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Comment by edw519 | Hacker News Reader

Actually, it's pretty simple: supply and demand.

In the B2B world, there is a stunning demand for good software everywhere I go. Two and three year project queues are the norm. They have trouble finding anyone to get the work done, whether it's employees, contractors, or vendors, either for services or products.

Perfect example right now: I know of two large companies whose customers are demanding that they be able to enter their orders on the internet. Imagine, in 2011, large companies struggling to find people to get e-commerce working!

OTOH, I read about what other programmers are doing here on hn, and 90% of the time, my first thought is, "Why? Who would pay for that?"

To make it on your own, you have to stop building what you think people will pay for and start building what they actually will pay for. Huge difference.

Aside: I remember talking about something very simliar a few weeks ago here:

http://news.ycombinator.com/item?id=2363723

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Actually, it's pretty simple: supply and demand.

My experience is that supply and demand only explains/models pricing when you have an efficient market. When there are information asymmetries or actors attempting to impose inefficiencies in a market, supply and demand breaks badly.

To quote one of Joel's best posts:

Software is priced three ways: free, cheap, and dear.

1. Free. Open source, etc. Not relevant to the current discussion. Nothing to see here. Move along.

2. Cheap. $10 - $1000, sold to a very large number of people at a low price without a salesforce. Most shrinkwrapped consumer and small business software falls into this category.

3. Dear. $75,000 - $1,000,000, sold to a handful of rich big companies using a team of slick salespeople that do six months of intense PowerPoint just to get one goddamn sale. The Oracle model.

All three methods work fine.

Notice the gap? There's no software priced between $1000 and $75,000. I'll tell you why. The minute you charge more than $1000 you need to get serious corporate signoffs. You need a line item in their budget. You need purchasing managers and CEO approval and competitive bids and paperwork. So you need to send a salesperson out to the customer to do PowerPoint, with his airfare, golf course memberships, and $19.95 porn movies at the Ritz Carlton. And with all this, the cost of making one successful sale is going to average about $50,000. If you're sending salespeople out to customers and charging less than $75,000, you're losing money.

http://www.joelonsoftware.com/articles/CamelsandRubberDuckie...

With behaviour like that, supply and demand is absolutely the least important factor in making certain B2B sales. Doubling the supply of "dearly priced" software can't drive the price below $75,000 because it costs $50,000 to make a sale. What's interesting is the opportunity to innovate to make the jump from "dear" to "cheap." That's a business model problem, not a supply problem. In my uninformed and inexpert opinion.

I just got asked about a database program for pawnshops - they charge 3500 for the package and 700 a year for support.

Two things:

  Please understand that I'm talking about large
  trends here, and therefore when I say things like
  "nobody" I really mean fewer than 10,000,000
  people," and so on and so forth.

http://www.joelonsoftware.com/articles/APIWar.html

Also, I explicitly said "certain" B2B sales. Joel's conjectures about pricing and purchasing behaviour do not apply to everyone, just to those organizations that have a certain behaviour around making purchasing decisions.

Agreed! The world of POS and other small business database software is HUGE. The last non-coding job I had was working in retail and the boss had just laid down something like $25,000 for the worst point of sale system conceivable. Most of that was support, training, and installation.

That highlights a big issue, though - anything in that market will necessarily be a very high-touch sales process and therefore very expensive, unless it's absurdly easy to use and install. If you can solve that issue (Square seems to be having a crack at it), you'll probably be extremely successful.

Simples. Charge less than $1000 multiple times ;) aka, saas.

Another way. Start a relationship cheaply or for free, and then afterwards it's much cheaper to sell to your customers. No $50k salesperson then.

There are lots of other ways to do it. You just need to be inventive.

The typical initial deal price for licensing deals by my startup (x264 LLC) is around $5000-$10000. Per-unit royalties are extra (though the initial price includes a bunch of free units).

The vast majority of our deals fall smack in the "$1000-$75000" range.

no. you don't exist. Can't you see that? :-)

now tell me your birthday so I can explain to you that its another day entirely.

To make it on your own, you have to stop building what you think people will pay for and start building what they actually will pay for. Huge difference.

That's right. How hard is it to find such a niche? I'm looking for a niche where I can make $5K/month only. Here are the criteria:

- Be able to launch the SaaS in 3 months work.

