Custom Software-to-COTS: Challenges & Lessons Learned

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dt_twitter_picture Written By Daniel Tautges @danieltautges

CEO @Pinpoint Worldwide 

Moving from custom software to commercial software is a challenge for nearly every early stage software firm.  Developing Commercial, Off-The-Shelf (COTS), software should be easy right?  Well in my experience it is probably one of the hardest things to do and can be significantly affected by three seemingly manageable things; the market, the company culture, and the corporate image.

Why COTS?

Software margins are the greatest when companies can achieve scale and reach the market with a repeatable business model.  Fred Luddy, the Founder and CPO of ServiceNow, has been a business mentor to me and sat on the board of directors at one of my previous companies.  Fred use to tell me, “anyone can sell anything 10 times, it’s the 11th time when it becomes a product.”  It was paramount for our board and our company  (and me) to prove that the product was commercial and that the model was repeatable at scale.  In Fred’s experience that number was 11.

Achieving Scale

At scale, software companies can leverage the development team to create new differentiating enhancements vs. continuing to customize code that might or might not be reusable across clients.  At scale our ability to deliver product without a long development queue allows the company to sell and deploy to more users, in a repeatable way, at lower cost.  At scale sales and marketing can develop a go-to playbook to maximize the sales approach and marketing plan and spend.  Commercial off-the-self scale is when the company has the ability to grow quickly and profitably.

Problem 1 – The Market

The market affects the companies ability to reach COTS in a few ways.  First, if the market is new and evolving, customers are still defining what their requirements are.  In a new market there is no defined leader in the space so the solution is evolving to solve complex problems that could have wide scope with little defintion.

There are several examples of this type of market and how difficult it is to hit a moving target.  The IoT market is one that is a current example in that the characteristics of the market still lacks definition, but is growing and is evolving quickly.  To develop software in this type of market and reach COTS could be a challenge for the next few years.   Lots of complexity.  Every IoT device has a different communication protocol, IT sees security risk, integration of top-end systems, node configuration intelligence, ect..  Lots of moving parts and each buyer is going to have a different set of highly customized requirements.

For these type of markets it is best for software companies to develop a product vision that clearly defines your niche, what you do best.  Align with end-user customers that share your vision.  Modularize the build to get maximum reuse of code and find partnership/integration opportunities to add more value to your combined solution.  Find a way to “configure vs. customize” by developing enough flexibility in the code without requiring total rewrites.  Know that the product is going to evolve so build a software foundation that lets you get there.

Problem 2 – The Culture

Company culture can be a hinderance when trying to reach COTS.  I have worked with several companies who will never reach COTS.  Their idea of company growth was based on the number of lines of code vs. a real, repeatable, business model.  “Software companies write software.”  You bet they do but.. you can’t keep changing the business model based on the “next cool thing.”  I call this managing the “shinny bobble syndrome”.  Most software companies are founded by brilliant technology people.  Most aren’t great business people. Some are, but most aren’t.  The really smart ones figure this out quickly and bring in business people (like me) to help them commercialize the technology.  For every Bill Gates, there needs to be a Steve Ballmer.

When the company culture is stuck in “shinny bobble syndrome” the only way out is to make the company responsible for the business plan.  Top down agreement on the vision and direction.  Let a very detailed business plan be the guide for what the company does and how they do it.  If the technology side-step supports the business plan then great, if not then focus on the plan.  Innovation is amazing when it supports a COTS business model.

Problem 3 – The Corporate Image

Getting past the corporate image is probably one of the hardest to break-through to achieve COTS scale.  Both the internal and external image is that of a company that builds customized products.  Business Process Outsourcing, as an example, is a great business but it would be very difficult (for a number of reasons) for a BPO company to reach COTS.  When I think about corporate image,  I think about what your clients regard you as and what your employees regard you as.  Changing from “we build great custom code for XYZ systems” to we have “product A” is culturally and marketing-wize a tough hurdle.  Most won’t make it.

But, when a company has a image problem, there is hope.  Strategies that work in this situation are things like corporate rebranding.  Often this is achieved by creating a subsidiary company that has the resources of the parent without the market and employee perceptions.  The subsidiary company has a fresh start and can build a business plan/model leveraging all the resources of the parent (existing channels, IP, development, funding, etc.) to move into a market/product that can reach Commercial Off-The-Shelf.  New processes, sales play books, and marketing focus can be aligned to move quickly to gain market traction.  Further advantages are the ability to leverage cash flow from the existing businesses and/or attract venture with the strength of an existing balance sheet.

So getting your software to commercial can seem like a insurmountable challenge.  Don’t get caught in “the shinny bobbly syndrome, by market traps, or by a incompatible corporate image.  With a solid business plan and assistance from experienced professionals who have done it before, you can get there, I promise.

To learn more about Pinpoint Worldwide and how we have solved company growth problems, helped penetrate new markets and launched innovative technology to a global marketplace, please visit http://www.pinpointworldwide.com or contact me at daniel@pinpointworldwide.com

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