I guess you can either sell $20 software to 10,000 people a year, or $20,000 software to one business a year that buys 10 seats, and either way have a pretty good lifestyle business. I don’t know which is easier, but I did the latter. When it was just myself and I just needed to get that one customer a year, I thought it was a pretty good life.
So here’s my ideas if you’re thinking of going that route:
1. Find software out there that sells for $20,000 a copy
The idea is you don’t want to try to come up with something new. Every business problem has been thought to death, and if there isn’t a product for it already, it’s probably because there just isn’t a need.
Also with something “new” you have to convince businesses or organizations they need it, and that takes marketing money and extra time overcoming their resistance to a new concept.
That’s why I think it’s easier and cheaper to start with a “better” version of an existing product, because customers will already know what it does and know they need it.
And the fact they already might have your competitors’ products doesn’t matter — you’re going to sell it when they decide to do a “technology refresh” or otherwise update to the latest and greatest. Or when they decide they can’t stand their current software provider and need better support or just something different than the junk they currently use.
As for finding software that sells for $20K a copy, I don’t really know where to go. For my product idea, I happened to be working with $20K (actually more like $50K) software on my job and found out that’s how much they paid for it. I knew I could make it better so that’s where I happened to get my idea.
I also know when I was working for a large tech company/contractor, we had stuff selling for $10K or $20K a position. And I’ve seen people on other boards mention theirs sells for $20K or $30K a seat, so it’s definitely out there.
However, $20K software isn’t going to be advertised on the web with a price next to it, I don’t think, because it’s usually sold as a custom-quoted “solution.” So it won’t be as easy as doing a web search.
I think then the best way to come up with a $20,000 B2B product idea is to focus not on “what kind of software do businesses really need?” but “what kind of businesses depend on technology to operate their business?” And behind that technology is probably going to be a computer, and you can write better software for that. If the rest of the technology is off-the-shelf specialty peripherals, you can easily provide those too and sell it as a “turnkey solution.” That’s what my company does.
Here’s an example B2B idea: automated parking garage software. I was thinking about this the last time I had to pay $100 at my local airport. They certainly depend on technology to run their operation — you punch a button, it prints a ticket with the time, takes a digital photo of your license plate, then 5 days later you exit and hand the attendant your ticket (or stick it in the automatic box), they feed the ticket into the reader and calculate the price and probably keep all kinds of stats and make all kinds of reports. The software running that can’t be that complicated, can it? Yet they use it all day long every day and depend on it to operate. I bet the software portion of those systems easily sells for $20K, or $50K, or $100K. Think of all the money they take in… $100K is nothing to them if it saves them just 10 seconds per car times 5,000 cars a day.
And what would be involved in a “turnkey solution?” Besides the “terminals” in the ticket booths (standard PC’s, maybe with touchscreens?) and maybe some central computer in the main office, you’d have the network, automatic gate things, ticket printers, those kiosk things you press the button on to get your ticket, some kind of camera pointed at the license plate… network switch… what else? I don’t know but all those things you can probably buy “off the shelf” from whoever makes them. So you integrate it all together and your software runs it and prints out nice reports and alerts the boss when the garage is getting full or whatever it is they need. You sell it as a turnkey system for let’s say $200K, of which $50K is your hardware cost and the rest all “profit” from your software. I have no idea if it sells for that but I’d certainly research that industry if I was looking for new ideas.
But my idea to possibly look into that product and market comes from considering businesses that depend on technology, not just considering what software they need. There’s more out there than stuff that runs on an office PC or a web browser, so I’d suggest don’t limit yourself by asking “what software should I make?”
2. Pick the products that are supporting a handful of million-dollar companies.
If the main providers are multi-million dollar companies, obviously it’s supporting them or important enough to them which means it’s a viable market and there is probably room for you. You only have to get 1% of a $100 million market, or 2% of a $50 million market to make a million a year, for example.
Also, those million-dollar companies are going to spend lots of money convincing any new customers why they need their (and by extension your) products, which means you don’t have to. Your competitors will spend all that time and effort convincing them to buy, then the customer will get quotes from everyone and might end up buying yours instead, at no real cost to you. When you don’t have any money, might as well ride your competitors’ coattails!
3. Build the product but only with the core features
You only have to make a “lite” version initially, which you will sell for less to get your first customer. The idea is to get that initial customer and use that money to continue to build it, continuing to make it less “lite” and higher in price until it’s similar to the existing products on the market and hopefully at that point better.
