Friday, June 27, 2008

How to sell your software for $20,000

I guess you can either sell $20 software to 10,000 people a year, or $20,000 software to one business a year that buys 10 seats, and either way have a pretty good lifestyle business. I don't know which is easier, but I did the latter. When it was just myself and I just needed to get that one customer a year, I thought it was a pretty good life.

So here's my ideas if you're thinking of going that route:

1. Find software out there that sells for $20,000 a copy

The idea is you don't want to try to come up with something new. Every business problem has been thought to death, and if there isn't a product for it already, it's probably because there just isn't a need.

Also with something "new" you have to convince businesses or organizations they need it, and that takes marketing money and extra time overcoming their resistance to a new concept.

That's why I think it's easier and cheaper to start with a "better" version of an existing product, because customers will already know what it does and know they need it.

And the fact they already might have your competitors' products doesn't matter -- you're going to sell it when they decide to do a "technology refresh" or otherwise update to the latest and greatest. Or when they decide they can't stand their current software provider and need better support or just something different than the junk they currently use.

As for finding software that sells for $20K a copy, I don't really know where to go. For my product idea, I happened to be working with $20K (actually more like $50K) software on my job and found out that's how much they paid for it. I knew I could make it better so that's where I happened to get my idea.

I also know when I was working for a large tech company/contractor, we had stuff selling for $10K or $20K a position. And I've seen people on other boards mention theirs sells for $20K or $30K a seat, so it's definitely out there.

However, $20K software isn't going to be advertised on the web with a price next to it, I don't think, because it's usually sold as a custom-quoted "solution." So it won't be as easy as doing a web search.

I think then the best way to come up with a $20,000 B2B product idea is to focus not on "what kind of software do businesses really need?" but "what kind of businesses depend on technology to operate their business?" And behind that technology is probably going to be a computer, and you can write better software for that. If the rest of the technology is off-the-shelf specialty peripherals, you can easily provide those too and sell it as a "turnkey solution." That's what my company does.

Here's an example B2B idea: automated parking garage software. I was thinking about this the last time I had to pay $100 at my local airport. They certainly depend on technology to run their operation -- you punch a button, it prints a ticket with the time, takes a digital photo of your license plate, then 5 days later you exit and hand the attendant your ticket (or stick it in the automatic box), they feed the ticket into the reader and calculate the price and probably keep all kinds of stats and make all kinds of reports. The software running that can't be that complicated, can it? Yet they use it all day long every day and depend on it to operate. I bet the software portion of those systems easily sells for $20K, or $50K, or $100K. Think of all the money they take in... $100K is nothing to them if it saves them just 10 seconds per car times 5,000 cars a day.

And what would be involved in a "turnkey solution?" Besides the "terminals" in the ticket booths (standard PC's, maybe with touchscreens?) and maybe some central computer in the main office, you'd have the network, automatic gate things, ticket printers, those kiosk things you press the button on to get your ticket, some kind of camera pointed at the license plate... network switch... what else? I don't know but all those things you can probably buy "off the shelf" from whoever makes them. So you integrate it all together and your software runs it and prints out nice reports and alerts the boss when the garage is getting full or whatever it is they need. You sell it as a turnkey system for let's say $200K, of which $50K is your hardware cost and the rest all "profit" from your software. I have no idea if it sells for that but I'd certainly research that industry if I was looking for new ideas.

But my idea to possibly look into that product and market comes from considering businesses that depend on technology, not just considering what software they need. There's more out there than stuff that runs on an office PC or a web browser, so I'd suggest don't limit yourself by asking "what software should I make?"

2. Pick the products that are supporting a handful of million-dollar companies.

If the main providers are multi-million dollar companies, obviously it's supporting them or important enough to them which means it's a viable market and there is probably room for you. You only have to get 1% of a $100 million market, or 2% of a $50 million market to make a million a year, for example.

Also, those million-dollar companies are going to spend lots of money convincing any new customers why they need their (and by extension your) products, which means you don't have to. Your competitors will spend all that time and effort convincing them to buy, then the customer will get quotes from everyone and might end up buying yours instead, at no real cost to you. When you don't have any money, might as well ride your competitors' coattails!

