Launch a company

It’s been a really long time since I last wrote on this blog.

For all those who came to this blog and went back disappointed my sincere apologies. I guess life happened for me..had a baby , more work in the office etc..

Well, here’s the good news! I’m back and more determined than ever to learn more about entrepreneurship and share it with y’all.

I plan to post every Saturday and focus on topics most of you will find interesting.

So stay tuned.

So you know you want to build that next big Google, but how do u go about it?I came across a few different books or articles on how to start a software company and they offer some interesting insight, which i summarize below in addition to some of my own thoughts:

Heres a broad outline of the steps involved in building a software company:

Step 1:You have a Bright Idea! Really?

Try playing devils advocate..Whats unique about your idea? Has someone else tried something similar ? What was the outcome? How will you compete with existing players? On Quality? Functionality? Price? How many potential customers are out there for the product/solution you have in mind? Do you have a rough guess on how much it will cost to produce this software? As VCs love to say, Ideas are dime and dozen..its all about the execution.. so think through your idea not just in terms of market potential but in terms of feasibility for execution as well..Do you know what skills are required to code this software? Do you have these skills or can find someone who does who will program this for you at a low cost? How will you sell this software? As a service?

Step 2: Fail to plan, Plan to Fail

Very often, entrepreneurs get overwhelmed when they hear the word ‘Plan’. the immediate reaction..Lets go write a detailed business plan that we can show off to VCs..thats great..but seriously…do u really need to spend days and nights trying to come up with a great looking/sounding plan? I think do your due diligence with respect to the market size, opportunity, competition, and financial projections and just note down bullets in a word doc, without sweating over deciding on a business plan format. You can come back to the pretty stuff later..get the basics noted down. and move on to the next step building your beta version of the software..

Step 3: What have u got to show?

Come on..what have you got to show.??.besides some fantasies about changing the world..Its time to sharpen the coding saw and get cranking..decide on the key features you would like to include in your beta version and identify features that should be included in future releases..also if you plan to have several tiers of offerings such as basic, pro or premium in case of a SAAS type offering..break down your features that fall into each tier..you should aim to build ONLY the basic set of features initially,,unless you are loaded with cash and have an army of folks working on this..Get to market quickly with a beta version that includes basic features enough to demonstrate the value of your product/solution..This will be vital for the next steps.

Step 4: Lawyers..Why do we have to deal with them????

Lawyers..its a love hate relationship.. But they are really vital to a start up’s success..Ensure you have the legal stuff in place before going to market..such as Forming a LLC or S-Corp or C-Corp..You dont have to worry about this stuff initially..Get the product ready to sell first, and when you are ready..Go find a good lawyer or use one of the online incorporation services such as www.legalzoom.com

Step 5: Whos got the $$$$$$$$$?

If you were able to bootstrap your firm till you had a beta version ready, VCs are likely to give you some more attention for 2 reasons

a) They know you are serious, are a risk taker and have come this far knowing the challenges that lie ahead

b) They have a demo version that they can evaluate and decide if this is worth their time and money.

Nows the time to burn that midnight oil on sprucing up your business plan to look pretty..Attend as many trade shows, conferences, as you can.. Angel investors are great resources for taking that next leap as well. Negotiate term sheets with Venture capitalists..they tend to be very demanding on the percentages,,so watch out..

Step 6: Would you like to help us succeed?

Now that you have hopefully obtained some dollars..its time to call your buddies and associates and see if they may be interested in lending a helping hand..Most startups that succeed depend on team members who the founders either know personally or have strong recommendations from those they know..Be wary of the compensation here..VCS would like to see their money spent wisely..so try to minimize actual salary based costs..try negotiating equity or see if they can help you part time etc.

Step 7: Get the word out

Now that you have a product ready for the market, and hopefully some marketing dollars, reach out to your target customers..for SAAS or online companies, its critical that proper Search Marketing dollars are invested..A lot of the SAAS companies,..especially the ones targeting consumers like you and me and not enterprises rely on search traffic to their site to get new business..use social media effectively..Spread the word through your contacts on LinkedIn or Facebook, Twitter or blog about the specific industry/solution you are addressing..In fact, its not a bad idea to get the blog/twitter posts going much before you launch..if you are able to attract the same “target audience” to your twitter /blog posts prior to launch, you already have a potential customer base that may be interested in your solution.

Step 8: Party till you drop..Just kidding.

Its hard work all the way to the finish..Once you have some customers signed up..the other fun part of running a business kicks in..dealing with customers requirements, customer support, product enhancements etc..Try to bring in a few experienced hires in each domain such as Customer Support, Marketing etc, so you can devote your time to expanding the business and formulating a winning strategy..

It sounds simple enough..but is a lot of hard work..Its possible, and several have done this before,so i am sure you will  as well.. Good Luck

Folks,

I apologize, i have had to disappear into the woods for the past few months for personal reasons..

Well..im back now and looking forward to sharing and learning more fun stuff on entrepreneurship, venture capital and high-tech.

