How to Start a Software Company: A Step-by-Step Guide to Success!
Larry Page, the co-founder of Google, once said: ‘You don’t need to have a 100–person company to develop that idea’. Although executing your business idea will be no small feat, you can begin with a small team and watch your dream come to life, given that you proceed in a planned and informed manner.
If you want to start a software company, you may wonder how taxes work for sole proprietors or what legal troubles your business can fall into if you accidentally infringe on someone’s copyrights. It’s also typical to wonder whether you should set up sophisticated approval workflows and accounts payable systems from the beginning or wait till you’ve expanded. This is especially true for software developers, as they’re used to dealing with clients in a relatively unstructured manner. Additionally, 90% of all startups fail, and lack of proper planning and foresight is a significant reason behind this failure. However, it’s worth remembering that 18% of first-time founders succeed in their ventures. If you’re ready to start a software company, whether you’re a developer or not, this article will prepare you to proceed in an informed manner.
The author of this article is Muhammad Obaidullah, who has helped many software firms in their entrepreneurial journeys. He firmly believes that: ‘planning, consistency, dedication, and persistence are the core foundations of a successful business.’ His expertise lies in enabling brands to create their unique brand identity and maintain their online presence in a SERP-friendly manner. Muhammad is also the founder of MOB Marketing, which has helped multiple software and SaaS companies generate over $2 million in sales.
Through this article, you will learn to navigate the main steps you need to take to start a software company. We’ll help you familiarize yourself with the process before you take the leap and initiate your business, discussing business structures, intellectual property protection, license acquisition, team building, and other nuances in detail, so keep reading. Once you’re done launching your company, you can look through the following guides to build your company’s website and invest in digital marketing: Top 10 SEO-Friendly eCommerce Website Development Platforms | Techreviewer Blog
Steps to Start a Software Company
Here is a basic guide to what you must consider when starting a software company.
Step #1: Planning a Revenue Stream
You can sell your services or products as a software development company owner. So, you can work with clients to design the specific software they require or develop your product and sell it through licenses. Both options come with a unique set of challenges.
If you start a software company and want to work with multiple clients, you’ll have to continuously market your services, collect leads, interact, hold meetings, and so forth to keep customers coming. Suppose you intend to sell developed products to all interested consumers. In that case, you’ll have to do thorough competitor analysis, market research, market gap analysis, and customer demands analysis and find trusted developers and make them sign NDAs, get beta testers, and invest years into each product before it goes live. In the latter scenario, you’ll require a customer service team and release publications to support your product.
Working with clients individually is easier as that can generate revenue for you sooner. You can slowly invest this money into researching and developing your specific products and launching them properly to generate a sound passive income stream.
Step #2: Designing a Business Plan
A business plan paints a picture of a company’s foundations, plans, and future growth. It’s especially valuable if you intend to start a software company by securing external funding through investors or a bank. For software development, your business plan will include the following:
- Descriptions of your products and services
- Market research that depicts the need for your products and services
- Target market
- Financial analysis and cash flow forecasting
- Future expansion plans
- The management structure of your company
- Employees to hire
- Marketing budgets and strategy
- The core values of your business
- Your daily operations
Note that this plan estimates your company’s intended proceedings, so don’t worry about its precision in matters such as financial analysis. You can easily create a sound business plan as long as you’re clear about the need for your services, your basic strategy, and your competence in management, product development, and marketing techniques.
Step #3: Investing in Branding
In today’s competitive markets, it’s next to impossible to start a software company and stand out with your products and services alone; there’s a good chance that someone else offers the same services as you. From recognition to customer psychology, branding offers invaluable advantages to businesses.
This process goes beyond choosing colors and logos. Your theme, language, and style should complement your core values while staying true to your niche. While software can be branded flexibly, it’s best not to risk quality and hire help. Professional agencies will save you time and effort while providing you with a durable, long-lasting brand identity. Ensure you always protect your name and logo by registering your trademark with the USPTO and getting copyrights through the U.S. Copyright Office on time.
Step #4: Getting a Website
A legitimate service-based business like software development can hardly be run without a website, and social media accounts are no replacements for one. It will give you a digital platform to run from, and a website will also open more growth avenues for you, like Google and Bing Ads and search engine optimization.
If you start a software company and intend on saving costs initially, go to a website-building platform like WordPress, Prebuilt Sites, or Wix, get a theme, and start operating. You can hire designers and writers and move on to a fully custom-made website as time progresses.
