Affordability

An excerpt from Straits Times Singapore

To calculate personal affordability, United Overseas Bank economist Ho Woei Chen suggests looking at it from a cash flow perspective, as banks do when they evaluate individual home loans.

Assume a couple is buying their first home and has just enough savings to pay for their 20 per cent down payment. They earn the median income last year, which was about $5,000 each.

If they want to pay for their monthly home loan instalment entirely through their CPF funds and not use any cash, the most they can pay every month is $2,070 in total. CPF contributions are capped at a salary of $4,500, and only 23 per cent of that can go towards paying for a home.

At an interest rate of between 1 per cent and 2 per cent, based on a 30-year loan, that works out to a loan of about $550,000, says Ms Ho. Taking that to be 80 per cent of a home's purchase price, the couple can buy a property worth $680,000.

This method of using monthly instalments to calculate affordability is heavily relied on by banks, which are mainly concerned with a home buyer's ability to repay his loan.

They therefore calculate how much of a home buyer's monthly income he can afford to spend on mortgage instalments. As a rule of thumb, this should not exceed 40 per cent of gross income.

Newsletters

You can find valuable information here http://profit-times.blogspot.com

MFA confirms new China visa rules for S'poreans from July 1

THE Ministry of Foreign Affairs on Monday confirmed that China has temporarily suspended the visa-free facility for Singaporeans who plan to travel to the country for 15 days or less, from July 1.

Businessmen from Singapore, please take note! Let's hope this is just temporary!

How To Successfully Joint Venture Your Online Business With Offline Businesses

There are many advantages joint venturing with offline businesses. You could increase your target market by reaching audiences you couldn't advertise to before. You could get referrals from the offline businesses you joint venture with.


The key to joint venturing with offline businesses is to find ones that have the same target audience. If you're selling business software, you wouldn't want to joint venture with a store that sells candy. You won't be very successful. You would want to joint venture with an office supply or computer store.


Below are three possible joint venture deals you could set up:

1. Write a tip booklet that is related to your business. Make a deal with an offline store where they giveaway your tip booklet to their shoppers with each purchase. The store you pick should attract your target audience. The store could have something free to giveaway to attract shoppers and you could have your web site ad in the tip booklet.

2. Design a printed flyer for your online business. The flyer should include a description of your web site, e-mail address, web address and any other important information. Make a deal with an offline store to have them include the flyer in each bag of products they sell in exchange for free advertising on your web site.

3. Make a deal with a computer store to have them display your web site on the computers they display in their store in exchange for free advertising on your web site or in your e-mail newsletter.


Once you find a targeted offline business, contact them and present your joint venture proposal. Tell the business owner the benefits of the joint venture. Tell him or her why it would be a win/win situation for both of your businesses. Give them a lot of compliments about their business, products and services. Using all three methods above will greater your chance of having a profitable and successful offline joint venture.

It never rains but POURS!

From the straitstimes...

Surprise drop in retail sales
Retailers report 1.3% dip in February revenues as prices soar to 26-year high and worries over world economy linger..
*********************************************************

What's so damn surprisingly about it? Are journalists with fat pay packets immuned or so removed from reality?

Realty bites in the U.S. but apparently not really felt here.

Wachovia's loss shocks US financial sector
NEW YORK - WACHOVIA, the fourth-largest United States bank, has stunned Wall Street with an unexpected loss, signalling that the pain for the financial industry is far from over. Giants like Citigroup and Bank of America, as well as dozens of smaller banks, are expected to report weak results in the coming days and weeks.
***********************************************************

Sit tight everyone, Singapore should brace itself! But heck, no...NOT EVERYONE apparently...

Another headline:
Private home sales recover in weak market

With a caveat of course:
"But Knight Frank director of research and consultancy Nicholas Mak expects sales to stay thin in the coming months due to ongoing economic and financial market uncertainties. 'Homebuyers, especially in the mass-market segment, are expected to remain cautious until there is a sustained recovery in the financial markets and economic conditions,' he said."

