This blog is the other half of the blog on When Software Dies. There are obviously many, many reasons why software dies. This blog hopefully helps a few creators avoid mistakes and a few users from making a poor choice that puts them in a costly position to migrate earlier than they planned.
1. No Development Expertise. If your business is software, you need to know how to develop software. You need to have people on your founding team that are full time and 100% committed. Software is art, and you need amazing artists to build a real software business.
2. Non-competitive Functionality/Cost Ratio. If there are many alternatives in a market, then users have a choice to go to the vendor that gives them the best ratio of Functionality relative to cost for their needs. Of course this covers software that is bad or has no real value, but assume you get over that hurdle. Many vendors can coexist in a market if they have different levels of functionality and cost. Some customers need high functionality and will pay the extra cost, while some customers are OK with more limited functionality if they can save money. Being on the wrong side of this algorithm may be OK in the short term because of marketing or salesmanship or market share – but technology has a way of wearing down non-competitive vendors. Resulting in software death.
3. Insufficient Funding. Almost every software startup underestimates the cost of building a whole company (not just development, but support, marketing, sales and finance), and they overestimate how fast customers come on board. These software creators simply wind up not being able to pay their mortgages. (Which is why most software companies are started by young people who have low standards of living and can last longer on insufficient funds.)
4. Too much Funding. When taking capital, many startups or even mature companies need to promise certain growth that may not be realistic. It may pull them out of their focus and into a broader competitive market they are not ready for, or that distracts them from their original focus. They grow too fast and hire people who are not “accretive” – adding more value to the business than their cost.
5. Not Caring About the Customer. Too many businesses are driven to optimize profit and value for owners. This is especially dangerous if it is too short-term focused. At the end of the day, software companies need to make sure the value they provide is greater than the cost.
6. Old Software. There is a need to continually reinvest in software. A rule of thumb I have is that software needs to be re-written every 3-5 years. And the rewrite needs to be continual – not a big huge switch that winds up being just as bad as forcing a customer to migrate to another vendor. Too many companies are not investing in their core asset. Technology keeps moving forward and brings opportunities to improve existing functionality, and customer’s needs continue to evolve. Software needs to keep pace or it dies.
If you are a creator, my main recommendation is to be honest with yourself. Do you have the technology, expertise, go-to-market strategy, and funding to be successful? Will customers really pay for what you are creating and when? Do you have other options? Are you digging yourself a hole that you will not get out of?
If you are a user, feel free to ask the tough questions to your vendors. How are you funding your company? What is your current ratio? How many developers do you have, what are their track records and are they employees or contractors? Why is your product right for me now and in the future? What is your product roadmap? How much do you spend on development vs. customer support vs. sales and marketing? What are your long term plans? Where do you hope to be in 5 years, 10 years?
If you want to learn a few lessons from real life companies, see this list of 232 failures…