Are you interested in starting a software development company from home? If YES, here is a complete guide to starting a software development company with NO money and no experience.
Okay, so we have provided you an in-depth sample software development business plan template. We also took it further by analyzing and drafting a sample software development marketing plan backed up by actionable guerrilla marketing ideas for software development companies. In this article, we will be considering all the requirements for starting a software development business. So put on your entrepreneurial hat and let’s proceed.
Table of Content
- What Does It Take to Start a Software Development Business?
- Starting a Software Development Company – Market Feasibility and Research
- Starting a Software Development Company – Legal Matter
- Writing a Business Plan for Your Software Development Company
- Detailed Cost Analysis for Starting a Software Development Company
- Starting a Software Development Company – Technical & Manpower Details
- Starting a Software Development Company – The Marketing Plan
- Tips for Running a Software Development Company Successfully
What Does It Take to Start a Software Development Business?
Starting a software development company isn’t an easy venture for any entrepreneur as more start-ups in his industry usually fail. A software development company is one that develops and distributes computer software that can be used for a variety of purposes such as learning, instruction, assessment, calculation, entertainment or the performance of a multitude of other tasks. Starting a software development company usually requires funds, a knowledge of programming, marketing expertise, and technical support skills.
These kinds of companies usually operate under a variety of business models, like charging license fees, charging by transactions, or offering subscriptions. Software products that are offered for free usually get their revenue from advertisements or through other related services such as training or technical support.
Before starting a software development company, you would need to obtain a degree in computer science, and be well versed in programming and other related computer languages. You would also need to take business courses in accounting, finance, human resource management, and marketing. If you do not want to go through this route, you could start with an entry-level job at a software company, where you can learn the ropes by training with a software development mentor.
Software development companies that thrive always have an innovative product or their own niche in the market, so you would need to develop an innovative product idea based on what you see as a gap in the market through what you have learned and observed. This requires a lot of market research though, since you would need to find out if there is any exiting or potential competitor in the niche you want to go into.
Consult with experts on the field by setting up focus groups that would help provide feedback on your innovative idea, also, speak with experienced software developers to find out if your product idea is viable but ensure that they sign a non-disclosure agreement (NDA) so as to protect your idea from getting stolen.
Before launching your product idea to the public, ensure that you get the necessary patents and trademarks, by hiring an intellectual property attorney to determine if your product qualifies for a patent. If you are going to trademark your product’s name, it means others cannot use your product’s name. The team you have worked with will also need to sign a non-disclosure agreement
Create a business plan so your business could have a purpose, and the short and long term strategies for your company, such as start-up funds, branding approach, market audience, and financial needs and plans completely mapped out. Another thing you would need to worry about is the legal structure you intend to use for your business, as this will imply how you will file your taxes, and how much you might need to pay.
Starting a Software Development Company from Home
- Software Development Industry Overview
The software development industry has grown rapidly from 2010 to 2015, as more businesses and consumers have increased their investments in computers, software, mobile devices, and video games. There is bound to be more increase in the use of software in day to day activities as well as the rise of predictive analytics and artificial intelligence that will characterize the industry.
- Interesting Statistics About the Software Industry
The software market has grown in less than a century from a non-existent industry to a multi-billion dollar industry. Software forms the basis of many modern devices, such as, navigation systems, computers, smart phones, watches, cars and tablets that we use daily. Even though the industry is characterized by the big players such as Microsoft, IBM; there has also been an increase in freelancers working independently to develop software.
The industry is one that is intensively technological and geographically clustered, especially as most employees in this industry come from top universities. The industry generates revenue of $193 billion, with a projected growth of 3.6% from 2010 to 2015.
As at 2010, there were 7,737 businesses that employed 447,488 people in the industry. The industry is fragmented, with the 50 largest companies accounting for 40% of the industry’s revenue. 35% of the industry’s revenue comes from systems design, development, and integration services; 25% from development services and 10% from technical support.