A “lite” version is probably still useful to the customers because the current software on the market will almost certainly be bloated with bells and whistles. That’s just what happens to software over time. Their core product sells when they first get in the market, then they need to upgrade it and add new things as the competitors do, both trying to make something unique. Yet the core software sold before just fine without all that, so you can possibly get away with just the basics.
Your strategy is going to be make just those core features, and price it a lot less. Customers don’t always buy on price, they buy on value. Maybe they can buy your software for $5K a seat with a handful of features that are the main ones they use, or buy the mature, market-leading, proven software for $20K a seat with five times the features although they’re not all needed or used.
That may not be an easy decision for customers and some will go one way and some the other. But the important thing is sometimes it’ll go your way, especially with the segment of the market that may have had previous bad experiences with the existing products or companies, or are looking for something different than what their own competitors use. Remember you only need 1% of a $100 million market, you don’t have to take it all over.
Naturally, you need to figure out what are the basic core features you need to build. That takes knowledge of the domain. I was in my domain already and knew what the core features had to be, but maybe being outside the domain looking in might be a good thing too, since you might approach things differently and come up with something new.
I know if I decided to make automatic parking garage systems, I’d at least want to hang out at some garage and shadow the workers for a few days. Not to figure out what they’re doing wrong and how my software could fix it, but just to learn their job, learn what their current system does, and find out what they like and don’t like about what they currently use.
Now, of course it’s easy to say “make a lite version of the product with just the core features” but what if there are a whole lot of core features and required basic functionality? It took me almost ten years off and on (part time/nights & weekends) to make my “lite” version. Maybe that’s an extreme case, but if it’s $20K software I doubt the core functionality could be slapped together in six months or a year, because a lot of people would have already done it. Wouldn’t they? Maybe not, I don’t know. It took me a long time though. I’d expect to spend a couple years at least on it, which also helps keep out potential future competition (barrier to entry).
I think too many people though want to get rich quick slapping something genius together in a month. I say let them waste their time making a handful of shareware apps in the same time you’re building up a real product!
4. Get your name out in the industry
$20K software is certainly going to be “niche” software, with not a whole lot of customers out there who buy it. Maybe it’s in the dozens, or hundreds, but certainly not tens of thousands. So it’s probably likely they all gather at some main industry conference, or all subscribe to their main industry trade magazine, or a list of all of them can be bought from their industry trade association or their trade magazine publisher, and it’s possible to call every possible customer directly.
At this stage you want to just get your company name out there so everyone knows you sell your systems and could be an alternative to what they already have. You don’t have to sell them your systems yet, just get your name out. You can email, mail or cold call all potential customers just to say hi and introduce yourself and company. They’re in a niche and they probably don’t get a lot of sales calls so it’s not the same as general cold-calling, in fact they may be glad to hear of a new supplier in their business. But do normal marketing here, which is beyond the topic of one post, but for example you can also get a booth at their trade show, take out ads in their magazine, get their industry magazine and websites to print your press releases, etc.
The idea with just getting your name out versus trying to sell is when one of them is looking to upgrade, or they hate their current system and want to try something else, they know to send you a request for proposal or ask you for a quote or demonstration. That’s when you’ll do the selling. For now just make sure everyone knows you exist so you get those requests for quotes and proposals.
(Obviously, once you’re ready to sell you have to have your product finished, basic business set up, brochures ready to send, etc which are their own topics. This is just illustrating the steps.)
5. Present yourself as consultingware — it won’t matter that it’s you against big companies
Don’t assume your product requires an army of a company behind you to sell, even though that’s what your competitors do. Consider:
- Any software that’s used a lot is going to have a segment of people who hate it
- Any company that “owns” or has a large part of the market will have people who hate them
- In some markets, business customers may not want to use the same things their competitors use, and will be willing to try a new or unproven system in the hopes of getting an advantage (better productivity, lower overhead costs…). The unproven product may fail, but some are willing to try.
So you will have at least some segment of the market that will be open to something new or at least consider you even though it’s a sub-complete product and a one-man show.
So, how do you sell it?
