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Entrepreneurship in the Software Business. Robbie Allen and Dharmesh Shah December 9, 2005. 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.

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entrepreneurship in the software business

Entrepreneurship in the Software Business

Robbie Allen and Dharmesh Shah

December 9, 2005

general rules of thumb
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
product startups
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)
service startups
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 they’re designed for and difficult to create VC-like returns.
hybrid startups
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
  • 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
development strategies
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!
marketing and sales
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.
  • 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).
open source
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
netnumina lessons
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