Four Laws of Software Economics
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The document outlines 4 laws of software economics: 1. Development teams are never big enough due to endless ideas, so ruthless prioritization is needed. 2. Profits come from selling to many subscribers, not just a few customers. Products need to be built once and sold widely. 3. Software alone is not a complete product; it must be packaged with other elements into targeted solutions for specific customer segments. 4. Strategic decisions cannot be outsourced and require judgment calls, as inputs like surveys cannot replace strategic thinking.
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Four Laws of Software Economics
- 1. FOUR LAWS OF SOFTWARE ECONOMICS RICH MIRONOV @richmironov
- 3. Your development team will never be big enough Fact #1
- 4. Development can never build as fast as we can dream
- 5. Magical Thinking “CEO says it’s really important.” “We already promised it to a big prospect.” “How hard could it be? Probably only 10 lines of code.” “We’ve been talking about this for months.” “We’ve gone agile, which gives us infinite capacity...” “My neighbor’s kid could do this in an hour.”
- 6. #1 Law of Ruthless Prioritization • AND requests but EXCLUSIVE OR decisions • We succeed by finishing a few critical things Executive’s Job • Make hard trade-offs • Battle magical thinking and “specials”
- 7. 4 Laws of Software Economics 1. Your development team will never be big enough Law of Ruthless Prioritization 2. All of the profits are in the nth subscriber
- 8. Fact #2 All of the profits are in the nth copy or nth subscriber
- 9. Revenue Implications $1M/year $6M/year Close to zero • Your development team of 6 costs… • Implied revenue commitment… • Incremental cost per user? • Goal is not to minimize costs but to maximize revenue
- 12. Art courtesy of Arne Olav Gurvin Fredriksen
- 13. There’s nothing more wasteful than brilliantly engineering a product that doesn’t sell.
- 14. #2 Law of Build Once, Sell Many • Segmentation: strategic art of choosing customers who want the same solution Executive’s Job • Focus on segments, not deals
- 15. 4 Laws of Software Economics 1. Your development team will never be big enough Law of Ruthless Prioritization 2. All of the profits are in the nth subscriber Law of Build Once, Sell Many 3. Software bits are not the product
- 16. Naked without • Deep customer understanding • Specific target audience • Working solutions • Positioning, messaging, awareness, sales Fact #3: Software Bits < Whole Product
- 17. Undifferentiated or poorly positioned Marketing/sales /channel failures Late delivery Poor quality Wrong problem, wrong solution Commercial Software Failure Modes* *In my personal experience
- 18. Most of the success / failure of a product is determined before we pick our first developer or fill out our first story card
- 19. #3 Law of Targeted Whole Products • Customers buy solutions (which may include software) • Mean-Time-To-Joy Executive’s Job • Focus on problems worth solving for specific segments • Customer story as important as working software
- 20. 4 Laws of Software Economics 1. Your development team will never be big enough Law of Ruthless Prioritization 2. All of the profits are in the nth subscriber Law of Build Once, Sell Many 3. Software bits are not the product Law of Targeted Whole Products 4. You can’t outsource your strategy
- 21. Fact #4: Input < Decisions • Voice of the Customer • Surveys • Crowdsourced feature ranking • Showcase customers • Industry analysts • Competitor data sheets • Smartest customers • Smartest developers • Executive Survey-of-One • CEO’s mother-in-law • Inflight magazine
- 22. • Business value error bars >> engineering error bars • Bottom-up prioritization ugly products • Trade-offs among unlike items are heavily biased Analytics < Strategy
- 23. Prioritizing Within Buckets Prioritization within Buckets
- 24. Features for current release 50% Quality (refactor, test automation) 15% Engineering overhead, 10% Big future bet, 5% Sales one-offs, non-roadmap 20% Typical Development Budget* 24 *In my personal experience
- 25. “I skate to where the puck is going to be” Strategy Requires Strategy Strategy requires judgment
- 26. 4 Laws of Software Economics 1. Your development team will never be big enough Law of Ruthless Prioritization 2. All of the profits are in the nth subscriber Law of Build Once, Sell Many 3. Software bits are not the product Law of Targeted Whole Products 4. You can’t outsource your strategy Law of Judgment
- 27. Rich Mironov Mironov Consulting San Francisco, CA rich@mironov.com +1-650-315-7394 twitter.com/richmironov linkedin.com/in/richmironov
Editor's Notes
- © 2015-16 Rich Mironov, Mironov Consulting. Rights reserved.
- Two kinds of conflicts: between dev-side folks (eng, PM) and sales/marketing/non-tech execs Between commercial product folks (volume, revenue) and project/professional services/internal IT
- Professional Services profitable for single client or low volume segments, existing budgets. Priced for effort Product model more profitable for larger segments, price pressure, priced for value
- Well, there’s one thing….
- Not every player can have the same strategy
- Take-away: volume commercial software business is very different from contract development or professional services. Need a very strong hand on the product tiller to keep from making repeated (one-sided) trade-offs that shortchange product and market success. Whatever we call them, we need individuals who understand the laws of gravity and can hold back short-term magical thinking.