DropSend: how to build a web app business for less than 30k

6 comments

1. 

   vinnie mirchandani says:

   February 8, 2006 at 5:31 pm

   if you are really courageous you will ask your large vendor clients a) what their cost base is and why they need the margins the industry strives for b) why they are not dropping dramatically what we seen start ups leveraging for the last few years with cheaper global labor, open source, lowered broadband, VoIP, intel based servers and other costs you write about in your post .

   The bigger vendors eat up 75% of all IT budgets. Till they start showing dramatic efficiencies most of what smaller folks do is well…taking a leak in the wind

   Too many vendor consultants are trying to help vendors preserve their margin and even increase pricing. In a deflationary tech market, vendors need to be reminded their customers are not chumps and can themsleves see the new economics as I wrote here

   http://dealarchitect.typepad.com/deal_architect/2006/02/our_customers_a.html

   The trick is to continue to make preserve margins and revenues through volume increases as prices decline. But prices have been and will continue to go down in most tech categories.

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2. 

   Julian Ellison says:

   February 8, 2006 at 5:32 pm

   This could be a template for our own business, Tablane Technology (http://www.tablane.com). So far there are two of us, a small handful of trusted, longstanding friends/contractors, and about Euro35K of start-up costs we have covered ourselves. We are fortunate to be in Ireland, where Enterprise Ireland has a scheme to help cover these early costs. We are using our browser as a calling card to create awareness for the on-line service we will introduce in April. Having done things the classic route in my last company (http://www.redfig.com), it’s so refreshing to be doing things in a way where we don’t have to ask permission from people to create our business. We are just doing it, and steadily getting noticed. It’s fun!

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3. 

   James Governor says:

   February 8, 2006 at 5:41 pm

   thats sort of fair, vinnie. but i would say we’re doing that all the time. every day of operation we ask those questions. supporting OSS – publication themes like Java on the cheap.

   on the other hand what am i supposed to do – say why dont you screw over your shareholders by ruining your margins? by all means lets help enterprise customers to understand the options and how to negotiate. but lets also understand these vendor companies are redmonk clients with shareholders to keep happy. at least they are to redmonk.

   think about what we do before you question our courage, please.

   I am transparent about our client base- but i dont see us as part of the problem. if you do, then so be it.

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4. 

   vinnie mirchandani says:

   February 8, 2006 at 6:16 pm

   James, when I said “you” I meant the broad community of analysts, consultants etc who work with vendors. You personally speak your mind so I have no doubt you raise some of the issues I have raised. Most others do not. Pricing is a taboo subject with many vendors.

   Unfortunately so – the myth is lowered pricing (discounting, whatever else you want to call it) leads to lower margins or lowered shareholder value. Infosys market cap is 10X reveunes. Accenture close to 2X, and Accenture rates are much, much higher. Southwest Airlines is the only consistently profitable airline in the US etc etec.

   See my note here about revenues, pricing and margins

   http://dealarchitect.typepad.com/deal_architect/2006/01/revenue_margins.html

   My overall point is economics of the industry have changed dramatically and smaller, newer vendors are built on thsoe economics. Why are the bigger vendors not able to leverage the same, and if they are when are they going to pass them along…

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5. 

   James Governor says:

   February 9, 2006 at 2:07 pm

   thanks very much for the clarification vinnie. i respect you for raising the issues.

   we always recommend that enterprises screw vendors down on price, and use competitive levers accordingly. its what i call the amdahl mug effect… based on the the way mainframe shops used to keep some amdahl stuff in the office in clear sight when the IBM mainframe salesman came to visit…

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6. 

   Dennis Howlett says:

   February 10, 2006 at 2:27 am

   The economics of the incumbent vendors are to be found in the analysis of their financial results. The first figures I look at are ‘marketing & selling’ compared to ‘R&D.’ go do the math as our US cousins are fond of saying.

   Today, there is little doubt that in the early stages vendors can make a significant impact through social media.

   This is very different fomr the situation just 5 years ago. Or when Graham Wylie founded Sage. At that time, there was no choice but to throw shedloads of money at marketing. Heck – he told me once how the company threw 75% of year 1 revenue at the problem. Today, you don’t have to.

   But…you do need a big megaphone to get heard. This is where guys like Scoble, James and others fit in nicely. Get a mention on TechCrunch or have Hugh McLeod talk about you and chances are hit rates will soar. So while the requirment to get heard is no different it is the delivery mechanism, along with the attendant costs that has changed the model. But not, it seems, for the incumbents. Not yet anyway. Why? Lots of possible reasons, too many to talk about here. Maybe another day.

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