In 2013, an estimated $542 billion was spent on software, which was 25% of the total expenditure of IT. As at 2012, the value development software market globally was $82.2 billion. According to IDC, subscription revenue including SaaS is projected to a 175% compounded annual growth, reaching 24% of total software revenue in 2016. In 2007, the software sector experienced a real annual growth rate of 14% in the US industries, compared to other industries growth of 2%. The sector has outpaced other sectors each year since 2003.
However in the 3rd quarter of 2015, the industry had an above average revenue deterioration of -6.53%; sequentially revenues, for software and programming industry fell by -11.12%. The highest revenue year on year growth statistics was in the fourth quarter of 2007 at 27.91%, while the lowest revenue year on year growth statistics was in the second quarter of 2009 at -11.33%.
States such as California, Massachusetts and Texas have a greater percentage of the software development industry than other states. California alone accounts for 24% of the industry’s workforce, with most of the workforce working in the Silicon Valley region outside of San Francisco.
Even though demand for IT services such as software development is largely driven by rapid technological advances, spending in this industry depends on the state of the united states economy. Companies’ profitability depends on technical expertise, effective marketing and innovative services. Large companies in this industry have more advantage, due to that fact that their service offerings is often broad and has a global reach, which allows them outsource some of their services. Small companies can only effectively compete when they specialize in a niche or partner with larger companies.
Starting a Software Development Company – Market Feasibility and Research
- Demographics and Psychographics
When it comes to the demographic and psychographics composition of those who uses software and its related services, there are a handful of them. Here are some of them;
- Home owners
- Baby boomers
- Corporate organization
- Educational institutions
- entertainment industry
- IT firms
- Accounting firms
- Agricultural sector
Most people, male and female, especially young adults and the middle aged who are of the working class and own their own devices, even dependants and retirees who own devices, either working or not make use of software or its related services.
List of Niche Ideas Within the Software Development Company Industry
The software development industry is a unique one, as much as most companies offer uniform services to clients, there are others who have created a niche for themselves in the industry, specializing in just one area of software development or its related services.
Some of the areas of specialization in the software development industry are; programming, business function outsourcing, data warehousing, enterprise resource planning, systems planning, customer relation management and training. One thing to note in these areas of specialization, it is easier for smaller companies to specialize in one of these fields, but larger companies can specialize in more than one area.
The Level of Competition in the Software Development Company Industry
Software is now regarded as critical for the performance of every company. 20 years before, the use of software within an organization was mostly confined to big transactional systems in the data center, but now it underpins nearly every function in every industry. The software development industry have been driven by developers, plug-ins, software development kits an application programming interfaces, and add-ons that drive added value while increasing loyalty to a product.
This reality has introduced new competitive dynamics for software development companies in the industry. Companies now have to think on how to make their revenue streams and customer retention incrementally better, while striving to stay proactive and agile in an industry that takes no prisoners. The level of competition has caused more companies to fling their doors open so as to include a wide range of developers just so as to remain relevant in the industry.
List Of Well – Known Brands in the Software Industry
The software development industry has existed for a long while now, and while most companies have continued to excel throughout the years, others have failed miserably. It is for this reason, that those who have had successes within the year and strive to remain relevant have been known as brands in the industry. Listed below are a list of some of the major well known brands in the software development industry in the United States, the list does not attempt to name all, save for few:
- HP Inc.
- Microsoft Corporation
- Oracle Corporation
- Symantec Corporation
- Owen Software Development Company Ltd
- Progress Software Corporation
- PTC Inc
- Cerner Corp.
Before venturing into the software development industry, entrepreneurs have to be really sure it is what they desire to do, and then make a thorough research about the industry. There are three centralized locations for most software development industries, you would need to be able to decide if you want to go and join others and if possibly relocate from where you are, or if you want to locate your business in an area that isn’t known for software development and market your company aggressively to clients or potential technology or its related services partners.
The demand for software development goes hand in hand with technology. As more devices are created, so are more software developed, either to upgrade existing software or to develop a totally new one. However, people will only purchase more from this industry if the economy is healthy. Any entrepreneur going into this field will need to keep operating costs low as revenue for start-ups isn’t immediate.
