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Beyond the Start-Up: Building a Sustainable Software Business

Some advice for building a sustainable software business from Steven Mitchell.

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Beyond the Start-Up: Building a Sustainable Software Business

  1. 1. Beyond the Start-Up: Best Business Practices for Software companies Steven Mitchell, Ph.D. Componica, LLC
  2. 2. Copyright 2011 - Componica, LLC (http://www.componica.com/) Farming vs. Strip Mining Do you want a "Startup" or Make a living? "Imagine you've purchased a plot of land. What are you going to do, mine or farm?" I’ve been in a tech incubator since 2007 and I’ve yet to see a company IPO or Sell. My talk is about making a living...
  3. 3. Copyright 2011 - Componica, LLC (http://www.componica.com/) Outline of the Talk Background on Componica Stuff you wish people taught you about business. Consulting and product development. Things I wish I could have told myself.
  4. 4. Copyright 2011 - Componica, LLC (http://www.componica.com/) Componica - The Startup Started in 2004 after finishing my Ph.D. with my wife and two partners. Idea: Create a system to help pronunciation by displaying the vocal tract. Wrote a business plan, entering competitions, earned a place in an tech incubator. Wasted a year developing alone. “AH”
  5. 5. Copyright 2011 - Componica, LLC (http://www.componica.com/) Componica -The Business Shed the Partners and focused on consulting. Slowly built cash reserves until I could hire additional help. Created our first product, it was a success. Now it’s a hybrid of contract and product development.
  6. 6. Copyright 2011 - Componica, LLC (http://www.componica.com/) Stuff not Taught in Class. Basic Business Formation. What is your company? Sole Proprietorship, Limited Liability, C Corp, S Corp Why? You want a real company, not Steve’s Basement Software Emporium. Separation of Business Assets from your Personal Life. Bank account, FEIN number, Taxes. Firewall to protect you from liability. Deduct certain expenses
  7. 7. Copyright 2011 - Componica, LLC (http://www.componica.com/) A Menu of Entities
  8. 8. Copyright 2011 - Componica, LLC (http://www.componica.com/) How to Create an LLC Clear your business name with the State ($50) File “Articles of Organization” with the State ($50) Agree upon an “Operating Agreement” Get a Federal Employer ID # (FEIN/EIN/TIN) from the IRS. Freaky easier online for free. Set up a bank account with that FEIN. Get liability insurance. ($300/yr or higher)
  9. 9. Copyright 2011 - Componica, LLC (http://www.componica.com/) It’s all about Cash-Flow. Income goes in... Money goes out: Taxes, Equipment, Employees, your living expenses, rent. hosting, etc. Track it all. At minimum: Use a spreadsheet or better. Toss all receipts and checks in a box. Compile a binder for tax accountant.
  10. 10. Copyright 2011 - Componica, LLC (http://www.componica.com/) Cash flow, continue... Things that make you different from other businesses: Cash often comes in big spurts so you have to spread it across months. You can easily structure deals to pay out royalties or monthly fees. Small volume of transactions unlike retail. Biggest expense is your sweat and personnel, not innovatory or equipment. Dual monitors, fancy chairs, whatever works. Don’t waste money, it’s your fuel.
  11. 11. Copyright 2011 - Componica, LLC (http://www.componica.com/) Healthcare? It's not that expensive if you're single, under 35, and healthy to get insurance for $160 to $300/ month. Typically it involves joining a group. Don't go with group-rate insurance. It's biased to pay for older people by screwing young people. Mooch off your spouse if you’re lucky.
  12. 12. Copyright 2011 - Componica, LLC (http://www.componica.com/) Employees? Are you sure? PITA factor goes up considerably. Worker's Compensation Ins. ($500/yr) Unemployment Insurance. Start monthly, quarterly, or annually withholdings to the Feds and State. You will really need that payroll accountant. 1099 MISC contractor instead plz? Start with internship and promote up.
  13. 13. Copyright 2011 - Componica, LLC (http://www.componica.com/) Generating Cash Flow Can you come up with a product that will pay off? Work on it for free up to a year and get paid for your efforts. Sometimes it works. How about contracting first and earn enough to speculate? Don’t forever be a contractor. Be innovative!
  14. 14. Copyright 2011 - Componica, LLC (http://www.componica.com/) Finding the Gigs. Best customers are past customers. Never burn bridges. Learn skills slightly off the beaten path. Learn to say NO!! Avoid the Equity Trap!! Past works are your calling card. Keep a portfolio.
  15. 15. Copyright 2011 - Componica, LLC (http://www.componica.com/) Finding the Gigs - ProTips Dedicate time to understand the crowd Can you cold call people? It’s hard but learn to get over it. Hire a sales rep at 30% commission only. (I’m considering it) Again, learn to say No!! Out of 100 leads, 5-10 will pan out. Learn to not bite off more than you can chew.
  16. 16. Copyright 2011 - Componica, LLC (http://www.componica.com/) If only I knew... Minimize the number of employees. I should have went with one person in 2008, not two. Outsource whenever possible like marketing, graphic arts, programming. Artwork for an app should never cost more than $1k. People will game the system to weasel more unemployment and you end up paying. For data entry work, pay by work item, not hourly.
  17. 17. Copyright 2011 - Componica, LLC (http://www.componica.com/) If only I knew... Try to start a partnership with someone with complementary skills You need insane tenacity. Goal is to aim to produce more products that generate cash flow, ideally passively. Always try to structure deals that pay residuals. Products need that special hook.
  18. 18. Copyright 2011 - Componica, LLC (http://www.componica.com/) If only I knew... Get an office that you go to or you’ll go crazy. Never do a gig less than $100/hr. Find a sales rep to find quality clients.
  19. 19. Copyright 2011 - Componica, LLC (http://www.componica.com/) If only I knew... Be more active and focus on your health and well-being outside of work. Seriously! You WILL regret this if you don’t. Do not let this consume your life.

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