Starting up a software company

[ahl]

Hi friends,


I'm starting a software company. I made a web application that I think might sell very well to some kind of business. I just have one customer so far and I'm financing basic needs for my startup with that money.
I brought a friend in and we're putting in place some extra features to make it easier to sell and hit the road with it....it is lacking some cool stuff though.
Our plan is to have this application done as it is, get some clients and start from scratch to re-write it with a lot of new features and a more focused commercial purpose.
In the other hand I have in mind some other projects that we can work with but then...I face the truth: we both are full-time employees and we work hard at home but it will always take a long time to have something ready....
Si far I haven't done big investments but this takes me to a big confusion:

- How to approach my projects?....keep working and try to raise funds by ourselves will take months...and all the other projects will have to wait a long time till we can afford some programmers, a place, equipments..etc
This is not a small amount of money...I was making numbers roughly and that is at least $50.000 for a three month project(hiring two programmers and a project manager)

Should I look for an investor?...or a bank loan?...
I have a relative that might be interested in investing his money but I'm totally lost in how that works. This is my first time in business so I have no idea of how to deal with an investor...how are they use to get their money back?...Is it like a loan with interests in a fixed period of time?...

I guess all my long thread can be resumed in two questions;

1- I need suggestions on how to approach my projects
2- If the solution is an investor...how should I handle this?

Thanks in advance

[vangogh]

Hi Ahl and welcome to the forum.

It sounds like you have a number of decisions to make and I think you're best starting point would be to work on a business plan. It'll help you sort through some of the issues you're unsure about and focus more on the best way to proceed. You'll most likely need a plan to raise financing if you go outside family and friends or if you look for a loan.

When I wrote my business I grabbed a free sample plan from Bplans.com (http://www.bplans.com/) and then wrote one based on the sample. My plan was more informal since I wasn't looking for financing, but rather looking to help me focus.

I'm not sure what the best approach to take would be since it might come down to your personal situation. You could continue working and do the programming after hours. Naturally that would take longer to complete the software, but it would mean not needing to additional financing. If you do want to hire a few programmers you'd probably need the money. If you're only talking about you, your friend, and a few program managers you might not need to hire a project manager. You might want to do that yourself.

The easiest way to financing is going to be through family and friends if that's viable. I say easiest only because you might not need the business plan.

I've never looked for an investor myself so I can't say how to find one, but you may want to run a search for 'angel investors' Angel investors are usually more willing to help a smaller company. The money they'll invest would be less, but you aren't going to need millions of dollars. If you search Google or your favorite search engine you should find some results for how to approach angel investors.

[Watchdog]

vangogh -

We wrote our business plan (however) there are many things unknown that are important to have a proper business plan.

Projected sales? Who could possibly know this - but we did figure a staff of 8 for sales? We're only adding services such as coupon design, (copywrite sub contracted) Graphics -

The problem is we have to be online and free because that's what the directory industry has set up as "standard" so we up-sale, and it's difficult to get what we projected...it was to the point that we had a naked directory for a long time until we painstakingly inserted our own records at the tune of 4000 businesses locally (out of 50,000 possible)

That's the big reason and push for the www.MyShopPass.com we have to bring in the consumers and their "input on businesses they use"- it's a tough balancing act - we need the businesses and the consumers and for this to work, most small business owners are just not taking the time to help their businesses EVEN if it is for free? We can add referred businesses to our directory, but the consumers have to come naturally on their own...and they will, but it's all out of pocket expence for now.

[ahl]

Thanks Vangogh!,

For now I can't leave my work. I bring the highest income in my home and we couldn't afford it.
If after all I decide to move forward and get a couple of programmers I wont be able to manage them, cause I would be in my full time job...so I think I wont have more choice than to hire a project manager to guide them and make sure everything gets done right and inside the dead line.


Thanks a lot

[SteveC]

If I were you I would let sales at least to start drive your business... you have one product developed and I know you want to add in new features... but get out on the road and sell it as is... if that works you should have enough funds to outsource the development to local freelancers... and then you can offer everyone that has bought a free upgrade or one for a reduced price.

