Threat of new entrants

Written January 10th, 2008 by
Categories: CEO's Blog
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Here are the three major questions and their short
answers. The long answers are to follow. 

  1. How hard is it to get into this business? – Not very.
  2. What will the incumbent’s response be? – They probably won’t even notice.
  3. How hard is it to succeed in this business? – It’s brutal. 

Let me elaborate.

How hard is it to get into this business? 

From an R&D perspective, the software business is a
fairly easy business to get into. It
boggles my mind that for $300 per month a startup software company can own a
dedicated datacenter  that has enough hardware, software and bandwidth as well as reliability,
availability and serviceability, to easily get through its first 2 years of
business.

So… as far as requisite infrastructure and tools are
concerned, thanks to ubiquitous high speed bandwidth, open source software, and
virtual offices, there practically are no material barriers to entry for any
enterprising team of software engineers.

The real barrier to entry is expertise and passion.

There are plenty of people in the world who are SAP experts. 

There are probably even more people in the world who are
experienced at developing web based applications.  A growing number of them are even gaining
experience in deploying those applications as a software-as-a-service.

Similarly, the world is full of Supply Chain experts and
many of them have developed quite a bit of eCommerce experience in the last 8
years. 

Lastly, the b-schools are doing their share of producing
eager entrepreneurs and thanks to the growth of the Agile movement, it
shouldn’t be too hard finding experienced and pragmatic project and business
managers. 

Functional, technical and business expertise, combined with
passion and motivation, all have to converge at the right place and right time
in order to launch a new entrant into this market. 

I think that we at b2b2dot0 represent that unique blend of
expertise, motivation and passion coming together at the right time and the right
place. 

What will the incumbent’s response be? 

At first they won’t notice. Then they won’t take us seriously. Finally, they’ll ignore us.

I’ll talk about direct competition in another posting, but
suffice it to say that the incumbents aren’t very interested in what we’re
interested in. They are too big and are
on too steep a growth treadmill to get excited about what we see as an exciting
market opportunity. 

We’re interested in solving a very well defined problem, for
a finite number of customers, better than anyone else. We also don’t have a lot of mouths to feed
and anxious investors to make happy. We
can afford to stay focused on our mission and continue to innovate within our
chosen market.

They can’t.

They constantly have to find new markets, solve more
complicated problems, and release new products.

What’s big, important and meaningful to us doesn’t even
begin to provide enough sustenance for them. 

How hard is it to succeed in this business?

It’s brutal.
 

If the competitive forces weren’t enough to challenge us, there
are plenty of Siren’s Songs along the way:
 

  • It’s easy to spend money on things that seem important but probably aren’t. 
  • It’s easy to develop features that interest us but that no one might ever use. 
  • It’s easy to build processes that seem robust but aren’t practical. 
  • It’s easy to spend time on the things that we enjoy and avoid the tasks that we don’t. 
  • It’s easy listening to ourselves… but we’re not the ones buying our products. 
  • It’s easy to focus on the future when the current journey requires our attention. 
  • It’s easy to focus on the current journey when the future requires our attention.

But we’ve done it before. We know what to expect and we know how to read the map. Our current success will be determined by the
quality of our execution, not the quality of our ideas.

   

The market has already endorsed the fact that our initial idea
was a winner!