Dharmesh Shah has written a great post about the power of polarization over on OnStartups.com

I find the "be remarkable" message tremendously inspiring and exciting. It makes me think.

And yet …

… is it actually true that curve-jumping companies selling remarkable products to a small but polarised audience are more successful than boring companies selling average products to average people?

I’m not convinced. For every Apple there’s a Microsoft; for every for Twitter a SAS institute; for every 37signals, an SAP. There are a lot of very boring, very succesful companies quietly knuckling down to the boring business of figuring out what customers want, building it and then selling it to them.

The ‘remarkable’ companies are, by definition, companies that stick in our minds. But we shouldn’t blindly follow them, basing our decisions on individual, vivid and easy-to-recall examples when the data lies in the dull.

John Moody posted up a question on the Business of Software forums asking if a product idea he has – a hosted error logging and reporting service – is worth pursuing. The general consensus was that it wasn’t.

Screw the naysayers.

Starting a company is like skydiving*. The hard part isn’t falling through the air, opening the parachute or even landing. It’s throwing yourself out of the airplane.

Sure, talk to some potential customers, investigate the competitors and minimise the risk, but at some point you need to throw yourself out of the plane door.

The odds are you won’t land where you thought you would. Red Gate’s first product was a bug tracking system; Bill Gates’s and Paul Allen’s was Traff-O-Data; Joel Spolsky and Michael Pryor started Fog Creek as a consulting business; Apple started off selling hand-built motherboards.

And you’ve always got a reserve chute if things don’t go as you hoped. You’ll have more scars, skills and experience and be even more employable than you were before.

*Not that you’d ever get me to skydive.

I’m in Boston, sightseeing, before the start of Business of Software 2008. I was on the T – Boston’s subway – travelling between Harvard and South Station, when I noticed an unusual thing.

The train was going some 30 miles per hour. I looked outside and saw not dark tunnel walls but a lake and mountains, moving backwards at walking pace. After a few seconds, some text ("Find yourself") appeared and then the scene faded to reveal the punchline ("Vermont").

I was inside an underground, train-sized zoetrope. Based on the speed of the train, the frequency of the lights inside the carriage, and Victorian technology, somebody had created a short animated film.

What a great idea. A quick Google even turned up this video:

http://www.youtube.com/watch?v=adwvMQvx69c

I’m going to give Twitter a whirl over the next couple of weeks. If anybody’s interested in keeping up to date with what I’m up to (mainly conference planning) then I’m at http://twitter.com/neildavidson

I just got an e-mail from PayPal saying that my PayPal account has been disabled:

We have reason to believe that your account was accessed by a third party. We have limited access to sensitive PayPal account features in case your account has been accessed by an unauthorised third party.

It smells like a phishing attempt, but it’s not. There are no links in the mail, and when I log on to PayPal (by typing the PayPal URL into my browser bar) it does indeed say my account has been disabled.

It’s curious for a couple of reasons though:

• I don’t hand my password out to anybody, so the only way my account could have been accessed by a third party is if PayPal has been hacked.
• They claim that PayPal has "limited access to sensitive PayPal account features" which, frankly, makes no sense whatsoever.

I’d ask PayPal customer service to explain what’s going on but – based on past experience and their policy of not answering e-mails in "an effort to assist me as quickly and efficiently as possible" – that would be a singularly ineffective way of getting an answer. So I’m not even going to try.

Does anybody else know what’s up?

I’ll probably just cancel my PayPal account. If they’ll let me.

How can such a shitty company be so successful?

Here are the table sessions at Business of Software 2008:

• Difficult customers – war stories
• RSS feeds – what do you read, and how?
• Should you outsource customer care?
• To VC or not to VC
• Is Apple really that great?
• Does advertising work?
• The good, the bad and the ugly of going it alone.
• Finding, hiring and keeping good employees
• Facebook, Twitter and Web 2.0 – will they survive?
• How do you price your software?
• What would you do differently if you were CEO of Microsoft?

So far, the most popular ones are Does advertising work?, How do you price your software and Finding, hiring and keeping good employees.

If you’re coming to the conference, then make sure you update your conference record with your preference.

