Business Model for a Good Software App

Question

I developed an application, working fine and in a closed beta stage for last 1.5 years, it's been 3 years on development. Quite stable, full-featured and polished as well. It's a software for a certain market and can compete with other applications (only 5-10 decent applications exist in the same market). Simply put I believe in it and beta tests results supports me.

What's the best way to make money out of this? I especially appreciate any comment from who has been through this, any good or bad experience.

Some options I've been thinking over:

• Going with an Investor or (a small investor, venture capital, angel funding etc.). I've already got about 3 investors contact and they are highly interested in the software, since the software is complete and making a demo such an easy task attracting new investors are really easy.

• Going open-source (although it's not a too common software there is almost no open source alternative, so it should be well accepted), and building a business model over open source to make some bucks (support for companies, commercial license for enterprise solutions etc.)

• Selling it by myself, Opening a web site, marketing it with my own budget, putting a decent price tag (cheaper then competitors) and selling it, maybe even giving it free for personal usage.

To be honest I solely focus on the money aspect of this.

All code written by me so I own all copyrights of the source code and there are no license issues regarding the libraries.

Answer 1

This is a very tough question to answer without knowing the specifics of the software, the target market, competitors and so forth.

Bear in mind that no matter what course you take, most of the success of your application will depend on marketing and branding. For this reason, most people will never really make it alone, they will partner up with someone who can cater to the marketing/business development aspect of the product.

An investor can sometimes fill that spot, and that's why many opt for that course. Investors are generally more business oriented than software developers, have good connections in many industries, and since they have a vested interested in your success (ie, their share of stock) they will have more motivation to push your product than hired marketing guys. However, once you raise funds you are no longer your own man as you acquire responsibilities towards your investor, which will usually try to push as fast as possible for exit opportunities.

On the other hand, going open-source has its own marketing benefits, since other developers who find your project worthwhile may become evangelists of your product and help you gain traction. Also open-source seems by nature more altruistic which is always good for PR.

Selling it by yourself is the most difficult course without someone very knowledgeable in the entire process - marketing, distribution, affiliates etc. For this course I would highly advise looking for a business-oriented partner that can help you drive the success of your product.

Answer 2

It depends on a couple of things. The product, the market, the clients etc.

An investor might be overkill since you've already have built the product. You could use the money for marketing. If you're afraid competitors will catch up quickly and want to grab a lot of market share with a big launch this might be the way to go.

Starting small is a good way to go if you dont want to invest a lot and dont mind spending some time building your business. This way you give competition more chance to catch up though, you'll want to think about what differentiates you from your competition. If it's only price then you might want to go for the big expensive launch because your competitors can easilly drop their prices to undercut yours. If your software does things that you competitors can't easilly repicate then the small start is a better idea.

Open source is good for marketing and makes it easier to get more market-share without spending a lot of money. You'll have to find another way to make money like supporting your software. This might make sense if you've got a product that needs a lot of support, for example a server product where you can offer hosting like wordpress does. If you've built a client application that's easy to install and use this won't bring in much revenue.

Not every type of customer will react positively to open source. Lots of big corporations still don't trust free software.

Answer 3

You have a beta-proven product in a real market, competiors exist, and with interested investors. Without knowing more and knowing that 'sales' is a different skill to developing, I would suggest finding 1 of the investors who can offer assistance in setting up the marketing and sales in your industry.

Answer 4

I think you should look more at yourself, than at your product. Do you consider yourself both motivated and skilled enough to be a small business owner? The skills you'll need are very different, than you already have as a programmer. How much do you know about finance and marketing?

If you want to remain being a programmer: get a business partner. Let your business partner invest his (or her) time in your joint company, and let him do the business part.

Answer 5

You should do 3 right now (sell it yourself), as a preparation for doing 1 (getting investment) and avoid 2 (going opensource). The reason I say this is that you have stated that you are in it for the money - which is no bad thing.

There are three clear advantages I see to this approach:

1. Prove the revenue model
You appear to have proven the application and the gap in the market you are exploiting, but you have not proven a revenue model, and that's what your prospective investor will look for. The best way to do that is to hone your proposition and go out and get it to earn some money for itself. You investors will be looking for that and how it can grow and scale as a business.

2. Develop yourself as a businessperson and not just a techy
The other good reason for selling it yourself is that you will gain a set of skills that you can never get sat in front of a computer and your programming day job will never give you. This is the single strongest argument for starting your own business in my view. If you can get to the position of being a really good techy and a really good businessman the world is your oyster.

3. Drive a better deal from your investors
When you do come to negotiate terms with your investors the less you need them the more they'll want you. The best possible situation to present to them is one where you need their money not to start or survive, but to grow. If you can start and survive on your own then you can drive a much harder bargain when it comes to giving up equity.

The reason I say avoid open source is that your investors are likely to look on that as a risk and potentially a negative aspect of your approach. It is pretty hard to make a lot of money with that model, and investors want to make a lot of money. If you really want to go open source, then make it a clear part of your strategy and do it once you have a commercially viable going concern as a business. You'll also then be better position to know what is really valuable to you and what is not.

Best of luck. I've been starting tech businesses for 20-odd years and the step you are standing on is the most daunting and the most exciting.

Answer 6

The most important thing you need now is a relationship with a successful software salesperson. You can work out what combination of equity and commission to give them, but it has been proven over and over that you can succeed with a great salesman and mediocre software, than great software that isn't sold professionally. If you can provide both, you're a lot closer to the gold.