How to start a software company (and get contracts)

Build a business plan

A business plan outlines your company’s goals and how you’ll reach them. It also shows potential lenders and investors that you’re well prepared and have done your research. Here are the key elements of a business plan.

Executive summary

An executive summary, or detailed description of your company, serves several functions. It helps you focus your ideas, provides a guide for how you’ll achieve your goals, and makes it easier for you to explain your business to other people. Think of it as a business model for how you’ll launch your software startup.

This summary should include:

• Your business name
• Your services or products
• The problem you identified
• How your products or services solve that problem

Comprehensive market research

Any potential customers, angel investors, or employees will want to see that you’ve done your homework and researched the supply and demand issues for your business. Make sure to focus on actual market data and avoid any preconceived notions, as they could become pitfalls to your success.

Business owners often start with an examination of their strengths, weaknesses, opportunities, and threats (otherwise known as a SWOT analysis). It’s a way of analyzing the market for your product or services, and the industry in which you’ll compete.

A SWOT analysis may include:

• Strengths: What sets you apart from your competitors?
• Weaknesses: Do you face a lack of funding, a knowledge gap, or strong competition?
• Opportunities: Can you identify a demand for a product or service, but insufficient supply?
• Threats: What factors might harm your business, such as potential supply disruptions?

Descriptions of products and services

You’ll need to be specific when defining what you have to offer. This is where you go into more detail than your company description.

• What problem will you solve and how will you solve it? Will you help businesses become more profitable? Manage their sales or inventories? Connect with their customers better?
• What type of products or software will you offer?
• How will customers access your services or purchase products? An online portal? A tablet or phone app?
• What’s your target market and how will you compete with the rest of the software industry?
• Will you sell your products or services through a one-time purchase? A subscription?
• What will set your business apart from the competition?
• Will you offer Software as a Service (SaaS) or some other product?

Management structure

The management structure you choose for your software business is about much more than who’s in charge and the division of labor.

This might be easy to define if you start with just one or two people. However, many companies experience growing pains if they expand faster than the management team expects, and struggle to define each person’s role within the company.

Your business structure can also have a tremendous impact on how you divide your corporate profits and how you pay taxes.

There are several legal structures to choose from:

Sole proprietorship: This makes for an easy start, as the business and the owner are one and the same. The owner receives all of the income, but also faces all liabilities, debts, and losses. Business income is treated as the owner’s personal income and is noted on the owner’s tax return.

General partnership: A partnership is similar to a sole proprietorship, except two or more people have an equal share in the company’s profits, liabilities, and losses. Each of them lists their personal share of the profits on their own tax return.

Limited liability company (LLC): An LLC is a separate legal entity that shields the business owner from any debts, lawsuits, or bankruptcy faced by the business. It’s similar to a corporation, but without having a board of directors, shareholder meetings, or extensive documentation.

C corp: A C corporation provides similar legal and financial protections as an LLC, because the business becomes a separate legal entity from the owner. C corp owners are shareholders who receive their profits through shareholder dividends. The company pays its own income taxes on company profits, while owners pay taxes on the dividends they receive.

S corp: An S corporation, also known as an S subchapter, provides similar debt and liability protections as a C corp, but avoids the issue of the business and the owners each paying taxes. Shareholders report all income and losses on their personal tax returns, at their individual tax rate.

Your marketing strategy

A website is often the first place where people will look for information about your company. You’ll need to get this started right away, to make sure you start to show up in Google rankings and other search engines.

Make sure your website is easy to navigate and reflects your brand. Regular updates to your website, such as blog posts about product development and topical issues within your industry, can help you stand out from the competition.

You want to make it easy for potential customers and investors to understand what your company is about and who you are. The right SEO strategy can improve your rankings and draw people to your site by using common search terms for your products and services.

Creating a blog is a good way to draw attention to your website. You can use a blog to tell people what your business is up to and offer information on notable industry trends.

Other marketing ideas to consider include:

Social media: Facebook, Instagram, and LinkedIn are all important avenues for promoting your company, with each of them having their own strengths and weaknesses. Whenever you post an update about your business on the company website, make sure you also post about it on social media.

Your social media posts should always include a link to your website. This is a great tool for promoting your business, if you can create engaging content that advertises your products.

You might also create a YouTube channel, where you can post videos about yourself, your business, your employees, and customers offering favorable reviews.

Business listings: Having your company listed on Yelp and Google My Business can help you spread the word about your products and services and solicit business reviews. These listings also make it easier for people to find your company by increasing your online presence.

Networking: Whether it’s a meet-and-greet hosted by your local chamber of commerce or an industry trade show, networking events offer good opportunities for face-to-face meetings to attract business and possible investors. Make sure you have plenty of business cards and a well-rehearsed “elevator pitch” that you use to tell people about your company.

Testimonials: Posting favorable customer reviews on your website and social media channels is an effective way to promote your business, especially if you and a customer agree to cross-promote each other through links and comments.

Paid advertising: Google offers pay-per-click advertisements (the ones you see at the top of most Google searches). You could also use paid ads on social media sites that target your customer base.

A financial plan

A financial plan and analysis should project how much money you’ll need to get your business off the ground, your long-term financial needs, and when you expect to turn a profit. This would typically include cost estimates and revenue forecasts for the next five years.

Such an analysis can help you focus on a long-term strategy. It could also help you attract venture capital. Any potential investors or lenders will want to see this information before they’ll cut you a check.

You might look at industry trends and projections for future growth within your field. You could also consider how your competitors and similar companies fared when they launched their businesses. Industry trade groups might offer insights on this, and you may need to hire someone with experience in this area, such as a financial planner.