Is the Software Development Business Worth Starting from Scratch or is Buying a Franchise Better?
Starting a business from scratch is not the easiest of venture, as not only would you be required to focus on the purpose of the business, but you would be required to aggressively get your own clients, while mapping out short and long term strategies that are intended to help you grow; but it also has its advantages as you get to work on growing your vision and not that of someone else.
In the software development industry, there aren’t franchises as companies prefer to merge, thereby bringing their niche specializations as a bargaining chip or be acquired by another company. The acquired company can then take on the vision of the parent company; this is as close to a franchise as it can get in the software development industry.
Possible Threats and Challenges You Will Face When Starting a Software Development Company
Some of the threats and challenges faced by startups in this industry is the pressure to move quickly and beat other competitors in finding a solution. Also, due to time, money and changing trends, start-ups might not be able to continue with their original vision and might either have to give it up altogether or not want to concede defeat and then allow the idea lie fallow. There is nothing an entrepreneur can do about certain threats or challenges, other than seizing onto every opportunity found.
Starting a Software Development Company – Legal Matter
- Best legal entity to use for a Software Development Company
Most software developers when working alone do not need to incorporate, but once you start having partners and employees, having contractual agreements and projects, with more complex client needs, it is best then to ensure that you get the best legal entity that would work for you and your growing company. Failure to get a legal entity might lead to grave consequences not only to you, but to your business as well.
Recognizing that your business is a separate and distinct entity from you will require you creating a business plan that will seek to lay out the purpose of your business and what industry you tend to focus on. Knowing and laying out the purpose of your business is only one step, you would need to establish a relationship with a lawyer who has experience with startups, specifically startups in the software business, so that they can create the right legal entity and create and negotiate contracts as well.
In most cases for this kind of business, the limited liability corporation (LLC) is a hybrid form of entity that combines the protection of a corporate entity and the simplicity of a sole proprietorship. Another entity type is the S Corporation or the Sole Proprietorship.
Catchy Business Name ideas Suitable for a Software Development Company
- Open Solutions Corporation
- Soft Inventory Inc.
- Toodle Corp
- All Languages Inc
- Systems Inc.
The Best Insurance Needed for a Software Development Company
The reason why it is advised that you get an insurance policy is for eventualities that would always be out of your control, such as health or a problem with the contract of your clients. An insurance policy is expected to protect you and your business, while you do what you know how to do best, develop software. It is best if you speak to an insurance agent, as they will be able to guide you on the policy or coverage that best suits your software development company.
Here are some of the basic insurance covers that you might have to consider getting if you want to start up your software development company in the United States of America:
- Liability Insurance
- Health Insurance
- Errors and Omissions Insurance
- Disability Insurance
- Life Insurance
- Personal Umbrella Insurance Policy (For sole proprietors)
- Car Insurance
Does a Software Development Business Need Intellectual Property Protection?
Yes, an intellectual property protection is the foundation of the software development industry. It is therefore essential that every software developer has a firm grasp of intellectual property rights and how they can be applied to the software industry.
Software developers require a solid understanding of their rights in developing and protecting a brand, in ensuring the exclusive ownership of their creations, and in keeping their work confidential so as to create and maintain and advantage in a market that is so competitive.
Software patents have become very common, an inventor with a patent can exclude others from making, using, or selling the claimed invention for a period of 20 years, but the software must have a high level of originality and the recipe of the invention must be disclosed to the public. Copyright protection is available regardless of whether the software developer has a patent or not. A copyright lasts longer than a patent and is narrower in scope.
Is Professional Certification Needed to Run a Software Development Company?
Ordinarily it would seem that writing a code in different languages should be sufficient enough for you as a software developer in the United States, but it might not be.
Most software developers now take certifications like the professional software developer certification (IEEE) plus other certifications to give them an edge over any regular software developers, and also boost their resume either as an intending employee or owner of their software development company, while also instilling confidence in the clients on their ability to handle any contract.
