwise, what is the point of taking on already established portals with their own search engines. To be honest, I can't believe I changed my own search habits. Somehow they made me switch over. That's impressive. I am not entirely sure how they did it. I never saw a single commercial on TV, I did not get any incentives,... It would be nice to know what they knew back when they started. Perhaps they didn't know they would be so successful either.

I also read some very contradicting things about market research. Some say conducting a market research for a potential product is a waste of time and money. Other articles claim it is very useful to get to know your potential customers... What do you guys/gals think about this? It would be interesting to sit down with Dean Kamen and talk about what went wrong with Segway... I love his prior work. He is a genious of some kind. How could he have not seen that this product was a bust even though it is a very cool thing? I know for a fact that "cool" doesn't cut it. It has to be practical, and Segway is just not very practical. Not at $5000 anyway. Not to mention it requires special changes in law. My point is, this guy is very smart at some level. I am sure he has important and smart other friends in all kinds of fields who could have warned him, corrected him or gave him ideas to make his product a success... But still, somehow something went wrong. Will it ever catch on? I don't know, but I won't be buying one. That's for sure. Doing an extensive market research is not very feasible for me anyway even if definitely needed one. I would have to think twice about it.

The bottom line is, as I see it, there is nothing like actually doing something. I hate to learn as I go. I'd rather know about what's coming my way first as much as possible. It seems like there is only so much I can learn from reading books/articles and hearing about others' experiences. I just don't want to be a complete idiot and take too much risk right from the start. I am just having difficulty calculating the amount of risk I would be taking if I pursue my ideas.

Someone mentioned that I should consider why I worked for corporations until now? Well, I have graduated from college about 4 years ago. I wanted to get some reallife experience first. And I can tell I need even more. :) I think I am quite competent at an intellctual level. Heck, I see many start ups founded by college graduates, or recent graduates. I don't think age is really a problem in these matters. What matters is the idea.

I follow TR100, and other similar compilations of youngsters succeeding. Most of the time I ask myself, "What is the use of what you are doing dude?". Quite frankly, I get really mad when some MIT dude claims that in the near future, our TVs, microwaves, fridges and doorknobs are going to communicate with each other. In the meantime, I cannot
communicate with my parents who live in a different country because the lines are crappy or the satellite doesn't have enough channels or whatever the heck the problem is.. Does anyone *really* care that their toaster can read the newspaper with its built-in state of the art SoC chip? Will you pay to buy that thing? Where is the market research in that? Why can't we first fix what is already broken before introducing new problems? :)

I seem to be having trouble finding good ideas. Most of what I have thought up so far has been done to death or is being done already. As I mentioned earlied, I am not very convinced that I will ever have a unique idea in my lifetime. I just can't tell if my already-being-done idea is good enough to compete with the existing solutions. I guess somehow I will have to be the judge of that.

Thanks for listening.

Pursuer
Sunday, February 8, 2004

You're gonna have to learn to be concise if you want to get ahead, Pursuer.

Sunday, February 8, 2004

Action not knowledge.

Successful people know they will probably fail, so they do it, fail, try again, fail, improve a little, fail, then eventually before you know it their standards have risen and their 'bigger failures' and viewed by others as success.

Dont think if you study and think about something for long enough you will one day achieve perfect understanding and then go out there and succeed.

You are going to fail, you can only learn by trying not thinking, _no_one_ understands marketing or why some ideas spread and some die. Even the people who are good at things almost always dont actually understand how they work.

The biggest advantage you could have is not contained in a book or in somones words of sage advice but rather a strong belief that eventually you will acheive what you set out to achieve.

Think about it, dont talkers always see forty thousand complicated details in every plan, and the successful people usually talk for a little while then say 'yeah well I dont know, we should try it and see'.

braid_ged
Sunday, February 8, 2004

I am in a similar position to you Pursuer. I have researched and come up with lots of different ideas. I have found that keeping a list of any possible ideas is handy to refer back to when you are considering actually pursuing one of them, and also to compare them against one another.

I agree with the poster who said that you should actually just try doing something, if you think it has a chance at being successful. You will always be able to come up with what-if scenarios that may dissuade you from beginning, so don't let a couple of negative points outweigh the positives.

I personally just decided to choose one of my ideas that I find the most interesting and take the plunge and start doing it. It is still not finished, but I feel much more satisfied doing, rather than thinking about doing.

Good Luck.

Seeker
Monday, February 9, 2004

Regarding the "customers don't have perfect knowledge of th e competition" comment.

In Joel's rant about crappy resume's, he unwittingly promoted Yahoo's competition to CityDesk (just by mentioning it - and further compounded the error by mentioning that it was free).

He made a good point in the context of the rant - but probably not considering what it may have cost FogCreek in sales.

pb_canuck
Monday, February 9, 2004

Don't overthink it. Do what makes money. I started by trying to sell software X, and that didn't work so I sold software Y and found that garnered me the right combination of business relationships to close business and cash checks.

And for my money, creating software holds no allure, but selling the software of others is so much easier. They do all the nuts and bolts stuff, I just present it. If it's comparable to the competition and at a similar to slightly lower price point, it will get share.

Be open to new opportunities, and expand your network. Follow product pitches that you will inevitably get and look for the inevitablity of your cashing a check on the deal. If you can't see a check coming drop the idea and look for another. Constantly look for ways to consolidate your thinking to get the most money at the least cost. Look for opportunities that can work well locally, and then be stamped out everywhere. Sell what exists, because then you don't have to expend energy creating it, and you would have had to sell anyways to make money, so you could double your energy expenditure on sales.

Everybody is looking for ways to channel their products into the marketplace. This is the quickest and easiest way to profitability. And most companies will welcome you with open arms if you offer to put their software into the marketplace.

doing this now
Monday, February 9, 2004