On building awesome business applications

Written by Paul on October 13th, 2010

As recently as five years ago, it wasn’t uncommon to see startups raising hundreds of thousands, if not millions of dollars, before they had a customer-ready product. Mostly, this was due to the high costs involved with internet startups (servers and bandwidth weren’t cheap). Things were expensive and you had to obtain permission from investors (via funding) to do any of it.

Today, that barrier is almost non-existent. Many founders are focusing on ramen profitability, the cloud has significantly reduced infrastructure costs and open-source technology stacks have become incredibly powerful. Perhaps most importantly, it’s easier than ever for startups to easily collect revenue by building on top of easy-to-use APIs (Chargify, Recurly, CheddarGetter, etc). Lean startups FTW!

If you’re a hacker trying to figure out what to work on next, please stop building the next Twitter, Facebook or [insert social-media-oriented-consumer-business-du-jour]. Small businesses need your help and they have money. Lots o’ money. With your name on it.

Consider this:

  • The majority of gas stations with convenience stores in this country are privately owned. These mom-and-pop stores are forced to buy franchise approved point-of-sale systems — that’s fine. The problem is that they all use a basic CRM/inventory management system to track store inventory and nearly everyone uses the one incumbent in this space. The product is terrible, it’s expensive, has no support and they win because they simply showed up.
  • Most (hair, beauty, nail, etc) salons know that their products (nail polish, shampoo, etc) are the highest-margin items in the store. As a rule of thumb, it’s almost always easier to sell something to a customer that has already purchased something from you. So why aren’t these salons cross-selling and upselling? Because no one has made this easy for them.
  • I get my hair cut every two weeks by the nice old man down the street. I’ve been going to him for years but, to this day, he only knows my first name because I have to write it on a sign-in sheet every time I walk into the store. Do I need to say more?

Technology is not the problem

It’s 2010 and finding smart people to build feature-rich applications for business is easy. NEWS FLASH: business owners don’t need features, they want solutions to real business problems. Help them turn tables faster, identify high margin items sooner, cross-sell and upsell customers easier. They will pay you for this.

Salesforce.com is powerful CRM software (and they make a shitload of money) but most small businesses don’t care about 90% of the features. In 2010, more features does not make a better product. Your customers, business owners that just want to run their business, don’t care how cool your technology is or how many features you’ve crammed into your product. To them, the interface is the product. The successful business apps of tomorrow will take complex business operations and roll them up into beautiful, easy to understand applications that anyone can use. Great user experience will be the differentiator.

Smart money is getting easier to find

It seems that nearly everyone with a little bit of money is itching to throw money at startups. Unless you’ve been hiding under a rock, you’ve also noticed that discussions about VCs, Dipshit Companies, And Super Angels have been dominating the blogosphere lately. I don’t think it’s necessary to add yet-another-opinion into the mess, but here’s the point:

Today, IPOs are practically non-existent, which means that we all have to deal with the reality of smaller exits.

To a VC, many startups are “dipshit companies” because they can never get to a scale that will generate “VC returns”–defined as a 10X return on a $5 million investment that buys you 1/3 of the company. For that to work, you have to sell for at least $150 million ($5 million X 10 X 3) and probably more.

But for a founder with a majority stake, a $25 million exit is life changing. Hell, a $10 million exit is life changing.

Layer in the fact that VCs go for a home-run strategy that results in no money to the founder in a super-majority of cases, and it’s no wonder that entrepreneurs are flocking to super angels like Dave.

Everyone wants to invest but founders prefer smart money on good terms — just having money simply isn’t enough anymore. “Dumb” money will increasingly be excluded from the earliest rounds to make way for “smart” money (probably via high resolution fundraising) — investors who bring connections, domain knowledge and functional expertise will win. That’s good news for founders but bad news for (most) investors.

Traction is hard to define for B2C, but much easier for B2B

Traction in consumer internet companies is roughly defined by eyeballs and actions. B2B startups focused on solving real problems have it much easier — they have customers (other businesses) that will pay good money for products that solve real problems. Traction in these deals is much easier to find: B2B companies either have paying customers or they don’t. If you can’t get a customer to pay you for your product, you pivot. Repeat this until you figure it out or realize that you’re solving the wrong problem. (Contrast this to a consumer product where each pivot is usually followed by a long period of trying to pull in enough traffic to figure things out.)