Make sure to stay true to your branding throughout the website-building process. Do some research on how to make optimal landing pages to generate leads. Having testimonials can let you build rapport with customers, and having an easily accessible contact page will ensure you do not miss on leads. Invest in blogs as time goes by and hire copywriters to get the most out of SEO techniques.
Step #5: Deciding On a Business Structure
You must register with the IRS to get an Employer Identification Number to start your software company officially, which will require you to choose a business structure. The word ‘company’ is often used loosely when individuals refer to business. It technically refers to a unique business structure where your business is a separate legal entity, and you can not be personally held liable if the business is sued. If you intend to start a software company with a small customer base and test the market first, your other standard options include the following:
Sole Proprietorship
You’re the sole owner responsible for all profits, losses, and liabilities. You can hire employees under this model if you obtain an Employer Identification Number. You’ll have to pay self-employment tax and income tax on your personal income. This will get expensive as you make more profits.
Partnership
- If you decide to start a software company with someone else, you can register it as one of the following types of partnership:
- A General Partnership is informal, where all partners file taxes under their names and can be held personally liable.
- A Limited Liability Partnership offers a level of personal liability protection to the partners.
- A Limited Partnership involves some passive investors and offers some personal liability protection to them.
Step #6: Registering for Taxes and Obtaining Licenses
Once you have your Employer Identification Number, you’ll have to register for taxes before you can begin your operations after starting your software development company. Taxes depend on your business’s structure. You can visit the following IRS web pages to figure out tax details:
Nearly all states require a General Business License and a Sales Tax License. Research your state’s laws thoroughly to see which other permits you may need.
In addition, sole proprietorships, partnerships, corporations, and S corporations, limited liability companies (LLCs) are a business structure that is permitted by state law. They offer limited personal liability and separate the owner's assets from the business. The LLC provides different tax treatments and flexible management options. The LLC also has fewer compliance requirements than a corporation, making it easier to operate. Also you need to understand about registered agent if you're doing business in California then learn how to choose a Registered Agent in California.
Step #7: Understanding and Obtaining Software Licenses
Understanding licenses is crucial for businesses so they can operate without legal risks and protect their intellectual property.
After you start a software company, you’ll likely reuse snippets of your codes and may also incorporate open-source code. You need to understand software licenses and your obligations for all such purposes. Make sure all the developers in your firm understand the differences between the following types of licenses:
1. Unlicensed Code
Contrary to popular belief, unlicensed code does not fall under the public domain. Refrain from using any code from unlicensed sources, or you’ll violate copyright laws.
2. Public Domain License
This license offers unrestricted and free code use and is great for those looking to start a software company. It’s often open-source so that users can customize the code too. You can also create public domain codes as a brand awareness strategy to assure viewers of your company’s expertise and get free visits, backlinks, and recognition.
3. GNU Lesser General Public License (LGPL)
The LGPL (also known as the weak copyleft license) allows developers to use and modify open-source code without unveiling the source code they’re using in their programs. If you create a program using LGPL, you are not obligated to make it available under the same license if it does not derive directly from the original software. Your software can dynamically link to an LGPL library and still be distributed under a more restrictive license.
4. Permissive License
Permissive License software is common among open-source codes. It can be reused, modified, and distributed under certain conditions: the user typically only has to retain copyright information about the licensed software while distributing.
5. Copyleft License
A copyleft license lets users alter and build upon proprietary code only under the condition that they’ll release the resulting product under the same license and guidelines. This encourages non-capitalistic progress and development in the software world.
6. Commercial or Proprietary Licenses
Software under this license can not be legally redistributed, reverse-engineered, or modified. Users must also accept End User’s License Agreement before using the software. This protects the intellectual rights of the developer the most.
7. Dual Licensing
Dual licensing entails a combination of one open but restrictive license and one commercial license. This lets developers try and use the code for free, but if they intend to commercialize the resulting products, they have to pay for the commercial license.
Step #8: Getting a Business Account, Cards, and Insurance
Once you’ve legally protected yourself against liability, you’ll have to create separate bank accounts. Never mix your personal and company accounts, as that may result in you being held liable and losing your assets if your business is sued.
Getting a separate business account after starting your software company will assist you in tracking and managing cash flow and filing taxes. It’s also best to open a Net30 account early to start building credit on time, as you can need loans and funding anytime later for expansion.
