On some level, I hate articles like this because of all the unanswered questions:
[1] What did you spend that initial $100 on? (Even the cheapest overseas programmer can't do jack for $100)
[2]You mention $400 million in revenue, but how much of that is profit?
[3] What exactly does Trace3 do (if it was so great, I would have heard of it on my own, or you would have explained it in the article, without me having to Google research it)
[4] If things are going so great, why are you writing articles for websites like entrepreneur.com? (oh yeah, you have another thing called POP you're promoting)
[5] You mentioned a "bold" client's advice. How did yo know this was advice worth listening to vs advice to be ignored?
I'll probably get voted down into oblivion, but IMO these kinds of articles say a lot and nothing at all.
If someone asks me for an ecommerce site, I'm fairly certain I can deliver it, my client has seen dozens of ecommerce sites so they are pretty certain I can deliver it.
Payment upfront is just a formality at this point.
The $100 must have been spent on phone calls to all the potential clients he asked to tell him why he should not proceed with his ideas. From reading the article, it sounds like this pre-company, ground-pounding, customer-finding is more like finding suckers who would be willing to pay him for his new product/service.
The amazing thing is the POPin product/service he is now selling to large corporations. From what I can tell, it's just software that lets people take surveys and vote on polls so the higher-ups can find out what other people in the company (and supposedly customers) think. Of course, there are mobile apps for it, so it's trendy.
What does it do? It "generates buy-in," and "leverages knowledge" in a "fun and interactive" way to "derive tangible business results." You know the "buffalo buffalo buffalo buffalo buffalo buffalo buffalo" thing, where it's a valid sentence using the same word to mean 7 different things? You clearly could do the same thing with "buzzword."
"Buzzword buzzword buzzword buzzword buzzword buzzword buzzword." And these millionaire corporate execs drink it up and hand over their money! For something they could do already, with existing software, existing employees (who are already paid to do this stuff), and people throughout the chain who should already be communicating back and forth, up and down.
It really makes one wonder if they're all just college frat buddies who, being so insulated from their companies' actual work, budgets, and successes or failures, readily agree to scratch each others' backs at the opportune times. "Oh hey, man, you got a new company selling a new mobile survey app we can use to poll our employees? Well, we could do that already for free, and that's what our managers and VPs are supposed to be doing already--but sure, here's $500,000 for one of your sessions. By the way, aren't you still on the board of the last company you founded? Would that company be interested in buying some XYZ from us? Great, that's what I thought. Good deal."
Their app doesn't do anything new or unique. Anyone could set up a web forum, a wiki, a bunch of online polls--for free. Managers should already be talking to their employees and communicating up and down the chain. Instead of just doing that, they pay this other company big bucks to use their mobile app to do it for them.
And then, after getting a few bigcorps to pay them, they put those bigcorps' logos on their web site, and write an "article" for an entrepreneur magazine, supposedly revealing some business wisdom. Then they link to those articles on their own web site, showing how smart and published their founders are. Then I suppose that sets them up to sell to the next level of suckers, the ones who wouldn't buy in at first.
I can't help but think that it's just like the old Scrooge McDuck comic, "Scrooge's Plain Old Soap." Donald starts his own soap company and sells the same soap in fancy packaging for more money--but it's still just soap. And that's all these guys are doing: repackaging existing stuff and selling it to the execs who have the corporate budgets to burn. Then those execs can point to how they "leveraged knowledge" and "derived tangible business results," and they can then "pivot" those "successes" into their next, higher-paying job.
All of this is not technology--it's salesmanship. He talks about finding "truth" and "value"--but the truth is that he's providing very little added value, merely acting as a middleman repackaging what already exists, then finding people willing to pay extra for it. Barnum covered that a long time ago. Still works, and I guess it always will. But with tech and the Internet, you'd think it'd be harder to get away with that.
Makes one wonder, who are the real suckers? The people buying that stuff? Or the ones not selling it?
