I’m convinced that most people think about software companies in an upside-down way. The common belief is that when you’re building a soft

Converting Capital Into Software That Works

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2021-07-22 01:00:07

I’m convinced that most people think about software companies in an upside-down way. The common belief is that when you’re building a software company, the goal is to find a neat idea that solves some problem which hasn’t been solved before, implement it, and make a fortune. We’ll call this the build-a-better-mousetrap belief. But the real goal for software companies should be converting capital into software that works. If you understand this, it’s easier to make the right strategic decisions.

The trouble with build-a-better-mousetrap is that there’s not a lot of evidence that it works. First of all, many of the most successful software companies (Microsoft and Oracle, for example) don’t really “innovate” in the sense that they are not really solving problems that haven’t been solved before. In any market, it is exceedingly rare that you get to keep your invention to yourself. Everybody has competition. Wall Street Weenies and lawyers starting high tech companies tend to think they can protect themselves from this with patent protection. Ha! I can hardly think of a single case of a company successfully protecting themselves from competitors because of a patent. (Stac is the only case I can think of, and where the heck are they?)

The next problem with build-a-better-mousetrap is that we’ve reached a state with Internet software where there is too much money around chasing the same lame ideas. Call it the idrive-xdrive-swapdrive-freedrive phenomenon: suddenly thirty-seven companies pop up offering exactly the same service for free. There are a zillion examples of this. Petshops-on-the-net. Urban-video-rental-delivery. Cosmetics websites. When this happens, the business challenge switches from being a technical challenge that needs good programmers to being a marketing challenge that requires, somehow, the ability to break through the pack and establish a brand name, something that is vanishingly improbable. Not only that, but VC money is impatient. That means that investments which take a really long time to develop won’t get funded, which is why anything really interesting or hard to copy won’t even get funded. One reason that there are over thirty companies whose entire goal is providing free hard drive space on the Internet is that writing the code for such a service is so easy.