Follow our guide and learn step by step how to start a software development company.
How to start a software company
Research on the market
Before beginning a software development business, the first thing you should do is undertake market research. Identify your main rivals, target audience, needs and preferences. Analyze the phase in which you enter the industry: introduction, maturity, or decline.
- Introduction phase: There is no such software on the market at the introduction point. As a consequence, if you fail to convince clients that they need it, your product may be either in enormous demand or in no demand at all.
Let’s look at some examples of this concept.
In 2008, a website for individuals to book lodging globally was introduced by Airbnb, Inc. The concept was to allow local people to rent accommodation to visitors. Initially, investors were unwilling to pour cash into this project because they believed that few individuals would want to rent their apartment to strangers. During the Great Recession, however, the firm was established when individuals urgently required additional cash that contributed to the popularity of the service. The website now has over 200 million visitors, covering over 191 nations.
Uber Technologies Inc. also managed to create cash on the crisis, which was launched in 2009. They have created an app that allows customers to book drivers using their own vehicles. Both riders who needed additional cash and passengers who wished inexpensive rides were happy with the service. The service now works globally in over 83 counties and 737 towns.
So, when the industry required them most, Uber and Airbnb managed to come up with new ideas straight away. But great ideas appear far too early sometimes.
Founded in the 1990s, an internet entertainment business Z.com attracted 750,000 tourists a month. Despite receiving sufficient financing and being based on a excellent business model, the firm left business in 2003. The reason for this was that the founders did not consider the incredibly small penetration of broadband in 1999-2000, making it too difficult for consumers to watch internet video content. Two years ago, when the US penetration of broadband achieved 50%, YouTube joined the arena effectively. As you can see, when Z.com was not prepared for it yet, it emerged on the market.
- Maturity phase: Your rivals are already earning decent income on comparable software at the maturity point, but the industry still has some room. For instance, you understand how to produce a more strong or inexpensive option. Probably this is the best phase for market entry.
For example, in 2006, Kaltura, Inc. was established and a video platform was introduced to handle, distribute and publish video content. The founders decided to target several industries, such as business, education, and media, instead of covering the entire market. Now, the services of the company are being used by about 300,000 companies, educational and media organisations. This instance shows that you can succeed with your solution at the maturity level by concentrating on specific niches instead of attempting to cover the requirements of everyone.
An opposite strategy, if thoroughly thought through, can also bear fruit. Founded in 2015, Masquerade Technologies, Inc. offered clients MSQRD (Masquerade)-a mobile application that swaps face. The application enables users to alter their look by choosing a filter mask or a library impact and then sharing it on Facebook and Instagram with their colleagues. This application, although created in Eastern Europe, rapidly achieved popularity in the US and Asia-Pacific and was purchased by Facebook in 2016. The secret of the elevated virality of the product is that the firm has glocalized their app: they have gone global while locating their request for each industry, producing distinct masks for distinct areas. For example, they offered masks of Hollywood stars to US users while attracting Russian users with masks from Joseph Stalin and Vladimir Putin.
- Decline phase: The market is already saturated with comparable offers to yours at the decline point, which implies your concept is lagging behind.
Rdio, Inc. introduced a subscription-based music-streaming website in 2010. In 85 nations, the service was popular. However, behind its competitor Spotify, the business was constantly staggering and eventually surrendered to them. Rdio filed for bankruptcy and was purchased in 2015 by its rival Pandora Media, Inc.
This instance demonstrates that the issues of start-ups can be attributed not to unsuccessful products, but to an over-saturated market. If consumers are completely satisfied with the solutions they are already offering, they may be unwilling to seek alternatives. Moreover, if they can use comparable facilities free of charge, they will hardly move to your alternative. Rdio had the same scenario when they provided a paid version of their product while Spotify began offering free services in their ad-based version of the product.
Choosing the correct phase for market entry is essential to your product’s success. You should concentrate on your prospective clients rather than the software itself. You are more likely to succeed if they are keen in your offer.
Choose the selling method for your software
Another significant thing is to decide how your product will be sold. Study how your rivals do it if there are comparable offers on the market. Basically, either selling your software to the end user directly or allowing customers to download it through your website.
You will deal with large businesses and small and medium-sized enterprises in the event of direct sales. You can sell your software licenses or charge for subscriptions, making the product available for a limited period of time while the subscription is active. You can also tailor your software to fit the requirements of clients perfectly. Your profit will rely on your software’s uniqueness and on the amount of market rivals. Basically, selling a few costly permits to big business can be as lucrative as selling lots of inexpensive licenses to small and medium-sized businesses.
If you plan to sell your software through a website, you should begin by providing your product to customers a free trial to see if it works for them. In the meantime, assistance and maintenance may generate income.
Run your business of software
Basically, without a technical partner, you can own a successful software company. It may be helpful, though, to have someone more code-savvy. They can participate in your business on a part-time basis and review architecture and code. In exchange, in your business, you can give them equity. In the future, though, you will need to share your increasing profit with the co-owner.
