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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?"
I have a small business I run by myself. I develop patient management/tracking system for Eye Doctors. I've been doign this for a few years and let me tell you the secret. Find a market where there isn't much competition. Eye doctors have some software available but it really is poor and overpriced (and most of the people who've used it complain about user-friendliness and such). I offer a simple alternative at a lower price and my client base has expanded by 4 in the last month (I know that seems like very little, but it's not when they bring in the dollars that I'm charging and the time I have to spend on each client). Having a connection inside the industry also helps, hehe. In regards to another post here, there are so many doctors/lawyers using out-dated DOS based software. Someone who could write an equivalent in windows or *nix (if the doctor is willing to switch systems completely) would probably be set. Also, in the doctor/lawyer industry, word of mouth is HUGE so I'm getting calls on my software from people I haven't contacted yet. Just my two bits.
The number one thing with being a consultant is communication. You have to be able to communicate with the customer, to find out what their needs really are, and communicate to them why your solution is better than the rest.
But it's more than just communicating facts. The customer must a) be confident that you know what you're talking about. They really don't care about your degree. They care that you know what you're doing. The customer must b) be confident that you know his needs. This is where most people screw up. They talk about what _they_ like - Linux, Apache, open-source, etc. They don't talk about what the _customer_ likes. Customers don't like Linux, but they do like security. Customers don't like open-source, but they do like having control over their technology. Customers don't like technology, they like their problems SOLVED. The better you can communicate both the problem you are solving, why it needs to be solved, and are able to quantify how much is being saved, while still being a likable, lovable guy, the better chance you will have.
You need to understand that they way you market yourself will have a big impact. Don't market yourself as a Linux guy or a C++ programmer. You're not. You're more than that. You are an analyst who can analyze and solve problems and can build solutions.
Be thinking entirely in terms of their business - how they do business, how they purchase, how they manage, how they interact with their customers. These are all important things. If you have the cheapest and fastest customer-billing system in the world, but it can't print the company logo correctly, it doesn't cut it. This is their business, and if you treat it with respect, that will go a long way.
Try coming up with a product you can sell - something simple. You don't have to actually sell it, it will just get you in the door so you can see how they do business and what other solutions you can offer them. For example, maybe try selling a ticket-tracking system (i.e. - Request Tracker), and make a sales pitch, but while your there, take whoever you are speaking with out to lunch, and find out what his _real_ problems are that you can solve. And offer real solutions, not just technology.
Engineering and the Ultimate
"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."
Not to just be a troll, but this sentence alone shows that you haven't really thought this through.
Think about what are you going to be doing in this business. Keywords do not make a business, friend. I don't hire a "C, C++, and Java" programmer; I hire someone who can create an order invoice system (for instance).
"How do we capture the hearts and confidence of potential customers when we don't have PhD's from MIT?"
Another question that shows you haven't researched your market. Potential customers, again, aren't looking for resume keywords. They're looking for someone who can fulfill a specific need. Better yet, they are looking for someone who can explain things to them without resorting to words like "TCP/IP", "HTTP", "DNS", and "C/C++/Java".
To put it bluntly, if you
a) try to sell resume keywords like "C++" or "B.S. in Comp.Sci" as a business;
b) can't explain things in a simple, non-technical manner;
c) pressure your clients to do things your way ("Oh my God! You're using Internet Explorer! UGH! You want me to code what?");
your business will FAIL.
And most of all, don't be flaky! Make your clients feel like they are your #1 priority, even if they aren't. As a consultant, that is the top complaint I have heard regarding other consultants.
I would write more, but I'm onsite at a client's office right now, doing freelance PHP consulting -- that's what I do for a living. It's not easy to be freelance full-time, and you're definitely going to need to put more thought into it than you have already. If what I have said scares you, and you don't want to spend 50% of your time explaining what an "Internet Explorer" is, do the world a favor and don't go into consulting. If, on the other hand, you enjoy dealing with people, dropping off business cards, and generally showing off your work at every opportunity, go for it. You'll most likely find it to be a much more rewarding career in the end.