*************************************************************
Although it is true that NOT everyone would fee economic pain during a bust period in the economic cycle, you have to wonder IF people are buying because:

1. They can afford it
2. They THINK they can afford it?

A whole world of difference there!

Never ever make decisions based on straitstimes or newspaper reports

Conflicting news abound!

14th of April, the straitstimes reports about a banker saying that the 2nd half of 2008 will be rosy again.

***************************************************************************

Deutsche banker forecasts equities rebound
US could end year on positive note once all the bad news is out; Asian stocks to follow suit 'Once the bad news, primarily about the write-downs of major banks hit by the sub-prime crisis, is deemed to be largely in the open, some certainty will return to the markets,' said the Frankfurt-based Mr Martini, who was in Singapore last week to meet his staff.

He expects the US market to recover in the second half of the year once the effect of interest rate cuts and tax concessions kicks in to boost the US economy.

Although Asian equity markets could still suffer swings, he added, their long-term growth story is attractive.

********************************************************

But HEY LOOK, he qualified his statement which meant that hell! What he said, isn't worth anything! Could he be thinking Asians are dumb just because sovereign wealth funds are bleeding from their investments? Well, the rest of us ain't and the rest of asia wouldn't be moping up their stocks.

Then Straitstimes ran another story the next day...

15th April headline
Worst of US sub-prime crisis not over yet
THE worst of the United States subprime credit crisis is not yet over with more write-downs expected, said a Singapore-based structured debt expert from Standard Bank.

Mr John Pang, Standard Bank's head of securitisation and cash flow lending in Asia, said after a seminar in Singapore: 'The subprime borrower tends to be a lower-end earner. Thus, when the economy goes bad, there'll be more negative effect on him.

'People want to pay their mortgages, but they may not have the means if the economy goes bad and they lose jobs.'

'The worst is not over, based on market talk and the potential US portfolio. With more uncertainties, I think there're more write-downs to come,' he said.
*****************************************************************************

Well, in case Mr. Martini hasn't noticed, 2nd half of 2008 is just 2 months away.

Anyone in the right mind wouldn't believe that the US economy would give a V shape recovery would it?

Moral of the story? Don't bet on newspaper reports, do your own research and cross your fingers you have made the right choice!

Director of construction firm charged for tax evasion

Don't bill for work NOT done! Make sure you can prove you have done actual work. And please NEVER EVER UNDER DECLARE your income!

************************************************************

7 Apr 2008

VISA Engineering Pte Ltd and its director, Ong Kah Sut, were found to have under-reported about $900,000 in income, between the Year of Assessment 2001 and 2005, and evaded $195,048 in tax. For their wilful intent to evade tax, they were charged under Section 96 (1)(d) of the Income Tax Act.

Ong Kah Sut also committed other offences resulting in a total of $1.25 million in tax and penalties.

“Modus Operandi”

Ong Kah Sut, also a sole proprietor of VISA Contract Services (VCS), had prepared fraudulent invoices from VCS. The subcontract and installation works described in the fictitious invoices were in fact never performed for VISA Engineering. VISA Engineering Pte Ltd created the false records in the General Ledger to substantiate the false claim of expenses. Investigations revealed that the payments were in fact paid to Ong Kah Sut.

The Charges

VISA Engineering Pte Ltd, located in Bukit Batok Crescent, pleaded guilty to two charges of falsifying the company’s General Ledger in the year 2001 with a wilful intent to evade tax. Ong Kah Sut also pleaded guilty to two charges of wilfully with intent to evade tax, assisting the construction firm to evade $19,131.12 in tax in the year 2001. The company and its director had therefore committed offences under Section 96 (1)(d) of the Income Tax Act. The penalty is three times the tax evaded.

Under the Income Tax Act, anyone found guilty of assisting another person to evade tax will similarly be liable to a penalty of three times the tax evaded.

5 Unique Ways To Get FREE Advertising

1. Give Testimonials
When you purchase a product or service and it exceeds your
expectations e-mail the business a testimonial. Tell them in the
testimonial the benefits you got from the product or service.
Give them permission to publish the testimonial on the web site
if they include your sig file at the end.


