Dancing on the Edge of Technology: A Journey with Luke Hohmann of Applied Frameworks on Software Profitability, Edge Computing, and the Future of Business

Are you ready to dance on the edge of technology and business with us? We're thrilled to welcome Luke Hohmann from Applied Frameworks, a former figure-skating enthusiast and a software whiz who made his journey from Buffalo to Detroit, finally landing in the Bay Area. We're going to take a trip down memory lane, chatting about his fascinating journey, his experiences with EDS, and his academic years at the University of Michigan. Pete also shares some thrilling tales about his brother's endeavors at General Motors and their collective passion for cars. 

It's not all about the past though. Luke opens up about his current work at Applied Frameworks, where they are working tirelessly to help traditional "metal bender" companies unlock growth through best practices in software development, sales and delivery. We're going to muse over the escalating importance of software pricing and licensing in an increasingly software-reliant world. Luke shares invaluable insights about creating software profit streams and his unique take on the concept of every company now being a tech company. Plus, we'll get a sneak peek into his visually rich book "Software Profit Streams." 

But what is a technology podcast without discussing cloud and edge computing, right? We're going to explore the exciting realm of edge computing, discussing how we can apply cloud development processes to edge hardware. Moreover, we're going to dig deep into the complexities of balancing the cost and features of edge devices. Finally, we'll end the episode on an intriguing note - talking about the merging of cloud and embedded computing, and the intricate relationship between customer benefit analysis and jobs to be done framework. 

So buckle up, folks! This is going to be a thrilling ride into the world of software, edge computing, and how they're shaping our future.

Want to scale your edge compute business and learn more? Subscribe here and visit us at https://edgecelsior.com.

Transcript

Luke Hohmann: 1:03

Steve Martin fan. The Jerk.

Pete Bernard: 1:09

I've got the The Jerk, i've got Dr Strangelove, young Frankenstein my big three. Nice, i want to welcome Luke Hohmann from Applied Frameworks. Welcome, Luke. Yeah, well, nice meeting you. By the way, i appreciate Laura reaching out and hadn't talked to her for a while. I don't know if she gave you the backstory. We used to work together a long time ago in the galaxy, far, far away in the Bay Area, so it was good to hear from her, and she moved back to the Chicago area. Are you calling in from Chicago or were you?

Luke Hohmann: 1:46

based Sunnyvale, California.

Pete Bernard: 1:48

Oh, so you're in California. Yeah, my old stomping ground. Yeah. Yeah, we worked in. So E-Color was the company we worked for and that was in San Francisco proper, Right, So it was in. Actually, our office was in the main. The last office we had was in UN Plaza, if you're familiar with downtown San Francisco.

Luke Hohmann: 2:09

No.

Pete Bernard: 2:10

It's like the worst grime-iest. We used to call it urine plaza.

Luke Hohmann: 2:15

Oh, no, no, no, no, no, no, no, no no.

Pete Bernard: 2:17

Because it was rough, Kind of right on the border of Market Street and the Tenderloin, Sort of that intersection. I mean it's still. It's rough today too, so nothing's changed too much there. But yeah, it was a bit of a culture shock for some folks coming from out of town. Yeah man, but it was fun, fun startup times. Those are the days, actually one of the things I was going to ask you, and we can cut in and get started anytime. I noticed you're a University of Michigan person. Are?

Luke Hohmann: 2:51

you a Michigander. No Zero to 20 was outside of Buffalo, new York, a little town called North Tonawanda, and then 20 to 30 was the Detroit area in various cities, and I loved it Right. I did not move to Detroit area to go to school When I was in high school and before high school I started figure skating. So I was a Paris figure skater And the Detroit area is one of the three main areas for pairs and dance figure skating in the United States. It's a powerhouse of skating, and so I moved from Buffalo to do pairs training, eventually became a junior national champion and was on the senior team and was on the international team for a few years, and I was working for EDS at the time. Oh, yeah, ross Perot.

Luke Hohmann: 3:49

Yeah, it was just after the acquisition by General Motors Right, and I had a very humble job when I started. I pulled cable underneath race floor and I literally worked my way from beneath the ground up to do things. And then eventually a lucky break came along and it came to pass where I went to the University of Michigan And EDS actually paid for my degree My bachelor's and master's And I got a degree in. My bachelor's degree was computer engineering And my master's degree was computer science and engineering. So it was great. And from there I moved to the Dallas area where I met Laura And we were both working at Object Space. I was there earlier than Laura Right, and then I moved to the Bay Area and then we ended up reconnecting.

Pete Bernard: 4:46

I see, wow, interesting. Yeah, my brother's lived out. He's worked for General Motors now for, i think, about 35 years plus. He's out in a little north of Detroit. He's been out there a long time. He's a real car geek. Yeah, cars are fun, so that's a place to be.

