Selling Software Is Tougher Than Dreaming It Up
Wall Street Journal - 3Apr98 - Marketplace - Page 1
GARY SCHNEIDER spent nearly a quarter of his life creating a powerful software product. He invented dozens of complex algorithms and recruited a top programmer to help write the code. He raised $100,000 in venture capital and borrowed another $50,000 against his house in Idaho Falls, Idaho. Not long ago, he hired a production company to duplicate his master disk and shrink-wrap the product for distribution.
Then the real work began.
Mr. Schneider, 38 years old, exemplifies a conundrum afflicting the world's fastest-growing industry, software: While small companies are ideally suited to create great products, only big companies have the clout to turn great products into great businesses. Put another way, the economies of scale mean zero in software development, but they are everything in software marketing.
Mr. Schneider's product dates back to the intersection of his agriculture and engineering studies at the University of Arizona. In an operations-research class, he studied how businesses use computers to analyze the interaction of diverse variables. As the grandson of a farmer, he thought the same principles could help small farmers optimize their crop selection, a vastly more complex process than you might think. It was the mid-1980s, and the PC was still too daunting for the average farmer, and still too weak in processing capacity. But Mr. Schneider spent the next decade refining his idea while working as a construction engineer, attending grad school at MIT, and conducting policy analysis for the Energy Department.
At last, in 1996, he set up a company called AgDecisions to commercialize his concept. Some venture capitalists worried that the installed base of PCs on family farms was too small. But Mr. Schneider won converts by positioning his software as the potential breakthrough application -- "killer app" -- that could cause farmers to buy PCs the way the first spreadsheet program caused the Apple computer to take off.
WITH MONEY in hand he set up shop in a tiny office here in the heart of potato country and hired former aerospace programmer Blake Schwendiman to write the code. To conserve cash, Mr. Schneider acted as his own patent counsel, relied on marketing and administrative help from his wife, Maudi Gomez-Schneider, and drew no salary. For income, he had to travel constantly on a consulting gig. Dividing his time between the big city and the south 40, "I felt like a chameleon," he says.
As the product neared completion he could see that his journey had only begun. Software marketing -- advertising, trade shows, direct mail and the like -- almost always exceeds the cost of creating the product, sometimes by several factors. Hot new software occasionally spreads like wildfire through cubicles or dorms, but word-of-mouth from farm to farm is slow. Mr. Schneider feared that if he waited too long, he risked allowing a well-capitalized interloper to seize the market he was intent on creating. "I don't have three or four years to wait," he says.
So with a demo disk in hand, he began calling on farm groups, equipment makers and others with deep pockets, seeking to license the product or sell a major interest. He learned that the value of a software startup is entirely in the mind of the beholder. Case Corp.'s tractor unit, for instance, was interested in investing but resisted Mr. Schneider's seven-figure valuation, causing him to walk away from the deal (though he did accept a consulting engagement from Case).
MEANWHILE, Mr. Schneider and his wife were selling the $395 product one copy at a time: working the phones, hanging banners at conventions, lining up contacts at colleges. Among experienced PC users, sales came easily. Michael Putici, who farms 700 acres in Taber, Alberta, profitably switched some of his wheat acres to peas, thanks to the software. "It's very easy to use," he says. But others were intimidated or frustrated. "It was a headache," says Hunter Raffety of Wyatt, Mo. Adds Carol Wuertz of Sundance Farms in Coolidge, Ariz., "This could really help us with our planning, but it's too complex for us right now."
Such reactions convinced Mr. Schneider that if his product was to become the dreamed-of "killer app," he needed to supplement computation with connectivity. For one, he thought, the system should be capable of ordering seed, fertilizer, insurance and other supplies, as well as selling the harvest and executing trades in the futures market. For another, he resolved to add inexpensive desktop video to the product so farmers could obtain on-line support. These embellishments all will require additional development money on top of the marketing funds for which Mr. Schneider is still searching.
One profitable relationship may come to fruition soon. A while ago Mr. Schneider made a cold call in Council Bluffs, Iowa, on a major crop insurer, American Agrisurance. A senior researcher there, Barry Cleveland, had seen just about every high-tech farming tool on the market. But he had never encountered one that analyzed the myriad data in major farming decisions, until it walked through the door in Mr. Schneider's hands. "It's kind of like the missing link," Mr. Cleveland says. His company and several other big outfits are considering making investments.
In the meantime, Mr. Schneider takes little comfort in knowing he has a unique product. "We've got to move fast," he says. "Technology lock-in is the only way to win this game." |