2. Leave A Message
When you visit a web site with a discussion board leave a
message. You could post a question, interesting content or a
compliment about their web site. Include your signature file at
the end of the message. Some discussion boards let you post
your banner ad or text link.


3. Sign Guest Books
When you visit a well designed web site leave a compliment on
their guest book. You could give them a compliment on their
content, ease of navigation, graphics etc. When you post your
compliment include your sig file so other people will see it
when they sign the guest book.


4. Write A Review
When you visit a web site you enjoyed a lot write a review
for the web site Write about the benefits you gain from the
site, the web site design, interesting online services it offers
etc. E-mail the review to the web site. Tell them they can
publish it on their web site if they include your resource box
at the end.


5. Send An E-mail To The Editor
When you read a good article or enjoy a certain e-zine, e-mail
a compliment to the editor. Give the editor permission to
publish the compliment in their e-zine if they include your
signature file at the end. The editor may post it on his or her
web site.

10 Ways Outsourcing Can Help Grow Your Business

Outsourcing is when you hire outside professionals or
services to take on part of your business workload. You
may want to outsource part of your work because you
don't have the room, you need an expert, you have
periodic busy periods, or you need more production to
get orders out on time, etc. The following are ten ways
outsourcing can save your business time and money.


1. You won't have to take the time to train employees.
This will allow you to spend more time working on your
marketing and advertising campaign.


2. You won't have to do time consuming tasks like
adding on new equipment or learning new software to
complete certain tasks. This will allow you to spend
more time testing your advertisements.


3. You won't have to interview employee candidates.
This will allow you to spend more time improving your
customer service, in return you will get more repeat
purchases.


4. You won't have to fill out all the employee paper work
like tax forms, scheduling, retirement plans, etc. This will
allow you to spend more time developing new products.


5. You won't have to buy extra office or work space to
complete certain tasks. You can use all the money you
save on other business expenses.


6. You won't have spend money on employee costs like
taxes, medical, vacation time, holidays, workers comp.,
unemployment costs, etc. (These may vary depending on
which country you do business in.)


7. You can speed up you order and delivery system with
the extra help. Your customers will appreciate the fast
service and you'll have a higher chance that they will
buy from you again.


8. You could expand your market share by becoming a
middleman and offering your subcontractors products or
services. This will increase your business profits and
give you multiple income streams.


9. You can take on extra or large orders your business
couldn't handle before. This will expand your market
share and you could also offer to take the work your
competition can't handle.


10. You could get end up receiving orders from your
subcontractors. Your subcontractors may also tell other
people about your business.

Income and taxes

Click on the pics to get the BIGGER picture!

Personal tax time is upon us again, and I have been receiving calls asking about your dividend income, bonuses and director's fees declaration in your IRAS Form B1 either online or hardcopy form.

For those whose year end closing is on 31 December 2007, you have many queries on whether you should declare director's fees or dividends.

For those year ending EARLIER then 31 December 2007 who have yet to submit their accounts for filing, please do so soon!

One popular question:

How to know if I should pay myself a salary, how much, and the company owes me money, can I ever get it back and how?

Answer – There is no straigthforward answer, however, one very popular scenario happens as follows:

Good debt vs Bad debt

From an article in our local newspaper -
"Interest rates come to 3 per cent to 4 per cent for housing loans, about 6 per cent for car loans and about 8 per cent for renovation loans. You pay about 20 per cent for GE Money EzyCash and 24 per cent for credit cards"

"Instead of using his savings to pay off his housing loan as quickly as possible, he channels his cash into higher-yielding investments such as shares, land banking and traded endowment plans."

In this comparison, it would seem that taking on loans for housing is considered to be BETTER. But is it?

I will NOT disagree with this person's financial strategy, but this is NOT a strategy for anyone who does NOT understand debt.

Why?

Debt whether good or bad depends on whether you can afford it. A good debt taken at valuations that is not reasonable will lead to trouble, no matter how good or bad.