I think you're pretty close to the truth here, and ultimately this is what all enterprise deals are about. It's why most "software" companies doing enterprise sales will have far bigger budgets on "sales" than on "research and development". Although the current trend is to push a lot of these "leveraging knowledge" and "finding truth and value" parts of the sales process into "Research" anyway.
It works very well for all parties though - the "sucker" executives on the other side come out very well from this: they can use the marketing materiel and buzzword lingo verbatim from the products they are purchasing in their next few meetings to make themselves look on-the-ball even when they've been doing very little. I'd go as far as to say they're actively looking for products they can buy that they can talk to that do as little as possible to minimize the risk of actually having an effect on their business if they don't work. Security products are a big thing here too.
Ultimately though, something is worth whatever you can sell it for. If you can sell your marketing buzzword lingo and "mutually beneficial enterprise deals" for $100 million, maybe it really is worth that much if it's adding value to someone somewhere.
> Ultimately though, something is worth whatever you can sell it for. If you can sell your marketing buzzword lingo and "mutually beneficial enterprise deals" for $100 million, maybe it really is worth that much if it's adding value to someone somewhere.
Theoretically you're right. But I think that the way big corporations are structured and run, the people who make the decisions are so far removed from reality, that the values are incredibly distorted. It costs some exec $0 out of his own wallet to spend $100 million out of his corporation's budget. But, like you said, he can then use the built-in buzzwords to further his own corporate career as he pivots to his next job. And since it doesn't promise much, and since its impact isn't really measurable anyway, the risk to his own career is minimal.
But as far as providing actual value to shareholders or customers--that seems a far cry from what it is sold for.
1. Salesmanship is involved in all companies - whether that is done in person or online doesn't matter - it is a fundamental part of any business.
2. Enterprise software sales - particularly to the largest corporations, absolutely does not run like an old-buddy network anymore. While it is true that it is still partially a relationship sell (particularly getting in the door), the amount of hoops you have to jump through in terms of getting buy in from various stakeholders, to getting through procurement, means that it is increasingly difficult to sell to the largest corporations. Average close for an enterprise business is likely between 12 and 18 months.
3. Software is not required to be new, different or any sort of high-level technology to be valuable or sell. While you're right that a forum or a wiki or bunch of online polls could satisfy the requirements, they may not work from a process, security, intuitiveness or any number of other points-of-view. Value is often created in software not from being unique, but from finding a valuable use case that is currently underserved and creating a product that matches that exact need.
Suckers are the ones not selling it which would be majority of the programming populace..
I have seen top guys code up a entire solution at $X per hr. People who support that solution are able to charge 2X or 3X and who know only 1/10 of it... All cause they know how to speak the language or the sales guy who spoke the language sold it at that level.
People who have access to money are always paying for convenience.. programmers feel guilty charging for such stuff as we are aware of all the free options and generally do it for free.
People who have access to money are always paying for convenience..
I'd paint that in big block letters on the side of the time machine I'd send back to younger self if I could.
"Why would anyone pay $100's for that when you can just do it for free (with only 3 days of googling and configuring)?" They pay for the bit in parenthesis, and I failed to even consider it.
Right. But what gets me is, these big corps already have armies of employees who already get paid to do this stuff.
If I went to a millionaire's house and offered to mow his big lawn for $500, he might prefer to pay me that than mow it himself. But when he already has a gardener...?
Maybe I'm way off-base, but it seems messed-up to me.
There is a disconnect between <decisionmaker> and <programmer>. They may be separated by 2 layers vertically and 5 horizontally in the org chart. There is no situation that occurs where <programmer> is making appointments with <decisionmaker> and taking him out for drinks to find out what problems he has and what solutions would be valuable. (I used to sell $10-50K equipment; I used to joke that I got paid to visit people, and listen to their problems. A roving bartender)
Could you imagine that? BigCorp paying <programmer> to schmooze <decisionmaker> AND PAY FOR the meals, drinks, travel etc. Never going to happen.