Thanks everybody who suggested a topic. I’m going to send a copy of Seth Godin’s Meatball Sundae to everybody whose idea I used. So, could markee, Domink Rabiej, Bob Cramblitt, Bruce, Ben Chestnut, Zakir Hemraj, Larry Port and Geoffrey Simpson all let me know your mailing addresses so I can post a copy out to you.

Today, we announced Red Gate’s purchase of Lutz Roeder’s Reflector. This deal raises obvious questions: what is the future of Reflector? Why did Red Gate buy it? Why did Lutz decide to sell? If you want answers to some of those questions then check out this interview on Simple-Talk, and Lutz’s blog post. I might go into more depth into those in a future blog post (subscribe to my RSS feed) but in this post I’m going to write about several important, but often overlooked, points about deal negotiation.

James (the head of our .net division) first approached Lutz about 4 months ago. James and I flew out to see Lutz at the end of April. We met in a coffee shop near Seattle’s Space Needle and, over the course of several hours, worked out the general terms of the deal. We figured out what was important to Lutz; we negotiated the amount we would pay; we outlined what we were buying.

This was a friendly chat, not a poker game. Negotiating a deal isn’t about winning or losing – it’s about reaching a common ground. Lutz, presumably, had a price he would not go under. Red Gate had a price we would not go over. In other words, there was a range in which it made sense for Red Gate to buy, and Lutz to sell. Within that range, everybody would win.

How did we work out the price that we would pay up to? We based it on how much we thought Reflector would be worth to us. Seems obvious, but – judging by the frequent “I want to sell my technology – how much should I ask for” questions on Joel’s business of software forum, and the answers to those questions – it’s not. If you want to sell something, the price you can get is not determined by how long it took you to write it, or how many lines of code it is, or how much money you’re making from it. It’s determined by the value to the purchaser. How much money will they be able to make from it? Sure, a purchaser will consider whether they could build it themselves, or if there are cheaper alternatives, but that often isn’t the case.

Of course, no deal is just about money. Most people aren’t driven just by cash (are you?). When James and I talked with Lutz, we tried to understand his motivations. No matter how much money we offered him, if we didn’t scratch his non-financial itches then we could not have reached a deal.

Even though we figured out the major points in that coffee shop back in April, it still took over 3 months
to draft a contract we could all sign. That 3 month process was important. In fact, the process is more important than the contract. My favourite contracts are the ones that WORN – write once, read never. I hope that we’ll be able to take Lutz’s contract, file it and forget it. There are a hundred tiny details in a deal this size. Drawing up a contract – with lawyers who had done this many times before – forced us to think about every single one. How would the handover work? At what point would we pay Lutz? When would we get the source code? What obligations would Lutz have after the sale? And so on. It was the thinking that was important, not the documentation of the thinking.

The most important about a deal isn’t the negotiation, or the money, or the contract though. It’s the people. Life is short – too short to sign contracts with assholes, or to fight them if things go sour. Over the past three months James and I have gotten to know Lutz. He’s somebody we trust, and who we get on with.  That personal connection is far more important than any contract.

It’s going to be an exciting few days at Red Gate, seeing how people react to our purchase of Reflector. If our past experience is a reliable guide, some people will congratulate Lutz and Red Gate. A few will demonise us, and assume the worst. Most – the thoughtful ones – will give us time and see how events unfold. Once the dust has settled, I’ll write some more and answer some of the questions that emerge. Subscribe to my RSS feed to stay up to date.

The final program for Business of Software 2008 is now available. You can download it from the following URL:

http://downloads.businessofsoftware.org/BusinessOfSoftware2008.pdf

As well as some great speakers (Seth Godin, Joel Spolsky, Dharmesh Shah and many more) what’s exciting me most is the opportunity to discuss the business of software with all the attendees. Here’s how Joel Spolsky put it:

Personally I learned the
most from a hallway conversation with the head of sales at Red Gate
where I learned how (and why) to hire an inside sales department; that
hallway conversation was game changing for Fog Creek

That’s just one part of what Joel wrote. It’s worth reading the whole quote, so here’s the link again:

http://news.ycombinator.com/item?id=202220

To help make those casual social interactions happen better, we’re doing three things. Firstly, we’ve set up a conference social networking site so delegates can find out who else is going, figure out who they want to meet and set up meetings in advance. Secondly, attendees are guaranteed mild social anxiety – putting strangers around a table and asking them to talk about something will probably kindle interesting interactions. Thirdly, there will be plenty of beer at the party on Wednesday evening.

