Every week, I have the opportunity to discuss potential website development projects with clients. I regularly have the opportunity to debate the merits of ideas ranging from the brilliant to (in my view) the bizarre.

Furthermore, as a web development business, we’ve been privileged to work on some great successes. Our own Market Samurai is, as I write this, about to pass the 100,000 user mark (thanks again to the genius of Eugene, Brent & the dev crew). Other examples include clients like Theo & Meg of dlook.com.au. I hold them in high regard for creating an online directory that attracts tens of thousands of visitors daily and services a large and growing paid client base (especially as their initial business model for the site failed). It’s also exciting to see the growing success of the Sustainable School Shop and ‘member only’ projects like Grain Assist or FraudWatch.

Unfortunately, I’ve also seen my share of failed website projects. I’ve seen entrepreneurs in the business coaching space sure they’d fill large rooms for their seminars after spending $20,000+ on promotion and fail to sell a single ticket. We’ve built accommodation directories that were initially full of paid up members, but because the members didn’t get bookings, they left and forced the service to close. I’ve seen hundreds of thousands spent on a start-up social network that now sits idle.

The thrill of success is incredible. I recall during the early marketing campaigns for Market Samurai looking in the bank account and wondering how all the money got there (truly a unique moment in life). Just as real is the bitter pain of a failed project. It hurts the wallet and deflates the spirit (often slowly and over time). So with a coloured history of success and failure, I thought I’d write a list of suggestions, that in my view, are ways a would-be online entrepreneur can maximise the chances of success in their online business.

1. Start with the market, not your product.

To often I’ve seen would-be entrepreneurs beaver away to create a better mouse trap only to discover the market doesn’t care, or the competition is too fierce, or the cost model is wrong. Why not instead start with the market itself, with an assessment of market demand?

Talk to prospects about what you’re thinking of offering (online via forums or offline), put up a basic website as a demonstration or proof of concept if you can. Then invite visitors to give feedback in return for something free. Start building a buzz around your product and convince yourself you can attract visitors.

Instead of starting with the development of a product, why not start with market research? Then when you’re convinced the market is a winner, build a site to attract traffic. When you have regular traffic, try and sell them something (maybe an affiliate offering). Then, when you know you can make money in your chosen market, you’ll have complete confidence to build your ‘widget’, your better mouse trap.

Indeed, product development is time consuming, so you probably only have time to develop a single product. However, a market test like the one above can be done quite quickly and for simultaneous products. Why not use the market to find winners (e.g. niche markets where people will buy) before you go developing a product?

2. Beware the need for Critical Mass.

Entrepreneurs routinely underestimate what I call the ‘first to the party’ problem. Nobody likes to be first to a party in the real world (unless the food is amazing) and the same is true online. So if the value proposition of your website is that people can interact with each other, you need to think seriously about how you’ll attract a critical mass up front.

Lets say you’re building a new niche online social network (or even a simple forum for that matter). What will the first visitor who arrives and sees that ‘nothing is happening’ think? What will they do when they can’t ‘be social’ until someone else arrives? Obviously they’ll leave, and probably for ever. I’ve seen well built social networks fail because despite attracting visitors over over time, they never had the critical mass of users active at one time for the community ‘experience’ to be real to any one visitor.

So what’s the solution? Well, one (bad) option is to simply fake the party (e.g. setup dummy user accounts and pretend to be lots of different people). Two better options I think are:-

1. Start private – here you find a way to build up a list of loyal followers in your niche (maybe via a blog or free give away) and then invite these folks to be founding members of a private network and offer them special benefits.
2. Make being social optional – build your site or project in such a way that users get great value even if they’re totally alone. Include social functionality, but do it such that it’s the ‘bonus’. This way the community will grow over time, but users have a great experience even if the social component is still just warming up.

One large client failed up front, despite spending millions in advertising to gain critical mass. Then, with the budget all but gone, figured out a whole lot about search engine optimisation. They learned how to get their few paying customers great Google rankings and converted their business to one where a single user (in their case a business customer paying for a listing in their directory) could have a great outcome (a good Google ranking).

3. Don’t blow your budget up front

Regardless of how much planning you do (and I’m totally in favour of proper planning), as soon as you release your new website to your users, you’ll realise that changes must be made. In every case I’ve seen, your users will demand a feature you didn’t think important enough to warrant initial development. If you’re out of money, you’re in serious trouble. I’ve seen great projects fail because the Entrepreneur spent all their funds up front, and when system enhancements were needed the bank account was empty.

