How to Found a Software Company
Enclosed you will not find the 6 definite steps, instructing you how to found a successful software company.
But don’t stop reading, yet. We just wanted to get this out of the way, right at the start.
There are mandatory steps to take when founding and co-founding software companies — like registering the company in the first place. But there is no such thing as a secret recipe for entrepreneurial success on the software development market.
Which does not mean you could not cook up a healthy and successful software business if you gather some specific ingredients. In this article, we will share some entrepreneurial best practices with you. We will give you an overview of what steps we took and what lessons we learned when establishing the trimplement software development company in Germany. (And what better occasion than our 10th anniversary to roll out such a menu?)
So then, here are some of the stations we passed when founding a financial software engineering business. We are certain you will take away something for your own aspirations as an entrepreneur.
1. The Starting Point: Past Experiences
For all first-time founders, starting a company feels like travelling in a completely new direction.
But before you look at the road ahead, take stock of where you are at. Your starting point determines your first step. It determines your options to place your software business and your product idea on a solid foundation.
Expertise and a broad knowledge base. Financial independence. Already established networks of business partners, potential clients, potential coworkers. All these are factors in early success. Lacking this can limit your business’ scope. Without a doubt, it’s helpful, if you have worked in the industry your company-to-be will be operating in.
Your own professional background also determines how you will likely approach the founding process of your company. As a founder, you will position yourself on a scale between two extremes: The Practitioner on one end, the Coordinator on the other.
Practitioner (In Our Case: Software Developer)
On one end you could be what we will call a Practitioner. That means you have worked in the field you are founding in. In the case of a software company, for example, you may have been a programmer, designer or computer scientist. Knowing the ropes of your field you can dive straight into the development of your software products. However, you might need help with the entrepreneurial side.
In the early stages of founding our software development company, we leaned towards this end. We have worked for a long time in software development and financial application engineering.
Thus, we were already familiar with the respective workflows and the technical requirements. The same cannot be said about operational and entrepreneurial skills. We acquired them during the early stages of our software company, with the help of mentors, associates, and specialists.
Coordinator (Read: Manager)
Positioning yourself on the other end of the spectrum, you would converge to the founder type of Coordinator: Perhaps you have worked in project management or sales or business development before. You may have been in charge of organizational and leadership tasks.
What you might lack is insights into the practical aspects of your business idea and an overview of the software development business as a whole (and your specific branch, too). You can counter this by acquiring outside talents to help you with these aspects.
Whichever category fits you best (most likely, you will have fields, where you are more of a Coordinator or more of a Practitioner): It’s not necessary to stick only to the industries you have already worked in. An idea for a specific company or software product might strike you outside your usual scope. If that’s the case, get familiar with the markets, industries and regulations you aim your business model at.
We had the advantage that we focussed on B2B or B2B2C products as founders. If your software company is thrilling and your prototype works, you just need to find a couple of customers, who are willing to buy it and want to use it in their own business.
For B2C, you will have to put in more marketing efforts to generate attention for your company, and your network might not help you as much. These are tendencies, however, not hard and true facts.
2. Identification Stage: Getting a Project Idea
Becoming an entrepreneur means starting a having business idea and following it through.
Or rather: several business ideas. Or, to tell the truth: Many, many business ideas, not all of them gripping.
As a founder, you should call two essential traits your own: Perseverance and flexibility. Both, while seemingly at odds, are equally important when founding a software development company. It’s important not to follow your projects through and not give up once the first drawback manifests. Likewise, you should not shy away from pivoting when needing. Have the courage to stop an unprofitable project, no matter how much effort or money you’ve already put into it.
Admitted, it’s possible you’ll wake up one day, the business plan for a highly demanded product fresh in your mind. But it’s not very likely, in our experience. You will have to discard ideas, plans, even finished projects you are absolutely convinced of.
We started our identification stage with a number of business ideas on our minds, aiming at different industries: travel agencies, online dating platforms, educational marketplaces. For 2 years, we took the ideas that resonated with us most and implemented them. The business model we still work in successfully today is what proved to be the most viable: A development company for financial software foundations.
But it did cost us time and effort to reach that destination. During the identification stage, we started projects, developed prototypes and abandoned them. Each of these projects provided us opportunities. It taught us best practices. And perhaps most importantly: It encouraged us to add new contacts to our business network. Which takes us to the next important stage of software entrepreneurship.
3. Team Building
You will hear executives call the people who work for them “family”.
It’s a common practice in the corporate realm, on homepages and in internal newsletters. Of late, this notion has become a little overused. Really, your family is your family, your work is your work.
And those dimensions might collide sometimes. Financial resources spent on business building, after-work phone conferences, the general workload of being “a jack-of-all-trades” (and businesses)… it’s crucial to know that your family has your back at busy times. If your life partner is also self-employed or has an entrepreneurial mindset, that will help a lot.
