Powerpoint Oct 98 v.3(1)

7/27/2019 Powerpoint Oct 98 v.3(1)

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1The Business of Software 1992-8 Ronald M. Baecker

Planning and Starting

A Successful SoftwareCompany

Professor Ronald M. Baecker University of Toronto

Founder and CEO, Expresto SoftwareCorp.

19 September 1998, Vancouver, BritishColumbia


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How to Contact Me

Ronald M. Baecker

Department of Computer Science

University of Toronto

10 Kings College Road

Toronto Ontario M5S 3G4 Canada

+1 (416) 978-6983 (phone)+1 (416) 978-5184 (fax)

[email protected]


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Introduction

Ronald M. Baecker

Objectives

Methods

Course Themes

Guest Entrepreneurs

Strategic Issue Session Seminar Schedule

Any Questions?


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Ronald M. Baecker

Founder and CEO, Expresto SoftwareCorp.

Professor of Computer Science, Elec.and Comp. Eng., and Management,University of Toronto

Founder (1996) and Director, Knowledge

Media Design Institute, University ofToronto

Past Visiting Prof. or Research Scientistat M.I.T. Media Lab, Univ. of British

Columbia, Univ. of Maryland, AppleComputer, Xerox PARC


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Ronald M. Baecker

(contd)

Founder (1976) and CEO, Human

Computing Resources Corp. (HCR), soldin 1990 to SCO

Adviser and consultant to a number ofstart-up software firms

Taught this in Toronto, Ottawa,Vancouver, Los Angeles, Buenos Aires(Arg.), Santiago (Chile)

B.Sc., M.Sc., Ph.D., M.I.T.


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Objectives

To understand the high-technology,computer, and especially the software

business environment

To learn principles for defining andcrafting a healthy profitable growingsoftware business (entrepreneurial or

intrapraneurial) To convey a healthy appreciation of how

difficult this is

To hone one's skills in thinking about

strategic software business issues To join and help to create a communityof software entrepreneurs andintrapreneurs


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Methods

Lecture and discussion of 4 themes (seenext slide) and 60 principles for success

Elaborations and illustrations, especiallyfrom guest entrepreneurs, past andpresent, through both second-hand andfirst-hand accounts (live and on video)

Exercises for students Discussion of student questions and

issues in strategic issue session


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Course Themes

I. Innovation in the Software Industry

II. Focus and Objectives Defining andPlanning the Business

III. Opportunity and Timing Marketand Product Planning

IV. Writing the Business Plan


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Other principles forsuccess

Organized into the following categories:

Marketing and Distribution of SoftwareServices and Products

Cash Financial Management andAcquisition of Financing

Leadership Team Building andManagement

Partnerships Strategic Alliances,Mergers, and Acquisitions


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Guest Entrepreneurs

Characteristics

Experienced entrepreneurs

Successful entrepreneurs

Products and service companies

Information technology in a broadsense

20-25 minute presentations

35-40 minutes of question-and-answer,based on your participation!!!

Discussion and critique

Guest Entrepreneur List


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Strategic Issue Session

Discussion of actual strategic issuesfaced by seminar participants

These could deal with, for example,

Innovation, business definition,markets, or technology; or,

Marketing or sales; or

Finance, financing, leadership, orcorporate organization

Please fill out and hand in ParticipantInformation Forms by the close of lunch

time.


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Schedule Day One


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Any Questions?

Lets make it interactive!!!

Now please introduce yourselves....


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I. Innovation in The

Software Industry

Data on the Canadian Software ProductsIndustry

Data on the U.S. Software ProductsIndustry 1

Data on the U.S. Software ProductsIndustry 2

The Multi-Faceted Business of Software

Many Kinds of Software

Hardware-enabled Software Paradigms

Druckers Sources of Innovative

Opportunity


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Data on the Canadian

Software ProductsIndustry

Growth of the Canadian SoftwareProducts and Computer Services

Industry

Year Rev. Employ. S'ware Prod. Rev.

1990 $5.8B 64K $0.8B1991 $6.1B 64K $0.9B

1992 $6.5B 67K $1.0B1993 $8.2B 71K $1.3B1994 $9.3B 76K $1.6B (est)

Excludes the 25% who are self-employed

S'ware products compound annualgrowth of 20%

55% of total revenue generated by the1% of the companies with sales > $10M

Net profit margin of 6.2% for sample of30 software products firms


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Data on the U.S.

Software ProductsIndustry 1

Growth of the U.S. Packaged SoftwareIndustry

Year Revenue Income before tax1987 $ 5.7B $0.5B1988 $ 7.3B $0.7B1989 $ 9.0B $1.3B1990 $11.7B $1.4B

1991 $13.0B $1.2B1992 $14.4B $1.7B1993 $16.6B -------

Average annual growth rate of revenue =20.4% over that period

Source: WEFA Group (via SPA), August1994


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Data on the U.S.