The conference is getting close (it starts on September 3rd), but there’s still time to book. Book in the next 5 days (before August 22nd) and you’ll get the special price of $1,595. On Saturday, the price goes up to the full price of $1,795. See the conference web site for more details.

As part of his European tour last month, Barack Obama met up with Gordon Brown (the British Prime Minister) and David Cameron (the Conservative leader). As is the custom, the two British politicians exchanged gifts with Obama. No elephants or guns changed hands, but the choice of gifts was interesting nonetheless.

Gordon Brown gave Barack Obama two books by Winston Churchill and a silver picture frame.

David Cameron handed over CDs by Radiohead, the Smiths and Gorillaz.

My first reaction was that Cameron’s move was pure spin. Cameron, after all, worked in PR at a TV company for 7 years before becoming a member of parliament.

My second reaction was that it was pure genius.

My third reaction is more nuanced.

Almost everything we do – the way we dress, how we cut our hair, the football teams we support, the cars we drive – sends off clues about who we are, what groups we belong to and what we believe in. Other people pick up on these clues and change the way they think about us and behave towards us. Even the gifts we give tell a story as much about us as about the people we give them to. Cameron recognised this and turned the boring formality of official gift-swapping into a newsworthy demonstration of who he is and what he stands for.

Do software companies emit clues that we pick up, often subliminally? I think they do. The words they use on their web sites (do they talk about products or solutions?), how they handle support (open forums or password-protected ticketing systems?), what prizes they give away at tradeshows (Wii or Xbox 360?) and their privacy policy (long or short?) all send messages about who they are.

Even their choice of technology – which should be a rational decision – tells a story, and if the story contradicts the substance then we get confused. The Register mocks Ten Downing Street’s website because it’s based on WordPress and has a YouTube channel and podcasts. Dammit, how dare they? It’s like watching your Dad dancing at a disco. They’ll be using Ruby on Rails next and that would just be, well, somehow wrong.

I think these clues tell us something about companies’ personalities. But do companies even have personalities? I think so. At least we assign them personalities and characteristics, just like we do to our pets, our computers and our cars. If this is true, then we can draw lump companies and people into the same buckets. If Gordon Brown were a software company he’d be Microsoft: a steamroller, slightly staid, often dissed but much underestimated. David Cameron would be Apple – image conscious, media savvy, hipper but hyped.

If Barack Obama were a software company, which one would he be? How about George Bush? Post here …

Today we’ve got a guest post. Steve Jones is co-founder and editor of SQL Server Central, a web site with over 800,000 subscribers and nearly 3 million page views per month.Whether to advertise or not often seems likes a difficult decision. It isn’t. Here, Steve explains why.

I’ve never had to really make a decision about whether to advertise my product or not. It’s a simple decision: you have to advertise.

I didn’t like learning that fact, but it’s something that was drilled into by a business partner and something I observed while running SQLServerCentral.com. Those clients that continued to regularly advertise sold more products.

And they bought more advertising.

And sold more products.

You can see where this cycle is leading. The more that people are aware of your products and company, the more likely they will think of you when they’re making a decision. It’s an idea that is taken for granted by the advertising giants on Madison Avenue, and it’s the reason that soft drink, beer, and car companies advertise continuously on television. It’s highly unlikely that you’ll stop what you’re doing and go purchase their product that minute, but the continuous exposure to their products does influence you the next time you are making a buying choice.

Over the last 7 years I’ve had the opportunity to work with a number of software vendors in advertising their products. I’ve seen successes and failures, and the one lesson that I don’t often see learned is the value of advertising. I have worked with many small companies that are looking to break into the market or grow their sales and they often seem to want predictability in their advertising.

I have seen quite a few companies seek to tie the first few advertising campaigns back to immediate sales or they consider the advertising  a failure. Often I would work with companies, giving them a trial period of advertising during which they would have very low rates, even free, in order to show them some value for the effort spent.  I learned that to grow my client base, and eventually charge higher rates, I needed to help educate the marketing people at small software companies who often were tackling this job for the first time in their careers. I’ve worked with very intelligent developers-turned-CEO-wearing-the-marketing-hat that needed help understanding the value of advertising.

