Random Points: Running a Software Business

A 929Kb PDF of this article as it appeared in the magazine complete with images is available by clicking HERE

I have been doing a lot of work on strategy for my company over the past few months. Something I recently read about strategy made me think "I am going to write some commentary about that!" So this article deviates from the usual technical part of our businesses to speak a bit about running the business. There are several good things about this. The first is that, like a humanities philosophy professor, it is very hard to be wrong! The second is that I don’t have to come up with any neat images.

As I said, I was working on strategy for my own company when I came across an article on business advice in a technical journal. Basically the advice was this (paraphrasing)–"the key to business success is to clearly differentiate your offerings from those of your competitors…" I was immediately struck with how terribly poor this advice could be. It is missing the most critical component; we will come to this in a bit.

The single most important thing you can do in a business is ensure that you always have access to enough cash to keep the business going (ha, you thought I was going to say some sort of planning). Remember, the worst possible time to try to get cash is when you are out! The second most important thing is to have a dynamic strategy that guides how you execute your business. This dynamic strategy is the road map that takes you from where you are to your definition of success. Strategy is critical to all businesses, regardless of size or the nature of what you do. If you are a one-person surveying company, strategy will be just as important to you as it will be to the 20 person owner-operator company, or the 40,000 person publicly traded IT firm.

"Any road is the right road when you don’t know where you are going." This is a trap into which it is easy to fall. The expression is often attributed to a conversation between Alice and the Cheshire Cat. That’s not exactly right. A very important distinction is that Alice didn’t much care where she went as long as it was somewhere. You, on the other hand, care very much about your destination.

So strategy is the map that guides you from where you are to where you want to be. Execution is the act of moving along the road defined by your strategy. Note that one is useless without the other. Constantly improving execution without a well-defined strategy usually means that you are very efficiently running down the wrong road. You wind up somewhere but not where you wanted to be. Far more insidious are the folks who constantly strategize but never do anything!

So how do you create a strategy? This leads back to my issue with the business advice article. Peter Drucker, one of the most important contributors to "business as a science" of the 20th century, said "… the sole purpose of a business is to create a customer…" I always like to modify this a bit to "… create and retain a customer…" Of course, this was inherent in Dr. Drucker’s statement but I like for retention to be specifically cited. Note that he did not say that creating a customer is an important or an essential element of your business. He says it is the sole purpose of your business! So differentiating your offerings from your competitor’s is not the key. Having a business that is relevant to your customers is the central, crucial ingredient to any business that hopes to be successful. If you are creating a product or service that customers don’t want, you will not be successful no matter how much better you are than all the competitors.

I think we have all seen operational business diagrams that are concentric circles of the functions of our companies (see Figure 1). These invariably have arrows leading into and out of the insular business circle. Things such as suppliers, competitors and, yes, customers. But the customers are on the outside looking in.

The proper business diagram (if you feel compelled to draw one of these) would have the Customer at the core of the circles; surrounded by your business functions and all that other stuff on the outside (see Figure 2). Now this is not meant to be a real operational diagram but is simply posited to show that customers must be at the center of what you do. I do like the vision that customers are surrounded by your business. If the competition wants access, they have to go through you!

Note that surrounding Customers is your business purpose. Your business has to be producing goods and/or services that matter to your customers. Particularly in Business to Business (B2B), your customers must perceive your offerings as adding value to what they do. Until you clearly establish this relationship, there is no need to concern yourself with the competition. Of course once you do figure this out, you will have to offer better value (which seldom equates only to price) to your customers than can the other players in the field.

Thus, you need to be able to clearly state the purpose of your business. For the layout of Figure 2, this is not a lofty (and usually, nebulous) mission statement, but rather a concise statement of how you make life sufficiently better for your customers that they will transfer money from their pocket to yours. It is an economic proposition. How do you add value to what your customers need to do (B2B), or to your customer’s lives (Business to Consumer, B2C)?

A very succinct core purpose is that of IKEA–"to create a better everyday life for the many people. This purpose says a " lot. "Better everyday life" means they will provide ordinary stuff. "… for the many people…" means they are targeting the middle class rather than a luxury market. These purpose statements are surprisingly difficult to write because they often make it very clear that you are doing many things because you want to, not because they make good business sense.

IKEA’s strategy articulates how they will do this. Note that strategy has to be pretty fluid. As you grow, as the needs of your customers change and, yes, as the competition forces some of your offerings to the commodity realm, you will need to make course corrections to continue to be relevant to your customers. Of course, your customers are fluid as well. Take a beauty products company that targets the 18 to 25 year old demographic. They have customers constantly entering and leaving their target market.

Finally, another "saw" you often hear regarding business is the criticality of "maintaining a long term, sustainable competitive advantage." Again, this a statement focused on the wrong thing. What you really need to think about is "how can we, in the long term, continuously provide value to our customers?" A long term competitive advantage is not really possible. As soon as the competition sees what you are doing (and thinks you are making money doing it), they will copy what you are doing! It is far better to be taking the pulse of your customers, rather than your competitors.

The single best example I can think of related to our geospatial industry is Esri. While Esri certainly has good technology and is no doubt concerned about their competitors, their laser-like (had to get that in here somewhere) focus is on their customers. More than any other factor, Esri produces products and a lot of services that matter to their customers.

In closing, I have to admit that I am lazy and always try to borrow rather than build! Thus my advice is to read "The Essential Drucker" for pithy, slap your forehead business advice. Invest $100 buying the video "Strategy and the Purpose-Driven Leader" featuring Cynthia Montgomery and subscribe to Harvard Business Review (there is at least one "actionable" article per month). Now go forth and make a difference in your customer’s lives!

Lewis Graham is the President and CTO of GeoCue Corporation. GeoCue is North America’s largest supplier of LIDAR production and workflow tools and consulting services for airborne and mobile laser scanning.

A 929Kb PDF of this article as it appeared in the magazine complete with images is available by clicking HERE