Software ProductsIndustry 2

Relationship to other industriesYear Print/pub. PCs/WSs Films S'ware

pub.1987 $137B $10B $14B $6B1988 $144B $13B $14B $7B1989 $150B $15B $17B $9B1990 $157B $16B $19B $12B

1991 $157B $16B $18B $13B1992 $160B $19B $21B $14B1993 $163B $24B $23B $17B

Annual growth rate3.0% 16.7% 9.0% 19.6%

Source: WEFA Group (via SPA), August1994


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The Multi-faceted

Business of Software

Remember, as you search for sources of

entrepreneurial opportunity, that the

business of software includes not only

software development and marketing,

but activities as diverse as market

analysis, customer training, and

information publishing. Thus softwareinnovation need not consist of new

paradigms or proprietary algorithms, but

can instead be based on other

innovations, such as the novel coupling

of technology to an application, or a newapproach to distribution, training, or

support. (#1)

Varieties of software-related business


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Varieties of software-

related business

Consulting

Contract software development

Systems integration

Software products development

Software products publishing andmarketing

Software distribution

Value added reselling

Technical documentation

Industry analysis and publishing Training and customer support

Electronic publishing, CD/ROM,multimedia

On-line and Internet-basedinformation services


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Many Kinds of Software Systems software

Operating systems

Languages, programming utilities

Software engineering, CASE

Networking and communications Applications software

Industrial automation, computer-aideddesign

Business software Personal productivity software

Media and information

Games, multimedia, educational

software Electronic mail, conferencing,

groupware

Information access and resource

discovery


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Hardware-enabled

Software Paradigms

Scan technology trends carefully looking

for new hardware paradigms that could

open up and enable new software

paradigms and applications. New

software paradigms, such as the

spreadsheet, object-oriented

programming, CASE, hypertext, neuralnets, or groupware open up new

domains for vigorous entrepreneurial

activity. (#2)

Examples


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Examples

IBM Mainfr. Capacity planning Best 1

HP minis RDBMS+4GL

PowerHouse PC PC software develop. Basic

Apple II Spreadsheet Visicalc

IBM PC Integrat. productivity Lotus 1-2-3

IBM PC PC tax software TaxPrep

Mac Desktop publishing PageMaker

SGI Workst Sensual 3D design Alias Rsrch

Networks Network file systems NetWare

Networks Groupware LotusNotes

The Internet Global comm+inform. Netscape

Hand-held... Pen-centric software GoPenpoint

Wireless ??? ???


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Drucker's Sources of

InnovativeOpportunity

Search for sources of innovation

systematically, as Drucker asserts is

possible, looking at (#3):

New knowledge

The Unexpected

Process need

Changes in industry or marketstructure

Demographics

Incongruities

Changes in perception, mood ormeaning.


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New knowledge

New hardware paradigms

New software paradigms and proprietaryalgorithms


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New hardware

paradigms

RISC architectures enabling newapplications for workstations

Highly parallel machines enabling newapproaches to weather forecasting,exploration, information retrieval, etc.

VLSI graphics chips enabling new

applications in computer animation,simulation, virtual reality, etc.

Multi-media technology enabling newapplications in entertainment, education,

etc. Ubiquitous computing enabling newapplications in both office and home

Global networking via the Internetenabling new applications for

communications, information access


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New softwareparadigms & proprietary

algorithms

The spreadsheet

The relational database managementsystem

Windowing environments

Object-oriented programming

Hypertext

Neural nets

Performance modelling algorithms

Speech recognition algorithms

Handwriting recognition algorithms Groupware

Information resource discovery engines

Intelligent agents


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The unexpected

Use of scientific computers for

business

Success of the personal computer

Use of Lotus macro languages andHyperTalk by non-programmers

Penetration of PCs in the home

Success of the Internet

Licensing of the Macintosh operatingsystem


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Process need

Interfaces between systems andstandards

Software to emulate one environment inanother environment

Compilers to replace interpreters, e.g.,DBase-Clipper

More generally, performanceenhancements

Novel coupling of technology toapplication, e.g., Aldus PageMaker

Network design and management tools Software metering tools

Virus immunization and other computersecurity software and services

Universal mailbox software Email filtering software


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Changes in industry or

market structure

Innovations in promotion, e.g., Lotus

Innovations in pricing, e.g., Borland

Innovations in distribution, e.g.,shareware

Innovations in packaging, e.g., softwaresuites

Decentralization/communicationsreplacing travel, hence the need forelectronic mail

Merging of computing and telecom

opens opportunities for groupware Opening up of Eastern Europe provides

new markets for technology and software

Increasing use of multimedia for

entertainment, education, advertising New publishing and distribution options


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Demographics

Increasing amounts of home-basedbusiness

Increasing amounts of telecommuting

Increasing numbers of female executives

Increasing levels of illiteracy

Increasing numbers of elderly people

Increasing expectations and progress indeveloping countries

Increasing numbers of skilled peoplewho have been downsized

Increasing numbers of people connectedto the Net, and who have their own homepages


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Incongruities

Discrepancies between reality as itactually is and reality as it is assumed tobe or as it ought to be, e.g.....

High-level languages not very high-level, hence the need for 4GLs

VARs not self-sufficient hence

Genamation becomes a super-VAR,providing assistance with businessplanning and development, salessupport, training, and marketing

Voice mail is just electronic answeringmachine technology hencestraightforward; not true, hence voice

mail surgeons needed

Everything you want to know is on the

Net, yet you can't find it, hence searchengines needed


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Changes in perception,

mood, or meaning.