Entrepreneurs often assume a website must be perfect or complete before being launched. I differ passionately. We advise clients to launch the “minimum functionality required to be useful” and then consistently ask their customers “what do you want most next”. This line of question will lead to building an offering customers truly desire.

4. You can’t ‘abdicate’ your marketing responsibilities

I’m aware this suggestion may be a little controversial and may put off potential customers looking for help in online marketing. You be the judge…

If you run a simple online brochure or an ecommerce website that’s a sideline to your business, you can outsource the search engine optimisation or pay-per-click campaign no problems. I also think that you can and should outsource a range of the day-to-day activities that form part of a large online marketing campaign.

The catch is, in my view, that whilst you don’t have to do the grunt work and it’s smart to use specialists to help, I strongly believe that the business owner or their key staff must play a definitive role in setting the marketing direction. Marketing specialists and advisors are there to help give legs to your marketing vision, to communicate the key points of difference you offer and to put in place processes that will work within your business.

If you don’t play a part and give at least high level strategic oversight, you or your company will lose it’s voice.

You can see on this website that we offer a range of marketing services (and they work!), but they work as part of an overall marketing plan that the customer is deeply involved with and committed to.

Even if you use copywriters (again a good idea) it’s your role as the client to ensure that the way they talk about your business is both right and suitable to your customers (whom you know best). You can outsource search engine optimisation and web development, but remember, it’ll be your job to handle orders or convert leads into sales. You need to be comfortable with the representation and the promises being made. Even if you sell directly online, you as the business owner are still in the best position to participate by networking and finding great strategic partners to help with promotion. No firm you find can do this for you as well as you can.

Online marketing done for your business with the help of others should be a partnership, with you in the controlling box seat.

5. Focus on a Niche Market

Most of the success stories I’ve been a part of, or seen elsewhere are niche market based (as compared to mass market based). The internet brings global opportunity, but with it, global competition too. The result is that narrow market niches, too small perhaps for a ‘normal’ offline business can work beautifully online.

A business that sold only gift hampers from a major shopping centre might struggle, but I know of web sites in the ‘christmas hamper’ niche that make great profits. It’s tough to rank Australia wide on the phrase “Lawyer”, but “Melbourne Lawyer” is pretty easier and “Lawyer Kew” (a upper class suburb where my lawyer and 38 other firms operate from) could be ranked highly for with a trivial amount of effort. Can you see that niche markets offer opportunities for easy wins?

6. Don’t Assume Market Structure Norms

Users of the internet don’t need alternatives for their basic services in the same way they do offline. In my view, Facebook now owns the space for a large, all encompassing, online social network. It’s power is in the fact everyone else is there. I think the flawed thinking that ‘every market needs a strong second place’ falls down online. I don’t want to use an alternative to Facebook, even if I find Facebook annoying or lacking in features, because everyone I know is already registered with Facebook.

So the question then is, how do I build a competitor to Facebook? Well, you create a Linked In, which focuses on business (rather than social) relationships. Or you go and build a Twitter and fill a different need (status updates en masse). Or perhaps the best example I can think of is Ning.com. This website offers often small, and potentially closed closed groups (political, religions, special interest) the ability to create their own communities inside Ning.

Ning offers the feature of ’separation’; something the all inclusive Facebook by its very nature doesn’t provide. Nevertheless, Ning has built a massively successful platform and one can assume generates income through adverts, upgraded features, etc.

I think it’s far easier to compete by being different (Ning gets stronger as Facebook grows because people learn about Social Networks through Facebook and then start private ones through Ning) and it’s possible to compete by targeting a niche group (stackoverflow.com is a hugely successful online community build specifically for to needs of computer programmers).

What’s not great is thinking you can compete by being “a bit better”. People are busy and attention poor. For someone to move from one online service or product to another normally requires significant dissatisfaction or a big ‘wow’ factor. If you’re competing with a big player online, don’t try and be a bit better, instead be radically different, hopefully in a way your competitor can’t copy.

Wow, that’s quite a long rant. Love your feedback. What would you add? What do you disagree with? Comment below or shoot me an email via ben@alliancesoftware.com.au

What professionals know about pricing a custom software development project that most buyers don’t (and end up learning the hard way).

Having both won and lost our fair share of software project proposals, it appears that most buying decisions for large scale software projects typically come down to a choice based on three common factors. These are, broadly speaking, the quoted price and the perceived capacity to deliver and the more intangible ‘vendor likability’.

In this post, I’d like to suggest some of the challenges facing buyers of custom software and a few insightful questions that can be asked of any potential vendor.