Simpli - Your source for San Jose dedicated servers and colocation!
...Is more than possible. We do it with almost no effort after 6 years in business (just two of us). And for relatively competant people there is still a lot of work out there. I went to a clambake last week and talked to 5 people just socially and two of them gave me business cards to call them about projects. I could have talked to more people, but I'm really not very social.)
Number one for going out on you own: have someone else to live off of for at least a year, 18 months if possible. Give it time to blossom because it will take time unless your current contact list is amazing already.
Best thing we did for marketing was to join the local chamber of commerce and volunteer on various committees, some on technology so the fit is nice. Go to the regular events and mingle. If you can't manage to hold up a conversation with a business person, leave time to learn how in your business plan.
Get started by volunteering your services to a non-profit (the WORST to work for, by the way, making it a great learning experience as the organizational problems will be at their max) or to a friend's company or a friend of a friend's company. Whatever. Get out and work! even if it is for free. What will happen is this, after the first three or four jobs where you make people happy, people will come looking for you.
Exude confidence, but not cockiness when you talk to people. Offering free advice that people need to hear is the best way to get them hooked on hiring you. Seem busy and act busy. It is just like with dating, potential dates crawl out of the woodwork when you are already taken because of the way you act, this is true in business as well.
Another thing: people are hiring you more on who you seem to be (how you will be to work with) than you think. It is about 50/50 with what you know (this surprised me).
Be prepared to say "no" to work that is out of your focus. Once people realize you are competent they will ask you to do everything, including basic sys admin stuff. This is where we, personally, draw the line. We don't do Windoze which makes this easier to get out of. It may seem strange to imagine turning down work but you will be constantly learning and you need to specialize to really be effective and you can't specialize in everything.
Buy basic marketing books like "gorilla marketing for the home-based business" and "selling your services for those who hate to sell" they helped me get going.
And good luck!
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.
.NET.
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
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.
Skiers and Riders -- http://www.snowjournal.com
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!
Ive been involved in so many failed software company ventures I couldn't count them all ...
:) :)
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#1 - Do *not consider* starting a company unless you know exactly what niche you are going to fill.
#2 - Under no circumstance start a videogame company, if I see one more shitty Allegro/Clanlib game Im going to scream
#3 - Get a day job, a couple close friends, and work nights. That way when you fail it wont hurt as bad
good luck
Religion is a gateway psychosis. -- Dave Foley
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.
:). 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 :).
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
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I work for a small IT company and my boss has over 20 years expirience. Now we hold on to our customers because we deliver. We usually gain customers by word of mouth and usually take over from inexpirienced hacks who totaly destroyed the network.
Business and Retail are two different fields. Retail usually buys on price, they don't care that the motherboard is a piece of s*$! just it's cheap. Business on the other hand will get mighty pissed if the computer they just bought needs fixing after just one year.
Also it is unethical as a professional to pass yourself off as a consultant when you don't have the expirience. Remeber those professional ethics classes at uni? Don't pretend to be someone who has 15 years expirience when you only have 3. That's why there are so many unemployed "IT" people out there. They don't know jack. And those who do, still have a job. In our expirience it has been god-damn difficult to find someone GOOD to employ
After my first job as a programmer went bankrupt (in 1980), my fellow programmers and I toyed with starting a business. We sounded a lot like you. It was hard to get a job, so we would just start a company. Can't be that hard, right. We'd do a better job than the boneheads that put our last company out of business, right. We were programmers, by god, we could do anything if we set our minds to it!
Twenty plus years later I am glad I decided to get another job. I've learned a few things I'll share with you for free that I paid dearly for:
1. You don't know everything when you are 25. Or 35. Or 45.....
2. It is more important to be a businessman than an engineer if you want to be successful.
3. Learn how to write a business plan and execute what's in it.
4. Learn what all those funky financial reports mean, how to create them, and why you're business life (and personal life) depends on them.
5. Become a marketeer. If you don't know how to get a message across to someone, or how to figure out what to charge, or who your competitors are, or what the barriers to entry for you company are you will fail.
