In reply to Stop Chasing Exit Strategies …

Jason Gorman has written an interesting article: “Stop Chasing Exit Strategies And Start Chasing Great Software“. @robbowley tweeted enthusiastically about it and I enjoy a lot of what Rob reads and writes so I went and had a look. The whole thing left me with a great big feeling of “Hmmm”. Normally I’d leave a comment but Jason’s blog doesn’t allow them so after a bit of consideration I decided to write this. I hope Jason reads it and takes the opportunity to respond … I’m not really a fan of blog posts that deconstruct other posts but if I can’t comment there, I can only really comment here.

Let’s start with the detail and then think about the overall message. First off the title. Very eye-catching and if it were “Stop Chasing Exit Strategies” I’d have to agree; I’ve long advocated an approach to entrepreneurship that emphasises building a solid, sustainable business on the basis that if you do, exit opportunities will come (should you want them). Hyping the hell out of a business and then cashing in your chips just before the whole thing implodes is a strategy that has worked for some and failed for many others. I’m not saying its wrong but it’s not for me.

But what do exit strategy, or lack thereof, and software quality actually have to do with one another?

Reading on a bit further the impetus for the article is revealed:

Today it was announced … that police state-friendly social networking site Facebook is acquiring pointless image filter service Instagram for $1 billion.

You don’t have to be a psychoanalyst to determine that Jason isn’t a fan of either Facebook or Instagram and I understand that as neither am I. But it does reveal a prejudice. I know a number of smart, savvy people – many of them top-class developers – who think Instagram is fantastic. I also read this interesting piece by Om Malik where he says (at the bottom):

People love Instagram. It is my single most-used app. I spend an hour a day on Instagram. I have made friends based on photos they share. I know how they feel, and how they see the world. Facebook lacks soul. Instagram is all soul and emotion

From Jason’s article:

My goal is to create better software (and, more recently, to try and help other people create better software). Most important to me is what value software brings to the people who use it.

By Jason’s own definition it sounds like Instagram has hit the nail on the head with the quality of their software in that their users get a great deal from their service. What’s more its not clear to me that Instagram have been chasing an exit in the sense of hyping the hell out of it before it implodes; they’ve grown very quickly and taken on a lot of VC money, and I can’t say whether they are really worth $1B to Facebook or not. But, from what I’ve seen, they’ve taken an idea that people like, have developed it in the face of real user feedback, have scaled their operation and so have attracted an exit opportunity. What’s the problem there?

Okay, enough of the nit-picking. Perhaps Jason just picked a bad example in Instagram. What about the general concept that chasing great software will lead to a good business?

Er, well, no. What defines a ‘good’ technology business, or any business for that matter, is its ability to make money and we all know of many successful businesses, including ones that have been around for many years, who get away with pedalling shit software through weight of market share, iron-fisted defence of patents, or just lack of credible competition. But like Jason I’m personally not interesting in pedalling shit software just because it makes money. However I am interested in making money with my business because that’s what pays our salaries which enable us to keep developing software. And here’s where things get tricky. You see quality software does not necessarily equate to software that users get value from. And users getting value from software does not necessarily equate to a good business model.

But a good business model is necessary for a good business, whether your own or one you work for.

Returning to Jason’s article:

A classic example of this kind of thinking is the very damaging advice being propogated among the tech start-up community that the software that powers your new business only needs to last until you find a buyer.

Jason doesn’t name Lean Startup or Customer Development so maybe he is talking about something else. However, if he is, then I think he’s got the wrong end of the stick. Both Lean Startup and Customer Development – of which I am a passionate advocate – are about understanding what it is your customers want and how valuable it is to them without spending lots of time and effort (yours and theirs) that turns out to be wasted. Its about learning how your business can work. Jason has it absolutely right when he says

The game’s afoot when we start getting feedback from real users. That’s when we really start to learn what works for them and what doesn’t.