I had one marketing manager that worked for a small software company bringing out their first tool for SQL Server. They were nervous about spending money on advertising and in discussions with the employees, it was apparent that most of them were technical people wearing various other hats for marketing, sales, and other departments. They decided to run a two ad campaign with us and “test the waters.”

The day after the first advertisement was sent out, they called to say they hadn’t seen many downloads. I talked a bit about the fact their ad wasn’t engaging and their product was in a new space and might take some time for people to learn about it and decide if it was worth purchasing. The manager didn’t want to hear this and wanted to make a sale to pay for his advertising. He pulled his second advertisement and argued quite a bit about paying for the first. Less than a year later he was out of business.

I had another company selling a reporting product want to advertise with us, but they were concerned about the response rates. I gave them rates based on some of our long term advertisers and negotiated a 2 advertisement “test” for free with a further 3 month run of paid weekly advertisements. They did get a number of downloads from the tests and the first few paid advertisements, but not many sales. They again blamed our site, the only place they had tried advertising and cancelled their contract. They too were out of business in a year.

I have even been accused of "faking" numbers in order to make sales. And more than once I’ve seen the companies fade away, not because their products didn’t fulfill a need or weren’t well written, but because they couldn’t sell enough copies. I was surprised and unsure of how to answer these charges since I had people at Red Gate Software, sqlSentry, ApexSQL and others that were constantly praising the value of the site. Both Red Gate Software and ApexSQL increased their advertising contracts over a period of four years and saw their sales grow substantially. I even had open orders from both companies that they would take unused slots and  I could just bill them for those advertisements without calling them for approval.

Over time it becomes easier and easier to predict the value of an advertising campaign, and gauge how many sales will result from $xx being spent on advertising. With lots of tracking data, you might even learn to develop trends on which ads and which locations are most valuable for your particular product, but there’s one thing that I know is important in the software business.

You need to spend money on advertising.

Over on Simple-Talk, Stephen Chambers has written a great article about the process the team used for ANTS Profiler 4 (beta out today):

"For a moment, I thought I had walked into the
wrong office: All the computers, monitors, keyboards and mice were
gone. I surveyed, with some alarm, the empty desks of our entire
project team. Bart then arrived, nodded good
morning as usual, took off his scarf, removed his coat, sat down and
swore. “James! We’ve been robbed”.

James – Bart’s boss – simply smiled and shrugged.
This was no robbery. It was an inside job. And, knowing James, things
could only get worse.

This was going to be a really long day …"

Read the full article on Simple-Talk

Meeting other people is often the best part of a conference. It’s often hard to do though: with several hundred people there, how do you find out who you want to talk to? For BoS 2008, I’m going to try out Crowdvine (thanks for the idea, Jeff). It’s a social networking site specifically designed for conferences.

If you’re coming to BoS 2008 then sign up here:

http://bos2008.crowdvine.com

According to Cory, we made a bet, some decades ago, that the information economy would be based on buying and selling information. We were totally, 100 percent wrong.

Cory is a great speaker: articulate, amusing and thought-provoking. If you’re at all interested in copyright, DRM or piracy then here’s the video.

Over the past few weeks I’ve announced bits of news about Business of Software 2008. Here are all those updates – and a couple of new ones – in one place.

Speakers finalised
All the speakers are now finalised. Most recently, Steve Krug and Noam Wasserman have agreed to speak. Steve is author of the best-selling (over 380 five star reviews on Amazon)  Don’t Make Me Think! – a Common Sense Approach to Usability. Noam is a professor in the entrepreneurial management unit at Harvard Business School, and will be talking about Rich vs King: The Founder’s Dilemma.

Updated program
If you want to see details of all the speakers (names, topics, times, etc.) then please download the updated Business of Software 2008 program.

Table sessions
Some of the best conference memories come from the people you meet. To encourage this, we’re going to split people into groups of 8-10 and ask them to discuss a topic. People will choose the topic they want to discuss in advance, from a list. That means we need a bunch of topics to discuss. If you want to suggest one, then post it at this blog post.

Lodging
If you’re coming to BoS 2008 then I recommend you stay at the Seaport. We’ve negotiated a special rate of $239 / night, but this is only guaranteed if you book your stay before August 2nd. To get the special rate, read the instructions on the BoS 2008 web site.