However, looking back at our founding years, there is a glimpse of truth in the idea of business partners and team members forming a family. As a founder, you will spend so much time with your initial co-founders and co-workers, that they start to grow on you. The success of your undertakings stands and falls with the team.
That’s especially true when taking the primary steps in a company. So forgive us, if we stretch the family metaphor a little more when talking about team building.
The Nuclear Founder Family
In case you are a solopreneur, this section might not apply to you. But if you are part of a group of fresh co-founders, you will have a lot of advantages over people starting a company all on their own.
First off, you will not have to shoulder all obligations on your own, including financial obligations. If you and your co-founders are on the same page, you can rely on them, when you cannot fully commit to your work at times.
Moreover: multiple pairs of eyes see more, several brains think better. A group of multiple co-founders acts as its own corrective force, avoiding organizational blindness. Make sure your co-founders complement each others’ skills and mindsets but share the same set of core values. Diversity is very powerful, as your team needs to handle many different situations, whether technical, personal or financial.
There is a challenge to this, of course: Make sure you and your co-founders get along and pull together. You won’t always have the same opinions, but you should be able to respect and trust each other. Quickly reaching a viable consensus is important. If employees quarrel, it might impact a project — if co-founders quarrel, it can paralyze the whole company.
You will spend a lot of time with these people, so make sure you and your co-founders resonate well with each other.
Extended Family: The Team
Who to hire — that’s never an easy question.
Aside from expertise, intrinsic motivation and reliability, there is one virtue especially vital for employees in the starting phase of a startup: Adaptability.
Some things about your company and your workflows might not be fully fleshed out yet and your employees should be able and willing to roll with it.
And to roll with their colleagues. Every employee should integrate well into the team. When still taking the first steps of a company, that might be easier to predict, to some extent. That’s because in that stage, many if not all of your employees could come directly from your personal business network.
At some point though, you will have to grow along with the demand for your products or services. You will have to accept people into the company you don’t know personally.
And that’s where things get exciting. Every company has different demands on its employees. How to conduct a job interview and what to look for in a potential candidate — besides fitting into the existing team — that’s learning-by-doing.
At trimplement, we as co-founders have been able to uphold the practice of interviewing all applicants for our development team personally. It’s a way of hiring we have kept for the last 10 years now. And we want to retain it for the future if possible, for it gives us the chance to better assess potential employees based on our past experiences.
And speaking of “value”: Motivated and skillful employees are a software development company’s most valuable resource. They will seek ways to improve the work they are doing and the company as a whole.
So as an executive and founder, it’s worthwhile to design a transparent working environment and listen to feedback from the staff.
Good Neighbors: Mentors and Experts
As a first-time founder, it’s easy to underestimate the complexity of your target market.
Bringing in specialists can save you from developing a product naively into the blue. No one wants to hear the phrase “Sorry, but this industry just doesn’t work like that” after you have finished building your prototype — believe us, we’ve heard it.
Therefore, one of the most important tasks for any founder during the early stages is upgrading one’s knowledge. And that amounts to asking and accepting the help of partners and mentors. Such contacts will likely derive from your business or private network. Some of them you might meet during events or via specific online platforms, though. Whatever the case, such helpful “neighbors” are as precious as solid gold.
We’ve experienced that the best way to learn a new skill is to practice it — in the literal sense of putting it into practice. We learned the required management skills alongside the founding of our company.
But without our mentors, things would not have fallen into place as orderly. For example, we did not take over the general management duties right away. An old acquaintance of ours helped out here. He taught us the ropes of accounting and bookkeeping as well as other operational skills: “Don’t forget, guys: No transaction without a receipt!”
On the entrepreneurial side, we also could rely on the support of an old business friend. He made us familiar with business culture. Being the founder of a software company is as much a way of life as it is a profession.
Additional people in the category of “good neighbors” are investors and business angels. They provide you the financial support one might be lacking. Which takes us to…
4. Financing Your (Software) Company
For any company, the question of how to acquire the financial assets needed for the business is a central one. In principle, such money can come from number of sources:
- Your own savings
- The revenue of your new company during the early stages.
Software companies are a little more on the lean side, usually, as no production equipment has to be bought, other than laptops for developing.
Anyhow, it’s easy to underestimate the expenses you will be facing as a founder. At some point, you will have to spend money:
- Pay the company registration fees (notary, tax accountants, etc.)
- Buy computers
- Rent webspace for a homepage
- Rent office spaces
- Have marketing materials produced
- Pay salaries
- Buy business event tickets
- Hire an accountant
- Pay your lawyers
- Pay your bank
Should you have the chance to build up your software company alongside your regular work, take it. Having a steady flow of income allows you to make the essential purchases for your company without relying on external funds.
We have chosen this way with trimplement as well. We were able to establish trimplement while still being employed at our former jobs, so we could rely on our salary while getting everything up and running.
