Unemployed? Why Not Start a Software Company?

R.S.D. asks: "I see all these Ask Slashdot articles about unemployment these days. Why don't a few of you guys get together and start a software company? Out there in the world, there is still a lot of software that needs to be written, and people are still pumping lots of money into software (and biotech). In fact, the software sector is still described as the enduring leader in raising venture capital, though apparently in Silicon Valley more money is going out of the maturing software industry and into things that are still high-tech like biopharm and nano. Is anyone else trying this? If so, how's it going? If not, why not?" This is easier suggested, than implemented. For those who have gone this route, what suggestions would you give to those who may follow?

"Every time I see a group of 5-10 self-described 'great but unlucky' IT workers looking for a job, and how their previous company had to lay them off because their former employer had this 'stupid idea' it was to move all the jobs to Elbonia, I have to ask myself -- why don't these guys get together and start a software company. If you don't make these 'mistakes' of outsourcing development to Elbonia, couldn't you compete pretty well?

Best of all if you ever did need to grow, in this job market, you can get highly educated and experience software engineers even more inexpensively than China or India -- I've heard some internships are unpayed these days.:-)

Yes, I am taking my own advice, and trying this, even though I was not unemployed."

Comments

The challenge of financing

[glinden]

I'm not sure it's that easy.

The biggest problem for unemployed software engineers getting together and forming a company is financing. If you're unemployed, you probably don't have a lot of cash around to provide seed capital for your business. If you do scrape together enough seed capital or find an angel investor, you're usually stuck with not drawing a salary and having no health insurance for about a year as you try to ramp up your business. And you're doing all of this for a high risk venture where only 1 in 10 businesses actually succeed.

Nevertheless, I'm building a startup right now, Findory.com. But I wouldn't underestimate the obstacles here. It isn't something that can be done lightly.

Re:The challenge of financing

[sane?]

Sorry, your confusing me.

We've talking software here, the same stuff that many of you do for free with Linux. You have a computer, you have the skills, your marketing and selling might not be great, but at least one of you will be street smart and presentable enough to talk to customers.

So why do you NEED lots of finance?

Find a niche, find a need, create a demo of a solution and sell it. Deliver and find more of the same.

You can be faster, smarter and cheaper than the competition, and if it doesn't work, it need not cost you much at all.

Its one of the advantages of knowledge based industries - the barriers to entry are skill based, not fixed costs.

Re:The challenge of financing

[glinden]

There's a lot of expenses for a startup. At a minimum, there's legal costs from incorporating with your partners, but there's a bunch of small administrative costs as well, especially if meeting with those customers involves any travel.

But the biggest challenge is not drawing a salary for a long period of time. Most people don't have enough savings to live for 12 months without any income.

Re:The challenge of financing

[ComputerSlicer23]

Uhhh, creating Linux took years. Creating a viable piece of software that someone will pay for takes a lot of effort, and a lot of time.

Without some form of savings/income to draw upon, one can't develop software on their own (Free or not). You don't get a net connection for free. You don't get parts for free. You don't get to live rent free. If you do, you probably didn't need the job you so unluckly lost.

People work for a variety of reasons. Most of them are because they need income to barter for other goods and services.

Software that takes 6 months for one guy to slap together, isn't going to impress anybody who has an IT background. They'll see it's obviously only 6 man months of work... ;-)

Most people I know don't have 6 months worth of income available to them as cash they can easily spend. Getting 6 months of time together while working full time at a job is difficult at best. Especially if you work a time demanding IT job.

Kirby

Re:The challenge of financing

[Trillan]

As someone who's been working on this for the last eighteen months, let me tell you the sad truth: Being faster, better and cheaper... and even first to market... isn't nearly enough. What you'll need is the business deals that your competition already has set up. And they're most likely exclusive.

Why did I say competition if you're first to market? Well, your competition won't offer the product you're working on... but they will have similiar products, and they'll happily tell users and business partners that they're working on a product that'll stomp yours.

It costs a LOT. I'd estimate at least 70% of our costs go towards trying to get business deals, and that's the sort of thing you just can't do cheaply.

Re:The challenge of financing

[XorNand]

Don't incorporate! There is no reason you need to endure that expense and headache. Plus you're double-taxed: first on corporate income and then when you draw personal income from the corp. Look into forming a Limited Liability Company. Buy a $50 book, fill out a form half the length of 1040EZ and pay the state registeration fee ($50 in Michigan, $125 in Ohio YMMV).

Don't let all the business or legal jargon scare you, it's easy and legally-binding. You'll have to draw up your own Articles of Organization, but once again, it's easy. It's pretty cool because you get to establish your bylaws and you can write it in plain English, not legal speak. There's plenty of examples on the 'net and in books.

Re:The challenge of financing

[Safety Cap]

So why do you NEED lots of finance?

Think about what you will need:

1. Customer Service/Tech Support
   • No large company will buy software that doesn't come with support. That means you'll have to have someone man the phone. That means you have to have an office with at least a phone.
2. Sales
   • You'll need a web page at a minimum, and a place for your sales force to live when they're not on the road, meeting rooms, etc.
   • Don't forget phones for your sales force - mobile/office/whatever. Business rates for phones are more than the $30/month you pay for that extra line in your parent's house, Timmy.
3. Distribution/packaging
   • How are you going to deliver your software? Shrinkwrap, via internet (see the part about the web page), as a bundled solution? All those things need cash to get going. Don't THINK you'll get your stuff into CompUSA without having some way of delivering CDs
4. HR/Payroll/Accounting
   • Someone's gotta keep track of the pay for your employees and send them their W-2s at the end of the year for taxes. There's that whole paying-taxes-quarterly-thing that the government seems to be real sticklers about, too.
5. Lawyers
   • If you make it a habit of signing contracts without vetting them through a lawyer, eventually you will lose big $$$, or even kill the business. They will also make sure that your employment agreements and business deals are on the level.
6. Office space/equipment
   • Gotta have development, test, and production servers, if you want to do it right (and ultimately, save money)
   • You'll need a network that gets backed up properly (i.e., every day and tapes stored off-site in a secure location---not under the mattress in your parents' house, Timmy!) because you're storing your CVS db there, right?
   • You'll need legitimate copies of purchased software, so if you're doing .NET, you'll need a real copy of Visual Studio for every developer.
   • Printers eat paper and toner.
   • So do copiers
   • So do fax machines
7. Receptionist
   • Think prospective clients are going to be impressed by your sloppy self greeting them at the door? Better at least buy a suit or some nice khakis and a clean golf shirt.

