In a presentation I’m giving at Software Business 2007 on the topic of “How the Software Business is getting Crazier”, I talk about why growing your business from top-down, as is the tradition in the software world, may not be the best approach.

In the good old days (which were about a decade ago) most B2B firms started vending their technology to enterprises. This made a great deal of sense given that:

• Technology was expensive to develop, and thus expensive to buy
• Fast payback on development from early-adopters was essential to maintain fiscal life-support
• Only enterprises were sophisticated enough to implement most technology
• Marketing and distribution costs were significant

But a lot has changed in a mere decade.

• Software is cheaper to build due to more developers, better tools, Open Source models, etc.
• Software design has been simplified to the point that nontechnical people can implement many/most products
• The Internet greatly reduces distribution costs even to the lowliest of customers

The point is that building from the top-down is not your only option, and may not even be the best one. The main reason a top-down approach may be disadvantageous is that any structure that carries all of its weight at the top is inherently unstable and will fall.

In the software trade, this may well be Oracle.

As a case example, let’s look at MySQL. Their founder, Marten Mickos, referred MySQL’s strategy as a “grow rich slowly” one. The process, much like Linux before it, was to take the low ground first, and build up from there.

One advantage of a bottom-up approach is that it makes your product the lowest common denominator, and the common reference for everyone. Second, it builds an impregnable foundation which is nearly impossible to destroy (bottom-heavy as opposed to top-heavy).

The major problem with the bottom-up path is that it requires patience, and the software industry is based on a get-rich-quick mentality. Everyone start-up CEO dreams of selling-up then selling-out, and stuffing their empty pockets within a few years (now down to a few months due to Google and XenSource perception disruption).

If you face this decision matrix, ponder the maturity of your market. The more mature it is, the more likely a bottom-up strategy is better because the brand loyalty and switching costs of unseating incumbent vendors is too high. If the leaders in the market are not addressing the needs of the lower ends, you have green field.

Do note that marketing to smaller companies can be less pleasant than prison rape. Entry-, small- and mid-sized firms are under educated on business tech, don’t recognize the value of disruptive technologies, and present many headache-inducing support challenges. But if designed well and made easy to evaluate (this is where SaaS has clear advantages), your products can find traction, adoption, and dominance via a bedrock market foundation.

Just ask Oracle. More than 33% of Oracle customers now use MySQL too.