Spot on. But let’s not confuse good software that users like with software that customers will buy, or confuse sellable software with a good business (with our without exit opportunities). Personally I think you need to figure what you want from a given situation and work to make that happen. If you want to play high-stakes all-or-nothing exit strategy chasing, be my guest but count me out. If you want to produce software that users love without reference to whether the business makes any money or not, ditto. If you want to produce, and keep producing, valuable software then you need to constantly balance, and rebalance, the many opposing forces in software development, software delivery, sales and marketing, customer acquisition, customer retention, investment, and so on. You need to listen to your users, your customers, the market, your peers, your competitors, current and potential investors and to that little voice which tells you what’s right despite all the evidence to the contrary. You need to work out what makes your software valuable, not in the ‘oh, gee, I really love this” sense but in the “I’m prepared to pay $XYZ for the opportunity to use/advertise through/invest in/acquire” sense.

Fair enough: Stop Chasing Exit Strategies. But don’t Start Chasing Great Software if you’re aiming to build business value. Instead: Chase a Great Business.

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8 thoughts on “In reply to Stop Chasing Exit Strategies …

  1. Rob Bowley (@robbowley)

    Hello Paul,

    You make some very good points regarding Jason’s rant (because it is a rant). Maybe he could have made his point better/in a less ranty manner, but the overriding sentiment that I got from it was a frustration with the general trend in startup circles for your main business strategy being your “out” and the implication this has on the way these young minds may be approaching their software development.

    Working around the Silicon Roundabout as I do I can say for sure this is very much the approach of many people/cocky little entrepreneurs I speak to and frankly it’s depressing. Every time something like this happens all it does is spur them on even more that there is gold pouring out of the fibre optic cables which span the Atlantic. There is absolutely no doubt in my mind that the lure of this mirage in the digital desert is resulting in poor decisions in the way their software is developed – taking much greater risks with things like technical debt (if they even know what that is) because they don’t expect to be there in a couple of years time.

    Now, Jason had probably not read much from Lean Startup or 37signals who are probably between them the most influential in the startup fad (because it is a fad) and they both advocate building sustainable long term businesses, but as with most of these things people read and hear what they want to from stuff like this.

    You’ve been in the game long enough to know better, which is probably why you think Jason’s rant is so wrong, but the majority of people getting into the tech startup game are barely out of their teens. I doubt very many of them really understand or buy into the main sentiment of people like Eric Reis, especially when they see an iphone app which takes photos and makes them look kooky being sold for $1 billion to King Zuck.

    Reply
  2. codemanship

    Hi Paul

    You make some fair points here. But, as Rob suggests, I’m wondering if you may have missed the point of my “rant” (and we should know by now that everything I write on my blog is a rant!)

    I don’t profess to know what makes tech start-ups successful. TBH, I’m not convinced by the evidence that anybody does. It does seem to be largely a gamble. Instagram’s numbers came up, just as Facebook’s did. They’re statistical aberrations, is all.

    But I’ve spent two decades embedded up to my neck in tech bubbles, and I’m especially worried about computer programmers becoming too distracted by The Shiny and not devoting sufficient care and attention to the computer programming part. And I’ve certainy seen many examples of tech businesses (and businesses that rely on tech) being damaged by their inability to sustain the pace of innovation on their products and services. Start-ups eventually need to become stay-ups.

    I’m not an entrepreneur, software is my business. My concern is about how the way we develop software impacts not just businesses (because that would be a very one-dimensional view), but also users and wider society. While all the Web 2.0 hullabaloo goes on around me, I try as best I can to stay focused on that.

    Rob’s right, it’s easier to stay focused on building the best software you can when you’re old and jaded like wot we are. And maybe that’s because so much of the The Shiny we’ve seen being hyped over our careers turned out to be Fool’s Shiny. But when people pick up a paper (or a Kindle) and read that some start-up got bought for the price of a small planet, and they look at what that start-up does – in this case, amusingly filtered images (which is the software equivalent of the novelty pop record) and perhaps think that’s what they should aim for. And I do hear it over and over again, especially at conferences – developers chasing the Almighty $ and paying lip-service at best to the intrinsic value of what they’re creating, and why they’re creating it.