I'm mad as hell and I'm not going to take

it anymore leads to the computer for

the rest of us and increasing emphasison ergonomics and user friendliness

Success of the Apple Macintosh

Computer as a gateway to

communications and information ratherthan a stand-alone device

Growth of the Internet


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II. Focus and Objectives

Defining andPlanning the Business

An Equation for Entrepreneurial Success

The Entrepreneurial Spirit

Focus and Objectives

Self Knowledge

Competitive Edge

Distinctive Competence

Proprietary Technology

Barriers to Entry

Other Sources of Competitive Edge

The Business Plan


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An Equation for

EntrepreneurialSuccess

To succeed, according to Silver's Law of

Venture Capital, you must identify a

major problem, devise an elegant

solution to the problem, and assemble

an outstanding entrepreneurial team

capable of turning the problem and the

solution into a successful business. Ifany of the three factors is lacking, all is

for naught. (#4)

Silvers Law of Venture Capital


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Silver's Law of Venture

Capital

If V = Valuation

P = Problem size (i.e., market)

S = Solution elegance (e.g.,technology)

E = Entrepreneurial team quality

Then V = P X S X E.

The goal of entrepreneurship is to

create value (V) by formulating a bigproblem (P), creating an elegant solution(S) that solves the problem, and forming

a capable entrepreneurial team (E) tocreate a unique system for delivering Sto P.


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The Entrepreneurial

Spirit

Don't start a business unless you

possess an entrepreneurial spiritsturdy

self-confidence, serious drive and

energy, unflappable commitment, a

willingness to take risks, the ability to

venture into the unknown, and the

courage to make decisions despiteuncertainty. You must also possess

expertise a distinctive competence,

and qualities of leadership. (#5)

Motivations for entrepreneurship

Wealth

Independence, must be your ownboss

Building something

An idea that cannot be denied, mustbe done


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What is

entrepreneurship? Entrepreneurship is the dynamic processof creating incremental wealth. The wealthis created by individuals who assume themajor risks, in terms of equity, time, and/or

career commitment, of providing value forsomeproduct or service. The product orservice may or may not be new or unique,but value must somehow be infused by theentrepreneur by securing and allocatingthe necessary skills and resources.

(Ronstadt, 1984, p. 28)

Entrepreneurship is a little like coming to

a traffic light which is red and not

necessarily stopping..... The job of an entrepreneur in our

'competitive' economy is to create anunfair advantage.....

I can smell the Ferrari.


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Choose your focus carefully, and keep it

narrow and relatively constrained.

Define precise objectives, both short-

term and long-term, dealing with

technology to be developed or obtained,

the market to be served and captured,

and the financial results to be achieved.Make precise who on your team is to do

what by when. (#6)

Mission statement

Example, Alias Research: Our

mission is to be the world leader in 3Dcomputer graphics software forcreative design.

Dimensions of focus: technology and

market Dangers of too diffuse focus


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Dimensions of focus:

technology and market

BGS Systems

Computer systems performancemodelling for large IBM mainframesystem managers

Geac

Transaction processing systems for

vertical markets, e.g., libraries,financial, hotels

HCR

UNIX operating systems programming

for hardware manufacturers withoutUNIX expertise needing speed toUNIX market

Wainman+Kydd

Tax calculations and tax planning forthe Canadian accounting profession


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Dangers of too diffuse a

focus

Causes

Opportunity strikes

The temptation of incremental effort

Financial pressures due toundercapitalization

Lack of adequate planning

Failure to define one's focus andgoals

Arrogance and inflated egos

Dangers

Not achieving excellence in oneendeavour

Undercapitalization intensifies

Management and staff overload,

thrashing


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A lesson in defining

objectives

Writing the world's best electronic mailpackage versus achieving, by 1997, 20%

market share for PC-compatibleelectronic mail software used byphysicians and hospitals

Achieving a reputation for service

excellence versus achieving a 95%renewal rate on service contracts andlogging 10 new sales per month fromcustomers who switch to you from acompetitor's product because of your

reputation for service excellence Having a high-quality efficient bug-free

product versus completing a 3-monthbeta test period at 20 sites having found

no fatal errors and no more than 3serious errors


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Self Knowledge

Know who you are, and what your

strengths and weaknesses are, and use

this knowledge intelligently in chosing

your focus and objectives. (#7)

Example: Lanpar Technologies

Example: HCR

Example: Alias Research


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Competitive Edge

To succeed, you must have a

competitive edge, such as a distinctive

competence, proprietary technology, or

barriers to entry hindering the

competiton. (#8)

Also called sustainable competitive

advantage Varieties of competitive edge

Introduction follows, deeper discussion inPart IV


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Varieties of competitive

edge

The distinctive competence

Proprietary technology

Barriers to entry

Other sources of competitive edge


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Distinctive Competence

One of the most potent forms of

competitive edge is to have a distinctive

competence expertise which is

unique, difficult to attain, and not

possessed by your competitors. (#9)

Examples of distinctive competence


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Examples of distinctive

competence

Adobe Warnock and Geschke

Page description languages (Xerox)

Aldus (now part of Adobe) Brainerd etal.