And... ask yourself this, if you do not have enough faith in your product to give up work and make a go of it... why would an investor have such faith.

[vangogh]

Bud it's funny you mention the projected sales. I had the same feeling about that part. It wasn't something I did for my plan, though I do think there are ways to make projections even before you've started the business. If you work on that part of the plan 6 months or a year into your business you should have a better idea about realistic projections.

Glad to help ahl. One thing about the project management. You might not be able to be able to manage everyone all day long, but you should be able to email or message people a couple of times a day. You could even manage things weekly. Give out assignments to people and let them know what you expect. If they can't get done what you need them to get done find someone else. I don't think you need to be on top of people all the time to manage them.

But I do understand the need to keep working at your job. You have to put food on the table first. Keep one thing in mind though. No one will care about the project as much as you will.

Listen to what Steve said above. If you already have a product start selling it and use the money to finance what comes next. You don't need to perfect things before you start. In fact putting it out there imperfectly will have others letting you know how you can improve it.

[ahl]

That's exactly what I'm planning to do. I will wrap up everything as it is now and go to sell it.
Hopefully as you said, it will finance the newer version and future projects as well.

Thanks a lot

[phanio]

Regarding projecting sales - it is an art and it will never be correct. But, it should provide a base line to compare to as your business moves forward.

Try to find other similar companies to yours and use their sales results as a guide. If there are simliar pure play public companies, this information is easily available - try to get their earliest financials. Don't just try to copy these, but if you common size the information you can see growth paterns for both revenue and expenses - might even see a couple of expenses or possible revenue avenues that you have overlooked.

If you can not find a company that is very similar - try to find one that may have a division or subsidary that is in your space and dig the financials for their information.

Just remeber, these numbers are just base lines. Most investors will take your projects, multiply then by .10% and see how they stand up. These numbers will change as you move forwrad and are adjusted as you realize results.

They are meant for two purposes. 1) to provide a base line as described, and 2) if these are done with some dilligences - without emotion - and based on solid research they should be able to show you and your potential investors if this business can be profitable, when it should breakeven, and how much equity it will need to get it there. When I say without emotion, I mean none of this '..we will make a million dollars in the first year'

Regarding investors. Your best bet, in this market, would be to network locally. There must be tons of networking events and groups in your area. Attend these and strike up conversations with others. Don't try to pitch as first. The idea is to get people talking and they will talk (so you must listen). Try to find out who they are, what they do, and if they have money to invest or if they people who have money to invest. Talk with accountants, attorneys, doctors, etc - those who either have money or socialize with those that do.

Once you identify possible investors, then pitch - have a very clear and concise pitch and always start out tell your potential investor what is in it for them.

Few years ago, I saw a new company raise $1.4 million in start-up equity from a town of around 88K population. It took them 16 investors to raise the funds.

[thx4yrtym]

AHL,

to expand on what Steve said...

Don't work on your projects, work on customer's projects.
Find someone with a need that you know you can create a solution for, and turn it into a real live paying project. I don't mean you do all the work and MAYBE they pay for it, I mean they understand that it's their project and come up with a product definition and price. Oh and as you are developing this solution for their project, do so in such a way that it will be easy for you to adapt to the next customer.

Those ideas you have for other projects? Put them away for a time when you have the luxury of being able to waste lots of time on them and when it won't hurt anything.

How do you find paying projects? From now on you need to find a way to work it into every single conversation with every one you meet, exactly what you do.

I'm been developing software since 1978 on one thing or another. I have wasted more time on "great ideas" than I care to admit. Every single paying project has been a solution to someone else's problem. So I know what I'm talking about.

Talk to people, but mostly listen and ask questions then listen some more. You'll find paying jobs and without project managers or investors. The better you get at listening and asking the right questions, the more work you will get.

Best of luck to you and have fun!

Regards,

Gregg