But make no mistake! As much as founding alongside your regular job takes financial pressure away from you, it puts operational pressure on you. You will have to work a second job for a while because that is what an after-working-hours entrepreneur does.
Not every aspiring business owner has the option to work a separate job while building up his/her company. And not everyone can shoulder the full costs of founding.
So, many software entrepreneurs may attempt to attract business angels and secure investments from outside. That’s not an easy task (which is why “fundraiser” is valued like a true job profession in some places.)
But you don’t have to have a degree in fundraising for you to gather investments. You just have to abide to this rule: Inform and stay informed.
Don’t approach potential investors without a business plan at hand. This plan should answer the most important question, every financial backer will likely ask you: When will it all become profitable for me?
And also, be careful not to accept term sheets without proper legal support. Team up with lawyers specialized in corporate law. Or better even: Approach lawyers specialized in startup support and fundraising.
Lastly, if you have a DIY streak in you take a seminar in fundraising — yes, those exist, Lastly, if you have a DIY streak in you take a seminar in fundraising — yes, those exist, provided by law firms or your local chamber of commerce.
In any case, we recommend you to have proper legal support during the funding process.
5. The First Product / The First Project
Founding a software company is all about getting a business idea to work. For a number of development enterprises that means specializing in client projects. Others concentrate on creating their own licensable product. And some do both.
For us, it started with a product idea: CoreWallet, a flexible software foundation for building ewallet systems, payment applications, and other financial software products. That idea became much more specific when we acquired a customer who was in need of exactly such a product. This acted as an additional impulse to get a minimum viable product done in time, as we knew we now had a market of at least one client for it.
That’s how CoreWallet came to be. And ever since then, we have kept improving it and expanded its possible applications more and more. In fact, we approach our business model solely from the e-commerce angle first. But soon we began to see all manners of different use cases our software would be suitable for, like virtual account management, marketplace payment or trading platforms.
The same could likely apply to your business as well. If you just change your perspective a little, your flagship software product might as well surprise you with applications you did not think of in the first place.
6. Spreading the Word
With your software company founded and your minimum viable product (MVP) developed, it’s time for one of the hardest tasks in entrepreneur existence: Getting it out there!
Marketing and sales measures take the frontline in getting exposure by potential customers. The variety of actions to take and rules to consider while doing marketing or sales would push the boundaries of this article. As before, make sure to obtain sales and marketing professionals for your team. Ideally, your sales manager for B2B has a background in the market you aim for — like a tech expert for promoting software development services, including a vast network of relevant contacts.
In any regard, it’s not enough to simply display your products and services. Your company needs a face. Your face. To acquire worthwhile business contacts, consider visiting one of the many conventions of your respective industry that take place year-round. For the fintech industry, for example, this could be Money20/20 (follow us here for a first-hand conference testimonial) for example — you will find a similar event for your field of work.
Always mind your contingencies, though. Tickets for such events tend to be expensive, so be sure to check if they offer discounts for startups.
Depending on how directly you can market your product, you should not expect marvels happening regarding your sales. A product that comes with many out-of-the-box functionalities will likely be attractive for clients not wanting to put in additional effort. On the other hand, frameworks and software foundations are popular with clients who need flexible, custom-built solutions, without wanting to start from scratch.
What you could contribute more easily is your services or strategic partnerships. Conventions do provide excellent opportunities for networking. Look for partners who are complementary to you. Working with other companies from different industries represents a sure way to open up new fields of applications for your products and services. If we would start over founding a new software company today, we would reach out to business partners a lot sooner than we did with trimplement.
Still, don’t expect to conduct a business deal or form a partnership directly at a convention. This is a rare occasion for the majority of software startups. Such outcomes take a fair number of follow-up meetings and contract negotiations. That’s only natural: In the B2B area, sales cycles tend to be essentially longer than in B2C.
Founding a Software Development Company: Famous First Words
All the points discussed are just a teaser to the busy life a founder of a software development startup will lead.
Being a founder is sometimes a complex enterprise, but simple at its basics at the same time. And the most basic advice we can give, derived from our own experience at trimplement is: Stay eager.
Try out things, keep innovating your software products and services constantly and learn from failures. Stop dreaming, start doing.
And while you are doing it, be aware of your own limits, both financially and as a person. Do what you are convinced of, yet don’t shy away from accepting outside support: It’s crucial you surround yourself with talents to help you carry responsibilities and propel your company to reach new heights.
No one is born an entrepreneur. To successfully found or co-found a company has as much to do with opportunity as it has with talent. But above all else, it’s a matter of dedication, of a general open-mindedness to learn from past mistakes. And of hard, persistent work.
To say it clearly, getting a software company off the ground will not at all be a cakewalk. But if you carry on, you may get a slice at some point. And it will taste oh so much sweeter.
Originally published at https://trimplement.com on April 9, 2020.