3. Build the product but only with the core features

You only have to make a "lite" version initially, which you will sell for less to get your first customer. The idea is to get that initial customer and use that money to continue to build it, continuing to make it less "lite" and higher in price until it's similar to the existing products on the market and hopefully at that point better.

A "lite" version is probably still useful to the customers because the current software on the market will almost certainly be bloated with bells and whistles. That's just what happens to software over time. Their core product sells when they first get in the market, then they need to upgrade it and add new things as the competitors do, both trying to make something unique. Yet the core software sold before just fine without all that, so you can possibly get away with just the basics.

Your strategy is going to be make just those core features, and price it a lot less. Customers don't always buy on price, they buy on value. Maybe they can buy your software for $5K a seat with a handful of features that are the main ones they use, or buy the mature, market-leading, proven software for $20K a seat with five times the features although they're not all needed or used.

That may not be an easy decision for customers and some will go one way and some the other. But the important thing is sometimes it'll go your way, especially with the segment of the market that may have had previous bad experiences with the existing products or companies, or are looking for something different than what their own competitors use. Remember you only need 1% of a $100 million market, you don't have to take it all over.

Naturally, you need to figure out what are the basic core features you need to build. That takes knowledge of the domain. I was in my domain already and knew what the core features had to be, but maybe being outside the domain looking in might be a good thing too, since you might approach things differently and come up with something new.

I know if I decided to make automatic parking garage systems, I'd at least want to hang out at some garage and shadow the workers for a few days. Not to figure out what they're doing wrong and how my software could fix it, but just to learn their job, learn what their current system does, and find out what they like and don't like about what they currently use.

Now, of course it's easy to say "make a lite version of the product with just the core features" but what if there are a whole lot of core features and required basic functionality? It took me almost ten years off and on (part time/nights & weekends) to make my "lite" version. Maybe that's an extreme case, but if it's $20K software I doubt the core functionality could be slapped together in six months or a year, because a lot of people would have already done it. Wouldn't they? Maybe not, I don't know. It took me a long time though. I'd expect to spend a couple years at least on it, which also helps keep out potential future competition (barrier to entry).

I think too many people though want to get rich quick slapping something genius together in a month. I say let them waste their time making a handful of shareware apps in the same time you're building up a real product!

4. Get your name out in the industry

$20K software is certainly going to be "niche" software, with not a whole lot of customers out there who buy it. Maybe it's in the dozens, or hundreds, but certainly not tens of thousands. So it's probably likely they all gather at some main industry conference, or all subscribe to their main industry trade magazine, or a list of all of them can be bought from their industry trade association or their trade magazine publisher, and it's possible to call every possible customer directly.

At this stage you want to just get your company name out there so everyone knows you sell your systems and could be an alternative to what they already have. You don't have to sell them your systems yet, just get your name out. You can email, mail or cold call all potential customers just to say hi and introduce yourself and company. They're in a niche and they probably don't get a lot of sales calls so it's not the same as general cold-calling, in fact they may be glad to hear of a new supplier in their business. But do normal marketing here, which is beyond the topic of one post, but for example you can also get a booth at their trade show, take out ads in their magazine, get their industry magazine and websites to print your press releases, etc.

The idea with just getting your name out versus trying to sell is when one of them is looking to upgrade, or they hate their current system and want to try something else, they know to send you a request for proposal or ask you for a quote or demonstration. That's when you'll do the selling. For now just make sure everyone knows you exist so you get those requests for quotes and proposals.

(Obviously, once you're ready to sell you have to have your product finished, basic business set up, brochures ready to send, etc which are their own topics. This is just illustrating the steps.)

5. Present yourself as consultingware -- it won't matter that it's you against big companies

Don't assume your product requires an army of a company behind you to sell, even though that's what your competitors do. Consider:

  • Any software that's used a lot is going to have a segment of people who hate it
  • Any company that "owns" or has a large part of the market will have people who hate them
  • In some markets, business customers may not want to use the same things their competitors use, and will be willing to try a new or unproven system in the hopes of getting an advantage (better productivity, lower overhead costs...). The unproven product may fail, but some are willing to try.