List of Legal Documents You Need to Run a Software Development Company
Some of the basic legal documents that you would need to successfully start and run your own software development company in the United State of America are:
- Certificate of Incorporation
- Business Plan
- Contract Documents
- Non Disclosure Agreements (NDA)
- Insurance Policy
- Operating Agreement
- Patent or Copyright Registration
- Business License
Writing a Business Plan for Your Software Development Company
writing a business plan is an important factor to be considered. Every business requires a plan that would give it a clear idea of some aspects of the business. The business plan is intended to guide you and let you know if it would be wise o invest your money in the software development venture. Even if you jot down a paragraph on a paper towel describing your business strategy, you’ve started with your plan albeit unknowingly.
Business plans can be described as being inherently strategic, where you can start with certain abilities and resources with the plan of moving from one point to another in a certain number of years, where more resources, abilities, profitability and assets would have been added.
The best kind of business plan tells a clear story of what your company plans to do, and how it will do it. Since most software development companies fail within their first year of start-ups, a business plan offers the opportunity to safely test out your business’ feasibility, spot out the flaws, and set aside any unrealistic projections, while identifying and analyzing your competition.
A typical business plan takes about 15 to 25 pages. The length usually varies on a number of factors such as whether it is an existing business with a new product, or an entirely new business. Your business plan should include these important sections:
Executive summary, which explains the fundamentals of your business, which includes the concept of your business, the financial features and what will be required of your business. Business description gives a brief description of your industry and its outlook. The description of your business operation’s structure has to be described also.
Other aspects that must be included includes, market strategies, competitive analysis, operations and management plan, and financial factors. These components are the essentials that need to be ready, should you want to give out a quick presentation to an investor.
Some entrepreneurs usually hire business plan writing services such as consultants or researchers, especially if you feel intimidated by the whole process, are stuck in some difficult parts or if you prefer to spend your time on other priorities. There is also the option of using the free services of the federal Small Business Association (SBA), or downloading a business plan template online if you do not have the money to hire.
Detailed Cost Analysis for Starting a Software Development Company
Even though from research and statistics, the cost of starting a software development company depends on varying factors, the requirements are usually the same, the differences in cost might be due to the state you are residing in, or how you are able to save money by cutting out some non-essentials.
The start-up costs for a software development company can be low, medium or high, depending on the entrepreneur. Most software developers operate from home thereby saving costs on rent or facility leasing. Most of the items that you would need to start your own software development company in the United States of America are as follows:
- Incorporation fees would cost $500
- Liability insurance policy would cost $2,000
- Renting of an office facility would cost $12,000
- Windows hosting would cost $300
- Linux Hosting would cost $150
- Bug Tracking would cost $400
- Advertisement would cost $3,600
- Graphics Design would cost $300
- A landline phone would cost $250
- Cell phone would cost $1200
- Multi function printer $500
- Computer both desktop and laptop would cost $2,500
- Software subscription would cost $2,000
- Cable broadband would cost $1,500
- Other expenses such as office supplies, stamps, and business cards would cost $500
Going by the above analysis, you will need an average of $30,000 to start a software development company without patent consideration on a small scale in the United States of America. Those wanting to start on a medium scale would need nothing less than $60,000 to start a software development company.
Those intending to start a software development company on a large scale in the United States would need at least $150,000.
Financing Your Software Development Company
Financing is important, as even large scale companies routinely seek capital infusions in order to be able to meet short-term obligations. For small scale businesses or startups, finding the right funding model is really essential. If you get money from the wrong source, you might lose part of your company, or get locked in repayment terms that might hinder the growth of your company for many years. If you do not have the right funds when starting up your business, you might find your business failing before it even starts.
Which is why it is important to conduct a feasibility study and have a business plan in place before sourcing for funds; this is because you would have carried out extensive research on different sources. Also a business plan ensures that potential investors listen to your business idea, and take you seriously.