See you in Boston!

Found a company and you can be in control or you can be rich. It’s hard to be both: you need to figure out what motivates you, and what’s important to you, and then act accordingly.

According to Noam Wasserman, a professor at Harvard Business School, if you’re an entrepreneur then you will often face situations where you need to confront this dichotomy.

Video Below

Earlier this year, I asked for advice on how to hire
managers. Plenty of you answered – thank you. Since then, I’ve thought about the topic a lot. I’ve seen hundreds of CVs, sat through
dozens of interviews, and hired a few managers. When I interview a manager there
are plenty of things I look for – passion, cultural fit, talent, communication
skills – but here are some less obvious ones that separate the cream from the
milk.

You must be comfortable
with ambiguity. You need to see the
world in shades of grey, but still make decisions. Often, there are no right or
wrong answers; no rules that always apply. You must be pragmatic, not dogmatic. The best answer you can give to many interview questions is ‘it depends’. Q: How
do you manage people? A: It depends (on the situation and the person). Q: How
do you motivate people? A: It depends (what are their buttons?). Q: How do you
persuade people? A: It depends (some people like facts, some people like
stories). Q: Your project is running late. How do you fix it? A: It depends (there
are as many ways to fix it as there are projects). You get the picture.

In an interview, talk
about the concrete. You need to show you can roll up your sleeves and plunge
your hands into the blocked toilet bowl of software development. You can’t just
strategise and theorise. When you tell me about how you deal with tricky people
problems, don’t tell me about processes and rules. Tell me about the time that
Bob turned up to work smelling of beer, or how you caught Fred snorting cocaine
in the toilets. I want evidence that you’re seasoned, that you haven’t just
read a book.

This demonstrates that you’ve
done it before. For engineers, I hire for talent.  You need to demonstrate that you’re smart, and
can get things done. But you don’t need 2 years of C# or SQL Server under your
belt. For a manager it’s different. Management is something that you learn. It takes time. Sure, aptitude is still important, but you must show that
your aptitude has crystallised into ability. Management is also about good judgement. Mulla Rasrudin once said that good judgement
comes from experience, and experience comes from bad judgement. I’d like you to
get that experience elsewhere.

You must be able to switch
from the concrete to the abstract. Show me you can knit your particular
examples into wider rules. Tell me how your experience contradicts, or confirms,
other people’s theories. Tell me about the common thread that runs through your
successful projects. Tell me about Herzberg’s motivational theory, and how you’ve
seen it work. Or how it’s good in theory, but not in practice.

Of course, these guidelines are aimed at hiring external
candidates. If you’re promoting from within – and that’s often a better choice – then different principles
apply. I’ll write about my thoughts in a future post. Subscribe to the RSS feed
to stay up to date.

Over on Simple-Talk, Richard Morris interviews Linus Torvalds. Linus talks about Microsoft, patents, micro-kernels, the GPL, innovation, and much more. An awesome interview. Here’s an excerpt, where Linus talks about ‘free’ software:

That word ‘free’ is actually a word I try to avoid using,
because it means so many different things. And no, I don’t mean just
the trivial difference between ‘free of cost’ (as in ‘gratis’) and
‘freedom’. Even in just the ’freedom’ meaning, different people have so
many different ideas of exactly what and who should have the
‘freedom’.  It’s one reason I use the term ‘Open Source’, and one
reason I’m actually known to butt heads with the FSF. They make a big
deal about the "freedom" term, and they define it in just very
particular way.

So what is ‘freedom’ to you? Is it ‘anarchy’ – the freedom to
do anything you damn well want to do? If so, the BSD license is
certainly much more free than the GPL is. Or is it any number of other
ways to describe what "freedom" might mean? Often in very emotional
terms, to boot? I’m not really interested in that kind of discussion.
It’s what I call "mental masturbation", when you engage is some
pointless intellectual exercise that has no possible meaning.  So when
I try to explain my choice of license, I use the term ‘Open Source’,
and try to explain my choice of the GPLv2 not in terms of freedom, but
in terms of how I want people to be able to improve on the source code
– by discouraging hiding and controlling of the source code with a
legal copyright license, everybody can build on the work of each other,
and it basically encourages a model where people end up working
together.

