Aspiring tech entrepreneurs keep looking for the Holy Grail - a software business that can grow exponentially and withstand the onslaught of competitors. This editorial is aimed at those entrepreneurs who want to create a growing and sustainable business for the long term. Specifically, we all understand the business model "Software as a Service"; however, I believe that the model "Software and a Service" will be a winning strategy for years to come, especially for those of you targeting small businesses.
So, why to opt for Software and a Service? Because unless you are likes of Uber or Snapchat, the reality is that most tech startups will be unsuccessful. A Wall Street Journal article highlighted that 75 percent of startups fail and this is despite having an innovative product, having a well thought out business plan or even having funding from venture capitalists. While I've participated in a number of high growth tech startups, I decided years ago to focus my energies on growing highly competitive and sustainable companies rather than focusing on exit strategies. My target market was the 25 million small US based businesses. The number one lesson I learned in working with many small business owners is that they do not have time to use most software marketed to them. They need help and they need the software, service and support to make them successful with your offerings.
So how was I able to combine both software and services to create winning business models? Simply put, I've followed certain principles that have proven to ensure long-term business success. These principles are:
Principle #1: Focus on a unique business model.
Being a "me too" tech startup is self-defeating. Many say they won't but end up doing just that. Pursuing a "me too" model ensures that you will only be competing on price. So if you start with a flawed business model from day one, you won't achieve the level of success for which you hope. Even worse, you will be stuck with a business that you will be unhappy with and you will eventually find yourself pivoting your business model to find any level of success. But how exactly do you assess your model? First, take time to understand and test how your offering is different from competitors. Yes, it's a SWOT analysis of sorts but mostly based on whether your strengths can sustain your business long term. Another crucial element is to understand if customers value your differentiation, and determining whether they will see you as the 'only' viable option. When they do, pricing and growth become easier, much easier. One way I like to look at things is to put my feet in the shoes of my competitor. If I offered a new product to my clients, how would my competitors react? Could they offer the same thing in response, could they match my delivery, could they offer something better? In all the business I started, the answer was 'no' each time... and I knew I was off to a good start. I have always combined my software with a supported service which none of my competitors could match. Software and a Service has been a winning combination for many businesses. Case in point, Uber. Are they a tech company or service company? They claim to be a tech company but I would argue that they are both. They have combined their app with the service drivers provide and now they have one of the most widely anticipated IPOs since Alibaba.
Principle #2: Price your product competitively...or not.
You can find the "Blue Ocean" when you combine Software and a Service. The blue ocean I am referring to is a business landscape where your competitors can't and don't compete with you. This is not easy to find. I've personally taken years to cultivate this approach to maximize value for both my clients and my company. By combining offerings, I have been able to garner thousands of dollars per subscription fee versus my competitors who charge less than $100 per month for their subscription plans. For every thousand customers my competitors sign up, I only need 1 to achieve the same level of revenue. A great public example of this working in practice is the extraordinary success of Red Hat. Red Hat subscriptions not only provide access to high-quality software, but also access to support services that cover application infrastructure, lifecycle and architecture. It's Software and a Ser-vice. Hosting provider Rackspace does the same thing. I've had firsthand experience dealing with a number of hosting providers, and the added hands-on service that Rackspace provides in ensuring customer success is second to none. For this, they are able to charge a premium rate to its clients and it's worth every penny.
Principle #3: Who is going to sell?
This is the biggest problem tech entrepreneurs face to-day. You've got a great product but don't know how to sell it or where to start. Sure, it's easy to use social media and email marketing, but nine times out of ten, that doesnot help you garner the sales you need to even survive. Why focus on doing what your competitors are doing any-ways? Before launching your business, think about your sales and distribution model. To me the clear answer to this question are customer referrals. Give your service away in the beginning to build a small client base. Then focus on creating an infectious and combined offering while making it lucrative for your clients to refer you. For example, Uber rewards riders with a free ride to refer their service to others. On a much smaller scale, a recent startup, WhiteLabelStaffing.com has grown 10,000 percent since its launch a few months ago by offering a referral program aimed at having job seekers refer other job seekers to the service and getting a commission on hours worked by the referred individual. The lesson here, understand what your clients value most and incentivize that properly to get referrals from them.
As a tech entrepreneur, if you see a wall of obstacles in front of you and don't know where to start, start with your business model. Providing a hybrid Software and Service solution can enable you to compete with even the very largest of companies.
