Entrepreneurship in the Software Business

1
Entrepreneurship in the Software Business

• Robbie Allen and Dharmesh Shah
• December 9, 2005

2
General Rules Of Thumb

• Ed Roberts' data show the odds for MIT-based
  startups are much better than the Nesheim numbers
• Follow your passion. Don't do it for the money.
  Try to solve a user problem.
• Determine realistic capital needs and investigate
  possible VC alternatives including bootstrapping,
  angel funds, etc.
• You have to be adaptable Flickr went through 3
  business models and 3 product ideas in a couple
  of years
• Diversified founding team increases odds of
  success
• Most mistakes are business-related (not
  technology)
• Failure is part of the process
• A business plan just gets you started

3
Product Startups

• It is cheaper than ever to start a software
  company
• Software-as-a-service is becoming more attractive
• Acquisitions are happening earlier
• IPOs are much more difficult (so acquisitions are
  the primary exit)

4
Service Startups

• Lower risk than product companies, but margins
  are more modest
• Very people-focused attract, develop, retain,
  and deploy
• From Imran Very few service companies can
  justify raising venture money. Not what theyre
  designed for and difficult to create VC-like
  returns.

5
Hybrid Startups

• Usually start as a service or product company and
  become a hybrid over time
• Service companies often strive to become a hybrid
  (or product) company (e.g., FogCreek, 37Signals)
• Product companies are often forced to become a
  hybrid company (Cisco, Oracle, etc.)
• Don't let one cannibalize the other

6
People

• The team is the most important aspect of a
  startup
• Critical to have clarity around roles,
  responsibilities and terms
• Equity allocation among founders is often
  challenging equally dividing stock is rarely
  the right choice
• Strive for diversity and ensure complementary
  skills
• Early employees are crucial to success

7
Development Strategies

• Avoid sequential waterfall schedules
• Agile and XP practices are well suited for a
  fast-paced small startup
• Evolve requirements incrementally
• Choose platforms and languages suitable to the
  business
• Synchronize-and-Stabilize!

8
Marketing and Sales

• Startups often fail by not having good sales and
  marketing vision and people
• Advertise the brand, not the technology but have
  features that back up the brand
• Get customers to try the product, however you can
• Get customers onto the upgrade (maintenance)
  cycle Provides recurring revenues, and lessens
  probability that customers will switch
• Do what is necessary to get customers to refer
  other customers this dramatically lowers
  customer acquisition cost.

9
Outsourcing

• Good for creating initial prototypes or farming
  out work of non-critical tasks
• Not so good for small startups that need to
  innovate quickly, grow, and create a tight-nit
  culture
• Outsourcing isn't a panacea - still requires
  close supervision
• Many startups make the mistake of not recognizing
  the real cost of the outsourcing path (fail to
  factor in risk and co-ordination costs).

10
Open Source

• Using OSS products internally makes a lot of
  sense
• Jury is still out on releasing commercial
  products as open source
• More opportunities for OSS services companies

11
NetNumina Lessons

• Differentiation in services is key
• Domain, technology, business process
• Quality is extremely important but needs to be
  tangible
• Client references
• The right balance is important
• Between new and existing clients
• Between needs of clients and employees
• Between selling and delivering
• Between experienced and high-potential managers
• Hiring Retention is the single most critical
  function
• Intelligence, attitude, communication, and
  willingness to travel
• Invest in star employees
• Timing and luck play a part in every start-up

12
Q/A