Last week I had a had the opportunity to meet and chat with Daniel Nelson (TEMBA 2006), CEO of Texas MOOT Corp. winning software start-up, Phurnace Software. Nelson started Phurnace with business partner Robert Reeves about a year and a half ago after finding that he simply was not interested in any of the employment opportunities available at the time.
The Opportunity and The Company
Having worked with J2EE for years, Nelson realized that there existed an unmet need in the J2EE software development world -- specifically in the deployment of J2EE applications across multiple different app servers. In the J2EE world, there is Management Software, App Server Software and Installation Software. Management Software companies focus on performance instrumentation and tuning and App Server companies simply do not find it in their best interest to make cross-app server deployment easy. Installation Software companies focus on the Windows industry. Nelson identified a need for easy J2EE installation and thus was born Phurnace. J2Install is software that dramatically simplifies J2EE application deployment.
Marketing Strategy
Customers - Phurnace is initially targeting Independent Software Vendors (ISV's) who find it painful to support their applications for multiple app servers. Phurnace provides release management for ISV's. The company has five clients lined up, one of which is now in beta.
Competition - J2Install's biggest competions is open source software. Nelson has some good ideas on how to manage that competition.
Collaborators - Currently no direct partners in the works. Nelson admits that developing channels is tough until the market is proven.
Promotion - His current idea for a marketing campaign is quite creative -- a grass-roots roadshow to Java User Groups (JUG.'s). He plans to rent a Winebago and go nationwide to promote the software at JUGs. He's even considering taking a film student along to document the experience.
Pricing - Enterprise software pricing is always tough. Price/Quality effect is extremely strong -- price too low and customers assume the application is not "industrial strength". Price too high and you price yourself out of the market. In Nelson's view, the product must be priced low enough to allow a developer to go to their manager and request the product while avoiding a purchase order. It's got to be in the "whip out the credit card" price range. Initial aggressive discounting is most likely.
Lock-In - App Server version tracking -- J2Install can check the version of that app server that it deploys to and decline to install on a newer version of the app server unless the client has the appropriate upgrade/license. Thus the J2Install upgrade path will mirror that of app servers.
The Deal and the Exit Strategy
Phurnace is currently looking for $400K. They have a potential investor lined up and should hear back soon. If that doesn't work out, Nelson says that he will look to his network of advisors for funding. That's the beauty of software -- with such low funding requirements who needs a VC? Then again - a VC could bring "smart money", customers and a quick growth.
The S|M Take
The PROS: Overall I think that Daniel Nelson has been very smart to follow a market-driven strategy for his new software venture. Nelson identified a pain point first, analyzed the industry structure and verified that the pain point was not being well-served by any other products. Then he developed a product and a business plan to suit.
The CONS: Although Nelson has considered competitive response - I still think that there is a significant risk that if this product proves to be popular that a larger company with a suite of J2EE management products could quickly emulate the functionality. But then again - maybe they'll just buy Phurnace. I also think that the grass roots marketing campaign is a bit risky. I wonder if a channel partner strategy wouldn't work better. Again, Nelson did mention that a channel strategy is tough with an unproven product.
The Value of the MBA
I asked Daniel Nelson what aspects of his MBA he found useful in this new venture. Here's what he said:
- The language - an MBA gave him a business lexicon that he did not have before
- Focus on Returns - How to build a product for profitability
- As mentioned - how to pursuse a market-driven strategy
- Rob Adam's New Venture Creation class
- The McCombs Marketing Core with Kapil Jain
- Accounting!
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