Re:The challenge of financing

[wwest4]

why settle for pizza tips? fuck that - if you can swallow your pride and deliver pizza, you could just as easily swallow someone else's pride and do gay porn. it pays ~$300 a scene. come on, for $300, you'd take a shot in the jaw, right?

Re:The challenge of financing

[sane?]

Well, first off, the poster said unemployed. Therefore the question of available time tends to be already covered. Nobody is saying that you shouldn't look for a more conventional job at the same time.

Second, I said niche for a a specific reason. Its amazing how often you find small niches with needs that are not met, or poorly met. You can find opportunities where the programming effort required is minimal, but the value to that customer is immense. Nobody is saying you should take on Microsoft - in fact its because you're small that you can successfully address these niches. Your local, you know the problem, you know the culture. You can also target your marketing cheaply.

Re:The challenge of financing

[Radius9]

A limited liability corporation is still being incorporated, its just a different form of corporation. Other than what you need to do to become incorporated, and some rules on shareholders, it is in essence the same as an S-Corp. An S-Corp lets you apply you're corporation's profits and losses onto your personal income taxes, as will an LLC, making your corporation somewhat easier to manage. On the other hand, a C-Corp is a corporation that has to pay quarterly estimated tax, and I believe that is the corporation you are talking about. Where you are mistaken however is that you are double taxed. The only place you are double taxed is dividends, i.e. profits paid out to shareholders (which in the case of 1 person, is just you). If I start a C-Corp, and the corporation earns $300,000, and I get paid $250,000 as an employee, then I am personally taxed on that $250,000, and the corporation is taxed on the $50,000 it has left over after paying me, hence no double tax. If I take that $50,000, and want to pay it out as dividends, then the corporation pays taxes on it (after which, lets say $40,000 is left over), pays out $40,000 to me, and then I pay taxes on that $40,000 of income. What you can do however, is you can do something like pay it out as a bonus, in which case it becomes a write off for the corporation, and you're the only one to pay the tax on the $50,000 (instead of $40k, because the corporation didn't pay taxes on it). The other thing you can do is shift expenses that are business related from yourself to the corporation. Things like your travel expenses, computer equipment, a percentage of the rent, business lunches, etc. The advantage of having a corporation (and this includes S-Corps, C-Corps, as well as LLC's) is that corporations have a greater leniency on certain things that they can write off. For example, if you go on a business lunch, and it is not out of town, you can only write off 50% of the amount. If the corporation has a policy of paying for business lunches, it can write off 100% of the amount, whether it is in town or not.

Just a little disclaimer however, I am not an accountant, just a business owner. If you are seriously looking into incorporating, speak to an accountant first. Although I highly recommend all contractors incorporating, there are numerous things that you have to keep in mind, and there is overhead, so its best to go into it with eyes open, or you are liable to get screwed for not following the rules.

Re:The challenge of financing

[llefler]

I can't do it because its toooooo haaarddd....

He's talking about creating a job. Is your reputation so bad that you won't hire yourself? Anybody I know that is serious about programming owns a PC. All of them have compilers too. And if they didn't there are free compilers, either OS or previous versions of commercial compilers.

So you need three things; time (unemployed, you have plenty), a marketable idea (a little more difficult, but there are so many BAD programs out there than need replaced, not even counting processes where software doesn't even exist), and someone to sell it. The last being the hardest part.

I have a friend that is always telling me "I need to learn more about this or that so I can get a programming job". Let's see, he needed; better understanding of OOP, web services, XML, SQL.... So I gave him a project to write that addressed all of them. Since I have seen nothing in 4 months, I'm assuming he really doesn't want to program.

I turn down several consulting jobs a year because I like the security of a stable paycheck. I don't have time to do my job and consult. So my experience is that there is work out there. If you know anyone who owns a small business, they can probably tell you how some software that doesn't exist could benefit their company. And unless they have some really odd business, there are probably 1000 other small companies doing the same thing they are. Niche markets can be profitable for a small group of programmers.

Re:The challenge of financing

[sane?]

You're thinking big, think small.

You need a product that can justify costs of a few k per item. You are not in the Microsoft game, you are in the niche game. Value to a specific niche is what you are looking for. Value sufficient to justify the costs you will charge, and small enough that the big boys aren't interested.

So:

1. Have a number redirected to your mobile, and have a rotation within your little group.
2. A website is cheap to do well. Don't have an office for the first year. YOU are the sales force.
3. You are going to deliver it personally (unless its a web service). You're not in the shrinkwrap game yet.
4. Providing you keep it simple, you can use off-the-shelf software for this for quite a while. Sure, you won't find every tax loophole, but the accountant charges can be kept to a minimum.
5. Keep it simple. Try and start from the basis of your template contract. Use your brain, and a lawyer when you have to. The aim is to be a partner to the customer - if they try to tie you up in too complex contracts or terrible terms, walk away.
6. Work from home. Don't have fixed overhead costs until you have to. Plenty of companies can succeed to the extent they need to never having a 9 to 5 office. Some people swear blind that the office is a necessity. It you agree then get the cheapest, smallest, most dive like office you can.
7. Go to the customer, don't expect the customer to come to you. Sell on the solution you can provide, sell on your dedication. If they want the glitz then you will likely not get a look in until your turnover is $1m anyway - don't go after those customers.

I'm not saying I disagree with what you have said. There are lots of reasons why it can be too difficult, too expensive - but provided you keep you wits about you, they are possible to avoid.

Re:The challenge of financing

[XorNand]

If you're one code monkey working out of your apartment, don't bother doing anything more than filling a "Doing Business As" (DBA). It costs like $25 in more areas. Essentially it's like giving yourself another name. All income is reported on your 1040 under your SSN. It's cheap and easy. If things grow, then you can always roll it into a new business entity. WAY too many people overlook this option when they have stars in their eyes.