I've come to know of properties bought during the 1998-99. It was purchased at $820,000 and now almost 10 years later the property valuations are still languishing at least $100,000 BELOW when it was purchased.

Now in the year 2007, people are bullish again and feeling "proud" of their investment strategy in properties.

My personal advice? There is NO FIX STRATEGY or a blanket "sure win" way to wealth and financial freedom.

There is NO GOOD DEBT.

But there are debt that you HAVE to take, like an affordable mortgage. Or a student loan, maybe even a debt to pay off another debt (transfer balance)..etc.

At the end of the day, having no debt is better than having debt.

In general a mortgage for a property is cheaper than say, a credit card debt, but does that mean you got to "max out" the loan available to you? No!

So, remember, "good" is relative.

Cheerio!

ETFs vs Unit Trusts

Alot of people DO NOT know the difference in fees charged for ETFs and unit trusts.

Aberdeen China Opportunities Fund is a Unit Trust.

Click on the picture to see LARGER image.

Profit Accounting

See PDF file

Marketing Gods Make Software Kings - Part One

Marketing Gods Make Software Kings

Part one

Software is a technical business, but the fate of a software company (Enterprise or product) largely depends on

marketing.

One rule suggested: For each new developer, there should be two new sales and marketing people.

In a successful company, a revealing statistic:

41% of employees were in marketing/sales - Successful company

31% of employees were in marketing/sales - UNsuccessful company

Being ONE of the top players in a product segment is NOT enough - it is CRUCIAL to be the TOP.

WHY?

- Recover massive R&D costss
- Law of increasing returns (see chapter one)

**************************************************

How can software product companies build market leadership with marketing efforts, either as a start-up company or

as an established player with a new kind of software product?

Building Market Leadership

Case study - INTUIT QUICKEN

1983 - Scott Cook's wife commented about how much time it took to manage their personal finance.
He and his friend Tom Proulx created Quicken.

They were the 43rd personal finance software package in the market.

1997 - Revenues of $600 MILLION with a 70% market share

How did they do it?

It was NOT because solely by the technological sophistication of the program; it was by CREATING A COMPELLING VALUE

PROPOSITION.

While its competitors were heavily focused on promoting technical software features, Intuit focused on SOLUTIONS AND

A CLEAR VALUE PROPOSITION.

Scott (the founder) had a fixation on WHAT THE BENEFIT of the software product was, NOT WHAT IT DID!

Example,

Competitor ad - "Automate your banking"

Intuit - "End your financial hassles"

*************************************************

Building the product portfolio

- The key to a good value proposition is a product marketing story.

- Breeding new products inside the Company.

- Buying businesses to create the winning product portfolio

*************************************************

Being FIRST does not always mean being the best.

Superior marketing players often eclipse the earliest movers.


**************************************************

Highly focused customer selection

Failure model:

Midsized software company - 14 product lines. Target group NOT clearly defined. Any potential customer with a

request simply received the "best-fitting" product.

Successful model:

They clustered its potential customers in specifically designed matrices that listed the customer's needs and other

criteria.

They targeted a customer group with sales potential large enough to recover their massive R&D costs - but kept the

target group SMALL ENOUGH to FULLY SATISFY the needs of the group.

Why?

Becuase of the "bowling alley market development" approach.

Making into the target group would lead to other "knock over" products to sell to that group.

****************************************************

How to make themselves known?

Creating "Self-fulfilling" Successes - announcing that the new product is on its way to market leadership BEFORE it

has taken off!

PR
Top managers of the successful software companies spent up to 35% of their total time on general conferences, public

appearances, media contacts and interviews which involve no direct sales activities.

Obtain favourable product reviews
Create technology evangelists to "preach to the world".

Aggressive advertising
7% of revenues spent on advertising rather than 3% for less successful companies.

Advertising the BRAND, NOT the technology
"Many software companies share this problem. Heavily technological driven, they tend to focus their communication on

product features. We have found however, that the greatest success from advertising is reached by marketing Company

BRAND NAMES, NOT product features.

