Identifying likely markets should be a critically important activity for early stage independent software vendors (ISVs). Once markets have been identified, it should be mandatory that the base assumptions for choosing specific markets be retested, periodically, over the life of an ISV.
We think it makes a lot of sense for ISVs with limited resources to thoroughly explore any niche market opportunities. After all, niche markets, by definition, are very narrow and call for a highly specific set of solutions. Nevertheless, a set of prospects for solutions that satisfy niche needs can still include some larger organizations with lots of internal groups requiring the same solution. Whether through an enterprise purchase, or through a number of purchases of the same solution within the same organization, software that satisfies a niche requirement can produce meaningful revenue for an early stage ISV.
Despite the importance of these product marketing activities, it is surprising to note how often these tasks can be overlooked, especially for ISVs where senior management is very technically capable, but otherwise lacking as regards business experience. For these ISVs, business just happened. In other words, the CEO is often a software engineer who writes programs. The chosen market is very familiar, as the CEO offers lots of experience writing software for the chosen market from a past career. In sum, no conscious decision has been made by anyone to select the market. This lack of conscious decision-making is a problem that should be corrected as quickly as possible.
Of course, an excellent remedy for this stumbled on business model is to produce a business plan, which will need to include a market presentation. Most businesses, at some point, will require a business plan. For example, any attempts to secure conventional financing for a business through bank loans, or even private investors, will have to be accompanied with a business plan that 3rd parties (banks, private investors, etc) can review.
We think it makes sense for entrepreneurs to produce a business plan before starting a business. Unfortunately, in our experience, it is usually the entrepreneur who has failed at a first attempt to build a business who understands the need to have a reasonable business plan in place before starting up a next time.
In the next post to this blog we will look further at why opting for niche markets makes sense for ISVs looking for a “mom and pop” business model.
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