A C-Corp is a standard corp and S-Corp is like Corporate Lite. It's designed for a small, closely held group of investors. There are some restrictions on what you can and cannot do, who you can offer interest to, etc. Still though, either form is too complex and costly for most people who simply have a good idea and pocket change to work with. I recommend an LLC for a small group of friends and just a sole-proprietorship (the DBA option) for just one guy.

No, I'm not a lawyer but I have done a lot of this stuff and have learned from my mistakes. Don't do a corporation unless you have serious starting capital (what is not what this /. article was about).

Re:The challenge of financing

[lost sheep]

He's right, the double-taxation only applies to dividends. One giant basic need for incorporation: it protects the owners from lawsuits and creates a separate entity that is the business. What this means: Say you have an employee that works for you, there is a fire, they die. Their spouse sues your company for $2,000,000 and wins, but the company only has coverage for $1,000,000 and only $500,000 in the bank. If you're incorporated: The company goes bankrupt, that sucks. If you're not incorporated: The owners are required by law to come up with the money; the company goes bankrupt along with the owners, that is sucking in a most extreme form. Additionally, if you ever want to do things like bring in investors, bring in partners, ESOPS (aka stock options for employees), do certain kinds of business with governments and other businesses, and have any sort of business exit strategy (except the strategy of leaving it all to your kids) you need to be incorporated. So take some advice, visit an accountant and attorney have them draft the articles of incorporation in whatever state you want them to be in (Deleware is the most popular!).

Re:The challenge of financing

[bscott]

> if you can swallow your pride and deliver pizza, you could
> just as easily swallow someone else's pride and do gay porn.

Wow, in your mind those two professions are equivalent?
(And I thought *I* was a huge moral relativist...)
The apparent nonexistance of a line between legal and illegal actions should leave you admirably suited to a job in almost any large corporate legal department. Blimey, you're set for life, dude!

Personally, I delivered pizza for 2 years - even while I was earning $75/hr as an at-home programmer. It was a nice break from the keyboard, getting me out of the house on a regular basis, and I got the not-so-occasional free slice - the best kind of pizza is free, after all! So where's the pride-swallowing, I ask you? I'm not begging for change, I'm not representing scumbags in court, I'm not calling people during dinner to sell them siding, and my clothes stay on. It can be dangerous work if you're not in a nice area, but otherwise it's enough to live on and you'd be surprised how many computer-y types I've known through the years who used pizza places as a nice little moonlight position... especially computer techs - I think it's just a nice change of pace to have a job where people are happy to see you!

Re:The challenge of financing

[oddman]

Exactly what is it about delivering pizza that makes it something that you need to "swallow your pride" in order to do it? It is lawful, gainful employment.

Is it glamorous? No. Is it challenging and stimulating? Yes, but necesarilly in a way you'd like. Is it high paying? Not really.

But none of these facts makes it shameful or somehow dehumanizing. In fact one might argue that the refusal to take a job in maunal labor or service (food delivery is both) is shameful. You should never consider yourself too good to take a job, if you are unemployed.

Re:The challenge of financing

[Tassach]

So you need three things; time ... a marketable idea, ... and someone to sell it

You forgot the essential fourth thing: money to live on. If you're living in your parent's basement, you might be able to survive on peanuts while you build a business. If you have a family to support, then your options are much more limited. If your spouse / SO can support the family while you're building the business, that's great. But when you're the primary breadwinner, you have to do something to bring money in *now* so that the mortgage gets paid and the kids have food on the table. "Sponging off your family" is a kind of financing -- they're paying your living expenses so you can build your business.

Re:The challenge of financing

[odin53]

Some of what you say is incorrect. An LLC (a Limited Liability Company) is, by definition, not a corporation. The two business forms are very, very different. This means also that LLCs are very different from an S corporation, because S corps and C corps are exactly the same kind of business entity -- a corporation. The "S" and "C" designation is entirely a tax code thing; you don't "incorporate a C/S corp", you incorporate a corporation. You declare that you are an S corp to the IRS.

You're right that business owners who are choosing between the LLC form and the corporation should always consult an accountant, and consulting a lawyer would be good too. Aside from the tax advantages and disadvantages, there are many advantages and disadvantages to the LLC as a legal structure.

Re:The challenge of financing

[shaitand]

You seriously overrate some IT managers and corporations judge of talent.

I'll give you a random example from my own past experience.

Several years ago (like 6-7, I don't even think I'm under an NDA anymore, ancient times really) I worked for a lesser known corporation called Sony Electronics.

I started off at this Sony Electronics place, in Tech Support. I went there expecting they would be interested in knowledgable people. I walked in and they first did a lie detector test for security clearance and drug testing. Then they gave you a technical test, where they would ask you questions and you'd have to describe how to perform various tasks off the top of your head and explain technologies in certain areas etc (architectures you've worked with etc.). Fair enough, after all a customer isn't generally going to call and give you a multiple choice question.

It wasn't long before the interviewer was starting to scribble on the back of the sheet when writting down the processors I'd worked with (3rd question, after name and date of birth) before he simply sat it down and started quizzing me. All of it fairly easy windows stuff (only setback was that he said it was windows 98se and asked about system resources, I started explaining how to get to the system monitor and he got very confused, he wanted the overall rating in system properties).

So I go through the rigerous Sony 1 month training course and another month on the floor. And then I discover the magic which is numbers. That is all sony cares about. My (now wife) worked there with me, she is of a knowledge level where she knows there is this cd command and a vague idea of how it works, if you ask her how to move to the root of the C drive she will advise to type "cd C:".

She didn't know shit, probably fixed about 3 customers problems for real. It's a fair bet that every customer she handled called back 3 or 4 times. Needless to say she was the Star of our entire shift, 94-96% of her time was spent on the phone or available ready for a call to come in. Her average call time was about 6 minutes. If you checked her calls (easy to do) there was ALWAYS a callback but Sony neither noticed nor cared.

Me, I rated about 85% spending alot of my time in unavailable (mostly spent on call documentation), my average call time was more like 15min. I had an average of 5 or 6 kb updates (solutions that were wrong or had no solution in the sony knowledgebase, wife had zero in the year we worked there) a day. If you looked through my calls you would always see almost nobody I worked with had to call back for the same problem and the only reason I escalated a call was because it required a solution that wasn't within my authority (certain types of repairs) and even then I usually walked over and got authorization rather than bumping up the call.