Here are the several options that are available when it comes to sourcing for new or additional capital for your software development business. Some of the options are:
- Debt financing
- Approaching Venture Capitalists
- Raising money from angel investors
- Mezzanine Capital
- Off-balance sheet financing
- Getting loans from bank
- Raising money from Family and friends
- Your personal savings and stocks
- Research grants and loans
- Online funding
Choosing a Suitable Location for a Software Development Company
Finding and securing the right location for your software development company is important in building a successful software development business. Most successful software development companies are located in geographical areas such as the Silicon Valley where there are other software companies that might provide the needed support as well as understudy for your business. This does not mean you should be limited to Silicon Valley, or such other software related areas, as the internet has made it possible for you to locate your business where it is convenient for you.
A key factor to consider while seeking for a suitable location for your software development company is your target customers and where they might be located, for instance, it wouldn’t make any sense if you locate your software development company that is specifically into restaurants software in a high brow fashion area, as you won’t get much people using your services.
If you sell products that are already considered saturated, your software development company business might struggle. Another thing to take into consideration is the purchasing power of the clients where your software development company is placed. You cannot hope to charge high for your product in a small scale start up business, especially as the owner will be looking to keep his start-up costs low. You might opt to use a better mode of payments such as a subscription or a per transaction charge as against a one-time charge.
Thankfully, you can operate from home for this kind of business, especially as you might be the only employee for a while. Moving to a facility either big or small will depend on how many partners and employees you need to help with the demands that might be more than you can handle. If you are going to have very few people working with you, you could still hold off on renting a facility and might decide to move to your garage instead.
Starting a Software Development Company – Technical & Manpower Details
Some of the equipment that will be needed to run a software development start-up can be gotten as fairly used and will still serve the purpose that new equipment would have, depending on how well you manage them. Purchasing fairly used equipment also helps in keeping the overhead and operating costs low, which is appropriate for a start-up that doesn’t have much cash. Also, almost everything can be gotten from online stores, with some being exclusively online products:
Some of the equipment that you would need as an entrepreneur to fully launch your software development company in the United States are:
- Phones both landline and handheld
- Computers both desktop and laptops
- Fax Machine
- Color Laser Printer
The above equipment plus the online necessary software and tools, will ensure that you can effectively run your business from home. If you must get an office facility, it must be because you are hiring more hands that would otherwise not fit in your home. This means you are going on a medium or large scale start-up and might want to show a serious front to your individual and corporate clients.
The number of employees and partners that you would need to operate a software developing company varies on the purpose of the business. You can run the business yourself from home effectively, especially if you have clients that you are able to handle. If you however want to go big like Microsoft, you would need more than 1,000 people to work for you. If you are just branching out from being yourself and still want to operate on a small scale, then you would need like 3 to 5 people to work with.
The Production Process in a Software Development Company
Software development lifecycle is the process of building good software whose life cycle provides Quality and Correctness. All the production process stages are very important as one wrong step in the life cycle can create a big mistake in the software development.
The six stages involved in the software development life cycle for software development are: requirement gathering and analysis, system analysis, system design, coding, testing and implementation. Owning a software company or even being a stakeholder demands that you take seriously the development life cycle of the software, as even your client might also want to be aware of the process before they buy the software.
Starting a Software Development Company – The Marketing Plan
- Marketing ideas and strategies for a software business
Marketing is a way of generating income for your business, getting new customers whilst retaining the old ones and also garnering publicity while doing so. Every business needs a degree of exposure to thrive; it is therefore mandatory that businesses market their business or invest heavily in marketing. However, your marketing budget as a start-up in the software development industry shouldn’t be one that is likely to break the bank.
In marketing the product from your software development company or even the company itself, you should leverage on all available sources – from lowly individual clients and companies to highly placed ones – to get business deals. For those that will be running a medium and large scale business, even those on a small scale business, they must ensure that they bid for contracts from individuals, organizations, as well as government agencies, whenever the opportunity presents itself. What will make you noticed are the unique innovations that your software is bringing to the marketplace.