- A small customer base (200-300) with monthly subscription.

- Requires 30 hours/week for support.

- Doesn't require physical stuff, or lot of expenses.

Any one who can think of such a service? I'm looking to build one this summer.

ERP. Forget about being fully SaaS but be SaaS enough so that what you build to scale in the cloud can also scale out of the cloud. Edit: what I mean is that most companies interested in SaaS are actually more confident to host their own little version of your solution for their needs.

Spend time studying OpenERP because it's succesful and you'll have to compete against it. Their platform is a great case study: it's powerful and modular while being difficult to take over. Their code base is a mess and yet they have developer's traction. There's a huge market, no matter what you plan (a platform or a solution).

If you go for a platform, avoid small projects.

I am building one. Would love to connect anyone wanting to join me.

Good point about the distinctions between Saas vs ERP. Customers don't want to buy software or services; they want to buy a solution to their problem (and preferably a solution with a positive ROI).

"Be able to launch the SaaS in 3 months work."

I don't see ANY mention of marketing in there. I can't tell you the number of SaaS-on-the-side startups that I've seen launch to nothing but crickets.

If you launch a SaaS offering, understand that you'll be competing in your on-the-side marketing efforts with people who are spending lots of time/money to grow their business. Going to try SEO? Your competition has going full steam with SEO-- how are you going to compete? Adwords? Most SMB SaaS can't afford adwords. Facebook ads? Bit of a minefield, but possible. Word of mouth? There's a lot of noise out there

In other words, have a customer acquisition plan and be prepared for that to be your fulltime job. 37Signals, with their early fame and following, took 12 months before they could afford to set aside consulting. It's a longer road than you think.

That was a pretty good post, csomar, but I'm going to critique it anyway. (If it was a crummy post, I wouldn't even bother.)

What I like about it: You're focused on building something that supplies an actual demand. Good!

What concerns me about it: You're still too focused on yourself. Every one of your bullets was about what you want your business to look like.

I think you're focusing too much inward when you need to be focusing on your prospective customer and how they will benefit from the value you provide them.

Examples are everywhere, just a few off the top of my head:

  - salons that wants to optimize their scheduling
  - retailers that want to improve one on one communication
  - actors/artists that need better portfolios
  - shopkeepers who want to capture more POS info
  - teachers who want to play bingo in class (never mind)

Get out of your office and find people like this first. Ask them, not us, what they want. Then figure out how to provide them with what they crave. (Once you find one niche and get going, you'll be surprised how much fun it is and how well it works out.)

The rest (your bullets) will take care of itself. The shape of your business will be the byproduct of doing whatever you must to satisfy your customers' needs.

One great resource that will probably help you:

http://www.amazon.com/Start-Small-Stay-Developers-Launching/...

This reminds of the PG/FW email chain a couple of weeks ago re: AirBnB. No mention of the things we talk about a lot on HN such as scaling, UI etc... just the potential market for the product. Obviously at that level the discussion is very strategic, but it's where we all should really start.

AirBnB solves a real economic problem with the www. Just like Craigslist, a good idea doesn't need to be complex or splendiferous.

You make a great point about the egocentric nature of a developer.

It reminds me of the saying "Working for youself means you don't have a boss. It means you have customers, which are much less forgiving and demanding than a boss would be."

Get out of your office and find people like this first. Ask them, not us, what they want.

You make it sound much easier than it is. Getting out of the office: easy enough. Finding the right people who can tell you the right things at the right time: difficult. Very difficult.

No one said it'd be easy. But if you listen to customers with money and problems, at least you have a shot at being successful. When you approach people as the potential solution to their biggest problems, it's surprising how easily people will open up to you. And if one person doesn't open up, improve your pitch and go onto the next.

You're presuming you can actually find the right people to begin with.

You're still too focused on yourself. Every one of your bullets was about what you want your business to look like.

Indeed. In business, u comes before i.

Unfortunately, it's also BS from start to finish (heh heh). People still care about their own lives, even if they realize that it's useful to appear unreservedly dedicated to the customer's needs.

And the niche you choose does make quite a difference in what the resulting business will look like, what demands it makes on your time, what kinds of customers and partners you will be interacting with, etc..