The successful companies we surveryed spent 78% of their advertising budget on the company NAME and just 22% on

specific product features.

LESS SUCCESSFUL COMPANIES DID IT EXACTLY THE OTHER WAY AROUND"

***************************************************

The advantage of Company Brands

Brands hold the value propositions in the minds of the customers even if the products change or are discontinued.

Value propositions are key to building market leadership.

Brands also help in recruitment because they have the ability to convey positive images of the company and its

culture.



Marketing business value propositions
It makes sense to market the business value propositon of the products TOGETHER with the brand. Especially for

enterprise software.

SAP's example -
"SAP - We don't just make better software. We make better companies"

Bann
"Baan - Simply Better Business"

****************************************************

Making customers try out the product - demo products

Fixed costs converted to variable costs -
a. IBM charges developers for development tool ONLY when they make money - Software AS a service

b. Usage based pricing

c. Usage fees based on volume

Fixed Price Guaranteed
- SAP - they fixed a price for implementations for biz less than $130million in annual revenues. The package

includes, software licence, hardware, installation and a range of services.

Piracy
It is the costliest way to market leadership

A concerted multichannel effort to reach target customers
- Flooding retail stores
- Involving system integrators as multipliers
- Preinstallations

Aggressive Sales Force

Sales people of successful software companies earned on average 38% of their total compensation through a variable share.

In less successful companies the figure was 20% or even less.

End of Part One

Software development

Chapter 5

Software development

One thing in common: FAILURE

84% of all software projects DO NOT finish on time, on budget and with all features installed according to a survey by the Standish Group which covered 8,000 software projects in the US in 1995.

30% of all projects were CANCELLED before completion!

What does all this mean?

The chance of FAILURE is HIGHER than that of success.

*****************************************************

Why is software development so prone to failure?

1. Extreme complexity involved
Simply put -> Close to 100% of a software program has to be accurate to work even somewhat correctly!

We all know how many bugs Windows 95 has right? But have we considered that Win95 has 11 million lines of codes?
And how many OTHER million lines of codes interact with it?

If you build a car, if a nut came off, you may not even notice it.

With a software program, a bug is highly disruptive and will most likely give you an error result!

2. Extreme uncertainties from the outset - Why?

a. Unclear customer requirements - what would the system be used for? who will be using it? will it be changed? will it need to be upgraded constantly?

b. Design not entirely predictable - structure of the software may be wrongly decided on. Should we use VB.net? ASP.net? Php 4/5? Mysql?...each design is different.

c. Changing requirements - Yahoo! made 3 changes THREE TIMES before lanching MyYahoo! Enough said!

d. Changing technology - php 4 today php 5 tomorrow! Win XP today Win Vista tomorrow??


*****************************************************

HOW software projects commonly fail

a. Overly optimistic developers
Adding people to a project does not mean a shorten schedule. This is a common mistake. Interdependencies require certain task to be done sequentially.
For e.g. Can you come up with the Invoicing module of an accounting program if your Customer database has not been setup?

Fred brooks put it "It takes nine months to bear a child, no matter how many women are assigned"!!

b. Underestimating the efforts required to make products out of projects.

Professional services firm follows a common failure pattern. They try to develop a standard product after they have developed similar systems for various clients.

Mass-market software is designed MORE BROADLY. Meaning, you have to take into consideration 1000 users instead of just one.

Enterprise software - with enterprise software, the environment, the user, the requirements are more or less made known early on. For the mass market product, different operating systems would cause problems.

Fred Brooks estimates that the effort to create a successful product is three times as high as for a comparable individual system.

c. External pressure from marketing, customers and management

Martketing department try hard to shorten schedules.
Management has unrealistic expectations.
Wishful thinking can be attributed to the marketing and management dept.


d. Feature creep

A quote that says it all "Nobody would force a builder to rebuild the basement after having put on the roof, but in the software industry, that's common practice."


*****************************************************

HOW TO COMPLETE THE IMPOSSIBLE MISSION?

