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Becoming a professional software development firm - joshsmith.com

Becoming a professional software development firm

 

It’s funny how things work out. iOnline started as a product-based company way back in 2000. At the time, it was a single-employee company that generated revenue from advertising placed on a series of network websites.

When the aftermath of the dot-com crash sent online ad returns in the second-tier (non premium) market tumbling so deeply that cost-per-1000-impression rates for ad units dropped by as much as 90%, it became necessary to diversify the company’s revenue sources in order to remain afloat and to continue growing. By 2004, the company had firmly become a service provider; with revenue aligned closely with the number of billable hours that were produced in a given month.

This model is unattractive in the long term for a number of reasons. The greatest single reason is that in a highly competitive market such as web design and development, which is starting to commoditise services and pressure hourly rates, a business driven by billable hours will permanently be bound to tight margins and stressed resource management, regardless of how large the company becomes.┬áThe race towards “free” in many areas of design and development and the growing trend of outsourcing custom work to freelancers or agencies based in India and the Philippines to take advantage of lower labour rates indicates that this situation is unlikely to improve in the short term.

After growing to a team of 10 under a billable services model, transitioning to a product-driven business model was always going to be a challenge, but one that is ultimately necessary for the company to grow and for our clients to continue receiving optimal value. The process is well underway now and is proving both refreshing and illuminating.

iOnline’s first product release in years is the Xero add-on xocashflow, which helps Xero users to chase up multiple overdue invoices with the click of a single button and to subsequently improve their cashflow positions, while saving valuable time. Building a product in the small gaps between commercial project work took coordination, commitment and clever code control. For a small company such as ours, it also created its own cashflow challenges (ironic given the nature of the product), as product development requires 100s of hours of development time that delivers no immediate returns.

Despite the challenges, xocashflow successfully launched on Thursday of last week. While the product’s launch was well positioned and the application priced extraordinarily competitively, the first 5 days after launch produced no sales whatsoever. The first sale, worth a tiny $8 after fees, came as a huge relief; not because of its value (obviously), but because it indicated that a change in direction had occurred. Receipt of that first $8 officially made us a professional software development firm.

We had always been one philosophically, in that every website and mobile app we build is based on our own technological systems (primarily the iCMS content management system and iCart e-commerce platform), but our business model has not been based on licensing or access, but on the delivery of billable hours through service work. This made us more akin to a plumbing contractor than to the Silicon Valley icons we aspired to emulate.

Since that first sale, there hasn’t been a day in which xocashflow hasn’t gained new customers – and these are customers coming from international markets as well as locally, which is yet another important differentiation between a product-driven model and a service-based business (which is generally limited by location to a certain degree).

This blog will help to chart the emergence of several other software products that we have in the pipeline during the coming months, as well as the rise of xocashflow. The challenges and triumphs associated with being a service-based business will also be uncovered and celebrated, as our renewed focus improves options and value for existing clients, without alienating them.

This will be a hugely exciting year for iOnline and for other innovative companies that need to adjust their models to avoid competing in increasingly commoditized labour spaces. With cloud-based software offerings being embraced eagerly by SMEs around the world, there are opportunities aplenty for those software startups that correctly identify and fill gaps in the market. I think we’ve done that with xocashflow and with the next offering that we are due to launch in April.

Here’s to a new age of product-focused development.

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Josh has been involved in the web development industry since the heady boom days of the mid-late 90s and founded iOnline Pty Ltd in March 2000 to provide web design, development and digital marketing services to small and medium enterprises around Australia.

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