Develop your brand and team

Once you’ve built your business plan, it’s time to build your business. Establishing your company’s brand and hiring the right people is crucial to your success.

A brand serves as your identity and tells people what your business is about. Your team serves as the face of that business and will help create your products and promote them.

Build your brand

Think of your brand as a business’s identity. A brand goes beyond your company’s name—it’s what your business is about and what it means to your customers. It may be the first thing that pops into someone’s head when they think about your company.

Your brand identity should help people form a favorable impression of your company. Your company name, logo, website design, and social media presence all factor into establishing your brand.

Here are some things to consider in building your brand:

Identify your target audience

Who are your key customers, and what are they looking for? You’ll need to identify the types of people and businesses that would use your service.

• Are your customers other businesses, or individuals?
• What brands or products are they using that are similar to yours?
• What’s their demographic and economic information?

Research your competition

A detailed analysis of who your competitors are can help you better understand the marketplace and find ways to set yourself apart from the competition.

• What strengths and weaknesses do your competitors have, and how do you compare?
• What is their web and social media presence?
• How do they promote and market themselves?
• What’s their pricing structure?

Identify your company’s purpose

You might consider a mission statement or a slogan. It could be a short phrase, or one or two sentences that encompass what your business is about. Other items to consider are:

• What’s the reason for your company’s existence, and what do you do?
• What problems can your business solve for your customers?
• What sets you apart from the competition?

Develop your own voice

Your voice is the tone you set for your company and how it interacts with the world. This affects your website and social media presence, plus all other communications. Your voice needs to fit what your customers expect and how you want them to feel about your business.

Look to your competitors and similar companies to get an idea of the type of voice they use.

You should also consider your target audience and potential customers, to see what kind of tone works best for them. Will they expect you to be formal or informal? Serious or funny? These are all factors to consider.

Hire the right people

Finding the right team members is especially important in a startup environment, where people may have to fill many roles.

Some of the most important roles to fill will be your software development team. You’ll need to find people with the right technical skills, but also the ability to function in a startup environment.

Many startups offer company stock, or stock options, as part of their compensation package. This not only allows you to reduce your salary offerings as you secure financing, but also gives your team an incentive to help you succeed.

Your job listings should emphasize a desire for people with experience developing new products or working at a startup, along with the particular skills you’re looking for in each position.

Using contractors and freelancers might work to help get your business started. As with all hires, you’ll have to vet them carefully to make sure they are the right fit.

Testing and marketing

Once you have an idea of what your business will look like and the products it will develop, it’s time to start laying the groundwork for how you’ll test and market your software. These phases are crucial to the success of your software business.

Test your software

A thorough testing of your applications is crucial to establishing and maintaining a reputation. Just a few glitches after a product release could have serious consequences for your business.

It’s a good idea to have a testing plan in place before your software is complete, so you’ll be ready to go and your team will know what to expect. This will require a set of procedures, plus testers working inside and outside your company.

Your quality control team should test every aspect of your software to make sure it works as expected. You might ask a few knowledgeable friends or outside experts to act as potential customers and put your program through its paces.

An initial release, in beta mode, should be restricted to a small group of end-users who can test your programs in real-life scenarios to spot any glitches and make sure they work as intended.

Market your software

Establishing an online presence is an important first step in any marketing strategy, as that’s where you can find potential customers.

While your developers are working on your product, your marketing team should be laying the groundwork so that when your software is ready for release, your company will already have potential customers ready to engage—and a marketing plan that’s ready to launch.

You might begin promoting your software as soon as it’s in beta mode and you have a good idea of what it’ll offer, or as soon as you have a launch date for your products.

Protect your business with cybersecurity

Cyberattacks and intellectual property theft are unfortunate parts of the business world, especially for IT startups and software companies. The right legal protections can reduce your risks and protect your bottom line.

Having a good IT security system in place will be crucial to protecting your business, especially with so much business being done in the cloud.

Make sure you take every step necessary to prevent a data breach at your business by making cybersecurity a top priority, with password managers, employee education, and multi-factor authentication.

Protect your intellectual property

While you can’t eliminate the risk of someone stealing your ideas and property, there are ways you can make it much easier to defend your rights, and to take legal action if necessary.

These steps can help protect your business:

• Copyright your products by registering them with the U.S. Copyright Office. A copyright establishes ownership of a creative work, including computer programs.

• Have your employees and contractors sign nondisclosure agreements (NDAs). You might consult with an attorney who specializes in drafting NDAs, to make sure you’re fully protected. This is especially important if you outsource work.

• Trademark your company’s name and logo and patent your software programs by registering them with the U.S. Patent and Trademark Office.

Insure your business against common risks

In addition to protecting your legal rights and property, you’ll need to protect your own financial security with the right software developer insurance.

General liability insurance is typically the first policy that small business owners buy. It insures you against accidental customer injuries or damage to someone else’s property. Many clients will require this coverage before they’ll sign a contract with you.

Technology errors and omissions insurance (tech E&O) covers you in case a client accuses you of making a mistake and demands financial compensation. Your E&O coverage would help you with legal costs, including a settlement or judgment.

Cyber liability insurance, which is included in a tech E&O bundle, helps your business recover from a cyberattack or data breach. It also covers costs if a client blames you for failing to prevent a cyberattack or data breach at their business.

Fidelity bonds, also known as employee dishonesty bonds, reimburses your clients if one of your employees commits fraud, theft, or forgery against them. A fidelity bond may be required for some contracts.

Workers’ compensation insurance is required in most states for businesses with one or more employees. It covers the medical bills and lost wages for those injured on the job.

Commercial auto insurance is required in most states for businesses that own vehicles.