I'm a developer who is interested in entrepreneurship, but also loves building good software. What would be the best avenue for me to own my own business? Would a service-based model work better, or should I go the ISV route and try to build a business around a product?
Also, if you have started your own business, have you been successful, and would you recommend it to others? Or is the industry such that it's better to remain employed by a decent company?
I can't claim to know "the best" way, but the below book gave me many insights into how to get started,
http://www.amazon.com/Micro-ISV-Vision-Reality-Bob-Walsh/dp/1590596013
If you love building good software then don't go the service route -- unless you're exceptionally lucky to find clients who really do care about good software, as opposed to how quickly can you get something/anything working.
Of course, the downside to building a business around a product, is the requirement to have a product first. Unless you're independently wealthy, I'd try the build a demo in your spare time route, and try to pitch to get initial investment once it does something remotely impressive.
Often, the difficult thing is finding a valuable problem to solve. A problem that people will be happy to pay money to have solved. And then, validating that this problem can be solved with software. You can also find a problem that is caused by software.
In the first case, you're likely looking at writing a product. In the other case, you are probably looking at offering a service.
One thing that going into business taught me is that starting a new business is not the best way to get into a mode where you will write "good" software. At least, not all the time. If you become an entrepreneur, you will have to make compromises. And often, this means that you will have to make sacrifices with your architecture or design. You can still deliver a quality product or a good service. But when you are an entrepreneur, getting there is usually more important than taking the high road.
There's a great Hanselminutes podcast and blog post series by Leon "SecretGeek" Bambrick that are all about how to set yourself up as a "micro ISV", a small 1-2 man shop. Bambrick steps through an ordered list of steps, which he used to develop and market his product "TimeSnapper".
A point Joel Spolsky made in one of the Stack Overflow podcasts is that if you sell your time, then your income is proportional to how much time you have, and growth is limited. In contrast, if you develop products, your income is proportional to how many people want to buy them. So, products is where the big money is, assuming you can make something people will buy.
Of course it depends what you're good at, what you want to spend your time doing, etc. but I found it very easy to start a consulting business by slowly taking on more and more side work until I could not keep up with it and my day job, so I quit my day job. The biggest advantage of this approach is obviously that you are never without income. The disadvantage is that you will be stretched thin in the last days while you are working a full time job and also building your business, but it's hard to start any kind of business without working very hard in the beginning.
Having done this, I think the best advice I can give is that you should hire other people to do anything you have to do that you aren't good at (accounting, filing, marketing, sales, etc) right away and stay focused on the things you are good at (presumably writing code, etc).
I'm currently working through eWork, as an independent consultant. I've tried other approaches earlier and I have to say this concept is best for me, in the current situation.
It's like an agent. They hunt jobs for you (and others) and take care of the legal details. They interface to the customer, and you. Your job remains to just Do the Work.
This concept has blossomed in Nordic countries in the last couple of years. I would think there's something similar in the States/UK/central Europe as well, is there?
The problem with going completely solo is to get the reputation (for good payment) and to get to the big companies (normally they have contracts with other companies, and you would be left out). Here the agent takes you in.
If you like product-based instead, iPhone/iPod apps seems to be booming, eh? :D
I agree with Richard, although I did a combination of both. Initially, I linked with a client and went the 'service' route. The main thing was how quickly can you get the features in and bugs out - not much weight was given to the overall UI design nor anyone cared about the architecture of codebase (some of the features were one-off anyway). After I established enough financial backup from 'service' mode, I was able to dedicate significant chunk of my time to some good quality software - ISV style. Something built for the masses, nicely packed, etc. To show I'm not just talking from the top of my head, you can go to www.guacosoft.com and judge yourself. I'll just say that it does sell fine.
However, after 2 mostly successful applications being sold online, and after about of year doing it, I still make much more from this 'service' deal. It all depends on the products you can create: if you can create a lot of small niche apps, or a few quality killer-apps, than you can be successful. Otherwise, it's just 'candy money', you can't really make a living out of it.