Speaker 3: 4:59

If you're in the cars, that's a good place to be Cars are fun, Cool, So why don't we kind of get into it?

Pete Bernard: 5:08

Maybe you can give us you just gave us a bit of a background of where you've your journey here, And so what's applied frameworks all about? I mean, what's keeping you busy these days? I looked at your LinkedIn profile. I won't I won't spoil it for the audience, but Yeah, so applied frameworks is a boutique consulting firm.

Luke Hohmann: 5:26

We focus on the intersection of agile software development, agile product development and helping people create more profitable software enabled solutions. What we mean by that is that Around the world, you're seeing software be put into everything. My new wolf stove comes with an app. How does that work and where does the data go, and who built it and Did they raise their prices? and who maintains that app and who maintains that data? And so it was pretty amazing to see this opportunity start to, in a sense, present itself to us that this notion of all of these traditional companies are Putting software and software controlled and software enabled solutions, and a lot of them don't know how to price them, they don't know how to license them, they don't know how to stay in compliance, as we see so much software be put into our lives, from cars and microwave ovens And eventually the chair that you're sitting in is going to have IOT sensors And it's going to give you feedback on your posture and maybe even send the data to your chiropractic doctor To. how are you doing?

Luke Hohmann: 6:44

as this happens, we're seeing that people who don't have a technology background, who have a more traditional manufacturing background, they don't know how to price software, they don't know how to license it, they don't know how to stay in compliance, they don't know how to develop ROI models that show the value. and we're seeing some Goofy behavior, to be blunt, right, right, you, bmw was charging an extra fee for heated seats. Yeah, heard about that, right, and you're like, yeah, that doesn't make sense, does it? so there's a lot of innovation and what applied frameworks does is we help create Software profit streams so that people, instead of viewing software as an expense, they can use it as a way to grow their business.

Pete Bernard: 7:32

I see interesting. Yeah, i mean I think I'd heard. One of the things I talk about because I mentor a lot of kind of early in career folks is that every Company these days is a tech company. So if you want to be in tech, you don't necessarily need to just go to Microsoft or wherever right. You can go anywhere, because everyone is integrating tech and software into their Products, whether it's in the kind of the back-end operations or the front of the house or the products themselves, right. And so all of these companies need to sort of get good at software In a hurry and, like you said, probably they don't have the cultural background and the processes to really understand how to do it Right right.

Pete Bernard: 8:08

It's fascinating space and one of the things I liked, by the way, so I have your book. Laura sent me your book. It's pretty cool. I like. One of the things I like about it software profit streams, amongst other things is I like the format. It's kind of like very visual, graphical. When she said she was gonna send me a book, I was kind of like okay, but then I got it I was like wow, this is pretty cool. It's like almost like I wouldn't say it's like PowerPoint, but it's very visual and a lot of kind of storytelling through kind of graphs and pictures and other things, which is pretty cool. So it definitely is like not your traditional, you know, stephen King novel or whatever, like just a bunch of words on the page.

Luke Hohmann: 8:52

Well, Pete, you know that to get a different result You have to take a different process and you have to have a different vision or goal. And When Jason and I were writing the book, we looked at all of the books that are out there about pricing and licensing and there's a lot of good wisdom out there, But it's all written by boomers for boomers. It's all text dense, heavy this imagination of I'm gonna sit down and have a quiet office and I'm gonna read the book and I don't need visuals. That's not how people learn anymore. And so, to really break the paradigm, we wrote the book by hand.

Luke Hohmann: 9:37

Literally every page was written out by hand and there was traditional writing, in the sense of traditional, of 100 years ago. We would, if we needed to edit something we were either erasing or we were physically cutting and pasting and taping and drawing all those sketches. So those pictures all came from our experience. And then we hired a designer to do the layout and the organization fed aid to make the book beautiful And the result is like what you said People have said well, it's kind of a little like PowerPoint.

Pete Bernard: 10:15

But Or whiteboard, almost like a whiteboarding session.

Luke Hohmann: 10:17

It's a whiteboarding session and it makes the book so much more accessible because you can see just enough words to understand the concept. The pictures cement the concept and together we have. the feedback that we've had has been overwhelmingly positive, like yes, this is how business books should be written in the future.

Pete Bernard: 10:42

Yeah, no, it was definitely definitely cool and accessible. And one of the things I saw early on was that you're gonna talk about the Van Westendorp pricing model, which I have not heard that term in a long time. I actually used that in a project at Microsoft, probably about 12, 13 years ago And we were working on some new project that lots of the dust, dustbin of history but we used this pricing model, the Van Westendorp pricing model, to sort of figure out our price points And I saw it in this book and I'm like holy mackerel, this is like a flashback. So it was pretty cool that you kind of really go deep on some of the tech and some of the explanations in here, which is good.