6. Become a salesman. Not necessarily work in sales, but be able to sell your idea to investors, to partners, to employees, and to customers.
7. Learn to take responsibility. If you are a procrasinator, you will fail as a entrepeneur. In a startup you are the boss, even if there are five or ten of you. You have no support organization, no secretaries. If you don't do it, it may not get done. Remember, you will have employees, and they will depend on you for their livelihood. What you do and do not do will affect and possibly destroy people's lives. If you are not up to that level of responsbility, get some more experience until you are.
8. Learn to learn quickly. As I mentioned above, you will be doing many different things, some of which you have never done before (and may not want to do again). Figuring out what to do quickly will give you more time to do the important stuff.
9. Management is important. Learn scheduling, people management, budgeting, and espcially how to help others deal with change.
10. Figure out a way to buy a business that is profitable already rather than build one from scratch. It's always easier to make more money and get more financial backing if you are profitable. After twenty years that's what I am doing right now, buying an existing profitable business.
If you are dead-set on going ahead, remember one thing. The successful super-geek programmers were the ones that team up with solid, smart business people, i.e. Gates-Ballmer, Joy-McNealy, Andresson-Clark, etc. Who's your partner going to be and do you trust them absolutely with your life.
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.
Degaussing scares the bad magnetism out of the monitor and fills it with good karma.
Start small. Projects you can pump out fast and charge a minimal amount for, but do your best work on these, really polish them and make them shine. Be prepared to work a LOT of really long nights, and on boring shit like web design. This is not to make money, it is to build a base of clients who will recommend you to other people. The better your reputation, the more money you can charge for your time.
Where to look for clients? Everywhere. Friends and family. The net. Newspapers, yellow pages, and bulletin boards. People you meet on the street. (I'm serious.. face to face has a really magical quality to it that makes people listen to you 100x more than a phone call, fax, or email) Carry a really cool conversation piece that demonstrates your talent (example: a graphics demo on a PDA)
Want to know what people want in today's economy? (Well, always, really) To save money. To get businesses to spend money on you, you have to demonstrate how what you can do for them will save them money. Show them how they'd be fools NOT to buy your software.
And make you you put a lot of work into building a truly reusable code base, it pays off huge in the long run.
"Mind, as manifested by the capacity to make choices, is to some extent present in every electron." -Freeman Dyson
How can an Open Source software company make money in today's economy?
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By selling solutions, not software. The software "product" idea is going away. In it's place, there will be numerous tools developed by people building solutions for others. If you sell a a product that you obtain for 0 cost, people won't need to do business for you. But if you sell solutions that consist of free elements that you put together to solve business problems, you will be paid well. In fact, the business usually won't care how much you pay for the pieces, as long as you deliver the full package.
Those solution providers will release the tools they develop themselves solving business problems as free software. Why? Because they recognize that it is important to maintain the environment that allows them to be successful.
The legal environment is a good analogy. Legal knowledge is free. All court cases and laws on the books are accessible at zero cost. However, lawyers are one of the highest-paid professions. Why? They put the pieces together (which were obtained at zero cost) to create a valuable solution for the client (getting out of jail, etc.)
Engineering and the Ultimate
Note, that word of mouth is the best reward is a two way street. When someone mentions they are looking for X, pull out the buisness cards of all your clients in X, and give them out. And tell your contact the next day you did so (if they are good salemen they will call right away to see if your friend is serious)
Referals are a two way street, if your customers find out that you don't refer people back to them when the opertunity comes up they will drop you (and perhaps activly refer others to your compitition). You can only contact a few people a day, and not all are interested in your business, but if you work for all your customers and suppliers they will work for you a little, and you contacts will go way up.
Eventially you hope to hire salesmen who do this, and love the doing the referal game, but even then you should refer when the oportunity comes up. Your pocketbook will thank you.
PS, always make sure your referals are to good companies. If you know one of your customers does cheap work, don't refer them except when cheap is the only consideration, and then make it clear that cost is the only reason to consider them. In general you should refer people to the best.
Here's the top hints that would make me hire you:
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