Conservatively

In theory, the level of competition is proportional to market size and market size is proportional to competition.

Anyone can be tempted by entering a market with an intense competition. A common business plan statement is: “market size is estimated at $100 Millions, we assume conservatively to get $1 Million”.

Never conservative enough, I think. Top players have marketing budgets matching their size, and newcomers-business will be hardly profitable.

Only 5 Inches Tall

Niche markets are hot.

Apart from the top five (Dassault, Ansys, MSC, Siemens PLM and LMS), Computer Aided Engineering company average size is as small as $5 Millions. Because big players don’t pursue such small markets before they eventually grow, niche software live a limited competitive pressure, i.e. bigger profits and growth.

Quoting Seth Godin “because everyone in Hollywood is trying to be George Clooney, there are a lot more opportunities for the few Danny DeVito willing to show up.” My advice then is to invest (your time) in niche software companies.

Features That Matter Most

Companies like Google and Netscape knows what it takes to run a successful business. It is the business model, and not the product that determines success or failure of software companies. That’s what many start-ups have unhappily discovered for themselves.

I’ve still much to learn, yet something have learned on what start-ups should better do:

1. -remain a “product company” long enough to build a customer base, before offering customization and services
2. -run the business independently from distribution channel
3. -avoid appointing the chief engineer as business manager.

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