Luke Hohmann: 11:22

Yeah, we have to go deep enough so that product managers and our target market is product managers and other business leaders who are associated with pricing. And pricing is kind of a funny thing, pete, because sometimes in organizations you're not sure who owns pricing. You're like, hey, wait a minute, is it product marketing? Is it product management? Of course, sometimes in some organizations when pricing is done very badly, sales ends up doing it And it inevitably produces less profit when sales does it, because sales is, they're human and they're optimizing for the way that they're compensated or the way that their commission plan is structured. And you can't fault them for doing it that way If there's not a larger, more comprehensive structure to the pricing and a plan. And that's one of the more important parts of the book is that pricing isn't a number, pricing is a system and pricing is part of the business model itself. It's a fundamental part of how we want our market and our company to behave.

Pete Bernard: 12:31

Yeah, i mean I've worked with a bunch of customers. I mean I spent a lot of time at Microsoft, i spent time in Silicon Valley, mostly in kind of edge computing, which is kind of what my show is about, although what you're doing here is pretty universal And quite often there's a great idea, there's a great product, there's a great architecture, there's a great implementation, but then the go-to-market or the pricing and the distribution and how a customer actually gets it and how the company monetizes it. It's just kind of like an afterthought almost. And, like you said, in the worst case scenario it's kind of a salesperson's kind of cutting a deal with someone and then you're stuck. But you're right, if it's done right, it can actually be a huge force multiplier for the success of the product itself. The business model in and of itself can be super innovative.

Luke Hohmann: 13:17

Yeah, and the second, I think, fatal mistake that people make on pricing beyond. The first one is sales is letting sales do it. And the second fatal mistake.

Pete Bernard: 13:27

Not that we don't like salespeople.

Luke Hohmann: 13:28

No, of course we love salespeople. You gotta have salespeople. It's the fact that salespeople are compensated and organized in a way that may or may not align to pricing. Now our profit. Now, when salespeople are aligned to profit, having them involved in the pricing is essential, because this is one of the testing questions.

Luke Hohmann: 13:49

If I, as a product manager, design a pricing structure that my salespeople can't sell and I don't talk to them about it, i don't collaborate with my salespeople, then I'm the source of the problem And the sales, because experienced salespeople have a feel for the market and they'll tell you, especially B2B, like yeah, we can't get that. Well, here's why. And sometimes salespeople will tell you look, our solution fits into the customer's solution this way And the total cost of all of the suppliers that we're selling into is this And our customer, our piece of that total pie, is X or Y or Z. And yes, we want more and we should provide more value. But eventually there are rate limiters And partly it's because there's always an alternative. When you think of pricing, you also think of well, what is it's pricing compared to what? And if my price goes disproportionate to the value I'm providing, then by definition I'm gonna make an alternative or competing product more attractive.

Pete Bernard: 15:01

Yeah, yeah, no, exactly. Well, there's always that. I mean, i work with a lot of these companies in the edge space now and there's always the kind of the role of your own alternative versus something that's more commercialized and has more IP in it. I think, like one of the things in edge computing, a lot of folks are delivering more solutions. It's a solution that includes software, includes hardware, includes services, and there's a big shift toward more SaaS based models and SaaS based everyone desires to be in a more SaaS based model, so they have kind of more recurring revenue and predictable revenue And there's sometimes hardware is involved, sometimes connectivity is involved. I mean, how do you see pricing models and kind of people's thinking about pricing kind of being affected by a more, you know, saas oriented, you know approaches to the market?

Luke Hohmann: 15:53

I. It's a great question, And one of the things that I think happens too frequently in technology is we think we're always the first And we think, oh, you know, we're the first people to think about recurring revenue from a customer. And I'm gonna go back to what we talked about before the show started for the listeners.

Luke Hohmann: 16:12

We were just talking about Detroit and cars and some of our shared background with cars, as near as I can tell, one of the earliest companies to commit to trying to create a long-term lifetime customer value was, in fact, general Motors. Remember the days when the standard General Motors and I'm dating myself a little bit, but remember the days, pete, when we would you'd start with a Chevy, then you would go to a Buick and then you'd get an Oldsmoldeal and the Pinocchio was a Cadillac And the idea was you were going through the car models as a lifetime customer of General Motors. So when SaaS companies talk about like oh, we're doing lifetime customer value, i'm like yeah, that's been around for over 100 years Right right.

Luke Hohmann: 17:04

So, and let's talk about the recurring revenue. Of course we want recurring revenue, we want the predictable revenue flows, we want the predictable structures. Where I think that SaaS companies can sometimes make missteps is they do two things that I think are dangerous. They overweight the modularity of their product. So they go to a customer and they say, hey look, we've got this base platform and now we're gonna license our modules on top of it. But in the B2B market that can be challenging, because now you're asking your buyer to go back and get more budget every time they wanna do something with your offering.