Great Video By Randy Komisar

I came across this great post on top 10 reasons why high tech companies fail:

Why High Tech companies fail

My favorite part about this post was the comment around conventional barriers to competition not being applicable to high tech companies. ‘Perception’ about your company in the minds of customers and prospects is the biggest competitive barrier.

It makes me wonder, what are the various steps a high -tech start up should take to improve in this arena.

How can a start up address the key perception issue around ‘ Buying from start ups is risky’? Due to this perception most customers fall into the ‘Early Majority/Late Majority’ bucket instead of the ‘ Early adopter’ bucket that is vital for start ups to succeed.

Here are some thoughts around building the right perception:

a) Communicate that your technology is NOT a ‘ Silver bullet’ for all their problems:

Focus on the specific issue that your start up is attempting to solve and clearly communicate and
acknowledge that your solution addresses perhaps a very small subset of the customer’s issues, albeit it very effectively solves that ONE problem. Many start ups get overwhelmed when customers bombard them with questions around does your solution do blah, blah and blah? Under pressure to not lose the customer, many start ups end up claiming that they have built a stairway to the moon, and back.. Its important to come across as genuine and set realistic expectations around what your solution does without going overboard

b) Over communicate with Customers :

With minimal resources and support available, handling the few beta customers in hand can be challenging. Product management will certainly be working overtime to get feedback from these customers to incorporate into future releases. What about the remaining parts of the organization? Have you or your management had conversations with folks who may not have had a direct say in the purchasing process? For e.g Have you talked to the accounting department to see how efficient was your invoicing process? Have you interacted with your customers help desk staff to see how manageable your solution has been?

c) Risk- No way: ‘RISK’ is a 4 letter word that makes most IT managers lose sleep at night. Give
them sleeping pills : -) not a headache..

What i mean by that is most start ups focus a lot on the solution, which is understandable, but customers want more than solutions..they often need the whole nine yards to put them at ease: Support is definitely one of them.. Most start ups cant afford to hire support staff upfront before they sign on customers..classic chicken or egg situation..Consider bringing on a third party provider who can be trained on your solution, and provide 24 X 7 support.. Outsourcing support helps not just with providing the required level of support but also with keeping capital expenses at a minimum..if for some reason your start up does not take off, you can always end the contract with the 3rd party support provider.
If your solution requires some customization or integration, offer to provide not just the initial integration /customization but an extended professional services solution which provides them with needed customizations on an ongoing basis..

In short, sweeten the pot as much as possible

d) ‘I Dont want the whole pie’:

As you may know, its difficult to find those precious gems or ‘Early Adopters’ as we call them..

Most Early majority customers will sit on the fence and watch the ‘Early adopters’ to see if they crash and burn or are truly seeing value.

How can you make them jump across the fence and join the party?

In some situations, you may be able to overcome the perception issue of ‘ this solution sounds great, but i dont want the whole pie, its too much for me ’.. Dont give them the whole pie’ .. What this refers to is ‘ Design your solution so you can provide some pieces of the functionality without giving them the entire solution’. This can be somewhat tempting to ‘ Pragmatists’ who dont want to take big risks and want to ‘wait and watch’.

In addition, the conventional approaches of industry selling/marketing and industry references go a long way.

I have the privilege of working for a high tech software as a services company that has grown from a start up to a world class brand in 10 years and is continuing to perform exceptionally well.

We have reached the billion dollar annual revenues mark, have competitors who don’t really provide any competition, several thousand customers worldwide and are still growing in todays economy.

What helped our company reach its current level of success?

Heres my analysis on what it takes to build such a highly successful software company:

Top 10 traits of a successful software company :

1) Have a recurring revenue model:

The benefits of a recurring revenue model are phenomenal. In this model, you bill your customers
monthly and get paid monthly. Your customers typically sign a contract for a finite period of time :
for e.g 1-2 years, and they are LOCKED IN during this time, facing heavy penalty or legal action for
early termination. Very similar to a cell phone plan ..Whats great about this model, is that its a great way
for companies to avoid capital expenditures upfront, so its an easier sell.

2) Build a solution that has the ability to cut costs and potentially increase revenue for your customers

Most CIOs are tasked with not just cutting costs but identifying strategic technologies that can help
increase revenues as well. More so in todays economy, where most IT budgets are shrinking by the day.
If you have a solution that can be pitched as both cost savings as well as a revenue driver, its a sure win.
Help IT cut costs in areas such as Infrastructure(servers etc) or man power. Build a solution that will either
provide a new channel for sales or give a huge boost to an existing channel . The ROI model that you can build around this is very very compelling.

3) Have a deep moat: Strong competitive advantage in terms of non-reproduceability of solution.

You may have heard this term ‘ build a moat’ in various contexts. For e.g. thats Rule #1 when picking a good stock. What does this mean and how is it relevant for software companies? Our company built a solution that has a WIDE and DEEP MOAT. A moat was traditionally used to protect a Castle/Fort from enemy intrusion. the Wider and Deeper your moat, the more difficult is it for any one to attack you. How do you build such a moat in the software world? Well, for one , honestly , this is easier said than done. When building a solution, identify how hard it may be for someone else to replicate your idea. Do you have proprietary algorithms that power your solution? Or is your solution a simple web application that can be put together by a handful of web developers in a few weeks? If you are relying solely on your marketing/sales expertise, or your networks as a key competitive differentiator, you are in for trouble. The solution you build should be unique, powered by highly proprietary technology associated with appropriate patents that can take years for your competition to build out and figure out. That makes your moat WIDE.