Electronic publishing (papers, Atex)

BGS Systems Buzen Goldberg andSchenk

Comp. syst. perform. model. (Harv.,H'well)

Object Technology International

Thomas Object-oriented toolkits and systems

implementation methodology

SoftArc Welch and partners

Email systems (BNR) Wainman+K dd TaxPre Wainman


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Another powerful competitive edge is the

ownership of proprietary technology

algorithms, software, tools, or

methodologies which allow you to solve

a problem that cannot be handled as well

or at all by competing technologies.

(#10) Examples


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Examples

Algorithmics Formal math. model to derive synthetic

securities in a uniform way

Apple Operating system, user interface, etc.

BGS Syst.

Comp. syst. capacity plan. algorithm Borland

Techniques for high-speed compilation

Fulcrum

Full-text storage, indexing, retrievalalgorithms (also Open Text)

Netron Technology of adaptable reusable code

components

Visicorp Spreadsheet implementation...not enough!!!


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Barriers to Entry

Established companies can hold their

positions because they gain a powerful

advantage through barriers to entry,

which may result from cumulative

investment and lead time, market and

customer knowledge, or access to

distribution channels and shelf space inretail outlets. New companies need to

devise a plan to counter this advantage.

(#11)

Varieties of barriers to entry

How to combat barriers to entry


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Varieties of barriers to

entry

Cumulative investment and lead time,e.g, Lotus with Notes

Proprietary technology, e.g., FulcrumTechnologies with FulText

Market knowledge and customerknowledge, e.g., Wainman+Kydd w.r.t.

the accounting profession Customer loyalty, e.g., IBM (in the past?)

Customer access, e.g., Microsoft Fortune 500

Brand name recognition, e.g., Microsoft,Lotus

Reputation for quality, e.g., HewlettPackard

Saturated distribution channels


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Saturated distribution

channels

Also no shelf space in retail outlets

Closed to all but established softwareand multimedia vendors

The example of multimedia

One vendor estimate only 4 ofroughly 10,000 titles really successful

Another vendor estimate

20 titles generated 90% of therevenues despite 20,000 new titlesin 1995

From 1994 to 1995, titlesincreased by 95% while shelfspace increased by 23%


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How to combat barriers

to entry

Be better, exploit a distinctivecompetence, develop proprietary

technology

Look for a market niche (Part III)

Look for a market window (Part III)

Move quickly to exploit new paradigms,

open new markets, e.g., Netscape

Have a hit, e.g., Myst

Look for distribution channels that arenot saturated, e.g., Internet distribution


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Other Sources of

Competitive Edge

Getting there first (e.g., Corel, Netscape)

Price (high or low) (e.g., Borland)

Ease of use (e.g., Apple)

Market presence & market share (e.g.,Microsoft)

Marketing knowledge and skill (e.g.,W+K)

Brand name recognition (e.g., RandMcNally, world's leading commercialcartographer, for its TripMaker and

StreetFinder CD/ROMs) Geography (e.g., W+K, Altamont

Computers)

Spanish language (in Latin America)


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The Business Plan

Develop and refine periodically a

business plan to serve as a management

tool, a reality check, an environment for

exploring possible alternative futures,

and a vehicle for raising funds. (#12)

Substance of a typical plan


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Substance of a typical

plan

Executive summary

Concept and objectives

The market

The product and the technology

Marketing and sales strategy

Competition and competitive edge The company

Financial forecasts and projections

Investment proposal

Possible appendices


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Executive summary

The highlights of the plan

Focus on the problem

Focus on the solution

Focus on the entrepreneurial team


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Concept and objectives

Background

The concept

The key idea

The business focus

The business objectives short term,long term

The mission statement


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The market

Market identification and characteristics

Market segmentation

Market sizing


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The product and the

technology

Services or products to be offered

Proprietary technology and itsadvantages

Prior investment

Required R&D, development plan, timeand cost


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Marketing and sales

strategy

Basic strategy

Positioning

Distribution

Pricing

Advertising and promotion

Sales organization and strategy


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Competition and

competitive edge

User benefit compared to status quo,payback period

Major competitors competitivepositions, market shares, strengths andweaknesses

Competitive edge vis a vis the

competition Barriers to entry for new competitors


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The company

Management managementmanagement!!!

Corporate organization key players,credentials and distinctive competences

Growth plans access to additional keyand skilled personnel

Competition schemes, including profitsharing and stock ownership

Current legal status and organization

Background and history


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Financial forecasts and

projections

Short term (1-2 year monthly forecasts)

Medium term (2-3 year quarterlyforecasts)

Revenue and P&L, cash flow, balancesheet

Assumptions

Sensitivity analysis, worst case

scenario


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Investment proposal

Funds required and their purpose

Equity offered

Return on invesment

Liquidity, exit plan

Sources, timing for future investment


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Possible appendices

Detailed financial forecasts

Resumes

Market survey data

Company profile, product literature

Testimonials from customers

Literature from competition Risk factors

Names of references


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III. Opportunity and

Timing Market andProduct Planning

Market Definition

Customer Identification Market Segmentation and Sizing

Competitive Analysis and ProductDifferentiation

Market Niche Market Share

Market Window

Business Redefinition and Corporate

Agility


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Market Definition

Define your market by positioning

yourself in a multi-dimensional

marketplace space that includes

technology, market, service, and pricing

factors. You must find a niche that can

be defined with some precision, that has

customers who are accessible, that isgrowing fast enough, and that is not

owned by one established vendor.