Luke Hohmann: 17:49

As opposed to. One of the strategies that you can look at is a single package solution. So when you're looking at certain offerings, you in fact don't want to piecemeal your customer. You wanna make sure that your customer has the package, the configuration that is what they need, because they don't wanna go back and imagine you're reporting to the CIO and you started with an edge computing solution and then you wanted to continue to improve. Every time you wanted to do something, you had to go back to your CEO or CIO and ask for more money. That's not gonna happen.

Luke Hohmann: 18:28

So, I think the notion of recurring revenue is really powerful. undeniably, how people get there is still part of the design space, and you wanna design this to have the right outcome.

Pete Bernard: 18:43

Yeah, well, especially in the B2B space, you kinda need to snap into the procurement cycles of your customer and the procurement process of your customer. I guess if you're the consumer space you can go put something in a box and put it on a shelf. that's a different issue. But I know for a fact if you're selling into Fortune 50s or Fortune 500s, they have a procurement process and, like you said, budgeting process, and you're either gonna snap into it or they're not gonna use your stuff, and so that's another kind of point of also internally having the flexibility to sort of have some flexibility with your business model, depending on which vertical or which kind of corporate customer you're selling into, is probably pretty important as well.

Luke Hohmann: 19:23

Yeah, I wanna pull on the thread that you started with this notion of the distinction between the consumer and the business. In our book we create three broad categories of customers B2C, B2B and B2P. Business to professional, because we do think that the professional sale is a little different than the business sale, but it's also a little different than the consumer sale. And one of the really exciting things that we found in writing the book Pete was that we know that businesses will do ROI analysis and total cost of ownership analysis. But what we found was that in the consumer market, consumers do the same thing. I'll give you a concrete example.

Luke Hohmann: 20:05

My wife and I are youngest is graduated high school, She is getting ready to go to college And my wife has said, hey, our present for the kids all being in college will be a new card. If you looked at our minivan, we've got a 14 year old minivan. It's beat up, blah, blah, blah, And we wanna get an EV. Right, We wanna get an EV. Well, my wife is now doing a total cost of ownership And she's like, hey, wait a minute, you do get the advantage of plugging in into your garage, but they sell you the car. They didn't sell you the electrician that comes in to royer your house And so she's building out a spreadsheet And this isn't like some anal retentive thing.

Luke Hohmann: 20:46

I don't wanna make it sound like that, But she's like, hey, I just wanna make sure that when we're budgeting, we're budgeting for the total cost of the car And it's more than the car. And so what you find is, in the consumer market, the high end investments, any expensive investment, whether it's business or consumer, people are actually they care. Okay, what's the cost of the solar panels? Well, actually, the cost of the solar panels includes the setup, the installation, maybe new wiring, And so that was one of those exciting things that we found in writing the book was that the concepts that you and I know so well from our experience in business, they actually translate quite directly in many cases in the consumer market.

Pete Bernard: 21:33

I see, yeah, no, that makes sense. Yeah, by the way, so we had a Chevy Bolt EV. I don't know what models you're looking for, but I had a Bolt. I'm a good GM citizen. Like I said, my brothers work there forever. We bought the Bolt soon. Thereafter, of course, we got the notice that the battery had some issues and blah, blah, blah, and I don't wanna go on and on. But they ended up buying it back from us after about a year and a half And we kind of got all our money back pretty much. So it was a pretty good deal from my end, but it wasn't a great first for it, and I still have the level two charger in front of my house like ready to go. We don't have another EV yet, but we're all wired up, so I did the investment on the.

Luke Hohmann: 22:11

You did the investment On the, like the 40 amps. Well, what's interesting is the question. I think a more interesting question, if I can go there with you, is are you more likely to make an investment in an EV because you've made the investment in your level two charger?

Pete Bernard: 22:27

I think it's part of it. I mean, obviously, the expense of putting all that in whatever for 1,500 bucks. it's a chunk of change, but it's small compared to getting an EV. That being said, there are other advantages. We were ready for an EV. In fact, my wife's mentioned this. She's like, well, what are we gonna do with this charger? It's sitting there. So, yeah, I think we're primed to get another one And, frankly, when we had it, it was fantastic because not having to go to the gas station and kind of leaving with a fuel tank, a full tank, every morning was pretty awesome. So yeah, I think we're more inclined because of the infrastructures in place. We have already sunk some cost into being EV ready. You know we're probably primed to do that.

Luke Hohmann: 23:09

Yeah, you've made an investment in a certain architectural choice And now, just like businesses who make an investment in an architecture, you wanna return. you wanna see some of that investment in technical infrastructure pay off. And we see this, of course, all the time And in your background, right. When people start making investments in a technical infrastructure, they're more likely to.