I have several letters in the Sony book (where customers wrote to the president of the company because they were so pleased with my work) and had one customer try to send me home baked chocolate chip cookies (nazi security gorillas examined and proded them for 3 months and finally handed me a bag full of cookie pieces, seriously).

Now with all that, I was at barely acceptable performance and got lectures on my numbers fairly routinely (course they'd never fire me, that takes a 6month process at sony and they wouldn't start it with my star employee girlfriend as part of the package).

My wife is an accountant by trade by the way, and her poor performance as a phone tech really doesn't reflect on her work in the subject she actually knows something about.

In any case, that is an example of the way Corporate America works, I could give you dozens of other examples. It's much like the government, there are rules and guidelines and reality rarely intrudes on the way things work there.

Market interfaces....

[BWJones]

Find a dedicated concept or conceptual area to exploit. How to do this? Simply ask folks what areas they are having problems with software needs.

I'll tell you that a number of folks are doing quite well at the interface between biotech and software. The amount of data that is being generated by biotech is truly mind boggling and we need software tools for analysis and visualization of that data. Software that is capable of analyzing multi-dimensional datasets is particularly in demand right now with gene chip analysis and the work we do in our lab on molecular phenotyping. For instance, we are adopting software used in the remote sensing community to analyze "multispectral" data sets in the retina and other tissues and the communities that this software came from (GIS, Remote sensing, Intelligence) are very interested in software that can help distill multispectral data real time to enable streamlined processing and analysis. Your link to DARPA is particularly informative for these potential projects, but don't forget about other resources as well like the National Institutes of Health.

Re:Market interfaces....

[The Jonas]

Find a dedicated concept or conceptual area to exploit. How to do this? Simply ask folks what areas they are having problems with software needs.

Interesting site can be found here.

Re:Market interfaces....

[dustmote]

Absolutely. I think that the difficulty that faces a lot of people is seeing what is needed, what there is a market for. It's very easy for a person to figure out what their own software needs are - I can tell you the top ten programs that I would write/have written if I had the time or wherewithal, but it is difficult for me to figure out the needs of the business on the fifth floor of our office building. I suppose that the trick, as you have pointed out, is to find places where a huge volume of information is being generated that needs processing and correlating. Still, it can be hard for a lot of people to see the difference in "things I need" and "things other people want and need".

Start a company?

[ellem]

Pfft! If I had that kind of drive I wouldn't be unemployed now would I?

uuuuh. did you think about this?

[heller]

There's not enough business in the software industry to support the existing industry, otherwise those who were in it before wouldn't be unemployed, and you propose another company?

Re:uuuuh. did you think about this?

[Rocketboy]

Perhaps the difficulty is that there's little need for more software vendors producing "me too" products. Is there really a profitable niche for selling a new spreadsheet, database, or word processor? E-mail or chat client? I doubt it. The challenge -- and the reward -- comes from inventing new products that don't exist yet, or which do exist but don't work very well. Remember too that the real money often doesn't come to the first group introducing something new and radical but rather to the more highly polished second and third. 'Course, that was before software patents...

Re:uuuuh. did you think about this?

[bloggins02]

Perhaps, perhaps not. I think a lot of software companies out there are failing to follow the old adage: "don't sell shoes to shoemakers." Meaning? There are WAY too many software companies trying to sell software and services to...other software companies!

This can only go so far, eventually some of those software companies have to sell to someone else, or we're in a big circle and going down fast. Software companies that hire REAL coders (who, for example, know what a "stack frame" is, I'm not talking about code monkeys) and do software projects for people in other markets still have the potential for success.

Are V.C.s likely to fund your new company which aims to sell yet ANOTHER content management system or source code revision system or .NET component? No. Might they fund a business who writes software that analyzes biotech data in real time, or even controls sophisticated steel factory machines? Probably.

Start a Software Company

[danknight]

I'm Going to call it ... MikeRoweSoft !!!

slashdot problem

[havaloc]

The problem with starting your own company and gathering a bunch of unemployed slashdot readers is that they will be reading slashdot from 'work', looking for the elusive FP!

Personal experience

[Anonymous Coward]

More than 90% of IT workers i know are employed. 100% of the good IT workers i know are employed.

Re:Personal experience

[Tablizer]

More than 90% of IT workers i know are employed. 100% of the good IT workers i know are employed.

What I find is that good IT and "employable" are two different things. Companies seem to prefer bullshit artists who do hit-and-run short-term thinking and coding. If they make sacrifices in code and design quality to meet deadlines, nobody ever seems to complain. Cleaning up or patching over their own cruft is job security for them.

The good BS artist has an advantage because nobody has the time or ability to verify what is being claimed, so if they put the blame on a bad Flux Capacitor, and are good liars, they are usually believed.

The Dilbertian view of the work world is generally true in my observation, at least in the domains I am familiar with. It is mostly a social/political game, not a technical one.

I did this.

[anaphora]

I started this when I was 16. I designed programs to teach kids arithmetic. Now I'm 18, have a steady job that brings me about $10/day for all of the work of listing my programs on eBay, and every once in a while, I'll get lucky and a school will want to purchase 50 or 100 copies of my program on floppies for their computers. The programs took about 3 days to write, and they were the best 3 days of my life.

Re:I did this.

[tommck]

WEll, frankly, 3 days is not enough time to come up with an idea, never mind designing a coding a solution. Then, there's marketing, etc. You seem to have gotten lucky with what you've written, but it's pretty much impossible to write 30 useful programs with an average beginning-to-end time of 3 days. If you could do that, you'd be giving Bill Gates a run for his money...

Re:I did this.

[Kenja]

So at 10$ a day you would only have to do this 100 days a month to cover basic cost of living out in the real world.

Been there...

[AKAImBatman]

...done that. And I have to warn you, it's not easy. What you think makes a good product will in fact be very different from what your customers think is a good product. You can plan on at least a year of post-release development before your software meets the needs of your clients. And you'll have to be doing the development while taking the time to advertise the existing version, so you can at least make enough money to make ends meet.

