Business of Software Blog

Different: escaping the competitive herd (a book review)

One of the speakers pulled out of BoS2010 a couple of weeks ago, leaving a gap in the schedule that I've been trying to fill since. For me, the best speakers at previous years have been those who've left my brain throbbing gently by the end of their talk. People like Geoffrey Moore, Don Norman, Seth Godin and Jennifer Aaker. I've been trying to think of somebody - they're often substantial academics and great communicators - who could fill that slot. I've been struggling.

Then I stumbled across Different: Escaping the Competitive Herd by Youngme Moon.

I picked it up expecting a book like all other business books. It would have, I thought, a single idea that would have made a good essay. That idea would be padded out to 200 pages, because that's the length business books have to be. It would include examples from WL Gore, Whole Foods, Best Buy and South West airlines. It would have a coherent set of principles and a checklist I could follow to help improve my business. It would probably do those things exceptionally well.

It didn't.

It totally under-delivered.

But it doesn't matter.

Why doesn't that matter? Because it surprised me in so many other ways. It's not a traditional business book - it's a mashup between a business book and a reflective essay. It meanders between marketing and philosophy, spending as much time discussing what it means to live in the modern world as how to build brands. As you'd expect, Youngme talks about Google and Apple (how could a book that talks about brands that insult their customers, polarise consumers and revolutionise product categories fail to mention Apple?). Less expectedly - but still within the category of 'business book' she's careful to keep one foot in - she writes beautifully and conversationally about Mini, Marmite, Red Bull and BAPE. But she also talks about Richard Feynman, the Onion and the Fonz. She even uses the word 'motherfucker' once. How many business books do that?

Youngme's thesis is that the way businesses are taught to compete is flawed. We're encouraged to talk to our customers and add the new features they demand. We examine our competitors, figure out where they're better than us and then we copy them. We find out what our weaknesses are, and fix them. We repeat, repeat, repeat, stuck on a treadmill of incremental innovation as we try to become better, faster, cleaner, cheaper, tastier - whatever it is that our customers tell us they want. The end result is entire product categories (bottled water, shampoo, detergent, cars, beer, operating systems, accounting software) stuffed with thousands of near-identical, micro-differentiated products that nobody can tell apart.

Youngme thinks there's a better way. She believes that the way to compete isn't by being better. It's by being different. The products and brands that people love are those that fail to give us what we expect, but which then surprise us in some other way. They refuse to be judged on the same axes as their competitors. They change our perception of what a product ought to do. Sometimes, they insult us. They cultivate their enemies as much as they nurture their friends. They're flawed, and they shout about their flaws to whoever will listen. They polarise. They refuse to be bland.

Youngme doesn't pretend this book is complete. Some of its ideas are tentative, and it has flaws. But rather than pretend those imperfections don't exist, she embraces them. Youngme describes Different as a 'leaky, leaky boat'. It takes what could be a weakness - its lack of absoluteness - and turns it into a tremendous strength. Sure, the book is ambiguous, its arguments aren't perfect and it offers few conclusions. But that's what the real world is like.

There's no way I can summarise this wonderful book in a single review. Go buy yourself a copy.

Youngme Moon is speaking at Business of Software 2010. There are still a few tickets left. Book now!

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Pricing a breakthrough product

If you’re a horse rider then coming off your horse is something that’s going to happen to you occasionally:

This rider survived – walked away, in fact – because he was wearing a special protective jacket.  As the rider fell, a ripcord attaching his jacket to the saddle was pulled. By the time he hit the ground, a CO2 canister had inflated an airbag inside his jacket and cushioned his fall.

How do you price something like this? If you’re selling a product people are familiar with – a fizzy drink, a car, a house –then it’s straightforward. You look at the price everybody else is charging and charge a little bit more or a little bit less depending on whether your product is better or worse than the competition. You know that your customers will look around at similar products in the same category to decide if they’re being charged a fair amount or not.

But if you’re creating an entire new category then you’ve got the chance to set the fair price for all products in that category. Customers try to find reference point so they can judge value. If there aren’t any obvious reference points within their immediate grasp then you can create them. In this case, you’d get customers to think about the price of their life (or that of their child). Or you’d encourage comparisons with similar categories, and then emphasize the differences (it’s like a normal jacket, but ten times safer; it’s more likely to save your life than a $500 hat).

There’s something else even cooler about this jacket though: its versioning. Versioning lets you sell different editions of the same product at different prices. A premium version of a product should target a distinct group of customers who get additional perceived value from the extra features, and who are able and willing to pay for it.

In software, this is often done with ‘standard’ and ‘pro’ versions (if you work in a corporation you’ll want to use Outlook and your company will pay for a premium edition of Office. If you’re using it at home, you’ll get the entry level edition and get fewer features). Fast food outlets do it with portion size (hungry customers will pay more money for more food). Airlines do it with travel classes. Normally, the extra money a consumer pays has little to do with the extra cost to the provider (some more bits and bytes, a handful of fries, some more legroom) – it’s simply about finding multiple price points to fit different customers’ preferences.