(#13)

Criteria for well-chosen markets

Examples of well-chosen markets

Characteristics of poorly chosen markets

Examples of poorly chosen markets


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Criteria for well chosen

markets

Can be defined with some precision, aniche (see below)

Well timed, within market window (seebelow)

Customers accessible

Growing fast enough

Not owned by one established vendor

Expansion paths to other niches

Well suited to your strengths

Also need vision, guts, and luck

Example: I.P. Sharp with APL in the70s

Example: John Lowry with electronicchildren's books in the early 90s

Example: Lee Stein, Einar Stefferud,et al. with electronic commerce in the


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Examples of well

chosen markets

Capacity planning software for IBMmainframe installations in the late 70s

Cost accounting software on personalcomputers for large farms in the centralCalifornia valley in the late 70s

UNIX porting services in the late 70s and

early 80s Tax packages on IBM PCs for Canadian

accountants in the early to mid 80s

Desktop publishing software on the

Macintosh for the graphic arts industry inthe mid 80s

Groupware for large corporations in theearly 90s

World Wide Web servers, browsers, andauthoring tools in the mid 90s


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Characteristics of

poorly chosen markets

Vague

Too large

Premature, or too late

No clear way to reach customers

Static or declining

Already owned by others Not suited to your strengths


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Examples of poorly

chosen markets

Software for the doctor (too vague)

The word processing market (too large)

The office automation market (too vagueand too large)

Accounting software for time-sharedcomputers in the 80s (too late,

declining)

Integrated productivity tools market onthe IBM PC in the late 80s (alreadyowned)

Fourth-generation languages for HCR(not suited to the company's strengths)


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Customer Identification

and Characterization

Identify your customers in terms of who

they are, what they do, how you can find

them, and why and how they will use

your products or services. (#14)

Dimensions characterizing customers

Key concept is user benefit


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Dimensions

characterizingcustomers

Business or profession, e.g., oilexploration

Kind of user, e.g., accountant

Activity for use of the software, financialplanning

Size of the target business

Geographic location

Machine and/or software environment


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Market Segmentation

and Sizing

Segment your market appropriately, and

then attempt to size it in a number of

different ways by working top-down in

terms of percentages of some larger

population, by working sideways through

comparisons with your competitors, and

by working bottom-up in terms ofspecifically identified potential customers

or classes of customers. (#15)

Market segmentation: multimedia titles

Market sizing: the U.S. K-12 schoolmarketplace

Market sizing: tax packages foraccountants

Market segmentation exercise: the

Internet marketplace


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Market segmentation:

multimedia titles

Games

Adventure, role playing

Simulation

Strategy

Sports

Business Personal/reference/finance

Education


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Market sizing: the U.S.

K-12 schoolmarketplace

14,000+ school districts

100,000+ schools

2.8M educators

48M students

34M families


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Market sizing: the U.S.

K-12 schoolmarketplace

Technology for school administrators

Technology labs (e.g., Writing to Readlabs) 100K labs

Classroom computers 2.8Mclassrooms

PCs for teachers 3.3M teachers and

administrators

Student home computers 46Mstudents, 30M families

Early childhood market

Private school market 15K schools,5.5M students


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Market sizing: tax

packages foraccountants

Tax packages (personal and corporate)for Canada on the IBM PC in the early to

mid 80s

Top-down analysis

Market is roughly 10,000 accountants

Sideways analysis

Enumerate the competition, thenumber of accountants using servicebureau packages or the number ofclient returns being processed by

service bureaus Bottom-up analysis

Enumerate target accounts:A number of big 8 firms XA number of offices per firm XA number of accountants per office


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Market segmentation

exercise: the Internetmarketplace

One segmentation of the WWW market

Corporate publishing and advertisingmarket (Yellow pages)

Personal Web pages (White pages)

Internal corporate communications,

Intranets Class exercise (individual or group)

Develop a more comprehensivesegmentation


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Competitive Analysis

and ProductDifferentiation

Carry out a thorough competitive

analysis, investigating the strengths and

weaknesses of both the products and the

companies from which they originate.

Then decide on how you will position

yourself and differentiate yourself from

these competitors. (#16) Competitive analysis

Product differentiation Choosing aproduct position such that ones product

is distinguished favourably from allothers

Examples of product positioning

Product differentiation via a positioningdiagram

Product definition to be discussed later


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Competitive analysis Identify the competitors Formulate and ask questions with goals in

mind

Gather the data: commercial intelligence

Read trade papers, magazines,industry market reports, etc. for reviewsof other products

Read literature and look at demos of

other products

Talk to customers of other products

If need be, buy the other products

Organize the data

Analyze the data

Identify strengths and weaknesses

Present the data, e.g., via product-featurematrix


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Examples of product

positioning

A position in terms of...