My best advise is to start a small software company while still employed. Don't advertise too much, and listen to what your customers have to say. If you keep constant development going, you should have an excellent product prepped for the next time you're out of work (or to start off on your own).

unemployed? just get a job!

[egomaniac]

This is really no different than saying "Hey! You're unemployed, right? Why don't you just get a job? That would fix things right up!"

Where do you think the money comes from when you start a company? That's right, investors. Now, if you can't find a job, what the hell makes you think that you're going to be able to find investors?

"Hmmm. You've been looking for a job for the past year. Unsuccessfully. You have no experience running a company. You don't have a clear business plan. You have no leadership skills. Well, what have I got to lose? Here's ten million dollars. Have fun!"

Sure we are

[jasonditz]

Is anybody really NOT doing this?

I mean, every unemployed software developer I know still freelance codes to make ends meet (at least once unemployment runs out).

But making ends meet and having a strong business where you're honestly "getting ahead in the world" are two very distinct things. Of all the people I know trying this, few were able to come up with more than $10,000 over the last 12 months, and some of us considerably less than that.

Finding paying customers for software isn't easy (at least those willing to pay what the software is worth). I often go 3-4 weeks without anything profitable to do... and get called by someone who wants a 20-30 hour job to cost them like $50.

It's not because of lack of great ideas

[Anml4ixoye]

The company I am working for I didn't join because of their great ideas. Though what we are building is very cool. It was the fact that the CEO and President are both Ernst and Young alumni, and two of our Board of Directors have significant experience in the industry we are building it for. On top of that, they have a rock solid business plan that I was very impressed with, and know what's important to spend money on (legal, dev workstations, software licenses) and what not to (not working off of a yacht yet).

Add to that what an earlier poster said about financing and you have the mix to keep most people from starting or suceeding at this. Show me software developers who know how to create a good financial plan, can prove a track record of delivering software, and know the industry they are building for, and I bet very few of them are unemployed.

I have tried multiple times

[Tablizer]

....and failed. It is not easy. You can't just throw clever programming at the problem and get money out the other end. For one, it takes a hell of a lot of marketing knowhow, something that most geeks should have known they were crappy at when the prettiest girls went to the fast-talking football players. There is much more to making a company than clever tech. Tech ability is becoming a cheap commodity. That is life in the new mellenium. The sun is setting on us geeks and there are fewer and fewer escapes.

Fund your development with services

[Anonymous Coward]

The lead time before your software dreams start generating cash flow is immense. Sometimes it never happens.

I've seen self-employment work best as a service business. Can you do networking and software support? Do you think these jobs are beneath you? Do you have skills in dealing with customers? You know software development inevitably turns into support in successful projects?

Support pays the bills and generates the cash flow needed to fund you development efforts. The problem is most developers think they're going to develop a successful product and let someone else worry about the support problems. Never happens. Might as well bite the support bullet now. You will find it is not beneath you. It is hard even for the technically skilled. It will pays the bills and give you the time for pure development.

Re:You need to have somtheing to create...

[stratjakt]

A lot of unemployed people are just plain useless.

They're still waiting for a $200,000-per-year-with-stock-options gig writing FORTRAN routines to create amortization tables.

If you really want it, work is easy to find.

Business plan

[Space cowboy]

Don't expect to get anywhere without one. It may be crap. Hey, it *will* be crap. You'll look back and laugh (or cry), but it's important to have a standard yardstick to measure yourself.

Beware of angel-investors (people who know you and are willing to give you cash to start up). Unless you have a better experience than most (myself included), you'll fall out, and it'll get messy. I wasted 3 years.

Do a *realistic* assessment of your income and needs. Before you jump ship or give up something else, make sure you can support yourself. Sounds stupid, but it's amazing how little costs can add up. It's easy to fall afoul of the law with tax returns and VAT as well (for us Europeans)...

Get people on board who can run a company - not as paid (or maybe nominally paid) - someone who's outside the business most of the time, and isn't fixated on the next quarter, because you will be, and you'll need a longer-term plan as well as the short-term survival strategy. Make them a non-exec director.

That's about all. The business plan *is* the most important, believe it or not... Most banks will help you through it for free (hoping to get your business). At the very least they'll give some sound advice. It's their job to fund businesses that work....

We've been going for 2.5 years now, and learnt the hard way (the aforementioned 3 years) that there's more to doing this than meets the eye...

On the other hand, if you can handle the extra pressure of being both boss and worker, it's a far nicer lifestyle than being a cog in the engine :-)

Simon.

Same reason I didn't

[dejaffa]

I'll give you the same answer a friend of mine gave when he and I were quitting a consulting company about the same time and someone asked why we didn't start our own.

I don't know anybody who's good at sales whom I trust.

Regarding the poster suggested

[GoofyBoy]

... defense soliciatations.

These are alot harder than you think.

1. There are alot of companies with deep pockets going for it.
2. You will spend a huge time writing proposals down to accounting to the cent before you get into what IT guys would want to do. PHB type of things. And you are not guarenteed you will get the job or get paid for that work.
3. The amount of waiting for things to go through would destroy a business with no income.
4. I can almost guarentee you that a bunch of unemployeed slashdot readers will not qualify for these types of jobs either finacially or with experience contracting with the government.

I am trying to...

[gtrubetskoy]

Great topic. IMHO, entrepreneurship is the only way out of the tech marketplace disaster we find ourselves in. (BTW, Cringely is suddenly not at all optimistic about the "offshoring phonomenon").

Here are the reasons why felt absolutely compelled to start a company:

• Ever since being laid off from a seniour level job at a large ISP in 2001 I have been unable to find anything that would match my level of expertise. I have not been unemployed a single day since, but I've changed jobs 3 times already and have been frustrated with the level (or lack thereof) of technological advancement, at least in my general area - Washington, DC.
• I know for a fact that the survivors of the dot bomb are plagued with all kinds of moral and managerial problems. I am convinced that this will not pass, and that the only way to find an interesting project is to make one yourself. Sure it's easier to "get a job", but the management of today's companies who have the money to hire lack the vision and creativity to provide you with a dream job, so you have to do it yourself. I also see this as a competitive advantage - I can have my prices very low because I don't have the overhead of loans, layoffs, chapter 11, etc.
• I do not think I can make a living by simply being a developer or system administrator. The offshoring thing is very real, and unless you insert yourself into the IT chain not just as a programmer, but as a manager and steakholder, don't expect anything other than a mediocre living.

