Sunday, May 18, 2008

How to become a cynic part 1

After I had spent five years on the side making my app to its first "releasable" state, sort of a "lite" version of what was already on the market (systems which sold for around $500K typically), I quit my developer job and went full time. My plan was to take up to 9 months -- all I had savings and credit card limits for -- and cold call and visit and market like hell to get the first sale. My idea was I could bid a third the market price for half the features, which seemed doable since they were the most important "core" features, and the rest the competitors had that I didn't I would hopefully convince them were just eye candy and polish and they didn't need it. Then with that first sale I'd be able to finish the rest of the app, after which I'd make a couple more sales still bidding cheap and use that profit to hire salespeople and really compete with the big guys all-out.

Maybe I was lucky or maybe I was skillful with my powerpoint slides and hyped up salesmanship but I landed that first sale only three months in, in a pretty big "coup" for my niche. The existing two competitors with millions in revenue and dozens of employees had bid $500K-700K, and here this "nobody" one-man show comes out of nowhere with some crazy new system for only $200K and steals it.

It was "only" about $200K but that was almost entirely profit. And the customer saved a ton and were really excited. Everybody seemed to win and my business plan was going perfectly! Easy money!

Except here's what none of the entrepreneur books I read had mentioned:

When something new and "dynamic" suddenly shows up in a stagnant, established old niche, everybody rushes toward it! Every two-bit huckster, industry consultant, employees looking to switch jobs, every vendor, the competitors trying to find out more, outside companies looking to maybe get in the niche and buy you out (for super cheap), all the industry trade magazines wanting stories, press releases and to sell ads, everybody it seems wants info and to know more! And they want you to email it all to them. Send us brochures! Send us specs! Send us more information!

Well for a former cubicle programmer not used to all the attention, I didn't know how to say no at first. The trade journal wants a press release and those take some time to write -- grammar, spelling, format it in PDF, on company letterhead or not? Then some other potential new customer wants "specs and any information" -- I can't turn down a sale, can I? So there's more stuff and cover letters to send, and specs to go over and rewrite. Then some "industry web site" wants me to write up content describing my company and product. I can't turn down free advertising, can I? More work.

I never expected all that and my delivery schedule slipped. I guess that's what they mean by having to "devote time to overhead" even though it was just me.

Here's another thing I didn't anticipate

For some reason I got inundated with all kinds of companies wanting to be "strategic partners" or form a "strategic alliance." No, they never want to buy anything, in fact they all would in effect be suppliers to me. But they still want to fly out and meet with me, and get my brochures and specs, and see demos, and have telecons, and talk about "joint marketing opportunities," and sign this NDA and that exclusive teaming agreement, and oh yea, could I help pay for some ad or some trade show booth with them, or help them put together a proposal for some bid. Huh? Yet for some reason at first I couldn't say "no" if it was just talking with them or trading information. I was a nice guy. I wasn't about to spend anything or sign anything, but when they'd say "we'll be out there the 22nd, how's 3pm sound?" what was I supposed to say? So there I was giving demos all the time and sitting on telecons about nothing and writing up this and that.

Soon all the overhead phone calls and emails and visits and demos with these wanna-be "strategic partners" I realized were a complete waste. None of them would bring me any new business -- they all just wanted a piece of my action. And that's a theme I encountered a lot and still do. It's widespread all through business and people themselves, and was really my first step to becoming more cynical about business.

My delivery ended up slipping because of all that unanticipated overhead, and though the customer was nice about it, my competitors snickered and used that against me. Lesson learned.

5 comments:

El Duderino said...

Bill,

I am thrilled to come across your blog. I look forward to reading what you have to share.

I'm at the begining of the path you have travelled, and can use all the advice and experience I can absorb.

Regards,
Grant

Max said...

Same here, I'm a consultant looking to start an ISV part-time. I will be thrilled to read you.

Max

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