Here’s the link to the full interview:

http://www.simple-talk.com/opinion/geek-of-the-week/linus-torvalds,-geek-of-the-week/

As well as top speakers, excellent content and free beer, there’s one more thing you’re going to get at Business of Software 2008: mild social anxiety.

We’re going to try out an idea that Seth Godin blogged about, and split people up into groups of 10. Each group will get allocated a table and a topic to discuss.

That means that we’re going to need 30 – 40 topics for people to discuss, fewer if we allow multiple tables to use the same topic.

Seth suggests entrepreneurship, shoe collectors and whining about the economy. If you’ve got any other topics you’d like to discuss at Business of Software 2008 then post them here. I’ll send a copy of Meatball Sundae, Seth’s latest book, to a couple of people who come up with the best suggestions.

Post here …

A couple of weeks ago I blogged about the dangers of stories and how, if you’re unaware of the biases baked into our brains, stories and the storytellers who tell them can lure you into tar pits. In this post I’m going to write about another cognitive bias.

But first, of course, a story.

James, who manages our .NET division, is a smart guy. I grab him, and explain that I want to give him a quick test. I know he likes a good test. The way it works, I say, is that I write down sets of three numbers on a flip-chart. I have a rule in my head, which any set of three numbers either passes or fails. James’s task is to guess my rule. The way he’s got to do this is by giving me sets of three numbers. I will say whether each set passes or fails my rule. He can then guess the rule.

To get him started, I give two sets of three numbers. Both sets pass obey my rule:

1, 4, 7
9, 12, 15

James looks puzled. This is obviously a trick question, he thinks. He gives me three numbers:

5, 8, 11

These pass my rule, I say. At this point James is confident but, just to be sure, he gives three more numbers:

3, 6, 9

I tell him these pass my rule. James says he’s guessed the rule: each number is 3 higher than the previous number.

Wrong, I tell him.

Now James is confused. He guesses that it’s to do with the shape of the numbers. It isn’t. He gives 3 more numbers:

1, 2, 3

These pass my rule. James guesses that my rule is that numbers are increasing. Wrong, I say. James gives up, so I tell him what my rule is: the third number must be bigger than the second number.

This artificial experiment is an interesting illustration of a couple of human tendencies. First of all, we jump to conclusions. Secondly – more important, but also far more subtle – we tend to seek out evidence that confirms our hasty conclusions, rather than evidence that might contradict them.

James – understandably – had the hypothesis “each number is 3 higher than the previous number” in his head. He then tried to prove this by choosing sets of numbers that obeyed his hypothesis, rather than seek out sets of numbers that might falsify it. Every time he suggested a set of numbers that obeyed my rule he become more certain that he was correct. Wrongly.

My example of James and the numbers is contrived, but the principles
apply in real life too. If your software isn’t selling well this month
then you might jump to the conclusion that it’s because of a downturn
in the economy, and then seek to verify that. Instead, you should think
about how you would disprove your theory, or explore alternative
hypotheses. If two people struggle to use your software you might
conclude that they’re both idiots, and then seek out examples to prove it.
Instead, you should examine alternative explanations – the problem
might be that your software sucks. Or you might erroneously conclude that your
software sucks – and seek out evidence to verify that – when the
problem really is that the two people are idiots.

Why are we prey to this bias? Possibly, because our minds have evolved to make quick decisions based on scant data. On the savannah a hundred thousand years ago, if you’ve just seen your brother gored by a rhinoceros, the conclusion that “all rhinoceroses are dangerous” is a good one to jump to. Seeking counter-examples, or considering alternative hypotheses, would be logically correct, but evolutionarily limiting.

But we’re not in the savannah any more, and behaviour that was appropriate back then isn’t always useful now. The textbook example is our liking for sugar: a sweet tooth was useful back when food was scarce, but in an era of Coca Cola and Big Macs our instinct to grab calories whenever and wherever we can find them just makes us fat.

There are plenty of other examples of cognitive biases that sway the way we think. Over the next few weeks I’ll write some more about them and how they can help you in the business of software. Subscribe to my RSS feed to keep up to date.

If you want to come to Business of Software 2008 in Boston, September 3rd-4th, to hear Seth Godin, Joel Spolsky and many others speak then you’ve got until Friday 18th July Tuesday 22nd July to book for the special price of $1,495.

Find out more at the conference web site.