Author Topic: How to build a software development company?  (Read 1070 times)

virge22

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How to build a software development company?
« on: May 03, 2021, 02:16:53 PM »
I've been a long time lurker on the blog as well as the forum, and am forever grateful for the invaluable content that everyone has posted here. Given the level of knowledge and professionalism that people have here, I am hoping that someone with more experience than me would enjoy to help out.

I have brought together a group of friends (3 experienced software developers), freelancers that want to start a software company, offering no particular own product, but with a broad competence to take over various software development projects (e.g. frontend, web, APIs, DB design, software architecture, C++, Java, Matlab, UX/UI design). The idea is to enable them to move away from billing hourly to actually taking on projects, increasing their margins and scaling the business by employing others. The skill set that we have grouped is very broad, but then again not industry specific enough to really have a USP for a particular area.

The thing is this: I have no idea how to build such a business, and I donít mean the legal formalities Ė I mean how to build such a software development business without a product at the core. Has anyone got some experience and is willing to share? How do you go about acquiring your projects? Are you working with other software dev companies or industrial companies?

Thanks for your insights!

Rubic

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Re: How to build a software development company?
« Reply #1 on: May 04, 2021, 10:10:53 AM »
I have done this a few times.  A couple times on my own and twice as an integrated
part of a management service.  This is less of a suggestion about what fits your
goals than what has worked for me.

My goal is to get paid on a regular monthly schedule based on the service
which is provided by the software product. The subscription model works best
when I'm providing an essential service, which is typically vertically integrated
to address the needs of the client's business (e.g. medical billing services).

My first foray into this business model resulted in ~50 clients, each paying a flat
monthly fee.  I offered a "one size fits all" service, after seeing similar businesses
flub it by offering segmented "al la carte" options.  The former strategy reduces
the number of decisions your client makes and reduces the negotiations over
fees .  You can offer some customization, but make the hourly rate high enough
so you can pick and choose which features are worth spending time on (i.e. which
features will enhance your overall product).

The products that I provided were essential to the businesses.  They could replace
our product (at significant switching costs), but they could not run their business
without an alternative product offering similar features.

You want to avoid working on projects which fall into the client's "nice-to-have" category.

For example, on multiple occasions we've been approached by another software
company which had a cool project they wanted us to integrate into our product.
They generated a lot of buzz about their product and I was impressed with their
technology.  However, they built something that nobody would pay for -- none of
our clients would have been willing to pay extra for the feature (and I wouldn't be
willing to segment our product anyway), so they couldn't find a market for their
product.

My observations applies to vertical products, which have more opportunities and less
competition than horizontal products.  These are ideally suited to domains which
have regulations which must be adhered to: insurance, legal, real estate, medical,
etc.

Most users will expect a mobile version of your application, running on Android
and iPhone.  A mobile app is essential for horizontal products, but increasingly
users expect mobile versions of vertical applications.  Our current app only runs
on Android, but we have a platform capable of working on iPhone if user demand
ever justifies the effort.

I've never developed a horizontal product, so I have no competence in that area.

-Rubic

SwordGuy

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Re: How to build a software development company?
« Reply #2 on: May 04, 2021, 10:26:08 AM »
Sell and market and produce stable income streams.

Sell and market and produce stable income streams.

Sell and market and produce stable income streams.

Sell and market and produce stable income streams.

Sell and market and produce stable income streams.

Sell and market and produce stable income streams.

Oh, yeah, provide some software somewhere in that process.

That's not meant to be funny.    The actual quality of the software often has absolutely nothing to do with whether the company succeeds.
Sometimes software quality really matters, but it never matters MORE than selling and producing stable income streams.

And the prior commenter had very, very good points as well.


virge22

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Re: How to build a software development company?
« Reply #3 on: May 05, 2021, 09:04:34 AM »
 @Rubic & @SwordGuy Thank you both for sharing your experiences. You've given me some good ideas and points to think carefully about.

