Pitfalls to avoid when starting a software company.

Question

It's been my goal to start my own software company basically since I started programming HyperCard on System 6 back in elementary school. Recent changes in my job situation have convinced me that I should be pursuing this goal more actively.

My question is, what are some pitfalls that I should avoid when starting a software company? A lot of companies fail and I'm sure there are a lot of reasons.

As a side-request, it would be particularly helpful if you could tell me a little about your own experience with starting a software company or being a part of a startup, so I know how you know what you know.

Answer 1

Do you want to consult or create off-the-shelf software? For the former, you really must be a pretty exceptional developer. The latter, you just need a good sales person / team. Concentrate on solving a problem that both: you have experience in and is fun to solve. Working on a problem that you think is lucrative but is utterly boring will be certain death.

Answer 2

I started my career at the startup and 2,5 years later I am still working with this company where I witnessed the expansion and growth of the company. At the beginning, the company had 1 manager and 3 developers. Now it has around 20 full time employees + some part time . Now I am development manager.

One thing we did wrong is - we did not control the expansion correctly. At the beginning - we didn't have hierarchy. We had developers and one of them was "primus inter pares" (who was formally company's manager). We had rapid expansion at one point, and since we were busy with doing the actual work we failed to see that the productivity level decreases with expansion that's not followed by the reorganization and that developers REALLY aren't good at selling and marketing. So after experimenting a bit - we hired two sales persons, divided the company in 4 departments and added 2 levels of hierarchy. Also the "sales" department is responsible for keeping eye on cost effectives of the other departments. So now we have:

• General manager

• Heads of the departments

• Department staff

So my advise is to reserve some time at any given point in your company's life to reflect on the organization and to find ways to optimize costs and productivity. It's boring and tough job, but really pays off. And noone can tell you exactly how to do it - you must gain experience by yourself.

Answer 3

There have been a couple of times where I worked for a startup and I've had various experiences with them. It may be easier to tell the story of what happened in each than try to pick out lessons:

1. Dot-com years(1998-2004) - The company I worked for sold sheet music on-line, was founded by some former Microsoft employees and seemed to have a good idea: They had a 32-bit Windows application, which never had a Mac version though there was an attempt to port the application over that wasn't finished as I recall, that could read the encrypted files so the first page could play back but the rest was encrypted unless you bought the keys to decrypt the rest. There were a few different ways one could use the application since it did have a multimedia aspect built into it. The company also got into a mail-order business which wasn't a great idea, IMO, because now you have inventory costs or a delay in getting out those orders as well as processing them differently than the purely on-line sales. There were a couple of deals with music publishers, Warner Brothers and EMI Christian publishing that served very different markets but the catalog of music that the company had was growing in each of those 2 ways. Now, the playback was Midi quality and not MP3 so the vocal in playback wasn't phonetic sounds but rather something like a piano note. Another use for the application was that one could put a pure audio track in and the idea was that by using sheet music first, this was a way to get in the door with those music companies that held the audio rights as well as the publishing rights. There was also the idea of putting comic books into the application which while it would work, there was questionable value in it. Perhaps it was ahead of its time, but I think the expenses at times were a little high based on some of the things I remember seeing as well as hearing that advice from someone at the Sprint Internet World in 2000 that stuck with me. A key point here is that the company didn't really sell software, but software was underlying how the company made money.

2. Application service provider(2005-2007) - The company in this case did location-based services, which usually consisted of a map and various bits of data that a device reported generally. Again, there is multiple uses and so the company goes into various different kinds of services,e.g. cargo security, high-value goods protection, cargo tracking, and pet tracking to name a few, as well as using a bunch of different device companies and service providers as the idea is that the company is selling this platform that combines with other companies to charge the service as well as the devices themselves. As far as I know, it is still in business and can succeed if there is enough customers using the platform as in a way the company doesn't really want to have a big public image, rather it wants to be hidden and let other companies use the applications and back-end that are sort of leased to various customers. An example of a customer for this company would be tobacco companies that would like to track their trailers of cigarettes in North America as these are worth millions of dollars in cargo. Alternatively, one could see courier companies wanting to use this for tracking where shipments are and what paths did drivers take that could build a data warehouse. My problem with the company is that it seemed to jump from device use to device use which led to several half-baked implementations of things since we were always putting in support for this or that device. Being scatter-brained here reminded me a lot of the previous company in terms of going downhill by trying too many different things instead of focusing on just one area and build up a cash cow that can then fund other ideas so the company can be profitable. The CEO would mention time and time again that something big was coming in the next few months, but I'm not sure how much of that was true and how much was just to keep morale up as the company tried to build up sales.

Answer 4

Realize that technical proficiency, management proficiency, and sales proficiency are three very distinct specialties.

I've worked for several startups and watched many more, and amazingly bright software engineers and computer science PhDs... sometimes can't manage worth a damn, and undersell their own products accidentally all the time.

Answer 5

Focusing on anything other :

1. Find potential customers

2. Have them validate that your product will be worth more to them than it costs you to provide. It is not sufficient for your grandmother or your best friend to say "I'd buy that". You want someoone to be willing to plunk own cash for this product/service. (The money at this point is immaterial. It's the validation that at lest one customer is out there)

3. Figuring out how you will reach additional customers on a large scale (e.g., where you an write a check for $x and generate $Y*X in sales.

So there are a lot of things that folks think they need to do that do no help you achieve the above: * Fretting over incorporation * Fretting over whether to run it from your home, an incubator, etc. * Fretting over the name