1. Prepare for uncertainty, rather than ignoring it.

2. Establish flexibility - use this system

i. Must-do features (basic features and to make the system run)

ii. Should-do features (implement IF time is left)

iii. Could-do features (normally delayed till next release)

3. Adapt to the upstream-downstream

i. Phase 1 - Creativity phase

ii. Phase 2 - Implementation of phase 1 ideas NO OTHER DISTRACTIONS permitted.

4. Spend time to save time

Late fixes to software design costs an astonishing 50 to 200 times the effort of an immediate fix. A superior product architecture bears many advantages in terms of expandability, scalability, and maintainability of the later product and can thus be a real competitive advantage.

Leaders of successful software firms emphasized that problems should be resolved in the EARLY phases of the development project.

5. Stongly invest in people

6. Creating powerful team structures

7. Holding on to top talent

8. Invest in process for higher performance and more more freedom

9. Involve project stakeholders extensively

10. Marketing experts married to development managers. (Prevent future feature creep)

11. Frequent project reviews with all stakeholders.

12. Have daily builds - test and debug daily. This means the WHOLE system.


IS THERE A SILVER BULLET? NO, THERE ISN'T.

But follow closely the above, and you won't go far wrong.

Read the book Secrets of Software Success for more.

Exceptional software leaders are the rule

Chapter three - from the book Secrets of Software Success

Stephan Schmbach's story -

a. Aspiring to the virtually impossible

b. Recruiting the top programmers

c. Finding the funding

d. Meeting the press

e. Internationalising almost overnight

Result? In 1998, Intershop went public on the German stock exchange Neuer Markt with an IPO valued at about $300 million.

Essential characteristics of software leaders

- must be technology visionaries

- be extreme risk takers and hope for immense returns
(note: risk = challenges taken up. They are NOT crazy. They DO NOT bet on ONE opportunity; instead, they take multiple risks that yield multiple options for success.)

They bet on multiple options to prepare for all uncertainties. Examples:

Microsoft did NOT bet on the success on the Windows PC OS only. They developed an operating system TOGETHER with IBM for a DIFFERENT operating system.

SAP prefers to ADAPT than SHAPE standards. Investing in several standards simultaneously.

- Be ready to fail, "fail quickly" than avoid mistakes
The key thing in this business is to make mistakes quickly and correct them EVEN FASTER.

- Must aim high

Flip Filipowski founded Platinum Technology, gave himself 10 years to reach a BILLION in revenues...he took ELEVEN (11).

Bill Gates took 15 (Fifteen) years to reach a billion in revenues.

Intel, Oracle and SAP took LONGER than 10 years.

"In our global survey, we found an extremely strong correlation between high aspiration level and company success. Of the successful companies, 93 percent had a CLEAR and AMBITIOUS vision, whereas only 25% of the less successful companies had that same aspiration level".

- They are builders of highly dynamic organisations

Intel Grove of Intel describes it, "You need to plan the way a fire department plans. It cannot anticipate WHERE the next fire will be, so it has to shape an energetic and efficient team that is capable of responding to the unanticipated as well as to any ordinary event".

- They build extremely flat , team based organisations

- They create a culture that attracts and retains talent

- They have TEAMS at the TOP
Many of today's start up companies - and even the software giants - are NOT led by a single leader. Rather, many companies are led by leadership TEAMS.

Examples,

Concurrent Computer Corporation - $340million business with 3,500 employees
Jim Sims - Company visionary Chairman and CEO
Toscanini - Analytical, with realistic views, firm grasp of financial figures. VP and Controller

SAP
Dietmar Hopp - Chairman - down to earth, fact-driven leadership style, with an emphasis on planning and control.

Plattner - co chairman and CEO, takes "technology visionary role".

