One of the key challenges faced by any technology startup is to anticipate emerging technology trends in its chosen technology and market domain and create business strategies that enable it to be best geared to take advantage of these trends. In tackling this challenge, one of the key impediments is the resident domain knowledge of the industry (so-called rules of the game) that sometimes limits the ability of the decision maker to look for emerging technology trends or business innovations outside their industry. A similar challenge was faced by us at SoftJin as we looked at identifying future growth opportunities for ourselves within the Electronic Design Automation (EDA) industry that we belong to.

Just to provide a background, EDA industry develops and offers software tools that are used by semiconductor and VLSI designers to design the next generation of ICs. EDA is an industry that is historically dominated by 3-4 large companies who offer monolithic standard product packages to the IC designers. In order to compete against these large incumbents, a typical EDA startup comes up with a technologically superior product in one of the several technology segments within EDA and tries to dislodge the incumbent from that segment. However, with most of the key technology segments well covered by the incumbents, the model forces a startup to look at a small niche, thereby limiting the market potential and making the strategy risky in the process.

However, if one looks beyond EDA and considers the larger technology trends and business models in the overall Enterprise software industry, one can consider applying those to EDA and create new growth strategies for the seemingly mature industry. One such trend that we spotted is the increasing use of component based software model in the enterprise industry. This involves developing software applications by integrating re-usable software packages, each of which provides a coherent functionality. The software components can be developed and delivered independently and provide functionality through well defined interfaces. Such a model has extensively been used in developing Enterprise scale distributed applications as well as N-tier Web applications. As a business model too, companies in the enterprise software domain such as SAP, are offering component-ware as opposed to monolithic applications in order to target a wider market.
For us, the question was whether it was time for EDA industry to adopt this model, and if so, what were the benefits and challenges involved? There are some obvious, but very significant, advantages of using software component based model due to the re-use element. These include lower cost of development and lower time to market the EDA tools. Using tried and “field-tested” EDA infrastructural components can also go a long way in improving quality and stability of the EDA tools. It also allows other young EDA companies to focus their development team’s energies on their core differentiating aspects.

As a business model, the component based business model also allows EDA companies to capture value from yet unexplored segments such as the in-house EDA segment. Offering re-usable EDA components allows in-house EDA groups in semiconductor companies to build unique tools on top of the components.

At the same time, there are challenges that need to be tackled for this business model to become wide-spread in the EDA industry. The primary sales challenge is to educate the EDA development teams to have a re-use based strategy and think more about build vs buy. Also, advances need to be made in the way components are packaged so as to enable ease-of-integration as well as flexibility of use without having to share the source code of the components with the users.

To sum up, the challenges are not insurmountable and given the drivers of adoption we believe that component based software model in the EDA industry is an idea whose time has come. So, my takeaway from this strategy formulation exercise is, when faced with a growth crisis, it is worthwhile to consciously look outside one’s core industry to identify new ideas or trends that may be equally applicable to your industry and set you on the next growth path.

He can be reached at kamal@softjin.com