If you hang around tech blogs long enough, you’d think that being a startup is about creating the next Google, Twitter or Facebook. That’s all well and good, but the biggest opportunity lies in solving real problems for “traditional” brick and mortar shops — the companies that haven’t seen innovation in many years (speaking from experience: MailFinch and NotaryCRM are two good examples of this). This is awesome (read: huge opportunity).

Build awesome business applications

…and tell me about them. I want to help.

8 Responses to “On building awesome business applications”

  • Paul, Great post – I agree w your sentiment about the ease that one can find the resources to start a web business, but the challenge I see people face is creating a simple, elegant solution that is relevant to the business they are trying to help. I would just add that doing upfront research and observing a local business owner, their operation, and their operating procedures will go a long way in a) identifying problem(s) to solve and b) understanding the variables that need to be addressed in solving that problem. One thing to also mention is that if you can serve the needs of one business effectively, that business owner will undoubtedly talk to his friends who likely own businesses. This upfront word of mouth marketing can go a very long way to help a startup generate customers, prove a concept, and make money.

    — 10/13/10 at 3:33 pm

  • ted stockwell

    I have experience building and selling an accounting/inventory/sales management appliction in the small business space.
    I think you’re wrong on several counts….

    1) Small business do NOT have lots of money.
    Small businesses DO need LOTS of help, and they need it for free because they are all struggling.
    If you sell them a business application then expect a phone call from them everytime the printer refuses to print, or the network hiccups, or a machine reboots everytime they pull up your application, or Adobe Reader crashes, etc. Help like this is WAY expensive, good luck getting them to sign on to a support plan that is actually profitable.

    2) Technogy IS the problem.
    There are tons of existing accounting, invoicing, and CRM packages, and they all suck. The micro web applications coming online that expect to succeed because they do ONE THING WELL will also suck.
    This is because while many businesses have common requirements they also have tons of DIFFERENCES. If software cannot provide the common functionality while also accomodating the differences then using the software is often worse than not using the software.

    Consider the small business that currently does everything with Excel and Word.
    Now sell them some online invoice software.
    Now they have to track their invoices online, but they still need Excel and Word to track the rest of their piddly data. In other words, now instead of one system they have two. They won’t be willing to do that for very long before they go back to just Excel and Word.

    The final problem is the technology. We don’t yet have good technology for creating INTEGRATED, CUSTOMIZABLE, EXTENDABLE applications, which is really what businesses need.

    — 10/13/10 at 4:07 pm

  • Paul Singh

    Ted, I hear you and you may be right. But I suspect you could have said the same thing about companies that innovated in the travel space (Hipmunk, Adioso, Kayak, etc) or even in the CRM space (Salesforce wasn’t the first CRM on the block and they’re wildly profitable).

    — 10/13/10 at 4:14 pm

  • Paul, awesome. So cool to see you doing so well! I want to write about this, too; hopefully I’ll actually have some time to type out all my thoughts on the matter!

    — 10/13/10 at 5:48 pm

  • Hi Paul,

    Great post. In terms of product, this is exactly what we’re trying to do at Yesware. In terms of market and marketing, though, it’s challenging to map out the right course to reach all those potential business users. There are two general approaches I’ve seen: “almost B2C” like Grasshopper, that sells B2B services but in a very B2C way (brand spend, wide reach, across verticals) and “almost word of mouth” like 37 Signals that relies on an initially small fan base to demo the product and be the initial advocates. What are your thoughts on the optimal path in a bootstrapped world?

    — 10/14/10 at 12:27 am

  • Paul Singh

    @Matthew: In a bootstrapped world, I’d go with the second option — heavily discount (or even give away) the product for your earliest customers in exchange for feedback and actual usage. (I’ll probably write a separate blog post on this soon…)

    Ideally, you want to give it away to the “whales” in the area and then make sure they love the product. These people will form the base for your word-of-mouth campaign and serve as references for future sales.

    — 10/14/10 at 2:33 pm

  • I agree that there is alot of money to be made by addressing the small businesses. There are many start-ups that are making software apps for small businesses, you just don’t hear about them because they don’t have the profile of the Facebook and Twitter start-ups. I see hundred of start-up presentations, most of them already have protoypes or beta versions at customers and I am always amazed at the large variety of these software products out there. The technology isn’t the challenge. It’s whether these start-ups can gain traction among their target customers – this tends to be their downfall. Have faith because there realy are alot of these software start-ups out there!

    — 10/15/10 at 9:19 pm

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