Luke Hohmann: 23:33

Oh yeah day with it, that investment cycle and we haven't yet made that investment in our house, although we're planning on it and Right, i suspect it's gonna get easier, because my understanding is that both General Motors and Ford have now Signed licensing agreements to align with the with the Tesla chargers, which is just benefiting the entire industry.

Pete Bernard: 23:52

Yeah, no, and that is kind of the Achilles heel, not to go off on too much of an EV tangent, but the charging, the public charging, because we never did public charging when we had our car.

Pete Bernard: 24:01

We charge it at home. We drove it around, they had 200 something miles And it would be just never really had a need. A couple of times I use like a charger and a public garage just for kicks. But that is a kind of a key thing to kind of get that Locked so that people feel like they can get charged everywhere and all that sort of thing.

Pete Bernard: 24:19

But, actually I was gonna shift gears a little bit. I had a question for you. One of the things in the edge compute space That's kind of interesting. Right now They call it cloud to edge.

Pete Bernard: 24:30

Or how do you take sort of your cloud devops and your kind of cloud software development and deployment processes, especially, like you know, kubernetes based or container based workloads for deployment and management which everyone does on the cloud? But now you know the the interest is and well, how do I do that outside the data center on You know heavier or lighter edge hardware and how do I sort of take my cloud devs Which I understand is about 10x as many cloud devs as there are embedded developers, and how do I kind of leverage that asset right, so now that I have, you know, sort of a single developer fabric from cloud to edge and I can use the same kind of processes and techniques and management And I don't have to walk around with a, with a flash drive and like stick it into my Device and reflash 10,000 of them, which I once I almost said who the customer was, but I know customers that do that still.

Luke Hohmann: 25:24

Oh, I remember my first consulting engagement 20 years ago. It was with Qualcomm wireless business solutions and they were that was the omni-tracks solution, which is still around.

Pete Bernard: 25:34

Yeah for trucking.

Luke Hohmann: 25:35

I think yeah for trucking and the US government changed the laws on how drivers were reporting their hours of service and some of their truck, and We didn't have over-the-air updates on those hardware platforms And so we had to go and flash millions of trucks with an army of service providers. And so this notion of how do I do my DevOps Practices in the cloud that I've gotten good at to the edge that you're seeing patterns, pete.

Luke Hohmann: 26:09

You're definitely seeing patterns where people are like, okay, we're going to build in enough hardware capacity. Remember when we would do embedded systems?

Luke Hohmann: 26:18

you were always like, okay, i'm gonna always go to about maybe 70 to 80 percent of my headroom in my memory, or my compute and instead of, instead of doing time-based Allocation of resources, we would go to the developers and say how much memory do you think you're gonna take up with this function? Or how much compute, how much horsepower on your processor? because our processors were so limited and they always are right There's always physical limits to memory. But now what we're seeing is we're seeing the the patterns of over-the-air update, of more headroom, of Verification of the software environment, of better edge testing. In my deployment, we're seeing all of these start to come through in in terms of how the cloud to the edge and how some of the DevOps are Are moving along. I still think there's there's many, many opportunities for growth because, in a sense, embedded computing has been around forever a fair, fairly long time.

Luke Hohmann: 27:25

Yeah, it's it's only recently now that the networks have had enough zorch, and and when I say recently, i'm gonna maybe say in the last 10 years. But when you think about some of the embedded systems that were built in the 70s and 80s, there was no way we could do over-the-air updates right. I mean, i remember working for electronic data systems and we were doing 1200 blot modems and that was fast in terms of dial-up and yes, no, no doubt, yeah, i mean the, the, the increase in the in the network capabilities.

Pete Bernard: 27:58

It's sort of a combination of things. The processes are better, you know, there's more horsepower in the silicon on the edge devices to do more workloads And and there's more memory and the cost of that is. But there's this tremendous Gravitational pull, as you know, in these edge devices to reduce cost and reduce, you know, memory cost and That's the tension, that, that those designers, and it's really a design problem.

Luke Hohmann: 28:27

Right, we're looking at the parameters associated with the, the job that we wanted to do, and one of the design inputs is cost. Another is the desire for certain functions and features, and They kind of go into this complex mix. And that's where the business and the technology.

Luke Hohmann: 28:47

Teams that are associated with those two things. They have to collaborate, they have to come together, they have to use set-based design, they have to use certain practices. But what's cool about what you said was there are some pretty proven patterns in the cloud. Now We know how to get infinite scale if we want it.

Luke Hohmann: 29:05

We know how to do serverless computing. If we want it. We know how to do any number of data stores, from more traditional, if you will, sequel based data stores to more modern key value, pair or time-based IoT data stores or Hadoop or those other kinds of data stores that are out there, and then we can throw all of that into the cloud-based data lakes or data oceans and my snowflake, etc. Etc.

