Starting a software company 101

Question

I would like to start a software company. It is just myself and a business partner to start, but we would eventually like to grow beyond that. We have a plan already, but want as much advice as possible on the topic. We have not filled out the legal paperwork yet because we are not yet sure of the best type of company/state to start it in/etc.

• What is the best state (in the US) to start the company in?
• Insurance?
• What are some common pitfalls for beginning a software company?
• What is the best type (LLC/LLC partnership/S-Corp/etc) for a software company?
• Any other best practices?

(as a note, I am not quitting my day job to do this)

Answer 1

For the "common pitfalls" question, see What are common pitfalls for startups driven by software developers?

Answer 2

Get some expertise on accounting and marketing. This is the part of starting a company that is missing in the toolset of most software guys

Answer 3

read Paul Graham 'essays'.

Answer 4

Make sure that your employment agreement for your full-time job doesn't give your employer rights to everything you do, on or off working hours.

Answer 5

This book is pretty helpful: John Nesheim, "High Tech Startup".

Also, several books from Nolo Press are excellent, take a look at their catalog.

I love Stack Overflow, but these decisions are too important to "crowdsource." Get a good corporate attorney, he or she can answer these questions, tailored to your particular situation. Screwing these things up (like where and how to incorporate) will be a HUGE pain down the road, and will cost you tens or hundreds of times what it would cost for a few hours of lawyer to get it right from the start.

Answer 6

"What is the best state (in the US) to start the company in?"

I've read Paul Graham essays where he talks about how being in a technology center is very important. So if you're in the US, you might want to go to Silicon Valley.

Answer 7

I went to a seminar by a lawyer who made the point that the best state in the US to start your company in is the one where you live. That's because if you get into legal issues you're likely to have to contest them in the state where you're incorporated. That means you'd have to fly to Nevada or Delaware (to name 2 states that are popular for company registration) and employ a lawyer admitted to the bar in that state, which could be extremely costly.

If your company turns into such a huge success that, say, Delaware's tax treatment makes a big difference, then you can always re-incorporate there.

LLCs are a pretty popular business structure. If you don't go with it, you should at least understand why not.

Answer 8

I put some advice on starting and running a small software company here:

http://successfulsoftware.net/2009/01/05/running-a-microisv/

Some of the advice is UK specific, but most of it is generic.

Answer 9

The Harvard Business Review has some things worth reading.

The Founder's Dilemma - should you bring in an external CEO, or should you always be the one running the company? And what implications does this have for how much money you make? (Short answer: bring in a CEO if you want to make the most money.)

Planning a Start-Up? Seize the Day - it's better to leave the corporate nest sooner rather than later if you plan on founding a start-up.

Answer 10

For the best state: yours. If you hire people in your state, you will have to create an entity there as well. A lot of startup incorporate in Delaware because it is more business-friendly (some would say actually investor-friendly), but you'll have to do the same in your state, and will actually pay incorporation fees + taxes in both Delaware and your home state.

Answer 11

What is the best state (in the US) to start the company in? As others have said, your home state. aem stated it well so there's not much else to add

Insurance? Have a lawyer help draft your end user agreement limiting your liability to the price they paid for your software.

What are some common pitfalls for beginning a software company? Focusing on the technology rather than the customer, not spending enough time on marketing

What is the best type (LLC/LLC partnership/S-Corp/etc) for a software company? Either an S-Corp or an LLC setup operating as an S-Corp for liability. It may help to talk to your CPA and see what he/she recommends for your state.

Any other best practices? Have fun being your own boss, treat people right, remember it's a business and not just a programming job. Also, focus on writing once and selling many times rather than getting into customizing and tweaking versions for each customer.

I started my mISV when I walked off the graduation stage 10 years ago and couldn't imagine doing anything different.