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Ask HN: Is this a bad business model?
Traditionally, I think a great deal of companies (FogCreek, 37signals, etc...) start out consulting to get regular income and build a product they can sell over time and eventually move away from the consulting business.
I think this is a great idea and it seems to work well. However, since I already have a full time job that I enjoy and don't plan on leaving any time soon, I figured I would just skip the consulting phase and go straight into developing software products.
The idea was to focus on small businesses that may not have the money to hire someone to build a complete software application for them and leverage their business knowledge in a niche market to build the software they want and sell it to them in license format later.
On the surface, this seems win-win since the business owner gets software built on the cheap, and my company can sell the software to whoever we want when we're finished since we own everything.
However, this hasn't quite gone as planned. The small business owner I'm working with keeps expecting each iteration of development to be production ready and tries to go out and use the software right away. He then gets upset when it doesn't do what he expected (which, he's not 100% sure about in the first place).
The problem is, I don't have the domain knowledge of what the software needs to do. And the other guy doesn't really know what software is capable of doing. This is OK if both parties are willing to work on growing the software iteratively, which is what I thought I made clear we were going to do in the beginning.
To make matters worse, I'm 99% sure he's either sold or given a copy of the software to at least one of his friends who owns a similar business.
So, at the end of the day. I get all of the stress of a consultant with none of the payoff. I've only sold one license to this guy and I doubt he'll buy any more.
I'm definitely not going to bail on this project. I'm proud of the software I'm building and I think it will grow into something worthwhile. I just think I went about this the wrong way.
Is this a dumb idea? It hasn't worked out well for me so far, but I don't know if this is the norm.
Have any of you tried something like this before? If so, how did it go?
Thanks for the advice.
- michael_dorfman 16y agoI don't think the problem is with the model-- I've used that model before, succesfully. In fact, the Norwegian government's development fund considers this model to be preferred for projects they finance. Rather, your problem is one of communication. You even say as much when you write: The small business owner I'm working with keeps expecting each iteration of development to be production ready and tries to go out and use the software right away. He then gets upset when it doesn't do what he expected It's your job to make sure he understands the process, and what the deliverables are. And: why aren't you getting the payoff (in the form of domain knowledge)?
- arandomdev 16y agoGood point. I feel like I'm making myself clear about the process, but maybe I'm missing something. I think in the future I need to write out some sort of business relationship agreement that states my intents as a company and lets the small business know what they should expect from me and what I expect from them. I don't think that's too much to ask since the business is actually getting immediate value from this agreement, mine doesn't come until later. I definitely get payoff with domain-knowledge (instead of money at this point) which, I don't mind. I just didn't want to keep trying to make this business model work if I was going to continually sacrifice cash for domain knowledge. I want to make money eventually :P It's nice to hear that this model can (and frequently does) work. I really like the idea and I think there is a lot of potential to create useful products. This is my first attempt and I knew that there were going to be bumps along the way, I just didn't want to keep trying something that doesn't work. Thanks for your advice. I really appreciate it.
- bond 16y agoHmmm, you have the wrong "partner" to begin with... > I don't have the domain knowledge of what the software needs to do This is critical. If you don't know this, you will not succeed and your projects will take forever to see the day light... If your small business will not provide you with the necessary info, you can't expect it to work and go sell it to others in the same niche. My advice is look for a competitor and show them what you've got. Interact and improve the software.
- arandomdev 16y agoGood idea. Actually, the software is at a state where I could start giving out beta keys to a few other companies and get their feedback. Also, I would get the added benefit of learning how multiple companies in the same market operate. I totally get your comment about domain knowledge being critical. And, I have learned quite a bit about how this market works. But, at the end of the day, I'm not going to know nearly anything about, say, being a mechanic than an actual mechanic with 10 years of experience will know. This is what I'm trying to tap in to here. I get the benefit of domain knowledge in an area I know nothing about and get to write software for that market. I just don't think I'll ever get to the stage where I know as much as these guys, especially since I'm not doing the actual work.
- bond 16y agoYes, you will not know as much as those guys but you will know plenty to get it done... As long as your software gives them some kind of advantage and they see value in it, you'll do fine...