BoS digest: the China Syndrome

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The Business of Software social network now has 679 members. I was chuffed with that, until I thought about the potential audience. Joel Spolsky’s blog has around 100,000 RSS subscribers and, scaling up from what I know about my own blog, his best posts probably get read by about a million people. And even Joel doesn’t have 100% coverage - there are probably another million people who should read Joel’s blog who don’t. So the social network has a total potential market of roughly 2 million people. So it has roughly 0.035% market penetration. And I’ve worked damn hard to get it there.

Simon Galbraith, the other founder of Red Gate, set up a Ning network a week or so after I set up the BoS one - AIGVictims.org. It’s aimed at people who lost money through AIG. They’d invested in what they were told was a government-guaranteed insurance fund. As safe as houses, apparently. Which turned out to be true - AIG went bust, the government guarantees were worthless, and around 5,000 members lost a lot of their money.

AIGVictims.org has 1,168 members. That’s roughly 25% market share. And all Simon did was set it up, attend a meeting and then go on holiday.

There are all sorts of interesting points here about tension between the coherence and passion of a group, and its size, most of which are covered in Tribes, by Seth Godin.

The other interesting thing is that the size of your potential market is often irrelevant. Market size is often not the limiting factor. Whether there are one million, two million or ten million potential members of the BoS social network is not what’s preventing it from growing. What matters is whether it’s possible to reach those people (do they hang out in the same places and read the same magazines) and how quickly I can do it (do I have a channel to them, and can I afford to use it).

People often fall for the so-called China Syndrome: if only I could get 1% of a 1 billion person market to pay me $1 each. In the real world, this rarely works. It’s much better to focus on a smaller audience - one that you can reach - and then dominate it.

Which leads me on to my question of the week. Does your business plan rely on getting 1% of a billion dollar market? And if so, how’s it going for you? The best answer will get $20 of Amazon vouchers.

Last week’s QOTW was have you seen good assumptions go bad? The $20 goes to David Locke, but there were strong entries from Steve Jones, Jeff Celander, Peter Degen-Portnoy, Chris and Anon too.

Elsewhere on the forums, Constantine Goulimis asks how do you raise competence in product management? and Mark Dalgarno wonders how you should price subscription-based software versus perpetual licences. Should the total overall cost to the customer be the same, or do you price in the added convenience and lower risk?

Ryan Leslie has two things to do, but only development team to do them. How should he choose between the two?

Paul Kenny will be holding an online chat about software sales on February 11th. Paul is one of the UK’s top sales trainers, consultants and speakers. You can sign up, and watch the video of Paul speaking at Business of Software 2008, online.

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Comments

[Scott]

Once a company has discovered how to eloquently solve a customer problem in what seems to be a potentially bottomless market, they have no real choice but to continue onwards to become the category leader amongst those who are attempting to do the same.

In my experiences the China Syndrome model works well when there is little overhead associated with organizations, but if one wants to be the category leader and continue to grow exponentially, they must focus on a smaller market of individuals who will enable them to develop strategic business relationships to ensure growth on a larger scale.

Its a double edge sword and can really suck the fun out of work at times, but it seems an inevitability with growth.

Cheers!

[Chad Polk]

Neil -

Classic mistake in business planning: projecting revenue/market share from the top down. Like in your first sentence, trying to get X% of a market is impossible and no one else is Joel Spolsky.

It is always better to strategize how to get that next chunk of subscribers/customers from the bottom up. Bottom up meaning, I have 1000 customers today and I want to add 100 more in X period of time. If it is 100, then build around the product/content that will get you that next batch.

[online survey software]

hmm, the china syndrome reminds me of that scam going on that was charging people 25 cents on their credit card, targeting a huge mass of people o_o
-jack

[Andy Brice]

The only meaning of 'China syndrome' I am aware of is very different to your usage:

"The China Syndrome is a hypothesis of a possible extreme result of a nuclear meltdown in which molten reactor core products breach the barriers below them and flow downwards through the floor of the containment building. The origin of the phrase is the concept that molten material from an American reactor may melt through the crust of the Earth and reach China."

http://en.wikipedia.org/wiki/China_syndrome

[Neil Davidson]

Andy,

Whoops, I got my fallacy and my syndrome mixed up. I was actually listening to something on the radio about industrial accidents at the time, so my subconscious got in a muddle.

Good spot!

Neil