Oracle
Larry Ellision - Oracle's public face and conveyor of its vision.
Ray Lane - Ensures Oracle delivers

- They must grow or go

- They must have the mindset to WIN the race

A New Business Called "Software"

Chapter Two

Types of software businesses - differentiated by 5 eras:

1. Independent programming services
2. Software products
3. Enterprise solutions
4. Packaged software for the masses
5. Internet and value-added services

Differences between Enterprise solutions and Packaged software:

1. Enterprise solutions always need customisation.
2. Substantial time and effort to get it up and running.
3. ERP software cost - 30% on licence 70% on professional services to implement product
4. ERP sell far fewer copies

Business Dynamics - Case study

CUC started offering software products in addition to individual programming services, it also entered into the hardware market.

1 year later it lost $430k.

In 1985, CUC posted $2.4M in LOSSES on $1.5M in revenues.

Why did CUC fail?

Because CUC failed to address the differences in managing software SERVICES and managing software PRODUCTS.

What are the differences?

a. cost structure
b. demand volume
c. competition intensity
d. geographic presence
e. relationship management

Enterprise solutions firms must address the above continuously as both the product and services are linked to product installation.

Product business - Business Dynamics

a. Low barrier to entry
b. Low capital investments

In software product companies, most of the cost of software is in the design and coding of it. Including marketing and sales costs too. While variable costs are low, there is a LARGE upfront fixed costs for development of the product.

Therefore, in the case of Microsoft, Microsoft must sell millions of $209 operating systems to recover its billion-dollar investment in cost of development.



Dosmetic markets even the size of the United States may be too small to reach such high sales volume.



Case study:


Intershop a German software start up moved to the U.S. just two years of its founding.



MANY SOFTWARE PRODUCT FIRMS KNOW ONLY ONE TARGET: THE WORLD!



Only a tiny fraction will succeed in that market.



Important to note: LAW OF INCREASING RETURNS



The law states that a product that advances in market share tends to get even FURTHER ahead and sell even MORE copies, while the one that falls behind tends to fall even further BEHIND. Advantage and disadvantages tend to magnify rapidly. This law leads to a very high market concentration after a short time, leaving FEW WINNERS and many losers.

Why?

1. The ability of programs to operate together and exchange information is critical; thus people buy the same software as the people usually communicate with. Users enjoy "increasing returns" from their software as other users also begin to use it.

2. Once users are trained on certain software products, they are less likely to switch to others because they would have to be retrained.

3. Since software products are often difficult to evaluate objectively, decision makers often buy whatever is most popular.

How to achieve it?

It is crucial to reach more than 40% market share within a certain niche within 12 to 18 months.If your competitor is well behind, word of mouth in the marketplace starts spreading the message that you are the market leader and once that happens, market share can be expected to increase beyond 50% of the following 12 months' sales.

So, you have to move with speed with carefully laid out plans!



Business dynamics - Professional services business



The law of increasing returns DOES NOT exist in the service business.



But it shares similar traits of a product business.


- Low entry barriers
- Constant threat of new entrants
- High pace of innovation



However, the service firm business model is radically different.



Case study:



A 1996 McKinsey analysis of 22 companies showed that the cost of revenue is MORE THAN 4 TIMES as high at software services firms than at product companies.



Why?



If Anderson Consulting builds a custom made software solution for a customer today, and a similar one for another customer tomorrow, the cost of both of them is NOT radically different.

It is quite different from the radical cost for the second CD-ROM copy in the product business.



Market leadership


There is NO RACE for market leadership. Since every product is custom made, the customer's desire to remain with a market leader is not as strong as with software products.

For these reasons, smaller local professional services providers can be very successful.

Case in point: Andersen Consulting with revenues of $6.6 billion in 1997 reached a global market share of LESS THAN 6%.

Challenge of managing the two business types simultaneously


The enterprise solution companies CANNOT address these issues by coping with ONLY ONE business type. Organisational separation and different marketing approaches for EACH business within the company must help solve the problem.

Case study:

ADV Orga a leading enterprise solution company in Germany in the early 1980s with more than 500 employees failed to do cope.

There were NO CLEAR ORGANISATIONAL separation between their product and service businesses.

Whenever there were many service projects, developers were pulled off the product business to support those projects. As a result, product development was often put on hold and market launches were delayed.