The intended customer, e.g., the Mac,the computer for the rest of us

Price, e.g., Borland in the mid 80s

Market dominance, e.g., Lotus 1-2-3in the mid 80s

Talking the customer's language, e.g.,Wainman+Kydd

Features, e.g., WordPerfect

Standards, e.g., UNIX System V

Ease of use, e.g., Claris

Customer support, e.g., WordPerfect

Perceived quality, e.g., HewlettPackard

Technological leadership. e.g.,Microsoft


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Product differentiation

via a positioningdiagram

Example: Alias Research's positioningvis a vis other computer graphics

vendors

2D

Analytical Creative

3D

Alias

+

+

+

+

+

+

+

+ + +


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Market Niche

You must find a market niche a

position in a corner or along an edge of a

marketplace where it is reasonable to

expect to have competitive advantage

and to expect to garner a significant

market share. (#17)

Characteristics of market niches Examples of market niches


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Characteristics of

market niches

Ideal size of a market niche

Large enough or potentially largeenough for growth and profitability

Small enough to be affordable and todiscourage competition

The niche and barriers to entry

Unique distinctive competence

Proprietary technology

Creation of a default standard

Specialized market knowledge

Lack of interest because of small size


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Examples of market

niches

Altamont Computers Cost accountingsystems for large farms in the central

California valley

BGS Systems Capacity planningsoftware for IBM mainframes

Fulcrum Technologies Full-text

storage, indexing, and retrieval softwarefor OEMs

Mortice Kern Sys.UNIX toolkits underDOS

SoftQuad Enhanced UNIX TROFF Interactive document editors for SGML,WWW

InContext SGML, WWW creation,mgmt.

Waterloo Computer ProductsHigh-


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Market Share

You must garner a significant market

share, a substantial percentage of a

marketplace. The best way to do this is

to create a new market, rather than

trying to carve share away from existing

players in a market. (#18)

Advantages associated with marketshare


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Advantages associated

with market share

Advantages of having market share

Large customer base

Referrals and reference accounts

Potential for repeat business

Profitability (correlates with marketshare, PIMS study, Harvard, 1970s)

Disadvantages of not having marketshare

Price vulnerability

Media inattention

Shelf space unavailability

Market creation, not market sharing!!!(McKenna)


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Market Window

You must enter a marketplace during the

market window the time period when

there is opportunity to dominate an

emerging market niche or at least to

capture significant market share. (#19)

Examples of market windows


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Examples of market

windows

Late 70s Spreadsheets

Mid 80s UNIX relational data basemanagement systems

Mid 80s Networking software

Late 80s CASE software

90s Groupware

90s Software for global informationand communication systems via theInternet and the World Wide Web

90s Multimedia

90s Software for pen-basedcomputers?

90s Software for environmentalconcerns, e.g., WK Information Systems

Greenware


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Business Redefinition

and Corporate Agility

Because market evolve and change, and

windows open and close, it may be

necessary to reinvent the business

frequently, perhaps every 4-6 years. In

fact, reinvention may be necessary

from the outset as one searches for a

winning product and market. Don't beafraid to experiment. (#20)

Examples of business redefinition


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Examples of business

redefinition

Dataline

Time sharing --> applications software--> services for industry segments -->stock quotation services

Corel

Desktop publishing systems

integration

PC-compatible graphics software

Desktop publishing software(acquisition of Ventura)

Desktop videoconferencing Multimedia products

Office productivity suites (acquisitionof WordPerfect)


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left blank


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The business plan

Proprietary Technology and Capability

Marketing and Distribution

Cash

Leadership

Partnerships


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and Capability

Consider carefully the advantages and

disadvantages of selling a service,

packaging and marketing a product, or

various ways of providing a combined

product and service. (#21)

Clients contract for consulting and

software-related services because theydo not want to hire permanently or

cannot find critically needed skills; your

success as a consultant/contractor is

based on the degree to which you can

professionally, skillfully, and consistentlydeliver high quality and knowledgeable

service such as advice, management

assistance, software development, or

training. (#22)


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and Capability

Software development, whether carried

out for clients or internally for purposes

of product development, is notoriously

prone to cost overruns. You must

therefore estimate carefully, monitor

progress, and re-estimate assiduously,

using methods such as divide andconquer, Delphi, and post mortem.

