Category Archives: Success Factors

General writings on building a successful business.

Cheap or Free?

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A couple of us walked into Powell’s Book Store near the office yesterday to find this:

Someone’s got a sense of humor. Dick Luebke, an advisor, took a snapshot with his new iPhone 3Gs. The irony is we had spent the morning discussing two important issues illustrated in this photo.

The first is the difference between free and, well, cheap. Josh Kopelman of First Round Capital wrote an article called The Penny Gap in which he talked about the problems with getting someone to go from $0 cost to $0.01 cost. The point Mr. Kopelman makes is that going from free to paid isn’t a consistent curve, that there’s a significant drop off in customer demand even when charging a penny. He points out that if you want a highly viral business then you have to figure out how to charge the consumer $0 because “premium” services are not viral.

The second is straight from Chris Anderson’s Free. Mr. Anderson argues that commodity information is trying to be free while customized information is trying to be expensive. A commodity, he argues, is when everybody gets the same thing and custom is when the thing I get is unique and meaningful to me. Dick supplemented Mr. Anderson’s argument by adding the concept of priceless. The more important and longer I want to keep the customized information, the more I am willing to pay.

We have been struggling here with the commoditization of our old business. At one time, people paid upwards of $130-$400 for a sophisticated hardware calculator. powerOne, our software version for Palm, Windows Mobile and BlackBerry, were priced between $60 and $100. But now it seems calculations are available everywhere. They are cheap in the App Store. They are free on the web. It has become clearer to me that while we have some unique customization features, that these features give us an edge to be the winner in a commoditized world but don’t allow us to charge a premium. It’s not even clear that it can get us to our modest break even goals.

I’m excited to add these customization features to FastFigures, but it’s past time for us to turn our attention to the bigger product goals and vision, hopefully those that we can build a sustainable business around.

Brand Power

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In the late 1970s, when Hewlett-Packard wrote the HP-12c, copyright laws were different. If a company or individual didn’t expressly exert their right then the code was freely available for anyone to use. To copyright software, the copyright notice had to appear visibly to the user on the device and it must be noted in the source code. HP failed to do this with their calculators.

What has transpired over the years is a plethora of HP scientific and financial calculator emulators based on the late-70s products, that actually use HP’s original source code. These emulators have been released for every platform you could possibly think of, including at least four HP-12c emulators for the iPhone.

Because there is little difference between these various 12c emulators in the App Store, the Hewlett-Packard official version released last week and the “knock-offs”, I have watched these apps with great interest. It has proven to be an amazing lesson on the power of brand.

The most expensive of these products pre-HP release was the most popular, peaking in the high-20s for Finance Top Paid Apps. The developer was charging $19.99 for it. When HP came on the scene a week or so ago, with a $14.99 price point, the knock-off apps dropped like a rock while HP sky-rocketed, topping out at #1 in Finance Top Paid Apps. (The knock-offs have since recovered somewhat with much lower prices.) No multi-featured calculator product, in the six months I’ve been watching, has been ranked higher than 11 before the official HP-12c release, and that was a $0.99 application.

What has struck me is the power of the brand. Again, there is no discernible difference between HP’s version of the 12c and the knock-offs yet HP was able to run them off. Second, I’m amazed at the power of this ancient brand. It has been able to propel it to the top of the Finance category when far more interesting products have never gotten as close.

And the buzz for the HP-12c has been fantastic. Before HP released the 12c, most of the calculator conversation on the web had been about the built-in calculator’s ability to be turned into a scientific calculator by turning the device sideways. (Or, more worrying, the propensity of iPhone users trying to dial with their calculator.)

While I’m not convinced that brand building happens in the App Store, I am convinced that a powerful brand makes all the difference. The question I ask myself, of course, is how do I build such a powerful brand with FastFigures? Working on this and other questions as you read.

 

[Note 1: I convinced HP to develop the 12c emulator for iPhone. I was not involved with the development and never asked for nor received compensation for my consulting time with HP. If, however, HP wants to throw some money my way, I’d be happy to take it.]

[Note 2: In case you are wondering, HP’s release of the 12c has not had a negative impact on my sales. FastFigures is not an emulator but instead takes a fresh and truely smartphone look at calculating on the go. If anything our Top Paid position has actually improved over this time period.]

CubeSpace: Two Lessons from a Failed Endeavor

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A few years ago, two people founded a work arrangement suite. The idea is that you’d have a place to plop down and work, renting a cube for all the small start-ups and companies here in Portland. You could have a conference room if you need it and meet-up space if you need that. They called it CubeSpace and poured their hearts and souls into it.

CubeSpace died yesterday. First the bank tried to take it out, since the owner’s weren’t able to keep up with their lease payments, then the community rallied to try to save it, then the owner’s had enough. (Stories are here, here and here.)

I tell you this story not to tell you about CubeSpace, per say, but to warn against two things that have come out of this story. The first is not paying yourself. The second is not charging for services.

