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FOUR LAWS
OF SOFTWARE ECONOMICS
RICH MIRONOV
@richmironov
Your development team
will never be big enough
Fact #1
Development can
never build as fast
as we can dream
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.”
#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”
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
Fact #2
All of the profits
are in the
nth copy or
nth subscriber
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
Software Tiers/Bundles
Opposing Models
11
GrossProfit
Art courtesy of Arne Olav Gurvin Fredriksen
There’s nothing more
wasteful than brilliantly
engineering a product that
doesn’t sell.
#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
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
Naked without
• Deep customer understanding
• Specific target audience
• Working solutions
• Positioning, messaging, awareness, sales
Fact #3:
Software Bits < Whole Product
Undifferentiated
or poorly
positioned
Marketing/sales
/channel
failures
Late delivery
Poor quality
Wrong problem,
wrong solution
Commercial Software Failure Modes*
*In my personal experience
Most of the success /
failure of a product is
determined before we pick
our first developer or fill
out our first story card
#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
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
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
• Business value error bars >>
engineering error bars
• Bottom-up prioritization 
ugly products
• Trade-offs among unlike items
are heavily biased
Analytics < Strategy
Prioritizing Within Buckets
Prioritization within Buckets
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
“I skate to where the puck is going
to be”
Strategy Requires Strategy
Strategy requires judgment
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
Rich Mironov
Mironov Consulting
San Francisco, CA
rich@mironov.com
+1-650-315-7394
twitter.com/richmironov
linkedin.com/in/richmironov

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Four Laws of Software Economics

  • 1. FOUR LAWS OF SOFTWARE ECONOMICS RICH MIRONOV @richmironov
  • 2.
  • 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
  • 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

  1. © 2015-16 Rich Mironov, Mironov Consulting. Rights reserved.
  2. 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
  3. 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
  4. Well, there’s one thing….
  5. Not every player can have the same strategy
  6. 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.