So you will have at least some segment of the market that will be open to something new or at least consider you even though it's a sub-complete product and a one-man show.

So, how do you sell it?

Firstly, the fact you have a "lite" version is covered by your reduced price. You're going to sell your lite version for $5K or $10K a seat or something well below the competition, to account for its being a basic product. At the same time though you're going to sell them on its value, convince them that it doesn't need all the bells and whistles like the other products, so why pay for them? Etc.... sales is beyond the scope of one post here but you can use standard sales techniques to convince them the value of your features versus the price they pay.

The bigger issue is the company being just you. They're going to ask you outright, or you'd better address up front how you expect to give them the same service and support the 100 person competitor would give, and recognize that it's a key technology or product for them and what if you get hit by a bus or disappear? What do they do then?

Here's how I've addressed the common questions about a one-man company:
How can you give the same level of support?


You tell them your business approach is different -- yours is "consultingware" and you're only selling to one business at a time. That way you become dedicated to them and their exact needs. And of course it's true! If they're paying you $150K for your "turnkey" system, it should be no problem to check on them weekly, fly out to their site monthly, really hold their hand, put in requested new features for free, really get their feedback over the year. They'll love it and be your champion for your next customer.

Ask them if they're getting that from their current provider now... probably not.

Also point out they would be a major customer and a really big project for you. With the big competitors they're just a number. They'll like that idea too.

As for getting hit by a bus, well your competitors could go bankrupt tomorrow too. Who knows? But assure them you're fully insured for liability and performance ("errors & omissions insurance"), and point out once software is installed and running, it doesn't change. Software doesn't wear down, it'll keep running the same way forever. And they don't pay until it's installed, running and accepted, so if you got hit by a bus or your company went away, they'd still have it and it would still continue to work.

How do we know your product works? You haven't sold it to anybody yet.

You say yes it is a new product, and the bad thing is it's not established, but the good thing is they're getting the latest and greatest technology has to offer. Then you reiterate how they don't pay until it's installed and proven running and they accept it, so there really is no risk. If it doesn't work as advertised, they don't pay. And you're confident enough and have tested it enough you're willing to spend the money to do all that installing, training and demonstration of functionality before they accept it.

You should also admit that sure, there will be things that will come up, but that's also why you're running your company as "consultingware." You'll be there on call and devoted to them and how they're using the product. If there's something major, you can be on the next plane out, will have it on your laptop and can make changes right then and there. Do the large competitors do that for them now? Most likely not.

See? A one-person company is actually a good thing!

--------

Well, my first customers all responded really well to the above, anyway. And I wasn't being deceitful at all, I really did hand hold them and was devoted to them, because after all my first customer was my only customer!

So that's one way you can run a big money software company by yourself. Many customers really do care more about support and quick responsiveness more than how many millions your company sells a year. And remember, you don't need to win over 100% of the market, just 2% maybe to make good money. Target those 2% who hate the current products and companies on the market and they will probably be glad to give you a chance.

Then with that first happy customer, you use them as a reference and build up from there. Or more likely in a small niche market they'll rave about you to everyone and everyone will want to know more.

I know with my first customer, I did all the above and flew out probably 10 times that first year and spent easily $20K on travel and stuff I didn't have to do contractually. They needed more monitors? Sure, I ordered them from Dell and they had them two days later, for free. They loved that kind of thing. It was a $140K sale so that year I think my net was only around $50K because of all that kind of stuff, but they really became my champion and paved the way for many more future sales.

Government Follies

My last post about government contracting might have given the impression I was somehow gouging the government by pulling some price out of my ass. You can't do that and exist for long in business or certainly government sales. Nope, it was market price for my product, established market, commercial items, and the competition was sealed bid, fair and open with multiple companies competing. With an open competition and sealed bids it's in nobody's interest to inflate the numbers because your competitors will undercut you easily.

I think now my conversation with that contracts guy happened because he was thinking it was time & materials when it was actually firm fixed price, and I just didn't know enough about contracting to realize that was the misunderstanding.