(#23)

Always remember Brookss Law: Adding

more manpower to a late project makes

it later. (#24) Use exploratory programming and

software prototyping to experiment withnew product ideas, including both

functionality and interface; then employmore rigorous processes of software


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and Capability

Develop software specifications afterprototyping but before carrying out

product development; these mustinclude:

metaphors and mental modelsthrough which the user will

comprehend the product required functionality

the look-and-feel of the interface

processor, memory, and other

hardware requirements performance requirements. (#26)

A critical component of any piece ofsoftware is its user interface, whichdetermines how it looks and feels to itsusers; effective interfaces are designed

-


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and Capability

Software product quality must be

systematically tested to guarantee that it

meets desired standards; this includes

alpha testing within one's own

organization and beta testing at carefully

selected customer sites. (#28)

To remain competitive, convincecustomers that the company is

innovative, and provide an additional

source of revenue, software must be

continually improved through a carefully

managed process of enhancement,testing, and new releases. Yet what one

omits from new releases is even more

important than what one includes. (#29)


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and Capability

Competent and responsive customersupport is essential in today's software

marketplace, and serves as an additionaprovider of revenue, a necessarycomponent of effective sales tocustomers who are not computer

specialists, a method of corporate andproduct differentiation, and a source ofintelligence about the strengths andweaknesses of your product and those ofyour competitors. (#30)


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and Capability

Functionality and complexity of software

seems to grow at least as fast as its

alleged user friendliness, hencecustomer training is essential and can

serve as an additional source of

revenue. Corporate training skills can

also be applied to the professionaldevelopment and internal training of

one's own employees, which is an

essential component of honing and

sharpening one's competitive edge.

(#31) Although the intellectual property of

software should be protected, with the

help of a knowledgeable attorney,

through trade secret, copyright, patent,

trademark, and contract law, speed and


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Marketing and

Distribution

Carefully design your product name,

logo, and literature to assert forcefully

and consistently who you are and what

you do and make. (#33)

Specify your product in terms of what a

customer wants and needs, and what the

user benefit will be, rather than in termsof what its features are. (#34)

Think about software pricing in terms of

value to your customer, what the

customer will pay, what your competitors

are charging, and your cost structure;

ideally, these methods will result in

similar recommendations and help you

set your pricing. Then, pay attention to

the marketplace and be willing to makechanges. (#35)


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Marketing and

Distribution

There are many ways to distribute

products and reach customers.

Considering your company's strengths

and weaknesses, the nature of your

customers and how they can be

reached, and the nature and price of the

product, pick methods that are mostappropriate from among (#36):

Direct sales

Use of sales representatives

Original equipment manufacturers

(OEMs)

Distributors

Value added resellers (VARs)

Dealers and retail outlets

Mail order via magazine and catalog


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Marketing and

Distribution

Consider carefully various methods of

promoting your company and product

and reaching your customer, including

but not limited to (#37):

Advertising

Direct mail

Trade shows

Seminars

Articles and reviews

Industry participation

Public relations

Relationship building and word-of-

mouth

Uses of the Internet

Example: In FY95, Corel spent 49% ofrevenue on marketin sales G&A


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Marketing and

Distribution

Use the trade show not only as an

efficient method for reaching your

potential customers and talking to your

customers, but for building strategic

alliances, carrying out corporate

intelligence, and building morale and

customer awareness within yourcompany. Effective use of trade shows

requires careful planning before the

show, skillful execution at the show, and

systematic follow-up after the show.

(#38) The best publicity is that which spreads

by word of mouth from satisfied

customers and respected industry

participants. (#39)


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Marketing and

Distribution

The sales process must be structured

and managed consider it as a funnel

in which leads are systematically and

steadily culled and promoted through

stages which may be termed suspects,

prospects, targets for closing, and

customers. (#40) View your relationship with your

customer, in Levitt's words, as a

marriage, not as a one-night stand.

Thoughtful and attentive concern for your

customers' well being will often lead tothe most desirable goals of repeat

business and good word of mouth. (#41)


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Marketing and

Distribution

Pay careful attention to the management

of sales personnel and sales managers;

structure thoughtfully a system of

financial incentives and rewards keyed to

agreed-upon performance objectives,

backed up by an infrastructure of

effective administration, sales training,and technical support. (#42)

Understand the Technology Adoption

Life Cycle; do not overvalue early sales

success or underestimate the difficulty of

crossing the chasm between earlyadopters and the early majority. (#43)


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Cash

Central to your business plan must be a

financial forecasting model which

provides a reality check, allows the

exploration of options, assists the

establishing of expectations and

standards of financial performance, and

aids the intelligent management ofbusiness downturns. (#44)

Use your financial statements and

models in tandem initialize the model

with actual data from the statement, and

transfer the results of the model into thestatements as budgets. (#45)

Conserve and protect cash as you would

your life. And, don't forget, you can only

neglect profitability for so long. (#46)


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Cash

Establish a set of key indicators

financial measurements which can be

used to track and evaluate financial

performance and business health.

Properly attribute costs in various

projects, products, and services, so that

you can determine the profitability ofeach one. (#47)

Budgets are projected sets of desired

lower bounds on revenues and upper

bounds on expenditures. They force

planning, and facilitate understanding,thoughtful management, and control.