The riding jacket gives a vivid example of how versioning can be done on anything customers perceive as valuable. You can buy the standard edition of this jacket for about $580. But you can get it in pink for $725. It’s not a meaningful, practical distinction. A pink jacket is no more likely to save your life than a black one. It costs the manufacturer no more to manufacture it in pink than in black. It delivers no more value. But it’s a difference that some people are willing to pay for.

It’s clever in another way too. Since the jacket is innovative, and people lack reference points, it creates its own reference point. Suddenly, the $580 seems like good value.

For product versioning to succeed you need to make sure that:

• The features you’re adding provide extra value to a subset of your customers
• Those customers can, and will, pay extra for it
• There is a coherent story that identifies those customers, and why they need the extra features (‘hungry people want and will pay for more fries’)
• This coherence is important. If all you’re doing is adding a bunch of features to your product or if the people who value those features aren’t the people who can pay for them, then you’ll struggle.

Pricing’s a fascinating topic. It’s often far more about psychology ($580? Is that expensive? Is it cheap? Am I being ripped off? I want it in pink!) than economics (would I rather spend $580 on a jacket or on a holiday? How much utility would I derive from those two options?). If you want to learn more about product pricing then check out my free eBook (‘Don’t just roll the dice – usefully short guide to software pricing’).

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Free tickets for Business of Software 2010

Here's the list of people who'll be getting free tickets to come to BoS 2010:

http://news.ycombinator.com/item?id=1635106

If you're on the list, drop me a line at neil.davidson@businessofsoftware.org

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Paul Graham on trends for the future

Paul Graham spoke at last year's Business of Software conference.

"I’m going to try to do something for you guys that I’ve always resisted doing. One of the big questions, probably the biggest questions that I get from reporters, is 'what trends do you see? What’s going to happen in the future?' I sit reading hundreds of applications from would be start-ups founders. We’ve funded 144 startups so far, of which 93 are still alive. We had to write a CRM to keep track of them all. I’m suppose to know what’s going on. Yet reporters ask me this question all the time and I never have a good answer for them. I realized that it was because I deliberately tried to avoid thinking consciously about trends. But I forced myself to actually try and write down a list of trends that I see."

Here's the video:

 

You can see other videos from Joel Spolsky, Dharmesh Shah, Seth Godin, Eric Sink, Don Norman, Geoffrey Moore, Kathy Sierra and many others on the conference web site.

This year's conference is in Boston, October 4th-6th. The price is about to go up, so book now. Find out more here.

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Pay it forward: how to get a free ticket for Business of Software 2010

I've got a handful of free tickets to hand out for this year's Business of Software conference. It should be great - Seth Godin, Joel Spolsky, Dharmesh Shah and Eric Sink are just a handful of the many speakers who'll be speaking about building long term, profitable and sustainable businesses.

Plenty of people have written to me and said they'd love to come but can't afford it because they're start-ups, charities or because the people they work for won't foot the bill.

If you’d like a free ticket, here’s what you have to do.

You have to commit to using your skills - as a hacker, a marketeer, an entrepreneur, a product manager, or whatever - to help somebody who otherwise wouldn't get your help. Maybe you'll design the web site for a charity, or spend a couple of days doing SEO for your local pub. You'll have better ideas. It absolutely must not involve promoting the conference: I want you to do something to help somebody else, not me.

Post your commitment to this thread on hacker news. The more specific, the better. You should say why can't afford to pay for your ticket too.

In a week or so I'll look over the thread and pick somewhere between 1 and 5 people who'll get free tickets.

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How should I hand out free tickets to Business of Software?

Every year I hand out a number of free / heavily discounted tickets to Business of Software. I run the conference because it's a Good Thing to Do, and helping a few people who wouldn't otherwise be able to make it is part of this. But I've never been happy with how to allocate these tickets, so I'm asking for ideas.

I've started a thread on Hacker News about this:

I run the annual Business of Software conference (http://www.businessofsoftware.org). I figure that some of the folk here would (a) benefit enormously from going but (b) can't afford to go. I'm thinking about making a handful of free tickets available, but I'd like to make sure they go to people who'll appreciate it, actually turn up, can't afford to go otherwise and who'll get something from it. Any ideas? (I'll give a free ticket to whoever has the best one).

If you've got any ideas, then post them on the thread. If you want to up vote it then I'd appreciate that too. As I say, the person with the best idea will get a free ticket.

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How #redgate hired 10 geeks in five weeks

In April, I wrote:

Right now, we’re running a “Ten geeks in five weeks” project. The major thing that’s holding back Red Gate’s growth is our struggle to hire great people. So Alice, Mark and Nick are going to hire ten people over the next five (now four) weeks. I’m not entirely sure how they’re going to do it. I know that iPads are involved. I think they’re handing them out to people who come for interview

The weeks have passed. The geeks have been hired. The video has been made. Enjoy.

