How to Start a Software Company: A Guide

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Do you have a burning ambition to launch a software company? A great idea to revolutionise a business process or fulfil a consumer demand? The confidence and passion to make it happen?

With low overheads, a recurring revenue model and the allure of joining the roll-call of SaaS success stories, there’s a strong promise of significant rewards. If you rise to the challenge fully prepared.

Here we explain some specific considerations about how to start a software company from scratch: from understanding your market to efficiently collecting subscription payments from satisfied customers.

Read on to discover insights into how to make an impact on the software stage.

Know Your Market and Your Product

how to start a software companyWhen considering how to start a software company, getting into the right mindset is essential.

This is going to be a marathon, not a fast-bucks sprint so think long-term and get the foundations in place for success.

The very first step is to get to know your customers. You need to get under the skin of your audience before you can fine-tune your product, brand and company culture.

Your market research needs to cover:

  • Customers: pain points, needs, preferences, current software limitations, budget and industry sectors.
  • Competition: what they do, what they don’t do, how successful they are, how happy are their customers?

Speaking to your potential customers during the development process will give you in-depth insight into their challenges. Get to know those issues inside out and then set about solving them, refining and finessing until you become the solution they’re craving.

During the development process, validate early and often to ensure you’re meeting that specific need. This will give regular reassurance that the market demand will sustain your hard work and investment.

By developing a software product better than a business’ current solution, you’ll be saving them time, money, resources and stress. Its invaluable features will steadily grow your subscription database and establish a firm footing for your SaaS start-up.

Test Your Idea

testing your strategyBefore diving in headfirst, any rookie SaaS entrepreneur is advised to create a ‘minimum value product’ (MVP). This is a super-simple version of your software, without the bells and whistles, to give an idea of how the final product will look.

As a prototype, it allows you to quickly assess feedback and functionality without investing heavily in either time or money. Instead, any shortcomings are identified by early prospective customers: issues that can then be addressed before the in-depth development work is done.

A well-received MVP provides proof of concept, so it’s also a useful tool when attracting investment or applying for grants and loans.

Create Your Company

creating your software companyWith your idea formulated and demand established, you can set up the business basics. Knowing how to set up a software company involves the same stages as launching any type of business.

These include:

  1. Writing a business plan to formulate your aims in a document that makes you accountable to yourself and to others, including investors.
  2. Choosing a company name, identity and values to build your brand.
  3. Protecting intellectual property rights via patents, trademarks and NDAs to prevent your ideas being stolen.
  4. Determining legal structure to establish official foundations.
  5. Finalising tax arrangements to tick all the HMRC boxes.
  6. Arranging appropriate insurance to cover any eventuality.

Fixing the Financials

A crucial section within your business plan will be focused on finances. Beyond the necessary initial funding, you’ll need to decide on how to sell your product and how to accept payment.

The appeal of a SaaS business model is based on recurring monthly or annual subscription payments. Get enough subscribers and this regular income will secure cashflow and the future of your enterprise.

Part of your market research needs to establish how much customers would be prepared to pay for your new software. If a basic version suits their needs, they can download the software from your website and pay a monthly subscription. Offering a free trial here is good practice.

If they need more bespoke functionality, you can sell directly to SMEs and larger businesses and charge a premium for making those unique adaptations. Alongside their feedback and typical competitor rates, making your product indispensable plus offering exemplary support and maintenance, will make putting a value to those subscription costs easier.

Be aware that as your business grows, your expenses will too. Server expansions, new recruits and marketing campaigns to keep up with customer churn will all come at a cost.

And that predictable cashflow will become more and more important.

How customers pay their subscription fees can help here. Offer them the option of Direct Debit and you’ll receive regular, reliable payments that will streamline and simplify the accounts process. It will also enable accurate forecasting, free up admin time and protect the bottom line of your SaaS start-up.

In addition, your customers will be reassured that the correct amount is being taken from their account on the correct day, boosting their loyalty to your business.

Choose a Great Team

picking the correct teamWhether you’re heading out into the world of entrepreneurship alone or as part of a smaller team, getting the right combination of brainpower is central to success.

As your plans as CEO start to take shape, you’ll need to grow your team to include a range of roles including sales, marketing, technical and customer support.

If you’ve got a great idea and solid business nous but lack the technical know-how, recruiting a code-savvy colleague to join the business early on will pay dividends. A technical lead or even co-founder who receives a proportion of equity, will help guide you through the process. Indispensable IT insight that will give you a competitive edge.

If you plan to design and develop in-house, be prepared for the long haul. It can be a time-consuming, costly option albeit one that gives you more control. Be aware that you’ll need to build a team as well as a product simultaneously.

An alternative to taking on the task internally is to outsource development to a specialist provider. When carefully selected, they can become trusted partners who’ll deliver your bespoke software solution without the expense and hassle of creating your own team. Just remember to retain ownership of the source code in case you need to change developer.

You could employ the same company to oversee both development and testing. The process of continuously testing, analysing and iterating will be crucial to your overall success. A company that’s already invested in the functionality of your product will be an ideal fit for testing overall quality and banishing any bugs.

As well as being the right technical fit, you need to make sure any new recruits and partners are the right cultural fit. You need reassurance that they have shared values and relevant experience to achieve a common goal: to grow your business.

Increase your chances of attracting the right talent by:

  1. Being crystal clear about job descriptions and expectations.
  2. Sharing company values and goals, highlighting that these are central to day-to-day operations as well as overall ambitions.
  3. Using job application filtering software to make sure you only engage with candidates who actively read your post.
  4. Arranging two to three interviews with each applicant, only moving qualified people on to the next stage. For technical roles, include a practical skills test.
  5. Encouraging loyalty by making progression opportunities and incentives clear, such as bonuses, pay rises and perhaps future shares in the company.

Market Your Masterpiece

marketing your productArmed with helpful feedback from your MVP, reassured by a solid financial plan and bolstered by your new recruits, you’ll also need a clear strategy to sell your SaaS product to the world.

You can start marketing before the final product is ready to launch: run a video advertising campaign focused on the pain points your software will solve, sparking early interest. Invite target users to join a free beta period and familiarise themselves with the key capabilities.

This approach means when you’re ready to officially launch, your product will already be out there, ready to dazzle in its final incarnation. Those all-important future subscribers will already have had a taste of what’s to come.

When it comes to learning how to start a software company, the trick is to understand that slow and steady wins the race. If you leave the starting blocks too quickly, chasing profit over product quality, you could easily take a tumble.

Evolve your idea in incremental stages: assess your audience, test your idea, get the right financials in place, build the right team and you’ll ultimately build the right product.

The beauty of modern software is that it can adapt as your business and its market adapts. Listen to your users and act on their feedback.

The beauty of a modern payment method such as Direct Debit is that it can support your business as it grows: steady cashflow that allows flexible decision-making and straightforward forecasting. Listen again to those customers and they’ll also tell you, their lives are made easier thanks to Direct Debit.

Whatever impact you want to make with your SaaS start-up, now you know how to start a software company. Set your plans in motion and over time you’ll be scaling up and attracting more and more happy subscribers.

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