They must be negotiated in a top-down,

bottom-up manner by all those who will

be responsible and accountable. (#48)


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Cash

Bank financing for start-up software

ventures is for all practical purposes

impossible unless backed by security

and personal loan guarantees. (#49)

Venture financing for start-up software

ventures is possible, but usually only

after initial software development iscomplete and a few early sales have

been made. Look for venture funding

that results in advice and connections as

well as cash. Venture firms will look

primarily at management quality, and willseek outstanding potential returns as

well as a path to liquidity. (#50)


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Leadership and

Management

Leadership is vision, knowledge, drive,

confidence, optimism, openness,

humanity, and caring. It is direction and

guidance that inspires dedication,

confidence, and achievement. It is

required to inspire and bring out the best

in people, and to give them the courageto survive the tough times. Effective

leadership sets and molds the corporate

culture. (#52)

It is essential to have a management

team of compatible and versatileindividuals who have complementary

skills and shared values; one-person

bands will not succeed. (#51)


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Leadership and

Management

You must delegate responsibility and

accountability for a task to be

accomplished, and authority the tools

with which to carry out the task;

otherwise there will be no ownership,

and hence litte commitment, little

striving, and little achievement. Adesirable goal is collective responsibility

shared by members of a committed

team. (#53)

Hire only the best people; use every

avenue at your disposal, includingmultiple interviews and careful reference

checks, to ensure that this happens.

(#54)

Compensation should be significantlybased on success and the achievement


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Leadership and

Management

Employees need and resonate to praise;

be generous in recognizing,

acknowledging, and rewarding

achievement. (#56)

Be courageous, decisive, and clear in

recognizing and openly confronting non-

achievement, defining andcommunication necessary behaviours,

and documenting discussions, plans,

and progress or lack thereof, and in firing

those that despite these efforts do not

perform. (#57)


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Partnerships Do not be committed to developing yourown technology, but consider

dispassionately the make-or-buy decision.

Speed to market can be enhanced by

taking advantage of the opportunities forlicensing technology from government,

universities, customers, or other

companies, both competing and non-

competing. (#58)

The software industry is becoming moreand more competitive, with established

firms wielding more and more power; one

weapon for a new or existing company is a

strategic alliance with one or more other

companies. (#59)

Be open to merger and acquisition

possibilities, but be particularly sensitive to

the mesh of corporate cultures. (#60)


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Course Wrapup

8 themes

21 key principles for success

Good books to read

More books to read

And even more books

And finally...


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8 themes

Innovation in the Software Industry


Opportunity and Timing

Proprietary Technology and Capability

Marketing and Distribution

Finance and Financing Leadership

Partnerships


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21 key principles for

success

#2 Software paradigms

#3 Purposeful software innovation

#4 Entrepreneurial success factors

#6 Focus and objectives

#7 Self knowledge

#8 Competitive edge #16 Positioning and differentiation

#17 Market niche

#19 Market window

#20 Business redefinition and agility


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21 key principles for

success (cont.)

#23 Software project managememt

#28 Software product quality

#30 Customer support

#32 Intellectual property protection

#34 User benefit

#36 Distribution channels #39 Word of mouth

#46 Cash

#51 Management team

#52 Leadership #59 Strategic alliances


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Good books to read

Bell, C.G. with McNamara, J.E. (1991). High-TechVentures: The Guide for Entrepreneurial Success.

Addison Wesley. Brandt, S. (1982). Entrepreneuring: The Ten

Commandments for Building a Growth Company.Mentor.

Cusumano, M.A. and Selby, R.W. (1995). MicrosoftSecrets: How the World's Most Powerful Software

Company Creates Technology, Shapes Markets, andManages People. The Free Press.

Doyle, D. J. (1990). Making Technology Happen.Available from Doyletech Corporation, 60 QueenStreet, Suite 1202, Ottawa Ontario Canada K1P 5Y7.(613)567-7540.

Drucker, P.F. (1985). Innovation andEntrepreneurship: Practice and Principles. Harper andRow.

Gumpert, D.E. (1984). Growing Concerns: Buildingand Managing the Smaller Business. HarvardBusiness Review. John Wiley and Sons.


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More books to read

Manes, S. and Andrews, P. (1993). Gates: HowMicrosoft's Mogul Reinvented an Industry and Made

Himself the Richest Man in America. Doubleday. McKenna, R. (1985). The Regis Touch: Million-Dollar

Advice from America's Top Marketing Consultant.Addison-Wesley.

Moore, G.A. (1991). Crossing the Chasm: Marketingand Selling Technology Products to Mainstream

Customers. Harper Business. Rich, S.R. and Gumpert, D.E. (1985). Business Plans

That Win $$$: Lessons from the MIT EnterpriseForum. Harper & Row.

Roberts, E.B. (Ed.) (1987). Generating TechnologicalInnovation. Oxford University Press.

Roberts, E.B. (Ed.) (1991). Entrepreneurs in HighTechnology: Lessons from MIT and Beyond. OxfordUniversity Press.


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And even more books

Brandt, Steven C. (1986). Entrepreneurship inEstablished Companies: Managing Toward the Year

2000, New Americal Library. Jelinek, Mariann and Schoonhoven, Claudia Bird

(1990). Innovation Marathan: Lessons from HighTechnology Firms, Blackwell.

Kanter, Rosabeth Moss, (1983). The Change MastersInnovation and Entrepreneurship in the American

Corporation, Simon and Schuster.


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And, finally...

Any more questions???

Please fill out and return courseevaluation forms

Thank you, and happy entrepreneuringand intrapreneuring!!!

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