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The second Red Gate million dollar challenge

Are you a micro ISV or do you have a software product you want to sell? We’re setting aside a million dollars to buy the right desktop and web apps. Here’s why, and what you have to do if you want to sell.

When I kicked off the first Red Gate million dollar challenge last April with those same three sentences, I wasn’t sure what to expect. It seemed like a cool thing to do, and my gut instinct said that it might lead to interesting things. It did: we ended up buying {smartassembly} from Jean-Sébastien Lange.

It turns out that this was a great thing for Jean-Sébastien (he got some cash, he got out after the fun part of building a product, and {smartassembly} has continued to thrive), and it was a great thing for Red Gate (we’ve been able to take the product to a wider audience, and are continuing to develop it).

We’ve had similar successes with other products we’ve bought. SQLServerCentral.com, .net Reflector, SQL Prompt, SQL Backup and SQL Hyperbac have all thrived under our ownership. In all these cases we’ve tried to do the same thing: introduce the products to a wider audience, and help them fulfil their potential beyond the means or ambition of their original creators.

We’d like to do this some more, and now seems like a good time. So we’re going to run another million dollar challenge.

We’re setting aside a million dollars to purchase third party technologies. We might buy a single thing for a million dollars, or ten for a hundred thousand, or any other variation. We might decide to spend more, or less, but a million dollars is our target.

Interested? Here’s what we’re looking for:

• You’ve got to have a product. We’re not interested in prototypes. You must have customers. Happy customers, who – ideally - are happy to give you money for what you’ve built.
• If you’re giving away, not selling, your product then we’re looking for high numbers (10,000+) of users.
• We’re most interested in software aimed at .net developers, SQL Server developers and DBAs, Oracle developers and DBAs and Microsoft sysadmins. We’ll consider software outside of this area, but those are our sweet spots.
• The product might be a desktop app or a web-based app. We don’t mind.
• if you’re selling your product then it must have at least a 10% conversion rate. In other words, if ten people download it, or trial it, then, on average, one person should buy it. For us, this is a sign that you’ve got a product that works. We don’t care how many customers you’ve got – the fewer the better, in fact. It’s the ratio of trials to purchases that counts. If you’re not charging for it then we’ll look for a sign that a significant proportion of your users are actually using it regularly.
• Now is a good time for you to sell. Maybe you’re struggling with marketing your product, or maybe you’re worried about the recession we’re in. Or maybe you just need the cash, or are bored.

If you’re interested, here’s what you have to do:

• Send me an e-mail at neil.davidson@red-gate.com explaining what your product is and why it fits what we’re looking for.

The closing dates for entries is August 16th 2010.

Here are some questions you might have:

Will Red Gate invest in my company?

No. We’re interested either in buying your company, or buying the product you’ve built. We won’t take a stake in your business.

Why should I sell?

You might have a number of reasons. The emotional ones might involve fear, boredom and excitement. Maybe you’ve taken the product as far as you can, or want, to and would like somebody else to continue to make it succeed.

If your product is worth more to us than to you, then you should at least consider selling it.

Why should I sell to Red Gate?

We’ve got a track record of buying products and, frankly, not screwing up.

Who is Red Gate?

Here’s Red Gate’s web site

What’s the process?

Send me an e-mail at neil.davidson@red-gate.com explaining what your product is and why it fits what we’re looking for. The closing date for entries is August 16th 2010. We’ll get back to you shortly after, either to let you know we’re not interested or to ask for more information. At some point, we’ll meet up with you, make a yes or no decision, and sort out the details. It will probably take a month or two to go through the process.

Will you sign an NDA?

Not at this stage. If we decide to take things further, and start asking for sensitive information, then we might do.

Will I be able to carry on working on my product?

Maybe, maybe not. It depends a lot on you – why you’re selling, and what you want to do long term. Sometimes we’ve bought technologies and people have carried on working on them, but sometimes they prefer not to.

Why is Red Gate doing this?

We’re always looking for new ideas. We get e-mailed them occasionally, and stumble across them sometimes, but we figured it’s better to be systematic. If buying technologies is a good thing to do, then let’s do it well.

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Freemium and pulling teeth

From the Wikipedia entry on Guignol (the French equivalent of Punch and Judy). My emphasis:

“When hard times fell on the silk trade during the French Revolution, he [Laurent Mourghet, Guignol’s creator] became a peddler, and in 1797 started to practice dentistry, which in those days was simply the pulling of teeth. The service was free; the money was made from the medicines sold afterward to ease the pain. To attract patients, he started setting up a puppet show in front of his dentist’s chair.”

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The real reasons why you should be going to Business of Software 2010

According to Mark Stephens, a BoS regular:

“The most important reason to go there, however, is that you will find 300 of the brightest people in the Software industry are also going to be there. It is your chance to meet up with lots of other people who might be potential clients or customers, but who will definitely have lots of valuable experience to share with you, even if it is only to reassure you that times are tough.”

And the penguins.

You can read more on Mark’s blog.

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