Are SAS and Wolfram good examples? How did they manage to compete alone and succeed, against competitors benefiting from million of dollars of external funding? What kind of unfair advantage did they use to succeed?
I'm definitely one of those unfunded entrepreneurs.
It has been difficult jouney. Part of it was financed by paying projects, and entering the market is still an ongoing battle with giants. I strongly believe though, that despite that, in the long run, my product GT data mining will surpass the others. The reason is being built on better foundations, i.e. concept, cost-benefit value, and functionality. For example, it is the only solution that can locate rare phenomena.
My choice of strategy is to be as unorthodox as possible. I call it the nickname "underground management". BTW, my BSc degree is in Industrial & Management Engineering.
The billion dollars companies in the BI and data mining field, in my view, don't have any advantage in this new type of solution. I'll explain that in a moment. Yet they have the upper hand for start thanks to their presence and power to change client expectations and make them fit to inferior and backward products.
Why the billion dollar companies have no advantage? Because they have what to loose from innovation (their current products), and they are too conventional to accommodate breaking-ground solutions.
Rapid-I is an example of a successful analytics start-up without external funding. Started in 2006 by the people behind the open-source project RapidMiner (formerly YALE), which already started in 2001, and privately funded by the two founders. Rapid-I is profitable since its start and growing at a fast pace. The number of employees was doubled from 2006 to 2007 and is doubled again in 2008. The number of customers and the sales volume are growing even faster.
How can that be? Well, RapidMiner is a high quality solution for predictive analytics, data mining, text mining, and web mining and it is available for free for end users. So it kinds of spreads by itself. And if somebody needs assistance, training courses, consulting, software extensions or adaptations or other services, Rapid-I comes in and provides all that to get professional users started faster and to make them more productive and effective or do implement the complete project or process. And if some company wants to integrate the open-source software RapidMiner (usually licensed under AGPL) into its proprietary closed-source product, it can get an affordable alternative OEM license for RapidMiner.
The open-source business model keeps costs low for both the customers, who pay no end user license fees and pay only the really needed services to the extend they request them, and for Rapid-I, which has extremly low sales and marketing costs and can focus on development and core expertise and services. At the same time this business model leads to an extremly rapid spread of the software and a quite fast market penetration and sales growth.
So for us the idea to create a world-leading high quality software and to give it away for free, did not only let us win the Open Source Business Award 2008, but also works enormously well as a business model.
Nice model! and a smart one, if I may add.
Here is my view of an explanation to the rational behind the business formula.
It all comes from the reality that IT is no more restricted by the old rule of Operations costs being mach larger than the added value, thus needing financing. That because (a) the "raw materials" exist in abundance; (b) the value of the "product" is to a large extent independent on the quantity of "materials", and ; (c) the implementation of the product (knowledge) goes straight to the vein of management and therefore costs little to implement.
That is why in my opinion the ROI of IT can be high enough to support new type of bootstrapping methods.