Starting a Software Business in Today's Economy?

Ryfar asks: "I'm a programmer with 3 years of experience in C, C++, and Java. With the current low economic trends in the software sector, the small software company I've been working for since I graduated is going out of business. Since it's so hard to get a job at another software company with so little experience, I'm considering the option of striking out on my own with a friend with similar development experience and creating a small software consulting company. Naturally, until we were profitable to the point that we could hire other people to work with us we would be both the programmers and the marketers/salesmen. The question is, Where should we start looking for business? How do we capture the hearts and confidence of potential customers when we don't have PhD's from MIT? Could those here with applicable experience on this subject share with the rest of us?"

Comments

YES, sell free software

[cr@ckwhore]

It certainly is possible to get into the software biz in today's economy. In fact, if you enter from the proper perspective, the slow economy could be be a money maker itself.

Rather than writing YASP (yet another software package), you should examine vertical markets.

For those that aren't business people, a "vertical market" is one in which your business has an extremely narrow focus. The premise of a vertical market is that a product offering is extremely specialized, in demand, and expensive. Since vertical markets aren't large, vertical market products sell for a lot of money.

I'm going to use a real life vertical market as an example for illustrating my approach. The healthcare medical practice management software market.

Every medical practice, hospital, HMO, etc. need to have highly specialized medical practice management software. This software is produced by hundreds of companies that charge BIG bucks for the pleasure of using it.

So, why NOT write medical practice management software and charge a lot of money for it? Two reasons... the market is flooded with overpriced software, and there's a better approach.

Its the better approach, that becomes really attractive to vertical market customers. In the instance of medical practice management software, practice managers think of the software as a "necessary evil". They don't want to spend big bucks, but they HAVE TO, because there are no realistic alternatives. This becomes even more important in a slow economy, because these people are going to be even less willing to spend big bucks on a new system, when their clunky old systems are still chugging along. After all, its a "necessary evil", and doctors would rather drive new jaguars than buy new billing software.

The better approach would be to develop a competetive software package for whatever vertical market you chose, and then GIVE IT AWAY FOR FREE. Not open source, not "freeware", but a commercially supported, industry standard, software package that they can use for FREE.

So now, I bet you're scratching your head wondering how giving away FREE software will make you money. Well...

The software you design will have built-in services that are of value to the customer. This is the KEY. You charge per use fees for these services!! In the medical practice management example, one valuable service would be statement billing. Imagine the customer's delight, when they could simply press a button in the new software you wrote, and it would communicate with your servers via the internet, resulting in their bills being sent to a printing/mailing clearing house. Bingo!! You just saved them time and money, because preparing bills themselves used to take 2 full days... now it takes 30 seconds, and you've made money because you charged $0.85 per bill you handled.

Not only does the end user get new high quality free software, they also save time, money, and enjoy optimized workflow, all courtesy of your software.

This is the next step in the software industry!! Microsoft is already aiming in this direction with .NET.

The trick to making this work is understanding your vertical market. Verticals are strange domains, and its not going to be simple to enter a vertical market. You'll need a few sales guys that believe in your concept, that are willing to 'pound the pavement' and "sell" your free software. You're also going to have to know what services you can integrate with your software that are of extreme value to end users.

By providing these services in bulk, across a few hundred clients, you should be able to provide these services for less $$ than it would cost for them to do it themselves.

Remember, vertical market software is a "necessary evil". In a slow economy, free (or low cost) software with integrated services is highly desired!! There you have it.

Absolute Agreement

[philipsblows]

Rather than re-typing everything mitzman already wrote, I suppose "ditto" fits the bill.

In my case, it is software and services in the construction industry, which happens to be doing well in Arizona (the construction industry... I've just been at my venture for about 3 months now, fingers cross, and business is starting to pick up). In the general case, finding a need that is not being addressed WELL is probably the key.

It doesn't help to have friends... in my case, family ties have helped get a foot in the door. Anyone out there who needs help with computer ANYTHING is a potential client. To get the ball rolling, don't be afraid to take on something that seems simple to you... those easy ones that you do correctly set the tone and get your reputation rolling in the right direction.

I hesitate to suggest doing some work at deep discount or free rates, but it worked in my case and helped me get some demonstrations of my work out there... so I was paid in marketing value, which will hopefully turn into cash.

Finally, I will repeat something, regarding the outdated DOS stuff.... completely true. You would be amazed, and it is true in so many areas, from my state government (I speak from direct knowledge) to a furniture store that is about to open their second store-- that one couldn't generate a report of their inventory and dump it to a file, only to paper, because they didn't understand much about how it all worked (I didn't want to press them).