Below are some of the ways that you can use to promote your business and bring in more customers:
- Introducing your business by sending introductory letters to stakeholders in the software and technology industry.
- Continuous Search Engine Optimization (SEO)
- Submitting your software to software download sites and directories.
- Making use of affiliate marketing
- Using the pay per click campaigns
- Writing newsletters and press releases
- Getting actively involved in forums and blogs online
- Writing and submitting articles
- Attending software developer conferences
- Advertising on technology related magazines and websites
Factors That Will Help You Get the Right product pricing for your Software Development Company
Before putting a price on your product or service, you would have to carry out a research. It is not until you have differentiated yourself and services that you can rise above the market rate to charge what you will. You must decide after comparing your product to similar ones in the market, if you want to charge via a licensing fee, per transaction by the end user, or a time-limited subscription; bearing in mind that licensing fees are usually a one-time charge for the life of the product; per transaction would be a charge for every time the customer uses the software; while a time limited subscription would be for a specific period before an additional charge is incurred.
Possible Competitive Strategies for Winning Your Competitors in the Software Industry
Companies are today afraid of even their allies stealing from them, and yet some have used the strategy of collaborating with the biggest competitor for revenue and survival. This means that instead of trying to compete with your competitors, an act that might ensure the death of your company, you find a way to partner with the competitor in such a way that you both benefit from each other’s resources. Without having to steal customers or damage each other’s credibility. This example can be seen in PC and Processor companies.
Another competitive strategy you can use is in referring customers to your ‘supposed’ competition without losing customers. This can be done mostly through affiliate marketing, which can earn you fees for referring customers.
Of course these strategies would require great caution as you would need to define which areas you most likely would be working together on, and which areas you likely would be competing in.
Possible Ways to Increase Customer Retention for your Software Development Company
Any serious business is always looking to retain customers and so seek innovative and proactive ways to do so. According to studies from the U.S Small Business Administration and U.S Chamber of Commerce, it was found that customer acquisition costs seven times more than simply retaining them. This means that is more profitable to retain a customer than allocate resources to get a new one.
Customers respond to excellent customer service and a timely delivery of products and or services, so the surest way of retaining your client is to ensure that these two basics are met, as it will keep your customer coming back to do business with you. You can also manage your clientele base by making use of your Customer Relationship Management (CRM) software applications.
Strategies to boost your brand awareness and Create a Corporate identity for your Software Development Company
In boosting the awareness for your brand, it is important you create strategies that will ensure that your company is used as proprietary eponyms, which is a term for brands that have become so well known that they have replaced the generic terms for similar products. While not all companies might achieve the proprietary eponym status, it still would do well to have their brands boosted.
Below are some of the platforms that can be leveraged on to boost the brand of your software development company:
- A good referral program
- Impressive guest content on your website
- Free software version with credit or an opportunity to upgrade at a cost
- Local partnerships
- Bended freebies
- Customized car wraps
- Social media contests
- Leveraging on relevant social media platforms
- LinkedIn publishing
- Pay per click advertising
- Remarketing campaigns
- Paid social advertisements
- Influencer marketing
Creating a Suppliers/Distribution Network for your Software Development Company
Even though software developers might think themselves immune to supply chain management, this is far from the truth. No software can work independent of devices, and so these devices can be regarded as suppliers, especially as different devices require software applications that must match it in order to be operational. For example, any software designed for PC, would require the buyer to own a PC before accessing the software.
This therefore implies that, the hardware can be termed as the distribution network for software development companies.
Tips for Running a Software Development Company Successfully
In order to create a successful business in the expanding industry, it would require that you ensure that your products can be understood and not be too technical, which means that the software must be self explanatory, simple, clean and highly intuitive.
Give your customers upgrades options but not too often so that they do not become weary and move to your competitor. Allow your customers certain features that other similar software might not have.
You should be able to wok according to customer specification whilst also giving them an experience that would exceed their expectations. Also, offer the right amount of professional services, not exceeding boundaries that might later become a problem for you.