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Unemployed? Why Not Start a Software Company?

Posted by Cliff on from the tough-questions-for-a-tough-market dept.

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."

16 of 860 comments (clear)

  1. The challenge of financing by glinden · · Score: 5, Insightful

    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.

    1. Re:The challenge of financing by sane? · · Score: 5, Insightful
      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.

    2. Re:The challenge of financing by XorNand · · Score: 5, Informative

      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.

      --
      Entrepreneur : (noun), French for "unemployed"
    3. Re:The challenge of financing by Radius9 · · Score: 5, Informative

      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.

  2. Market interfaces.... by BWJones · · Score: 5, Insightful

    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.

    --
    Visit Jonesblog and say hello.
  3. Start a company? by ellem · · Score: 5, Funny

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

    --
    This .sig is fake but accurate.
  4. Start a Software Company by danknight · · Score: 5, Funny

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

    --
    wanted: one clever sig,apply within
  5. slashdot problem by havaloc · · Score: 5, Funny

    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!

  6. I did this. by anaphora · · Score: 5, Interesting

    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.

  7. Been there... by AKAImBatman · · Score: 5, Insightful

    ...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).

    --
    Javascript + Nintendo DSi = DSiCade
  8. unemployed? just get a job! by egomaniac · · Score: 5, Insightful

    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!"

    --
    ZFS: because love is never having to say fsck
  9. I have tried multiple times by Tablizer · · Score: 5, Interesting

    ....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.

    --
    Table-ized A.I.
  10. Business plan by Space+cowboy · · Score: 5, Informative

    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.

    --
    Physicists get Hadrons!
  11. doing just that by jrexilius · · Score: 5, Informative

    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.

  12. Why should you need financing? by Coventry · · Score: 5, Insightful

    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

    --
    man is machine
  13. Unemployed? Make money through Gnome! by tellurian · · Score: 5, Informative

    Make money through the Gnome Bounty Hunt:

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