    So there’s two rants for the price of one 😉

    J

    Reply
  3. codemanship

    I wrote a long and detailed reply, but the WordPress software seems to have lost it after it made me log in. QED, methinks 😉

    yeah, what Rob said, basically.

    J

    Reply
  4. pauldyson Post author

    Thanks both for your comments (and apologies its taken a while to come back … if only King Zuck would come in with $1Bn for my business I might have more time for interesting conversations!).

    I guess my disquiet with the article, and the sentiment behind it, is that it starts off ranting against one blinkered view – that the only purpose of a start-up is to exit for for big bags of cash – and then proposes another blinkered view as a better alternative: if you take care of the software and users, they will take care of you.

    Jason, as a software consultant this view may well work for you but to my mind it is no more valid than the get-rich-quick message that you rail against. Start-up history is littered with great technology solutions that a few people (the devs and a handful of users) loved but which never made any money. Many of those chewed through a chunk of invested cash, whether from an institution or friends and family, and relied on the goodwill of people working for sweat equity or options. Were these in some way being more honest by focusing on the software and users rather than making money? I don’t think so.

    And whilst I do agree that start-up success is largely a lottery, only the very lucky do well despite themselves. Many more generate their own luck by working hard at doing roughly the right thing in roughly the right place at roughly the right time. Software quality is part of that process but its only a part and if you don’t take care of all the other bits, even when they’re in tension with delivering quality, you’re just getting distracted by a different type of Shiny.

    Reply
    1. codemanship

      Hi Paul

      I don’t think you understood my post. I never said “if you take care of your users, they will take care of you”. I actually explicitly said that I don’t know what users want or makes start-ups successful. But I have seen many start-ups go to the wall because they couldn’t maintain the pace of development for more than a year or two, and I have seen start-ups go to the wall because they didn’t listen to their users. If I was advising poker players, the equivalent would be “don’t bet the farm on your first hand, so you get to play more hands, and learn (e.g., about the other players’ tells) from each hand you play”.

      Reply
  5. pauldyson Post author

    Let’s be clear: the businesses you saw go to the wall did so because they ran out of money. Delivering something users don’t like can have a bearing on that for sure and poor delivery practice can also play its part. But they’re both just contributory factors and in my experience, they are rarely the sole or even major cause of failure.

    What’s more, particularly for start-ups, worrying too much about future stability can actively prejudice the chances of ever getting that far. Hence my view that Chasing Great Software is just as invalid as Chasing an Exit; I’m afraid technology start-up survival (never mind success) is just a lot more subtle than that.

    The same goes for poker. Your advice sounds credible at first blush but what if you have a much smaller stake than your opponents and won’t last long anyway? What if other factors (like you have to leave early) means a high-risk strategy works best for you? What if luck is on your side and you have The Nuts for that first hand … every poker player knows that a dominant win early on can set you up for the entire evening?And this is just poker – a game where the rules are set – establishing a successful start-up is way more complex than that.

    My tech start-up is just coming to the end of its second year. No-one is going to buy us for $1Bn in the next few weeks but we’ve had some successes. There are many things I wish were better and some of those are related to our software and the way we deliver it. I’d be very happy to meet with you (and Rob if he were interested) to talk about the successes, the problems and how they relate. Perhaps an outside view will show we could have done things differently and had the successes without the issues? Or perhaps the reality of bootstrapping a business from nothing will challenge your view? We’re also not that far from Silicon Roundabout (or dirty Old Street Tube as I like to think of it) if you’re in the area at all.

    Reply
    1. pauldyson Post author

      I’m happy to openly discuss some of the challenges that face my business in this blog – see a few of the earlier articles – but publicly declaring P&L in advance of statutory filings is not something I’m prepared to do. Contact me via email or twitter if you do want to meet and we can cover some of the detail of financials face to face and in confidence.

      Reply

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