Business of Software 2011

It already seems like months since I attended the Business of Software Conference (www.businessofsoftware.org) this past October 24th through 26th in Boston. But in reality it's only  been a couple of weeks. This is my second BoS experience having first attended in 2009 in San Francisco. I challenged myself to return from BoS2011 with actionable items which I didn't do in 2009.  Let's see how that worked out.

Clayton Christensen (@claychristensen), Harvard Business School - How to Create New Growth Businesses in a Risk-Minimizing Environment

The conference kicked off with Harvard Business School professor Clayton Christensen who's probably best known for authoring The Innovator's Dilemma, supposedly the only business book to influence Steve Jobs.

The gist of Christensen's talk was that successful businesses are hard to maintain over the long term because conventional thinking about management is insufficient. It does not teach us to be disruptive, it does not provide us with guideposts, and the structure of large corporations denies them the inability to evolve.

Traditional product development begins to outstrip the ability of customers to use the product. The path forward is to be disruptive and considering emerging markets for which a different standard of performance applies.  In this space the simpler product represents the bigger market, especially if you choose to compete where any bigger players are motivated to flee rather than fight.

One of Christensen's main points was to develop an understanding of how customers experience life - not the customer but their job. Understanding the customer's job is key. He cited Peter Drucker's famous quote, "The customer rarely buys what the company thinks it is selling him." He states that jobs are stable while products are not.

He closed by listing the three categories that all business models fit: solutions shop (specialists providing a fee for service), value adding process business (manufacturing or education with a fee for outcome), and facilitated network business (insurance, which is fee for transaction).

Action Items: Ensure that we have an understanding of the customer's job.

Jason Cohen (@smartbear), Smart Bear Software - Naked Business: How I Made More Money Through Honesty Than Typical Business Behavior

Jason spoke about how honesty makes more money than deceit. Jason is the founder of Smart Bear Software and has authored a book on code reviews.

After decrying the fact that lying is almost expected and accepted he cited various examples including comparison charts and 100% positive product reviews. As counter examples, when Canon showed mixed reviews of their products, sales of both high and low rated products increased but sales of low-rated products became more profitable.

He quoted something similar to the line from Ries and Trout's 22 Immutable Laws of Marketing: truth in limitations earns believability in advantage. In the end, the benefits of lying are small but the downsides of being found out are huge.

Jason ended with one interesting quote about open source: "Open source is free like a puppy is free."

Action Item: Considering changing website copy on the product tour to list what the product doesn't do.

Alex Osterwilder (@business_design) - Building Competitive Advantage Through Business Model Thinking

Alex's book Business Model Generation was named by Fast Company magazine as a best book for business owners in 2010 and has gone on to sell more than 120,000 copies. The book's website is businessmodelgeneration.com.

His book is an attempt to create a common language and definitions for what a business model is. The components of his business model canvas are:

1. Customer segments
2. Value proposition
3. Channels
4. Customer relationships
5. Revenue streams
6. Key resources
7. Key activities
8. Key partners
9. Cost Structure

Alex encouraged everyone to approach creation of a business plan like an engineer. Use a "design thinking attitude" and a "test before build" philosophy.

Action Items: none

Dharmesh Shah (@dharmesh), HubSpot - Insights and Musings on the Business of Software

Dharmesh Shah is a co-founder of HubSpot, the inbound marketing company. He's a perennial favorite of BoS and is open about BoS being his favorite conference. His talk covered a variety of topics.

The purpose of your business is to create delighted customers. This is at the core of why he created CHI, the customer happiness index, which was originally used to predict churn (when a customer would leave) but has evolved into predicting customer success. Because Hubspot is a software as a service (SaaS) company, it's not surprising that churn is a killer and that's exactly what CHI is meant to help avoid.

On the topic of setting a price for your product it was very simple. "Pricing is hard. It's very very hard. And changing a price is even harder." He shot some holes in the freemium pricing model, replacing it with the self-explanatory cheapium. The main thing is to assume that customers are connected and united so your pricing needs to be transparent.

You'll need sales people in three instances: the product is complex, the market is new, and/or the price is high.

Action Items: none

Rob Walling (@robwalling), Software by Rob - Writing Game Changing Copy for Websites and Landing Pages

Rob did not present at BoS2011 but lead a workshop on writing compelling website copy. His website is SoftwareByRob.com. During the workshop he led us through several exercises related to writing or re-writing our own website copy.

Your writing should focus on the prospect and speaking directly to them because people love to feel understood. This is why most professional sales copywriters are psychology majors not English majors. It's about persuasion. How do you maintain that focus on the prospect?

1. Use "you" or "your."
2. Include a verb.
3. Make a promise.

Do not write things like:

1. We are pleased to announce...
2. Founded in 1978, we...
3. We... (anything)
4. The best...
5. (describe the product)

Writing copy goes wrong from the start if we begin with a list of features and then start writing. Instead, start with our prospects concerns and motivations and directly address the most urgent one.