Now, to determine whether you can do it, better ask your friends than evaluate yourself. Lay out some ideas for the applications you would make, write down what would make them stand out from other apps. of that type that are already available, and present that to some other people. Make sure to tell them they can tell you whatever they really think (it's hard to jugde someone's idea bad if you see they are really enthusiastic about it).
Well, just my $0.02
A mix I would say... create software for clients in freelance mode is a good way to gather some money, pay the bills etc..
But in the long time you'll like to have something that works for you while you sleep. You can always invest your money in a high interest fund or even consider real estate. that would put your money to work.
I tell you this because as developers we usually miss the big picture and forgot that there are other ways of winning money.
The more exciting of course is programming, I would suggest services(services as a page where your users subscribe for a monthly fee, not selling your time in Freelance mode) over products. even a product need to be sell one and again, and you'll end up spending more time looking for costumers than programming.
In a service, as long as they are satisfied, the clients just keep paying the monthly fee.
You of course must be alert all the time to go ahead of their necessities and programming new things all the time (you don't want to play the Hare in the Turtle and the Hare tale).
But that's just me, a friend of mine pay his university selling a Point Of Sale he made in a local commercial area.
I would recommend reading Paul Grahams's How to Start a Startup.
Speaking from experience, don't quit your day job and rush into setting up your own ISV. Its better to build a business/product slowly either doing it in your spare time, or building something your clients need (if you run a services-based company).
Look at the book Getting Real by 37signals if you decide to take the Web Application with a monthly fee route.
Here are my views based off many years of doing my own stuff, some good and some bad :)
You need to understand that there are two sides to your business. One side is the actual business as in accounting, invoicing, markets etc the boring stuff and the other is actually doing what you love like writing code. Most of us aren't good at both.
You don't have to build something new, it is a perfectly valid business model to just copy somebody successful and take some market share. Ok you may be be original but at least you know the idea sells.
The more streams of revenue you can create the better off you'll be.
It is hard work without fail! I sometimes work a 12 hour day and then work 4 more hours on my own projects every day ... what is a weekend? ;) When you're your own boss there is no weekend ...
Good luck.
The Internet has made it much easier for small software companies to reach large markets for a low cost. I have successfully built a one-man software product business ('microISV') over the last 3 years. It is hard work, but very rewarding.
Things to bear in mind:
Venture capital comes with all sorts of strings attached and it isn't the only way. If you have savings (or are prepared to work in your spare time) you can grow a software product business organically with minimal investment of money and a large investment of time.
There are over a billion people on the Internet. Even fairly obscure markets may be big enough to support several small companies. You don't have to be the next SAP/Google/Microsoft.
If your product has no competitors, either you are a genius or there is no market. Unfortunately, it is almost certainly the latter.
The software is only part of the equation. You need a good product AND good marketing AND good support. If you aren't prepared to get serious about marketing (or partner with someone else who is) stay with the day job.
Your initial idea is almost certainly wrong. Cut the feature set to get version 1.0 out within 6 months and iterate like crazy from there based on customer feedback.
Don't expect to get rich quick.
Some blog posts I wrote that may be of interest to would-be software entrepreneurs:
Selling your own software Vs working for the man
Radical new software business model
If you aren't embarassed by v1.0, you didn't release it early enough
10 questions to ask before you write a single line of code
How much money will my software make and what has that got to do with aliens
One point that has been missing from the other answers is to address what happens if you want to not only start a business, but want to switch careers in the process.
For example, a friend of mine left a career in IT to start a gun-refinishing and manufacturing company.
While I'm not suggesting you do that, per se (after all, then he'd have more competitors ;)), don't discard the thought of changing your career in the process. Maybe you have a real itch to do something "physical", like farming or plumbing. Maybe you don't.
But don't reject off-hand switching what you do if/when you decide to start a company.
I would recommend service. The danger in the product is that there are always bigger competitors, which could wipe you out of the markets in days not because you are a bad software writer ( have bad product ) , but simply because they have the nxyou amount of resource to compete against you.
Service could be changed.
My personal advices for business overall. The people you deal with are the most important. If you estimate that something will cost 100 in reality it will cost you 120, with time it is double fold increase.