The first is tricky. How do you start something? Keep expenses low. And a big expense is payroll. So people don’t pay themselves. That’s okay. The problem is that not paying oneself gives a false sense of the break even point. If you are not paying yourself or paying other expenses out of pocket, at least accrue the expense. Put it on the books. Know that there is a cost there. Because it’s easy to look down and say “if we can just make it to $5k per month, we’ll be fine” and it’s easy to forget that that number’s really $10k with a (very) modest salary.

I once let a very capable and competent employee go over this situation. He thought he was doing the right thing: he wasn’t turning in expense reports as he planned on eating the costs out of his own pocket to help the company get to break even. It was a very nice thing to do. But he also distorted the full costs of the business. I had been operating with one assumption about break even and my assumptions were wrong.

Without understanding the costs of running the business, there was no way to make smart decisions based on the data.

The second issue is also important: if you are providing services then charge for those services. It turns out CubeSpace was offering free meeting space in the evenings for tech groups around Portland. I’m sure CubeSpace’s director’s thought the service would pay for itself in new renters. But CubeSpace’s business was all about providing a place for people to work and meet. If that’s the value they are providing then they need to charge for it. If they were making their money on something else — say consulting services — it would have been different. The meet up space would have been a loss leader for creating consulting gigs.

I feel sorry for the good people who ran CubeSpace. While I never met either of them, they were very well respected in the community. I wish them all the best during their recovery and next endeavors.

The User Review Tipping Point

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I read a very interesting report recently on how user reviews act as a tipping point. (link is here) The long and short of it is that 20 reviews seemed to be the tipping point. When you get to around 20 reviews, it makes a big difference in people’s opinions.

We hit 20 reviews in the U.S. iPhone AppStore last week and have seen our sales go up every day since.  (Thanks to all of you who reviewed it. Here’s a press release on the topic.)

Watching sales of FastFigures Mobile has been a roller coaster. We started off strong but of course faded as we left the “What’s New” section and all of our faithful customers purchased. Then it was a matter of watching for bottom. It just kept getting a little worse every day. It was killing me!

The biggest saving grace during that time was the wonderful things people were saying about FastFigures. I still can’t believe it. (This is version 1 folks! If you think it’s good, wait to see what I have in mind next!)

As of this morning, we have 27 reviews, 26 of which are 4 or 5 stars! We had one 2 star rating and to be honest, I’m quite thankful for it. It was starting to look like I paid people to say nice things about us! (If you are someone who has tried it and don’t like it, it’s okay if you don’t review it at the AppStore, though. I’d rather you email me and tell me what you don’t like so I can fix it.)

It took a week but we found bottom. I spent a bunch of time trying to figure out how people would find us and played with language to learn about the AppStore’s search mechanism. We made strategic decisions to change the way we were delivering the application, changing the name from FastFigures Mobile to FastFigures Finance Calculator in the process.

And then these changes started to take affect. And sales steadied out. And it became clear that we had found a nice, steady bottom (and one I could live with). And — the best part — the anxiety subsided and I slept again.

But then a funny thing happened. We hit 20 reviews in the U.S. version of the AppStore. Since then our sales have gone up EVERY DAY! And visions of actually making a living wage have returned! Let’s hope it isn’t just more bumps on this roller coaster. I could use a nice, steady uphill climb.

Costs To Do Business, Then and Now

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I was thinking recently at how the cost of business has changed in the 12 years I have run Infinity Softworks. A brief list of the changes we’ve seen:

  • In 1997, we had to offer telephone ordering and be able to ship products to customers. Many of our customers didn’t even have an email address. Originally, we’d email ordered product to our customers that ordered electronic software. Now none of that is needed. We don’t even offer physical product any more. Just downloads off the web.
  • In 1997, we had to staff both sales and support lines and support an 800 number. Now we really don’t have any of them. We handle all sales and support via email. We try to keep our response time down to a few hours and can do this partly due to the use of a BlackBerry when we are not in the office.
  • In 1997, we had to get a credit card machine to process charges. We kept it in a closet hooked up to a phone line. We would get the card over the phone and put the customer on hold while we processed the card. No one would give us the ability to process cards on the web (and none of our customers trusted it). Now, everything is over the web and there is no human involvement in the process.
  • In 1997, the costs to run a single server was a thousand dollars a month. Now, we pay about $40 per month with better quality and capabilities.
  • In 1997, 70-80% of our support issues were install and reinstall issues. Now, well… it’s the same. But improved software stores means these issues should be eliminated.

The bottom line? In the 12 years I’ve run Infinity Softworks, our costs have been reduced by 90%. I believe, for the first time, that it’s possible to run a highly successful and profitable software business without the number of people and dollars that it used to.

In fact, I’m betting on it. In 2001-2, we raised $550,000 to build Infinity Softworks. We added a number of people, expanded server capacity, and generally used the money to build infrastructure for the future. Now, I think we can build a far more successful business with far less dollars up front and far fewer employees to make it happen.