Book Review: The Business of Software

Techies like gadgets. For people primarially involved in developing back-end computer systems or networks this usually means the gadget which has the most features, and is technically superior to the competition. If the item in question requires a manual which would rend an industrial-strength paper shredder to sheets of twisted metal, or has an interface which loses to an Altair 8800 in a game of Gadget Top Trumps, then all the better.

This worldview is perfectly acceptable; techies like learning, and there’s a certain sense of achievement in getting your toaster to pick up satelite channels from Kyrgyzstan. This perception can sometimes lead to synapic connections which unfortunately don’t make sense. If I want something which has the most features, surely other people want the best technical solution too? So if I set up a business writing software that’s “better” then the competitions offering – has more features, is more flexible in terms of the install platform and system requirements, then surely I just have to present this idea to a large company and they’ll give me millions of dollars to spend on more gadgets?

Michael Cusumano’s excellent book “The business of software” comes with the tagline “What Every Manager, Programmer, and Entrepreneur Must Know to Thrive and Survive in Good Times and Bad”. If you can identify with any of the gross generalizations presented in the previous paragraphs, this is the tonic to shake out any lingering preconceptions.

Cusumano divides his time between advising various companies on their strategic direction, and lecturing in Strategic Management, product development, and entrepreneurship in MIT’s Sloan School of Management. His experience in the area is evident in a book which lives up to it’s tagline – If you are pursuing a career in technology, this should be compulsary reading.

The underlying theme of a company evaluation is Cusumano’s “8-point lens”. A company should have an equally strong showing in each of the areas identified in order to build a sustainable, profitable, long term business. The author then evaluates a half dozen companies under these criteria and points out critical events in the company history which lead to success or failure.

  • A Strong Management Team – Investors typically provide money for people, not groundbreaking ideas. Without an experienced management team, most companies are sunk before they begin.
  • An Attractive Market – The potential for a companies main product has to be large enough, growing fast enough, or be potentially profitable enough to warrant investment.
  • A Compelling product offering – The product or service should aimed at a particular type of customer. On the typical “MBA” chart of X = Value to customer and Y = uniqueness, you want to be at a point in the top right hand corner. (A famous animal trainer once spent 15 years training a camel to walk backwards – It had never been done! The first audience who were shown this amazing feat barely blinked. Who wants to see a camel walk backwards?!)
  • Customer interest – If need evidence that someone’s going to buy the product. Many startups develop a business plan which involves grabbing a tiny percentage of an enormous market; the usual outcome is that they grab nothing. You need letters of intent from actual interested customers that aren’t just a nebulous projection on a powerpoint presentation.
  • Credibility – Don’t leave me high, don’t leave me dry. Customers want assurances that your company isn’t going to explode, leaving them with an unsupported product that they can’t use. You need a list of customers who are using your product, a chain of partners and suppliers who can support your product if the worst should happen to your company. You may even have to give the thing away to get customers on your list. Cusumano intially recommends companies to focus on a niche market which doesn’t require longevity, and then gradually persue more long term strategies.
  • A sensible Business model – The dot com days are long gone. Investors have a stronger grip on their wallets. As above.

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