So to you government contract guys who criticized me, I really don't care. Don't buy from private industry if you think the open, free market is too expensive. How about instead, you buy from my competitors for 30% more? Or just hire Mega Contract Corp to build it for you for three times the price, then spend another five years and another $10 million fixing it when it doesn't work?

Meanwhile I'll just keep selling to private industry who don't bitch about every single line and every single dollar like you government types do. Yea, I know it's to prevent waste and fraud, but it's still annoying.

(Actually no, I love you government types... keep those orders coming in!)

92 comments:

steven romej said...

Thanks for posting this. Insightful and inspiring.

syia said...

seriously thanks a lot, a really mind opening article i ever read :)

Anonymous said...

Arrghh, dont tell everyone our secret!

Let them believe that free is the only way and it will stay easy.

Yann said...

Thanks a lot. This kind of information can change the course of lives...

Rob Gray said...

Great post. I'm currently in the middle of developing my verticle product and this confirms the approach I'm taking and my existing thoughts on the matter.

BillyG said...

After you, Yann nailed it! Thanks bud!

Anonymous said...

I admire your persistence.

Your comments about creating a basic low cost version was very insightful.

Anonymous said...

Great post, very practical and applied. After reading so many generic, poorly detailed posts on software business yours was quite refreshing. Now I just need that idea!

Nik Chankov said...

Nice post, I am in fact infront of that dilemma - what shall I do as business. :)

It is inspiring, indeed!

Jack said...

Interesting post and blog.

Was it required that your software will stand to any QA standards before you could sell it? if so how did you handle it?

Anonymous said...

you need to immediately read 'the four hour work week' by tim ferriss, if you haven't already.

he has a blog too.

Anonymous said...

Wow!! Its like u were there... explain everythin clearly as it goes around!! Thank you for this insight view of the software sellin idea!!

Bill said...

Jack, all our development is internal so we don't have a formal standard we have to use for QA.

For deliveries we do have a "verification matrix" we made ourselves, which basically has all the functionality we advertise and know that works. If a customer wants a formal factory or site acceptance test we use that. None of our commercial customers have asked for it though (they're not professional software buyers, after all, so maybe they don't know that's what you're supposed to do).

The government asked for a formal test though, and we just went through that list of features.

Our internal QA unfortunately isn't very strict, and the project manager is also the person who does the QA. It's a solid product though, I think, and we haven't had any major problems with it.

Anonymous said...

OK, well, first of all, I have this software. It is restaurant touchscreen point of sale for Linux. I invented this software paradigm more than 20 years ago. I will make the current version of this source code available to you so that you can sell Linux point of sale to restaurants, bars and hotels in your region. You can also join a group of talented associates who are already doing this. Yes, we have a device that even has the code and point of sale solution already available, embedded, in it. Just google Linux restaurant software and you can find all about it, including how to contact me. I need people who would like to skip all the preliminaries, which take years and lots of luck to resolve, and cut right to the chase.

Anonymous said...

Your math is wrong. It's $20 times 1k people, not 10k people.

Anonymous said...

Sorry, the math is correct. I misread that you're comparing solutions worth $200k per year.

Hassan said...

Well crafted article. Thanks for an insightful article.

Tomas said...

Thanks for a good article.

I used to work for a company that provides turnkey parking machine solutions just like you describe. The software is actually pretty complicated, partly because every client has their own idiosyncratic needs, partly because the embedded systems they are running on are pretty slow.

I worked on the component that only calculates tariff rates (how much you have to pay). That alone has, among other things, a custom scripting system and weighs in at 10000 lines of code.

I don't think a driven developer couldn't break into that market, but there is probably more work to it than one might think.

Bill Robertson said...

Wow, the tone of this entry is so different from the previous one I didn't realize I was reading tbe same blog.

Good luck and keep plugging.

Federico Builes said...

I'm wondering what happens when you lose that one client? Some of the advantages you have by making cheap software is that you can lose 1, 10 or 100 customers and you probably won't notice.