4) How do you make your moat DEEP?By building an exception sales force, technical team and a support organization.

Invest in great/smart talent, hire the best of the best. Top Talent pays off like nothing else.

5) Customer is King: Listen to your customers and constantly evolve,Provide A + Support, training

Companies that are constantly seeking their customers feedback and incorporating it into the
products and services will emerge as a clear winner. Keeping the customer in mind when developing
your organizational model and go to market strategy. Ensure that not just pre-sales, but post sales as well the customer is well taken care of. Make them feel important, provide as much training as possible so they are comfortable with using your solution. Provide 24 X 7 support if required.

6) Multiple streams of income: Diversified product portfolio

Similar concept to the world of personal finance and investing.. Diversification is the golden word.
Ensure that your company does not depend on just 1 single product to bring in the money.. There is inherent risk in this approach. It may take a while to evolve into a multiple product line company, but getting there is essential. Develop solutions that solve different customer pains, and are not just a rebundled marketing message.

7) Flexible and Agile: Make quick decisions and take calculated risk

The beauty of a start up often is that they are not bound by rigid processes and procedures. Over
time companies can get pretty large and lose this golden nugget .. Its important to strike a balance.
Know when to stick with processes and when to jump on a customer thats ready to sign on the dotted line
and be up and running on your solution.

Ease of implementation

Theres nothing more annoying to a CIO who listens to a sales pitch and loves the technology, but realizes it could take months if not years to implement. Some solutions such as Large SAP implementations are that way and its inevitable.
But everyone loves quick wins and low hanging fruit. Identify an implementation strategy that can provide such quick wins and demonstrate ROI fairly quickly. Nothing like walking into a CIO’s room and telling them you can see visible ROI by end of the quarter.

9) Make strategic acquisitions:

When you have made it to a point where its time to look for further growth, making strategic acquisitions is a great way to grow your company. Make sure the rationale for acquisition is sound: Is this going to reduce competition? Does this bring a new product line to your company? Can you boost your existing product offering with this acquisition? Is it the right time to acquire?

10) Build an international customer base: Lastly but not the least, if you can build a solution that has international appeal, the growth prospects for your company will be tremendous. While US markets continue to be the early adopters, other regions are catching on and provide a great expansion point once you have captured the US markets. Revenues from international growth can be substantial 20-40% in some companies.

Check out this link of tech startups in 2009.. 2009 tech pioneers

which one is your favorite?

Most of you must have heard the term ‘ Do your home work’ ; when it comes to the world of start ups, this typically refers to researching the market, understanding your competition etc.

It is absolutely essential to understand if there is demand for your service, how much money is
spent in your target industry, barriers to entry and differentiate yourself from competition.

The key is to get a sense upfront if your ‘brilliant idea’ is really worth taking to the next step ..And not discovering this half way or worse when you are about to close shop..

Thats all well and good..but how do u really get this valuable data? I read that school libraries and local libraries have some free stuff..have to start there..ill let u know if i find anything worthwhile
this route..There are more expensive options available for those willing to shell out more moolah..such as Gartner reports, Lexis Nexis etc. You can also get some data from business mags such as business week or PC week.

I found a really good chapter in the book ‘ Harvard Business Review on Entrepreneurship’, which talks about how to write a great business plan.

This chapter highlights that most business plans focus on providing financial projections which are crafted out of thin air with no real analysis or backing.

This chapter talks about a framework for writing good business plans which states that every good business plan should include details related to the following 4 aspects:

a) The People: A great business plan talks about who the founders are, where they have worked, been educated, what skills and abilities they have that is directly relevant to the opportunity being pursued.

b) The Opportunity: In addition to some of the previous inputs on identifying the viability of a potential business, its important that entrepreneurs make sure that they are entering an industry that is large and or growing and detail how the company will build and launch its product or service in the marketplace. A great business plan also highlights how an opportunity can grow i.e expand its range of products or services, customer or geographic base. Bottomline, entrepreneurs need to understand that investors are looking for businesses in which management can buy low,sell high, collect early and pay late and a great business plan, highlights how the opportunity in question provides just this.

c)The Context: The big picture/macro economic environment such as regulatory environment, interest rates etc. This can have tremendous impact on opportunities, either create opportunities or make it difficult to convert the opportunity into a viable business. A great business plan should acknowledge the context in which it plans to operate and how the context helps or hinders the business. The business plan should clearly highlight how the management can handle an unfavorable context or how management can influence the context in a positive way.

d) Risk And Reward: Risk is part of every entrepreneurs life. Entrepreneurs need to acknowledge in the business plan how they can deal with moving targets such as people, context and opportunity. Similar to a well executed project, a good business plan is one which analyzes and identifies potential risks upfront and details its risk mitigation plan. As far as reward (for the investor) is concerned, multiple exit options should be presented.