So insert <salesperson> layer. Because <BigCorp> would never allow a setup like above, 2ndCorp gets into the action. BigCorp doesn't care how much 2ndCorp spends on <salesperson> because it doesn't cost them anything unless a purchase is made. 2ndCorp sends the <salesperson> out, pays them, pays their expenses, and <salesperson> chases after not only BigCorp's <decisionmaker> but another 100 BigCorps at the same time. 2ndCorp is focused on providing a really good solution in one specific area; there are free ways to do this, but the free ways do not have <salesperson> doing market discovery and finding solutions to <decisionmaker> problems. 2ndCorp has advantages of scale; free solutions have no marketing, staff, etc.
When BigCorp purchases, once <decisionmaker> has been the decider and selected a solution from <salesperson>, then 2ndCorp deploys the solution, the same solution they have deployed hundreds or thousands of times before. Advantages of scale apply. Ultimately <decisionmaker> has to answer to someone (even if they are sole owner of megacorp, their spouse will have comments) and because <decisionmaker> HAS TO ANSWER TO SOMEONE, they will choose the solution that comes with a built in problem fixer and person to yell at called <salesperson>. Nobody ever got fired for choosing IBM.
If <decisionmaker> goes for an open source free solution, then they have to personally support it over the upcoming YEARS (sometimes stuff stays in use a long time; Y2K), so the likely result is that they would not deploy a solution that they were not experts in, so probably no code they have to maintain themselves.
In big ticket sales I had three jobs; visit people and listen to their problems, be the person to stand there and get yelled at by the customer. and then get the company to fix the problem. I was the human interface layer.
TL;DR - the suckers are the ones not doing this. It works for good reasons on all sides of the deal.
I have a question: do you think that this pattern will continue into the future, or do you think that FOSS, the Internet, and commoditization of hardware and software will ever tilt the balance in favor of in-house staff using free and open solutions?
I started a small manufacturing company in 2004. I used some open source software, and set it up myself with the help of Mr. Google. I can cut and paste, but I am no programmer.
Then things got busy, and I couldn't keep everything patched, and we had a hell of a time with spam, and so I hired an inhouse self-taught IT guy that was not very good. It wasn't working and after a year, he went somewhere else (we are still friends) and we went to Google Apps for the spam control and the Docs, Sheets, and Sites.
I know there are many many many free and O/S choices out there. Maybe something better for us than Google Apps. I do not have the time to evaluate hardly anything. If some person comes to me and has a solution, and can explain all the other choices available from free or O/S all the way to Oracle, that exist for me on the market, then I may buy his product or service. If the first thing they sell me works, then I will look at the next thing with eagerness.
As a business owner, I have 1000 headaches and having 2 fewer is great. Free software is not free maintenance. Your o/s software getting hacked (because you didn't know there was a patch) really sucks and can screw up your 4 day long weekend. Or worse. When your small site that brings in $1000 a day in sales and feeds your family tanks, the $25 per month you saved using open source software looks really insignificant, and you feel really stupid.
It's amusing to me that there's so much venom for an IT consulting business model on HN but apparently changing the contrast on iPhone pictures or posting ahort anonymous ramblings of college students is profound.
Well, to me it's not that it's IT consulting that's the problem. What seems distasteful to me is the impression I have that it's a wealthy, corp-jumping exec starting a company selling buzzwordy, trendy services to another wealthy exec who spends freely from his corporate budget, then writing short, vague articles about entrepreneurship to sneakily advertise his company. It seems like a new old boys' club scratching each other's backs and gaming the system.
I'm not sure exactly what you mean. Selling to consumers means selling to many more customers for much smaller margins. And the selling is much less personal. And consumers are spending their own money, not from a corporate budget.
So it seems pretty different to me. Or am I misunderstanding you?
Still not sure what you mean. If a startup's main customers are consumers, they can't make sales by having connections. Although if it's one of those where, effectively, the consumers are the product and advertisers are the customers, then I can imagine some of that back-scratching going on between companies.