Furthermore, marketing was handled similarly for both products and services.

In 1989 ADV Orga was sold with heavy losses. Their main competitor SAP addressed those differences mainly via partnering in professional services and rose to global market leadership.

Leadership is important - leaders must accept the uncertainty AND thrive on it. Leadership is one of the most important ingredient in software success.

- read the book for more details.

It's like riding a bull

This is a book review / with excerpts from the book "Secrets of Software Success"

Chapter one

Software is nothing but pure knowledge in codified form. Software makes hard cash and software companies make millionaires out of programmers, assistants and receptions...and of course the marketing and sales people.

So everyone should jump in and make money? Yeah...apparently so because ANYONE can start a software company. The big question is "What happens hereafter?"

70% - yes SEVENTY percent of the computer industry's revenues were from products that did not exist 2 years ago, according to The Economists in 1996.

Summary? - CTO of Microsoft Nathan Myhrvold sums it best -
"No matter how good your product is - you are ALWAYS EXACTLY 18 MONTHS AWAY FROM FAILURE."

Many can start a software company, very few can run it.

Victims?
Wordperfect
Lotus
DBase

So what makes the difference?

Simple answer, according to the book.
The product must be good, BUT the key difference is the COMPANY'S MANAGEMENT.

I quote from the book "the management of software firms is a balancing act. Success depends on simultaneously striking the balance within and between key management areas, from internal areas such as LEADERSHIP, PEOPLE MANAGEMENT and PRODUCT DEVELOPMENT to more EXTERNAL areas like MARKETING AND PARTNERING."

Although some software companies spend more of the budget on marketing than McDonalds, only few spend it wisely.

The firms that succeeds does the following:

1. Communicating a CLEAR VALUE proposition to customers.
2. Do not advertise product FEATURES
3. Advertise company BRANDS
4. Introduce new products TWICE a year
5. Apply creative software entry-pricing techniques to build customer base
6. Innovative approaches to PR
7. Let partners pay for extravagant promotions
8. Establish and communicate completely new platforms
9. Build marketing alliances
10. Preinstall software - to reach, sustain, or take over the pole position to become the "category killers"

It is growing their partners that makes software companies grow themselves

There is NO growth without partnering activities in the software industry. Alliances are NOT a convenience; in most cases they are a matter of survival.

Most of the successful companies GIVE AWAY 80% of the total revenues created WITH their partners.

These partnership are often informal and few written contracts confirm them. They move in and out of what they term "Partner Webs".

Conclusion:
John F. Keane founder of the $1 billion professional software service firm says "It's also like riding a bull. You really have to be aware of the bull's movements. Because every time you think you succeeded, you are thrown off the bull".

Profit is NOT cash

Your profit and loss statement tells you how your company has performed during the financial period. It also includes NON CASH items, aka expenses or income not spent or received yet.

You can therefore make a profit and NOT have any cash!

To have better cash flow management, you have to speed up your working capital cycle. How?

- Minimising stocks
- Getting debtors to pay up quickly and more regularly

Examples of NON CASH items -
a. Depreciation
b. Accrued charges
c. Accrued income
d. Translation gains/losses of foreign currencies
e. Profit/Loss on disposal of fixed assets

Where do you stand? Financially.

Many years ago, I read this book How to Grow Rich by Frank Newman and Dr. Muriel Newman. I thought that I could "beat" the odds and attain wealth earlier.

I guess most of us tend to "follow" this graph trend, although the $ in value would differ and the perception of whether you are wealthy or not is quite relative.

To see where you stand, I would cite the "wealth ruler" based on Robert Kiyosaki's book "Retire Young Retire Rich"

On page 102, he states:

Upon retirement at age sixty-five, the income WITHOUT working falls into these categories:

Poor $25,000 or less per year
Middle class $25,000 - $100,000 per year
Affluent $100,000 - $1M per year
Rich $1M or more per year
Ultra-rich $1M or more PER MONTH

So, where do you stand today?