@Rubic do I understand correctly that you developed a product and then approached customers, or did you develop the product with the first customers and pivot from there to new ones?
I find it really a hard sell (maybe its just in my mind) to offer basically just software development without any product at the core when you are not an outsourcing company offering low costs...

SwordGuy

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Re: How to build a software development company?
« Reply #4 on: May 05, 2021, 12:00:11 PM »
@Rubic & @SwordGuy Thank you both for sharing your experiences. You've given me some good ideas and points to think carefully about.

@Rubic do I understand correctly that you developed a product and then approached customers, or did you develop the product with the first customers and pivot from there to new ones?
I find it really a hard sell (maybe its just in my mind) to offer basically just software development without any product at the core when you are not an outsourcing company offering low costs...

And THAT would be why I stressed marketing, marketing and marketing...   

If your potential customer doesn't know why they should hire you and not someone else, you're in a price war with low-cost suppliers who will do a crappy job and simply not care.

I wrote one heck of a lot of technical articles and papers in my field and presented them at relevant software conferences, as well as a book on how to use the product.   The salesman loved this because they could ask the client if they wouldn't rather hire the person who wrote the book on the topic...

SwordGuy

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Re: How to build a software development company?
« Reply #5 on: May 05, 2021, 12:04:39 PM »
Check out the pop up business school.  Absorb the free material on their website and google around for interviews with them.   They have some brilliant ideas that will put your head in the right place on a variety of subjects when it comes to starting up a business and not spending a lot of money doing it.

https://www.popupbusinessschool.co.uk/

Can you imagine starting up an entire restaurant for a total cash outlay of 200 pounds?  No debt?  And barring some kind of natural disaster, pretty much a guarantee that's the most they would lose if the restaurant didn't work out?  One of their clients did just that.

It's all in how you approach the problem.   No one specific example will work for everyone but the mindset can work for a lot of people.


Rubic

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Re: How to build a software development company?
« Reply #6 on: May 05, 2021, 01:43:08 PM »
Quote
@Rubic do I understand correctly that you developed a product and then approached customers, or did you develop the product with the first customers and pivot from there to new ones?
I find it really a hard sell (maybe its just in my mind) to offer basically just software development without any product at the core when you are not an outsourcing company offering low costs...

On my first business, I selected a handful of customers who had needs for which I
knew that I could code something functional within a few months. I had a trusted
source who could vet that I'd deliver. Afterward, I could rely on my reputation, but
each product is basically promising a functional product/service to paying customers
followed by long hours of work to deliver the goods.

If you have an uncrowded field, even fairly basic functionality in a product/service
can go a long way.  Look for businesses that are essentially running everything off
of spreadsheets, for example.  When I first started, it was probably much easier to
find these kind of niches. Talk to top level officers in organizations and ask them if
they had an in-house software development team, what would they build with it?

-Rubic

Michael in ABQ

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Re: How to build a software development company?
« Reply #7 on: May 09, 2021, 12:17:05 PM »
I listened to a podcast a while back that had a really good take on developing a business around software. Basically find a problem in a business and develop a software tool to solve it.

The entrepreneur was not a software developer but he would call businesses in an industry and just try to find out what was something they struggled with. In his case most were related to real estate where he had some previous experience.

It needs to be something fairly limited in scope, so replacing several manual steps vs. an all-in-one system that tries to do everything. His goal was to try and develop something that he could charge about $500/month for. At that point a few dozen customers would make for a viable business. One of the examples was a lead generation tool for recruiting new realtors.


Unfortunately I can't find the podcast episode or I'd link up to it.

ditheca

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Re: How to build a software development company?
« Reply #8 on: May 10, 2021, 12:41:28 PM »
Back in 2006ish, I was one of the first coders to automate filling out mortgage paperwork. Now everyone has it automated, but at the time mortgage brokers or their clients had to spend hours filling in the blanks.

It had nothing to do with our business model, but we needed the cashflow and one of our customers had a need, so I solved it for them. I think the hardest part is finding people with needs and money.