Pete Bernard: 29:40

Oh, yeah, yeah. So it's exciting if you can make that. It's almost like I think of it as, like these two worlds. You know There's the embedded world. Like you said, embedded slash, iot slash, an edge computing to me is where sort of the cloud on the edge Come together. It's like the two is like a multiverse. You know The two universes that have been operating in parallel the cloud and the and the embedded computing are starting to come together.

Luke Hohmann: 30:02

Right and we're starting to see the consistency within the pattern, so that if I'm an edge developer and I wanted to some kind of an OTA or some kind of a continuous flow update or a reliable update, where I think we're always going to have challenges is is is in the world of true fault tolerance on the edge, some, which which is if you again, you and I are going to date ourselves in terms of the listeners, but we will. We are the people who remember the very first tandem computers and what a breakthrough those were, and then those kind of got Absorb, slurped up into a lot of what we take for granted now, i think, in the edge, the good news is most edge devices don't need to be Hard real-time and most edge devices don't need to be 24-7,. You know, high availability, like we can take a downtime a little bit on most edge devices. But for those that do, i think that there's still a fair amount of innovation that remains to be done on hard real-time and Highly fault tolerant edge edge.

Pete Bernard: 31:10

Yeah, yeah. No, it's a fascinating space and I know that's kind of a That intersection, you know, speaking of kind of memory and resources, if you really want a fully containerized environment, i mean, it's a kind of an expensive piece of hardware these days, right. So you know it's, you're not gonna. You're not gonna get it in your, your as you mentioned, your kind of smart chair that your Chiropractor gets the data from. That's not gonna have containerized workloads running on it.

Luke Hohmann: 31:34

No, it's not, and I think that that's one of those design questions where I also remind people when I'm doing various cloud compute work is at it all bottoms out into hardware. Right, And eventually you're going to need, you know, the hardware solution is required to scale at some point. But we can do various things with containers and fault tolerance right. But then if you don't have dedicated hardware, then you've got noisy neighbor problems where one workload can negatively impact other workloads.

Luke Hohmann: 32:14

That are supposed to be independent, But eventually you do need hard you know, I'm a software guy, but I also have a computer engineering degree, so I appreciate the hardware And eventually it is this very interesting design mix.

Luke Hohmann: 32:30

And then if we bring that back to pricing and licensing. the question would be where do I put my price point, business model choices And how does the customer want to pay us? And where does the customer ascribe value to the solution? Sometimes they'll pay more for the cloud and sometimes they'll pay more for the edge, But the total package still creates a profit.

Pete Bernard: 32:54

Yeah, yeah, and I've seen that too before. It's like you know, if you're in the software business, well what's the cost of the hardware that's needed to run your software, and you know, obviously that is an impact to your business model. And the other thing I thought was pretty cool in your book and you mentioned before all the different sort of disciplines that need to be involved when you're talking about software development, not just people checking in code, but you know legal sales, marketing, business planning. You know you call it a team sport, which I that's a term I use a lot in edge computing, because there's no such thing as one company that can go in and solve a problem for a customer in the edge world. Right, it's always an amalgam of half a dozen companies and all the stuff needs to work together.

Luke Hohmann: 33:33

Yeah, after all these decades, we still have systems integrators, for a reason.

Pete Bernard: 33:38

Exactly. Yep, That's a good long term career for somebody. But yeah, you mentioned so but sort of internal to an organization, like it's a team sport as well. If you're really going to design and sell software at a profit and as a force multiplier for the business, it needs to be kind of a multi-disciplinary approach, right.

Luke Hohmann: 33:58

Yes, and I'm just going to simply start by saying, yes, the multi-discipline, so it's both a multi-disciplinary approach, but there is a ringleader, and that ringleader is typically the product manager, and I'm going to give an analogy that didn't make it into the book. We literally ran out of physical space Like we couldn't write.

Pete Bernard: 34:20

It's pretty thick book. It's a pretty thick book. It's a pretty thick book. Cost of shipping Yeah.

Luke Hohmann: 34:28

We like to think of the, the solution that you're building, as the sun in the center of the universe, and all of these other groups are orbiting around the sun.

Luke Hohmann: 34:40

And when, when engineering is close to the sun, where the sun is embodied by or supported by product management, you're typically working on the next major release. Well, when engineering starts to leave the orbit of being close to the sun well, now SILs is coming into the sun and the role switches from building the next major release to communicating to sales, how to sell it, and this, this, this notion of the planetary model. All of the planets are in orbit all the time. All of them are moving all the time. Some of them move, have faster orbits, some of them have slower orbits, but they're all in the same solar system, orbiting around the thing that gives them all energy, which is the sun, and in our case, it would be the solutions that create profit. The enterprise must have profit in order to survive and sustain itself. You can't, you can't run a business losing money, and you know we have to try though.