The bright side is that it is still much easier to start a business in the US than most anywhere else. Really, why not take advantage of it?

... Investor money for what?

[cjustus]

... I've read through many skeptical comments, and I'm just picking this one more or less at random...

What do you need investor money for? You own a PC, or you wouldn't be on slashdot... Compilers are a dime a dozen... The biggest expense for many companies is R&D... It's not like you have to stop looking for a job while you're coding - you keep your skills current... The cost to enter the software development business is pretty much nil for someone who isn't working...

I guess before there were investors, there were no companies, and all companies have required investor money to get going...

Those of you interested should check out the Association of Shareware Professionals ... Lots of good info here...

doing just that

[jrexilius]

although I am not unemployed. An earlier poster touched on the key point: paying rent. And I mean my own rent. A software company doesnt need an office. Here are my business expenses:

1) server colocated in datacenter with back-up dial-in line $300/mo + $2000/server
2) SSL cert, web site marketing costs, etc. $500/yr
3) answering service, mail box, fax service $600/yr
4) cell phone & DSL at home $100/mo
5) incorporation, filings, fees, business liability insurance, registered agaent $2000/yr
6) business checking account $500/open
7) software, $0. all open source

So the company costs me an upfront ~$5000 and $400/month after that for a grand total of ~$10k for the first year.

Personal expenses:
rent/mortgage, utilities, taxes, maintenance, etc.
car payment, gas, insurance, parking, maintenance
debt (credit cards, student loans, etc.)
food, clothes, fun money, living
insurance (health, dental, death, disability, etc.) (~$200/mo for individual health)
savings & retirement etc.

My personal expenses after cutting out A LOT of fat are $4000/month for a grand total of $48,000 for the first year. after taxes.

I have 12 hours a day 6 days a week for 50 weeks a year, burstable to 18/7 for short stretches. When you are responsible for everything you cant burn yourself out.

So you look at your resources, your overhead, do the math and figure out if its feasible.

This is completely ignoring the fact that most engineers make for very poor salesmen, financial planners, marketers, and strategists. Which are as essential to a business as good technology or product.

What sort of company ?

[psycho_tinman]

Earlier posters have already pointed out that you need either a business plan or a product to get a company started (not to mention some source of funding).

Another type of company that I've contemplated starting is a specialist in an area. For example, any sort of networking project, or any sort of database administration work... Guns for hire, in other words. You go in, do a specialized install, get a maintenance contract, and you're done. Some system administrators may require training courses in specialized server software.. you handle those.

Basically, you have two ways to go. You can either be a product oriented company, and try to push as many of your product out into the marketplace, or you can be service oriented, and take it project by project. Each has a set of pros and cons..

Product oriented means you need deep pockets at the start, and a lot of faith. You may be coding without a client for ages, while you build a product that works. These companies are a lot more stable in rough times, once they get a few clients, but breaking even is a huge task, because they have so much invested in a product (which may sink in the marketplace).

Service or contract or even project oriented companies are easier to start up. Here, funding is less of a problem but you need solid contacts to give you projects at the start. Your margins are driven solely by how well you can deliver and close out the individual project.

In either case, you're looking at a lot more work than you would encounter being a wage slave. It takes a lot of different skills (you need to be savvy with business, have a head for numbers, worry about your presentation, and like Napoleon asked of his generals, "you need luck"). Once I sat down and figured out all this (and had friends tell me pieces), I realized that I might be able to handle the technical aspect, but definitely wouldn't have a clue handling a business. So, for now.. my plans are on hold.

Personally, I think people who start companies and have an entrepreneurial streak generally have a pretty good idea and aren't doing it just because they can't find a job..

Re:unpaid internships

[thasmudyan]

My company does unpaid interships and I'll tell you why:

At most other shops, interns are paid, allright, mostly to make coffee and do the tasks no one wants to do. And it's OK that they get money for that.

At our company, interns receive a personal training plan and are basically treated like students. The employees are encouraged to spend lots of time with them, teaching them what they know. Our interns work on real projects, and are getting real experience with their desired field of work. This costs the company a bunch of money, because time and resources are diverted to implement these training plans.

So, no, we're not paying them additional money but when they leave (and some get assimilated by us), they know a whole lot more about their future jobs. Getting this knowledge across basically costs us money that - let's face it - we're never getting back in any way. It's true, an intern also produces stuff during her stay, but the value of that doesn't compare at all.

Working well enough for me...

[mclove]

I started my own company back in college, and thanks to an unexpectedly successful product by graduation time I was making enough money so I didn't even need to look for another job. But even if you're unemployed, depending on your credit history and other factors you may be able to get startup financing, or failing that you can try to find a low-paying low-stress part-time job that'll pay you just enough to keep you going until your first product release.

I design/write/sell software for Palm OS, and for what it's worth, PDA's and embedded devices are a *great* opportunity for small developers now - the size and expectations are low enough so that one programmer in a couple of months can create a top-tier PDA product. The only problem is that the programming tends to be a more frustrating than for Windows - Palm OS in particular can be very perplexing for someone who isn't familiar with event loops and 80's style application coding, and even Pocket PC is fraught with weird compatibility issues. And the development tools for both platforms kind of suck. I'm not exactly a brilliant programmer, though, so it's more a question of patience than anything else, and if you've got the stomach for it it can be quite rewarding.

Really it all boils down to ideas; the key to early success as an independent software developer is making something that's sufficiently innovative/exciting that your customers will basically sell it for you, because even with Google et al big advertising campaigns are still the domain of big companies. One great way to get started is to find a small niche market with few competitors, create a well-polished new product for it with some innovative ideas, and back it up with a friendly attitude and impeccable support - at $99 a pop you can make a perfectly decent living with a few dozen orders a month.