Buying Custom Software Isn’t Like Buying A House

My observation is that many inexperienced purchasers of custom software think of the purchase as similar to buying a house. They expect to provide an initial brief, seek quotes (for price comparison) then select the more reasonably priced estimates and seek to evaluate a vendors demonstrable skill (capacity to deliver).

This process is certainly logical. However, it makes some assumptions that quickly come undone. To explain, let me show how a purchasing custom developed software project is radically different to buying a house in two important ways:

Complete house designs are cheap, often free – Custom software design takes time.

A house design can be readily copied for free (e.g. from a magazine or display property) or created (e.g. by an architect or drafts person) for a small fraction of the final cost of the house.
By comparison, the analysis required for a complete software design can represent a huge amount of the project budget (30% plus is common). When creating a custom software development solution, you as the purchaser by definition have a complex and unique problem to solve (or you’d use ‘off the shelf’ software or simple tools like spreadsheets). Given this unique and complex problem to be solved, there must be time for a developer to understand your needs (called requirements gathering) and create a plan to solve it (system design).

No body would accept the scenario where a builder charged $100,000 dollars to design a $300,000 house, but in software development, it’s common for a developer to only fully understand your needs and have created a plan for development 30% of the way through the process. Indeed it is only inexperienced developers who are fail to invest the required time to truly understand the problem at hand, with the outcome being the creation of a product ill suited to the buyers needs.

So the approach commonly taken is for custom software vendors to provide indicative ball park estimates (read educated guesses) and then firm up pricing (often with major variations) after considerable time has passed. Here at Alliance, we’ve take the approach of prototyping to create a full mock solution to enable customer feedback.

Houses, once built don’t change – Custom Software always changes

When you buy a house, you don’t expect to be adding an extension every year, year after year. After all, a house is essentially the ’shell’ that we live in, and the things we like to change (think of clothes, books, food in the cupboard etc) aren’t part of the ‘house’ itself. The precise opposite is true of custom software. If you think about it, custom software is created to automate a set of business processes. As soon as those processes improve (which they should consistently do), the custom software will likely require some updates to change with it.

The vast majority of the buyers of custom software make the assumption that once their initial set of requirements are serviced, that’s it, they’re done. After developing and subsequently managing the creation of numerous complex software projects, it’s clear that this almost never happens. Indeed yesterday, I sat in a meeting with a client arranging a number of changes to a reasonably new system. This client is educated, intelligent and right up till our first ‘go live’ was conviced they’d communicated all their needs. In their case, they realised that certain business rules, whilst nice in theory, needed to be broken from time to time. I can’t think of a single complex project where requests for changes haven’t come in regularly.

Often changes are because the people using a system discover that whilst an automated process (enabled by their custom software) is far better than the old manual process, the process they initial requested isn’t perfect and needs some adjustment. Or the marketplace changes, or other systems like the accounting package change, or most commonly, staff begin to see the potential for improvement and want more of it.

Whatever the reason, the only time that we’ve not had ongoing requests for changes to custom systems is because the client either ran out of money or changed their business focus.

So here are some tips to the prospective buyer of a custom software system:

1. Don’t spend all your money up front – you’ll want changes over time. So spend only a maximum of 50% of your total budget on the first phase of development. Indeed, you should aim to deploy the smallest version of a usable system possible. Then, after you’ve made your new system live, you can use the experience of using it to see what additions are most important (they almost certainly won’t be what you initially expected).
2. Own the IP in your system designs – Your developer doesn’t know what your system will cost until they’ve done the design. The initial estimates are just a rough guess. If, after the design process, when a fixed price is given, you get the nasty shock of an unexpectedly high price, then owning IP rights to the design documents (e.g. prototypes, requirements documents, design specifications) will enable you to ’shop’ the project elsewhere.
3. Confirm maintenance / update pricing where possible. It’s common for large software development companies to quote low, even below cost, on new work knowing that customers will find it very difficult to leave them. They then price gouge on the inevitable changes that come through. Clarify and agree in writing on the costs of work in the future. At a minimum agree on an hourly rate.
4. Beware the quick fixed price – Any vendor who attempts to give you a solid, fixed price on a complex project with only a basic investigation is guessing. This kind of guesswork is the common precursor to ‘professional blackmail’, where a vendor says, ‘yes, I know we have an agreement, but your project took longer than we expected so you need to pay more or we can’t afford to complete’. After you’ve spent your initial time and money, it can be difficult to say no (especially where vendors use fine print in contracts expecting this day to come).

Have a custom website project you’re consider? Contact us today.