Business insurance is crucial to operating safely too. You can begin with General Liability Insurance and Worker’s Compensation Insurance for your employees. Errors and Omissions Insurance and Product Liability Insurance can be valuable as well.
Step #9: Purchasing Equipment, Resources, and Software
From stock photographs for marketing to purchasing certain software tools, you should have your equipment and resources ready as soon as you register yourself as a business. If you operate from a physical location, you’ll have to secure high-quality computers and some basic furniture to start a software company.
After starting your software company, you’ll also need to purchase a robust software development platform, source code system, and development tools. Alongside, it’s best to invest in payroll software beforehand and work on automating your accounts payable processes to save you time in the long run. Collaboration applications for meetings and work updates will be useful too.
If your particular idea of starting your software development company comes with a high initial cost, consider taking a loan. Leasing some furniture and starting with a rented space instead of building an office from scratch can save you money too.
Step #10 Hiring and Outsourcing
If you’re a developer, you can start a software company alone. However, as you grow, you’ll need employees to manage correspondence with clients, perform tasks you don’t have expertise in or have time for, and manage your office space. For instance:
- Customer service manager
- UI/UX designer
- Application analysts, Product control, and Testing
- Technical writer
- Marketing manager
- Scrum master
- Quality assurance
- Business analytics
If you aren’t one yourself, you’ll also require a team of developers. One of the most significant advantages of a SaaS model is that it allows you to operate fully remotely. You can save on administrative expenses through remote operations or outsource some one-time tasks instead of hiring full-time employees for them.
Before starting your software company, you should also have a hiring strategy. Look for freelancers or surf sites like UpWork to find individuals willing to sell their talent. This approach shall also let you test individuals before making full-time offers to them. Sites like LinkedIn, Facebook, Craigslist, and Fiverr can introduce you to a wide talent pool.
If you plan on making a big launch and have the budget to do so, you can contact recruitment companies to help you.
Step #11: Make a Marketing Plan
Software is a sophisticated niche with a highly specific target audience: you can’t launch a non-targeted marketing campaign and expect results. For example, if you’re creating a product that caters to students, your marketing tone and advertisements will vary significantly compared to marketing directly to businesses.
Remember that marketing goes beyond PPC and awareness ads; it’s a long-term strategy that combines organic and paid outreach. You can include the following after starting your software company to market your business digitally:
Client Success Stories
Use your social media to narrate stories in detail of what your clients’ problems have been and how your team solved them. Adding case studies and client testimonials on your website can help too.
Release Free Content
You can create copyleft and dual-licensed content that’s accessible to everyone. This will build your authority, reputation, and brand awareness in the niche.
Reach Out to Influencers
If you have built an application or a platform, you can reach out to influencers relevant to the program’s niche.
Content Strategy
Creating an in-depth search-engine-optimized content strategy using articles and blogs on your website will also build your authority while helping you rank in relevant searches.
Behavior Tracking
Track and understand your customers and audience’s behavior as they interact with your website and ads, and work on enhancing the marketing strategies that perform best for you.
Step #12: Proper Post-Purchase Support and User Behavior Analysis
Software and applications often have users stumbling to navigate them. You’ll likely find bugs, plan new upgrades, and find clients constantly contacting you. If you want to be a technology partner clients can rely on, make sure you’re equipped with the following:
- A fully trained team to handle post-purchase issues and client correspondence.
- A working phone number and a consistently monitored email address
- Tools to assist the customer-facing employee relay all queries easily to your technical employees.
Additionally, it would be best if you kept gathering metrics about your systems. For instance, tracking user behavior on your app can let you know if all features are accessible. You can track the following to understand how you can improve your software:
- engagement
- session recordings
- heatmaps
- use error rate
- and retention rate
Make sure to keep checking your product for security compromises and introduce upgrades to stay compatible with multiple OS updates.
Endnote
Planning, consistency, dedication, and persistence are the core foundations of a successful business. You can start and successfully grow your software development company after equipping yourself with in-depth knowledge and a sound plan.
You must create a brand and business plan, register with the IRS, invest in a solid team, and equip them with the necessary tools. Make sure to train your employees regarding your brand’s values, culture, and goals, and educate them regarding liability-causing actions, like the use of pirated material. A solid marketing strategy will be crucial to the success of your software development firm.