Commit

[FreshFunk510]

My friends and I tried to start a business venture and I'd say our idea had some viability but people seemed to commit in varying degrees at varying times. I think one way to get everyone to commit is to put a price on it.

For instance, one big problem we had was determining how much we should spend on marketing. We thought it best to go on a situation by sitaution basis as we encountered them and to determine, at each time, whether marketing ventures were worth it. I think this was a big mistake.

What we should've done was determined how much it would've cost to start a business BEFORE we set out for it. Even a rough figure will be good enough to prepare everyone to how much they are going to be committing financially to a company. I would then recommend amassing this money and then setting out on your venture.

This way you can set a budget for costs such as marketing. When you send out an ad campaign for $500 or $1000 you won't be thinking about how much of that comes out of your own pocket but you'll be thinking like a real business like how much of your total marketing budget that is, whether it was worth it and whether you want to spend it again. If you pull it out of pocket right then you'll always be stingy because you have no real solid metric to evaluate costs.

Finally, putting your money on the line from the beginning (whether it's $1000 or $10000) makes you try a lot harder.

Insulting

[DevCybiko]

Thats an insulting attitude. It's like saying "Hey, you're an assembly line worker, why don't you just go out and start building something". The fact is that there is more to making a successful software company than writing code. In fact, the code is the easiest part of the process. To be successful in business you have to identify a need and convince someone to give you money to address the need. Software Engineers (typically) are not well suited to salesmanship. IMHO you need at least 3 different personality types to start a software company. You need someone with creative energy and vision who can ariculate that vision in a way that motivates both clients and employees. You need a financially minded individual who can see the vision and convert it into dollars and cents - making sure that its a viable venture. and you need an imaginative technical lead who can turn the vision into a product that meets the needs of the client and keeps to the bottom line. It's not just a matter of writing code and raking in the bucks.

Why should you need financing?

[Coventry]

I did this over a year ago, with no financing. In fact, I was in debt upto my ears. First, some misconceptions need to be cleared up:
- don't get an office. They cost money. Work From Home. If you have multiple people, either work remotely and meeting irl a few times a week, or choose one central house/apartment and setup shop in a room there. Basements are fine, so are spare bedrooms.
- Use existing hardware.
- Get dirt cheap hosting and put up a good looking website. customers won't know you're only paying 5$ a month for the site.
- don't pay yourselves salaries - I've seen way to many people think 'I need X amount of cash to pay myself Y per week for six months until the business is making money'. Plan on paying yourself what you can, and using unemployment as a cushion until things take off.

Heres how it works: while on unemployment, come up with an idea for a type of software business, and then throw up a website (make sure it looks good), and start writing software. You have to keep looking for a real job, but as long as you aren't making money on the biz, you don't have any income to report, and still get unemployment. If you want to sell products, write them while still on unemployment. If you want to do consulting or custom work, be finding clients while on unemployment. If you are small enough, and have learned to be lean, then your first customers will pay enough that you drop off unemployment and go from there. If not, then divy up the money, pay for expenses, etc (The biz can pay you back for the web hosting, for example), then pay yourself. You Can make money while on unemployment, as long as it's not much - they will reduce how much you get from unemployment in a near 1:1 ratio.

If you do good, you may find yourself off unemployment and making better-than-unemployment wages within a month or two.

You may fail, miserably, but with a cost-of-entry of a few dollars a month and your time, it won't cost you much to fail. If you aren't on unemployment anymore - say if it ran out - then find a job somewhere else to tide you over while you try to get the business going. After all, a 8$/hr job at a bookstore is a lot more money than 0$/hr.

Also remember that starting a business is Not for everyone - many people want the security of a known salary, and don't like the idea of taking risks. Others don't want to work long hours, especialy on something so risky. Ask yourself if you are one of those people.

Me, I've been lucky, and perhaps that has skewed my perceptions. My friend and I were discussing starting our own company, and then a client fell into our lap... a client that by themselves paid our bills and allowed us to grow the business for 6 months. Of course, now we're looking for more clients, since things are slow, but thats the nature of owning your own biz - risk.

neurokode.com - yup, thats me and my partner, and yes, it needs work - we've been too busy to touch it much. Need contract development, or a code audit? Contact us. Want tools for DB development with python? Check out pdo.neurokode.com

Re:Why should you need financing?

[EvilTwinSkippy]

I'm using a slightly different approach. My wife and I are developing a hosting business on the side. She goes out to people's houses to tutor them on the Internet while she's home with the baby. She makes pretty good money at it to. I get called in to do rocket science type stuff, like wire a small network or set up a website.

Along the way she occasionally runs into someone who runs a business and needs hosting. We have been snapping up a few small $5-$10/month clients, and also host a few non-profits who needed some server-side scripting stuff at around $30. At this point our DSL line into the house is paying for itself.

My plan is to keep adding small mom and pop enterprises until it starts to rival what I'm making during at my day job.

The key is that we have that social in. We aren't Sach's, and we aren't Walmart. We are that nice young couple who Estelle recommended to use who teaches computers, and hosts internet sites, and they are oh so good at explaining to the tech support line about what isn't working with the computer.

We have yet to advertise. Our customers tell all their friends about us.

It all started with sending my wife over to give the former CEO of our organization a few computer lessons. Next thing we know, she told a few friends who after she dropped by told a few friends...

What you may not realize

[deadline]

What you may not realize is that in a traditional business model, the software development expense is about 20-25%. The rest is sales, marketing, administration, etc. So, the cost of starting a company is generally 4-5 times more than the cost of your core team. Add in the 2X modifier because start-ups always need twice the amount they think and you are looking at about ten times the cost of software development. Plus, you need to have one of the core team intimately involved with the initial sales effort. Do not trust your vision to someone that needs you to explained to them. This is often hard for programmers to do, but it is essential when starting up.

Now, OSS models change this equations. because most software (unless you are doing a lot of custom stuff) has to be number one or two to survive. So companies spend a lot of money on marketing and discount the software to try and "tip" the market to a point of increasing return for there product. Open software does not require this expense and in a way almost guarantees that your software will begin to build a critical mass (if it does not you are barking up the wrong tree)

Times have changed, people have changed

[mabu]

I like the way the poster arbitrarily suggests, "Why not start a software company?" as if this is something you can casually do because you're bored or something.