Unfortunately, if you're looking for "a niche, any niche" that happens to meet criteria completely unrelated to what the need actually is, who the people actually are, etc., it seems unlikely to work out well.

I suppose this depends on personality, but... it's hard to build a business. If you find the perfect niche but you actually have no past domain experience, don't have any personal connection to the "pain" you're fixing, etc., what will carry you through? I imagine you'd be much more likely to throw in the towel when things got tough (and I suspect investors would worry about that as well).

> What concerns me about it: You're still too focused on yourself. Every one of your bullets was about what you want your business to look like.

You could also look at them as constraints that need to be satisfied for things to function: it needs to look like that if it's going to work for him. I think it's worth filtering things like that if you're aiming for a "lifestyle" business. You're correct that you also have to filter by "what can I do to help people", but you're going to have to run both filters sooner or later.

I agree completely about the Start Small Stay Small book. I think it's one of the better ones I've read in a while. There's nothing earth shattering, but it's full of concrete advice and is aimed at "the rest of us" who don't live in Silicon Valley and aren't aiming to "change the world".

edw519, I think your advice is in the right spirit but (as you admit) naïve.

nopassrecover, edw is 100% on target about looking outward. However actors, salons, and teachers are all good examples of people with little money to spend, who would not capture significant extra margins by adding software.

In my estimation, nopassrecover, you would do better to think deeper in the B2B value chain, particularly if you can flex relationships you've made in previous industries you've worked in. Imagine how many more people you could touch writing software that hooks into a shoe factory's shoe machines than making a web store -- and how much less of a customer's attention that would require.

Two consejos that I think are good (but not necessary) for entrepreneurs to follow:

1. Do a part-time job while you work on your own thing.

2. Use knowledge & relationships from businesses you have worked in directly.

And (3) for hackers specifically: spend some time thinking about and researching how the commercial world fits together. Who made the plastic fibres in the salon's brush? How does the aesthetic layout of the salon enable them to charge more? What other construction materials could they have used? What catalogs are thrust in the face of new salon owners and how does that affect the way they see their choices? What's the price history of the real estate they own vis-à-vis the other places they could have set up shop? And more generally: What companies in the world do the most revenue and why? What companies have the most profits?

The salon scheduling example is particularly naïve, because scheduling software would not add much value to either salon owners or customers.

But edw519, I very much agree with you about looking outward (both to meet business minded people and to meet people who don't have iPhones).

> The salon scheduling example is particularly naïve, because scheduling software would not add much value to either salon owners or customers.

Interestingly, someone told me recently that his sister, who runs a salon, spends a ridiculous amount of money on precisely this: scheduling software! He's a hacker and couldn't quite work out why she would pay $thousands (sic) for some crappy semi-customised calendar when Google Calendar works just fine: in the end it came down to, "because all the other beauty salons use this software".

Not that I'm recommending this particular niche, mind you...

As I understand it the dominant salon software is tied to product ordering and upselling; scheduling is of secondary importance (or less).

Use your social network, no-one's going to hand you a completed spec, you need to find the first few customer who will be willing to spend time with you to discuss their needs, and that generally means using your network (don't discount things like family friends, etc.)

Whenever you meet someone ask them what they hate about their job or what takes the most time at work. That can often give you a good idea on what areas have potential.

If you have a day job, look for the problems that your day job has to solve. Undoubtedly, these problems will be echoed at other companies like yours (and maybe even not like yours), and you have an opportunity there. You might have even been able to work on solving the problem, so you already have a leg up when you generalize it for others by knowing what to expect.

I'm practicing this at the company I work for, and I have many ideas. Be cautious about legality, here, and don't get too specific with how your employer solved the problem, just use the tactic to identify the problems.

Yes. In the niche I work in (professional photography) I know of at least 3 different needs that meet your criteria (more or less). Many of our 6,000 customers and others in the industry have told us as much.

Like Ed said, companies large and small have pipelines of ideas and projects they can't get to.

Such as? What are the three different needs?

I'll give you an idea that I've done in the past consulting. Create a web-based reservation system for small tour operators. Part CMS, part inventory system, these operators need to create bookings for passengers, reduce inventory, generate invoices, update their website (that's the CMS part) with new inventory, sales, deals etc.

You'll make much more than $5K / month if you can pull that off. Heck, I'll send about 5 companies your way on Day 1.