Getting big customers (the ones willing to spend 200K on software) is hard, so how do you go when they decide that they won't renew their contract or that they'll use a competitors' product?

Anonymous said...

Where I work we have a product exactly like you describe; low volume, high price. And it is total crap, and I am planning to take a year and write a better product. Please, keep blogging, I'm learning a lot here!

Anonymous said...

This is a great weblog. I hope you are able to keep going with it, and sort of fleshing out how you got to where you are (and where you're going).

I have lived a similar event to the subject of Becoming a Cynic #2 - and my software now sells for around $20,000 to $40,000 depending on how many seats we're licensing. It is definitely the consultingware model, and after 10 years is now going pretty well. Not exactly Get Rich Quick!

Looking forward to more.

Dan said...

Bill,
I just finished reading all your articles and I wanted to say I really enjoyed them. I think you are where I hope to be in 5 years. I look forward to reading more.

Harring Figueiredo said...

I would like to know what programming language do you (or any of the posters with successful stories) use for development and what platform. It would be interesting to know why you picked that language and platform.

Keep up the great work.

Thanks,

harringf

Anonymous said...

Great post.
Probably it works for Consumer Products such as parking management, cell phone or iPod. But for the industrial, medical or avaiation, nobody wants to take the risk.

Huff said...

Great stuff, good to hear an account of someone else's success. Thanks for writing it.

Any chance of a blog about what led to you hiring additional employees?

Blake said...

Awesome post. Excellent insights from the trenches on starting a high-rent software company. I have a growing list of "better" versions of existing software I'd like to work on some day. I was pretty sure the lower-dollar ones would be the ones to build first, but I need to reevaluate after reading this. Thanks!

tamgo said...

Thanks for taking the time to share your insight with us mere mortals. You have definitely opened my eyes and changed my point of view.

I wish you continued success in your ventures.

Leonius Maximus said...

As it was previously said - great post and a great blog! Keep on going.

But the thing I wanted to ask you is what type of a company would you recommend for a business like yours (LLC or a private one) and when did you actually started the official company as opposed to working by yourself in a "garage"?

SharePoint Development - Softweb Solutions said...

Thanks for the nice information.

Best Regards
Arpit Kothari

Offshore Software Development

nospams said...

Hi - a friend pointed me to your blog. Very inspiring for the rest of us cubicle software developers that are looking for bigger and better things.

But one thing I think you need to elaborate on is the recurring theme that you aren't really sure if it was worth it. You mention $2 million in annual sales, but you never mention profit. If you have 8 employees, and lets say you spent $100k on each of them (that would be $80k salary, $5k healthcare benefits, $6k your contribution to social security, $9k bonus or other expense) and lets say $200k in other company expenses (travel, office, etc) you are still raking in $1 million profit per year (before taxes). Do that for a few years, and you should be able to retire and live of the interest alone from your savings assuming you don't blow it as fast as it comes in. But even better, you could hire a firm to shop the company for you, and possibly sell it for anywhere from 5-10 years estimated sales. Who knows, you could walk away with a cool $10 million.

At that point you could do anything you wanted with your life, start a new venture, bum around the world, write a book, run a charity, research something interesting, run an experimental physics laboratory, etc. This is most people's dream scenario. So what exactly are we missing? You mentioned higher levels of stress and perhaps long work hours - but aren't you being generously compensated for that? Has the business taken a toll on your relationships/family? Your health? Maybe you have some lessons learned that could help others going down a similar path?

Good luck. And thanks for sharing your experiences.

Charles said...

Wow, great article. I have run a 1 person software at similar price points for years. http://www.recursivetechnology.com. I've got a list of happy customers customers, but found it very hard to expand beyond 1 person, seems consulting is always more profitable than the few sales I can make a year. How are you planning on expanding?

Bill said...