A few months ago, I was a bit uncertain about starting something, but I actually have far too diverse a resume (ie I worked in silicon valley and took advantage of the high mobility and salary potentials) to get a job in conservative Arizona, where everyone wants 5-10 years doing the same thing, usually doing something very specific and dated, and sometimes requiring either MCSE certification or a secret clearance.

That's my $0.02, hope that helps, and good luck!

I admire your courage but...

[sterno]

The logic you're using, that you should go start your own business because you don't have the experience to get employed by somebody else seems faulty. Convincing an employer of your talents is infinitely simple than convincing a prospective client. The amount of risk to an employer is substantially lower if they make a bad hiring decision than for a company who chooses the wrong developer for their product.

Having said that, do either of you have sales experience? While you may both have ample development skills, without being able to land the business to work you'll be screwed. Where do you find that business? I'd suggest doing lots of networking. Getting business through friends of friends is your best bet. If that's not going to work for you, try to find small projects for smaller businesses. You'll likely have to take a lot of the risk of project failure on yourself (why should they trust you). So prepare to have little to no income for a while because until you can proove you can deliver, people aren't likely to cut checks.

Other things to consider. Find a good lawyer to help you in drafting contracts, etc. Find a good accountant to deal with the financial details of all of it. Do you have consulting experience or was your job more of a strict product development role? Consulting is a lot more demanding in the way of documentation, tracking of requirements, etc.

Good luck to you, but I'd recommend going back into the job market and trying to build your exeperience. Work on that PHD :). Or actually more usefully, work on your MBA. PHD's are nice, but only if you are doing really out there reasearch. Most businesses would rather deal with somebody who has an appreciation of their business needs rather than some egghead theorist :).

Your 5 minute MBA

[nelsonal]

Starting a well capitalized business in the best of times is difficult, but even in the worst of times it is possible to succeed in business. It will take more work than you think it will, but also probably the most rewarding work you can do. Before you start, I suggest that you read something similar to What Color is Your Parachute, it is an excellent review to help you make sure that you are ready to be in business for yourself. If you are ready and able to start a business, pick something that you really want to do, and focus in on it. You unlikely to succeed if you try to do everything for anyone. Currently anything related to integration or web services is en vogue, if that floats your boat. Another possible idea would be to get into something similar to what your old company did, especially if you can get some of the old customers, it might be large enough to susutain a smaller business.
Before you start the business, you or the other founder should take a class on accounting. Your local community college is very likely to have something that you can audit, take at a reduced rate for no grade. This will be quite helpful, especially if neither of you has experience with bookkeeping. Get something to keep your books, Staples has Peachtree for free after reabate, or GNUCash might be enough in the beginning. Related to accounting, the one thing every failed business has in common is that they all ran out of cash. Profits don't matter, its how much cash you pull in, your suppliers will not let you spend retained earnings. Keep a close eye on your cash position, and know whether you are making cash or spending it at least monthly. Finally, if you decide to go into business with another person, spend the few hundred and let a lawyer either create the articles of incorporation, or partnership agreement. They know many more potential problems than you or I can imagine, and should have some advice for how to structure the company to minimize them.
More frankly, it is extremely rare for a business to be profitable in the first year. If you and your partners do not have enough save to meet each of your personal expenses for at least 6 months stick out for anything you can find to come up with a little capital.
Some of the better ideas I have heard to drum up business are:
1. Help some folks with their PCs first, then eventually you might meet a small business owner who needs help with a bigger project.
2. Give a talk and be willing to answer questions about IT to your local chamber of commerce or businessperson's association.
3. Advertising. One of the places you might consider is talk radio, most of the audience is less techincal, usually wealthier, and more likely to own a business than the average American.
The advice about finding a salesperson is excellent, we geeks are not usually the best at selling things.
Do not try to get too big too quickly, you will kill your cash flow as you grow. But realize that the way businesses make money is through leverage, either charging more than it costs for your employees, or on the financial side, through the use of debt. I doubt you will find a bank willing to offer you a loan early in the life of your business, but be extreemly careful regarding debt. Non-debtors never go bankrupt, they may not succeed, but the lender never has to come after assets if you do not owe them anything.
Lastly, (Is this the third time I have tried to close, I am beginning to sound like a pastor)good luck especially if you decide to venture forth in the the exciting world of business.