I am interested and would like to contact you to learn more. How do I contact you?

I'm working on just such a product for professional electronics engineers, though it's a $500M/year niche, so could scale way beyond $5K/month .

Personally my advice would be to quit your job and go and work in an existing industry you think you might be able to disrupt with software, it's the only way you'll learn the real problems.

I did this the other way around by working as a hardware engineer for 10 years then getting into web dev. I spent some time thinking I'd wasted the start of my career but now realise it's the best thing I ever did.

If anybody is looking for a problem to solve I've got one so get in touch. This isn't the next Twitter for Groupon, I'm working through some hard problems so please dont waste our time ;-)

I fell on this path by accident. I started hacking when I was young. I always loved tech and programming. Between 18-20 I went through two jobs as a software developer while still going to school but this was circa 2000 and the market tanked. I got into real estate because I didn't want to depend on someone else to give me a job. Along the way realized I hated doing real estate sales everyday and the technology really annoyed me so now I'm creating the software I always wish I had as an agent. If it weren't for the experience of being an agent I would have never understood the pain.

"I'm looking to build one this summer."

Build one this summer? And then what are your expectations? That it will be making $5000 a month from then forward with no further input?

If you want to make $60k a year by the end of next year, advertise $30/hr computer fixing services, advertise locally, and schedule 60 hrs a week of work. (The extra is to cover advertising overhead.)

If you want to build a product or service bringing in more than $100/month, you need to spend 5-10 years building it up to the quality where it can compete with the others who have spent that much time.

Anything you can throw together with "3 months work" that can bring in $60,000 indefinitely is going to be cloned right after release by 10 other people, all of whom will deliver a cheaper better product.

It's not really all that reasonable to expect to create something that will support you indefinitely with only 3 months work unless you are a blond bombshell that targets sick elderly men for marriage.

The only type of business that has a chance of doing that well in 3 months is in the web content business, or affiliate marketing, or creating some sort of new social network. For other types, especially building a SaaS, it'll take at least a year to get some sort of traction.

I've been working with B2B e-Commerce for about a decade, and it's a pretty sorry field to be sure. Past few years it's come to where I don't really want to recommend anyone any longer, since I know the chances of a good release coming out of it are near zero.

There are probably a fair amount of people here who work with less sexy things, that just don't really talk about it since integration with enterprise resource planners isn't as much fun to hear about as a 12-minute reddit clone getting millions in funding. I know I rarely post.

I wish you would post. I don't even really have a handle on what 'integration with enterprise resource planners' means, but it is interesting to me because I am interested in making money.

I am so curious to know who are those two companies. And I can imagine it is not easy to meet their requirements. I can imagine there are issues on authentication, security, access to data system, resolution conflict orders, consistent inventory accounting. Those topic are not rocking science but to do them well and make the system reliable (even just meet the requirements) is not a trivial task.

But entrepreneurs are dreamers - you have an idea that you think is awesome, even if it doesn't currently fit in with a normal person's day-to-day behavior. But you're convinced that if it does catch on, even the people who were at first skeptical will come to love it, and the lives of millions of middle-class, tech-savvy individuals (because let's face it, this is typically the market you're going for) around the world will be a little bit better for your idea.

Yes, most of these people never actually build successful companies. But if you're just working on another straightforward B2B e-commerce platform marketed at the 10% of companies left who don't yet have a web presence, although you might have a greater chance of getting rich, you're not chasing the dream. And the people who see nothing wrong with this never become entrepreneurs, they just avoid the risk altogether and make a good living working at a big company.

It obviously doesn't happen in all cases (and I certainly don't mean to imply that there is nothing interesting and game-changing to be done in B2B businesses), but I think this could be part of the reason why entrepreneurs are always building things they hope people will pay for rather than things people already do pay for.

entrepreneurs are dreamers

I think this is true of only a small subset of entrepreneurs. In my town I, the auto body shop guy, the boat trim guy, several bar & restaurant owners, the disposal business guy are just DOers - not dreamers. One of the guys who started a vinyard, a guy who bought a brewery, and the guy who bought a $1mm Titan waterjet might be classified as dreamers.

Walt Disney was much, much more than an entrepreneur. Do you think of Sam Walton as a dreamer?

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