Harring -- C++ with a couple tools in VB.

nospams -- numbers aren't that high, it's more like $500-600K and with only a handful of customers a year we can easily go 6 months without an order (paying out payroll, rent etc all that time), then we might get 3 orders at once each needing $100K in hardware and other upfront costs (I haven't been very good building credit, just used to pay cash or credit card for everything). So profits are pretty much all going into operating capital. Also nobody will pay 5-10x revenue in my market for my kind of business, it's more like 1-2x plus some percentage of current contracts. My exit strategy is acquisition though and I'm currently in late talks with the third company that's asked about it (I'll write about that sometime).

charles -- I don't plan to expand much beyond my seven employees now because we don't have anything in the longer term pipeline beyond the current government contract and a "handful" of new customers a year, plus I'm currently in talks to be acquired (possibly). As for expanding beyond one person, that was going to be my next topic because it's a big step, but my way to do it was to productize my system as much as possible into a "standard" solution so new employees can fairly quickly build, configure, install and support it without much input from me or needed domain knowledge.

Anonymous said...

How to sell software for $20,000.

Step 1: Make something that people will pay $20,000 for
Step 2: Sell it
Step 3: Profit

Thank you for that wonderful insight.

matt4077 said...

It's very interesting that you have chosen the 20k$ price range for a lifestyle business. I used to sell software in the 20-100k$ range and it was anything but a lifestyle business - endless projects, long nights, and daily contact with customers. I'm now trying to sell software in the 500$-1000$ range, expecting to have a somewhat better life, since it's possible to do all support by email and therefore have a little more flexibility in your daily routine. I agree though, that selling 30$ consumer software is a really bad choice.

Oby said...

very inspiriring, and needful for young software companies like mine, thanks

Vinh Luu said...

Thanks sharing your experience. I've learn a lot from this post.

Anonymous said...

You are great! I have the same experience as you.

But you make my day today good. Now I feel I am not alone and I need to hold on...

I have built 3 big softwares during the past 3 years and I walked same steps and taste the same questions as you mentioned. One thing I am not very confident is my language and I am a Chinese in US. But I believe I can go to that land and do the same thing...

Anonymous said...

Hi. Great blog. I would love to get in touch with you personally... can you create a gmail account where we can reach you without spoiling your anonymity?

Thanks!

Anonymous said...

The poster above mentioned he was chinese. Do not trust Chinese software. Chinese are scum and steal anything they touch their foul fingers on.

SCUM

Jake said...

Don't worry about your language. English is my 2nd language as well but I'm doing fine!

Just remember to focus on your product and pay attention to support.

Of course you'll always meet racist people (like the poster above me), but don't worry because they are losers who won't matter to your business. He probably got fired because he's incompetent and was replaced by a Chinese guy...hence the hate...

newage said...

really eye opening... thank you. i am a software designer as well, and have created this amazing piece of software for a client come employer, they know nothing about how to sell it, but instead are using the software to aid their own business.I am now inspired to approach them with a proposition on how to effectively sell it. Thank you and hope to read more...

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Bilsel said...

Even selling $1 software would give you a good lifestyle as long as you know where to sell it and how to attract customers. Software or widgets for Iphone is a great example.

Canvas Technologies Ltd.
http://www.canvastech.net

swedegeek said...

Bill, what would encourage you to write more??? I read all your posts back when they each hit reddit or the like, and was looking forward to more of your insightful experiences. I imagine you're plenty busy and you haven't had time, so that's great for you. Doesn't mean I'm okay with not seeing any new posts. ;)

I currently work for an international software company that sells products ranging from $15 to $12,000. I recently started talking with someone about starting up a venture that could sell SAAS in the tens of $1000s range per "license" to government type organizations. You sharing trials and tribulations have been awesome to read (especially this post), extremely motivational and I look forward to seeing more show up. Happy 2009!

Anindya said...

From Anindya Chaturvedi INDIA




That's really amazing help which any one can give for those who want to establish a new software company.......?

if u read this please suggest me that how should i get clients, as i want to start a company, we are 5friends and want to start a software solution company.......can u help me ... how to start the same.......i don't hve any experiance and completed my B.E. in 2008. In this recession period i'm not gettting any job so i decided to open my own company.....!!


if u have any thing regarding please send it to my e-mail ID

"anindyaCorporate@gmail.com".

Thanks a lot again.......i came to know a real marketing....and how it works in software domain......

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