Luke Hohmann: 35:46

Well, the government does a good job of it, but they have legal power to print.

Pete Bernard: 35:50

That's true.

Luke Hohmann: 35:51

That's true, but but every business needs to create a profit eventually. Yeah, it doesn't need to create a profit on day one, because we do know that we have investments to get a profit. But eventually and I like Tony Fidel's new book Build he talks about it's usually by the third release that you will know if you've got something that is going to be sustainably profitable, because in your first release it may not have enough functions, it may not be really good enough for the market Right.

Luke Hohmann: 36:25

By the second release, you're getting that feedback And by the third release, your manufacturing. if there's physical hardware, there's your manufacturing.

Pete Bernard: 36:32

You're optimizing Are coming down.

Luke Hohmann: 36:34

You're, you're figuring out how to optimize your production, your delivering value, and you should start to get into a profit And if you can't, you probably don't have a solution.

Pete Bernard: 36:43

Well, i think that seems to be fair. Yeah, three, three is a good good number to start with, i thought the the other part I thought was pretty cool. We talked about market rhythms and roadmaps And I kind of kind of related to that. It seemed like you were taking a pretty kind of customer centric approach, kind of, like I said, understanding the procurement cycles and the kind of the customer needs, and I was wondering if you've spent any time like looking at like jobs to be done, frameworks and things like that kind of Clay Christianson type stuff. Is that factor into being a profitable software?

Luke Hohmann: 37:14

It does. I'm glad you brought up jobs to be done. It was originally an appendix in the book the relationship between the work that we've done, especially with customer benefit analysis, and jobs to be done. There's a lot of wisdom in jobs to be done, but there's also some challenges And I'll give you a couple of things that I like about jobs to be done where we align, and there's a couple of things I'm not really happy about jobs to be done, And I've done a fair amount of consulting for some of our customers that apply to frameworks using jobs to be done.

Luke Hohmann: 37:46

So I want to reinforce the idea that I think it's a useful framework, but I think it's insufficient in a couple of areas. The first is in jobs to be done. They talk about an emotional job And in our world we talk about an intangible benefit, And if you look at the history of jobs to be done, for me it always felt like the emotional job got bolted in as an add-on to explain the value of a solution that couldn't be explained through functional value, And I don't think of it that way, and neither does applied frameworks. We think that tangible and intangible or hard and soft benefits are both equally important and both critical. And in some solutions, the intangible benefits are more important than the tangible benefits. Why would I buy if the listeners know the name of the watch? why would I buy a Patek watch?

Luke Hohmann: 38:50

Well, it's certainly not because it's telling time, It's because of the prestige of owning a $50,000 watch and wearing it on my wrist, or why would I buy a high-end suit to wear it a show? Well, it's not because I need to keep warm, it's because I want to have the prestige. And I think in the jobs to be done framework, pete, that is not well represented. I think a bigger issue is that and we talk about this in our customer benefit analysis is that the jobs to be done crowd doesn't consistently ask people to put a equation on the value that's created, and that equation is critical to communicate customer ROI and to develop your pricing and licensing. So let's take down.

Luke Hohmann: 39:47

my wife sometimes says consultants can say something, can talk without saying something. So let me. I don't want to sound like a consultant, i want to give something really concrete. Let's say I'm Emerson Climate Technologies and I'm building an IoT solution that looks at the energy spend within a supermarket And it can tell me if something is going wrong with my air conditioning unit, my rooftop compressors, my air conditioning unit in a supermarket, which is pretty important.

Luke Hohmann: 40:20

Well, i know that if I have to roll a supermarket, like if I get a false positive or a false negative when I roll a technician to a supermarket. that's going to cost me about 200 bucks per truck roll, and if I get five of those a month, I'm spending $1,000 on sending a technician into a supermarket when I don't have to. Well, my solution, my IoT solution, my edge compute solution, can bring in that data, analyze it and determine with more accuracy. just saving one truck roll is 200 a month. But there's also the intangible benefits of not being frustrated, of providing better quality goods and services, and so where the jobs to be done framework to meet stops, where we keep going, is we actually compute the economic value of that job when done. So. jobs to be done is a great foundation. if people who are listening are familiar with it, you're going to love the fact that our approach to customer benefit analysis takes all of that experience that you have with jobs to be done and evolves it into something that relates to profit.

Pete Bernard: 41:35

Yeah, cool. No, that's good. Yeah, i think it's an interesting tool in the toolbox, like you said, absolutely, and it's an interesting way of thinking things. You know, it's good for people to kind of step outside of kind of their traditional approach to things and, you know, try new stuff, and I think that's kind of what your book is really about is like taking a fresh approach to thinking about more holistically where you're investing your time and software, especially, like you said. I mean, we started the conversation talking about companies that are traditionally not been like tech companies, now having to build and ship a lot of software. Yeah, and that's a cultural change, that's a skill change, it's an operational change.