Firstly, the fact you have a “lite” version is covered by your reduced price. You’re going to sell your lite version for $5K or $10K a seat or something well below the competition, to account for its being a basic product. At the same time though you’re going to sell them on its value, convince them that it doesn’t need all the bells and whistles like the other products, so why pay for them? Etc…. sales is beyond the scope of one post here but you can use standard sales techniques to convince them the value of your features versus the price they pay.
The bigger issue is the company being just you. They’re going to ask you outright, or you’d better address up front how you expect to give them the same service and support the 100 person competitor would give, and recognize that it’s a key technology or product for them and what if you get hit by a bus or disappear? What do they do then?
Here’s how I’ve addressed the common questions about a one-man company:
How can you give the same level of support?
You tell them your business approach is different — yours is “consultingware” and you’re only selling to one business at a time. That way you become dedicated to them and their exact needs. And of course it’s true! If they’re paying you $150K for your “turnkey” system, it should be no problem to check on them weekly, fly out to their site monthly, really hold their hand, put in requested new features for free, really get their feedback over the year. They’ll love it and be your champion for your next customer.
Ask them if they’re getting that from their current provider now… probably not.
Also point out they would be a major customer and a really big project for you. With the big competitors they’re just a number. They’ll like that idea too.
As for getting hit by a bus, well your competitors could go bankrupt tomorrow too. Who knows? But assure them you’re fully insured for liability and performance (“errors & omissions insurance”), and point out once software is installed and running, it doesn’t change. Software doesn’t wear down, it’ll keep running the same way forever. And they don’t pay until it’s installed, running and accepted, so if you got hit by a bus or your company went away, they’d still have it and it would still continue to work.
How do we know your product works? You haven’t sold it to anybody yet.
You say yes it is a new product, and the bad thing is it’s not established, but the good thing is they’re getting the latest and greatest technology has to offer. Then you reiterate how they don’t pay until it’s installed and proven running and they accept it, so there really is no risk. If it doesn’t work as advertised, they don’t pay. And you’re confident enough and have tested it enough you’re willing to spend the money to do all that installing, training and demonstration of functionality before they accept it.
You should also admit that sure, there will be things that will come up, but that’s also why you’re running your company as “consultingware.” You’ll be there on call and devoted to them and how they’re using the product. If there’s something major, you can be on the next plane out, will have it on your laptop and can make changes right then and there. Do the large competitors do that for them now? Most likely not.
See? A one-person company is actually a good thing!
Well, my first customers all responded really well to the above, anyway. And I wasn’t being deceitful at all, I really did hand hold them and was devoted to them, because after all my first customer was my only customer!
So that’s one way you can run a big money software company by yourself. Many customers really do care more about support and quick responsiveness more than how many millions your company sells a year. And remember, you don’t need to win over 100% of the market, just 2% maybe to make good money. Target those 2% who hate the current products and companies on the market and they will probably be glad to give you a chance.
Then with that first happy customer, you use them as a reference and build up from there. Or more likely in a small niche market they’ll rave about you to everyone and everyone will want to know more.
I know with my first customer, I did all the above and flew out probably 10 times that first year and spent easily $20K on travel and stuff I didn’t have to do contractually. They needed more monitors? Sure, I ordered them from Dell and they had them two days later, for free. They loved that kind of thing. It was a $140K sale so that year I think my net was only around $50K because of all that kind of stuff, but they really became my champion and paved the way for many more future sales.
My last post about government contracting might have given the impression I was somehow gouging the government by pulling some price out of my ass. You can’t do that and exist for long in business or certainly government sales. Nope, it was market price for my product, established market, commercial items, and the competition was sealed bid, fair and open with multiple companies competing. With an open competition and sealed bids it’s in nobody’s interest to inflate the numbers because your competitors will undercut you easily.
I think now my conversation with that contracts guy happened because he was thinking it was time & materials when it was actually firm fixed price, and I just didn’t know enough about contracting to realize that was the misunderstanding.
So to you government contract guys who criticized me, I really don’t care. Don’t buy from private industry if you think the open, free market is too expensive. How about instead, you buy from my competitors for 30% more? Or just hire Mega Contract Corp to build it for you for three times the price, then spend another five years and another $10 million fixing it when it doesn’t work?
Meanwhile I’ll just keep selling to private industry who don’t bitch about every single line and every single dollar like you government types do. Yea, I know it’s to prevent waste and fraud, but it’s still annoying.
(Actually no, I love you government types… keep those orders coming in!)