Rob recommended a couple of tools.

1. Survey.io as a tool for collecting information about customers
2. HitTail.com to find good keywords

After writing your headline, rules for writing the rest of the copy are simple.

1. Think in bullets
2. Progress from the vague to the specific
3. Then include the features

Action items: Apply these rules to our website.

Jeff Lawson (@jeffiel), Twilio

Jeff Lawson, founder of Twilio (for building voice and text apps) and CTO at StubHub (ticket sales) spoke about pricing.  He said it was important to know your customer - the person, not the enterprise. One method for pricing is simply to quantify the value created and then apply some discount. Or you can set price as the cost divided by 1 minus your margin that you want to earn. (Margin = profit / price). Value pricing lets you charge either by the money the customer will save by replacing one solution with yours or by their savings because of the increased efficiency you'll provide. As for competitive pricing, Jeff says don't do it.

Ideally, pricing should be based on customer feedback during a private beta and then overprice a feature and drop the price later.

If you are unsure about how to set price you should resist the temptation to make many price options and limit yourself to 3 or 4 and put the sweet spot in the middle. Also, you need to segment your audience and use that to drive pricing - quantity based, feature based, support based, or industry based.

Action Items: none

Tobias Lutke (@tobi), Shopify  – Building Great Companies

Tobias is the founder of Shopify and spoke about how to build companies that we won't be embarrased by in 100 years. He pointed out that critical success is a combintation of a great product and good timing but warned that success doesn't make you right.

Shopify puts 1% of all revenue into a bonus pool that is awarded based on the internal exchange of "unicorns" - little badges that one employee can award to each other.  These awards are made monthly.

One interesting product support technique they use is to assign new customers a single "guru" for their first couple of months.

Action Items: none

Patrick McKenzie (@patio11), Kalzumeus Software - Engineering Your Marketing Outcomes

Patrick was the winner of the Lightning Talk competition from 2010 and returned to speak on marketing, especially for SaaS. While we know that math and science are always right marketing is simply witchcraft that is designed to change peoples' behavior.

Your sales funnel is your most important tool and conversely poor sales funnels kill. Therefore it pays to describe, measure, optimize and profit from your funnel. He mentioned KISSmetrics, Mixpanel, and HubSpot as tools for doing this.

In general, shorter funnels are better. Any changes you make to a portion of your funnel make multiplicative improvements. If your funnel is sick, A/B testing is medicine. Check out Visual Website Optimzer and Optimizely.  You should be testing your home page, landing pages, headlines, offers, calls to action, graphical elements, and microcopy.

Keep in mind that everyone runs your software the first time.  Only 40% on average will run it a second time. Therefore you must nail the first impression. For this he recommends never starting with a blank screen and customize the trial experience in a way that guides the prospect to greatness. The fun bits of your software should not be hidden - reveal them ASAP.

Action Item: Consider the out-of-the-box experience for evaluators of our software.

Laura Fitton (@Pistachio), oneforty/HubSpot – Business of Social

Laura is the "Queen of Twitter", founder of social media consultancy oneforty.com (recently acquired by HubSpot) and the woman who influenced Guy Kawasaki's use of Twitter.


Would anyone pay money for your marketing? If the answer is no (and it likely is) you should consider thinking socially by using your marketing efforts to provide attention and value to others. Social media allows you to do that in an "any to many" way. The keywords are listen, learn, care, serve.

The steps to success with social media (or inbound marketing as HubSpot calls it) are get found, convert, and measure what matters. In order to get found you need to have a website and blog, use social media, and understand SEO. To convert you need to have a strong landing page, good lead nurturing, good email, and lead maintenance.  Measurement consists of analytics, A/B testing, mobile applications, and your other sales and intel activities.

Recommendations:

1. HubSpot's tools at Grader.com
2. Dan Martell
3. Look on Slideshare for Pistachio.

Action items: Consider our use of social media in light of her advice.

Josh Linkner (@joshlinkner), JoshLinkner.com - Unleashing Creativity


Josh Linkner is a VC at Detroit Venture Partners and spoke about unleashing creativity based on his book called Disciplined Dreaming. He spoke about techinques for ensuring that you remain creative such as:

1. describing what's happening in a random picture
2. Asking the 5 whys. Or What if? Or Why not?
3. Have a "Where's Waldo?" level of awareness.
4. Learn from failure.
5. "Role storming" = brain storming in character

He promotes the idea of having a Failure of the Year award inside your company and giving all employees a Get Out of Jail Free card or two each year - and being disappointed if they don't use them.

Action Items: none

Rory Sutherland (@rorysutherland), Ogilve Group - Praxeology, Lessons from a Lost Science

Rory gave a hilarious presentation on what you would think was a rather stiff topic - praxeology, the science of human behavior and decision making as it pertains to economics. Rory has spoken at TED before and you can find examples of his talks at TED.org.