Luke Hohmann: 42:18

I lovingly call some of those companies and I mean this actually lovingly. Some of them are just, they're traditionally metal benders, right.

Luke Hohmann: 42:26

They built my appliance, they built my desk, they made my toaster. They're bending metal and they're doing cool stuff. But now my toaster comes with our IoT and sensors, and so it's one of the things I remember very distinctly. I won't name the company, but I was working with one of their leaders And I said well, you know, if we build in the over the update feature, then you don't have to have all the features on day one. We can get the product out the door and the timeframe that you want, because the metal guys were ready. It was the software guys that were late. I said but if you just add this one feature, we can get enough to get the product on the shelf, and then the first thing we'll do is we'll bootstrap the updates to the device. We see that in our TVs all the time. I recently bought a new TV and the first thing you do is you turn the TV on First thing you update.

Pete Bernard: 43:15

Yeah, hey, i'm going to go get my. I'm going to go, i think. Microsoft helped train people on that one with Windows, by the way But yeah, yeah, and it's not a bad training, right, i mean?

Luke Hohmann: 43:24

this is part of our new world, right. And so those metal benders, those executives who are, who are, admittedly, you know, some of them are in the later stages of their career, but it's really exciting to watch these experienced business leaders when they realize, hey, wait a minute. I got a new way to run my business. I got a new way to provide value. I've got something that I never had when I was metal bending I can make dynamic changes. Wow, what does that open up for me? It's exciting.

Pete Bernard: 43:57

Yeah, no, definitely, it's definitely giving people and you see this all the time. You see traditional markets getting disrupted by people that are coming in with you know, like you said, the metal benders plus strong software skills. Right, i thought I saw some stat that said I think, going back to General Motors, one of my favorite companies, i think they had one or 2% of their employees are software engineers and you look at someone like Tesla, i think I think seven or 8% of their employees are software engineers.

Luke Hohmann: 44:21

Yeah, we're seeing that change quite a bit, so and then that's shifting right.

Pete Bernard: 44:25

But it's like you know it's a big cultural shift And, like you said, opens up a lot of possibilities And you know, it sounds like you guys are kind of in the in the middle of the vortex here in terms of helping people get educated about it. It's an opportunity to learn some new skills and do some new stuff.

Luke Hohmann: 44:43

So, and it's an opportunity to help companies who are moving this way do what they know how to do, which is they do not. you know, general Motors knows how to price and license cars, yeah. So why not take that foundation and evolve it?

Pete Bernard: 44:58

So, Luke, when you get your pricing model right, does it, does it last forever? Does it, does it change and evolve?

Luke Hohmann: 45:05

Just like your product will evolve, so does your pricing. We might, for example, use a pricing strategy of a penetration pricing when I first release my offering, because I do have competitors and I want to be known. But as my product takes hold and I get stronger with more customers, i might change to premium pricing or skimming, which is what Apple is known for, And skimming refers to releasing a high end product like cream on the top of milk, and I skim as much profit as I can. When the next model comes along, i lightly lower the price, but I'm still skimming as much of the profit that I can.

Luke Hohmann: 45:42

Apple's a genius at skimming, and so one of the other things that we really want to talk about is, as we move into this notion of software enabled solution, where the product itself is evolving through updates or through software, the price can evolve too. Now, sometimes that means the price will go up, but sometimes that means the price will go down, and I have a. One of my sons is a big fan of the Witcher video game series, and when Witcher 2 came out, they lowered the price of Witcher 1. When Witcher 3 came out, they lowered the price of Witcher 2 and they lowered the price of Witcher 1 just a little bit, because the long tail was still making money. And these are revenue opportunities that do not exist in traditional offerings but now are emerging in software enabled solutions, and so the pricing doesn't stay static because the product isn't static.

Pete Bernard: 46:37

Right, right, yeah, no, it makes sense. I mean it makes sense as the product matures and the market matures, so, and then you build that customer base.

Pete Bernard: 46:44

There's like new opportunities to you know, make some tweaks and keep the profit margins healthy, Great. No, this is good. Like said the book, software profit streams. I'll say that It's a really cool book. I think you know what you guys are doing is pretty critical to enabling, you know, the kind of next generation of, like you said, metal benders to be more software capable In the edge computing space. You know there's a lot of folks building hardware and software and services together And I'm sure they could get a little more educated, like all of us, on how to do it better. So really appreciate being able to talk with you today And, yeah, thanks for having me. Thanks for joining us today on the Edge Celsius show. Please subscribe and stay tuned for more and check us out online about how you can scale your edge computing business.