For [2] and [3] it sounds like Trace3 is a technology consultancy, integrator, and services provider. So the business is more like "specialized IT for hire" than a new product or innovative technology.
As a result, I'd guess that the $400MM is gross revenue over the life of the company (not annual), and a large portion went to vendors like Avaya and Rackspace that he set-up for the clients.
Then again, this is just reading between the lines, I have no direct experience with Trace3.
regarding your point 1, let's see what happens if $100 isn't a red herring. Let's call this assumption H+ (a real herring? I don't know. Anyway, it's H+. The entirety of the comment below is from the perspective of H+, i.e. that it is not a red herring, but a meaningful actual seed amount that made a difference.)
If it's not a red herring, then it is far more impressive to turn $50 into $400M than to turn $100 into $400M, as that is a factor of 8million versus a factor of 4 million only. It's twice as good. But turning $1.50 into $400M is even more impressive, as (by H+) in this case this is a factor of 266 million, i.e. 33 times better than a factor of just 8 million. Likewise, if he had turned $1,000 into $400M it would have been only a factor of 400,000 and if he had turned $10,000 into $400M it would have been an even less impressive factor of 40,000. And if he started with $100K, a decent but by no means excessive seed, the factor would have been only 4,000. (There are higher seeds, not mentioned here.)
So we have data points for factor returns ranging from 8 million to 4,000, and (by H+) his data point actually legitimately falls at exactly 4,000,000x return attained.
Now what is impressive is that if there EXIST data points at seed multiples of 4,000,000x return, they should be investable data points around that value, with a capped upside. It should be possible to angel somebody else's business for values ranging from $1.50 (aggregate total fully subscribed seed round) to $9,000 (i.e. 90x as high as the seed round we are discussing from the article). That is quite remarkable, if true. H+ has remarkable consequences.
Define "you". I didn't think a maximum round of $9600.50 for a seed into a business needs to be considered by a VC who normally invests $500,000 for example - it can be a different group of people. Likewise for a $100 'seed'.
It is hard to imagine that these amounts are actual legitimate seed amounts into a business, but, there you go, that's H.
If we don't allow H then it's irrelevant whether the OP started with $100 or $9700. i.e. without H this is not a real, significant, or relevant number. (instead it is clickbait, for example, or a false memory due to lack of recording of actual spend at that stage.)
H is the hypothesis that it is, in fact, relevant and meaningful.
The heroic solo entrepreneur aspect of this article really rubs me the wrong way. "How I grew my company"? Like one dude deserves all the credit and nobody else employed by the business had anything to do with that 300 million?
The advice to solicit feedback and pivot until you find the true value you offer your customers is fine. How about:
* Engineering and Product advising as to whether the requested features are feasible -- and if not, suggesting creative variants.
* Marketing running analysis and advising as to whether the new product direction is salable outside the small sample size accessible to one individual CEO.
* The little people who keep the lights on.
Probably entrepreneur.com knows their target demographic and I'm not in it. :\
How do you get a company to pay 35k for a "concept", a product that doesn't exist yet and that you can't be 100 percent sure how long it will take to build?
I have some hustle and I know enough about sales to appreciate how little I know about sales, but asking a company to pay tens of thousands of dollars up-front for a product you haven't made yet is something I literally can't imagine. Why wouldn't the company laugh you out of the room? What's the upside for them to pay tens of thousands now, assuming huge amounts of risk, when they could just wait for you to build the product and then decide if it's worth buying? What's their upside?
I can actually answer this. The idea that started my company way back in the 1990s was an ok idea, but it was not fantastic. What was fantastic about it was it had a magic balance between complexity and intuitiveness. What happened when I told people about it is was the first 30 minutes they sat there totally confused, but at some point around the 30 to 45 minute mark they would have an eureka moment where everything would fall into place and they would get it. The effect of this was truely amazing - basically people would come to believe that they had thought of it themselves and of course at that point selling was not a problem - people literally gave me large amounts of money for free because of this effect.