Rory points out that there exists a double standard whereby creativity is policed by rationality but not vice versa. What's needed is to find the sweet spot between technology, psychology and economics. The problems with marketing are that it lacks influence, our models have not kept pace with the media (i.e. internet), and no first principles.  Enter Ludwig von Mises whose idea of praxeology points out difference between subjective and objective value. Whereby the that the value produced by the main product is indistinguishable from other deliverables.

Praxeology defines a new vocabulary: availability, signaling, framing, comparison and context, immediacy. Information assysmetric leads to commitment. Satisfying versus maximizing shows that being a little better isn't good enough and the "rule of 3" facilitates choice. The concept of choice architecture lets you frame choices so that the prospect makes one. How price is used as a substitute for quality.

Action items: none

Mike McDerment (@MikeMcDerment), Freshbooks - A Litany of Product Management Mistakes


Mike is the cofounder of Freshbooks talked about a litany of product management mistakes. In a company's infancy it's a question of what to build. In survival mode when you've grown it's a matter of deciding who gets to decide. And when the company scales up how to ensure that everyone can contribute.

Freshbooks is another example of a SaaS company with a lot of issues about A/B testing.

Action items: none

Paul Kenny (@paulkennyOL), Ocean Learning - The Art of Asking

Paul has spoken at each of the past three BoS conferences and always on the topic of sales. Sales is essential to a business. You don't have a sales person - everyone in your organization has a sales function. Paul quoted Peter Drucker, "No business results exist inside an enterprise. The result of a business is a satisfied customer."

At a certain point you have to close a deal or ask for some other commitement. We usually don't ask out of a fear of rejection. Closing is simply asking for a commitment to move the conversation forward. You can commit to a concept, an action, or a purchase. Not asking means waiting which is paralyzing. Asking actually aids the decision making process. Even if the answer is no, it's better than an unqualified yes.

All of these little commitments by the prospect lead to bigger commitments as you go forward. Plus, closing demonstrates commitment to your own proposition.

What kinds of mistakes do people make when closing? Asking in the wrong way at the wrong time or failing to ask in the right way at the right time.

Secrets to closing including priming the pump (ensuring you've properly built up to the question), asking like you mean it, using different approaches so you're not a 1-trick pony, expecting a yes but be ready for a no, taking advantage of every no, and waiting for an answer and shut up.

How to close:

1. Direct: Are you ready to buy?
2. Indirect: The product meets all your requirements, right?
3. Assumptive: We'll schedule the install for next week, OK?
4. Alternatives: Can I put you down for A, B, or C?

Extroverts speak in order to work out what they think. Introverts think in order to work out what to say. Both are OK.

Action items: none


Dave Cancel (@dcancel), Performable/HubSpot - Creating a Data Driven Business

Dave is the founder of Performable, also recently acquired by HubSpot. His mantra is JFDI - just fucking do it.  You can read, dream, talk and think but you better act too. Your business needs to be optimized for learning because data validates your assumptions and can be used to ensure that everyone in your organization knows how they impact the business.

The average conversion rate for a website is 2% so having a good dashboard, monitoring customers, website visits, evals, purchases, email subscribers, and your sales funnel is critical.

They poll their customers to see who's likely to recommend their company.  The poll rates that question on a 1-10 scale.  Scores of 1-6 are considered detractors, 7-8 are passive, and 9-10 are promoters.

Action item: Consider polling our own customers about who'll recommend.

Alex Ohanian (@kn0thing), Reddit - Making the World Suck Less with Software


Alex is the founder of Reddit and Hipmunk (which obviously is about making hotel and flight reservations) among other things and talked about how traditional business sets the bar too low. Businesses exist to solve problems and make money but people do all the rest. His disjointed talk was about a hippy-fest of giving away stuff.

Action items: no way

John Nese, Soda Pop Stop

John Nese, a guy who rarely uses email, was one of the highlights of BoS. During an onstage interview, John talked about his business, Soda Pop Stop, that specializes in rare, independently, glass-bottled soda. It should be no surprise that many of his business principles were similar to those in the software business.

Action item: order some soda (by phone)

Summary

I came away with a handful of action items as listed above. We'll see if I actually do them. As for BoS, the 2012 event is scheduled for 1-3 October in Boston. I'm not sure I'll attend or whether BoS is an every-other-year event for me. I felt a definite skew this year toward SaaS which isn't 100% applicable to our business. Plus, I get the feeling that BoS runs the risk of being a static group of people who get together each year to renew friendships - lots of motivation and not so much teaching.

Also, I had the displeasure of participating in perhaps the worst workshop of my professional career (instructor to remain unnamed). I knew more about the subject than he did but that's not what made it bad. If I knew nothing I would've come away knowing less.

You can see what you missed at the BoS2011 Flickr pool. The BoS website also has links to videos of many of the presentations from previous years with promises to post this year's talks in the future.

Disclaimer: These are just my opinions.  I could be wrong.

Note: This post may look funny because it was a cut and paste job from Word and I didn't want to spend all day cleaning up every little thing.