Software Start Up on a Tight Budget

Part 2 of 5

Getting Yourself Ready

While most of us are eager to dive in and get started, it is immensely important that you take some time to map our your idea and how you are going to turn it into a viable business. Map out who your target market is, where do they live, where is there a void in the market (segments under serviced, missing features or product types), how will you get to your customer (web, store front, sales people) and what is that customer willing to pay for what you have to offer.

It is at this stage that many people just say things like "There are 10 million possible customers and if I get 1% I am going to sell a lot of widgets!" This is rarely true. Expect the unexpected when you start to sell. Customers can come from places you never anticipated and many potential customers you expected to buy won't. Also be careful when listening to people say "I'd buy that." I have found that people are always willing to say they would be a customer until it is time to pay. Once they have to put their money where their mouth is, they change their mind.

The simple way to deal with this difficulty in getting customers is to start with your expenses low and to be ready to experiment. Don't lock yourself into a long or expensive lease. You can easily start by creating some experimental products. Find ways to get local stores to put your products in their shops, put up a booth at a fair or go around and meet with people and see if they would like to be among the first to try out your great new product. Expect to find that your first, second and even third attempt at the product is off the mark and get feedback from your customers. Allow your product to evolve into what people are really after.

Remember that while you may have a great product or service and you might be great at creating that product or providing that service, the most critical thing you need to focus on at first is sales. Yes, you need to have a good product or service. But if you cannot sell it, it just doesn't matter. In fact, there are countless businesses that have started up by selling a product or service they do not have but know they can create once the sales come in. If you know you can deliver on your promise, make the sale and then spend the money on production. You do need to take care here though. Be absolutely certain you can deliver on your promise.

During this initial phase you might make a little money but it is most likely you will not. What you will get is vital information on what your product must be in order to sell. In most cases it will end up quite different from your initial vision. Keep your ego in check. Let go of the products people don't want even if you are in love with it. A healthy business provides products to its customers, not its owners.

Also consider the financial side of the business. How much does it cost to product your product? How much is your customer willing to pay? These two things are often NOT proportional to each other. If it will cost more to product than people are willing to pay then it will have to be changed or scrapped. If you can charge a lot more than it costs to produce, charge what people are willing to pay and not a set percentage over cost.

When assessing costs, also consider more than just raw materials. Tally up the time it takes to get what you need and assemble your product - that translates to cost. Do you need inventor? Are there costs over time regardless of the volume of sales (employees, hosting costs, rent). Make sure you estimate this in advance and expect some costs that you didn't expect. Measure your expenses in both time and money as you go out and try your initial product.

Don't forget, a business is about making money. If you are not making money, you are a non-profit. If you do not feel right with the concept of making money, you may consider the non-profit route instead. And keep in mind that making money is not an evil thing. If you are providing great services or products to customers that they are happy to pay for at the price you are charging, you are doing a good thing for them. Your profit is your reward for listening to your customer and making them happy with their purchase.

If you are smart, you can find all sorts of ways to get up and running without spending much money. Typically your time can easily replace costs. And if you start out spending a lot of money, it will be very difficult to compete. There are many businesses that spent themselves out developing a new product only to have a competitor come in and copy them and undercut their price. If you spend too much up front, your prices will have to be too high and this could easily happen to you. Product research and development can be very costly if you are not careful.

Keep in mind that you need to be frugal and not cheap. I like to define frugal as spending time and money in a way that saves or makes you more than you spend. This is investing - you get a return on the money and time you put into something. Being cheap is to refuse to spend time or money where the result is that you loose more having not spent it than you would have had if you did spend it. With every decision there is a cost and a benefit. Make sure your benefits outweigh the costs.

Develop a way to measure results early on. Keep track of sales and costs and itemize them as best you can. Take care here to break things down only as much as necessary. This is a critical part of measuring the health of your business and determining where there are opportunities to be more frugal and where you can increase the bottom line. However, take care not to allow this to suck up too much time and energy. There is a fine line between under and over doing it and when you are small you need to keep this simple.

Be careful to listen to your intuition and then test it out and confirm your intuition is correct. It is a mistake to say "I just know this is the right way to do it" and then never verify whether you were right or wrong. If you cannot back up your intuition (or gut instinct) with evidence, you may be acting overly emotionally which can take you down a destructive path. At the same time, your gut is a valuable tool. Quite often our intuition picks up on things the conscious mind is not aware of. Over time and as you gain experience, your gut will be a valuable guide as it is based on what you learn from your successes and your failures. We often call it wisdom.

If you are looking for help starting your business, remember that you don't have to give away your business. Picking the wrong partner can not only make you miserable but will jeopardize the business. Make sure their stake in the company is reflective of what they are putting into it. It is here that I highly recommend putting a very thorough contract where it is very clearly spelled out who is contributing what and what they are getting in return. Also include what will happen if one of the partners ceases to pull their weight.

If you are getting investors, be sure to not give away too much of the business. You may need to give away more later to get more capitol or help. As with a partner, be sure to map out who gets what and what they are bringing to the table and get signed contracts.