On Starting a Software Business
This was originally an excerpt from a DM conversation on Twitter where I answered some questions on business. I also enjoyed some of the comments that spawned from the Hacker News post.
HOW MUCH OF A PRODUCT DO YOU FEEL YOU NEED DONE BEFORE YOU START CONSIDERING STARTING A COMPANY? HOW CONCRETE OF CLIENTS DID YOU HAVE BEFORE STARTING OUT? TO BUILD YOUR BUSINESS PLAN WAS IT JUST YOU AND YOUR PARTNERS SALARIES, LEGAL FEES, AND LAPTOPS?
WHAT WAS THE TIMELINE FROM “WE ARE LEGALLY A COMPANY” TO “WE HAVE A PRODUCT” TO “WE HAVE ACCOUNTS RECEIVABLE”
I started to answer your question in a short way and then realized maybe context would help frame this. So here is the wall of context.
I started the company out of sheer desperation. Rich wasn’t involved at the time. I felt I wouldn’t be happy at any tech company after several bad experiences — not only that, I was so burnt out I didn’t even know I could work a full time job without getting fired for not being able to code 40 hours/week. But my work experience was just 1) customer service/retail/business and 2) coding. I didn’t want to go back to a low paid job, and I didn’t want to give up on coding either.
It went a little deeper than that, too. I was in a very abusive relationship that was hard to think about or get out of because work was so stressful and all-consuming. I couldn’t clean up the rest of my life without figuring out how to survive financially in a sustainable way first.
I could sense this burnout was there, so I did the only thing I could think of at the time — I talked to lots and lots and lots of people. I thought maybe I could find a good job, a nice job, but as time went on and that seemed nowhere to be found, I figured — if I have to take a stressful job, might as well do it in bursts. Work myself to death for a month, take a month off. So the idea of the company was born.
I grabbed a cheap Airbnb in a small town on the Oregon coast to conserve costs, and started looking for contracts. Main method: Talking to lots and lots and lots of people. Oddly enough, most of my “looking for contracts” wasn’t screaming “I need work!” I learned quickly that the best way to get a deal was to listen to the other person and help them first — this also just feels more human. And then they might not have work for you, they might not even have any leads, but if you do that they’re probably happy to connect you to someone else. Sometimes after months a person I’d helped would get back to me, “Hey, I appreciated what you did for me. Here’s a lead I found.” and that’d turn into a huge deal. Give and take. After a couple months, I’d secured some lucrative contract deals and countless leads.
Rich was a great friend of mine at the time. We had a lot in common — and met at the start of my “talk to lots and lots of people” phase a few months back. Once it was clear my contracting idea was a success, he surprised me by turning down a Director role at a large corporation to work with me instead. To be honest, the help was appreciated and perhaps needed. I was able to talk to people and get deals, but I was still very burnt out.
Rich and I didn’t have salaries. For a few months wewere two independent contractors that just happened to always work together and split everything, and then when it was obvious this was working out we made an LLC. We did a little online research and filled out some paperwork on nolo.com and, done. Easy. Very easy. Our only business plan at the time was to keep getting enough contracts to fund ourselves. We bought the equipment we needed and often clients were happy to send us hardware.
After a few months of working together, we were approached by a large corporation who needed help on compression problems and contacted us based on some work Rich did a decade ago. We thought, well, if we made a product that did what they wanted, this would be a customer. We have a customer already. We should make a product. We could go on doing contracts forever, but a product can buy not needing to work for decades. And there was an element of unfairness to the contract work — often the startup would take our hourly work and sell it in a product and make multitudes more money.
At that point we knew we had to start maybe doing things more correctly, so we contacted a legal team and an accountant and they helped up clean up our business paperwork.
Contracting can be tough even if you have a lot of clients — for instance, we had one client who didn’t pay us for four months — but it was good enough to make a living and an excellent backup option to building a product. My single biggest piece of advice for consulting work: always, always have backup options. Always, even if you think you don’t need them. Anyway, contracting meant we didn’t need to take investment money. We could always fall back to contract work for money.
So anyway, we started building the product and I started shifting my “talk to lots of people” efforts to focus on the product. Rich also started blogging about the tech details a lot. We no longer mentioned contract work when talking to people, only the product. The “give first, take later” approach continued to work really well (and also just felt like the right way to live). Our most successful publicity attempts always sprung out of helping others — we did several community workshops, mentored lots of people, helped people find jobs, etc. As time went on, we also got more invitations to speak about the product at events and conferences.
People started contacting us about the product, which was exciting. We stuck very clearly to “Don’t do work unless you’re getting paid for it.” We had a little prototype, but didn’t want to go further unless someone would give us money. And one day, Netflix reached out and said they were willing to give us cash in advance if we kept working on it. After that, we were like, “Yep, this is working. We’re a product company now.” That was early fall 2016.
So, with that in mind:
How much of a product do you feel you need done before you start considering starting a company?
- I didn’t have plans to build a product before starting a company — I was planning to be a consulting shop. Either way, make sure you know you’ll have clients or customers — at least in the form of good leads. Until then, keep costs low, keep your current job, or have a good backup plan to get a job.
How concrete of clients did you have before starting out?
- Before I quit my job, I was thinking I’d realistically just take a couple months off and then need to go back to work so I planned on that — no great leads. But after looking more seriously I got a lot of people who said they might have work for me, and then after about 6 weeks some deals started to materialize and I knew it’d be okay and threw out plans to go back to work full time.
To build your business plan was it just you and your partners salaries, legal fees, and laptops?
- It was me and my partner splitting everything 50/50, including legal fees and laptops. Sometimes clients would send us hardware for contract work too.
What was the timeline from “we are legally a company” to “we have a product” to “we have accounts receivable”
- “We are legally independent contractors” — right away
- “We are legally one company” — 4 months in
- “We have a product” — 6 months in
- “We have accounts receivable” — If you mean “started making money from the product,” 9 months in.
- Now, we’re 18 months in.