The truth is, even if you had a good application to address, whether you could write a viable piece of software that was marketable is an entirely different matter. Even if you get to that point where you have a good market, and a good product, it's only then that the real tough work begins...

I "accidently" started a software company many years ago when I wrote utilities to help clients in my computer consulting business. The products turned out to be so useful that everyone suggested I start selling them, which I eventually did. It took me almost three years, living in a crappy 1BR apartment that didn't even have working plumbing, making some months, not enough money to pay the rent, but eventually word got out and my product received Editor's Choice in PC Mag. Ok, now I've made it? No. Another problem -- distribution. Even though I had the best product in its market, my competition was in bed with the 1-2 major distributors and put pressure on them to not carry my product. I was in a catch-22 as I couldn't afford to spend money on advertising unless I had distribution, but the distributors wouldn't carry my product unless I was advertising, but I didn't want to put a $20k+ ad in PC Magazine (the major pub at the time) when the product wasn't on store shelves. Eventually we picked up distribution, but it was through a lot of hard work, travelling around doing promotions, exhibiting at Comdex (which at the time was an uber-expensive mafia setup where you'd pay a fortune for a crappy location and then find out when you arrive IG moved your both to the middle of nowhere). I won't even go into the nightmares of trying to deal with venture capital firms -- let's just say I'm still on medication from the rash those people gave us.

Before Windows, the economics of the industry was bad enough. Now it's even worse. You don't have to worry about distribution; you have to worry about some other company with more resources and a desire to envelop every market they can copying your product or bundling it with their existing products and destroying your market. Whereas a great product would eventually be found out, nowadays, most of the industry is hype/advertising driven and those with the most resources, not the best product, rule.

That's not to say it can't be done. But starting a successful software company has more to do with having a realistic idea of exactly what you need to do, and a *tremendous* amount of perserverance. There are lots of shortcuts you can take to offload responsibilities to exploitive partners and publishing companies, but you might as well get a 9-to-5 if you do that because you'll end up getting taken advantage of and losing control of your work.

Unemployed? Make money through Gnome!

[tellurian]

Make money through the Gnome Bounty Hunt:

http://www.gnome.org/bounties/

Wasn't Laid Off....I Quit

[ChopsMIDI]

About 5 months ago, I quit my full time, decently paying, software development job to start working for myself.

Personally, I don't see what all the whining is about ("waah! my boss fired me to offshore his work to india!"). I've experienced offshoring code first hand on two seperate projects and both times, niether of them understood what was requested. And several tens of thousands of dollars later, they were canned. I find it rather easy to convince people that offshoring is one of the biggest wastes of time and money, and becuase of that, I found it rather easy to go on my own.

I'm hardly what you'd call a people person, but the contracts still keep rolling in. And although I'm currently making less than I was full-time, I'm the happiest I've ever been....I make my own hours, I program in whatever language I want, and I set my own wage. And now I have time to do a morning exercise, to try to lose all this weight I gained working in a cube for 3 years.

Worthless ideas

[bluGill]

That sounds great, but it is worthless. When you are unemployed the state (might differ if you are not in the US) pays you to spend 40 hours a week looking for a job. I know that almost nobody actually spends all 40 hours a week looking for a job, but that is what you should do.

I cannot start a company and remain on unemplyment, it is against the rules. Lookup OddTodd one time, he created a successfull cartoon, and the state wanted to take his unemplyment benifits back, he only won that case because he was able to show that he didn't expect his cartoons (which are funny) to make money. If you start a software company can you really expect me to belive that you do not expect to make money?

Open Source as an Inexpensive First Step

[virtigex]

One of the unstated advantages of an open source project is that it can serve as an online resume. Employers can only guess at how real your resume is. You may say that you're a hot-shot programmer, but how can an employer really know? Answer, they can download, compile and run your project from SourceForge. If they cannot do this, maybe you don't want to be employed by them anyway.
If you release you code under the GPL, there is nothing to stop you (as the copyright holder) from re-releasing the code under a more commercial license if your open source project is popular or you find a market for it.
Starting your project off as open source is a great idea. Even if it does not take off, your code is out there and other people (and future employers) can see what your programming ability is like without having to take your word for it.
It certainly works for me. I have two project on SourceForge that helped me land two $100k+ jobs.

The only way to start a successful business...

[Flyboy Connor]

...is having a client.

I have observed, from closeby, many people starting their own software business in the last few years. The ones that survived were the ones that had a client from the outset.

You can build something you like and/or you think is useful, and then try to sell it. That doesn't work. Most likely no-one is interested, or only interested in your product if it is changed considerably. Moreover, if you have an "off-the-shelf" product, people don't want to pay a lot for it.

Get a client, and build what that client likes. This brings in money. Make sure you take into account that on average you work 20 paid hours per week, no more. The rest is needed for time between jobs and for finding new clients.

You will still be cheaper than the big guys, so you may be able to sell yourself. Especially since renting someone from a big guy is as likely to get you a cheat as a good developer, while you, obviously, are a certified good developer.

In the past when I did odd jobs I usually offered a "no cure no pay" scheme, if it wasn't a very big job. Clients are willing to pay more for such a scheme, and as long as you know you will succeed, no harm done (just make sure you define the "cure" conditions).

If there is any time remaining, build your brilliant general solution and try to market it.

There are several good books available on writing and marketing software as a small business. Find one and read it. It will help you avoid the greatest pitfalls. I learned a lot from Hudgik's "Writing and Marketing Shareware". It's fairly old but contains lots of good advice.

Re:The challenge of spelling

[sane?]

Utter rubbish, put about by English teachers to inflate their perceived worth.

Don't beleive me? Take a look at the papers and articles of those with the ideas, those that have actually advanced knowledge. There is NO correlation between the ability to write well and the ability to think well.

We are all put together differently, with different skills and mindsets. You often find those that excel in one area will suffer in others.

I used to have teachers like you, and I'm damn glad that there were others to support me and recognise just how dumb such theories were.

In the end I got to the stage where I could string sentences together tolerably well, and make only a few mistakes.

Somehow it never stopped me making patentable advances and being a world leader in a niche technology field.

Funny that.