Business of software
By: Alok Tyagi
Tags: Blogging, Enterpreneurship, Internet, Software Development, Startups

While talking to few acquaintances who are in the business of building different kind of software (Attention based; consumer product; SaaS; or others) than on-premise enterprise software products — it is interesting to observe similar discussion. This is probably the core nature of software business. At the end of the day it comes down to 2 set of metrics driving business:

1. Acquiring new customers/members/subscribers/etc. More and more businesses now run calculations to understand the cost to acquire new customer/member. Cost to acquire new customer usually is much higher than many would guess, if they had no clue. It gets costlier in mature industry where traditional market is about replacing someone else’s product. Also, it can be costlier in the web world where there is now actual cost of goods sold (think of all the IT infrastructure that goes around delivering a service) as opposed to the cost of CD.

Question usually gets asked: Beside product strategy to attract and differentiate offering from competitors — keep cost of customer acquisition in check; what other ways to generate traffic/leads; foster communities; target competition; create winning buzz; adjust pricing or terms; bundle products/services to make it more attractive; etc. Increasingly more web based product focus on marketing presence on the local/industry circuit from the get-go rather broadly within ranks via blog/communities to earn credibility. Increasing emphasis on Marketing too important just to leave it to dedicated few — every one has to play.

2. Retaining a customer. It is about understanding the likelihood of customers staying on the product. Generally a combination of understanding attrition rate (as some folks leaves the fold) and knowing life time value of a customer/member. Although harder to find, however, there are industry best practice metrics for the type of busines one can use as a guideline. These days businesses (particularly on the web) have a greater understanding of trends among its existing customer base. One suggestion: if you don’t already know about your customer trends — invest quickly and gain better understanding. By the nature of it -Web based businesses know well how many of their customers renew membership; what is their average monthly dues; what %age of customers usually don’t renew; on an average how long customers remain a member; what feature gets used most; demographics details; etc. Likewise, enterprise software products — SaaS or otherwise have similar metrics to help project maintenance or recurring revenue.

Question usually gets asked: What needs to be done to keep a customer happy using our product/services? What features to add (particularly that generate stickiness); what pricing lever to play; how to provide value without disrupting the apple cart; what promotion to have; etc. To find the secret formula that can help a customer retained longer paying healthy dues — is what makes a business sticky and profitable in long run.

So to remain growing — it is about adding more new customers than the customers leaving the fold. Visualize a funnel — add more while few trickle away. A math described easy but takes an organization with a winning attitude to achieve…