Another alternative is to switch to a reliable seller that offers as a service software. You will, however, rely heavily on them, as you will have less control over the growth of software. You should also allocate some extra time and budget to communicate with the seller to ensure that your requirements are met by the software.
Software development company startup.
Once you have carried out market research and decided how to sell your item, you can continue to the creation of the software development business.
Structure your attempts according to the step-by-step guide below.
Intellectual Property Protection
Get the required patents and register trademarks to safeguard it once you have an idea. Make your colleagues at the product creation phase sign a non-disclosure agreement to avoid any project-related data from leakage.
Build up a business plan
State your company objective, product, target audience, rivals, economic needs, and the time for your product to be marketed. Don’t underestimate this step, because most likely the incorrect business model will undermine the achievement.
Quirky, Inc. provided the platform for creation where individuals could vote on the product concepts they valued, and in 2009 the firm would produce and sell them. Over $800,000 was spent by the business developing the products, but none of them brought high profit. The startup struggled to raise cash, passed many layoffs, and even shut down one of its offices. They ultimately filed for bankruptcy and in September 2015 sold the company. Now, with fresh owners and a fresh business model, the invention company is back. The platform maintains its objective, but Quirky will no longer produce products on its own. Instead, other businesses delegated this assignment.
The company did not validate the market and chose the incorrect channel of delivery – retail chains. They spent too much on inventory, but failed to acknowledge whether each item addressed a true need for the customer. Clicking on an invention you like, after all, is distinct from being willing to pay for it.
Consider legal issues, taxation, and insurance
Determine your business ‘ legal framework for tax purposes. If something goes wrong with your software, take care of insurance.
Start engaging developers
It’s hard, time-consuming and costly to organize your own software development team. Consider outsourcing at least at the first phases of your development attempts. This way, you’ll get experts to do this piece of job. If they are workers abroad, you can profit from their reduced prices of employment compared to the experts in the US. With this alternative, longer project involvement, expensive on-site training, language obstacles, and various time zones are possible disadvantages. Reliable contractors, however, minimize them.
Keep in mind the following when recruiting a software development team:
- Do not contract outsourcing suppliers or freelancers that are suspect. Let alone doubtful problems of reliability and safety, one day you may find out your software is accessible for free download while you originally planned to pay for it. Ideally, you should turn to a firm with a strong reputation for reliable software development. Number of staff over 50 and more than five years on the market are readily accessible and helpful indicators. This leads to less delays in the execution of your project. Ideally, you should turn to a firm with a strong reputation for reliable software development. Number of staff over 50 and over five years on the market are readily accessible and helpful indicators. This leads to less delays in implementing your project.
- Remember to maintain the source code’s possession. To ensure this, when the developer creates the software for you as an employee, you can apply the ‘ work-for-hire ‘ rule. Save the source code in your source code repository if you turn to a vendor, not one owned by the vendor. Otherwise, when you change the development team or suppliers, you may need to begin your project from scratch.
On the contrary, even the most elaborate scheme will be ruined by employing incorrect individuals. Founded in 1998, GovWorks Inc. introduced a Civic Request web portal to promote communication between people and local government. The founders had a sound business plan, enough venture capital, and an increasing audience. The business, however, went bankrupt and was sold in 2001 to First Data Corporation owing to the fight between its founders, mismanagement, and the failure of the project team to guarantee elevated product quality. The lack of well-coordinated teamwork resulted to a failure for the business.
Test your software
Testing shows and guarantees the quality of your software’s bugs. You thus improve customer satisfaction, adding to your profit and reputation.
To guarantee that you deliver a quality product, there are several testing choices available:
- Testing outsource to the same business doing the growth. This business knows your project already. In addition, within one business, designers and testers can collaborate readily to solve your project-related problems. Moreover, it may cost less to develop and test the same business than to delegate these attempts to distinct firms.
- A distinct quality assurance company’s outsource testing. You are bringing new testers into the project with a fresh view. It will take them some time, however, to study the specifics of your project.
- Do yourself testing. You will still have to do some acceptance testing, but testing is rather time consuming during growth. Probably it will take about 30% of the development effort.
Testing yourself is always cheaper. Factors like time pressure, however, may cause you to delegate your testing attempts to others.
Build a model
Design and development software enables you to get an idea of how the final product will look before you invest time and money to finish it. A piece of software enough to enter the market is called an MVP (Minimum Viable Product). Users test it, give feedback, and decide if they will choose to do so in the future. At this point, it is easier and cheaper to correct errors if after the final release of the item. That’s why you should come as soon as possible with a prototype. You can create all the needed adjustments after you evaluate how it works with your prototype software. You can attract venture capital, grants and loans, find investors among your friends, or attract internet financing resources once you have a prototype, or better yet, an MVP.
It takes a lot of effort to start a software development company. You’ve got a comprehensive guide on how to do it now. Do not neglect the measures outlined in it, learn from the beneficial experience and errors of other businesses, and you will be able to handle the challenge effectively.