I should mention that while I have had much better ideas since (as well as lots of worse ones), none have ever had that magic quality. All I can say is look for ideas that allow people to discover the eureka moment themselves after 30 minutes. Once you have this you almost can't fail to raise money.
I wanted to avoid going into details as it is unlikely to be of interest to anyone here, but the actual idea eventually ended up as U.S. patent 6,737,253 [1].
I see. Well, that is not my area of expertise, but it sounds interesting, even if I don't understand it. So you turned that idea into a product or service, and made a business of it? Did you sell it for research or forensic or medical or...? Sounds like a good story, though maybe one you'd have to be in the field to understand the details of.
I actually sold it twice to two different companies. The first time was when it was just an idea and when they passed on it (but after they had given me enough money to prove it) I sold it to the second company for 100x more. At no point did I ever have to give up any equity.
The rather ironic thing is I actually came up with a much better idea [1] to solve the same problem, but I was never able to make any money from it. I am far more proud of the later idea, but it did not have the same magic.
Large, badly managed companies have "budgets" per department that have to be spent or it looks like the department head wasn't working well enough. If they don't spend the budget, someone else gets it for the next cycle. It also gives the (utterly idiotic) impression that the department head wasn't doing a good job because they could have used that money to "grow the business" in some nebulous way. So when you're close to the end of the budget cycle and have 100k left, and a spiffy salesman comes along asking for 35k for his "concept" it looks like a great solution for everyone.
Who knows, maybe it will work out really well and now you've shown incredible "vision". If it doesn't work, you're well within budget and have shown "a great appetite for risk" or something like that.
The author positions his pitch about being all about the product and the value the customer sees in it, when I think a large portion of the potential client's decision to pay 35k is based on this guy's ability to actually bring it to market. If the potential client has no idea who you are, I think it'd be crazy difficult to sell them on a 35k "idea". They'll need to get to know you, and the author doesn't really touch on that point.
>How is that any different from any other software project? You talk to the client about their needs, you agree on the price, and you build it.
In other software projects I'm used to, you build something to a client's specifications, and with the expectation you will not license the same codebase to their competitors.
That seems pretty different to getting customers to pay up front for a generic product that will be available on the general market.
Author has good advice, all come down be a good sales person and act quick. Business is business, don't tango around, enough foreplay is enough.
Though I question 1) whether he already have a very strong network connection to begin with, and 2) looking at some of the most successful companies today, many of them were free product.
Well, think about it: selling frobnobs to average consumers at a profit margin of 1% is difficult and risky. But if you can sell fribfrob-as-a-service to the corporate executives that run bigcorps that already successfully sell frobnobs to average consumers, pooling large sums of money together in corporate coffers, then you can do a lot less selling for a lot more profit.
It's like running a landscaping business: you don't go to the poor side of the tracks and offer to mow small lawns for 50 cents. You go to the people who live by the country club and offer to mow big lawns for $50.
I guess so. If your product is expensive (for example, running "big data analytic" it makes sense to target at big corporate users, whereas companies like DropBox were competing with other big SaaS or on-premise solutions and they had to gain popularity via average consumers by offering free service at the beginning.
The article it's self is very useful, and I think the advice the guy gives is totally on the money. But to be fair, the article does not cover how to go from $100 to the first million. That's the really tough part. Going from 1 million to 10, and then to 100, and so forth isn't a walk in the park, but that first step is always the toughest.
[1] What did you spend that initial $100 on? (Even the cheapest overseas programmer can't do jack for $100)
[2]You mention $400 million in revenue, but how much of that is profit?
[3] What exactly does Trace3 do (if it was so great, I would have heard of it on my own, or you would have explained it in the article, without me having to Google research it)
[4] If things are going so great, why are you writing articles for websites like entrepreneur.com? (oh yeah, you have another thing called POP you're promoting)
[5] You mentioned a "bold" client's advice. How did yo know this was advice worth listening to vs advice to be ignored?
I'll probably get voted down into oblivion, but IMO these kinds of articles say a lot and nothing at all.